<PAGE>
As filed with the Securities and Exchange Commission on June 20, 1996.
Registration No. 33-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933
VALLICORP HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 6022 77-0229483
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
8405 NORTH FRESNO STREET
FRESNO, CALIFORNIA 93720
(209) 437-5700
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
J. MIKE MCGOWAN
CHAIRMAN OF THE BOARD/CHIEF EXECUTIVE OFFICER
VALLICORP HOLDINGS, INC.
8405 NORTH FRESNO STREET
FRESNO, CALIFORNIA 93720
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
COPIES TO:
E.L. HERBERT, ESQ. GARY STEVEN FINDLEY, ESQ.
EXECUTIVE VICE PRESIDENT/GENERAL COUNSEL GARY STEVEN FINDLEY & ASSOCIATES
VALLICORP HOLDINGS, INC. 1470 NORTH HUNDLEY STREET
8405 NORTH FRESNO STREET ANAHEIM, CALIFORNIA 92806
FRESNO, CALIFORNIA 93720 (714) 630-7136
(209) 437-5705
Approximate date of commencement of the proposed sale to the public: As
soon as practicable after the effective date of the 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: [_]
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CALCULATION OF REGISTRATION FEE
====================================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICES AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED(1) REGISTERED(2) PER SHARE OFFERING PRICE REGISTRATION FEE(3)
<S> <C> <C> <C> <C>
Common Stock, par value one cent
($.01) per share...... 926,768 Not applicable Not applicable $2,670.39
====================================================================================================================================
</TABLE>
(1) This Registration Statement relates to shares of Common Stock, par value
one cent ($.01), of the Registrant issuable to holders of common stock, no
par value ("Auburn Common Stock"), of Auburn Bancorp, a California
corporation ("Auburn"), in the proposed merger (the "Merger") of Auburn
into Registrant.
(2) Based upon the maximum number of shares of Registrant's Common Stock
required to be issued under the agreement providing for the Merger. This
Registration Statement also includes any additional shares of Registrant's
Common Stock which may be issued to prevent dilution resulting from stock
splits, stock dividends or similar transactions.
(3) Pursuant to Rule 457(f)(2), the registration fee was computed on the basis
of the book value of Auburn Common Stock at March 31, 1996 ($7,744,141).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
VALLICORP HOLDINGS, INC.
CROSS-REFERENCE SHEET PURSUANT TO ITEM 501(B) OF REGULATION S-K
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<CAPTION>
Location or Caption in
Proxy Statement-Prospectus
Item of Form S-4 --------------------------
- ----------------
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A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Facing Page of Registration
Statement and Outside Front Statement; This Cross Reference
Cover Page of Prospectus Sheet; Cover Page of Proxy
Statement-Prospectus
2. Inside Front and Outside Back Inside Front Cover Pages of the
Cover Pages of Prospectus Prospectus; TABLE OF CONTENTS
3. Risk Factors, Ratio of SUMMARY; RISK FACTORS; THE
Earnings to Fixed Charges and MERGER-Regulatory Approval
Other Information
4. Terms of the Transaction SUMMARY-The Merger; THE MERGER-Terms
of the Merger; -Background of and
Reasons for the Merger;
Recommendation of the Board of
Directors; -Accounting Treatment;
-Certain Federal Income and
California State Tax Consequences;
-Fairness Opinion of the Findley
Group; COMPARISON OF RIGHTS OF
HOLDERS OF VALLICORP COMMON STOCK
AND HOLDERS OF AUBURN COMMON STOCK;
INTRODUCTION on Outside Cover Page
of Proxy Statement-Prospectus
5. Pro Forma Financial SUMMARY; PRO FORMA FINANCIAL
Information INFORMATION
6. Material Contracts with the THE MERGER-Material Contracts
Company Being Acquired Between ValliCorp and Auburn
7. Additional Information Not Applicable
Required for Reoffering by
Persons and Parties Deemed to
be Underwriters
8. Interests of Named Experts and THE MERGER-Fairness Opinion of the
Counsel Findley Group; LEGAL MATTERS
</TABLE>
(i)
<PAGE>
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<S> <C> <C>
9. Disclosure of Commission Not Applicable
Position on Indemnification for
Securities Act Liabilities
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to INFORMATION INCORPORATED BY
S-3 Registrants REFERENCE; SUPPLEMENTAL CONSOLIDATED
FINANCIAL STATEMENTS OF VALLICORP
11. Incorporation of Certain INFORMATION INCORPORATED BY
Information by Reference REFERENCE
12. Information with Respect to Not Applicable
S-2 or S-3 Registrants
13. Incorporation of Certain Not Applicable
Information by Reference
14. Information with Respect to Not Applicable
Registrants other than S-2 or
S-3 Registrants
C. INFORMATION ABOUT THE COMPANY
BEING ACQUIRED
15. Information with Respect to Not Applicable
S-3 Companies
16. Information with Respect to Front cover page of Proxy
S-2 or S-3 Companies Statement-Prospectus (INTRODUCTION);
LOCATION OF AUBURN FINANCIAL
INFORMATION IN THE ACCOMPANYING
ANNUAL REPORT ON FORM 10-K FOR THE
FISCAL YEAR ENDED DECEMBER 31, 1995;
LOCATION OF AUBURN FINANCIAL
INFORMATION IN THE ACCOMPANYING
QUARTERLY REPORT FOR THE QUARTER
ENDED MARCH 31, 1996; INFORMATION
INCORPORATED BY REFERENCE
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
17. Information with Respect to Not Applicable
Companies Other than S-2 or S-3
Companies
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, THE ANNUAL MEETING; Cover Pages to
Consents or Authorizations are Proxy Statement-Prospectus
to be Solicited (INTRODUCTION); SHAREHOLDER
PROPOSALS; THE MERGER-Management and
Operations of ValliCorp After the
Merger; -Indemnification; ELECTION
OF DIRECTORS
19. Information if Proxies, Not Applicable
Consents or Authorizations are
not to be Solicited or in an
Exchange Offer
</TABLE>
(iii)
<PAGE>
[Auburn Letterhead]
_________, 1996
Dear Shareholder:
You are cordially invited to attend an Annual Meeting of the Shareholders
of Auburn Bancorp ("Auburn") to be held at 500 Wall Street, Auburn, California,
at 7:30 p.m., local time, on ____________, 1996 (the "Annual Meeting").
At the Annual Meeting, Auburn shareholders will be asked to consider and
vote upon a proposal to adopt and approve an Agreement and Plan of
Reorganization dated as of March 27, 1996 (the "Merger Agreement"), between
ValliCorp Holdings, Inc. ("ValliCorp") and Auburn, and the transactions
contemplated thereby, including the merger of Auburn with and into ValliCorp
(the "Merger"), as more fully described in the accompanying Proxy Statement--
Prospectus (the "Proxy Statement"). A copy of the Merger Agreement is attached
to the Proxy Statement as Appendix A. Shortly after the Merger, it is
anticipated that The Bank of Commerce, N.A., the wholly-owned subsidiary of
Auburn, will be merged with and into ValliWide Bank, a wholly-owned subsidiary
of ValliCorp.
As a result of the Merger, each share of Auburn common stock, no par value
("Auburn Common Stock"), outstanding at the effective time of the Merger (other
than shares with respect to which dissenters' rights are perfected) will be
converted into 0.8209 shares of ValliCorp common stock, $.01 par value per share
("ValliCorp Common Stock"), subject to certain potential downward adjustments
described in the Merger Agreement and the accompanying Proxy Statement. No
fractional shares of ValliCorp Common Stock will be issued to holders of shares
of Auburn Common Stock, and, in lieu thereof, cash will be paid to Auburn
shareholders in accordance with the Merger Agreement.
Auburn's Board of Directors has determined that the Merger is in the best
interests of Auburn and its shareholders. The Board of Directors has received
the favorable opinion of The Findley Group, as to the fairness from a financial
point of view to Auburn shareholders of the consideration to be paid in the
Merger. ACCORDINGLY, THE BOARD UNANIMOUSLY APPROVED THE MERGER AND RELATED
TRANSACTIONS AND RECOMMENDS THAT YOU VOTE IN FAVOR OF THE MERGER AT THE ANNUAL
MEETING.
The shareholders will also be asked to elect nine (9) directors - John G.
Briner, Paul Brocker, D. Dwight Odom, M.D., Thomas E. Propp, Donald L. Robinson,
Harry E. Sands, Virgil R. Traynor, D.V.M., Gary N. Weeks, and H. Ray Yamasaki -
and to ratify the appointment of Perry-Smith & Co. as Auburn's independent
accountants for the fiscal year ending December 31, 1996.
(iv)
<PAGE>
The accompanying Notice of Annual Meeting and Proxy Statement describe the
matters to be acted upon at the Annual Meeting and set forth the voting rights
of the Auburn shareholders with respect to these matters. Shareholders are urged
to review carefully the attached Proxy Statement, including the appendices
thereto. Such documents include a detailed description of the Merger, its terms
and conditions and the transactions contemplated thereby.
Your continuing interest in the business of Auburn is appreciated, and we
hope you will attend the Annual Meeting in person. It is important that your
shares be represented at the Annual Meeting. Accordingly, whether or not you
plan to attend the Annual Meeting, please sign, date and return the enclosed
Proxy promptly in the postage-paid envelope that has been provided to you for
your convenience.
Sincerely,
D. Dwight Odom, M.D.
Chairman of the Board of Directors
(v)
<PAGE>
[Auburn Letterhead]
AUBURN BANCORP, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON ____________, 1996
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Auburn
Bancorp, Inc. ("Auburn") will be held at 500 Wall Street, Auburn, California, on
____________, 1996 at 7:30 p.m., local time (the "Annual Meeting"), for the
following purposes, as more fully described in the accompanying Proxy Statement.
1. To consider and vote upon a proposal to adopt and approve the
Agreement and Plan of Reorganization dated as of March 27, 1996 (the "Merger
Agreement"), between ValliCorp Holdings, Inc. ("ValliCorp") and Auburn, and the
transactions contemplated thereby, including the merger of Auburn with and into
ValliCorp (the "Merger"). The Merger Agreement is set forth as Appendix A to the
accompanying Proxy Statement.
2. To elect nine (9) directors. The Board of Directors nominees are John
G. Briner, Paul Brocker, D. Dwight Odom, M.D., Thomas E. Propp, Donald L.
Robinson, Harry E. Sands, Virgil R. Traynor, D.V.M., Gary N. Weeks, and H. Ray
Yamasaki. The Bylaws of Auburn (which is referred to as the "Company" therein)
provide for the nomination of directors in the following manner:
"Section 13. Nomination Procedures. Nominations for election of
---------- ---------------------
Board of Directors may be made by the Board of Directors or by any
holder of any outstanding class of capital stock of the Company
entitled to vote for the election of directors. Notice of intention to
make any nominations (other than for persons named in the notice of
any meeting called for the election of directors) are required to be
made in writing and to be delivered or mailed to the president of the
Company by the later of: (i) the close of business 21 days prior to
any meeting of stockholders called for the election of directors, or
(ii) 10 days after the date of mailing of notice of the meeting to
stockholders. Such notification must contain the following information
to the extent known to the notifying stockholder: (a) the name and
address of each proposed nominee; (b) the principal occupation of each
proposed nominee; (c) the number of shares of capital stock of the
Company owned by each proposed nominee; (d) the name and residence
address of the notifying stockholder; (e) the number of shares of
capital stock of the Company owned by the notifying stockholder; (f)
the number of shares of capital stock of any bank, bank
(vi)
<PAGE>
holding company, savings and loan association or other depository
institution owned beneficially by the nominees or by the notifying
stockholder and the identities and locations of any such institutions;
and, (g) whether the proposed nominee has ever been convicted of or
pleaded nolo contendere to any criminal offense involving dishonesty
or breach of trust, filed a petition in bankruptcy or been adjudged
bankrupt. The notification shall be signed by the nominating
stockholder and by each nominee, and shall be accompanied by a written
consent to be named as a nominee for election as a director from each
proposed nominee. Nominations not made in accordance with these
procedures shall be disregarded by the chairman of the meeting, and
upon his instructions, the inspectors of election shall disregard all
votes cast for each such nominee. The foregoing requirements do not
apply to the nomination of a person to replace a proposed nominee who
has become unable to serve as a director between the last day for
giving notice in accordance with this paragraph and the date of
election of directors, if the procedure called for in this paragraph
was followed with respect to the nomination of the proposed nominee."
3. To ratify the appointment of Perry-Smith & Co. as Auburn's independent
public accountants for the fiscal year ending December 31, 1996.
No additional business will be transacted at the Annual Meeting other than
matters incidental to the conduct of the Annual Meeting.
THE BOARD OF DIRECTORS OF AUBURN UNANIMOUSLY RECOMMENDS
THAT YOU VOTE FOR APPROVAL AND ADOPTION OF THE MERGER
---
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY,
INCLUDING THE MERGER; FOR THE ELECTION OF DIRECTORS
---
NOMINATED BY THE BOARD OF DIRECTORS; AND FOR
---
RATIFICATION OF THE APPOINTMENT OF PERRY-SMITH & CO. AS
AUBURN'S INDEPENDENT PUBLIC ACCOUNTANTS.
The Auburn Board of Directors has fixed the close of business on ________,
1996, as the record date for the Annual Meeting. Only Auburn shareholders of
record at the close of business on such date are entitled to notice of and to
vote at the Annual Meeting.
If the Merger is consummated, holders of Auburn Common Stock who comply
with the requirements of Chapter 13 of the California General Corporation Law
("Chapter 13") may have the right to receive from ValliCorp a cash payment of
the fair value of their shares determined in accordance with Chapter 13. See
"THE ANNUAL MEETING-Dissenters' Rights of Appraisal" in the attached Proxy
Statement for a discussion of the availability of dissenters' rights and a
description of the procedures which must be followed to perfect such rights
under Chapter 13, a copy of which is
(vii)
<PAGE>
included as Appendix C hereto and incorporated herein by this reference.
Your vote is important regardless of the number of shares you own. Each
shareholder, even though he or she may not plan to attend the Annual Meeting in
person, is requested to sign, date and return the enclosed Proxy without delay
in the enclosed postage-paid envelope. You may revoke your Proxy at any time
prior to its exercise. Any shareholder present in person at the Annual Meeting
or at any adjournments or postponements thereof may revoke his or her Proxy and
vote personally on each matter brought before the Annual Meeting. Unless
otherwise instructed, each valid Proxy returned that is not revoked will be
voted FOR approval and adoption of the Merger Agreement and the transactions
contemplated thereby, including the Merger, FOR the election of the directors as
specified on the Proxy card, FOR ratification of Perry-Smith & Co. as Auburn's
independent public accountants, and at the proxyholder's discretion, upon
management's directions, on such other matters, if any, that may come before the
Annual Meeting (including any proposal to adjourn the Annual Meeting).
By Order of the Board of Directors,
________________________________________
Harry E. Sands
Secretary
__________, 1996
Auburn, California
PLEASE DATE AND SIGN THE ENCLOSED PROXY AND
RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
(viii)
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 20, 1996
PROXY STATEMENT OF AUBURN BANCORP, INC.
540 WALL STREET
AUBURN, CALIFORNIA 95603
AND
PROSPECTUS OF VALLICORP HOLDINGS, INC.
8405 NORTH FRESNO STREET
FRESNO, CALIFORNIA 93720
926,768 SHARES OF COMMON STOCK
INTRODUCTION
------------
This Proxy Statement-Prospectus ("Proxy Statement") is being furnished to
the shareholders of Auburn Bancorp, Inc. ("Auburn") in connection with the
solicitation of Proxies by the Board of Directors of Auburn for use at the
Annual Meeting of Auburn shareholders to be held at 500 Wall Street, Auburn,
California, at 7:30 p.m., local time, on ____________, 1996 (the "Annual
Meeting"), and any postponements or adjournments of such Annual Meeting. The
Annual Meeting has been called to consider and vote upon a proposal to approve
and adopt the Agreement and Plan of Reorganization dated as of March 27, 1996
between ValliCorp Holdings, Inc. ("ValliCorp") and Auburn (the "Merger
Agreement"), which provides for the merger of Auburn with and into ValliCorp,
with ValliCorp as the surviving corporation (the "Merger"). A copy of the
Merger Agreement is attached to this Proxy Statement as Appendix A and is
incorporated herein by reference. Shortly after the Merger, it is anticipated
that The Bank of Commerce, N.A., the wholly-owned subsidiary of Auburn ("TBOC"),
will be merged with and into ValliWide Bank, a wholly-owned subsidiary of
ValliCorp ("ValliWide").
Pursuant to the Merger Agreement at the effective time of the Merger (the
"Effective Time"), each outstanding share of common stock, no par value, of
Auburn ("Auburn Common Stock"), exclusive of shares held by holders of Auburn
Common Stock who perfect dissenters' rights, will be converted into 0.8209
shares of Common Stock, par value one cent ($.01) per share, of ValliCorp
("ValliCorp Common Stock"), subject to downward adjustment if the number of
shares of ValliCorp Common Stock to be issued in the Merger (or which will be
issuable upon exercise of certain stock options) otherwise would exceed 926,768
shares (the "Conversion Ratio").
Application of the Conversion Ratio for shares of Auburn Common Stock will
not result in the issuance of any fractional shares of ValliCorp Common Stock to
Auburn shareholders in the Merger. Cash will be paid for fractional shares of
ValliCorp Common Stock which shareholders of Auburn otherwise would be entitled
to receive. For a more complete description of the Merger Agreement and the
terms of the Merger, see "THE MERGER," and especially "Terms of the Merger"
therein.
If the Merger is consummated, holders of Auburn Common Stock who comply
with the requirements of Chapter 13 of the California General Corporation Law
("Chapter 13") may have the right to receive from ValliCorp a cash payment of
the fair value of their shares determined in accordance with Chapter 13. See
"THE ANNUAL MEETING-Dissenters' Rights of Appraisal" for a discussion of the
availability of dissenters' rights and a description of the procedures which
must be followed to perfect such rights under Chapter 13, a copy of which is
included as Appendix C hereto and incorporated herein by this reference.
The Annual Meeting has also been called to elect nine (9) members to the
Board of Directors of Auburn and to ratify appointment by the Board of Directors
of Perry-Smith & Co. as Auburn's independent public accountants for the fiscal
year ending December 31, 1996. See "ELECTION OF DIRECTORS" and "RATIFICATION OF
INDEPENDENT PUBLIC ACCOUNTANTS."
This Proxy Statement, the attached letter to the shareholders of Auburn,
the attached Notice of the Annual Meeting, the enclosed form of Proxy, the
accompanying Annual Report of Auburn on Form 10-K for its fiscal year ended
December 31, 1995, and the accompanying Quarterly Report of Auburn on Form 10-Q
for the quarter ended March 31, 1996 are being mailed to Auburn shareholders on
or about ________________, 1996.
ValliCorp Common Stock is traded in the over-the-counter market under the
symbol "VALY." On March 27, 1996, the last trading day prior to the first
public announcement of the Merger, the closing sale price of ValliCorp Common
Stock on the NASDAQ National Market System was $15.00 per share, and the closing
price on ____________, 1996 was $_____ per share. Auburn Common Stock is traded
over-the-counter, but is not listed on any exchange or quoted on NASDAQ. Based
on information known to management, but which may not be complete, the most
recent sale prices for Auburn Common Stock on March 27, 1996 and
________________, 1996 were $7.75 and $_____ per share, respectively. For
additional information about recent stock prices for ValliCorp Common Stock and
Auburn Common Stock, see "SUMMARY-Price Range of and Dividends on ValliCorp and
Auburn Common Stock."
ValliCorp has filed a Registration Statement on Form S-4 (the "Registration
Statement") with the Securities and Exchange Commission pursuant to the
Securities Act of 1933, as amended (the "Securities Act"), with respect to
926,768 shares of ValliCorp Common Stock, which is the maximum number of shares
of ValliCorp Common Stock the Merger Agreement requires ValliCorp to issue
(which includes shares issuable pursuant to the exercise of certain stock
options). This Proxy Statement also constitutes the Prospectus of ValliCorp
filed as part of the Registration Statement. All information concerning
ValliCorp included in this Proxy Statement has been furnished by ValliCorp, and
all information concerning Auburn has been furnished by Auburn. Neither
ValliCorp nor Auburn warrants the accuracy or completeness of information
relating to the other party.
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.
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS PROXY STATEMENT. THE
PROPOSED MERGER IS A COMPLEX TRANSACTION. SHAREHOLDERS ARE STRONGLY URGED TO
READ AND CONSIDER CAREFULLY THIS PROXY STATEMENT IN ITS ENTIRETY, PARTICULARLY
THE MATTERS REFERRED TO UNDER "RISK FACTORS" APPEARING ON PAGE _________ HEREOF.
THE SECURITIES TO BE ISSUED IN THE MERGER 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. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFFENSE.
The date of this Proxy Statement is ____________, 1996.
<PAGE>
AVAILABLE INFORMATION
---------------------
ValliCorp and Auburn are subject to the informational reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith file proxy statements, reports and other
information with the Securities and Exchange Commission (the "Commission").
This filed material can be inspected and copied at Room 1024 of the Commission,
450 Fifth Street, N.W., Washington, D.C., 20549, and at the following Regional
Offices of the Commission:
Chicago Regional Office New York Regional Office
Citicorp Center 7 World Trade Center
500 West Madison Street 13th Floor
Suite 400 New York, New York 10048
Chicago, Illinois 60661
Copies of such material also can be obtained by mail at prescribed rates
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C., 20549. This Proxy Statement does not contain all the
information set forth in the Registration Statement and exhibits thereto which
ValliCorp has filed with the Commission under the Securities Act and to which
reference is hereby made. Copies of the Registration Statement and exhibits are
available from the Commission, upon payment of prescribed rates. For further
information, reference is made to the Registration Statement and the exhibits
filed therewith. Statements contained in this Proxy Statement or in any
document incorporated by reference in this Proxy Statement relating to the
contents of any contract or other document referred to herein or therein are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement or
such other document, each such statement being qualified in all respects by such
reference.
INFORMATION INCORPORATED BY REFERENCE
-------------------------------------
The following documents previously filed by ValliCorp with the Commission
pursuant to the Exchange Act are hereby incorporated by reference in this Proxy
Statement:
1. Annual Report on Form 10-K for the year ended December 31, 1995 (which
includes portions of the 1995 Annual Report to Shareholders);
2. Quarterly Report on Form 10-Q for the quarter ended March 31, 1996;
3. Current Reports on Forms 8-K bearing Dates of Report of February 2,
March 22, and March 27, 1996, and an Amendment No. 1 on
-2-
<PAGE>
Form 8-K/A to the Form 8-K bearing a Date of Report of February 2, 1996; and
4. Description of ValliCorp Common Stock contained in ValliCorp's
registration statements filed pursuant to Section 12 of the Exchange Act, and
any amendment or report filed for the purpose of updating such description.
The following documents previously filed by Auburn with the Commission
pursuant to the Exchange Act are hereby incorporated by reference in this Proxy
Statement:
1. Annual Report on Form 10-K for the year ended December 31, 1995; and
2. Quarterly Report on Form 10-Q for the quarter ended March 31, 1996.
All reports and documents filed by ValliCorp and Auburn pursuant to
Sections 13(a), 13(c), 14, or 15(d) of the Exchange Act subsequent to the date
of this Proxy Statement and prior to the Annual Meeting shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of filing
of those documents. Any statement contained in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Proxy Statement to the extent that a statement
contained herein, or in any other subsequently filed document that also is or is
deemed to be incorporated by reference herein, modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of the Proxy
Statement.
THIS PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF THESE DOCUMENTS, EXCEPT
EXHIBITS THERETO, UNLESS SPECIFICALLY INCORPORATED HEREIN BY REFERENCE, MAY BE
OBTAINED WITHOUT CHARGE UPON WRITTEN OR ORAL REQUESTS. REQUESTS FOR VALLICORP
DOCUMENTS SHOULD BE DIRECTED TO E.L. HERBERT, SECRETARY, VALLICORP HOLDINGS,
INC., 8405 NORTH FRESNO STREET, FRESNO, CALIFORNIA 93720 (TELEPHONE: (209) 437-
5700). REQUESTS FOR AUBURN DOCUMENTS SHOULD BE DIRECTED TO PAMELA BRINER,
EXECUTIVE OFFICER AND CASHIER, AUBURN BANCORP, POST OFFICE BOX 5770, AUBURN,
CALIFORNIA 95604 (TELEPHONE: (916) 888-8405). IN ORDER TO ENSURE TIMELY
DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY ____________, 1996.
-3-
<PAGE>
TABLE OF CONTENTS
-----------------
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Page
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INTRODUCTION..................................................................... -1-
AVAILABLE INFORMATION............................................................ -2-
INFORMATION INCORPORATED BY REFERENCE............................................ -2-
SUMMARY.......................................................................... -8-
The Parties................................................................. -8-
The Merger.................................................................. -9-
Election of Auburn Directors................................................ -18-
Ratification of Independent Public Accountants.............................. -18-
The Annual Meeting and Votes Required....................................... -18-
Selected Historical and Unaudited Pro Forma Combined
Financial Information.................................................. -19-
Comparative Per Share Data (Unaudited)...................................... -24-
Price Range of and Dividends on ValliCorp and Auburn
Common Stock........................................................... -25-
RISK FACTORS..................................................................... -29-
Ability to Realize Cost Savings............................................. -29-
Real Estate Lending Activities; Nonperforming Assets........................ -30-
Shares Eligible for Future Sale; Dilution................................... -30-
Legislative and Regulatory Environment...................................... -31-
THE ANNUAL MEETING............................................................... -32-
General..................................................................... -32-
Date, Place and Time........................................................ -32-
Record Date and Voting Rights............................................... -32-
Adjournments................................................................ -34-
Dissenters' Rights of Appraisal............................................. -35-
Solicitation of Proxies..................................................... -37-
Agreement with Certain Shareholders......................................... -37-
Voting Securities and Principal Holders..................................... -38-
THE MERGER....................................................................... -39-
Background of and Reasons for the Merger; Recommendation
of the Board of Directors.............................................. -40-
Fairness Opinion of the Findley Group....................................... -42-
Terms of the Merger......................................................... -46-
Investment Agreement........................................................ -51-
Conditions to the Merger.................................................... -52-
Regulatory Approval......................................................... -53-
Business of Auburn Pending the Merger....................................... -54-
Termination................................................................. -54-
Waiver and Amendment........................................................ -55-
Management and Operations of ValliCorp After the Merger..................... -55-
Interests of Certain Persons in the Merger.................................. -58-
No Solicitation of Transactions............................................. -60-
</TABLE>
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<TABLE>
<S> <C>
Certain Federal Income and California State Tax Consequences................ -61-
Accounting Treatment........................................................ -63-
Indemnification............................................................. -63-
Material Contracts Between ValliCorp and Auburn............................. -64-
Resale of ValliCorp Common Stock............................................ -64-
Repurchases of ValliCorp Common Stock....................................... -64-
Expenses.................................................................... -65-
PRO FORMA FINANCIAL INFORMATION.................................................. -66-
HISTORICAL AND PRO FORMA COMBINED CAPITAL INFORMATION............................ -75-
DESCRIPTION OF VALLICORP CAPITAL STOCK AND INDEBTEDNESS.......................... -76-
ValliCorp Capital Stock..................................................... -76-
ValliCorp Common Stock...................................................... -77-
ValliCorp Dividend Reinvestment and Stock Purchase Plan..................... -78-
ValliCorp Series A Preferred Stock Purchase Rights.......................... -78-
ValliCorp Convertible Debentures............................................ -82-
DESCRIPTION OF AUBURN CAPITAL STOCK.............................................. -83-
COMPARISON OF RIGHTS OF HOLDERS OF VALLICORP COMMON STOCK AND
HOLDERS OF AUBURN COMMON STOCK.............................................. -84-
General..................................................................... -84-
Series A Preferred Stock Purchase Rights Accompanying
ValliCorp Common Stock................................................. -84-
Cumulative Voting........................................................... -85-
Classified Board of Directors............................................... -85-
Change in Number of Directors............................................... -86-
Removal of Directors........................................................ -86-
Filling Vacancies on the Board of Directors................................. -86-
Amendment of Certificate.................................................... -87-
Amendment of the Bylaws..................................................... -88-
Advance Notice of Stockholder Proposals and Director Nominations............ -88-
Limitation on Action by Stockholders-Call of Annual Meeting of Stockholder
and Action by Stockholders Without a Meeting........................... -89-
Elimination of Directors' Monetary Liability for Breach
of Duty of Care........................................................ -89-
Indemnification of Directors and Executive Officers......................... -91-
Consideration of Factors Other Than Price................................... -93-
Shareholder Vote for Mergers and Other Reorganizations...................... -93-
Dissenters' Rights in Mergers and Other Reorganizations..................... -94-
Inspection of Shareholder Lists............................................. -94-
State Anti-takeover Statute................................................. -95-
Possible Application of Certain California Corporation
Laws to ValliCorp...................................................... -95-
ELECTION OF DIRECTORS............................................................ -96-
</TABLE>
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<TABLE>
<S> <C>
Nominees.................................................................... -96-
The Board of Directors and Committees....................................... -98-
Compensation of Directors................................................... -98-
Executive Officers.......................................................... -98-
Employment Agreements....................................................... -101-
Compliance with Section 16(a) of the Exchange Act........................... -102-
RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS................................... -102-
SHAREHOLDER PROPOSALS............................................................ -103-
EXPERTS.......................................................................... -103-
LEGAL MATTERS.................................................................... -104-
SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS OF VALLICORP...................... -105-
LOCATION OF AUBURN FINANCIAL INFORMATION IN THE ACCOMPANYING ANNUAL REPORT ON
FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995....................... -106-
LOCATION OF AUBURN FINANCIAL INFORMATION IN THE ACCOMPANYING QUARTERLY REPORT
ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1996........................... -106-
</TABLE>
Appendices
- ----------
A Agreement and Plan of Reorganization
B Fairness Opinion of the Findley Group
C Chapter 13 of the California General Corporation Law
NO PERSON IS AUTHORIZED BY VALLICORP OR AUBURN TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROXY STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR
A SOLICITATION OF AN OFFER TO PURCHASE, THE VALLICORP COMMON STOCK OFFERED BY
THIS PROXY STATEMENT, NOR DOES IT CONSTITUTE THE SOLICITATION OF A PROXY, IN ANY
JURISDICTION TO OR FROM ANY PERSON TO WHOM OR FROM WHOM IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROXY STATEMENT NOR
ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF VALLICORP
OR AUBURN SINCE THE DATE HEREOF OR THAT INFORMATION IN THIS PROXY STATEMENT OR
IN THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF OR THE DATES THEREOF.
THIS PROXY STATEMENT CONTAINS CERTAIN FORWARD LOOKING STATEMENTS WITH RESPECT TO
THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND
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BUSINESS OF VALLICORP FOLLOWING THE CONSUMMATION OF THE MERGER, INCLUDING
STATEMENTS RELATING TO THE COST SAVINGS AND ADDITIONAL REVENUES THAT MAY BE
REALIZED FROM THE MERGER (SEE "THE MERGER-BACKGROUND OF AND REASONS FOR THE
MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS," "-MANAGEMENT AND OPERATIONS
OF VALLICORP AFTER THE MERGER," AND "NOTES TO PRO FORMA COMBINED FINANCIAL
STATEMENTS"). THESE FORWARD LOOKING STATEMENTS INVOLVE CERTAIN RISKS AND
UNCERTAINTIES. FACTORS THAT MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THOSE CONTEMPLATED BY SUCH FORWARD LOOKING STATEMENTS INCLUDE, BUT ARE NOT
LIMITED TO, THE FOLLOWING: (1) EXPECTED COST SAVINGS FROM THE MERGER CANNOT BE
FULLY REALIZED; (2) DEPOSIT ATTRITION, CUSTOMER LOSS OR REVENUE LOSS FOLLOWING
THE MERGER IS GREATER THAN EXPECTED; (3) COMPETITIVE PRESSURE IN THE BANKING
INDUSTRY INCREASES SIGNIFICANTLY; (4) COSTS OR DIFFICULTIES RELATED TO THE
INTEGRATION OF THE BUSINESS OF VALLICORP AND AUBURN ARE GREATER THAN EXPECTED;
(5) CHANGES IN THE INTEREST RATE ENVIRONMENT REDUCE MARGINS; AND (6) GENERAL
ECONOMIC CONDITIONS, EITHER NATIONALLY OR IN CALIFORNIA OR IN THE AREAS OF
CALIFORNIA IN WHICH THE COMBINED COMPANY WILL BE DOING BUSINESS, ARE LESS
FAVORABLE THAN EXPECTED. SEE ALSO "RISK FACTORS."
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<PAGE>
SUMMARY
-------
The following summary is not intended to be complete and is qualified in
all respects by the more detailed information included in this Proxy Statement,
the Appendices hereto, and the documents incorporated herein by reference. As
used in this Proxy Statement, the terms "ValliCorp" and "Auburn" refer to such
corporations, respectively, and where the context requires, such corporations
and their subsidiaries on a consolidated basis. Auburn shareholders are urged
to read carefully the entire Proxy Statement.
THE PARTIES
ValliCorp. ValliCorp, a bank holding company registered under the Bank
Holding Company Act of 1956, as amended (the "1956 Act"), is headquartered in
Fresno, California, and had total assets of approximately $1.3 billion as of
March 31, 1996. ValliCorp was incorporated in the State of Delaware on April
10, 1989, and began operations on December 1, 1989, when Fresno Bancorp and
Western Commercial, Inc. underwent a consolidation through merger into the
newly-formed ValliCorp. ValliCorp has one subsidiary bank, ValliWide Bank
("ValliWide"), a California state banking corporation, whose accounts are
insured by the Federal Deposit Insurance Corporation (the "FDIC") to the maximum
extent permitted by law.
ValliCorp provides retail and commercial banking products from the 54
branches of ValliWide located in the California Counties of Calaveras, Fresno,
Kern, Kings, Madera, Merced, Modesto, Sacramento, San Luis Obispo, Stanislaus,
Tulare, Tuolumne, and Yolo. ValliCorp is seeking to increase its market share
in the communities it currently serves and to expand through acquisitions, as
well as by opening new branches within, its target market in California,
extending from Kern County in the south to Placer County in the north.
ValliCorp anticipates taking advantage of the continuing consolidation of the
banking industry by making future acquisitions within its target market and
continually evaluates other financial institutions within its target market as
acquisition candidates.
ValliCorp's principal executive office is located at 8405 North Fresno
Street, Fresno, California 93720 (Telephone: (209) 437-5700).
Auburn. Auburn was organized and incorporated under the laws of the State
of California on December 31, 1981 and obtained approval of the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board") to be a
bank holding company. Approval was subsequently received from the Office of the
Comptroller of the Currency (the "OCC") on August 10, 1982 to organize Auburn
Bank of Commerce, N.A., as a wholly owned subsidiary of Auburn which opened
for business on February 7, 1983. The name of the bank was subsequently changed
to The Bank of Commerce, N.A. ("TBOC") on July
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<PAGE>
29, 1988. At March 31, 1996, Auburn had consolidated assets of approximately $76
million, consolidated liabilities of approximately $68 million, and
shareholders' equity of approximately $7.7 million.
TBOC currently operates out of its main office at 540 Wall Street, Auburn,
California 95603, with branch offices at 10375 Brunswick Road, Grass Valley,
California 95945 and 2893 Sunrise Boulevard, Suite 106, Rancho Cordova,
California 95741. In addition, a loan production office is maintained at 1601
Response Road, Sacramento, California 95815.
TBOC offers a wide range of general commercial banking services. These
include personal and business checking accounts and savings accounts, including
money market accounts, "NOW" accounts, and time certificates of deposit. TBOC
also offers night depository and bank-by-mail services. TBOC sells travelers'
checks, cashier's checks, and money orders, all of which are issued by an
independent entity. In addition, it provides note and collection services. On
the lending side, TBOC engages in a full complement of lending activities,
including commercial, consumer/installment and real estate loans, with
particular emphasis on short and medium-term loans. TBOC's long-term mortgage
real estate loans are generally sold without recourse to institutional investors
in the secondary market. TBOC is one of the largest generators of Small
Business Administration ("SBA") loans in northern California and has been
designated by the SBA as a Preferred Lender.
At March 31, 1996, Auburn had approximately 61 full-time-equivalent
employees.
Auburn's principal executive office is located at 540 Wall Street, Auburn,
California, 95603 (Telephone: (916) 888-8405).
THE MERGER
Terms of the Merger. The Merger Agreement provides for the Merger of
Auburn with and into ValliCorp, with ValliCorp as the surviving corporation.
ValliCorp will succeed to the business of Auburn and will continue operations
under the name ValliCorp. Upon the Merger becoming effective, each outstanding
share of common stock, no par value, of Auburn ("Auburn Common Stock"),
exclusive of shares whose holders effectively perfect and who do not withdraw
their dissenters' rights, will be converted into 0.8209 shares of Common Stock,
par value one cent ($.01) per share, of ValliCorp ("ValliCorp Common Stock"),
subject to downward adjustment if the number of shares of ValliCorp Common Stock
to be issued (or which is issuable) in the Merger otherwise would exceed 926,768
shares (the "Conversion Ratio"). Under the Merger Agreement the closing date
("Closing Date") is expected to occur on or before the tenth business day
following the later to occur of (a) approval of the
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<PAGE>
Merger by the Federal Reserve Board and the expiration of any waiting period, or
(b) the date of the Annual Meeting, unless the closing does not then take place
because a condition to the obligations of one party has not been met on that
date, in which case the other party may postpone the closing from time to time
(but not more than twice without the other party's prior written consent) to any
designated business day not more than ten days after the original or postponed
date for closing.
The maximum number of shares of ValliCorp Common Stock issuable in the
Merger (926,768) is equal to 0.8209 times the total of (a) the number of shares
of Auburn Common Stock outstanding at the date of the Merger Agreement
(1,004,955) plus (b) the number of shares of Auburn Common Stock available upon
the exercise of stock options ("Auburn Stock Options") under the Auburn Bancorp
1994 Stock Option Plan and the Auburn Bancorp 1982 Incentive and Non-Qualified
Stock Option Plans (each an "Auburn Option Plan" and collectively the "Auburn
Option Plans") (124,011). The Merger Agreement prohibits the granting of
additional options to purchase Auburn Common Stock and prohibits the issuance of
additional shares of Auburn Common Stock, other than pursuant to exercises of
the existing Auburn Stock Options for 124,011 shares. A downward adjustment to
the Conversion Ratio would only occur in the unlikely event that Auburn's
representations contained in the Merger Agreement as to the number of shares of
Auburn Common Stock outstanding or as to the number of shares of Auburn Common
Stock available upon exercise of Auburn Stock Options should prove incorrect.
By way of examples, nonetheless, if the number of shares of Auburn Common Stock
outstanding and available upon exercise of Auburn Stock Options immediately
prior to the Effective Time of the Merger exceeded 1,128,966 (the total of
1,004,955 plus 124,011) by 5,000 shares or by 25,000 shares, the Conversion
Ratio would adjust downward to 0.8173 or 0.8031, respectively.
Application of the Conversion Ratio for shares of Auburn Common Stock will
not result in the issuance of any fractional shares of ValliCorp Common Stock to
Auburn shareholders in the Merger. Cash will be paid for fractional shares of
ValliCorp Common Stock which shareholders of Auburn otherwise would be entitled
to receive.
See "THE MERGER-Terms of the Merger."
Although not a condition to the Merger, ValliCorp and Auburn have agreed to
use their reasonable efforts to cause Auburn's bank subsidiary, TBOC, to be
merged into ValliWide substantially concurrently with, or as soon as practicable
after, the Merger of Auburn into ValliCorp. See "THE MERGER-Management and
Operations of ValliCorp After the Merger-Merger of TBOC into ValliWide."
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<PAGE>
Reasons for the Merger and Recommendation of the Auburn Board of Directors.
BACKGROUND. After receipt of financial information about Auburn, the
Chairman of the Board and the President and Chief Executive Officer of ValliCorp
met with the President and Chief Executive Officer of Auburn in July 1995 and
concluded that further discussions and analyses relating to a possible merger
should be pursued. After various discussions, negotiations, due diligence
examinations, and meetings of the Boards of Directors of the two companies,
ValliCorp and Auburn entered into the Merger Agreement on March 27, 1996.
VALLICORP REASONS. The Board of Directors of ValliCorp has approved
the Merger. It believes that the Merger offers ValliCorp the ability to compete
more effectively in its target market area and the potential for achieving
earnings growth and cost savings. ValliCorp expects to achieve annual cost
savings aggregating $1.1 million as a result of the Merger. While such savings
are expected to be achieved through reductions in personnel, and related benefit
costs, and consolidation and elimination of back office operations, including
administration, data processing and centralized support functions, there can be
no assurance that such cost savings will be realized.
AUBURN BACKGROUND AND REASONS FOR THE MERGER AND RECOMMENDATION OF ITS
MANAGEMENT. The Board of Directors of Auburn considered the possibility of a
business combination with ValliCorp during the third quarter of 1995 and after
various discussions and negotiations between representatives of Auburn and
ValliCorp the Merger Agreement was executed. The Board of Directors of Auburn
believes that the Merger is in the best interests of the shareholders of Auburn
and recommends that Auburn shareholders vote FOR approval and adoption of the
Merger Agreement and the transactions contemplated thereby, including the
Merger.
In evaluating the recommendations of Auburn's Board of Directors,
shareholders of Auburn should carefully consider the matters described under
"RISK FACTORS" and "THE MERGER-Background and Reasons for the Merger;
Recommendation of the Board of Directors."
Fairness Opinion of The Findley Group. Auburn's financial advisor, The
Findley Group ("Findley"), has concluded that the Conversion Ratio, as it may be
adjusted pursuant to the Merger Agreement, is fair from a financial point of
view to Auburn's shareholders.
The text of the fairness opinion, which sets forth certain assumptions
made, matters considered and limits on the review undertaken by Findley is
attached to this Proxy Statement as Appendix B. Auburn shareholders are urged to
read the fairness opinion in its entirety. The Merger Agreement does not require
that such fairness opinion be updated prior to the Effective Time. A further
discussion of the fairness opinion of Findley is set
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<PAGE>
forth in the section entitled "THE MERGER-Fairness Opinion of the Findley
Group."
Regulatory Approval Required. The Merger is subject to approval by the
Federal Reserve Board under the 1956 Act. ValliCorp sent its application to the
Federal Reserve Board for approval of the Merger in mid-June 1996. See "THE
MERGER-Regulatory Approval."
Interests of Certain Persons in the Merger. It is anticipated that upon
the consummation of the Merger, Dr. D. Dwight Odom, a current director of
Auburn, will serve as a director of ValliCorp and ValliWide pursuant to the
Merger Agreement.
Severance payments will be made by TBOC in the amount of $365,000 to Mr.
John G. Briner, President and Chief Executive Officer of Auburn, and $125,000 to
Ms. Pam Briner, Executive Officer and Cashier of Auburn. Mr. Briner may also
receive from TBOC the TBOC owned four year old Cadillac that he currently drives
as an additional bonus as a result of the Merger. Mr. Briner and ValliWide
expect Mr. Briner to be employed by ValliWide after consummation of the Merger
in a senior vice president or regional manager capacity. The exact terms of the
employment agreement have yet to be finalized, but compensation to Mr. Briner is
expected to include annual cash compensation (not to exceed Mr. Briner's current
annual base compensation of $120,000) and a performance bonus (not to exceed 50%
of his base salary). In addition, Mr. Briner and ValliWide also intend that Mr.
Briner's employment agreement will generally obligate ValliWide to pay Mr.
Briner one year's salary in the event of termination of his employment other
than for cause at any time during the period of four years from and after the
Effective Time. ValliWide intends to pay Mr. Briner a signing bonus of $60,000
to accept the position. No payment will be made under the existing severance
provision in Mr. Briner's employment agreement with Auburn, which provides:
"In the event of an Acquisition, if Executive is not retained by the
resulting corporation for the remaining period of this Agreement in a
position comparable to that of the highest level vice president of the
resulting corporation or a lower position as may be accepted by
Executive, the resulting corporation shall pay Executive a lump sum
amount in cash equal to the sum of (i) three (3) years of Executive's
base annual salary based on Executive's base annual salary immediately
prior to the Acquisition, (ii) the amount necessary to cover
Executive's federal and California state income taxes on three (3)
years of Executive's base annual salary as computed in subclause (i),
and (iii) the amount necessary to cover any 'golden parachute taxes'
that may be assessed pursuant to Section 280G of the Internal Revenue
Code of 1986, as amended from time to time, on such lump sum payment
to Executive."
Retention and performance bonuses will be paid by TBOC to Mr. Briner and Ms.
Briner in the amounts of $60,000 and $25,000, respectively. Ms. Briner will also
receive from ValliWide a severance payment calculated in the same manner as for
other employees of Auburn not retained as employees of ValliCorp or ValliWide
after the Merger.
At the Record Date, directors and executive officers of Auburn had stock
options under the Auburn Option Plans to acquire up to ________ shares of Auburn
Common Stock. Options granted but not
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<PAGE>
yet vested will become fully vested and exercisable upon the consummation of the
Merger pursuant to the Auburn Option Plans. As of the Record Date, there were
________ shares subject to options held by Auburn directors and executive
officers, the vesting for which would be accelerated by consummation of the
Merger.
ValliCorp has also agreed to provide for a period of four years after the
effective time of the Merger the current policies or similar policies of
directors' and officers' liability insurance maintained by Auburn, provided that
ValliCorp shall not be obligated to make annual premium payments for such
insurance to the extent that such premiums are more than 200% of the existing
premiums.
See "THE MERGER-Interests of Certain Persons in the Merger," and "-
Indemnification."
Agreements with Certain Shareholders. On the same day it entered into the
Merger Agreement, March 27, 1996, ValliCorp entered into a Shareholder Agreement
(the "Shareholder Agreement") with the members of the Board of Directors in
their capacities as shareholders of Auburn. Under the Shareholder Agreement,
the signatories thereto agreed to vote the number of shares of Auburn Common
Stock owned by them in favor of the Merger Agreement and the transactions
contemplated thereby, including the Merger, subject to certain exceptions
related to the Directors' continuing fiduciary duties to the Auburn
shareholders. As of the Record Date, the number of shares covered by the
Shareholder Agreement was ________, which constituted approximately ___% of the
number of outstanding shares of Auburn Common Stock on such date. See "THE
ANNUAL MEETING-Agreement with Certain Shareholders."
Investment Agreement. As required by the Merger Agreement, Auburn entered
into an Investment Agreement (the "Investment Agreement") with ValliCorp
simultaneously with its entry into the Merger Agreement on March 27, 1996.
Pursuant to the Investment Agreement, Auburn granted an option (the "Option") to
ValliCorp to purchase up to 199,986 authorized and unissued shares of Auburn
Common Stock at a price of $10 per share. The Option is exercisable only upon
the occurrence of certain events, none of which has occurred as of the date
hereof. The Investment Agreement is intended to increase the likelihood that the
Merger will be consummated in accordance with the terms set forth in the Merger
Agreement. Consequently, certain aspects of the Investment Agreement may have
the effect of discouraging persons who might now or prior to the Effective Time
be interested in acquiring all of or a significant interest in Auburn from
considering or proposing such an acquisition, even if such persons were prepared
to offer consideration of a greater value than the consideration to be paid by
ValliCorp pursuant to the Merger Agreement. See "THE MERGER-Investment
Agreement."
Conditions to the Merger; Termination. The obligations of ValliCorp and
Auburn to consummate the Merger are subject to various conditions,
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including approval by the affirmative vote of the holders of at least a majority
of the outstanding shares of Auburn Common Stock and Federal Reserve Board
approval without the imposition of any condition not customarily contained in
approvals of similar transactions by the Federal Reserve Board. Other conditions
to the obligations of ValliCorp and Auburn to consummate the Merger include the
receipt by each of a tax opinion from Deloitte & Touche LLP, ValliCorp's
independent public accountant, with respect to the tax free nature of the Merger
as described in "THE MERGER-Certain Federal Income and California State Tax
Consequences." Some of the conditions may be waived by the party to be
benefitted, while those required by law, such as shareholder and regulatory
approvals, are not subject to waiver. See "THE MERGER-Conditions to the Merger"
and "-Regulatory Approval."
Among other bases for termination described under "THE MERGER-Termination,"
including the failure to remedy a material breach by one party after notice by
the other, the Merger Agreement may be terminated any time prior to the
Effective Time by mutual consent of ValliCorp and Auburn; by either party, after
October 31, 1996 and after notice to the other party without cure, if such party
has complied with its conditions to closing but the other has not; or by either
party if the Merger is not consummated prior to December 31, 1996 for a reason
other than the failure of the terminating party to comply with its obligations
under the Merger Agreement. See "THE MERGER-Termination."
Certain Federal Income and California State Tax Consequences. An opinion
has been obtained from Deloitte & Touche LLP limited to certain material federal
income and California state tax consequences of the Merger. Such an opinion is
a condition to consummation of the Merger. Assuming the opinion is not
withdrawn or changed before the Effective Time, certain material federal income
and California state tax consequences of the Merger in the opinion of Deloitte &
Touche LLP include the following:
(a) No gain or loss will be recognized by shareholders of Auburn who
receive solely ValliCorp Common Stock in exchange for their shares of Auburn
Common Stock, other than for any cash received in lieu of any fractional share;
(b) The basis of the shares of ValliCorp Common Stock to be received by the
shareholders of Auburn will be the same as the basis of the Common Stock
surrendered in exchange therefor, less any basis attributable to fractional
shares for which cash is received;
(c) The holding period of the shares of ValliCorp Common Stock to be
received by the shareholders of Auburn will include the holding period of the
Auburn Common Stock surrendered in exchange therefor, provided the stock of
Auburn is held as a capital asset at the Effective Time; and,
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(d) No gain or loss will be recognized by ValliCorp or Auburn by virtue of
the Merger.
Shareholders of Auburn should consult their personal tax advisors as to the
tax consequences of the Merger to them under federal, state, local, or other
applicable law. See "THE MERGER-Certain Federal Income and California State Tax
Consequences."
No Solicitation of Transactions. Under the Merger Agreement, Auburn agrees
that it will not initiate, solicit, or encourage any inquiries or the making of
any proposal which constitutes or may reasonably be expected to lead to a
Competing Transaction (as such term is defined in the Merger Agreement), and
agrees not to negotiate with any person in furtherance of such inquiries, to
obtain a Competing Transaction, or take certain other actions with respect to
Competing Transaction; provided, however, the foregoing is not to prohibit the
Board of Directors of Auburn from taking such actions if, based on the advice of
counsel, it reasonably determines that to act otherwise would be inconsistent
with its continuing fiduciary duties to shareholders. If any of such actions
are taken, however, even though based upon good faith reliance of its Board of
Directors on advice of counsel as to such Board's fiduciary duties, ValliCorp
will then have the right to terminate the Merger Agreement, and Auburn will
either become obligated to pay certain of ValliCorp's expenses in connection
with the Merger, up to a maximum of $500,000, or to pay ValliCorp a Competing
Transaction fee of $1,000,000 if a Competing Transaction is consummated (in lieu
of ValliCorp's expenses described in the preceding clause). Additionally, in
certain circumstances set forth in the Investment Agreement, ValliCorp will
become entitled to exercise the Option granted to it under the Investment
Agreement to purchase certain shares of Auburn Common Stock. If ValliCorp
accepts any tender or exchange offer, proposal for a merger, or similar offer
described in the Merger Agreement (a "ValliCorp Business Combination") with a
third party and such ValliCorp Business Combination is not conditioned upon
performance of the Merger Agreement, Auburn may terminate the Merger Agreement
and ValliCorp will be required to pay to Auburn the sum of $1,000,000. See "THE
MERGER-No Solicitation of Transactions," "-Expenses," and "-Investment
Agreement."
Risk Factors. In deciding whether to approve the Merger, shareholders of
Auburn should carefully evaluate the matters discussed under "RISK FACTORS."
Such evaluations include the risk that the nonperforming assets of the two
companies may increase or, in the case of ValliCorp, may continue at a
relatively high level. Shareholders should also consider the dependence of the
loan portfolios of ValliCorp and Auburn on real estate. Other risks are that
the combined entity will not be able to fully realize the cost savings ValliCorp
currently expects to realize, the risk that such savings will not be realized at
the times currently anticipated, and the risk that costs savings that are
realized may be offset by losses of revenue or other charges to earnings.
Additional risks
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include the effect of possible future acquisitions by ValliCorp on the market
price or value of ValliCorp Common Stock and the possibility of legislative or
regulatory changes affecting the banking industry.
Accounting Treatment. For accounting purposes, the Merger will be treated
by ValliCorp as a purchase. See "THE MERGER-Accounting Treatment."
Dissenters' Rights of Appraisal. Shareholders of Auburn Common Stock who
perfect dissenters' rights with respect to the Merger in accordance with the
statutory procedures prescribed in the California General Corporation Law (the
"California GCL") may be entitled to receive cash for their Auburn Common Stock
if such shareholders did not vote "FOR" the approval and adoption of the Merger
---
Agreement and the transactions contemplated thereby and otherwise act to perfect
their rights as dissenting shareholders pursuant to the California GCL. If a
holder of Auburn Common Stock votes "FOR" the approval and adoption of the
Merger Agreement, including the Merger, and the transactions contemplated
thereby, (including by executing and returning a Proxy to Auburn with no voting
instructions indicated thereon) such holder will lose any dissenters' rights
that may exist with respect to the subject shares. For a description of
dissenters' rights under the California GCL and the method of perfecting such
rights, see "THE ANNUAL MEETING-Dissenters' Rights of Appraisal."
A copy of Chapter 13 of the California GCL setting forth Sections 1300-1312
thereof is attached as Appendix C.
Comparison of Rights of Holders of ValliCorp Common Stock and Auburn Common
Stock. There are certain differences between the charter documents and the laws
governing the rights of ValliCorp shareholders and the charter documents and the
laws governing the rights of Auburn shareholders. Some provisions are allowed
under the Delaware General Corporation Law (the "Delaware GCL") and are included
in the ValliCorp Restated Certificate of Incorporation and/or the ValliCorp
Bylaws but may not be or are not allowed under the California GCL and,
accordingly, are not included in the Auburn charter documents. Certain of these
provisions could be viewed as anti-takeover devices, such as the following: (a)
classification of the board of directors into three classes; (b) directors may
be removed for cause only by the affirmative vote of the holders of at least the
majority of the voting power of all of the then outstanding shares of ValliCorp
entitled to vote generally in the election of directors (the "Voting Stock"),
(c) the size of the board will be fixed by resolution of the majority of the
total number of directors ValliCorp would have if there were no vacancies; (d)
annual meetings of shareholders of ValliCorp may be called pursuant to a
resolution adopted by a majority of the directors then in office, though less
than a quorum; (e) the foregoing provisions, as well as the provision discussed
below
-16-
<PAGE>
prohibiting stockholder action by written consent, may be amended or repealed
and provisions inconsistent therewith may be adopted, only by approval of the
holders of at least 66 2/3% of the voting power of the Voting Stock; (f)
elimination of cumulative voting; and (g) advance notice of business to be
brought before, or of nominations to be made at, a shareholders' meeting by a
shareholder is required. The ValliCorp Restated Certificate also contains (as do
Auburn's Articles of Incorporation) provisions which authorize the board to
establish one or more series of preferred stock and to determine, with respect
to any such series, the terms and rights thereof. In addition, the Delaware GCL
requires that mergers and certain other business combinations with any holder of
more than 15% of the voting power of the Voting Stock (an "Interested
Shareholder") be approved by the holders of 66 2/3% of the voting power of the
Voting Stock which is not owned by the Interested Shareholder.
Such provisions are designed to encourage any person attempting a change in
control to enter into negotiations with the board of directors of ValliCorp.
The provisions of the ValliCorp charter documents that may be viewed as anti-
takeover provisions could, however, make it more difficult and time consuming to
change control of the board of directors and possibly result in the company
being less attractive to a potential acquiror. It is also conceivable that such
provisions may deter efforts to seek control of ValliCorp which some
stockholders might deem favorable or could result in stockholders receiving less
for their shares of ValliCorp Common Stock than otherwise might be available in
the event of a takeover attempt.
ValliCorp entered into a Rights Agreement with First Interstate Bank of
California on March 25, 1996 (the "Rights Agreement"), pursuant to which each
share of ValliCorp Common Stock, including the ValliCorp Common Stock to be
issued in the Merger, entitles its holder to purchase (a "Right") one one-
hundredth of a share of ValliCorp's Series A Junior Participating Preferred
Stock, par value $.01 per share ("Series A Preferred Stock"), under certain
limited circumstances. The Rights have certain anti-takeover effects. The Rights
may cause substantial dilution to a person or group that attempts to acquire
ValliCorp without approval of the ValliCorp Board of Directors. The Board of
Directors may, at its option, redeem the Rights until such time as the Rights
have become nonredeemable. The Rights do not become exercisable by reason of the
proposed Merger of Auburn into ValliCorp.
See "COMPARISON OF RIGHTS OF HOLDERS OF VALLICORP COMMON STOCK AND AUBURN
COMMON STOCK" and "DESCRIPTION OF VALLICORP CAPITAL STOCK AND INDEBTEDNESS-
ValliCorp Series A Preferred Stock Purchase Rights."
-17-
<PAGE>
ELECTION OF AUBURN DIRECTORS
The Annual Meeting has also been called to elect nine directors, each to
hold office until the earlier of (a) Auburn's 1997 Annual Meeting of
Shareholders or until their respective successors are elected and qualified or
(b) consummation of the Merger, assuming the conditions to such consummation are
satisfied. See "ELECTION OF DIRECTORS."
RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
In addition, the Annual Meeting has been called to ratify the appointment
of Perry-Smith & Co. as Auburn's independent public accountants for the fiscal
year ending December 31, 1996. See "RATIFICATION OF INDEPENDENT PUBLIC
ACCOUNTANTS."
THE ANNUAL MEETING AND VOTES REQUIRED
The Annual Meeting (including any adjournments or postponements thereof)
will be held at 500 Wall Street, Auburn, California, on ____________, 1996, at
7:30 p.m., local time. At the Annual Meeting, holders of Auburn Common Stock
will (a) consider and vote upon a proposal to adopt and approve the Merger
Agreement and the transactions contemplated thereby, including the Merger, (b)
elect nine members to the Auburn Board of Directors, and (c) consider and vote
upon a proposal to ratify the selection by the Board of Directors of Perry-Smith
& Co. as Auburn's independent public accountants for the fiscal year ending
December 31, 1996. Only holders of record of Auburn Common Stock at the close
of business on ___________, 1996 (the "Record Date") will be entitled to notice
of, and to vote at, the Annual Meeting. See "THE ANNUAL MEETING."
The approval of the Merger by the Auburn shareholders will constitute
approval and adoption of the Merger Agreement and each of the transactions
contemplated thereby, including the Merger, as more fully described herein. The
affirmative vote of the holders of at least a majority of the outstanding shares
of Auburn Common Stock entitled to vote at the Annual Meeting is required to
adopt and approve the Merger Agreement and the transactions contemplated
thereby, including the Merger. Such approval is a condition to, and required
for, consummation of the Merger. See "THE ANNUAL MEETING" and "THE MERGER-
Conditions to the Merger."
As of the Record Date, there were _________ shares of Auburn Common Stock
outstanding, of which _________ shares (or _____%) were beneficially owned by
directors and executive officers of Auburn and their respective affiliates. The
directors of Auburn have agreed, subject to their continuing fiduciary duties to
the shareholders of Auburn, to vote the shares of Auburn Common Stock held by
them for the approval of the Merger Agreement. To
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<PAGE>
ValliCorp's knowledge, as of the Record Date, directors and executive officers
of ValliCorp did not beneficially own any shares of Auburn Common Stock.
Accordingly, approval of the Merger at the Annual Meeting is expected to require
the affirmative vote of an additional _________ shares of Auburn Common Stock
outstanding on the Record Date voted by the remaining shareholders of Auburn.
Approval of the Merger Agreement and the Merger by ValliCorp's shareholders
is not required.
In the election of directors, every holder of Auburn Common Stock eligible
to vote at the Annual Meeting shall have the right to vote, in person or by
proxy, the number of shares owned by the shareholder for as many persons as
there are directors to be elected, or to cumulate the votes by giving one
candidate as many votes as equal the number of such directors to be elected
multiplied by the number of shares owned by such shareholder or distribute such
votes on the same principal among any number of candidates. The nine candidates
receiving the highest number of votes are elected.
The ratification of appointment of the independent public accountants
requires a majority vote of the shares of Auburn Common Stock represented in
person or by proxy and voting at the Annual Meeting.
An Auburn shareholder giving a Proxy has the power to revoke that Proxy
prior to the Annual Meeting. See "THE ANNUAL MEETING- Record Date and Voting
Rights."
SELECTED HISTORICAL AND UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The first two tables set forth below present selected supplemental
historical financial information for ValliCorp and selected historical financial
information for Auburn for each of the five years in the period ended December
31, 1995 and for the three-month periods ended March 31, 1996 and 1995. Such
information has been derived from and should be read in conjunction with the
supplemental consolidated financial statements of ValliCorp and the consolidated
financial statements of Auburn, including the respective notes thereto, which
are included and incorporated by reference herein. The selected supplemental
historical financial information for ValliCorp includes El Capitan Bancshares,
Inc. and CoBank Financial Corporation with which ValliCorp consummated business
combinations accounted for as poolings-of-interests as of February 2, 1996 and
March 22, 1996, respectively. The selected supplemental historical financial
information for ValliCorp and the selected historical financial information for
Auburn for the three-month periods ended March 31, 1996 and 1995 includes, in
the opinion of the managements of ValliCorp and Auburn, respectively, all
adjustments (comprising
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<PAGE>
only normal recurring accruals) necessary for a fair presentation of the
supplemental consolidated operating results and financial position of ValliCorp
and the consolidated operating results and financial position of Auburn for such
interim periods. Results for the interim periods are not necessarily indicative
of results for the full year or any other period.
The third table set forth below presents selected unaudited pro forma
combined financial information based on the supplemental consolidated historical
financial statements of ValliCorp and the consolidated historical financial
statements of Auburn, giving effect to the proposed combination by way of merger
using the purchase method of accounting, assuming the Merger had become
effective at the beginning of each period presented for income statement
information and on March 31, 1996 for balance sheet information. See "PRO FORMA
FINANCIAL INFORMATION." The unaudited pro forma combined financial data are
presented for illustrative purposes only and are not necessarily indicative of
the combined financial position or the results that would have occurred if the
Merger had been in effect on the dates indicated or that may occur in the
future.
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<PAGE>
SELECTED SUPPLEMENTAL HISTORICAL FINANCIAL INFORMATION OF VALLICORP
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
---------------- ----------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Supplemental Consolidated Summary of Operations Data
Interest income........................ $ 25,267 $ 26,451 $ 109,324 $ 90,544 $ 71,190 $ 67,954 $ 71,349
Interest expense....................... 8,009 8,134 37,015 23,461 21,093 24,108 32,447
---------- ---------- ---------- ---------- ---------- --------- ---------
Net interest income.................... 17,258 18,317 72,309 67,083 50,097 43,846 38,902
Provision for loan losses.............. 1,925 678 9,633 3,958 2,922 2,227 1,361
---------- ---------- ---------- ---------- ---------- --------- ---------
Net interest income after provision
for loan losses..................... 15,333 17,639 62,676 63,125 47,175 41,619 37,541
Noninterest income..................... 3,181 2,924 12,822 11,663 10,476 8,340 7,113
Noninterest expense.................... 13,545 13,668 55,046 53,153 39,819 34,903 31,545
Merger and restructuring costs......... 4,576 -- 700 3,367 -- -- --
---------- ---------- ---------- ---------- ---------- --------- ---------
Income before income taxes............. 393 6,895 19,752 18,268 17,832 15,056 13,109
Income taxes........................... 177 2,769 7,950 7,817 6,596 5,614 4,917
---------- ---------- ---------- ---------- ---------- --------- ---------
Net income............................. $ 216 $ 4,126 $ 11,802 $ 10,451 $ 11,236 $ 9,442 $ 8,192
========== ========== ========== ========== ========== ========= =========
Earnings per share
Primary............................. $ 0.02 $ 0.31 $ 0.88 $ 0.78 $ 1.08 $ 0.98 $ 0.85
Fully diluted....................... 0.02 0.31 0.87 0.78 1.07 0.97 0.85
Supplemental Share Data
Cash dividends paid per share(2)....... $ 0.10 $ 0.09 $ 0.36 $ 0.32 $ 0.27 $ 0.23 $ 0.15
Number of shares (in thousands)
Actual.............................. 13,309 11,144 13,266 13,070 12,605 9,279 9,028
Weighted average primary............ 13,452 13,472 13,525 13,402 10,490 9,725 9,661
Weighted average fully diluted...... 13,463 13,521 13,559 13,475 10,577 9,855 9,799
Book value............................. $ 9.51 $ 10.91 $ 9.58 $ 8.91 $ 8.94 $ 7.71 $ 6.91
Supplemental Consolidated Balance Sheet Data
Net loans.............................. $ 823,420 $ 848,496 $ 850,763 $ 865,583 $ 708,800 $ 544,802 $ 521,565
Total assets........................... 1,288,467 1,342,798 1,390,035 1,335,769 1,212,071 857,769 812,798
Total deposits......................... 1,126,665 1,186,342 1,221,386 1,178,131 1,084,364 779,833 740,845
Debt financing......................... 20,909 26,100 20,932 26,123 1,262 1,582 1,719
Stockholders' equity................... 126,524 121,607 127,121 116,508 112,026 70,009 62,391
Supplemental Key Ratios (1)
Return on average earning
assets.............................. 0.07% 1.41% 0.97% 0.96% 1.32% 1.25% 1.22%
Return on average total
assets.............................. 0.07 1.27 0.87 0.86 1.19 1.13 1.09
Return on average equity............... 0.68 14.02 9.49 9.04 13.95 14.30 14.00
Average equity to average
total assets........................ 9.85 9.03 9.19 9.51 8.53 7.93 7.80
</TABLE>
(1) Return on average earning assets, return on average total assets, and return
on average equity are calculated based on net income. Quarterly amounts have
been annualized.
(2) Dividends declared per share were $0.46 for 1995, of which $0.36 per share
was paid in 1995 and $0.10 per share was paid in the three months ended
March 31, 1996. For the three months ended March 31, 1996, no dividends were
declared. For all other periods presented, dividends declared per share were
equal to dividends paid per share.
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<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION OF AUBURN
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
---------------- ----------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Historical Consolidated Summary of Operations Data
Interest income......................... $ 1,492 $ 1,438 $ 6,126 $ 4,731 $ 4,011 $ 4,112 $ 4,944
Interest expense........................ 423 372 1,679 1,140 1,019 1,290 1,993
--------- --------- --------- --------- --------- --------- ---------
Net interest income..................... 1,069 1,066 4,447 3,591 2,992 2,822 2,951
Provision for loan losses............... 30 -- 70 -- 90 50 83
--------- --------- --------- --------- --------- ---------- ---------
Net interest income after provision
for loan losses..................... 1,039 1,066 4,377 3,591 2,902 2,772 2,868
Noninterest income...................... 350 298 1,430 1,944 1,723 1,284 758
Noninterest expense..................... 1,064 1,098 4,250 4,097 3,355 3,050 2,785
--------- --------- --------- --------- --------- ---------- ---------
Income before income taxes.............. 325 266 1,557 1,438 1,270 1,006 841
Income taxes............................ 138 121 677 619 532 434 372
--------- --------- --------- --------- --------- ---------- ---------
Net income.............................. $ 187 $ 145 $ 880 $ 819 $ 738 $ 572 $ 469
========= ========= ========= ========= ========= ========== =========
Earnings per share
Primary............................. $ 0.19 $ 0.14 $ 0.85 $ 0.79 $ 0.65 $ 0.49 $ 0.40
Fully diluted....................... 0.19 0.14 0.85 0.79 0.65 0.49 0.40
Historical Share Data
Cash dividends per share................ $ 0.32 $ 0.30 $ 0.30 $ 0.28 $ 0.20 $ 0.20 $ --
Number of shares (in thousands)
Actual.............................. 1,005 1,042 985 1,041 1,041 1,138 1,138
Weighted average primary............ 990 1,066 1,029 1,041 1,134 1,174 1,174
Weighted average fully diluted..... 990 1,066 1,029 1,041 1,134 1,174 1,174
Book value.............................. $ 7.71 $ 7.08 $ 7.91 $ 7.18 $ 6.78 $ 6.39 $ 6.08
Historical Consolidated Balance Sheet Data
Net loans............................... $ 47,682 $ 44,001 $ 45,237 $ 42,847 $ 34,167 $ 35,365 $ 31,823
Total assets............................ 76,123 72,095 76,128 69,428 57,119 56,635 54,134
Total deposits.......................... 67,145 63,720 67,246 61,070 49,242 48,503 46,287
Debt financing.......................... 549 580 557 587 615 633 644
Shareholders' equity.................... 7,744 7,373 7,800 7,475 7,063 7,270 6,925
Historical Key Ratios (1)
Return on average earning assets........ 1.19% 1.02% 1.42% 1.52% 1.57% 1.27% 1.03%
Return on average total assets.......... 1.02 0.85 1.20 1.26 1.30 1.05 0.87
Return on average equity................ 9.43 7.77 11.79 11.52 9.96 8.03 6.97
Average equity to average
total assets........................... 10.77 10.93 10.13 10.96 13.06 13.11 12.54
</TABLE>
(1) Return on average earning assets, return on average total assets, and return
on average equity are calculated based on net income. Quarterly amounts have
been annualized.
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<PAGE>
SELECTED PRO FORMA COMBINED FINANCIAL INFORMATION OF VALLICORP AND AUBURN
(UNAUDITED)
<TABLE>
<CAPTION>
THREE-MONTHS ENDED
MARCH 31, 1996 YEAR ENDED DECEMBER 31, 1995
------------------------------------------- ---------------------------------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
------------------------- ------------------------
VALLICORP AUBURN COMBINED/(2)/ VALLICORP AUBURN COMBINED/(2)
--------- ------ ------------- --------- ------ -------------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Pro Forma Consolidated Summary of Operations
Data
Interest income...................... $ 25,267 $ 1,492 $ 26,568 $ 109,324 $ 6,126 $ 114,644
Interest expense..................... 8,009 423 8,432 37,015 1,679 38,694
--------- --------- --------- ---------- --------- ----------
Net interest income.................. 17,258 1,069 18,136 72,309 4,447 75,950
Provision for loan losses............ 1,925 30 1,955 9,633 70 9,703
--------- --------- --------- ---------- --------- ----------
Net interest income after provision
for loan losses..................... 15,333 1,039 16,181 62,676 4,377 66,247
Noninterest income................... 3,181 350 3,531 12,822 1,430 14,252
Noninterest expense.................. 13,545 1,064 14,811 55,046 4,250 60,106
Merger and restructuring costs....... 4,576 -- 4,576 700 -- 700
--------- --------- --------- ---------- --------- ----------
Income before income taxes........... 393 325 325 19,752 1,557 19,693
Income taxes......................... 177 138 184 7,950 677 8,085
--------- --------- --------- ---------- --------- ----------
Net income........................... $ 216 $ 187 $ 141 $ 11,802 $ 880 $ 11,608
========= ========= ========= ========== ========= ==========
Earnings per share
Primary............................. $ 0.02 $ 0.19 $ 0.01 $ 0.88 $ 0.85 $ 0.86
Fully diluted....................... 0.02 0.19 0.01 0.87 0.85 0.86
Pro Forma Share Data
Cash dividends paid per share........ $ 0.10/(1)/ $ 0.32 $ 0.10 $ 0.36/(1)/ $ 0.30 $ 0.36
Number of shares (in thousands)
Actual.............................. 13,309 1,005 13,309 13,266 985 13,266
Weighted average primary............ 13,452 990 13,452 13,525 1,029 13,525
Weighted average fully diluted...... 13,463 990 13,463 13,559 1,029 13,559
Book value........................... $ 9.51 $ 7.71 $ 9.50 $ 9.58 $ 7.91 $ 9.57
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
---------------------------------------------
HISTORICAL PRO FORMA
------------------------
VALLICORP AUBURN COMBINED/(2)/
--------- ------ -------------
(dollars in thousands)
<S> <C> <C> <C>
Consolidated Balance Sheet Data
Net loans...................................................................... $ 823,420 $ 47,682 $ 871,102
Total assets................................................................... 1,288,467 76,123 1,358,891
Total deposits................................................................. 1,126,665 67,145 1,193,810
Debt financing................................................................. 20,909 549 21,458
Stockholders' equity........................................................... 126,524 7,744 126,374
</TABLE>
(1) Dividends declared per share were $0.46 for 1995, of which $0.36 per share
was paid in 1995 and $0.10 per share was paid in the three months ended
March 31, 1996. For the three months ended March 31, 1996, no dividends were
declared.
(2) Adjustments necessary to arrive at the pro forma combined data are described
in the Notes to the Pro Forma Combined Financial Statements. Such
adjustments and, therefore, the pro forma combined amounts are subject to
change. See Note A of the Notes to the Pro Forma Combined Financial
Statements.
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<PAGE>
COMPARATIVE PER SHARE DATA (UNAUDITED)
The following table presents book value per share of common stock, cash
dividends declared per share and earnings per share (a) on a supplemental
historical basis for ValliCorp and on a historical basis for Auburn; (b) on a
pro forma basis for ValliCorp, giving effect to the Merger; and (c) for Auburn,
on a pro forma equivalent basis per share of common stock. The pro forma
combined amounts included in the table below are based on the purchase method of
accounting. Fair market valuations of assets acquired and liabilities assumed
are preliminary and will be revised as updated information becomes available
prior to the Effective Time of the Merger. The following information should be
read in conjunction with and is qualified in its entirety by the supplemental
consolidated financial statements and accompanying notes of ValliCorp included
herein and the consolidated financial statements and accompanying notes of
Auburn contained in Auburn's Annual Report on Form 10-K for the year ended
December 31, 1995 and in ValliCorp's and Auburn's respective Quarterly Reports
on Form 10-Q for the quarter ended March 31, 1996.
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<PAGE>
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
----------- ------------
<S> <C> <C>
BOOK VALUE PER SHARE
ValliCorp:
Supplemental historical book value per share................ $9.51 $9.58
ValliCorp and Auburn pro forma book value per share......... 9.50 9.57
Auburn:
Historical book value per share............................. $7.71 $7.91
Pro forma equivalent book value per share/(1)/.............. 7.80 7.86
CASH DIVIDENDS PAID PER SHARE
ValliCorp:
Supplemental historical cash dividends per share............ $0.10/(3)/ $0.36
ValliCorp & Auburn pro forma cash dividends per share/(2)/.. 0.10 0.36
Auburn:
Historical cash dividends per share......................... $0.32(3)/ $0.30
Pro forma equivalent cash dividends per share/(1)/.......... 0.08 0.30
EARNINGS PER SHARE
ValliCorp:
Supplemental historical primary earnings per share.......... $0.02 $0.88
ValliCorp & Auburn pro forma primary earnings per share..... 0.01 0.86
Auburn:
Historical primary earnings per share....................... $0.19 $0.85
Pro forma equivalent primary earnings per share/(1)/........ 0.01 0.71
</TABLE>
_____________
/(1)/ Auburn pro forma equivalent per share data is computed by multiplying
ValliCorp's pro forma per share data (giving effect to the Merger) by the
0.8209 Conversion Ratio.
/(2)/ Pro forma amounts assume that ValliCorp would have declared cash
dividends per share equal to its historical cash dividend per share
declared.
/(3)/ Historically, ValliCorp has declared dividends on a quarterly basis,
whereas Auburn has declared dividends on an annual basis.
PRICE RANGE OF AND DIVIDENDS ON VALLICORP AND AUBURN COMMON STOCK
Price Range. ValliCorp Common Stock is listed on the National Market
System of NASDAQ under the trading symbol "VALY." The Auburn Common Stock is not
traded on any national exchange or on NASDAQ.
The following table sets forth, for the periods indicated, the range of
closing sales prices for ValliCorp Common Stock, as reported on the NASDAQ
National Market System and the range of high and low bid prices for trades about
which management of Auburn has information (which may not be complete). The
following quotations reflect inter-dealer prices for ValliCorp Common Stock. The
prices for both ValliCorp and Auburn Common Stock do not include retail
-25-
<PAGE>
mark-up, mark-down, or commission and may not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
VALLICORP AUBURN
--------------------------
HIGH LOW HIGH LOW
-----------------------------
<S> <C> <C> <C> <C>
Year Ended December 31, 1994
First Quarter................................. $14.75 $12.00 $7.50 $7.50
Second Quarter................................ 16.50 12.00 8.13 7.50
Third Quarter................................. 15.25 14.25 8.00 7.00
Fourth Quarter................................ 16.00 13.25 7.50 7.00
Year Ended December 31, 1995
First Quarter................................. 16.50 14.00 7.50 7.50
Second Quarter................................ 16.75 14.50 7.75 7.50
Third Quarter................................. 18.75 13.75 7.63 7.50
Fourth Quarter................................ 14.25 12.00 7.63 7.63
Year Ended December 31, 1996
First Quarter................................. 15.75 13.50 7.75 7.63
Second Quarter (through _____________, 1996).. ----- ----- ---- ----
</TABLE>
The following table sets forth the closing sales prices of ValliCorp Common
Stock reported on the NASDAQ National Market System and the then most recent
sale prices of Auburn Common Stock, based on information obtained by management
of Auburn (which may not be complete or accurate), on March 27, 1996, the last
trading day before the first public announcement of the Merger, and on
_____________, 1996, the latest practicable day before printing this Proxy
Statement, and the equivalent per share prices for Auburn Common Stock based on
the ValliCorp Common Stock prices as of those dates, assuming a Conversion Ratio
of 0.8209 shares of ValliCorp Common Stock for each share of Auburn Common
Stock:
<TABLE>
<CAPTION>
ValliCorp Auburn
Common Stock Common Stock
------------ ------------------------
Historical Historical Equivalent
------------ ------------ ----------
<S> <C> <C> <C>
March 27, 1996 $15.00 $7.75 $12.31
__________, 1996 $--.-- $--.-- $--.--
</TABLE>
SHAREHOLDERS ARE ADVISED TO OBTAIN CURRENT MARKET QUOTATIONS FOR
VALLICORP AND AUBURN COMMON STOCK. No assurance can be given as to the market
price of ValliCorp Common Stock or Auburn Common Stock at, or in the case of
ValliCorp Common Stock after, the Effective Time of the Merger.
At March 31, 1996, there were approximately 3,763 stockholders of
record of ValliCorp Common Stock and approximately 459 shareholders of record of
Auburn Common Stock. Pursuant to the
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<PAGE>
terms of the Merger Agreement, the shares of Auburn Common Stock held by each
shareholder of record, including those of Auburn's directors, will be converted
into shares of ValliCorp Common Stock.
Dividends. Beginning in the second quarter of 1991, ValliCorp implemented
a dividend policy which established a regular quarterly cash dividend program.
ValliCorp's objective is to maintain a consistent quarterly cash dividend
representing a dividend payout ratio of between twenty percent (20%) and twenty-
five percent (25%) of net income. However, management considers various other
factors in determining this dividend, including ValliCorp's current and
projected net income, current dividend yield, and regulatory capital
requirements, with particular emphasis on exceeding the applicable regulatory
capital requirements. There are regulatory limitations on cash dividends that
may be paid by ValliCorp, as well as limitations on cash dividends that may be
paid by ValliCorp's subsidiary bank, ValliWide, which could, in turn, limit
ValliCorp's ability to pay dividends. During the first quarter of 1993,
ValliCorp declared a six cent ($0.06) per share dividend on ValliCorp Common
Stock. The dividend declaration was increased to seven cents ($0.07) per share
during the remaining three quarters of 1993, was increased to eight cents
($0.08) per share during each of the four quarters of 1994, was increased to
nine cents ($0.09) per share during each of the four quarters of 1995, and was
further increased to ten cents ($0.10) per share for the dividends to be paid
during the first and second quarters of 1996.
Under Delaware law, holders of ValliCorp Common Stock are entitled to
receive dividends when and as declared by ValliCorp's Board of Directors out of
funds legally available therefor, subject to the dividend preference, if any, on
preferred stock that may be outstanding in the future. As a Delaware
corporation, ValliCorp may make stock repurchases or redemptions that do not
impair capital and may pay dividends out of any surplus account or out of net
profits of the current and preceding fiscal years, subject to certain
limitations. Under Delaware law, surplus may be created by a reduction of
capital and may be distributed by board action, so long as capital is maintained
in an amount not less than the aggregate par value of the remaining outstanding
shares plus the stated value of any shares not having par value. The ability of
a Delaware corporation to pay dividends on, or to make repurchases or
redemptions of, its shares is dependent on the financial status of the
corporation standing alone and is not determined on a consolidated basis.
The ability of ValliCorp to pay cash dividends is almost wholly dependent
upon the receipt of cash dividends from its subsidiary, ValliWide. As a
California state-chartered banking corporation which is a member of the Federal
Reserve System, ValliWide is subject to California and federal law and
applicable federal regulations limiting the payment of cash dividends. Under
California law, the board of directors of California state-chartered banks may
declare cash dividends, subject to the
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restriction that the amount available for the payment of cash dividends shall be
the lesser of retained earnings of the bank or the bank's net income for its
last three fiscal years (less the amount of any distributions to shareholders
during such period). If the above test is not met, cash dividends may be paid
with the prior approval of the California Superintendent of Banks (the
"California Superintendent") in an amount not exceeding the greatest of the
bank's retained earnings, the bank's net income for its last fiscal year, or the
bank's net income for its current fiscal year. Under regulations of the Federal
Reserve Board, a Federal Reserve System member bank, like ValliWide, may pay
dividends in any calendar year in an amount not greater than its net profits for
that year combined with its retained net profits for the preceding two calendar
years, less any required transfers to surplus or to a fund for the retirement of
any preferred stock, unless the prior approval of the Federal Reserve Board has
been obtained; but the bank may not pay dividends in an amount greater than its
net profits then on hand, deducting therefrom its losses and bad debts, unless
the bank receives both the prior approval of the Federal Reserve Board and two-
thirds of the shares of each class of the bank's stock outstanding.
Furthermore, the Federal Deposit Insurance Corporation Improvement Act of
1991 generally prohibits an undercapitalized institution from paying dividends.
In addition, if, in the opinion of the Federal Reserve Board, a banking holding
company, like ValliCorp, or a state member bank, like ValliWide, is engaged or
about to engage in an unsafe or unsound practice (which, depending on the
financial condition of the bank, could include the payment of dividends), the
Federal Reserve Board may require, after notice and hearing, that such
organization cease and desist from such practice. The Federal Reserve Board has
also issued a policy statement which provides that banks and bank holding
companies should generally only pay dividends out of current operating earnings.
See also the discussion below of Federal Reserve Board holding company
regulations applicable to Auburn, as such regulations are also applicable to
ValliCorp.
The policy of the Board of Directors of Auburn is to pay cash dividends in
the amount equal to 4% of the market price of Auburn Common Stock as of the
previous year end to the extent such cash dividends may be legally paid. The
payment of cash dividends is subject to the discretion of the Board of Directors
of Auburn and will depend on Auburn's financial condition and performance, and
other relevant factors. Auburn declared a cash dividend of $0.32 per share on
February 14, 1996, which was paid to shareholders of record on March 15, 1996,
and is restricted from paying further dividends during 1996 pursuant to the
Merger Agreement. There are regulatory and statutory limitations on the ability
of Auburn and TBOC to pay dividends.
For example, the Federal Reserve Board generally prohibits a bank holding
company from declaring or paying a cash dividend which
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would impose undue pressure on the capital of subsidiary banks or would be
funded only through borrowing or other arrangements that might adversely affect
a bank holding company's financial position. The Federal Reserve Board's policy
is that a bank holding company should not continue its existing rate of cash
dividends on its common stock unless its net income is sufficient to fully fund
each dividend and its prospective rate of earnings retention appears consistent
with its capital needs, asset quality and overall financial condition.
Regulators also have authority to prohibit a depository institution from
engaging in business practices which are considered to be unsafe or unsound,
possibly including payment of dividends or other payments under certain
circumstances even if such payments are not otherwise expressly prohibited by
statute .
As a national bank, TBOC is regulated, supervised, and regularly examined
by the OCC. The payment of dividends by a national bank such as TBOC is
restricted by additional provisions of federal law, which prohibit a national
bank from declaring a dividend on its shares of common stock unless its surplus
fund exceeds the amount of its common capital (total outstanding common shares
times the par value per share). Additionally, if losses have at any time been
sustained equal to or exceeding a bank's undivided profits then on hand, no
dividend may be paid. Moreover, even if a bank's surplus exceeded its common
capital and its undivided profits exceed its losses, the approval of the OCC is
required for the payment of dividends if the total of all dividends declared by
a national bank in any calendar year would exceed the total of its net profits
of that year combined with its retained net profits of the two preceding years,
less any required transfers to surplus or a fund for the retirement of any
preferred stock. A national bank must consider other business factors in
determining the payment of dividends. The payment of dividends by TBOC is
governed by TBOC's ability to maintain minimum required capital levels and an
adequate allowance for loan losses.
RISK FACTORS
------------
In deciding whether to approve the Merger, Auburn shareholders should
consider the following risks, in addition to the other matters set forth or
incorporated by reference herein.
ABILITY TO REALIZE COST SAVINGS
Because the markets in which ValliCorp and Auburn operate are highly
competitive and because of the inherent uncertainties associated with merging
two companies, there can be no assurance that the combined entity will be able
to fully realize the cost savings ValliCorp currently expects to realize as a
result of the Merger and the consolidation of their operations or that such
savings will be realized at the times currently anticipated. See the discussion
of "Projected Operating Cost Savings through
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<PAGE>
Consolidation of Operations" within "-Management and Operations of ValliCorp
After the Merger" below.
REAL ESTATE LENDING ACTIVITIES; NONPERFORMING ASSETS
The loan portfolios of ValliCorp and Auburn are dependent on real estate.
At March 31, 1996, real estate served as the principal source of collateral with
respect to approximately 81% of Auburn's loan portfolio, 40% of ValliCorp's loan
portfolio, and 42% of pro forma combined ValliCorp and Auburn loan portfolio. A
worsening of current economic conditions and rising interest rates could have an
adverse effect on the demand for new loans, the ability of borrowers to repay
outstanding loans, and the value of real estate and other collateral securing
loans, as well as ValliCorp's financial condition in general and the market
value for ValliCorp Common Stock. Acts of nature, including earthquakes, may
also negatively impact ValliCorp's or Auburn's financial condition.
Auburn's nonperforming assets were $568,500 or 0.75% of total assets at
March 31, 1996, as compared to $604,717 or 0.79% of total assets at December 31,
1995 and $499,000 or 0.72% of total assets at December 31, 1994. ValliCorp's
nonperforming assets were $15 million or 1.19% of total assets at March 31,
1996, as compared to $20 million or 1.47% of total assets at December 31, 1995
and $12 million or 0.87% of total assets at December 31, 1994. There are no
assurances that nonperforming assets will not increase and adversely affect the
financial condition of Auburn and/or ValliCorp. See "INFORMATION INCORPORATED
BY REFERENCE."
SHARES ELIGIBLE FOR FUTURE SALE; DILUTION
Shares of ValliCorp Common Stock eligible for future sale could have a
dilutive effect on the market for ValliCorp Common Stock and could adversely
affect the market prices. The Restated Certificate of Incorporation of ValliCorp
authorizes the issuance of 40,000,000 shares of ValliCorp Common Stock of which
13,309,353 shares were outstanding at March 31, 1996. Pursuant to its stock
option plans, at March 31, 1996, ValliCorp had outstanding options to purchase
an aggregate of 923,182 shares of ValliCorp Common Stock. Such options have
exercise prices of between $4.250 and $16.125 per share. As of March 31, 1996,
1,273,242 shares of ValliCorp Common Stock remained available for option grants
under ValliCorp's stock option plans. In addition, ValliCorp has outstanding
debentures which, at March 31, 1996, were convertible into 165,341 shares of
ValliCorp Common Stock. Sales of substantial amounts of ValliCorp Common Stock
in the public market following the Merger could adversely affect the market
price of ValliCorp Common Stock. There are no restrictions in the Merger
Agreement preventing ValliCorp from issuing additional shares.
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It is ValliCorp's intention to pursue acquisitions of other financial
institutions from time to time where such acquisitions are believed by ValliCorp
to enhance shareholder value or satisfy other strategic objectives. Other
acquisitions, if any, could be accomplished by the issuance of additional shares
of ValliCorp Common Stock or other securities convertible into or exercisable
for such ValliCorp Common Stock.
There can be no assurance given as to the market value of ValliCorp Common
Stock after the Merger, which market value may be affected by future
acquisitions, if any, and other factors, including but not limited to, general
economic conditions and fluctuating interest rates.
LEGISLATIVE AND REGULATORY ENVIRONMENT
The banking and financial services businesses in which ValliCorp and Auburn
engage are highly regulated. The laws and regulations affecting such businesses
are under constant review by Congress and applicable regulatory agencies and may
be changed dramatically in the future. Such changes could affect the business
of bank holding companies and banks. For example, in September 1994, the
President signed legislation amending the 1956 Act and the Federal Deposit
Insurance Act to provide for the interstate banking and branching. Such changes
may affect the competitive environment in which ValliWide and TBOC operate and
may affect the amount of capital that banks and bank holding companies are
required to maintain, the premiums paid for or the availability of deposit
insurance or other matters directly affect earnings. It is not certain what
changes will occur or the effect that any such changes would have on the
profitability of the combined company, its ability to achieve certain cost
savings or compete effectively or its ability to take advantage of new
opportunities after the Merger. See "THE MERGER-Management and Operations of
ValliCorp After the Merger," "HISTORICAL AND PRO FORMA COMBINED CAPITAL
INFORMATION," and "INFORMATION INCORPORATED BY REFERENCE" (and especially the
discussion of "Recent Legislation and Other Changes" within "Item 1. Business"
contained in Auburn's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995 accompanying this Proxy Statement, which discussion applies to
ValliCorp and ValliWide in all material respects the same as it does to Auburn
and TBOC).
ValliCorp is organized under the corporate law of Delaware while Auburn is
organized under the corporate law of California. While similarities in rights
exist for shareholders of ValliCorp and Auburn, there are significant
differences in the laws applicable to each company and in their respective
charter documents. See "COMPARISON OF RIGHTS OF HOLDERS OF VALLICORP COMMON
STOCK AND HOLDERS OF AUBURN COMMON STOCK."
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<PAGE>
THE ANNUAL MEETING
------------------
GENERAL
This Proxy Statement is being furnished to holders of Auburn Common Stock
in connection with the solicitation of Proxies by the Board of Directors of
Auburn for use at the Annual Meeting to consider and vote upon the approval and
adoption of the Merger Agreement and the transactions contemplated thereby,
including the Merger, to elect nine members to the Board of Directors, to ratify
the appointment of Perry-Smith & Co. as Auburn's independent public accountants
for the fiscal year ending December 31, 1996, and to consider such other
business as may properly come before the Annual Meeting or any adjournments
thereof. Each copy of this Proxy Statement is also accompanied by a Proxy for
use at the Annual Meeting.
THE AUBURN BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT
AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGER, AND RECOMMENDS
THAT AUBURN SHAREHOLDERS VOTE "FOR" APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGER.
This Proxy Statement is also furnished by ValliCorp to holders of Auburn
Common Stock as a prospectus in connection with the issuance by ValliCorp of the
shares of ValliCorp Common Stock upon consummation of the Merger.
DATE, PLACE AND TIME
The Annual Meeting will be held at 500 Wall Street, Auburn, California, on
_______, ____________, 1996 at 7:30 p.m. local time.
RECORD DATE AND VOTING RIGHTS
Only holders of record of Auburn Common Stock at the close of business on
the Record Date will be entitled to notice of, and to vote at, the Annual
Meeting. As of the Record Date, there were _______________ shares of Auburn
Common Stock outstanding. Each share of Auburn Common Stock entitles the holder
thereof to one vote, in person or by proxy, per share held.
Under the California GCL, the approval and adoption of the Merger Agreement
and the transactions contemplated thereby, including the Merger, requires the
affirmative vote of the holders of at least a majority of the outstanding shares
of Auburn Common Stock. Holders of at least a majority of the outstanding
shares of Auburn Common Stock must be represented, either in person or by proxy,
at the Annual Meeting for a quorum to be present.
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In the election of directors, every holder of Auburn Common Stock eligible
to vote at the Annual Meeting shall have the right to vote, in person or by
proxy, the number of shares owned by the shareholder for as many persons as
there are directors to be elected, or to cumulate the votes by giving one
candidate as many votes as equal the number of such directors to be elected
multiplied by the number of shares owned by such shareholder or distribute such
votes on the same principal among any number of candidates. The nine candidates
receiving the highest number of votes are elected.
The ratification of appointment of the independent public accountants
requires a majority vote of the shares of Auburn Common Stock represented in
person or by proxy and voting at the Annual Meeting.
Each properly completed Proxy returned in time for voting at the Annual
Meeting, unless revoked by the Auburn shareholder, will be voted in accordance
with the instructions indicated on the Proxy, or, if no instructions are
provided, will be voted "FOR" approval and adoption of the Merger Agreement and
the transactions contemplated thereby, including the Merger, "FOR" election of
the nine candidates nominated by management as directors, and "FOR" ratification
of the appointment of Perry-Smith & Co. as independent public accountants. No
matters other than those referred to in this Proxy Statement will be brought
before the Annual Meeting, except for matters incidental to the conduct of the
Annual Meeting. The grant of a Proxy will also confer discretionary authority
on the persons named in the Proxy to vote on matters incident to the conduct of
the Annual Meeting, including any adjournment or postponement thereof.
An Auburn shareholder may revoke a Proxy at any time before it is exercised
by filing with the Corporate Secretary of Auburn, 540 Wall Street, Auburn,
California 95603, a written instrument revoking the Proxy, by submitting a duly
executed Proxy bearing a later date or by attending the Annual Meeting and
voting in person.
Auburn shares which abstain from voting and "broker nonvotes" (shares as to
which brokerage firms have not received voting instructions from their clients
and therefore do not have the authority to vote at the Annual Meeting) will be
counted for purposes of determining a quorum. Because the affirmative vote of
at least a majority of the outstanding shares of Auburn Common Stock is required
to approve the Merger, both absten tions and broker nonvotes will have the same
legal effect as votes "AGAINST" the Merger. Since the nine directors who
receive the largest number of shares voted will be elected, abstentions and
broker non-votes will have no impact upon the election. Since the ratification
of appointment of independent public accountants requires the affirmative vote
of holders of a majority of the outstanding stock present or represented and
voting at the meeting, abstentions and broker non-votes will be counted as
shares not
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present and not entitled to vote and not as either negative votes against or
affirmative votes in favor.
AUBURN SHAREHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXIES.
A TRANSMITTAL FORM WITH INSTRUCTIONS WITH RESPECT TO THE SURRENDER OF AUBURN
STOCK CERTIFICATES WILL BE MAILED TO EACH AUBURN SHAREHOLDER AS SOON AS
PRACTICABLE AFTER THE EFFECTIVE DATE OF THE MERGER.
On the Record Date, approximately _____% of the outstanding shares of
Auburn Common Stock was owned by directors and executive officers of Auburn. In
connection with the execution and delivery of the Merger Agreement, a
Shareholder Agreement was executed and delivered by each of the directors of
Auburn in their capacity as shareholders. The Shareholder Agreement binds each
of these shareholders to vote their shares in favor of the Merger and the Merger
Agreement, subject to their continuing fiduciary duties to the Auburn
shareholders. The terms of the Shareholder Agreement extend to any shares of
Auburn Common Stock acquired by the signing shareholders after execution
thereof. The number of shares of Auburn Common Stock subject to the Shareholder
Agreement is __________, representing _____% of the outstanding Auburn Common
Stock on the Record Date. See "-Agreement with Certain Shareholders" below and
"THE MERGER-Interest of Certain Persons in the Merger." Accordingly, approval
and adoption of the Merger Agreement, the Merger and the transactions
contemplated thereby at the Annual Meeting is expected to require the
affirmative vote of an additional _______________ shares of Auburn Common Stock,
or approximately _____% of the shares of Auburn Common Stock outstanding on the
Record Date, voted by the remaining shareholders of Auburn. Information
concerning the principal holders of Auburn Common Stock at the Record Date is
included within "-Voting Securities and Principal Holders" below.
ADJOURNMENTS
The Annual Meeting may be adjourned, even if a quorum is not present, by
the vote of the holders of a majority of the shares represented at each such
meeting in person or by proxy. In the absence of a quorum, no other business
may be transacted at the Annual Meeting.
Notice to shareholders of the adjourned meeting need not be given if the
time and place thereof are announced at the Annual Meeting at which the
adjournment is taken, provided that if the adjournment is for more than forty-
five (45) days, or if after the adjournment a new record date is fixed for the
adjourned Annual Meeting, a notice of the adjourned Annual Meeting shall be
given to each shareholder of record entitled to vote at the Annual Meeting. At
an adjourned Annual Meeting, any such business may be transacted which might
have been transacted at the original Annual Meeting.
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DISSENTERS' RIGHTS OF APPRAISAL
If the Merger Agreement is approved by the required vote of Auburn
shareholders and is not abandoned or terminated, shareholders of Auburn who did
not vote "FOR" the Merger may be entitled to certain dissenters' appraisal
rights under Chapter 13 of the California GCL.
The following discussion is not a complete statement of the California GCL
relating to dissenters' rights, and is qualified in its entirety by reference to
sections 1300 through 1312 of the California GCL attached to this Proxy
Statement as Appendix C and incorporated herein by reference. This discussion
and sections 1300 through 1312 of the California GCL should be reviewed
carefully by any Auburn shareholder who wishes to exercise statutory dissenters'
rights or wishes to preserve the right to do so, since failure to comply with
the required procedures will result in the loss of such rights.
If the Merger is consummated, those shareholders of Auburn who elect to
exercise their dissenters' rights and who in a timely and proper fashion perfect
such rights will be entitled to receive the "fair market value" of their shares
of Auburn Common Stock in cash. Pursuant to section 1300(a) of the California
GCL, such "fair market value" would be determined as of the day before the first
announcement of the terms of the Merger, excluding any appreciation or
depreciation in consequence of the proposed Merger, but adjusted for any stock
split, reverse stock split, or share dividend which becomes effective
thereafter. Auburn believes the "fair market value" is equal to the last bid
price of Auburn Common Stock on March 27, 1996, or $7.75.
Shares of Auburn Common Stock must satisfy each of the following
requirements to qualify as dissenting shares ("Dissenting Shares") under the
California GCL: (a) the shares of Auburn Common Stock must have been
outstanding on the Record Date (and, therefore, shares acquired after the Record
Date upon exercise of options to purchase Auburn Common Stock may not constitute
Dissenting Shares); (b) the shares of Auburn Common Stock must not have been
voted "FOR" approval and adoption of the Merger Agreement and the transactions
contemplated thereby, including the Merger; and (c) the holder of such shares of
Auburn Common Stock must submit certificates for endorsement as described below.
IF A HOLDER OF AUBURN COMMON STOCK VOTES "FOR" THE APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT, INCLUDING THE MERGER, AND THE TRANSACTIONS CONTEMPLATED
THEREBY (INCLUDING BY EXECUTING AND RETURNING A PROXY TO AUBURN WITH NO VOTING
INSTRUCTIONS INDICATED THEREON AND NOT REVOKING SUCH PRIOR TO THE TIME OF THE
ANNUAL MEETING) SUCH HOLDER WILL LOSE ANY DISSENTERS' RIGHTS THAT MAY EXIST WITH
RESPECT TO THE SUBJECT SHARES.
If the Merger is approved at the Annual Meeting, Auburn will, within ten
(10) days after such approval, mail to any shareholder
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who may have a right to require Auburn to purchase his or her shares for cash as
a result of making such a demand (as described below), a notice that the
required shareholder approval and adoption of the Merger Agreement and the
transactions contemplated thereby, including the Merger, was obtained (the
"Notice of Approval") accompanied by a copy of sections 1300 through 1304 of the
California GCL. The Notice of Approval will set forth the price determined by
Auburn to represent the "fair market value" of any Dissenting Shares (which
shall constitute an offer by Auburn to purchase such Dissenting Shares at such
stated price) and will set forth a brief description of the procedures to be
followed by such shareholders who wish to exercise their dissenters' rights.
Within thirty (30) days after the date on which the Notice of Approval was
mailed: (a) Auburn must receive the demand of the dissenting shareholder which
is required by law to contain a statement concerning the number and class of
shares of Auburn Common Stock held of record by such dissenting shareholder
which the dissenting shareholder demands that Auburn purchase and a statement of
what such dissenting shareholder claims to be the fair market value of the
Dissenting Shares as of March 27, 1996, the day before the first public
announcement of the proposed Merger (the statement of fair market value in such
demand by the dissenting shareholder constitutes an offer by the dissenting
shareholder to sell the Dissenting Shares at such price); and (b) the dissenting
shareholder must submit share certificate(s) representing the Dissenting Shares
to Auburn at Auburn's principal office. The certificate(s) will be stamped or
endorsed with a statement that the shares are Dissenting Shares or will be
exchanged for certificates of appropriate denomination so stamped or endorsed.
If the price contained in the Notice of Approval is acceptable to the dissenting
shareholder, the dissenting shareholder may demand the same price. THIS WOULD
CONSTITUTE AN ACCEPTANCE OF THE OFFER BY AUBURN TO PURCHASE THE DISSENTING
SHAREHOLDER'S STOCK AT THE PRICE STATED IN THE NOTICE OF APPROVAL.
If Auburn and a dissenting shareholder agree upon the price to be paid for
the Dissenting Shares, upon the dissenting shareholder's surrender of the
certificates representing the Dissenting Shares, such price (together with
interest thereon at the legal rate on judgments from the date of the agreement
between Auburn and the dissenting shareholder) is required by law to be paid to
the dissenting shareholder within thirty (30) days after such agreement or
within thirty (30) days after any statutory or contractual conditions to the
Merger are satisfied, whichever is later, subject to the surrender of the
certificates therefor.
If Auburn and a dissenting shareholder disagree as to the price for such
Dissenting Shares or disagree as to whether such Dissenting Shares are entitled
to be classified as Dissenting Shares, such holder may, within six months after
the Notice of Approval is mailed, file a complaint in the Superior Court of the
proper county requesting the court to make such determinations or,
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alternatively, may intervene in any pending action brought by any other
dissenting shareholder. Costs of such an action (including compensation of
appraisers) are required to be assessed as the court considers equitable, but
must be assessed against Auburn if the appraised value as determined by the
court exceeds the price offered by Auburn.
The court action to determine the fair market value of the shares will be
suspended if litigation is instituted to test the sufficiency or regularity of
the votes of the shareholders in authorizing the Merger. Furthermore, no
shareholder who has appraisal rights under Chapter 13 of the California GCL has
any right to attack the validity of the Merger or to have the Merger set aside
or rescinded except in an action to test whether the number of shares required
to authorize or approve the Merger has been legally voted in favor of the
Merger.
Dissenting Shares may lose their status as such and the right to demand
payment will terminate if (a) the Merger is abandoned; (b) the Dissenting Shares
are transferred before being submitted for endorsement or are surrendered for
conversion into shares of another class; (c) the dissenting shareholder and
Auburn do not agree upon the status of the shares as Dissenting Shares or upon
the price of such shares and the dissenting shareholder fails to file suit
against Auburn or intervene in a pending action within six months following the
date on which the Notice of Approval was mailed to the shareholder; or (d) the
dissenting shareholder withdraws his or her demand for the purchase of the
Dissenting Shares with the consent of Auburn.
SOLICITATION OF PROXIES
This solicitation of Proxies is being made on behalf of the Board of
Directors of Auburn. In addition to soliciting Proxies by the mail, directors,
officers and employees of Auburn may solicit Proxies personally, by telephone,
telegram, or facsimile transmission, but they will not be additionally
compensated therefor. Auburn has requested brokerage houses, nominees,
fiduciaries and other custodians to forward soliciting materials to owners of
Auburn shares and will reimburse them for expenses incurred in doing so. Auburn
will pay its own costs with respect to the solicitation of Proxies.
AGREEMENT WITH CERTAIN SHAREHOLDERS
ValliCorp has entered into a Shareholder Agreement with each of the nine
members of the Board of Directors of Auburn in their capacities as shareholders
of Auburn ("Agreeing Shareholders"). Pursuant to the Shareholder Agreement, the
Agreeing Shareholders have agreed, among other things, (a) to vote the number of
shares of Auburn Common Stock owned by them in favor of the Merger and the
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Merger Agreement, (b) to vote against any proposal which would in any manner
impede, frustrate, prevent, or nullify the Merger or the Merger Agreement, and
(c) not to sell or transfer any shares of Auburn Common Stock owned by them for
a limited period of time stated therein. The obligations of each of the
Agreeing Shareholders under the Shareholder Agreement may be limited in the
event that such shareholder determines, in good faith and upon the written
advice of counsel, that certain actions otherwise required under the Shareholder
Agreement would violate his or her duties to shareholders imposed by law or
would violate his or her continuing fiduciary duty to the shareholders of
Auburn. The Agreeing Shareholders and the number of shares of Auburn Common
Stock such persons are entitled to vote at the Annual Meeting which are subject
to the Shareholder Agreement as of the Record Date are as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF AUBURN
ENTITLED TO VOTE AS OF COMMON STOCK AS OF
NAME RECORD DATE RECORD DATE
- --------------------------- ----------- -----------
<S> <C> <C>
John G. Briner %
Paul Brocker
D. Dwight Odom, M.D.
Thomas E. Propp
Donald L. Robinson
Harry E. Sands
Virgil R. Traynor, D.V.M.
Gary N. Weeks
H. Ray Yamasaki
Totals %
======= =======
</TABLE>
Because the Agreeing Shareholders have agreed to vote the number of their
shares set forth above (approximately _____% of the outstanding shares of Auburn
Common Stock entitled to vote at the Annual Meeting) in favor of approval and
adoption of the Merger Agreement and the transactions contemplated thereby,
including the Merger, the likelihood that the Merger Agreement will be approved
and adopted is increased. The affirmative vote of the holders of an additional
_____% of the shares of Auburn Common Stock outstanding as of the Record Date
will be required to approve and adopt the Merger Agreement and the transactions
contemplated thereby, including the Merger. The text of the Shareholder
Agreement appears as Exhibit 9.1 to the Merger Agreement attached as Appendix A
to this Proxy Statement.
VOTING SECURITIES AND PRINCIPAL HOLDERS
The following table sets forth information as of the Record Date pertaining
to beneficial ownership of Auburn Common Stock by persons known to Auburn to own
5% or more of Auburn Common Stock,
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directors of Auburn and all directors and executive officers of Auburn and TBOC
as a group. The information contained herein has been obtained from Auburn's
records or from information furnished directly by the individual or entity to
Auburn.
The table should be read with the understanding that more than one person
may be the beneficial owner or possess certain attributes of beneficial
ownership with respect to the same securities. Therefore, careful attention
should be given to the footnote references. In addition, shares of Auburn
Common Stock issuable pursuant to options which may be exercised within sixty
(60) days of the Record Date are deemed to be issued and outstanding and have
been treated as outstanding in calculating the percentage ownership of those
individuals possessing such interest, but not for any other individuals. Thus,
the total number of shares considered to be outstanding for the purposes of this
table may vary depending upon the individual's particular circumstance.
<TABLE>
<CAPTION>
COMMON STOCK OF AUBURN
BENEFICIALLY OWNED(2)
---------------------------------
NUMBER PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OF SHARES OUTSTANDING SHARES
- --------------------------------------- --------- ------------------
<S> <C> <C>
Directors and Executive.............
Officers as a Group (__ persons)....
</TABLE>
______________________
[Footnotes.]
THE MERGER
----------
This section of the Proxy Statement describes the material aspects of the
proposed Merger. To the extent that it relates to the Merger Agreement, the
following description does not purport to be complete and is qualified in its
entirety by reference to the Merger Agreement, which is attached as Appendix A
to this Proxy Statement and is incorporated herein by reference. All
shareholders are urged to read the Merger Agreement, as well as the other
Appendices to this Proxy Statement, in their entirety.
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BACKGROUND OF AND REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF
DIRECTORS
ValliCorp Reasons. ValliCorp's management and Board of Directors believe
the United States banking industry is in the midst of a major transformation and
restructuring. The banking industry is experiencing significant pressure for
consolidation as a result of many factors, including industry overcapacity,
increased competition from nontraditional competitors, technological change, and
the evolving legislative and regulatory environment. As a result, ValliCorp's
Board of Directors developed a strategic plan to enhance long-term shareholder
value, which contemplates an expansion of ValliCorp through mergers and
acquisitions of banking organizations in California, as well as internal growth.
During the past several years, ValliCorp has acquired or merged with banking
organizations located in Central California, has considered the desirability of
various acquisition/merger opportunities and has carefully reviewed options to
achieve its strategic objectives.
After earlier requesting and receiving certain financial information from
Auburn, in July 1995, the Chairman of the Board and the President and Chief
Executive Officer of ValliCorp met with the President and Chief Executive
Officer of Auburn and concluded that further discussions and analyses relating
to a possible merger transaction between the two organizations should be
pursued. ValliCorp's management obtained financial data and other information
from Auburn and prepared financial analyses with respect to the combined company
consisting of ValliCorp and Auburn, including projected cost savings and
synergies. These cost savings were expected to be achieved through reductions
in personnel, and related benefit costs, and consolidation and elimination of
back office operations, including administration, data processing, and
centralized support functions.
On February 9, 1996, the Executive Committee of the ValliCorp Board of
Directors considered a presentation by ValliCorp management on a possible merger
transaction between Auburn and ValliCorp and authorized continued discussions
and negotiations regarding the possible merger transaction. On February 26,
1996, the ValliCorp Board of Directors considered a similar presentation by
ValliCorp management, determined that the purchase of Auburn by ValliCorp
pursuant to the Merger would be in the best interest of ValliCorp and its
stockholders and authorized entry into the Merger Agreement.
In reaching its decision that the Merger Agreement is in the best interest
of ValliCorp and its stockholders, ValliCorp's Board of Directors consulted with
ValliCorp's management, and considered a number of factors, including, but not
limited to, the following:
(a) The financial condition and results of operation of, and prospects
for, each of ValliCorp and Auburn;
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(b) The amount and type of consideration to be paid by ValliCorp to
Auburn's shareholders pursuant to the Merger Agreement;
(c) That the Merger is expected to give ValliCorp a larger presence in the
Sacramento area, filling in ValliCorp's target market area;
(d) The possibility that because of synergies resulting from the
acquisition ValliCorp can achieve a combination of additional revenues and cost
savings in excess of those which must be realized for the transaction to be
nondilutive; and
(e) That the Merger enables ValliCorp to expand within its target market
and thereby better compete with other banking institutions with greater
financial resources.
Auburn Background and Reasons for the Merger and Recommendation of its
Management. The Board of Directors of Auburn began to consider the possibility
of a business combination with ValliCorp during the third quarter of 1995.
After various discussions and negotiations between certain of their directors
and officers, a due diligence examination of the respective parties, and after
certain additional discussions and negotiations, including review of the
fairness report from Findley, Auburn entered into the Agreement on March 27,
1996.
The Board of Directors of Auburn believes the Merger to be in the best
interests of Auburn, its shareholders and banking customers. The Board of
Auburn expects the surviving company to be stronger in terms of management,
growth opportunities and profitability than is either institution at present.
ValliCorp and Auburn have both been profitable over the past several years.
The continuing growth of ValliCorp in the general Sacramento market will be a
natural complement to Auburn's offices in Northern California and both
institutions will benefit from the expansion into similar and compatible market
areas which are geographically proximate.
In evaluating the proposed Merger and arriving at the formula for
calculating the Conversion Ratio, the Board of Directors of Auburn considered a
variety of factors, reviewed information relating to ValliCorp and Auburn and
received reports from and presentations by their respective officers, financial
advisers and legal counsel. Among the factors considered by the Auburn Board
were the fact that the value of the consideration to be paid in the Merger
represents a premium over the historical market price of Auburn Common Stock;
the historic characteristics of the market for Auburn Common Stock, the value
and form of the consideration to be paid in the Merger compared with prices paid
in recent acquisitions of other banks and bank holding companies in California;
the book value and earnings per share of Auburn; the results of operations
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and prospects of ValliCorp and Auburn; the advisability of continuing to operate
Auburn as an independent entity; the tax consequences of the transaction to
shareholders of Auburn; and the value of ValliCorp Common Stock as an
investment. The Board of Directors of Auburn concluded, in light of these
factors and other factors they considered appropriate, that the Conversion Ratio
was in the best interests of their respective institutions and shareholders.
THE AUBURN BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGER, BE
ADOPTED AND APPROVED BY THE SHAREHOLDERS OF AUBURN.
FAIRNESS OPINION OF THE FINDLEY GROUP
Auburn has retained Findley to act as its financial advisor in connection
with the Merger pursuant to an engagement letter dated January 22, 1996 (the
"Engagement Letter"). Findley has rendered to the Board of Directors of Auburn
its written opinion dated May 29, 1996, as affirmed on ______________, 1996,
pursuant to the terms of the Merger Agreement that, subject to the assumptions
and limitations set forth therein, the Conversion Ratio is fair, from a
financial point of view, to Auburn shareholders. A copy of the opinion dated May
29, 1996 of Findley (the "Fairness Opinion") is attached as Appendix B to this
Proxy Statement and should be read in its entirety. The following summary is
qualified in its entirety by reference to the full text of the Fairness Opinion.
This Fairness Opinion is addressed to the Board of Directors of Auburn and does
not constitute a recommendation to any shareholder of Auburn as to how such
shareholder should vote at the Auburn Meeting.
In connection with its Fairness Opinion, Findley, among other things: (a)
reviewed certain publicly available financial and other data with respect to
Auburn and ValliCorp, including the consolidated financial statements for recent
years and interim periods to March 31, 1996, the March 31, 1996 call reports for
ValliWide and TBOC and certain other relevant financial and operating data
relating to Auburn and ValliCorp made available to Findley from published
sources and from the internal records of Auburn and ValliCorp; (b) reviewed the
Merger Agreement; (c) reviewed certain historical market prices and trading
volumes of ValliCorp Common Stock on the NASDAQ National Market System and of
Auburn Common Stock; (d) compared Auburn and ValliCorp from a financial point of
view with certain other companies that Findley deemed to be relevant; (e)
considered the financial terms, to the extent publicly available, of selected
recent business combinations of companies that Findley deemed to be comparable,
in whole or in part, to the Merger; (f) reviewed and discussed with
representatives of the management of Auburn certain information of a business
and financial nature regarding Auburn and ValliCorp
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furnished to Findley by Auburn and ValliCorp, including financial forecasts and
related assumptions of Auburn and ValliCorp; (g) made inquiries regarding and
discussed the Merger and the Merger Agreement and other matters related thereto
with Auburn's counsel; (h) reviewed a draft of this Proxy Statement; (i)
reviewed a valuation report concerning the Merger prepared by Gerry Findley,
Incorporated; and (j) performed such other analyses and examinations as Findley
deemed appropriate.
Analysis of Selected Bank Merger Transactions. Findley reviewed the
consideration paid in recently announced transactions whereby certain banks were
acquired. Specifically, Findley reviewed 31 transactions involving acquisitions
of selected banks in California completed since January 1, 1995 (the "California
Acquisitions"). For each bank acquired in such transactions, Findley compiled
figures illustrating, among other things, the ratio of the premium (i.e.,
purchase price in excess of tangible book value) to deposits, purchase price to
book value, and purchase price to previous year's earnings.
The figures for all banks acquired in the California Acquisitions produced:
(a) a median percentage of premium to deposits of 3.06%; (b) a median ratio of
purchase price to book value of 1.33; and (c) a median ratio of purchase price
to previous year's earnings of 13.80.
In comparison, assuming that the Conversion Ratio to be paid in the Merger
equals $12.31 per share (using a value for ValliCorp Common Stock of $15.00 per
share), Findley determined that the Conversion Ratio in the Merger represented a
percentage of premium to deposits of 6.89%, a ratio of purchase price to book
value of 1.60 and a ratio of purchase price to previous year's earnings of
14.07.
No other company or transaction used in the above analysis as a comparison
is identical to Auburn, ValliCorp or the Merger. Accordingly, an analysis of the
results of the foregoing is not mathematical; rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies and other factors that could affect the public
trading value of the companies to which ValliCorp, Auburn and the Merger are
being compared.
Contribution Analysis. Findley analyzed the contribution of each of Auburn
and ValliCorp to, among other things, common equity and net income of the pro
forma combined companies for the period ended March 31, 1996. This analysis
showed, among other things, that based on pro forma combined balance sheets and
income statements for Auburn and ValliCorp as of December 31, 1995, adjusted for
the two recent acquisitions of ValliCorp completed in the first quarter of 1996,
Auburn would have contributed 6.9% of the deposits and 5.2% of the net income of
the combined companies (before costs savings and revenue enhancements). Based
upon the stock
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consideration to be paid in the merger as provided in the Merger Agreement, the
Auburn shareholders would own approximately 6.4% of the combined companies.
Discounted Cash Flow Analysis. Findley examined the results of a
discounted cash flow analysis designed to compare the Conversion Ratio with the
present value, under certain assumptions, that would be attained if Auburn
remained independent through 2000, at which time Auburn was acquired by a larger
financial institution. The cash flows for the combined companies assumed that
the Conversion Ratio equals $12.31 per share of ValliCorp market value Common
Stock. The results produced in the analyses did not purport to be indicative of
actual values or expected values of Auburn or the combined companies at such
future date. All cases were analyzed assuming realization of operating cost
savings, estimated by ValliCorp, in the amounts and time periods forecasted by
ValliCorp.
The discount rates used ranged from 10% to 16%. For the Auburn stand alone
analysis, the terminal price multiples applied to the 2000 estimated book value
ranged from 1.00x to 2.00x. The lower levels of the price/book values multiples
range reflected an estimated future trading range of Auburn or the combined
companies, while the higher levels of the price/book value multiples range were
more indicative of a future sale of Auburn or the combined companies to a larger
financial institution.
For the Auburn stand alone analysis, the cash flows were comprised of the
projected stand alone dividends per share in years 1996 through 2000 plus the
terminal value of Auburn Common Stock at the year-end 2000 (calculated by
applying each one of the assumed terminal price/book value multiples as stated
above to the 2000 projected Auburn book value per share). A similar analysis
was done for the combined companies. The discount rates described above were
then applied to these cash flows to obtain the present values per share of
Auburn Common Stock.
Under a most likely scenario, the Findley analysis assumed that projected
earnings, among other things, would be achieved; that projected operating cost
savings are ninety percent (90%) realized (for the combined companies case); a
present value discount rate of 12%; and a terminal price/book value multiple of
1.60. Assuming Auburn remains independent through 2000 and is then acquired by a
larger financial institution, a holder of one share of Auburn Common Stock today
would receive cash flows with a present value of $12.89. Assuming the Merger is
consummated and that the combined companies remain independent through 2000 and
are then acquired by a larger financial institution, a holder of one share of
Auburn Common Stock today would receive cash flows with a present value of at
least $14.10.
Comparable Company Analysis. Using public and other available information,
Findley compared certain financial ratios of Auburn and ValliCorp (including the
ratio of net income to average total
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assets ["return on average assets"], the ratio of net income to average total
equity ["return on average equity"], the ratio of average equity to average
assets and certain credit ratios for the year ended December 31, 1995 and the
interim period ending March 31, 1996) to a peer group consisting of 20 selected
banks located in California. No company used in the analysis is identical to
Auburn or ValliCorp. The analysis necessarily involved complex considerations
and judgments concerning differences in financial and operating characteristics
of the companies. The results of this analysis indicated that both Auburn and
ValliCorp performed slightly below the peer group level on the basis of
profitability. ValliCorp performed better than the peer group on certain cost
controls while Auburn performed better than the peer group on certain credit
controls, net interest margins and capital levels.
The foregoing summarizes the material portions of Findley's report, but
does not purport to be a complete description of the presentation by Findley to
Auburn's Board of Directors or of the analyses performed by Findley. The
preparation of a fairness opinion is not necessarily susceptible to partial
analysis or summary description. Findley believes that its analyses and the
summary set forth above must be considered as a whole and that selecting a
portion of its analyses and of the factors considered, without considering all
analyses and factors, would create an incomplete view of the process underlying
the analyses set forth in its presentation to the Auburn Board of Directors.
In performing its analyses, Findley made numerous assumptions with respect
to industry performance, general business and economic conditions and other
matters, many of which are beyond the control of ValliCorp or Auburn. The
analyses performed by Findley are not necessarily indicative of actual values or
actual future results, which may be significantly more or less favorable than
suggested by such analyses. Such analyses were prepared solely as part of
Findley's analysis of the fairness, from a financial standpoint, of the Merger
to Auburn's shareholders and were provided to the Auburn Board of Directors in
connection with the delivery of Findley's Fairness Opinion. The analyses do not
purport to be appraisals or to reflect the prices at which any securities may
trade at the present time or at any time in the future. Findley used in its
analyses various projections of future performance prepared by the management of
Auburn. The projections are based on numerous variables and assumptions which
are inherently unpredictable and must be considered not certain of occurrence as
projected. Accordingly, actual results could vary significantly from those set
forth in such projections.
In rendering its Fairness Opinion, Findley relied upon and assumed without
independent verification the accuracy and completeness of all of the financial
and other information reviewed by Findley for purposes of its Fairness Opinion.
Findley did not make an independent evaluation or appraisal of the assets and
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liabilities of ValliCorp, Auburn or any of their respective subsidiaries. Auburn
did not impose any limitations or restrictions with respect to the scope of
Findley's investigation or the procedures or methods it followed, or with regard
to any other matters relating to Findley's rendering of the Fairness Opinion
regarding the fairness of the Merger. Gary Steven Findley, an affiliate of The
Findley Group and corporate counsel for Auburn, did participate in negotiations
regarding the Agreement.
Auburn's Board of Directors selected and instructed Findley to render an
Fairness Opinion with respect to the fairness of the Merger to Auburn's
shareholders from a financial point of view based on its belief that Findley is
experienced and qualified in such matters. Findley has extensive experience in
the evaluation of banks in connection with mergers and acquisitions, and
valuations for corporate and other purposes. In over 40 years of bank
consulting, Findley has been involved in the creating, developing, merging and
acquisition of hundreds of financial institutions.
Pursuant to the Engagement Letter, Auburn agreed to pay Findley a fee of
$120,000 for Findley's services rendered to Auburn in connection with this
transaction, which services included the location of ValliCorp as a buyer of
Auburn, the issuance of Findley's Fairness Opinion and assistance in the
negotiation of the Agreement and the underlying transaction. Upon consummation
of the Merger, Findley will be paid $120,000. No amounts have been paid to
Findley to date. Auburn has agreed to indemnify Findley against certain
liabilities and expenses in connection with its services as financial advisor to
Auburn.
Auburn has employed the law firm of Gary Steven Findley & Associates, an
affiliate of Findley, as its corporate counsel during the past two years. Gary
Steven Findley is the principal of the firm. The law firm has been paid fees of
$95,585 for its services over the last two years. No amounts have been paid to
other Findley affiliates or Findley over the last two years for various bank
related consulting services.
TERMS OF THE MERGER
General. The Merger Agreement provides for the merger of Auburn with and
into ValliCorp. As a result of the Merger, the corporate existence of Auburn
will cease. The parties also agreed to use their reasonable efforts to cause
Auburn's banking subsidiary, TBOC, to be merged into ValliCorp's subsidiary,
ValliWide, as soon as practicable after the Merger of ValliCorp and Auburn.
Effective Time of the Merger. The Merger will become effective on the date
and at the time that a certificate of merger is accepted for
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filing by the Secretary of State of the State of Delaware, or at such later time
within two (2) business days after such filing as may be specified in the
certificate of merger (the "Effective Time"). The Merger Agreement provides that
either party may terminate the Merger Agreement if the Merger has not been
consummated before December 31, 1996 for a reason other than the failure of the
terminating party to comply with its obligations under the Merger Agreement. See
"-Termination" below.
Consideration to be Paid in the Merger. At the Effective Time, each
outstanding share of Auburn Common Stock, exclusive of shares held by holders
who effectively exercise dissenters' rights under the California GCL, will be
converted into a number of shares of ValliCorp Common Stock pursuant to the
Conversion Ratio. The Conversion Ratio, initially set at 0.8209, is subject to
the following potential adjustments:
(a) Should the number of shares of ValliCorp Common Stock that would
be issued at a Conversion Ratio of 0.8209 in exchange for the number of shares
of Auburn Common Stock outstanding at the Effective Time and upon the exercise
of Auburn Stock Options assumed by ValliCorp pursuant to Section 7.10 of the
Merger Agreement exceed 926,768, the Conversion Ratio shall be adjusted downward
and shall equal the quotient (rounded to four digits to the right of the decimal
point) obtained by dividing 926,768 by the sum of (i) the number of shares of
Auburn Common Stock outstanding at the Effective Time, and (ii) the number of
shares of Auburn Common Stock available upon the exercise of Auburn Stock
Options assumed by ValliCorp. For a discussion of the treatment of Auburn Stock
Options in the Merger, see "-Treatment of Auburn Stock Options" below.
(b) Should ValliCorp declare a stock dividend or distribution upon or
reclassify, split up, combine, or subdivide the ValliCorp Common Stock, or
declare a dividend, or make a distribution on the ValliCorp Common Stock in any
security convertible into ValliCorp Common Stock, as of a record date prior to
the Effective Time, the Conversion Ratio (as well as the total number of shares
of ValliCorp Common Stock to be issued pursuant to the Merger) shall be
appropriately adjusted to maintain the proportional interest in ValliCorp Common
Stock which the shareholders of Auburn would otherwise have received.
(c) Should a Triggering of Rights (as defined in the Merger
Agreement) occur prior to the Effective Time, for each share of ValliCorp Common
Stock that the shareholders of Auburn are entitled to receive hereunder without
regard to this paragraph (c) or paragraph (b) above, the shareholders of Auburn
shall receive one share of ValliCorp Common Stock plus Rights Securities (as
defined in the Merger Agreement) having an aggregate value equal to the Spread
(as defined in Section 11(a)(iii) of the Rights Agreement). "Rights Securities"
are defined in the Merger Agreement to mean one one-hundredths of a share of
Series A
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Preferred Stock unless the Board of Directors of ValliCorp makes available for
distribution to or purchase by Rights holders any other securities or assets or
cash, in which case Rights Securities are deemed to include such securities,
assets, or cash. A "Triggering of the Rights" is defined in the Merger Agreement
to occur at the close of business on the tenth business day following the
occurrence of a Section 11(a)(ii) Event (as defined in the Rights Agreement),
unless prior to the end of such ten (10) business day period: (i) the Board of
Directors of ValliCorp or a Committee thereof redeems the Rights in accordance
with Section 23 of the Rights Agreement or (ii) the person triggering
exercisability of the Rights reduces its ownership of ValliCorp Common Stock to
less than 10% of the outstanding shares of ValliCorp Common Stock and there are
no other shareholders who are the beneficial owners of 10% or more of the
outstanding shares of ValliCorp Common Stock. In general terms and subject to
limitations contained in the Rights Agreement, the "Spread" comes into play
under the Rights Agreement when the number of shares of Series A Preferred Stock
is insufficient to permit the exercise in full of Rights. In general terms and
also subject to limitations contained in the Rights Agreement, a "Section
11(a)(ii) Event" is deemed to occur under the Rights Agreement when an
individual or entity, alone or acting together with others, becomes an Acquiring
Person. For a discussion of what constitutes an "Acquiring Person" and the
Rights generally, see "DESCRIPTION OF VALLICORP CAPITAL STOCK AND INDEBTEDNESS-
ValliCorp Series A Preferred Stock Purchase Rights."
The maximum number of shares of ValliCorp Common Stock issuable in the
Merger (926,768) is equal to 0.8209 times the total of (y) the number of shares
of Auburn Common Stock outstanding at the date of the Merger Agreement
(1,004,955) plus (z) the number of shares of Auburn Common Stock available upon
the exercise of Auburn Stock Options (124,011). The Merger Agreement prohibits
the granting of additional options to purchase Auburn Common Stock and prohibits
the issuance of additional shares of Auburn Common Stock, other than pursuant to
exercises of existing Auburn Stock Options for 124,011 shares. A downward
adjustment to the Conversion Ratio under paragraph (a) above would only occur in
the unlikely event that Auburn's representations contained in the Merger
Agreement as to the number of shares of Auburn Common Stock outstanding or
available upon exercise of Auburn Stock Options should prove incorrect. By way
of examples, nonetheless, if the number of shares of Auburn Common Stock
outstanding and available upon exercise of Auburn Stock Options immediately
prior to the Effective Time of the Merger exceeded 1,128,966 (the total of
1,004,955 plus 124,011) by 5,000 shares or by 25,000 shares, the Conversion
Ratio would decrease by application of the formula described in paragraph (a)
above from 0.8209 to 0.8173 or 0.8031, respectively.
The Merger Agreement generally provides that Auburn may not without the
prior written consent of ValliCorp, from the date thereof until the Effective
Time, declare or pay any dividend on,
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or make any other distribution in respect of, its outstanding shares of capital
stock. Notwithstanding this general provision, Auburn may declare or pay its
regular annual cash dividend.
Rights of Holders After Effective Time; Dividends. As soon as reasonably
practicable after the Effective Time, the Exchange Agent (as that term is
defined in the Merger Agreement) selected by ValliCorp will forward a letter of
transmittal to former shareholders of record of Auburn containing detailed
instructions for the surrender of certificates representing Auburn Common Stock
in exchange for certificates representing shares of ValliCorp Common Stock.
Certificates should not be surrendered until the letter of transmittal is
received. For purposes of voting and establishing record ownership of ValliCorp
Common Stock for the period from and after the Effective Time, any holder of
Auburn Common Stock who does not surrender the certificates representing such
shares to the Exchange Agent as discussed above and who does not perfect
dissenters' rights under the California GCL (a) shall be deemed to hold that
number of shares of ValliCorp Common Stock that such holder would otherwise be
entitled to receive if such certificates had been surrendered, and (b) shall be
entitled to vote in regard to any matter submitted to the ValliCorp shareholders
for their approval including, without limitation, election of directors of
ValliCorp, as if such holder had received the ValliCorp Common Stock to which he
or she was entitled. No dividends or other distributions of any kind which are
declared payable to shareholders of record of the ValliCorp Common Stock after
the Effective Time will be paid to Auburn Common shareholders until such persons
have surrendered their certificates representing Auburn Common Stock. Upon
surrender of such certificates, the holder shall be paid, without interest, any
dividends or other distributions with respect to the ValliCorp Common Stock as
to which the record date occurred on or after the Effective Time.
Exchange of Auburn Common Stock Certificates; Fractional Interests. After
the Effective Time, each holder of a certificate or certificates representing
Auburn Common Stock will, upon the surrender thereof to the Exchange Agent, be
entitled to receive a certificate or certificates representing the number of
whole shares of ValliCorp Common Stock into which shares of Auburn Common Stock
will have been converted and a payment in cash with respect to any fractional
share. ValliCorp will not issue any fractional shares of ValliCorp Common Stock
or any scrip or certificate therefor in connection with the Merger. Instead,
each holder of a certificate or certificates representing shares of Auburn
Common Stock will, upon surrender of his or her certificates to the Exchange
Agent, receive for each fractional share an amount equal to the product
determined by multiplying such fraction by the "Average Closing Price" (as
defined in the Merger Agreement) of one full share of ValliCorp Common Stock. No
such holder shall be entitled to any dividends, voting rights, interest on the
value of, or any other rights in respect of a fractional share. The Average
Closing Price is defined in the Merger Agreement as the average of the daily
closing
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price of ValliCorp Common Stock reported on The NASDAQ Stock Market for
each of the five consecutive trading days (whether or not there were any trades
in ValliCorp Common Stock) ending at the end of the third trading day
immediately proceeding the Effective Time.
Treatment of Auburn Stock Options. As of March 27, 1996, the date the
Merger Agreement was signed, there were 1,004,955 shares of Auburn Common Stock
outstanding. In the Merger Agreement, Auburn agrees not to issue any additional
shares of Auburn Common Stock without the prior written consent of ValliCorp,
except for shares which may be issued prior to the Effective Time pursuant to
exercises of Auburn Stock Options outstanding on March 27, 1996 under the Auburn
Option Plans. On March 27, 1996, there were outstanding Auburn Stock Options to
purchase 124,011 shares of Auburn Common Stock at the exercise prices shown
below:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
STOCK OPTION EXERCISE AUBURN COMMON STOCK
PRICE SUBJECT TO AUBURN STOCK OPTIONS
--------------------- -------------------------------
<S> <C>
$4.70 5,061
4.88 33,275
5.75 2,500
5.78 21,175
7.50 16,000
7.75 46,000
-------
Total 124,011
=======
</TABLE>
Upon the effectiveness of the Merger, ValliCorp will assume each and every
then outstanding Auburn Stock Option to purchase shares of Auburn Common Stock
and all obligations of Auburn under the Auburn Option Plans. Each and every
Auburn Stock Option assumed by ValliCorp shall continue to have, and be subject
to, the same terms and conditions set forth in the Auburn Option Plans and in
the other documents governing such Auburn Stock Option immediately prior to the
Effective Time, except that (a) such Auburn Stock Option shall be exercisable
for that number of whole shares of ValliCorp Common Stock equal to (i) the
number of shares of Auburn Common Stock that were purchasable under such Auburn
Stock Option immediately prior to the Effective Time, multiplied by (ii) the
Conversion Ratio, rounded down to the nearest number of whole shares; and (b)
the per share exercise price of such option shall equal the quotient determined
by dividing (i) the exercise price per share of Auburn Common Stock at which
such Auburn Stock Option was exercisable immediately prior to the Effective
Time, by (ii) the Conversion Ratio. Auburn Stock Options outstanding under
Auburn's two 1982 Option Plans have all vested. Options outstanding under the
remaining Auburn Option Plan adopted in 1994, to the extent not already vested,
will become vested at the Effective Time of the Merger pursuant to the terms of
the 1994 Plan.
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INVESTMENT AGREEMENT
Simultaneously with its execution of the Merger Agreement and as a
condition to such execution, ValliCorp required that Auburn enter into the
Investment Agreement with ValliCorp, pursuant to which Auburn granted ValliCorp
the Option to purchase up to 199,986 newly issued shares of Auburn Common Stock
(equal to 19.9% of the shares of Auburn Common Stock issued and outstanding
immediately prior to execution of the Investment Agreement) at a price of $10
per share (the "Exercise Price"), subject to adjustment under certain
circumstances. The following summary of the principal terms of the Investment
Agreement is qualified by the terms of the Investment Agreement itself, a copy
of which appears as Exhibit 9.2 to the Merger Agreement attached as Appendix A
to this Proxy Statement.
The Option is exercisable only upon the occurrence of: (a) the
commencement of, or filing a registration statement under the Securities Act
with respect to, a tender or exchange offer by a third party (other than
ValliCorp) to purchase ten percent (10%) or more of the outstanding shares of
Auburn Common Stock; (b) the authorization, recommendation, proposal, or public
announcement of an intention to authorize, recommend, or propose, or entry into,
by Auburn or a subsidiary of Auburn of an "Acquisition Transaction" (as defined
in the Investment Agreement) with a third party (other than ValliCorp); (c) the
acquisition by any third party (other than ValliCorp) of beneficial ownership or
the right to acquire beneficial ownership, or the formation of any group which
has beneficial ownership or the right to acquire beneficial ownership, of ten
percent (10%) or more of the outstanding shares of Auburn Common Stock; or (d)
the non-approval of the Merger Agreement by the Auburn shareholders,
cancellation of or failure to hold the shareholders' meeting at which the Merger
Agreement was to have been voted upon prior to termination of the Merger
Agreement, or the withdrawal or modification of the unanimous recommendation of
Auburn's Board of Directors with respect to the Merger Agreement, in each case
after any third party (other than ValliCorp) has (i) publicly announced a
proposal, or publicly disclosed an intention to make a proposal, to engage in an
Acquisition Transaction, or (ii) filed an application or given notice under the
1956 Act or the Change in Bank Control Act of 1978 for approval to engage in an
Acquisition Transaction.
ValliCorp may not, however, exercise the Option if it has not obtained any
requisite regulatory approvals or is failing to perform or observe its covenants
and conditions under the Merger Agreement.
The Investment Agreement and the Option will terminate upon the earliest to
occur of (a) December 31, 1996, (b) mutual agreement of the parties, (c) thirty-
one (31) days after regulatory approval for the Merger is denied, except if
either party has appealed such denial, in which case the Option will not
terminate
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until the earlier of (i) December 31, 1996, or (ii) thirty-one (31) days after
completion of the appeal, (d) the ninetieth (90th) day following termination of
the Merger Agreement for any reason other than material noncompliance or default
by ValliCorp, or (e) the date of termination of the Merger Agreement if the
termination is due to ValliCorp's material noncompliance or default.
ValliCorp may transfer all or any portion of the Option after, but not
before, it becomes exercisable. In the event of such transfer, the Option may
be exercised at any time within thirty-one (31) days after termination of the
Investment Agreement.
The Option is intended to increase the likelihood that the Merger will be
consummated in accordance with the terms set forth in the Merger Agreement and
may discourage offers to acquire Auburn. Consequently, certain aspects of the
Investment Agreement may have the effect of discouraging persons who might now
or prior to the consummation of the Merger be interested in acquiring all of or
a significant interest in Auburn from considering or proposing such an
acquisition, even if such persons were prepared to pay consideration of greater
value than that being paid by ValliCorp pursuant to the Merger Agreement. The
acquisition of Auburn or an interest in Auburn, or an agreement to do either,
could cause the Option to become exercisable. The existence of the Option could
significantly increase the cost to a potential acquiror of acquiring Auburn
compared to its cost had the parties not entered into the Investment Agreement.
Such increased cost might discourage a potential acquiror from considering or
proposing an acquisition or might result in a potential acquiror proposing to
pay a lower price to acquire Auburn than it might otherwise have proposed to
pay. ValliCorp believes that the exercise of the Option is likely to prohibit
any acquiror of Auburn from accounting for any acquisition of Auburn using the
pooling-of-interests accounting method for a period of two years. This could
discourage or preclude an acquisition of Auburn by other banking organizations.
To the best of ValliCorp's and Auburn's knowledge, no event giving rise to
ValliCorp's right to exercise the Option has occurred as of the date of this
Proxy Statement.
CONDITIONS TO THE MERGER
The Merger will only occur if the Merger Agreement is approved by the
affirmative vote of the holders of at least a majority of the outstanding shares
of Auburn Common Stock. Consummation of the Merger is subject to the
satisfaction of certain other conditions, unless waived, to the extent waiver is
permitted by law. Such other conditions include (a) the receipt of approval of
the Merger Agreement and the transactions contemplated thereby by the Federal
Reserve Board without the imposition of any condition not customarily contained
in approvals of similar transactions by the
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Federal Reserve Board, and the expiration of all necessary waiting periods; (b)
effectiveness of the Registration Statement and compliance with applicable state
securities laws and the absence of a stop order suspending such effectiveness or
compliance; (c) the absence of any order, decree or injunction of a court or
agency of competent jurisdiction enjoining or prohibiting consummation of the
Merger; (d) the inclusion for listing on NASDAQ of the shares of ValliCorp
Common Stock issuable in the Merger; (e) the receipt by ValliCorp and Auburn of
an opinion from Deloitte & Touche LLP, ValliCorp's independent public
accountants, to the effect that the Merger will be treated for federal income
tax purposes as a reorganization within the meaning of Section 368(a) of the
Code, and that ValliCorp and Auburn will both be a party to that reorganization
within the meaning of Section 368(b) of the Code; (f) receipt of an opinion from
Deloitte & Touche LLP dated as of the closing with respect to certain additional
tax aspects of the Merger (which condition is in favor of Auburn); (g) the
absence of material litigation or proceedings involving ValliCorp or Auburn
seeking to prevent or change, or questioning the validity or legality of any of,
the transactions contemplated by the Merger Agreement (which condition is in
favor of ValliCorp); (h) receipt by Auburn from Findley of an opinion to the
effect that the consideration to be received in the Merger by Auburn's
shareholders is fair to such shareholders from a financial point of view; (i)
receipt by ValliCorp and Auburn of legal opinions described in the Merger
Agreement from counsel to the other; (j) the absence of any material adverse
change in the financial condition, results of operations, or business of
ValliCorp taken as a whole (which condition is in favor of Auburn) or of Auburn
taken as a whole (which condition is in favor of ValliCorp) having occurred
prior to the Effective Time; and (k) the performance of each of the obligations
of the parties required under the Merger Agreement and the continued accuracy in
all material respects of the representations and warranties by ValliCorp and
Auburn under the Merger Agreement. See "-Regulatory Approval," "-Termination,"
and "-Waiver and Amendment" below.
ValliCorp and Auburn have received the tax opinion from Deloitte & Touche
LLP described in clauses (e) and (f) in the preceding paragraph, although such
opinion must be updated just prior to the Effective Time pursuant to clause (f).
Auburn has received the fairness opinion from Findley described in clause (h) of
the preceding paragraph. No assurances can be provided as to when or if all of
the remaining conditions precedent to the Merger can or will be satisfied or
waived by the party permitted to do so.
REGULATORY APPROVAL
The Merger is subject to prior approval by the Federal Reserve Board under
the 1956 Act. The 1956 Act requires the Federal Reserve Board to consider,
among other things, before approving any application, the effect of the Merger
on competition, the financial
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and managerial resources and future prospects of the existing and proposed
companies and the convenience and needs of the communities to be served. The
1956 Act also requires a notice to be published and the opportunity for an
administrative hearing relating to the application to permit interested parties
to intervene in the proceedings. The United States Justice Department may
challenge the Merger under federal antitrust laws.
ValliCorp sent its application to the Federal Reserve Board for approval of
the Merger in mid-June 1996. The Federal Reserve Board could refuse to grant
approval for the Merger or could impose conditions not customarily contained in
approvals of similar transactions, in which latter case neither ValliCorp nor
Auburn would be bound to consummate the Merger. There is no assurance that a
nonobjectionable approval from the Federal Reserve Board will be received prior
to December 31, 1996, which is the date on or after which ValliCorp or Auburn
may terminate the Merger Agreement.
BUSINESS OF AUBURN PENDING THE MERGER
The Merger Agreement provides that, during the period from the date of the
Merger Agreement to the Effective Time of the Merger, except as provided in the
Merger Agreement, Auburn will conduct its business in the ordinary course
substantially consistent with past practices and will use its best efforts to
preserve intact its business organization and assets, maintain its rights and
franchises, retain the services of its officers and key employees, and maintain
its relationships with customers. Under the Merger Agreement, Auburn agrees that
it will not, without the prior written consent of ValliCorp, declare or pay any
dividends, other than its regular annual dividend. Pursuant to Section 5.2 of
the Merger Agreement, Auburn agrees that it will not take, and will not permit
TBOC to take, certain other listed actions without the prior consent of
ValliCorp. The Chief Credit Officer of TBOC resigned effective May 31, 1996, and
the duties of the Chief Credit Officer of TBOC have been taken over by Jeff
Moore, Vice President of TBOC.
TERMINATION
The Merger Agreement and the transactions contemplated thereby may be
terminated at any time prior to the Effective Time, whether before or after
approval of the Merger by the shareholders of Auburn, upon the occurrence of any
of the following events: (a) by mutual consent of ValliCorp and Auburn; (b) by
ValliCorp or Auburn, (i) if there has been a material breach by the other, (ii)
if a representation or warranty of the other is discovered to be untrue in any
material respect, or (iii) if on or after October 31, 1996 there has been a
failure or prospective failure of the other party to comply with the conditions
of the Merger Agreement or such
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conditions have been fulfilled or waived by one party and the other fails to
complete the Merger, in any case which breach or other condition has not been
cured within ten (10) business days following receipt of notice by the
nonterminating party; (c) by ValliCorp or Auburn if (i) a permanent injunction
preventing the Merger has become final or (ii) the Federal Reserve Board has
denied approval of the Merger and, within thirty (30) days thereafter, neither
ValliCorp nor Auburn has filed a petition seeking review of the order of denial;
(d) by ValliCorp if Auburn shall have failed to act or refrain from doing any
act relating to non-solicitation of other transactions required by Section
5.2(f) of the Merger Agreement (see "-No Solicitation of Transactions" below);
or (e) by ValliCorp or Auburn if the Merger has not been consummated by December
31, 1996 for a reason other than the failure of the terminating party to comply
with its obligations under the Merger Agreement.
WAIVER AND AMENDMENT
Except for any conditions required by law and except for any approval to be
obtained under the provisions of Section 8.1 of the Merger Agreement, at any
time prior to the consummation of the Merger, whether before or after approval
by the shareholders of ValliCorp and Auburn, ValliCorp and Auburn may (a) amend
the Merger Agreement by an instrument in writing signed by both parties, (b)
extend the time for the performance of any of the obligations or other acts of
the other, (c) waive any inaccuracies in the representations and warranties
contained in the Merger Agreement or in any documents delivered pursuant
thereto, or (d) waive compliance with any of the agreements or conditions
contained in the Merger Agreement, provided that any extension or waiver is in
writing and signed on behalf of the party agreeing to the waiver. After
approval of the Merger by the Auburn shareholders, there may not be, without
further approval of such shareholders, any amendment of the Merger Agreement
which by law requires such further approval.
MANAGEMENT AND OPERATIONS OF VALLICORP AFTER THE MERGER
Management. Upon consummation of the Merger, Auburn will be merged with
and into ValliCorp, with ValliCorp as the surviving entity. The Merger
Agreement provides that, promptly after the Effective Time, ValliCorp shall
cause the number of directors on its Board of Directors to be increased by one
and the vacancy thus created to be filled by the election of one person who was
a director of Auburn on the date of execution of the Merger Agreement (March 27,
1996) and who is mutually acceptable to Auburn and ValliCorp. Such director is
to hold the longest term of office possible at the time of his election.
ValliCorp and Auburn currently anticipate that the member from the Auburn Board
of Directors to be appointed to the ValliCorp Board of Directors after
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consummation of the Merger will be D. Dwight Odom, M.D., currently the Chairman
of Auburn's Board of Directors. The current compensation for members of the
Board of Directors of ValliCorp who are not also officers of ValliCorp or
ValliWide and do not serve as the Vice Chairman of the Board or Chairman of the
Executive or any other Committee of the Board is $1,000 per month retainer,
regardless of board meeting attendance, and $500 per ValliCorp committee meeting
attended. Committee chairmen, with the exception of the Vice Chairman of the
Board and Executive Committee Chairman, receive $600 per committee meeting
attended for the committee chaired by the Director. It is not anticipated that
Dr. Odom will serve as ValliCorp's Chairman or Vice Chairman of the Board or
Chairman of its Executive Committee. Directors of ValliCorp are also eligible to
receive options under ValliCorp's Directors' Stock Option Plan. Mr. John G.
Briner, a director, President, and Chief Executive Officer of Auburn, is
expected to accept a position as a senior vice president or regional manager of
ValliCorp's subsidiary, ValliWide, if the Merger is consummated. His initial
salary is anticipated to be $120,000 per annum.
Except as otherwise described in this paragraph, ValliCorp's then current
directors will serve as the directors of the surviving corporation following the
Merger and the then current executive officers of ValliCorp will comprise the
executive management of ValliCorp.
Information concerning the current directors and executive officers of
ValliCorp is included in the ValliCorp 1996 Annual Meeting Proxy Statement
incorporated by reference in the ValliCorp 1995 Annual Report on Form 10-K,
which Annual Report is incorporated herein by reference, except that Mr. J. Mike
McGowan now serves as Chairman of the Board of Directors and Chief Executive
Officer of ValliCorp, Mr. Steven C. Pumphrey now serves as a director and
President and Chief Operating Officer of ValliCorp, and Dr. Alan H. Pierrot has
resigned his position on ValliCorp's Board of Directors. See "INFORMATION
INCORPORATED BY REFERENCE."
Merger of TBOC into ValliWide. Pursuant to the Merger Agreement, ValliCorp
and Auburn have agreed to use their reasonable efforts to take all actions
necessary or desirable, including the filing of any regulatory applications, so
that the Merger of TBOC with and into ValliWide will occur substantially
concurrently with, or as soon as practicable after, the Effective Time. The
form of Agreement of Merger to be executed by the two banks is set forth in
Exhibit 7.8 to the Merger Agreement attached to this Proxy Statement as Appendix
A.
As ValliWide is a California state-chartered banking corporation which is a
member of the Federal Reserve System, the Merger of TBOC into ValliWide must be
approved by the Federal Reserve Board and by the California Superintendent of
Banks (the "California Superintendent"). ValliCorp sent an application for
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approval of the merger of TBOC into ValliWide to the Federal Reserve Board in
mid-June 1996, and expects to send a similar application to the California
Superintendent before the end of June, 1996.
TBOC has its main branch in Auburn (Nevada County) and branch offices in
Grass Valley (Placer County) and Rancho Cordova (Sacramento County). It has a
loan production office in Sacramento. It is planned that after the Merger of
TBOC into ValliWide, the branches of TBOC will become branches of ValliWide.
ValliWide was formed on August 1, 1994, when two of ValliCorp's wholly-
owned subsidiary banks, Bank of Fresno and Merced Bank of Commerce, were merged
and adopted the new ValliWide name. ValliWide currently has fifty-four (54)
branches, located in the California Counties of Calaveras (2), Fresno (13), Kern
(12), Kings (3), Madera (5), Merced (3), Modesto, Sacramento, San Luis Obispo
(4), Stanislaus, Tulare (3), Tuolumne (5), and Yolo.
Projected Operating Cost Savings through Consolidation of Operations. As a
result of the Merger, ValliCorp expects the combined entity to achieve
substantial operating cost savings through the consolidation of certain
operations and the elimination of redundant costs. These operating cost savings
are expected primarily through reductions in personnel and related benefit costs
and consolidation and elimination of back office operations, including
administration, data processing, and centralized support functions. There can
be no assurance that the operating cost savings discussed below will be realized
or that they will be realized within the time periods indicated. The extent to
which the operating cost savings will be achieved depends, among other things,
on the regulatory environment and economic conditions and may be affected by
unanticipated changes in business activities, inflation and operating costs.
ValliCorp ultimately expects to achieve annual cost savings aggregating
approximately $1.1 million. The operating cost savings are expected to be
achieved in various amounts at various times during a two year period following
the Effective Time and not ratably over, or at the beginning or end of, such
period. ValliCorp and Auburn management are developing operating plans to
realize the projected operating cost savings.
The estimated operating cost savings of $1.1 million consists of
approximately $950,000 in personnel costs and related benefits, and $150,000 in
other administrative and overhead expenses. During the first twelve month
period subsequent to the Merger, ValliCorp expects that the majority of cost
savings will come principally from personnel, data processing, and other
overhead expense reductions. Following the first year after the Merger,
ValliCorp expects to reduce other administrative expenses.
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INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Board of Directors of Auburn,
shareholders should be aware that certain executive officers and members of the
Board of Directors of Auburn may have conflicts of interest with respect to the
Merger and the transactions contemplated thereby.
Each of the directors of Auburn as of the date of execution of the Merger
Agreement, in his capacity as a shareholder, has, pursuant to the Shareholder
Agreement, agreed to vote (or cause to be voted) the shares of Auburn Common
Stock as to which they were record and beneficial owners and had the power to
vote as of the date of the Shareholder Agreement, as well as any additional
shares of Auburn Common Stock acquired subsequent to the date of the Shareholder
Agreement, in favor of the Merger and the Merger Agreement, unless that
shareholder determines, based upon the written advice of counsel, that to do so
would violate his duties to Auburn's shareholders. For the number of shares of
Auburn Common Stock as to which such directors were record and beneficial owners
and had the power to vote as of the Record Date for the Annual Meeting, see "THE
ANNUAL MEETING-Agreement with Certain Shareholders." In addition, each director
has agreed to vote (or cause to be voted) his shares against any proposal or
transaction which would in any manner impede, frustrate, prevent or nullify the
Merger, the Merger Agreement or any of the other transactions contemplated by
the Merger Agreement. Each director has also agreed not to transfer their shares
except pursuant to the Merger. In addition, each director has agreed, except as
permitted by the Merger Agreement, to not engage or cooperate in any discussion
or negotiations with any person or entity other than ValliCorp, or make or
solicit any offers, with respect to the transfer of any or all of the shares of
Auburn Common Stock or the acquisition (by merger, tender offer or otherwise) of
Auburn or all or substantially all of its stock, business or assets. Each
individual also agrees to use his or her best efforts to the extent permitted by
law to cause Auburn to recommend to the shareholders of Auburn approval of the
Merger and the Merger Agreement. Pursuant to the Shareholder Agreement, each
director waives any rights of appraisal, or rights to dissent from the Merger,
that they have.
Dr. D. Dwight Odom, currently Chairman of the Board of Directors of Auburn
is expected to be elected to the Board of Directors of ValliCorp and ValliWide.
See "-Management and Operations of ValliCorp After the Merger-Management."
Severance payments will be made by TBOC in the amount of $365,000 to Mr.
John G. Briner, President and Chief Executive Officer of Auburn, and $125,000 to
Ms. Pam Briner, Executive Officer and Cashier of Auburn. Mr. Briner may also
receive from TBOC the TBOC owned four year old Cadillac that he currently drives
as an additonal bonus as a result of the Merger. Mr. Briner and ValliWide expect
Mr. Briner to be employed by ValliWide after consummation of the Merger in a
senior vice president or regional manager capacity. The exact
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terms of the employment agreement have yet to be finalized, but compensation to
Mr. Briner is expected to include annual cash compensation (not to exceed Mr.
Briner's current annual base compensation of $120,000) and a performance bonus
(not to exceed 50% of his base salary). In addition, Mr. Briner and ValliWide
also intend that Mr. Briner's employment agreement will generally obligate
ValliWide to pay Mr. Briner one year's salary in the event of termination of his
employment other than for cause at any time during the period of four years from
and after the Effective Time. ValliWide intends to pay Mr. Briner a signing
bonus of $60,000 to accept the position. No payment will be made under the
existing severance provision in Mr. Briner's employment agreement with Auburn,
which provides:
"In the event of an Acquisition, if Executive is not retained by the
resulting corporation for the remaining period of this Agreement in a
position comparable to that of the highest level vice president of the
resulting corporation or a lower position as may be accepted by
Executive, the resulting corporation shall pay Executive a lump sum
amount in cash equal to the sum of (i) three (3) years of Executive's
base annual salary based on Executive's base annual salary immediately
prior to the Acquisition, (ii) the amount necessary to cover
Executive's federal and California state income taxes on three (3)
years of Executive's base annual salary as computed in subclause (i),
and (iii) the amount necessary to cover any 'golden parachute taxes'
that may be assessed pursuant to Section 280G of the Internal Revenue
Code of 1986, as amended from time to time, on such lump sum payment
to Executive."
Retention and performance bonuses will be paid by TBOC to Mr. Briner and Ms.
Briner in the amounts of $60,000 and $25,000, respectively. Ms. Briner will also
receive from ValliWide a severance payment calculated in the same manner as for
other employees of Auburn not retained as employees of ValliCorp or ValliWide
after the Merger.
As of the Record Date, the directors and executive officers of Auburn held
_______________ shares of Auburn Common Stock not including shares such persons
may acquire through exercise of stock options. In addition, directors and
executive officers of Auburn held as of such date options to purchase _________
shares of Auburn Common Stock that were exercisable prior to the Effective Time.
If exercised prior to the Effective Time, the shares of Auburn Common Stock
acquired will be converted into the right to receive ValliCorp Common Stock at
the Effective Time of the Merger in the same manner as will the shares of Auburn
Common Stock held by all other Auburn shareholders. Furthermore, as of the
Record Date, executive officers and directors of Auburn own options for ________
shares of Auburn Common Stock with respect to which the right to exercise will
be accelerated if the Merger is consummated. Under an assumed current market
price for ValliCorp Common Stock of $15.00 per share and an assumed Conversion
Ratio of 0.8209 shares of ValliCorp Common Stock for each share of Auburn Common
Stock, the benefit to those executive officers and directors whose option
exercise rights are accelerated is approximately $___________, in the aggregate.
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ValliCorp has agreed that indemnification rights in favor of directors,
officers, employees, and agents of Auburn in effect as of the date of the Merger
Agreement with respect to matters occurring prior to the Effective Time will
survive the Merger, and ValliCorp has agreed to purchase tail insurance coverage
for four years after the Effective Time, subject to limitations on the amounts
of premiums ValliCorp is required to pay. See "THE MERGER-Indemnification."
Furthermore, pursuant to the terms of the Merger Agreement, employees of
Auburn who become employees of ValliCorp will be entitled to participate in the
employee benefit plans of ValliCorp on the same terms as such plans and benefits
are generally offered to employees of ValliCorp in comparable positions. Such
employees are to be credited for years of service with Auburn or TBOC under the
ValliCorp benefit plans to the same extent that such service was recognized for
similar plans of Auburn or TBOC.
NO SOLICITATION OF TRANSACTIONS
The Merger Agreement provides that Auburn shall not, without the prior
written consent of ValliCorp, nor shall it permit TBOC to, initiate, solicit, or
encourage, 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 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 it or any of its
subsidiaries to take any such action; provided, however, that the foregoing is
subject to the continuing fiduciary duties of the Board of Directors of Auburn
to the shareholders of Auburn. The Merger Agreement also requires Auburn to
promptly notify ValliCorp orally and in writing of all inquiries and proposals
which it may receive relating to any of the matters referred to in this
paragraph.
The Merger Agreement defines a "Competing Transaction" as any of the
following involving Auburn or TBOC: any merger, consolidation, share exchange,
or other business combination; a sale, lease, exchange, mortgage, pledge,
transfer, or other disposition of a substantial portion of assets; 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); a tender offer or exchange offer for at least ten
percent (10%) of Auburn's outstanding shares; a solicitation of proxies in
opposition to approval of the Merger by Auburn's shareholders; or, a public
announcement of a bona fide proposal, plan, or intention to do any of the
foregoing.
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If the Board of Directors of Auburn receives a bona fide offer for a
Competing Transaction and reasonably determines on advice of counsel that it
must, to be consistent with its continuing fiduciary duties to the shareholders
of Auburn, act or refrain from acting in a manner contrary to the terms of the
Merger Agreement, such action or failure to act will not constitute a breach of,
or failure of condition under, the Merger Agreement. In such event, however,
ValliCorp will be entitled to terminate the Merger Agreement, and (a) Auburn
will not be excused from its obligations to pay ValliCorp's expenses (subject to
the maximums described in "-Expenses" below), (b) ValliCorp's rights under the
Investment Agreement will not be modified or reduced (see "-Investment
Agreement" above), and (c) if a Competing Transaction is consummated by December
31, 1997, Auburn will be required to pay a Competing Transaction fee of
$1,000,000. The Competing Transaction fee may be paid by Auburn or the other
party to the Competing Transaction, and payment of such fee will be in lieu of
(and not in addition to) payment of ValliCorp's expenses and costs related to
the Merger.
The Merger Agreement also provides that ValliCorp will not accept an offer
relating to a "ValliCorp Business Combination" of ValliCorp with a third party
unless the offer is expressly conditioned upon the performance by ValliCorp or
its successor of ValliCorp's obligations under the Merger Agreement. If
ValliCorp fails to comply with this provision, Auburn may terminate the Merger
Agreement, and ValliCorp or its successor must pay to Auburn, on demand, the sum
of $1,000,000. The Merger Agreement defines a "ValliCorp Business Combination"
as any tender or exchange offer, proposal for a merger, consolidation, or other
takeover proposal involving ValliCorp or Auburn (except as contemplated by the
Merger Agreement), or any offer to acquire a substantial equity interest in or a
substantial portion of ValliCorp or Auburn (other than transactions contemplated
by the Merger Agreement).
CERTAIN FEDERAL INCOME AND CALIFORNIA STATE TAX CONSEQUENCES
The following is a summary description of certain material federal income
tax consequences of the Merger. This summary is not a complete description of
all consequences of the Merger. Each shareholder's individual circumstances may
affect the tax consequences of the Merger to such shareholder. In addition, the
opinion is not required to address the consequences of the Merger under
applicable state or local laws, other than with respect to California law.
Consequently, each Auburn shareholder is advised to consult his or her own tax
advisor as to the specific tax consequences of the Merger.
Consummation of the Merger is conditioned upon there being delivered prior
to the date of this Proxy Statement an opinion of Deloitte & Touche LLP,
ValliCorp's independent accountants, to the effect that for federal tax
purposes, the Merger will be treated as a reorganization within the meaning of
Section 368(a) of the Code
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and that ValliCorp and Auburn will each be a party to that reorganization within
the meaning of Section 368(b) of the Code. Such opinion has been delivered. A
condition to Auburn's obligations under the merger Agreement is delivery of an
opinion of Deloitte & Touche LLP no more than three business days prior to the
Effective Time confirming the foregoing and addressing certain additional tax
aspects of the Merger. Such opinion has been received and assuming it is so
confirmed and is not withdrawn or changed due to changes in laws, or otherwise,
prior to the Effective Time of the Merger, the opinion provides that the
material federal and related California tax consequences of the Merger, in
addition to those described above, will be substantially as follows:
(a) Except for any cash received in lieu of any fractional share, no gain
or loss will be recognized by the holders of Auburn Common Stock who receive
solely ValliCorp Common Stock in exchange for their shares of Auburn Common
Stock;
(b) The basis of the shares of ValliCorp Common Stock received by the
holders of shares of Auburn Common Stock will be the same as the basis of the
shares of Auburn Common Stock surrendered in exchange therefor, less any basis
attributable to fractional shares for which cash is received;
(c) The holding period of the ValliCorp Common Stock in the hands of the
shareholders of Auburn will include the period during which the Auburn Common
Stock surrendered in exchange therefor was held; provided such shares of Auburn
Common Stock were held as a capital asset at the Effective Time;
(d) Where cash is received by a dissenting shareholder of Auburn, such cash
will be treated as received by the dissenting shareholder as a distribution in
redemption of the shareholder's Auburn Common Stock, subject to the provisions
and limitations of Section 302 of the Code;
(e) No gain or loss will be recognized by ValliCorp or Auburn as a result
of the Merger; and
(f) The basis and holding periods of the assets of Auburn will carryover to
ValliCorp.
In developing its opinion Deloitte & Touche LLP relied upon facts and
representations provided to it by the management of ValliCorp and Auburn and has
made no independent determination with respect to them. In addition, Deloitte &
Touche LLP's opinion is based upon law, regulations, cases, rulings, and other
tax authorities in effect as of the date of the opinion. Significant changes of
the foregoing tax authority may render the opinion invalid or necessitate a
reconsideration of the opinion. Deloitte & Touche LLP has assumed no
responsibility to update its opinion after the date the opinion is issued.
Further, any variation or
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differences in the facts or representations, for any reason, may affect Deloitte
& Touche LLP's opinion, perhaps in an adverse manner, and make it inapplicable.
ACCOUNTING TREATMENT
The Merger will be accounted for by ValliCorp under the purchase method of
accounting in accordance with Accounting Principles Board Opinion No. 16,
"Business Combinations," as amended ("APB No. 16"). Under this method of
accounting, the purchase price will be allocated to assets acquired and
liabilities assumed based on their estimated fair values at the Effective Time.
Results of operations of ValliCorp will include the results of Auburn's
operations subsequent to the Effective Time. For estimated impacts of purchase
accounting adjustments, see "PRO FORMA FINANCIAL INFORMATION."
INDEMNIFICATION
Pursuant to the Merger Agreement, ValliCorp has agreed that all rights to
indemnification or exculpation existing in favor of the directors, officers,
employees, and agents of Auburn and TBOC as provided in their respective
charters, bylaws, indemnification agreements or otherwise in effect as of the
date of the Merger Agreement with respect to matters occurring prior to the
Effective Time will survive the Merger and will continue in full force and
effect. If ValliCorp or any of its successors or assigns (a) consolidates with
or merges into any other corporation or entity and is the continuing or
surviving corporation or entity of such consolidation or merger or (b) transfers
all or substantially all of its properties and assets to any individual,
corporation, or other entity, then in each such case, ValliCorp has agreed that
proper provision will be made so that the successors and assigns of ValliCorp
shall assume the obligations described in this paragraph. The Merger Agreement
also provides that, for a period of four years after the Effective Time,
ValliCorp will maintain in effect the current policies of directors' and
officers' liability insurance maintained by Auburn (provided that ValliCorp may
substitute therefore policies of at least the same coverage and amounts
containing terms and conditions which are no less advantageous to the
beneficiaries thereof) covering the parties covered thereby with respect to
claims arising from facts or events which occurred before the Effective Time;
provided, however, that ValliCorp is not obligated to make annual premium
payments for such insurance to the extent such premiums exceed 200% of the
premiums paid as of the date of the Merger Agreement by Auburn for such
insurance.
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<PAGE>
MATERIAL CONTRACTS BETWEEN VALLICORP AND AUBURN
Other than the Merger Agreement, the Shareholder Agreement, and the
Investment Agreement, and the transactions contemplated by each as described in
this Proxy Statement, ValliCorp and Auburn do not know of any past, present, or
proposed material contracts, arrangements, understandings, relationships,
negotiations, or transactions since January 1, 1993, between ValliCorp and its
affiliates, on the one hand, and Auburn and its affiliates, on the other hand,
except that ValliCorp and Auburn, through their subsidiary banks, have engaged
and will likely continue to engage in ordinary correspondent banking
transactions prior to the Merger.
RESALE OF VALLICORP COMMON STOCK
The ValliCorp Common Stock issued pursuant to the Merger will be freely
transferable under the Securities Act except for shares issued to any
shareholder of Auburn who may be an "affiliate" of Auburn for purposes of Rule
145 under the Securities Act. Pursuant to the Merger Agreement, Auburn has
agreed that it will, at least forty (40) days prior to the Closing Date, (a)
provide a letter to ValliCorp identifying persons who are then affiliates of
Auburn, (b) advise the persons identified in the letter of the resale
restrictions imposed by the federal securities laws, and (c) use reasonable
efforts to obtain from each person it has so identified a written agreement, the
form of which appears as Exhibit 5.5 to the Merger Agreement contained as
Appendix A to this Proxy Statement. The written agreement includes
representations relating to affiliate resales of ValliCorp Common Stock under
securities laws and the tax and accounting treatment of the Merger. This Proxy
Statement does not cover resales of ValliCorp Common Stock received by any
person who may be deemed to be an affiliate of Auburn.
REPURCHASES OF VALLICORP COMMON STOCK
By resolutions adopted November 27, 1995, and modified April 22, 1996, the
ValliCorp Board of Directors authorized the repurchase of shares of ValliCorp
Common Stock to be sold under the ValliCorp Dividend Reinvestment and Stock
Purchase Plan (see "DESCRIPTION OF VALLICORP CAPITAL STOCK AND INDEBTEDNESS-
ValliCorp Dividend Reinvestment and Stock Purchase Plan"). By a resolution
adopted May 28, 1996, the Board of Directors has authorized ValliCorp to
repurchase as much as an additional 926,768 shares of ValliCorp Common Stock, or
approximately 7.0% of its then outstanding shares of such Stock, for use in
connection with the proposed Merger with Auburn. Through the Record Date,
ValliCorp had repurchased _________ shares of ValliCorp Common Stock.
-64-
<PAGE>
EXPENSES
The Merger Agreement provides, in general and subject to the exceptions
described below, that ValliCorp and Auburn will each pay their own "Expenses,"
as defined in the Merger Agreement, incurred in connection with the Merger other
than fees payable pursuant to state securities laws, fees for obtaining the tax
opinion (which is a condition to the Merger), and fees payable to the Securities
and Exchange Commission (the "Commission") to register the shares of ValliCorp
Common Stock to be issued in the Merger, which fees are to be paid by ValliCorp.
The Merger Agreement provides that Auburn will pay ValliCorp's "Expenses"
as defined in the Merger Agreement, not to exceed $500,000, if the Merger
Agreement or the transactions contemplated thereby are terminated other than
----------
pursuant to: (a) a termination by Auburn based on (i) a material breach of any
representation, warranty, covenant, or agreement made by ValliCorp under the
Merger Agreement, (ii) its discovery that any representation or warranty made by
ValliCorp under the Merger Agreement has become untrue in any material respect,
or (iii) a failure or prospective failure on or after October 31, 1996 of
ValliCorp to comply with any of the conditions set forth in Article 8 of the
Merger Agreement or such conditions have been fulfilled or waived by Auburn and
ValliCorp shall have failed to complete the Merger; (b) a termination of the
Merger Agreement by mutual consent of the parties; (c) a termination by either
party based on (i) a permanent injunction being entered against the Merger that
has become final and nonappealable, or (ii) the Merger not having been
consummated by December 31, 1996; or (d) a termination resulting from a denial
of approval of the Merger by the Federal Reserve Board, the reasons for which do
not include any reason attributable to actions taken by Auburn or TBOC or any
reason attributable to the business or operations of Auburn or TBOC, and at the
time of such termination a Competing Transaction shall not have occurred. Auburn
is also liable for such Expenses of ValliCorp up to $500,000 if the Merger
Agreement or the transactions contemplated thereby are terminated and any one of
the circumstances or events which permit ValliCorp to exercise the Option
granted to it under the Investment Agreement has occurred. See "-Investment
Agreement" above.
The Merger Agreement also provides that ValliCorp will pay Auburn's
"Expenses," as defined in the Merger Agreement, not to exceed $500,000, if the
Merger Agreement or the transactions contemplated thereby are terminated other
-----
than pursuant to: (a) a termination by ValliCorp based on (i) a material breach
- ----
of any representation, warranty, covenant, or agreement made by Auburn under the
Merger Agreement, (ii) its discovery that any representation or warranty made by
Auburn under the Merger Agreement has become untrue in any material respect, or
(iii) a failure or prospective failure on or after October 31, 1996 of Auburn to
comply with any of the conditions set forth in Article 8 of the Merger Agreement
or such conditions have been fulfilled or
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<PAGE>
waived by ValliCorp and Auburn shall have failed to complete the Merger; (b) a
termination by ValliCorp based on Auburn's failure to act or refrain from acting
pursuant to Section 5.2(f) of the Merger Agreement, which section prohibits
certain solicitations in connection with a Competing Transaction (see "-No
Solicitation of Transactions" above); (c) a termination of the Merger Agreement
by mutual consent of the parties; (d) a termination by either party based on (i)
a permanent injunction being entered against the Merger that has become final
and nonappealable, or (ii) the Merger not having been consummated by December
31, 1996; or (e) a termination resulting from a denial of approval of the Merger
by the Federal Reserve Board for reasons which do not include any reason
attributable to actions taken by ValliCorp or ValliWide or any reason
attributable to the business or operations of ValliCorp or ValliWide.
The Merger Agreement also provides that Auburn will pay ValliCorp's
Expenses, not to exceed $250,000, if Auburn has not obtained the approval of the
Merger Agreement by at least a majority of the outstanding shares of Auburn
Common Stock by August 1, 1996; provided that if Auburn fails to obtain such
approval due to reasons beyond its control, such as but not limited to the
Registration Statement not being declared effective by the Commission in
reasonable time for the shareholders of Auburn to receive the proxy materials
and return the Proxies, then Auburn shall not be required to pay such Expenses.
The Merger Agreement defines "Expenses" to include all reasonable out-of-
pocket expenses incurred by a party or on its behalf in connection with the
consummation of the transactions contemplated by the Merger Agreement. Expenses
include fees and expenses of attorneys, accountants, investment bankers,
experts, and consultants.
If Auburn becomes obligated to pay ValliCorp the Competing Transaction fee
of $1,000,000 (see "-No Solicitation of Transactions" above), upon payment of
such amount Auburn will be discharged from any obligation it might have to pay
ValliCorp's Expenses as discussed above.
PRO FORMA FINANCIAL INFORMATION
-------------------------------
The following unaudited Pro Forma Condensed Combined Balance Sheet as of
March 31, 1996, combines, as if the Merger had become effective March 31, 1996,
the historical consolidated balance sheets of ValliCorp and Auburn. The
historical consolidated balance sheets have been combined after giving effect to
the purchase accounting adjustments described in the accompanying notes.
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<PAGE>
The unaudited Pro Forma Condensed Combined Statements of Income present the
combined supplemental historical consolidated statements of income of ValliCorp
and the consolidated statements of income of Auburn for the three months ended
March 31, 1996 and for the year ended December 31, 1995, as if the Merger had
been effective at the beginning of each period, after giving effect to the
purchase accounting adjustments described in the accompanying notes.
ValliCorp's historical consolidated balance sheet at March 31, 1996 and its
supplemental historical statements of income for the three months ended March
31, 1996 and for the year ended December 31, 1995 reflect ValliCorp's business
combinations with El Capitan Bancshares, Inc. on February 2, 1996 and CoBank
Financial Corporation on March 22, 1996, which were accounted for as
poolings-of-interests. See "SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS OF
VALLICORP."
The unaudited pro forma condensed combined financial statements and
accompanying notes reflect the application of the purchase method of accounting.
Under this method of accounting, the purchase price will be allocated to the
assets acquired and liabilities assumed, based on their estimated values at the
Effective Time. As described in the accompanying notes, estimates of the fair
value of Auburn's assets and liabilities have been combined with the recorded
values of assets and liabilities of ValliCorp.
The unaudited pro forma condensed combined financial data are presented for
illustrative purposes only and are not necessarily indicative of the combined
financial position or the results that would have occurred if the Merger had
been in effect on the dates indicated or that may occur in the future.
These unaudited pro forma condensed combined financial statements and the
accompanying notes should be read in conjunction with and are qualified in their
entirety by the supplemental historical consolidated financial statements of
ValliCorp and the historical consolidated financial statements of Auburn
included in and incorporated by reference into this Proxy Statement,
respectively.
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<PAGE>
PRO FORMA CONDENSED COMBINED BALANCE SHEET
(UNAUDITED)
MARCH 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION> VALLICORP
VALLICORP AUBURN PRO FORMA AND
AND AND DEBIT (CREDIT) AUBURN
SUBSIDIARY TBOC ADJUSTMENTS PRO FORMA
---------- ---- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks...................... $ 76,783 $ 4,671 $ $ 81,454
Federal funds sold........................... 100,000 5,200 (13,509)(E) 91,691
Loans held for sale.......................... 4,915 6,275 11,190
Securities:
Available for sale......................... 200,438 5,771 206,209
Held to maturity........................... 23,142 23,142
---------- --------- ---------- ----------
Total securities......................... 223,580 5,771 229,351
Loans........................................ 836,189 48,409 884,598
Allowance for loan losses.................... (12,769) (727) (13,496)
---------- --------- ---------- ----------
Net loans................................ 823,420 47,682 871,102
Premises and equipment, net.................. 26,467 3,041 29,508
Accrued interest receivable.................. 10,240 534 10,774
Other assets................................. 23,062 2,949 7,810(C) 33,821
---------- --------- ---------- ----------
Total assets............................. $1,288,467 $ 76,123 $ (5,699) $1,358,891
========== ========= ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing....................... $ 264,628 $ 14,061 $ $ 278,689
Interest-bearing.......................... 862,037 53,084 915,121
---------- --------- ---------- ----------
Total deposits.......................... 1,126,665 67,145 1,193,810
Other liabilities........................... 5,695 685 (2,195)(D) 8,575
Federal funds purchased and
repurchase agreements...................... 8,674 8,674
Debt financing.............................. 20,909 549 21,458
---------- --------- ---------- ----------
Total liabilities......................... 1,161,943 68,379 (2,195) 1,232,517
Stockholders' equity:
Common stock............................... 133 5,212 5,212(E) 133
Additional paid-in capital................. 84,559 150(D) 84,409
Unrealized holding gains (losses).......... (1,773) 35 35(E) (1,773)
Retained earnings.......................... 43,605 2,497 2,497(E) 43,605
---------- --------- ---------- ----------
Total stockholders' equity................. 126,524 7,744 7,894 126,374
---------- --------- ---------- ----------
Total liabilities and stockholders' equity. $1,288,467 $ 76,123 $ 5,699 $1,358,891
========== ========= ========== ==========
</TABLE>
See notes to pro forma condensed combined financial statements.
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<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
VALLICORP
VALLICORP AUBURN PRO FORMA AND
AND AND DEBIT (CREDIT) AUBURN
SUBSIDIARY TBOC ADJUSTMENTS PRO FORMA
---------- ---- ----------- ---------
<S> <C> <C> <C> <C>
Interest income....................... $ 25,267 $ 1,492 $ 191\(E)\ $ 26,568
Interest expense...................... 8,009 423 8,432
---------- ------------ -------- -----------
Net interest income................... 17,258 1,069 191 18,136
Provision for loan losses............. 1,925 30 1,955
---------- ------------ -------- -----------
Net interest income after provision
for loan losses....................... 15,333 1,039 191 16,181
Other income.......................... 3,181 350 3,531
Other expenses........................ 13,545 1,064 202\(C)\ 14,811
Merger costs.......................... 4,576 4,576
---------- ------------ -------- -----------
Income before income taxes............ 393 325 393 325
Income taxes.......................... 177 138 (131)\(F)\ 184
---------- ------------ -------- -----------
Net income............................ $ 216 $ 187 $ 262 $ 141
========== ============ ======== ===========
Earnings per share:
Primary............................... $ 0.02 $ 0.19 $ 0.01
Fully diluted....................... 0.02 0.19 0.01
Weighted average shares outstanding:
Primary............................... 13,452 990 13,452
Fully diluted......................... 13,463 990 13,463
Shares outstanding at period end...... 13,309 1,005 13,309
</TABLE>
See notes to pro forma condensed combined financial statements.
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<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
(UNAUDITED)
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
VALLICORP
VALLICORP AUBURN PRO FORMA AND
AND AND DEBIT (CREDIT) AUBURN
SUBSIDIARY TBOC ADJUSTMENTS PRO FORMA
---------- ---- ----------- ---------
<S> <C> <C> <C> <C>
Interest income....................... $ 109,324 $ 6,126 $ 806(E) $ 114,644
Interest expense...................... 37,015 1,679 38,694
---------- --------- ---------- ----------
Net interest income................... 72,309 4,447 806 75,950
Provision for loan losses............. 9,633 70 9,703
---------- --------- ---------- ----------
Net interest income after provision 806
for loan losses..................... 62,676 4,377 66,247
Other income.......................... 12,822 1,430 14,252
Other expenses........................ 55,046 4,250 810(C) 60,106
Merger costs.......................... 700 700
---------- --------- ---------- ----------
Income before income taxes............ 19,752 1,557 1,616 19,693
Income taxes.......................... 7,950 677 542(F) 8,085
---------- --------- ---------- ----------
Net income............................ $ 11,802 $ 880 1,074 11,608
========== ========= ========== ==========
Earnings per share:
Primary............................. $ 0.88 $ 0.85 $ 0.86
Fully diluted....................... 0.87 0.85 0.86
Weighted average shares outstanding:
Primary............................. 13,525 1,029 13,525
Fully diluted....................... 13,559 1,029 13,559
Shares outstanding at period end...... 13,266 985 13,266
</TABLE>
See notes to pro forma condensed combined financial statements.
-70-
<PAGE>
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
UNAUDITED PRO FORMA COMBINATION. The unaudited Pro Forma Condensed
Combined Balance Sheet is based on the unaudited consolidated balance sheets of
ValliCorp and Auburn as of March 31, 1996. The unaudited Pro Forma Condensed
Combined Statement of Income is based on the supplemental consolidated
statements of income of ValliCorp and the consolidated statements of income of
Auburn for the three months ended March 31, 1996 and the year ended December 31,
1995.
PURCHASE PRICE. Pursuant to the Merger Agreement, each share of Auburn
Common Stock outstanding at the Merger closing will be converted into 0.8209
shares of ValliCorp Common Stock (See Note E). The value of ValliCorp Common
Stock to be issued in connection with the Merger and the fair value of Auburn's
stock options to be converted into ValliCorp stock options is approximately
$13,334,000 (calculated as shown in the table below) based on the average market
price of ValliCorp Common Stock taken from recent closing sales prices listed on
the NASDAQ National Market System.
The following summarizes the total purchase price as of March 31, 1996:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS
EXCEPT PER SHARE DATA)
----------------------
<S> <C>
TOTAL PURCHASE PRICE:
Shares of Auburn Common Stock outstanding.................. 1,004,955
Conversion Ratio........................................... 0.8209
----------
Shares of ValliCorp Common Stock to be issued.............. 824,968
Market price per share of ValliCorp Common Stock........... $ 15.25
----------
Total market price of ValliCorp Common Stock to be issued.. $ 12,581
Fair market value of Auburn stock options assumed.......... 753
Estimated accounting, legal and investment banking costs... 175
----------
Total purchase price...................................... $ 13,509
==========
</TABLE>
METHOD OF ACCOUNTING. The Merger will be accounted for by ValliCorp under
the purchase method of accounting in accordance with APB No. 16. Under this
method of accounting, the purchase price is allocated to assets acquired and
liabilities assumed based on their estimated fair values at the Effective Time.
The fair values of Auburn's assets and liabilities are preliminary and will
likely be revised as updated information becomes available prior to the
Effective Time.
COST SAVINGS. The positive effects of potential cost savings and revenue
enhancements which may be achieved subsequent to the
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<PAGE>
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
Merger have not been reflected in the unaudited pro forma combined condensed
financial statements.
STOCK REPURCHASE. ValliCorp will issue .8209 shares of ValliCorp Common
Stock for each share of Auburn Common Stock other than fractional shares. It is
anticipated that a number of shares approximately equal to the number of shares
to be issued in the Merger will be purchased on the open market under
ValliCorp's stock purchase plan, subject to market conditions or other factors.
NOTE B - ALLOCATION OF PURCHASE PRICE
The purchase price has been allocated as described in the table below:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Purchase Price Allocation:
Fair value of net assets of Auburn at March 31, 1996.......... $ 7,744
Elimination of Auburn's intangibles at March 31, 1996......... (437)
Accrual of liability for Merger-related costs................. (2,045)
Net decrease in deferred income tax assets.................... (514)
Intangibles acquired (goodwill and core deposit intangibles).. 8,761
-------
Total purchase price..................................... $13,509
=======
</TABLE>
As previously stated, the purchase method of accounting requires that the
purchase price be allocated to assets acquired and liabilities assumed based
upon their fair values. Based upon a preliminary assessment, the book values of
Auburn's assets and liabilities approximate their fair values as of March 31,
1996.
Each of the allocations in the table above is described in more detail in
the following Notes to Pro Forma Combined Financial Statements.
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<PAGE>
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
NOTE C - OTHER ASSETS
The pro forma adjustment to other assets is comprised of the following:
<TABLE>
<CAPTION>
DEBIT (CREDIT)
(IN THOUSANDS
--------------
<S> <C>
Pro Forma Adjustment:
Elimination of Auburn's intangible asset.............. $ (437)
Deferred income taxes................................. (514)
Goodwill related to the Auburn acquisition............ 5,462
Core deposit intangible related to the
Auburn acquisition.................................. 3,299
-------
$ 7,810
=======
</TABLE>
The pro forma adjustment to Auburn's assets has resulted in the following
adjustments to "Other Expenses" at March 31, 1996 and December 31, 1995:
<TABLE>
<CAPTION>
THREE YEAR ENDED
MONTHS ENDED DECEMBER 31,
MARCH 31, 1996 1995
--------------- ------------
(DEBIT (CREDIT) IN THOUSANDS)
<S> <C> <C>
Pro Forma Adjustments:
Elimination of amortization expense
of Auburn's intangible assets....... $ (18) $ (70)
Amortization of intangible assets.... 220 880
----- -----
$ 202 $ 810
===== =====
</TABLE>
The estimated fair values are subject to change as additional information
becomes available and preliminary Merger plans are finalized prior to the Merger
closing.
NOTE D - OTHER LIABILITIES
Other liabilities have been adjusted as described in the table below.
<TABLE>
<CAPTION>
DEBIT (CREDIT)
(IN THOUSANDS)
--------------
<S> <C>
Pro Forma Adjustment:
Accrual of Merger-related costs.................. $ (2,045)
Accrual of estimated legal and accounting costs.. (150)
----------
$ (2,195)
=========
</TABLE>
A liability for Merger-related costs of $2,045,000 has been recorded in the
unaudited Pro Forma Condensed Combined Balance
-73-
<PAGE>
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
Sheet reflecting management's estimate of separation and benefit costs related
to Auburn's employees to be terminated, leased premises expected to be vacated,
and other Merger costs. This estimated liability is based on preliminary plans
which are subject to change as final plans are formulated prior to the Merger
closing.
NOTE E - STOCKHOLDERS' EQUITY
As part of the purchase accounting adjustments, Auburn's shareholders'
equity balances have been eliminated.
ValliCorp has announced its intention to repurchase common shares equal to
the number of shares to be issued in connection with the Auburn transaction. It
is anticipated the aggregate cost of these purchases will be approximately equal
to the purchase price of the Auburn acquisition. ValliCorp will fund these
purchases with dividends received from ValliCorp's subsidiary, ValliWide Bank,
using cash which would otherwise be invested in federal funds sold. The
unaudited Pro Forma Condensed Combined Statements of Income include an
adjustment to reflect the reduction in interest income due to the use of cash
which would otherwise be invested in federal funds sold.
NOTE F - INCOME TAX PROVISION
The income tax provisions for adjustments related to the Auburn acquisition
reflected in the unaudited Pro Forma Condensed Combined Statements of Income
have been computed at ValliCorp's effective combined federal and state marginal
tax rate.
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<PAGE>
HISTORICAL AND PRO FORMA COMBINED
---------------------------------
CAPITAL INFORMATION
-------------------
ValliCorp and Auburn, and their banking subsidiaries, are subject to risk-
based capital regulations adopted by the federal banking regulators in January
1989. These guidelines are used to evaluate capital adequacy and are based on an
institution's asset risk profile and off-balance sheet exposures, such as unused
loan commitments and standby letters of credit. The rules require that a portion
of total capital be core, or Tier 1, capital consisting of common stockholders'
equity and perpetual preferred stock, less goodwill and certain other
deductions, with the remaining, or Tier 2, capital consisting of other elements,
primarily loan loss reserves, subject to certain limitations. Under the risk-
based capital regulations, banking organizations are required to maintain a
minimum of eight percent (8%) total risk-based capital ratio (the ratio of total
risk-based capital divided by risk-weighted assets), including Tier 1 capital of
four percent (4%) (the ratio of Tier 1 capital divided by risk-weighted assets).
The risk-based capital rules have been further supplemented by a leverage ratio,
defined as Tier 1 capital divided by adjusted average assets. The minimum
leverage ratio is three percent (3%) for banking organizations that do not
anticipate significant growth and have well-diversified risk (including no undue
interest rate risk exposure), excellent asset quality, high liquidity, and good
earnings. Other banking organizations are expected to have ratios of at least
four to five percent (4-5%), depending on their particular condition and growth
plans. Higher capital ratios could be required if warranted by the particular
circumstances or risk profile of a given banking organization.
The table below sets forth the historical risk-based capital information
for ValliCorp and Auburn as of March 31, 1996, under the above-discussed
regulations and the pro forma combined risk-based capital information as of
March 31, 1996, under such regulations, for ValliCorp and Auburn combined as
though the Merger had taken effect on that date. The information set forth below
should be read in conjunction with and is qualified in its entirety by the
ValliCorp supplemental historical consolidated financial statements and the
Auburn historical consolidated financial statements included and incorporated by
reference herein, respectively, and by the pro forma condensed combined
financial statements and accompanying notes set forth under "PRO FORMA FINANCIAL
INFORMATION."
-75-
<PAGE>
<TABLE>
<CAPTION>
RISK-BASED CAPITAL
MARCH 31, 1996
----------------------------------------------
HISTORICAL PRO FORMA
---------------------------
VALLICORP
VALLICORP AUBURN & AUBURN
--------- ------ --------
(dollar amounts in thousands)
<S> <C> <C> <C>
CAPITAL COMPONENTS
Tier 1 capital/(1)/ $ 119,756 $ 7,089 $111,111
Total capital/(2)/ 131,766 7,796 123,858
Total adjusted risk-weighted
assets 930,547 56,512 989,564
CAPITAL RATIOS
Tier 1 capital 12.87% 12.54% 11.23%
Total risk-based capital 14.16% 13.79% 12.52%
</TABLE>
__________________
/(1)/ Defined as common stockholders' equity less regulatory intangibles and
other adjustments.
/(2)/ Defined as Tier 1 capital plus Tier 2 capital which is defined as the
eligible portion of the allowance for loan losses, hybrid capital
instruments, and subordinated capital notes less other deductions.
DESCRIPTION OF VALLICORP CAPITAL STOCK AND INDEBTEDNESS
-------------------------------------------------------
VALLICORP CAPITAL STOCK
The authorized capital stock of ValliCorp is 45,000,000 shares consisting
of 5,000,000 shares of Preferred Stock, par value one cent ($.01) per share, and
40,000,000 shares of Common Stock, par value one cent ($.01) per share. As of
_________________, 1996, the Record Date for Auburn's Annual Meeting, there were
___________ shares of ValliCorp Common Stock and no shares of Preferred Stock
outstanding. As of such date, an additional ___________ shares of the authorized
ValliCorp Common Stock were reserved for issuance pursuant to outstanding stock
options or available for grant under stock option plans of ValliCorp.
Although ValliCorp has not issued Preferred Stock to date and will not
issue Preferred Stock as part of the consideration for the Merger, ValliCorp is
authorized to issue Preferred Stock without obtaining the approval of the
holders of ValliCorp's Common Stock. The Board of Directors of ValliCorp has
broad authority relating to the issuance of Preferred Stock, including the
authority to set one or more series of Preferred Stock, to fix the number of
shares constituting any such series, and to fix or alter the rights,
preferences, privileges and restrictions granted to and imposed upon any wholly
unissued class or series of preferred stock. The issuance of Preferred Stock may
have the effect of delaying, deferring or preventing a change in control of
ValliCorp. Such
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<PAGE>
issuance could also adversely affect the voting power of holders of ValliCorp
Common Stock. The Board of Directors of ValliCorp has filed with the Delaware
Secretary of State a Certificate of Designations, Powers and Preferences of
Series A Junior Participating Preferred Stock which authorizes the issuance of
the Series A Preferred Stock. A discussion of the Series A Preferred Stock of
ValliCorp appears below under "-ValliCorp Series A Preferred Stock Purchase
Rights."
VALLICORP COMMON STOCK
There follows a discussion of certain of the rights of the holders of
ValliCorp Common Stock.
Dividend Rights. The holders of ValliCorp Common Stock are entitled to
receive dividends when and as declared by ValliCorp's Board of Directors, out of
funds legally available therefor, subject to the dividend preference, if any, on
preferred stock that may be outstanding and also subject to the restrictions set
forth in the Delaware GCL.
A Delaware corporation may make stock repurchases or redemptions that do
not impair capital, and may pay dividends out of any surplus account or out of
net profits of the current and preceding fiscal years, subject to certain
limitations. Under Delaware law, surplus may be created by a reduction of
capital and may be distributed by board action, so long as capital is maintained
in an amount not less than the aggregate par value of the remaining outstanding
shares plus the stated value of any shares not having par value. The ability of
a Delaware corporation to pay dividends on, or to make repurchases or
redemptions of, its shares is dependent on the financial status of the
corporation standing alone and is not determined on a consolidated basis.
Dividends on the ValliCorp Common Stock will be paid when and if the Board
of Directors of ValliCorp declares such dividends. The payment of cash dividends
by ValliCorp will depend on various factors, including its earnings and capital
requirements, and other financial conditions under the terms of ValliCorp's
debentures. See "-ValliCorp Convertible Debentures" below. In addition, the
payment of cash dividends by ValliWide is subject to certain statutory and bank
regulatory requirements.
Voting Rights. All voting rights with respect to ValliCorp are vested in
the holders of ValliCorp Common Stock. However, if ValliCorp issues Preferred
Stock in the future, such stock may have voting rights, and the voting rights of
the holders of ValliCorp Common Stock may be affected thereby. Each share of
ValliCorp Common Stock is entitled to one vote.
Preemptive Rights. Holders of ValliCorp Common Stock have no preemptive
rights, which are rights to subscribe to a pro rata
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amount of any shares or other securities which ValliCorp offers in the future.
Therefore, shares of ValliCorp Common Stock or other securities may be offered
in the future to the investing public or to existing shareholders at the
discretion of the Board of Directors.
Liquidation Rights. The holders of ValliCorp Common Stock will be entitled
to share equally in the net assets of ValliCorp in the event of liquidation or
dissolution, subject to the preferential rights, if any, of the holders of
senior securities that may be outstanding. ValliCorp Common Stock is not subject
to assessment, as the ValliCorp Restated Certificate of Incorporation does not
confer upon its Board of Directors the authority to order such assessment. There
are no conversion rights, redemption provisions or sinking fund provisions
applicable to shares of ValliCorp Common Stock.
VALLICORP DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
Pursuant to the Dividend Reinvestment and Stock Purchase Plan (the
"ValliCorp Reinvestment and Purchase Plan") approved by the ValliCorp Board of
Directors in December 1995, ValliCorp provides eligible stockholders and
employees of ValliCorp and its subsidiary with a method of investing cash
dividends and optional cash payments in additional shares of ValliCorp Common
Stock without payment of any brokerage commission or service charge. The
ValliCorp Reinvestment and Purchase Plan includes certain dollar limitations on
participation and provides for eligible stockholders to elect dividend
reinvestment on only a part of the shares registered in the name of a
participant (while continuing to receive cash dividends on remaining shares).
The ValliCorp Reinvestment and Purchase Plan became effective for ValliCorp
shareholders at the date of ValliCorp's cash dividend for the first quarter of
1996, and it is anticipated that it will continue after the Effective Time and
that shareholders of Auburn who receive ValliCorp Common Stock in the Merger
will have the right to participate therein.
VALLICORP SERIES A PREFERRED STOCK PURCHASE RIGHTS
On March 25, 1996, the Board of Directors of ValliCorp declared a dividend
distribution of one Right for each outstanding share of ValliCorp Common Stock
to shareholders of record at the close of business on April 8, 1996. One Right
will also be distributed for each share of Common Stock issued after April 8,
1996 until the Distribution Date (as described below). It is contemplated that
one Right will be issued for each share of ValliCorp Common Stock issued in
connection with the Merger. Each Right entitles the registered holder to
purchase from ValliCorp a unit consisting of one one-hundredth of a share (a
"Unit") of Series A Preferred Stock at a price (the "Purchase Price") of $45
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per Unit, subject to adjustment. The description and terms of the Rights are set
forth in the Rights Agreement.
Initially, the Rights will be attached to all ValliCorp Common Stock
certificates representing shares then outstanding, and no separate certificates
(the "Rights Certificates") will be distributed. The Rights will separate from
the ValliCorp Common Stock and a Distribution Date will occur upon the earlier
of (a) the close of business on the tenth business day after a public
announcement that a person or group of affiliated or associated persons (an
"Acquiring Person") has acquired, or obtained the right to acquire, beneficial
ownership of 10% or more of the outstanding shares of ValliCorp Common Stock
(the "Stock Acquisition Date") or (b) the close of business on the tenth
business day after the latest of (i) the date of a tender or exchange offer
that, if consummated, would result in a person or group beneficially owning 10%
or more of the outstanding shares of ValliCorp Common Stock, or (ii) the date on
which all regulatory approvals required for acquisition of stock pursuant to the
tender or exchange offer referred to in clause (i) have been obtained or waived,
or (iii) the date on which any approval required of the security holders of the
person or group publishing or sending or giving the tender or exchange offer
referred to in clause (i) for the acquisition of stock pursuant to such tender
or exchange offer is obtained or waived.
Until the Distribution Date (a) the Rights will be evidenced by the
ValliCorp Common Stock certificates and will be transferred with and only with
such ValliCorp Common Stock certificates, (b) new ValliCorp Common Stock
certificates issued after April 8, 1996 will contain a notation incorporating
the Rights Agreement by reference, and (c) the surrender for transfer of any
certificates for ValliCorp Common Stock outstanding will also constitute the
transfer of the Rights associated with the ValliCorp Common Stock represented by
such certificate.
The Rights are not exercisable until the Distribution Date and will expire
at the close of business on April 8, 2006, unless earlier redeemed by ValliCorp
as described below.
As soon as practicable after the Distribution Date, Rights Certificates
will be mailed to holders of record of the Common Stock as of the close of
business on the Distribution Date and, thereafter, the separate Rights
Certificates alone will represent the Rights. Except for certain issuances in
connection with outstanding options and convertible securities of ValliCorp and
as otherwise determined by the ValliCorp Board of Directors, only shares of
ValliCorp Common Stock issued prior to the Distribution Date will be issued with
Rights.
In the event that at any time following the Distribution Date, a person
becomes the beneficial owner of 10% or more of the then outstanding shares of
ValliCorp Common Stock (a "Triggering
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Event"), each holder of a Right will thereafter have the right to purchase at
the time specified in the Rights Agreement, upon exercise and payment of the
Purchase Price, Units of Series A Preferred Stock having a value equal to two
times the Purchase Price of the Right. For this purpose, a Unit of Series A
Preferred Stock is deemed to have the same value as the market price of
ValliCorp Common Stock at that time. One Unit of Preferred Stock has rights
which are comparable in terms of dividends and voting power and upon liquidation
to one share of Common Stock. The rights and privileges of the Series A
Preferred Stock are set forth in the Rights Agreement (the "Certificate of
Designations, Powers, and Preferences of Series A Junior Participating Preferred
Stock" being an exhibit thereto), and the foregoing description is qualified by
reference thereto. Alternatively, upon the occurrence of an event described in
the first sentence of this paragraph, the ValliCorp Board of Directors would
have the discretion, upon exercise of Rights, to distribute to the exercising
holders thereof, Units of Series A Preferred Stock (or, in certain
circumstances, cash, property, or other securities of ValliCorp) having a value
equal to the difference between the Purchase Price of the Rights and the value
of the consideration which would be transferred to the holders of the Rights
upon such exercise, in the absence of the exercise by the Board of Directors of
its discretion to invoke the provisions described in this sentence.
Notwithstanding the foregoing, following the occurrence of any of the
events set forth in the first sentence of the preceding paragraph, all Rights
that are, or (under certain circumstances specified in the Rights Agreement)
were, beneficially owned by any Acquiring Person will be null and void. However,
Rights are not exercisable following the occurrence of either of the events set
forth above until such time as the Rights are no longer redeemable by ValliCorp
as set forth below.
For example, at a Purchase Price of $45 per Right, each Right not owned by
an Acquiring Person (or by certain related parties) would, following an
Acquiring Person's becoming the beneficial owner of 10% or more of the ValliCorp
Common Stock, entitle the holder of the Right to purchase $90 worth of Series A
Preferred Stock (or other consideration as noted above) for $45. Assuming that
the ValliCorp Common Stock had a per share market value of $15 at such time, the
holder of each valid Right would be entitled to purchase six Units of Series A
Preferred Stock, having rights comparable to six shares of ValliCorp Common
Stock, for $45. Alternatively, at the discretion of the ValliCorp Board of
Directors, following an event set forth in the first sentence of this paragraph,
without payment of the Purchase Price, each Right would entitle its holder to
receive from ValliCorp three Units of Series A Preferred Stock (or other
consideration as noted above), based on the assumptions described in this
paragraph.
In the event that, at any time following the Stock Acquisition Date, (a)
ValliCorp is acquired in a merger or other business
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combination transaction in which ValliCorp is not the surviving corporation, or
(b) 50% or more of ValliCorp's assets or earning power is sold or transferred,
each holder of a Right (except Rights which previously have been voided as set
forth above) shall thereafter have the right to receive, upon exercise, common
stock of the acquiring company having a value equal to two times the Purchase
Price of the Right. The events set forth in this paragraph are also included in
the phrase "Triggering Event."
A person or group of affiliated persons will not trigger the separation and
exercisability of the Rights if such person or group becomes the beneficial
owner of 10% or more of the ValliCorp Common Stock solely as a result of
ValliCorp reducing the number of outstanding shares, unless such person or group
subsequently acquires an additional 1.0% or more of the then outstanding shares
of ValliCorp Common Stock.
In general, ValliCorp may redeem the Rights in whole, but not in part, at a
price of $.001 per Right, at any time until ten business days following the
Stock Acquisition Date. After the redemption period has expired, ValliCorp's
right of redemption may be reinstated if an Acquiring Person reduces his
beneficial ownership to less then 10% of the outstanding shares of ValliCorp
Common Stock in a transaction or series of transactions not involving ValliCorp
and there are no other Acquiring Persons. Immediately upon the action of the
ValliCorp Board of Directors ordering redemption of the Rights, the Rights will
terminate and the only right of the holders of Rights will be to receive the
$.001 redemption price.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of ValliCorp including, without limitation, the right to
vote or receive dividends. While the distribution of the Rights will not be
taxable to stockholders or to ValliCorp, ValliCorp stockholders may, depending
upon the circumstances, recognize taxable income in the event that the Rights
become exercisable for stock (or other consideration) of ValliCorp or for common
stock of the acquiring company as set forth above.
Other than those provisions relating to the principal economic terms of the
Rights, any of the provisions of the Rights Agreement may be amended by the
Board of Directors of ValliCorp prior to the Distribution Date. After the
Distribution Date, the provisions of the Rights Agreement may be amended by such
Board in order to cure any ambiguity, to make changes which do not adversely
affect the interests of holders of Rights (excluding the interests of any
Acquiring Person), or to shorten or lengthen any time period under the Rights
Agreement; provided, however, that no amendment to adjust the time period
governing redemption shall be made when the Rights are not redeemable.
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A copy of the Rights Agreement has been filed with the Commission as an
exhibit to a Registration Statement on Form 8-A dated April 4, 1996. This
summary description of the Rights does not purport to be complete and is
qualified in its entirety by reference to the Rights Agreement, which is
incorporated herein by reference.
The Rights have certain anti-takeover effects. The Rights may cause
substantial dilution to a person or group that attempts to acquire ValliCorp
without the approval of the Board of Directors. The Rights, however, should not
affect any prospective offeror willing to make an offer for all outstanding
shares of ValliCorp Common Stock at a fair price and otherwise in the best
interests of ValliCorp and its stockholders as determined by the ValliCorp Board
of Directors or affect any prospective offeror willing to negotiate with such
Board. The Rights should not interfere with any merger or other business
combination approved by the ValliCorp Board of Directors since such Board may,
at its option, at any time until ten days following the Stock Acquisition Date
redeem the then outstanding Rights at the redemption price.
VALLICORP CONVERTIBLE DEBENTURES
As of March 31, 1996, ValliCorp had outstanding approximately $181,875
principal amount of its Floating Rate Optional Convertible Subordinated
Debentures ("Optional Debentures") convertible into shares of ValliCorp Common
Stock at $5.50 per share. Interest on the Optional Debentures accrues at the
annual floating rate of prime plus 0.75% and is paid quarterly. The principal is
payable quarterly in installments of $22,734, with the final payment due April
1, 1998.
As of March 31, 1996, ValliCorp had outstanding approximately $727,500 in
principal amount of its Floating Rate Mandatory Convertible Subordinated
Debentures ("Mandatory Debentures") convertible into shares of ValliCorp Common
Stock at $5.50 per share. Interest on the Mandatory Debentures accrues at the
annual floating rate of prime plus 1.50% and is paid quarterly. To the extent
not converted prior to that date, the principal must be converted into ValliCorp
Common Stock on April 1, 1998, the maturity date.
Both the Optional and the Mandatory Debentures are subordinate to the
claims of creditors of ValliCorp, except for claims of holders of the debentures
ranking on a parity with or junior to such Debentures. As of March 31, 1996, the
Optional and Mandatory Debentures were convertible into approximately 132,273
shares of ValliCorp Common Stock.
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DESCRIPTION OF AUBURN CAPITAL STOCK
-----------------------------------
The authorized capital stock of Auburn consists of 10,000,000 shares of
common stock, no par value, and 10,000,000 shares of Preferred Stock ("Auburn
Preferred Stock"). As of the Record Date, _____________ shares of Auburn Common
Stock were issued and outstanding, and ____________ shares were reserved for
issuance to holders of outstanding and unexercised Auburn Stock Options under
the Auburn Option Plans. As of the Record Date, no shares of Auburn Preferred
Stock were issued or outstanding.
Holders of Auburn Common Stock are entitled to one vote for each share held
of record on all matters submitted to a vote of shareholders, except that, upon
giving the notice required by the Auburn Bylaws, shareholders may cumulate their
votes for the election of directors. Shareholders are entitled to receive
ratably such dividends as may be legally declared by Auburn's Board of
Directors. There are regulatory restrictions on the ability of Auburn to
declare and pay dividends. See "SUMMARY-Price Range of and Dividends on
ValliCorp and Auburn Common Stock." In the event of a liquidation, common
shareholders are entitled to share ratably in all assets remaining after payment
of liabilities and securities. U.S. Stock Transfer Corporation, Glendale,
California, acts as the transfer agent and registrar for the Auburn Common
Stock.
The Board of Directors of Auburn without shareholder approval may authorize
one or more classes of serial preferred stock with preferences or voting rights
that may adversely affect the rights of holders of Auburn Common Stock.
Although it is not possible to state the actual effect any issuance of serial
preferred stock might have upon the rights of holders of Auburn Common Stock,
the issuance of serial preferred stock might (a) restrict dividends on Auburn
Common Stock if preferred stock dividends have not been paid, (b) dilute the
voting power and equity interest of holders of Auburn Common Stock to the extent
that any preferred stock series has voting rights or is convertible into Auburn
Common Stock, or (c) prevent current holders of Auburn Common Stock from
participating in Auburn's assets upon liquidation until any liquidation
preferences granted to the holders of the serial preferred stock are satisfied.
In addition, the issuance of serial preferred stock may, under certain
circumstances, have the effect of discouraging an attempt to change control of
Auburn by, for example, creating voting impediments to the approval of a merger
or similar transactions involving Auburn.
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COMPARISON OF RIGHTS OF HOLDERS OF VALLICORP
--------------------------------------------
COMMON STOCK AND HOLDERS OF AUBURN COMMON STOCK
-----------------------------------------------
GENERAL
ValliCorp is a Delaware corporation and, accordingly, is governed by the
Delaware GCL and its Delaware Restated Certificate of Incorporation (the
"ValliCorp Certificate") and Bylaws (the "ValliCorp Bylaws"). Auburn is a
California corporation and, accordingly, has been and will be, through the
Effective Time of the Merger, governed by the California GCL and by its
California Articles of Incorporation (the "Auburn Articles") and Bylaws (the
"Auburn Bylaws"). Upon consummation of the Merger, except for those persons who
dissent from the Merger and perfect dissenters' rights under the California GCL,
the shareholders of Auburn will become stockholders of ValliCorp.
The following is a general comparison of material differences between the
rights of ValliCorp stockholders (currently, the holders of ValliCorp Common
Stock) under the ValliCorp Certificate, the ValliCorp Bylaws, the Delaware GCL,
and the Rights Agreement, on the one hand, and the rights of Auburn shareholders
(currently, the holders of Auburn Common Stock) under the Auburn Articles, the
Auburn Bylaws and the California GCL, on the other. This discussion is only a
summary of certain provisions and does not purport to be a complete description
of such similarities and differences, and is qualified in its entirety by
reference to the Delaware GCL, the California GCL, the California Financial
Code, the common law thereunder, and the full text of the ValliCorp Certificate,
ValliCorp Bylaws, the Rights Agreement, Auburn Articles, and Auburn Bylaws.
The provisions in the ValliCorp Certificate, the ValliCorp Bylaws, and the
Rights Agreement discussed or referred to below could make it more difficult and
time-consuming to change control of the board of directors of ValliCorp, and it
is also conceivable that certain provisions may deter efforts to seek control of
ValliCorp on a basis which some shareholders might deem favorable. Such
provisions are designed to encourage any person attempting a change in control
to enter into negotiations with the board of directors of ValliCorp.
SERIES A PREFERRED STOCK PURCHASE RIGHTS ACCOMPANYING VALLICORP COMMON STOCK
Each outstanding share of ValliCorp Common Stock is accompanied by one
Right to purchase Series A Preferred Stock of ValliCorp. The Rights may have
the effect of encouraging potential acquirors of ValliCorp to negotiate with the
Board of Directors and may also discourage potential acquirors in certain
circumstances. See "DESCRIPTION OF VALLICORP CAPITAL STOCK AND INDEBTEDNESS-
ValliCorp Series A Preferred Stock Purchase Rights." The Auburn
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Board of Directors has not adopted a shareholder rights plan or agreement.
CUMULATIVE VOTING
Under the California GCL, the holders of Auburn Common Stock, upon notice
given by a shareholder at a shareholders' meeting in compliance with the
California GCL, may cumulate votes for the election of directors. Under
cumulative voting, each share is entitled to a number of votes equal to the
number of directors to be elected. Votes may be cast for a single candidate or
may be distributed among two or more candidates in such proportions as the
shareholder may determine. The candidates receiving the highest number of
votes, up to the number of directors to be elected, are elected. On all other
matters, each share of Auburn Common Stock has one vote. Under cumulative
voting, shareholders who own far less than a majority of a corporation's
outstanding stock can obtain representation on the Board of Directors. If
voting is not conducted by cumulative voting, each share is entitled to one vote
and the holders of a majority of shares voting at the meeting can elect all of
the directors if they choose to do so, and the other shareholders cannot elect
any director.
Under the Delaware GCL, the stockholders of ValliCorp are not entitled to
cumulate their votes in the election of directors unless ValliCorp's certificate
of incorporation so provides. The ValliCorp Certificate does not provide for
cumulative voting.
CLASSIFIED BOARD OF DIRECTORS
The Auburn Bylaws, pursuant to the California GCL, require that each
director be elected for a term ending at the next annual meeting of shareholders
and until his or her successor is duly elected and qualified. Pursuant to the
Auburn Bylaws, the authorized number of directors shall be not less than eight
nor more than 15. The number of directors is currently fixed at nine.
The ValliCorp Certificate, pursuant to the Delaware GCL, provides for a
classified Board of Directors. The board is divided into three classes,
designated Class "A", Class "B" and Class "C". Class "A" initially consisted of
four (4) directors, Class "B" initially consisted of four (4) directors and
Class "C" initially consisted of five (5) directors. There are now two (2)
directors in Class "A," four (4) in Class "B," and five (5) in Class "C." Each
class serves a three year term, but the terms of the classes are staggered over
three years.
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CHANGE IN NUMBER OF DIRECTORS
Under the California GCL, a change in minimum and maximum number of
directors ("range") as provided in Auburn's Bylaws must be approved by the
Auburn shareholders. Although the Auburn Board of Directors may fix the exact
number within the range, any change in the range must be approved by the
shareholders.
Under the Delaware GCL, the number of directors are fixed by, or in the
manner provided in, the bylaws, unless the certificate of incorporation fixes
the number of directors, in which case a change in the number of directors may
be made only by amendment to the certificate. Under the ValliCorp Bylaws, the
number of members of the Board of Directors will be fixed and changed by a
majority of the total number of directors ValliCorp would have if there were no
vacancies.
REMOVAL OF DIRECTORS
Under the California GCL, a director of Auburn may be removed without cause
by a majority of the outstanding shares entitled to vote, provided that the
shares voted against such removal would not be sufficient to elect the director
under California's cumulative voting rules. The California GCL also allows
removal of a director for cause by the Superior Court.
The ValliCorp Certificate provides that directors may be removed without
cause by the affirmative vote of at least sixty-six and two-thirds percent(66
2/3%) of the outstanding shares. They may be removed for cause upon a vote of
the majority of outstanding shares. Although the definition of "cause" has not
been clearly established under Delaware law, courts in various states have found
"cause" to include malfeasance while in office, gross misconduct or neglect,
false or fraudulent misrepresentations inducing the directors' appointment,
willful conversion of corporate funds, a breach of the obligation to make full
disclosure, incompetency, gross inefficiency and moral turpitude.
FILLING VACANCIES ON THE BOARD OF DIRECTORS
Except for a vacancy created by the removal of a director which may only be
filled by approval of the shareholders, the Auburn Bylaws provide that vacancies
on the board of directors may be filled by approval of a majority of the board
of directors, even if the number of directors then in office is less than a
quorum, or by a sole remaining director. Each director so elected shall hold
office until his successor is elected at an annual or special shareholders'
meeting. The Auburn shareholders may elect a director at any time to fill any
vacancy not filled by the directors. Any such election by written consent,
other than to fill a vacancy created by removal, requires the consent of a
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majority of the outstanding shares entitled to vote. An election by written
consent to fill a vacancy created by removal requires the unanimous consent of
all shareholders entitled to vote. In addition, the California GCL provides
that if, after the filling of any vacancy by the directors, the directors then
in office who have been elected by the shareholders shall constitute less than a
majority of the directors then in office (a) any holder or holders of an
aggregate of five percent (5%) or more of the total of number of shares at the
time outstanding having the right to vote for such directors may call a annual
meeting of shareholders, or (b) the California Superior Court of the proper
county shall, upon application of such shareholder or shareholders, summarily
order a annual meeting of shareholders to be held to elect the entire Board of
Directors.
The ValliCorp Bylaws provide that a vacancy on the Board of Directors
occurring for cause during the course of the year, including a vacancy created
by an increase in the number of directors, may be filled by the remaining
directors or by the stockholders at a special or annual meeting. These
provisions further provide that any directors so appointed will serve for the
remainder of the full term for which elected, and no decrease in the number of
directors shall reduce the term of any incumbent. Under the Delaware GCL,
however, if at the time of filling any vacancy or newly created directorship the
directors then in office constitute less than a majority of the entire Board of
Directors as constituted immediately prior to any such increase, the Delaware
Court of Chancery may, under certain circumstances, order an election to be held
to fill any such vacancies or newly created directorships or to replace the
directors chosen by the directors then in office. Additionally, when a director
has been removed from office with or without cause by the stockholders, the
stockholders have the right to fill such vacancy by the affirmative vote of at
least a majority of the voting power of the then outstanding stock. If the
stockholders fail to fill such vacancy, the Board may then do so as set forth
above.
AMENDMENT OF CERTIFICATE
The Auburn Articles may be amended if such amendment is approved by the
Board of Directors and by a majority of the outstanding shares of Auburn.
Under the Delaware GCL, the ValliCorp Certificate may be amended if such
amendment is approved by the Board of Directors and by a majority of the
stockholders. In addition, if ValliCorp were to have more than one class of
stock outstanding, amendments that would adversely affect the rights of any
class would require the vote of a majority of the shares of that class. The
ValliCorp Certificate further provides that the vote of two-thirds (2/3) of all
of the outstanding shares of the Stock of ValliCorp entitled to
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vote is required to amend or repeal the provisions of the ValliCorp Certificate
relating to:
(a) The elimination of the right of the stockholders to call a special
stockholders' meeting and the elimination of the right of stockholders to act
without a meeting (see "-Limitation on Action by Stockholders-Call of Annual
Meetings of Stockholders and Action by Stockholders Without a Meeting" below);
(b) The number of authorized directors, the right of such directors to
change that number and to fill vacancies on the Board of Directors, the terms of
office of the members of the Board of Directors and the provisions setting forth
the vote of the stockholders required to remove a director for cause;
(c) The authority of the Board of Directors and the stockholders to amend
the ValliCorp Bylaws;
(d) The elimination of directors' personal liability for monetary damages
arising from their negligence and gross negligence;
(e) The percentage of the shares of ValliCorp necessary to amend the
ValliCorp Certificate; and
(f) The authority of the directors to consider factors other than price
when evaluating whether to accept an offer to take over ValliCorp.
In addition, the vote of a majority of the stockholders other than any
Interested Stockholder (as defined in Section 203 of the Delaware GCL, but
generally a holder of 15% or more of the voting power of all stock of the
corporation) is required to approve amendments to amend or repeal the provision
permitting the directors to consider factors other than price in evaluating
takeover bids.
AMENDMENT OF THE BYLAWS
The Auburn Bylaws may be amended by the vote of a majority of the
directors. The ValliCorp Certificate provides that a majority of the directors
or the affirmative vote of two-thirds of the voting power of the outstanding
shares of Common Stock is required to approve amendments to the ValliCorp
Bylaws.
ADVANCE NOTICE OF STOCKHOLDER PROPOSALS AND DIRECTOR NOMINATIONS
The ValliCorp Bylaws provide that at a meeting of the stockholders no
matter will be considered unless notice of such matter is provided to the
corporation thirty (30) days before the meeting or, if on the day notice of the
meeting is given to the
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stockholders less than forty (40) days remain until the meeting, ten (10) days
after notice is given (the "Notice Date"). Stockholders are also not permitted
to nominate individuals to serve as directors of ValliCorp unless notice of such
nomination is given to ValliCorp by the Notice Date. The Auburn Bylaws do not
contain provisions specifying procedures for properly bringing matters before a
meeting of the shareholders, except for the nomination of candidates to be
elected as directors. Such nomination procedure is set forth in the Notice of
Annual Meeting attached to this Proxy Statement.
LIMITATION ON ACTION BY STOCKHOLDERS-CALL OF ANNUAL MEETING OF STOCKHOLDERS AND
ACTION BY STOCKHOLDERS WITHOUT A MEETING
The Auburn Bylaws provide that annual meetings of shareholders may be
called by the President, the Chairman of the Board of Directors, the Board of
Directors, or the holders of not less than 10% of the shares entitled to vote at
the meeting. Under the California GCL, unless otherwise provided in the articles
of incorporation, any action which may be taken at any annual or annual meeting
may be taken without a meeting and without prior notice, if a consent in
writing, setting forth the action so taken, is signed by the holders of
outstanding shares having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. The Auburn Articles do not
provide otherwise. The ValliCorp Bylaws provide that annual meetings may be
called by a majority of the total number of authorized directors or the holders
of at least ten percent (10%) of the voting power of the then outstanding stock.
The ValliCorp Certificate provides that its stockholders may act only at an
annual or annual meeting and not by written consent.
ELIMINATION OF DIRECTORS' MONETARY LIABILITY FOR BREACH OF DUTY OF CARE
The ValliCorp Certificate provides that, to the fullest extent permitted by
the Delaware GCL, as the same exists or may hereafter be amended, no director of
ValliCorp shall be personally liable to the corporation or to its stockholders
for monetary damages for breach of fiduciary duty as a director. The fiduciary
duty is a duty of care owed by directors in making corporate business decisions.
The Delaware Supreme Court has held that the duty of care requires the exercise
of an informed business judgment. An informed business judgment means that
directors have informed themselves of all material information reasonably
available to them. Having become so informed, they then must act with requisite
care in the discharge of their duties.
The ValliCorp Certificate does not eliminate the duty of care but
eliminates the remedy of monetary damage awards occasioned by
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breaches of that duty. Thus, any stockholder may seek to enjoin a proposed
transaction from occurring or seek other non-monetary relief. After the
transaction has occurred, however, the stockholders would no longer have a claim
for monetary damages against the directors based on a breach of the duty of care
even if that breach involved gross negligence on the part of the directors.
The ValliCorp Certificate does not limit or eliminate liability arising
from or based upon (a) any breach of a director's duty of loyalty to the
corporation or its stockholders, (b) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (c) acts
under Title 8, Section 174 of the Delaware GCL, which imposes liability on all
directors, except absent or dissenting directors, under whose administration
there occurs a willful or negligent violation of certain purchases or stock
redemptions, or (d) any transaction from which a director derived an improper
personal benefit. Thus, liability for monetary damages still exists if it is
based these grounds.
The Auburn Articles currently provide that the liability of directors for
monetary damages is eliminated to the fullest extent permissible under the
California GCL. The provision relieves directors of Auburn of liability to
Auburn for simple negligence but not for liability where the director was either
grossly negligent or guilty of a willful breach of his or her loyalty to Auburn.
The Auburn Articles do not, and under the California GCL cannot, eliminate or
limit the liability of a director resulting from the following actions:
(a) acts or omissions that involve intentional conduct or a knowing and
culpable violation of law;
(b) acts or omissions that a director believes to be contrary to the best
interests of the corporation or its shareholders or that involve the absence of
good faith on part of the director;
(c) any transaction from which a director derived an improper personal
benefit;
(d) acts or omissions that show a reckless disregard for the director's
duty to the corporation or its shareholders in circumstances in which the
director was aware, or should have been aware, in the ordinary course of
performing a director's duties, of a risk of serious injury to the corporation
or its shareholders;
(e) acts or omissions that constitute an unexcused pattern of inattention
that amounts to an abdication of the director's duty to the corporation or its
shareholders;
(f) any transaction between the corporation and (i) a director, or (ii) a
corporation, firm or association in which the director has a material financial
interest; or
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(g) any distribution to shareholders, and for any loan or guaranty to
officers or directors, that violates specified provisions of the California GCL.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS
Under the ValliCorp Bylaws, if ValliCorp does not elect to assume the
defense of a lawsuit brought against one of its directors or executive officers,
as defined in the ValliCorp Bylaws, it must advance expenses incurred by the
director or executive officer subject to delivery of an undertaking by or on
behalf of the director or executive officer to repay the expenses only if it is
ultimately determined that the director or executive officer is not entitled to
indemnification. However, ValliCorp is not required to advance expenses or to
assume the defense in a particular proceeding if the corporation's disinterested
directors or an independent board committee determines in good faith that, in
all likelihood, the director or executive officer will not be entitled to
indemnification under the ValliCorp Bylaws.
The ValliCorp Bylaws are broader than the Delaware GCL and provide that
each person who was or is made a party to, or is involved in, any action, suit
or proceeding by reason of the fact that he or she is or was a director or
executive officer of ValliCorp (or was serving at the request of ValliCorp as a
director, officer, employee or agent for another entity) while serving in such
capacity shall, except in certain suits initiated by such persons, be
indemnified and held harmless by ValliCorp, to the full extent authorized by the
Delaware GCL, as in effect (or, to the extent authority for indemnification is
broadened, as it may be amended) against all expense, liability or loss
(including attorneys' fees, judgments, fines, Employee Retirement Income
Security Act ("ERISA") excise taxes or penalties, amounts paid or to be paid in
settlement and amounts expended in seeking indemnification granted to such
person), reasonably incurred or suffered by such person in connection therewith.
THE DELAWARE GCL PROVIDES THAT RIGHTS TO INDEMNIFICATION AND ADVANCEMENT OF
EXPENSES NEED NOT BE LIMITED TO THOSE EXPRESSLY PROVIDED BY STATUTE. As a
result, under the Delaware GCL and the ValliCorp Bylaws, ValliCorp would be
permitted to indemnify its directors, executive officers and employees, within
the limits established by law and public policy, pursuant to an express
contract, bylaw or charter provision, shareholder vote, or otherwise.
As noted above, the ValliCorp Certificate generally requires ValliCorp to
indemnify its directors and executive officers to the fullest extent permitted
by the Delaware GCL and, in most respects, is intended to provide the maximum
protection available under the Delaware GCL. Because this provision is tied to
the Delaware GCL, it may be modified by future changes in such law without
further
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shareholder action. The ValliCorp Bylaws expressly provide, however, that any
such modification would be effective (for acts or omissions prior to the date of
a change) only to the extent it would provide broader indemnification rights
than those available under then existing law. In addition, the ValliCorp Bylaws
provide that all rights to indemnification and advances granted by such Bylaws
shall be deemed to be contractual obligations between ValliCorp and its
directors and executive officers. Accordingly, the Bylaw provision cannot be
repealed without the consent of the indemnitee. Repeal or modification of the
Bylaw provision would only be effective on a prospective basis and would not
affect rights to indemnification and expense advances in effect at the time of
any act or omission that is the subject of a proceeding against a director or
executive officer. Indemnification under any contract or agreement entered into
between ValliCorp and its directors and executive officers would likewise not be
affected by any such Bylaw repeal or modification.
The ValliCorp Bylaw provisions are intended to indemnify for conduct which
is determined to be grossly negligent or reckless. Insofar as indemnification
for liabilities arising under the Securities Act may be permitted to directors,
executive officers and other agents of ValliCorp pursuant to the foregoing
provisions or otherwise, ValliCorp has been advised that, in the opinion of the
Commission, such indemnification is contrary to public policy expressed in the
Securities Act and is therefore unenforceable, absent a decision to the contrary
by a court of competent jurisdiction.
The Auburn Articles currently permit Auburn to provide for the
indemnification of its officers, directors, employees and agents in excess of
the indemnification specifically provided by Section 317 of the California GCL.
The California GCL, therefore, allows excess indemnification by provision of
contract, bylaw or otherwise. The California GCL does not, however, allow
indemnification against liability for any conduct specifically excepted from the
limited liability provisions for directors or for which a director specifically
may not be indemnified under such Section 317.
The California GCL eliminates the requirement that the indemnified person
has acted with the care of an ordinarily prudent person as a condition to
indemnification against expenses in a derivative action. The California GCL also
eliminates the express prohibition against indemnification for amounts paid in
settlement of a derivative action if court approval is obtained. Finally, the
California GCL provides that if a majority vote of a quorum of disinterested
directors is unobtainable, independent legal counsel may determine if the
indemnified person has met the standards of care that are prerequisite to
indemnification.
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CONSIDERATION OF FACTORS OTHER THAN PRICE
Although both the Delaware GCL and the California GCL require the board of
directors to act in the best interests of its shareholders, judicial decisions
under the Delaware GCL are unclear as to whether a board may consider factors
other than the price per share when making a determination whether a transaction
is in the best interests of a company and its stockholders. Accordingly, the
ValliCorp Certificate includes a provision expressly stating that, in evaluating
any tender or exchange offer made for the securities of ValliCorp, or if another
type of business combination with ValliCorp is proposed, it is proper for the
directors to consider the best interests of ValliCorp as a whole, including
without limitation, whether the transaction is in the best interests of
ValliCorp's stockholders, complies with state and federal laws, provides a fair
and adequate price per share, and has adverse social, legal and economic effects
upon employees, suppliers, customers and others having similar relationships
with ValliCorp and the communities in which ValliCorp conducts its business.
The ValliCorp Board of Directors is also expressly authorized to conduct
investigations into such matters.
SHAREHOLDER VOTE FOR MERGERS AND OTHER REORGANIZATIONS
Generally, the California GCL requires a shareholder vote for mergers and
other reorganizations in more situations than does Delaware law. For example,
the Delaware GCL generally provides for a vote by the stockholders of each
"constituent corporation" to a merger and by stockholders of a corporation
selling all or substantially all of its assets, whereas, in addition to the
foregoing, California provides for a shareholder vote (a) of an acquiring
corporation in either a share-for-share exchange or a sale-of-assets
reorganization, and (b) of a parent corporation (even though it is not a
"constituent corporation") whose equity securities are being issued in
connection with a corporate reorganization such as a triangular merger. With
certain exceptions, the California GCL also requires a class vote when a
shareholder vote is required in connection with these transactions. In
contrast, the Delaware GCL generally does not require class voting, except where
the transaction involves an amendment to the certificate of incorporation that
affects a class of shares adversely.
The Delaware GCL does not require a shareholder vote of the surviving
constituent corporation in a merger if (a) the merger agreement does not amend
the existing certificate of incorporation, (b) each outstanding share of the
surviving corporation before the merger is unchanged after the merger, and (c)
the merger involves issuance of no more than 20% of the shares of the surviving
corporation outstanding immediately prior to such issuance. It is this
foregoing provision that permits Auburn to be merged into ValliCorp without
approval of the stockholders of ValliCorp.
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California law contains a similar exception to its voting requirements for
reorganizations where shareholder control is not diluted by more than one-sixth
as a result of the reorganization.
DISSENTERS' RIGHTS IN MERGERS AND OTHER REORGANIZATIONS
Under both the California GCL and the Delaware GCL, a dissenting
shareholder of a corporation participating in certain transactions may, under
varying circumstances, receive cash in the amount of the fair market value of
his or her shares (as determined by an agreement with the corporation or by a
court), in lieu of the consideration he or she would otherwise receive under the
terms of the transaction. Unless a corporation's certificate of incorporation
provides otherwise, the Delaware GCL does not require such dissenters' rights of
appraisal with respect to (a) a sale-of-assets reorganization or (b) a merger or
consolidation by a corporation, the shares of which are either listed on a
national securities exchange or widely held of record (by more than 2,000
stockholders), if such stockholders receive shares of stock of the surviving
corporation or of such a listed or widely held corporation. Dissenters' rights
are not available in either Delaware or California to the shareholders of a
corporation surviving a merger if no vote of the shareholders of the surviving
corporation is required but, as discussed above, in Delaware there are more
instances where such a vote is not required. The Merger is not being submitted
to a vote of the ValliCorp stockholders because ValliCorp anticipates that no
vote will be required of such stockholders under the Delaware GCL at the time of
its application immediately prior to the Effective Time. Dissenters' rights are
not available to ValliCorp stockholders because ValliCorp's shares are held of
record by more than 2,000 stockholders. Dissenters' rights are available to
Auburn shareholders in connection with the Merger. See "THE ANNUAL MEETING-
Dissenters' Rights of Appraisal."
A shareholder's manner of exercising dissenters' rights is generally less
restricted in California than under the Delaware GCL. In addition, the
exclusions from dissenters' rights in California are somewhat different from
those in Delaware.
INSPECTION OF SHAREHOLDER LISTS
The California GCL provides a right of inspection of a corporation's
shareholder list to any shareholder holding five percent (5%) or more of a
corporation's voting shares or any shareholder holding one percent (1%) or more
of a corporation's shares who has filed a Schedule 14B with the Commission
(Schedule 14B is filed in connection with certain proxy contests relating to the
election of directors). In addition, the California GCL provides a right of
inspection of shareholder lists by any shareholder for a purpose reasonably
related to such holder's interest as a shareholder. The Delaware GCL does not
provide any
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similar absolute right of inspection, but does permit any shareholder of record
to inspect the shareholder list for any purpose reasonably related to such
person's interest as a shareholder and, for a ten-day period preceding a
shareholders' meeting, for any purpose germane to the meeting.
STATE ANTI-TAKEOVER STATUTE
Section 203 of the Delaware GCL would prohibit a "business combination"
(defined generally to include mergers, sales and leases of assets, issuances of
securities and similar transactions) by ValliCorp or a subsidiary with an
Interested Stockholder within three years after the person or entity becomes an
Interested Stockholder, unless (a) prior to the person or entity becoming an
Interested Stockholder, the business combination or the transaction pursuant to
which such person or entity became an Interested Stockholder shall have been
approved by the Board of Directors of ValliCorp, (b) upon the consummation of
the transaction in which the person or entity became an Interested Stockholder,
the Interested Stockholder holds at least 85% of the voting stock of ValliCorp
(excluding shares held by persons who are both officers and directors of
ValliCorp and shares held by certain employee benefit plans), or (c) the
business combination is approved by the Board of Directors of ValliCorp and by
the holders of at least two-thirds (2/3) of the outstanding voting stock of
ValliCorp, excluding shares held by the Interested Stockholder. The Merger is
not subject to the limitations set forth in Section 203.
The California GCL requires that in certain transactions involving tender
offers or acquisition proposals made to a target corporation's shareholders by a
person who either (a) controls the target corporation, (b) is an officer or
director of the target or is controlled by an officer or director, or (c) is an
entity in which a director or executive officer of the target has a material
financial interest, a written opinion of an independent expert be provided as to
the fairness of the consideration to the shareholders of the target corporation.
The statute also provides that if a competing proposal is made at least ten (10)
days before shareholders are to vote or shares are to be purchased under the
pending offer by the affiliated party, the latter offer must be communicated to
shareholders and they must be given a reasonable opportunity to revoke their
vote or withdraw their shares, as the case may be.
POSSIBLE APPLICATION OF CERTAIN CALIFORNIA CORPORATION LAWS TO VALLICORP
Section 2115 of the California GCL generally provides that a corporation
not incorporated in California, such as ValliCorp (a "foreign corporation"),
which meets certain criteria is known as a "pseudo-foreign corporation" and is
subject to several enumerated
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provisions of the California GCL which otherwise would not apply to foreign
corporations. However, any foreign corporation with outstanding securities
designated or qualified for trading as a national market security on the
National Association of Securities Dealers Automatic Quotation National Market
System ("NASDAQ-NMS"), and which has at least 800 holders of its equity
securities as of the record date of its most recent annual meeting, is exempt
from the provisions of Section 2115. As of the date of this Proxy Statement,
ValliCorp Common Stock is traded in the NASDAQ-NMS. Further, ValliCorp currently
has 2,500 holders of its outstanding securities. Thus, Section 2115 does not
apply to ValliCorp even if it meets the tests for pseudo-foreign corporation
status. In the future, however, if the stock of ValliCorp were to be delisted
from NASDAQ-NMS or if the number of beneficial holders of its equity securities
fell below 800, and ValliCorp met the tests of Section 2115 at that time, then
certain designated provisions of the California GCL, pursuant to Section 2115,
would thereafter become applicable to ValliCorp. The provisions include, but are
not limited to, the following: Section 317 (indemnification of directors,
officers and others); Section 301 (annual election of directors); Section 304
(removal of directors by court proceedings); Section 708, subdivisions (a), (b)
and (c) (shareholder's right to cumulate votes at any election of directors);
and Section 710 (supermajority vote requirement).
ELECTION OF DIRECTORS
---------------------
NOMINEES
Auburn's Bylaws presently provide that the number of directors of Auburn
shall not be less than eight (8) nor more than fifteen (15) until changed by an
amendment to the Bylaws adopted by Auburn's shareholders. The Bylaws further
provide that the exact number of directors shall be nine (9) until changed by a
Bylaw or Bylaw amendment duly adopted by Auburn's shareholders or board of
directors.
The persons named below, all of whom are currently members of the board of
directors, have been nominated for election as directors to serve until the 1997
Annual Meeting of Shareholders and until their successors are elected and have
qualified or until the consummation of the Merger. Unless otherwise instructed,
the proxyholders will vote the Proxies received by them for the election of the
nominees named below. Votes of the proxyholders will be cast in such a manner
as to effect, if possible, the election of all nine (9) nominees, as
appropriate, (or as many thereof as possible under the rules of cumulative
voting). The nine nominees for directors receiving the most votes will be
elected directors. In the event that any of the nominees should be unable to
serve as a director, it is intended that the Proxy will be voted for the
election of such substitute nominee, if any, as shall be designated by the board
of directors. The board of
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directors has no reason to believe that any of the nominees named below will be
unable to serve if elected. Additional nominations for directors may only be
made by complying with the nomination procedures which are included in the
Notice of Annual Meeting of Shareholders accompanying this Proxy Statement.
The following table sets forth as of March 15, 1996, the names of, and
certain information concerning, the persons nominated by the board of directors
for election as directors of Auburn.
<TABLE>
<CAPTION>
Year First
Name and Title Appointed Principal Occupation During the
Other Than Director Age Director Past Five Years
- -------------------- --- ----------- -----------------------------------
<S> <C> <C> <C>
John G. Briner 56 1981 President and Chief Executive Officer of
President and Chief Auburn and TBOC.
Executive Officer
Paul Brocker 71 1986 General Contractor and Owner of Paul
Brocker Construction and Brocker, Brocker
& Brocker, Auburn.
D. Dwight Odom, M.D. 58 1981 Former Gynecologist and President of
Chairman of the Board D. Dwight Odom, M.D., Inc., Auburn. Dr.
Odom retired from practice as of December 31, 1993.
Thomas E. Propp 47 1995 Managing Partner, CFO & CPA of Tate, Propp,
Beggs & Sugimoto, an accountancy corporation.
Donald L. Robinson 65 1981 Owner and President of Don Robinson Sand &
Gravel, Inc., Auburn, and Don Robinson Construction
Inc., Auburn.
Harry E. Sands 69 1981 Retired. Former business executive.
Secretary
Virgil R. Traynor, 58 1981 Veterinarian and Owner of Edgewood Veterinary
D.V.M. Clinic, Auburn.
Gary N. Weeks 54 1988 Owner and President of Marina Imports, Grass
Valley.
H. Ray Yamasaki 63 1981 Landscape Architect, Owner and President of
Vice Chairman Yamasaki Nursery, Inc., Auburn.
</TABLE>
All of the nominees named above have served as members of Auburn's board
of directors during the past year. None of the directors were selected pursuant
to any arrangement or understanding other than with the directors and officers
of Auburn acting within their capacities as such. There are no family
relationships among any of the directors and executive officers of
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Auburn, except Mr. John G. Briner is the spouse of Ms. Pamela Briner. No
director or executive officer of Auburn serves as a director of any company
which has a class of securities registered under, or which is subject to the
periodic reporting requirements of, the Exchange Act, or of any company
registered as an investment company under the Investment Company Act of 1940.
THE BOARD OF DIRECTORS AND COMMITTEES
Auburn's board of directors held 8 meetings during 1995. None of the
directors attended less than 75 percent of all board of directors meetings and
committee meetings (of which they were a member) that were held in 1995.
There were no standing committees of Auburn's board of directors. In
1995, TBOC had a standing Audit & Operations Committee and Compensation
Committee. TBOC's Audit & Operations Committee, which consisted of Messrs.
Brocker (chairman), Briner, Gibson (resigned in February 1995), Propp, Sands and
Yamasaki and Drs. Odom and Traynor met 12 times during 1995. The Audit and
Operations Committee review the audits and operations of TBOC and considers the
adequacy of its auditing procedures. TBOC's Compensation Committee, which
consisted of Drs. Odom (chairman) and Traynor and Messrs. Briner, Propp and
Yamasaki, did not meet in 1995. The Compensation Committee reviews and approves
compensation arrangements of TBOC's senior officers.
COMPENSATION OF DIRECTORS
The directors of Auburn do not receive compensation from Auburn, however,
the directors do receive a fee of $500 for attendance at TBOC's board of
directors meetings and $200 for each of TBOC's committee meetings attended, up
to a maximum of $700 per month per director for all meetings attended.
EXECUTIVE OFFICERS
The following table sets forth information concerning executive officers
of Auburn:
<TABLE>
<CAPTION>
Position and Principal
Name Age Occupation for the Past 5 Years
- --------------- --- -----------------------------------------------------
<S> <C> <C>
John G. Briner 55 President and Chief Executive Officer of Auburn and
TBOC.
Pamela J. Briner 45 Executive Officer and Cashier of Auburn and TBOC. Ms.
Briner was appointed to the position of Executive
Officer and Cashier of Auburn and TBOC in March 1996.
She has been an executive assistant with Auburn and
TBOC since 1982.
</TABLE>
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EXECUTIVE COMPENSATION
- ----------------------
SUMMARY COMPENSATION TABLE
--------------------------
<TABLE>
<CAPTION>
-----------------------------------------------------
Long Term Compensation
-----------------------------------------------------
Annual Compensation
Awards Payouts
- ------------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
- ------------------------------------------------------------------------------------------------------------------------------------
Other
Annual Restricted All Other
Name and Compen- Stock LTIP Compen-
Principal Salary Bonus sation Award(s) Options/ Payouts sation/(1)/
Position Year ($) ($) ($) ($) SARs ($) ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John G. Briner, President 1995 $128,400 $18,000 10,000 $8,657
and Chief Executive Officer of -------------------------------------------------------------------------------------------------
Auburn and TBOC 1994 $124,163 $30,947 3,000 $8,559
-------------------------------------------------------------------------------------------------
1993 $118,400 $ 7,500 0 $19,107
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) These amounts represent TBOC's contribution under TBOC's Profit
Sharing/401(k) Plan and the cost of premiums for excess group insurance.
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OPTION/SAR GRANTS TABLE
-----------------------
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Individual Grants
- --------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
- --------------------------------------------------------------------------------------------------------------------------------
% of Total
Number of Securities Options/SARs
Underlying Granted to Exercise or
Options/SARs Employees in Base Price Expiration
Name Granted (#) Fiscal Year ($/Share) Date
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John G. Briner 10,000 19.0% $7.75 7/20/05
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
OPTION/SAR EXERCISES AND YEAR-END VALUE TABLE
---------------------------------------------
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION/SAR
VALUE
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
- --------------------------------------------------------------------------------------------------------------------------------
Value of
Number of Unexercised In-
Unexercised the-Money
Options/SARs at Options/SARs at
Year-End (#) Year-End ($)
Shares Acquired on Value Realized Exercisable/ Exercisable/
Name Exercise (#) ($) Unexercisable Unexercisable
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John G. Briner 0 N/A 33,388/12,400/(1)/ $79,318/$300/(1)/
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
N/A - means not applicable.
(1) Options only.
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<PAGE>
EMPLOYMENT AGREEMENTS
Mr. Briner has an employment agreement with Auburn and TBOC. His
employment agreement is for a term of five years commencing January 1, 1995 as
the President and Chief Executive Officer of Auburn and TBOC. His base annual
salary is $120,000 per year, with increases to be determined at the discretion
of the Boards of Directors of TBOC and Auburn. The agreement provides for four
weeks vacation, health, disability and life insurance benefits, use of an
appropriate company car for business use, stock options in amounts to be
determined by the Board of Directors, and indemnification for matters incurred
in connection with any action against Mr. Briner which arose out of and was
within the scope of his employment, provided that he acted in good faith and in
a manner the executive reasonably believed to be in the best interests of Auburn
and TBOC and with respect to a criminal matter if he also had no reasonable
cause to believe his conduct was unlawful.
If Auburn and TBOC terminate Mr. Briner without cause, he shall be entitled
to (i) two years base salary, and (ii) continuation of insurance benefits for
six months. Upon any merger or consolidation where Auburn and TBOC are not the
surviving or resulting corporations, or upon any transfer of all or
substantially all of the assets of Auburn and TBOC, and he is not retained for
the remaining term of the agreement in a position comparable to that of the
highest level vice president of the resulting corporation or another position
acceptable to him, the resulting corporation shall pay to him three years of his
base salary plus such amount to cover the federal and state income taxes on the
three years of base salary and the "golden parachute" taxes required by Section
280G of the Internal Revenue Code in a lump sum within ten days of such
termination. Auburn and TBOC and Mr. Briner have agreed to a modification of the
employment agreement with respect to the severance provision in connection with
the proposed Merger of Auburn into ValliCorp. Under the amendment, Mr. Briner
and his wife, Ms. Pamela Briner (Executive Officer and Cashier of Auburn and
TBOC), will receive from Auburn severance payments of $365,000 and $125,000,
respectively, and bonuses of $60,000 and $25,000, respectively. Mr. Briner may
also receive from TBOC the TBOC owned four year old Cadillac that he currently
drives as an additional bonus as a result of the Merger. The severance payment
of $125,000 to Ms. Briner excludes the normal severance payment she would
otherwise receive as a result of the Merger. See "THE MERGER-Interests of
Certain Persons in the Merger".
In addition Mr. Briner has a salary continuation agreement with TBOC which
provides that TBOC will pay him $75,000 per year for 15 years following his
retirement from TBOC at age 65 ("Retirement Age"). In the event of disability
while Mr. Briner is actively employed prior to Retirement Age, he will have the
option to take a benefit amount based on the vesting schedule below for 15 years
beginning at the earlier of the time when he reaches age 65 or the date on which
he is no longer entitled to disability
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benefits provided by TBOC. In the event Mr. Briner dies while actively employed
by TBOC prior to Retirement Age, his beneficiary will receive from TBOC a
benefit amount based on the vesting schedule below for 15 years beginning one
month after his death. In the event of termination without cause, early
retirement, or voluntary termination, Mr. Briner shall receive a benefit amount
based on the vesting schedule below for 15 years beginning with the month
following the month in which Executive terminates employment and attains age 65.
The vesting schedule is 12% per year of service for the first five years
beginning May 18, 1994, and decreases to 8% additional per year of service for
the last five years. In the event Mr. Briner is terminated for cause he will
forfeit any benefits from the salary continuation agreement.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires Auburn's officers and directors,
and persons who own more than ten percent of a registered class of the Auburn
Common Stock, to file reports of ownership and changes in ownership with the
Commission. Officers, directors and more than ten-percent shareholders are
required by Commission regulation to furnish Auburn with copies of all Section
16(a) forms they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Forms 5 were
required for those persons, Auburn believes that, during 1995 its officers,
directors and more than ten-percent shareholders complied with all filing
requirements applicable to them.
RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------------
The firm of Perry-Smith & Co., Sacramento, California, served as
independent public accountants for Auburn and TBOC through the year 1995.
Auburn has selected Perry-Smith & Co. to serve as the Auburn's independent
public accountants for the year 1996. All services rendered by Perry-Smith &
Co. were approved by the Board of Directors, which has determined the firm of
Perry-Smith & Co. to be independent. It is expected that one or more
representatives of Perry-Smith & Co. will be present at the Annual Meeting and
will be given the opportunity to make a statement, if desired, and to respond to
appropriate questions.
In the event shareholders do not ratify the appointment of Perry-Smith &
Co. as Auburn's independent public accountants for the forthcoming fiscal year,
such appointment will be reconsidered by the Board of Directors.
Ratification of the appointment of Perry-Smith & Co. as Auburn's
independent public accountants for fiscal year 1996 will
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require the affirmative vote of a majority of the outstanding shares of the
Auburn's Common Stock represented and voting at the meeting.
MANAGEMENT OF AUBURN RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR"
RATIFICATION OF THE APPOINTMENT OF PERRY-SMITH & CO. AS AUBURN'S INDEPENDENT
PUBLIC ACCOUNTANTS FOR 1996.
SHAREHOLDER PROPOSALS
---------------------
If the Merger is consummated within the period currently contemplated,
assuming all conditions are met, including the approval of the Merger Agreement
by the Auburn shareholders at the Annual Meeting, the Auburn shareholders will
become holders of ValliCorp Common Stock prior to the next scheduled Annual
Meeting of stockholders of ValliCorp. Holders of ValliCorp Common Stock must
submit proposals to ValliCorp by the close of business on December 12, 1996. In
the event that the Merger is not consummated on or before the 1997 Annual
Meeting of Shareholders of Auburn, Auburn's 1997 Annual Meeting of Shareholders
will be on or about April 16, 1997. The deadline for shareholders to submit
proposals to be considered for inclusion in Auburn's proxy statement and form of
proxy for the Auburn 1997 Annual Meeting of Shareholders is January 1, 1997.
EXPERTS
-------
The consolidated financial statements of Auburn as of December 31, 1995 and
1994, and for the three years ended December 31, 1995, incorporated in this
Proxy Statement by reference from the Auburn Annual Report on Form 10-K for the
year ended December 31, 1995, have been audited by Perry-Smith & Co. as stated
in their report, which report expresses an unqualified opinion and includes an
explanatory paragraph referring to a change in methods of accounting for certain
investments in debt and equity securities, which is incorporated herein by
reference, and have been so incorporated in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
Representatives of Perry-Smith & Co. will be present at the Annual Meeting
and will be given an opportunity to make a statement if they desire to do so.
They will also be available to respond to appropriate questions.
The supplemental consolidated financial statements of ValliCorp as of
December 31, 1995 and 1994 and for the years then ended included in this Proxy
Statement have been audited by Deloitte & Touche LLP as stated in their report
(which includes an emphasis paragraph relating to the restatement of the
supplemental consolidated financial statements for poolings of interests
subsequent to the date of the historical financial statements and
-103-
<PAGE>
an explanatory paragraph referring to a 1994 change in method of accounting for
securities) included herein. The consolidated financial statements of El Capitan
Bancshares, Inc. as of December 31, 1995 and 1994 and for each of the three
years in the period then ended (combined with those of ValliCorp in the
supplemental consolidated financial statements) have been audited by Grant
Thornton LLP, as stated in their report which is included herein. Such
supplemental consolidated financial statements of ValliCorp are included in this
Proxy Statement in reliance upon the reports of such firms given upon their
authority as experts in accounting and auditing.
The consolidated financial statements of ValliCorp (before giving effect to
the 1996 poolings of interests with El Capitan Bancshares, Inc. and CoBank
Financial Corporation and the 1994 pooling of interests with Mineral King
Bancorp, Inc.) for the year ended December 31, 1993, have been audited by Ernst
& Young LLP, and the consolidated financial statements of Mineral King Bancorp,
Inc. for the year ended December 31, 1993 have been audited by Price Waterhouse
LLP, as stated in their reports, which are incorporated by reference herein.
The consolidated financial statements of CoBank Financial Corporation for the
year ended December 31, 1993 have been audited by Deloitte & Touche LLP as
stated in their report referred to in the preceding paragraph. The supplemental
consolidated financial statements of ValliCorp for such year included in this
Proxy Statement give retroactive effect to the combination of ValliCorp, Mineral
King Bancorp, Inc., El Capitan Bancshares, Inc., and CoBank Financial
Corporation, using the pooling of interests accounting method. Such combination
for the year ended December 31, 1993 was also audited by Deloitte & Touche LLP,
as stated in their report referred to in the preceding paragraph. Such
supplemental consolidated financial statements of ValliCorp for the year ended
December 31, 1993 have been included in this Proxy Statement in reliance upon
the reports of such firms, given upon their authority as experts in accounting
and auditing. All of the foregoing firms are independent auditors.
LEGAL MATTERS
-------------
Certain legal matters in connection with the issuance of ValliCorp Common
Stock in accordance with the terms of the Merger Agreement will be passed upon
by E.L. Herbert, Executive Vice President/General Counsel of ValliCorp. As of
______________, 1996, the Record Date for Auburn's Annual Meeting, Mr. Herbert
beneficially owned an aggregate of _________ shares of ValliCorp Common Stock.
-104-
<PAGE>
SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
OF VALLICORP
------------
The supplemental consolidated financial statements of ValliCorp have been
prepared to give retroactive effect to the mergers with El Capitan Bancshares,
Inc. and CoBank Financial Corporation on February 2, 1996 and March 22, 1996,
respectively. Generally accepted accounting principles proscribe giving effect
to a consummated business combination accounted for by the pooling-of-interests
method in financial statements that do not include the date of consummation.
These financial statements do not extend through the date of consummation;
however, they will become the historical consolidated financial statements of
ValliCorp after financial statements covering the dates of consummation of the
business combinations are issued. The location within this Proxy Statement of
the independent accountants' reports with respect to the supplemental
consolidated financial statements and of such statements are set forth below.
<TABLE>
<CAPTION>
PROXY STATEMENT
PAGE
NUMBER
------
<S> <C>
Independent Auditor's Report of F-1
Deloitte & Touche LLP
Independent Auditor's Report of F-3
Grant Thornton LLP
Supplemental Consolidated F-4
Balance Sheets at December 31,
1995 and 1994
Supplemental Consolidated F-5
Statements of Income for the
Years Ended December 31, 1995,
1994, and 1993
Supplemental Consolidated F-6
Statements of Stockholders'
Equity for the Years Ended
December 31, 1995, 1994, and 1993
Supplemental Consolidated F-7
Statements of Cash Flows for the
Years Ended December 31, 1995,
1994, and 1993
Notes to Supplemental F-8
Consolidated Financial
Statements
</TABLE>
-105-
<PAGE>
LOCATION OF AUBURN FINANCIAL INFORMATION IN THE ACCOMPANYING
------------------------------------------------------------
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED
----------------------------------------------------
DECEMBER 31, 1995
-----------------
<TABLE>
<CAPTION>
ANNUAL REPORT
PAGE
NUMBER
------
<S> <C>
Independent Auditor's Report of Perry-Smith F-1
& Co.
Consolidated Balance Sheets at December 31, F-2
1995 and 1994
Consolidated Statements of Income for the F-3
Years Ended December 31, 1995, 1994, and 1993
(unaudited)
Consolidated Statements of Stockholders' F-5
Equity for the Years Ended December 31, 1995,
1994, and 1993
Consolidated Statements of Cash Flows for the F-6
Years Ended December 31, 1995, 1994, and 1993
Notes to Consolidated Financial Statements F-9
</TABLE>
LOCATION OF AUBURN FINANCIAL INFORMATION IN THE
-----------------------------------------------
ACCOMPANYING QUARTERLY REPORT ON FORM 10-Q
------------------------------------------
FOR THE QUARTER ENDED MARCH 31, 1996
------------------------------------
<TABLE>
<CAPTION>
QUARTERLY
REPORT PAGE
NUMBER
------
<S> <C>
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Stockholders' 5
Equity
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 8
(Unaudited)
</TABLE>
-106-
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
ValliCorp Holdings, Inc.
We have audited the accompanying supplemental consolidated balance sheets of
ValliCorp Holdings, Inc. and subsidiaries as of December 31, 1995 and 1994, and
the related supplemental consolidated statements of income, stockholders' equity
and cash flows for the years then ended. These supplemental consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these supplemental consolidated
financial statements based on our audits. We did not audit the consolidated
balance sheets of El Capitan Bancshares, Inc. as of December 31, 1995 and 1994,
or the related consolidated statements of earnings, stockholders equity and cash
flows for the years then ended, which statements reflect total assets of
$133,499,000 and $131,582,000, net interest income of $6,849,000 and $7,503,000
and net earnings of $1,044,000 and $1,882,000 as of and for the years ended
December 31, 1995 and 1994, respectively. Those statements were audited by other
auditors whose report, dated January 19, 1996, has been furnished to us, and our
opinion, insofar as it relates to the amounts included for El Capitan
Bancshares, Inc., in the accompanying supplemental consolidated financial
statements, is based solely on the report of such other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.
The supplemental consolidated financial statements give retroactive effect to
the mergers of ValliCorp Holdings, Inc. and El Capitan Bancshares, Inc. on
February 2, 1996, and ValliCorp Holdings, Inc. and CoBank Financial Corporation
on March 22, 1996, which have been accounted for as poolings of interests as
described in Notes A and C to the supplemental consolidated financial
statements. Generally accepted accounting principles proscribe giving effect to
a consummated business combination accounted for by the pooling of interests
method in financial statements that do not include the date of consummation.
These financial statements do not extend through the date of consummation,
however, they will become the historical consolidated financial statements of
ValliCorp Holdings, Inc. and subsidiaries after financial statements covering
the dates of the business combinations are issued.
In our opinion, based on our audits and the report of the other auditors, the
accompanying supplemental consolidated financial statements present fairly, in
all material respects, the consolidated financial position of ValliCorp
Holdings, Inc. and subsidiaries at December 31, 1995 and 1994, and the results
of their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles applicable after financial
statements are issued for a period which includes the dates of consummation of
the business combinations.
The consolidated financial statements of ValliCorp Holdings, Inc. for the year
ended December 31, 1993 (before giving retroactive effect to i) the 1994 pooling
of interests with Mineral King Bancorp, Inc., as described in Note C to the
supplemental consolidated financial statements and ii) the 1996 poolings of
interests described above), the consolidated financial statements of Mineral
King Bancorp, Inc. and the consolidated financial statements of El Capitan
Bancshares, Inc. for such year, were audited by other auditors whose reports,
dated January 18, 1994, February 10, 1994 and January 19, 1996, respectively,
expressed unqualified opinions on those statements. We audited the consolidated
financial statements of CoBank Financial Corporation for the year ended December
31, 1993. We also audited the combination of the accompanying supplemental
consolidated statements of income, stockholders' equity and cash flows
F-1
<PAGE>
for the ended December 31, 1993, after restatement for the 1994 and 1996
poolings of interests. In our opinion, such supplemental consolidated statements
for 1993 have been properly combined on the basis described in Notes A and C to
the supplemental consolidated financial statements.
As discussed in Note A to the supplemental consolidated financial statements,
effective January 1, 1994 the Company changed its method of accounting for
securities to conform with Statement of Financial Accounting Standards No. 115.
/s/DELOITTE & TOUCHE LLP
Fresno, California
June 17, 1996
F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
Board of Directors & Stockholders
EL CAPITAN BANCSHARES, INC.
We have audited the consolidated balance sheets of EL CAPITAN BANCSHARES, INC.
(A CALIFORNIA CORPORATION) AND SUBSIDIARY as of December 31, 1995 and 1994, and
the related consolidated statements of earnings, stockholders' equity, and cash
flows (not presented separately herein) for each of the three years ended
December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit incudes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of El Capitan
Bancshares, Inc. and Subsidiary as of December 31, 1995 and 1994, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles.
/s/GRANT THORNTON LLP
Stockton, California
January 19, 1996
F-3
<PAGE>
VALLICORP HOLDINGS, INC.
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1994
-------------------------
(DOLLARS IN THOUSANDS EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS
Cash and due from banks $ 103,004 $ 104,198
Federal funds sold 57,770 2,770
------------------------
Cash and cash equivalents 160,774 106,968
Loans held for sale 5,158 3,116
Securities:
Available for sale (amortized cost of $250,506 in 1995
and $135,920 in 1994) 249,586 129,358
Held to maturity (fair value of $66,074 in 1995
and $161,396 in 1994) 65,646 170,965
------------------------
Total securities 315,232 300,323
Loans 865,749 879,713
Allowance for loan losses (14,986) (14,130)
---------- ----------
Net loans 850,763 865,583
Accrued interest receivable 11,201 11,018
Premises and equipment, net 25,919 25,039
Other assets 20,988 23,722
------------------------
Total assets $1,390,035 $1,335,769
========================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing transaction accounts $ 300,746 $ 300,124
Interest-bearing transaction and savings accounts 526,274 554,006
Certificates of deposit, $100,000 and over 136,284 119,339
Other time deposits 258,082 204,662
------------------------
Total deposits 1,221,386 1,178,131
Other liabilities 10,186 9,507
Federal funds purchased and repurchase agreements 10,410 5,500
Debt financing 20,932 26,123
------------------------
Total liabilities 1,262,914 1,219,261
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; authorized 5,000,000
shares, none issued - -
Common stock, $.01 par value; authorized 20,000,000
shares, issued and outstanding 13,266,088 shares
in 1995 and 13,070,193 shares in 1994 133 131
Paid-in capital 84,135 82,931
Net unrealized securities losses, net of income taxes (536) (3,788)
Retained earnings 43,389 37,234
------------------------
Total stockholders' equity 127,121 116,508
------------------------
Total liabilities and stockholders' equity $1,390,035 $1,335,769
========================
</TABLE>
See notes to supplemental consolidated financial statements.
F-4
<PAGE>
VALLICORP HOLDINGS, INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1995 1994 1993
-----------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
INTEREST INCOME
Loans $89,560 $72,389 $57,649
Securities 16,160 17,147 12,523
Federal funds sold and other 3,604 1,008 1,018
-------------------------------------
Total interest income 109,324 90,544 71,190
-------------------------------------
INTEREST EXPENSE
Deposits 34,955 22,906 20,951
Debt financing 1,757 236 99
Other 303 319 43
-------------------------------------
Total interest expense 37,015 23,461 21,093
------------------------------------
NET INTEREST INCOME 72,309 67,083 50,097
Provision for loan losses 9,633 3,958 2,922
------------------------------------
Net interest income after provision
for loan losses 62,676 63,125 47,175
------------------------------------
OTHER INCOME
Service charges on deposit accounts 2,667 2,552 3,006
Other service charges and fees 5,867 6,312 4,107
Mortgage banking revenue 590 521 1,616
Gain (loss) on sale of securities (113) 7 232
Other 3,811 2,271 1,515
------------------------------------
Total other income 12,822 11,663 10,476
------------------------------------
OTHER EXPENSES
Salaries and employee benefits 25,293 25,327 19,933
Occupancy 6,099 5,448 3,838
Equipment and maintenance 4,837 4,293 2,956
Merger and restructuring 700 3,367 -
Other 18,817 18,085 13,092
-------------------------------------
Total other expenses 55,746 56,520 39,819
-------------------------------------
Income before income taxes 19,752 18,268 17,832
Income taxes 7,950 7,817 6,596
-------------------------------------
NET INCOME $11,802 $ 10,451 $ 11,236
=====================================
EARNINGS PER SHARE
Primary $ 0.88 $ 0.78 $ 1.08
=====================================
Fully-diluted $ 0.87 $ 0.78 $ 1.07
=====================================
DIVIDENDS PER SHARE PAID BY VALLICORP $ 0.36 $ 0.32 $ 0.27
=====================================
</TABLE>
See notes to supplemental consolidated financial statements.
F-5
<PAGE>
VALLICORP HOLDINGS, INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NET UNREALIZED
SECURITIES
NUMBER COMMON PAID-IN GAINS RETAINED
OF SHARES STOCK CAPITAL (LOSSES) EARNINGS TOTAL
---------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992, AS PREVIOUSLY REPORTED 6,371,747 $ 64 $33,992 $16,191 $ 50,247
Pooling of interests with El Capitan Bancshares, Inc. 1,976,276 20 8,661 4,043 12,724
Pooling of interests with CoBank Financial Corporation 929,266 9 3,850 3,136 6,995
---------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1992, AS RESTATED 9,277,289 93 46,503 23,370 69,966
Issuance of common stock:
Stock offering, net of offering costs of $350 1,725,000 17 21,471 21,488
Acquisition of Pacific Bancorporation 1,508,168 15 11,296 11,311
Conversion of subordinated notes 65,024 1 357 358
Exercise of stock options 27,906 213 213
Net income 11,236 11,236
Cash dividends declared prior to mergers:
ValliCorp Holdings, Inc. - $0.27 per share (1,291) (1,291)
Pooled companies (1,255) (1,255)
---------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1993 12,603,387 126 79,840 32,060 112,026
Issuance of common stock:
Conversion of subordinated notes 15,171 84 84
Exercise of stock options 241,442 3 1,440 1,443
10% stock dividend, including cash payments for
fractional shares - Mineral King Bancorp, Inc. 210,193 2 1,567 (1,572) (3)
Adjustment for change in accounting method,
net of income taxes of $915 $ 1,281 1,281
Change in net unrealized losses on available for sale
securities, net of income taxes of $3,689 (5,069) (5,069)
Net income 10,451 10,451
Cash dividends declared prior to mergers:
ValliCorp Holdings, Inc. - $0.32 per share (2,440) (2,440)
Pooled companies (1,265) (1,265)
---------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1994 13,070,193 131 82,931 (3,788) 37,234 116,508
Issuance of common stock:
Conversion of subordinated notes 33,565 184 184
Exercise of stock options 162,330 2 1,020 1,022
Change in net unrealized losses on available for sale
securities, net of income taxes of $2,332 3,252 3,252
Net income 11,802 11,802
Cash dividends declared prior to mergers:
ValliCorp Holdings, Inc. - $0.46 per share (4,710) (4,710)
Pooled companies (937) (937)
------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995 13,266,088 $133 $84,135 $ (536) $43,389 $127,121
=====================================================================
</TABLE>
See notes to supplemental consolidated financial statements.
F-6
<PAGE>
VALLICORP HOLDINGS, INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1995 1994 1993
-------------------------------------
OPERATING ACTIVITIES: (IN THOUSANDS)
<S> <C> <C> <C>
Net income $ 11,802 $ 10,451 $ 11,236
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 9,633 3,958 2,922
Provision for losses on other real estate owned 1,002 437 108
Depreciation and amortization 5,902 5,726 2,578
Deferred income tax benefit (158) (396) (1,307)
Originations of loans held for sale, net of principal collected (51,258) (54,083) (134,103)
Proceeds from loan sales 49,646 56,946 131,722
Gain on sale of loans (430) (437) (1,596)
Loss (gain) on sale of securities 113 (7) (232)
Gain on sale of other real estate owned (185) (156) (154)
(Increase) decrease in accrued interest receivable (183) (402) 93
(Increase) decrease in other assets (2,362) (242) 2,420
(Decrease) increase in other liabilities (438) 1,224 (1,428)
-----------------------------------
Net cash provided by operating activities 23,084 23,019 12,259
INVESTING ACTIVITIES:
Net cash (used) obtained in mergers and acquisitions - (15,762) 36,207
Proceeds from sales of securities - - 22,637
Proceeds from maturities of securities - - 79,571
Purchases of securities - - (184,743)
Proceeds from sales of available for sale securities 39,812 56,438 -
Proceeds from maturities of available for sale securities 36,642 25,829 -
Purchases of available for sale securities (80,268) (52,389) -
Proceeds from maturities of held to maturity securities 33,953 18,197 -
Purchases of held to maturity securities (39,882) (20,862) -
Net increase in loans excluding loan participations
and loans held for sale (1,850) (66,206) (12,815)
Loan participations:
Purchases (577) - (3,964)
Sales 4,012 2,172 5,758
Purchases of premises and equipment (5,444) (9,921) (4,913)
Proceeds from premises and equipment disposals 365 72 23
Investments in other real estate owned - (923) (497)
Proceeds from sale of other real estate owned 4,391 3,328 1,949
-----------------------------------
Net cash used in investing activities (8,846) (60,027) (60,787)
FINANCING ACTIVITIES:
Increase (decrease) in deposits 43,255 (5,282) 77,810
Increase in federal funds purchased and repurchase agreements 4,910 5,500 -
Principal payments on debt financing (5,007) (55) (10)
Proceeds from debt financing - 25,000 -
Stock options exercised 1,022 1,443 213
Proceeds from stock offering - - 21,488
Cash dividends (4,612) (3,623) (2,504)
-----------------------------------
Net cash provided by financing activities 39,568 22,983 96,997
---------------------------------
Increase (decrease) in cash and cash equivalents 53,806 (14,025) 48,469
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 106,968 120,993 72,524
----------------------------------
Cash and cash equivalents at end of year $160,774 $106,968 $ 120,993
===================================
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 38,229 $ 24,644 $ 21,228
Income taxes paid 7,319 8,768 7,592
Transfers of loans to other real estate owned 4,045 3,829 3,247
Conversion of subordinated notes into common stock 184 84 358
Financing sale of premises and other real estate 333 1,556 207
Common stock issued for Pacific Bancorporation merger - - 11,311
Dividends declared, not yet paid 1,884 849 764
See notes to supplemental consolidated financial statements.
</TABLE>
F-7
<PAGE>
VALLICORP HOLDINGS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
NOTE A - ACCOUNTING POLICIES
ValliCorp Holdings, Inc., a supercommunity banking company headquartered in
Fresno, California, operates 54 full-service branches in Central California. The
accounting policies of ValliCorp Holdings, Inc. and its subsidiary, ValliWide
Bank, conform with generally accepted accounting principles and prevailing
practices within the financial services industry. Such principles require
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and
expenses during the reported period. Actual results could differ from those
estimates. The following is a summary of significant accounting and reporting
policies.
BASIS OF PRESENTATION: The supplemental consolidated financial statements of
ValliCorp Holdings, Inc. and its subsidiary, ValliWide Bank, (collectively, the
Company) have been prepared to give retroactive effect to the mergers with El
Capitan Bancshares, Inc. and CoBank Financial Corporation on February 2, 1996
and March 22, 1996, respectively. Generally accepted accounting principles
proscribe giving effect to a consummated business combination accounted for by
the pooling of interests method in financial statements that do not include the
date of consummation. These financial statements do not extend through the date
of consummation, however, they will become the historical consolidated financial
statements of the Company after financial statements covering the date of
consummation of the business combination are issued. Previously, the historical
financial statements included the acquisition in December 1994 of Mineral King
Bancorp, Inc. (Mineral King), as described in Note C. All significant
intercompany balances and transactions are eliminated.
BUSINESS COMBINATIONS: In a business combination accounted for as a pooling-of-
interests, the assets, liabilities and shareholders' equity of the acquired
entity are carried forward at their historical amounts and its results of
operations are combined with the Company's results of operations. Additionally,
the Company's prior period financial statements are restated to give effect to
the merger.
In a business combination accounted for as a purchase, the results of operations
of the acquired entity are included from the date of acquisition. Assets and
liabilities of the entity acquired are recorded at fair value on the date of
acquisition. Goodwill and identified intangibles are amortized over their
estimated lives.
CASH AND CASH EQUIVALENTS: Cash and due from banks and federal funds sold with
original term to maturity of less than ninety days are considered cash and cash
equivalents.
LOANS HELD FOR SALE: Mortgage loans held for sale are carried at the lower of
aggregate cost or market as determined by outstanding commitments from investors
or current investor yield requirements. Gains and losses on loan sales are
recognized at the time of sale and are calculated based on the amounts received
and the carrying value of the loans sold.
SECURITIES: In May 1993, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." The Company adopted the
provisions of the new standard for securities held as of or acquired after
January 1, 1994. In accordance with the standard, prior period financial
statements were not restated. The cumulative effect of adopting SFAS No. 115 was
to increase stockholders' equity at January 1, 1994 by $1,281,000 (net of
$915,000 in income taxes) to reflect the net unrealized holding gains on
securities classified as available for sale previously carried at the lower of
amortized cost or market. There was no effect on net income as a result
F-8
<PAGE>
VALLICORP HOLDINGS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
of adopting this standard. Net reclassifications totaling approximately
$87,000,000 were made from the held to maturity securities portfolio to the
available for sale securities portfolio upon the adoption of SFAS No. 115.
Management determines the appropriate classification of debt securities at the
time of purchase and reevaluates such designation as of each balance sheet date.
Debt securities are classified as held to maturity when the Company has the
positive intent and ability to hold the securities to maturity. Held to maturity
securities are stated at cost, adjusted for amortization of premiums and
accretion of discounts. Such amortization together with interest earned is
included in interest income.
Marketable equity and debt securities not classified as held to maturity are
classified as available for sale. Available for sale securities are carried at
fair value, with unrealized gains and losses, net of income taxes, reported as a
component of stockholders' equity. The cost of debt securities in this category
is adjusted for amortization of premiums and accretion of discounts to maturity.
Such amortization together with realized gains and losses and declines in value
judged to be other-than-temporary are included in income. The cost of securities
sold is based on the specific identification method.
LOANS: Loans are carried at the principal amount outstanding, net of unearned
income, including deferred loan fees and costs. Certain nonrefundable loan
origination and commitment fees and the direct costs associated with originating
or acquiring the loans are deferred. The net deferred amount is amortized as an
adjustment of the related loan yield over the contractual lives of the related
loans.
Interest income on loans is accrued based on principal amounts outstanding.
Loans are accounted for on a nonaccrual basis when circumstances indicate that
collection is questionable or, generally, when payment is over 90 days past due
(unless the loan is well secured and in the process of collection). Loans are
returned to accrual status when management determines circumstances have
improved to the extent that there has been a sustained period of repayment
performance and both principal and interest are deemed collectible.
ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses is maintained at a
level estimated to be adequate to absorb potential losses in the loan portfolio.
Management's determination of the adequacy of the allowance is based on
evaluations of the portfolio, past credit loss experience, current economic
conditions, volume, growth and composition of the loan portfolio and other
relevant factors.
While the Company's policy is to charge-off those loans for which a loss is
considered probable, there also exists the risk of future losses which cannot be
precisely quantified or attributed to particular loans or classes of loans.
Because the risk is continually changing in response to factors beyond the
control of the Company, management's judgment as to the adequacy of the
allowance for loan losses in future periods is necessarily an approximate one.
In May 1993, the FASB issued SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan," and, in October 1994, issued No. 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosure," both of
which were adopted by the Company effective January 1, 1995. SFAS No. 114
requires that impaired loans be measured based on the present value of expected
future cash flows discounted at the loan's effective interest rate or, as a
practical expedient, at the loan's observable market price or the fair value of
the collateral if the loan is collateral dependent. SFAS No. 118 amends SFAS No.
114 to allow a creditor to use existing methods for recognizing interest income
on impaired loans and requires certain information to be disclosed. The effect
of adoption of these standards was not material.
F-9
<PAGE>
VALLICORP HOLDINGS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
PREMISES AND EQUIPMENT: Premises and equipment are stated at cost, less
accumulated depreciation and amortization. Depreciation and amortization is
computed using the straight-line method over the estimated lives, ranging from 3
to 35 years, of each asset.
OTHER REAL ESTATE OWNED: Other real estate owned (OREO) consists of properties
acquired through foreclosure or repossession. These properties (which are
included in "Other Assets") are carried at the lower of cost or fair value less
estimated costs to sell. Credit losses arising from the acquisition of such
properties are charged against the allowance for loan losses. Subsequent market
write downs, operating expenses and gains and losses on the sale of OREO are
charged or credited to other operating expense or income as incurred.
INTANGIBLE ASSETS: Intangible assets (which are included in "Other Assets")
aggregating $9,576,000 and $11,159,000 (net of accumulated amortization of
$6,367,000 and $4,784,000) at December 31, 1995 and 1994, respectively, are
comprised of core deposit intangibles and goodwill acquired in business
combinations. Core deposit intangibles are amortized over the estimated lives of
the existing deposit bases (10 years) using the interest method. Goodwill of
$5,131,000 in 1995 and $5,551,000 in 1994 (net of accumulated amortization of
$1,769,000 and $1,349,000, respectively) is amortized on a straight-line basis
over 10 to 15 years. Management periodically reviews the balances to determine
if such balances have been impaired.
INCOME TAXES: Deferred tax assets and liabilities are reflected at currently
enacted income tax rates applicable to the period in which the deferred tax
assets or liabilities are expected to be realized or settled. As changes in tax
laws or rates are enacted, deferred tax assets and liabilities are adjusted
through the provision for income taxes.
EARNINGS PER SHARE: Primary earnings per share is computed by dividing net
income by the weighted average number of shares of common stock and common stock
equivalents (stock options and mandatory convertible subordinated debentures)
outstanding during each year. The computation of fully-diluted earnings per
share assumes conversion of optional convertible subordinated debentures. The
number of weighted average shares used in the primary earnings per share
calculation was approximately 13,525,000 in 1995, 13,402,000 in 1994 and
10,490,000 in 1993. The average number of shares used in the fully-diluted
computation was approximately 13,559,000 in 1995, 13,475,000 in 1994 and
10,577,000 in 1993.
RECLASSIFICATIONS: Certain reclassifications have been made to prior year
balances to conform to current year presentation.
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS: In March 1995, the FASB
issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," which must be adopted by the Company
effective January 1, 1996. SFAS No. 121 establishes standards for accounting for
the impairment of long-lived assets, certain identifiable intangibles and
goodwill. It does not apply to financial instruments, long-term customer
relationships of a financial institution (e.g., core deposit intangibles),
mortgage and other servicing rights, or deferred tax assets. The Company has
determined the effect of adoption of this standard will not be material.
MORTGAGE SERVICING RIGHTS: In May 1995, the FASB issued SFAS No. 122,
"Accounting for Mortgage Servicing Rights," which must be adopted by the Company
effective January 1, 1996. SFAS No. 122 requires that the Company recognize as
separate assets rights to service mortgage loans for others, whether those
servicing rights are originated or purchased. Previously, only purchased
servicing rights were capitalizable as an asset whereas internally originated
rights were expensed. SFAS No. 122 also requires that capitalized servicing
rights
F-10
<PAGE>
VALLICORP HOLDINGS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
be assessed for impairment based on fair value, rather than an estimate of
undiscounted future cash flows. The Company has determined the effect of
adoption of this standard will not be material.
ACCOUNTING FOR STOCK-BASED COMPENSATION: In October 1995, the FASB issued SFAS
No. 123, "Accounting for Stock-Based Compensation." The new standard defines a
fair value method of accounting for stock options and other equity instruments,
such as stock purchase plans. Under this method, compensation cost is measured
based on the fair value of the stock award when granted and is recognized as an
expense over the service period, which is usually the vesting period. This
standard will be effective for the Company beginning in 1996, and requires
measurement of awards made beginning in 1995.
The new standard permits companies to continue to account for equity
transactions with employees under existing accounting rules, but requires
disclosure in a note to the financial statements of the pro forma net income and
earnings per share as if the company had applied the new method of accounting.
The Company intends to follow these disclosure requirements for its employee
stock plans.
NOTE B - MERGER AND RESTRUCTURING COSTS
Merger costs of $700,000 were recorded in 1995. Such costs primarily relate to
professional, legal and investment banking fees incurred by El Capitan and
CoBank in connection with the planned acquisitions by the Company in 1996.
Merger and restructuring costs ($2,567,000 and $800,000, respectively) totaling
$3,367,000 were recorded in 1994. The restructuring charge of $800,000 was
recorded in the first quarter of 1994 and consisted of costs to merge two of the
Company's subsidiary banks, Bank of Fresno and Merced Bank of Commerce, change
the name of Bank of Fresno to ValliWide Bank, provide for separation and benefit
costs and write-off supplies. Merger costs totaling $2,567,000 were recorded
during 1994 in connection with the Mineral King merger. Such costs related
primarily to separation and benefit costs, professional, legal and investment
banking fees and other merger costs.
NOTE C - MERGERS AND ACQUISITIONS
COBANK FINANCIAL CORPORATION: On March 22, 1996, CoBank Financial Corporation
(CoBank), together with its wholly-owned subsidiary, Commerce Bank of San Luis
Obispo, N.A., were merged with and into ValliCorp Holdings, Inc. and its wholly-
owned subsidiary, ValliWide Bank, respectively. Pursuant to the amended
Agreement and Plan of Reorganization each outstanding share of CoBank common
stock was exchanged for 1.1875 shares of ValliCorp's common stock resulting in
approximately 1 million shares being issued. At the date of the merger, CoBank
had unaudited total assets of $97 million, including $64 million in loans and
$24 million in investment securities, and total unaudited deposits of $87
million. The merger was accounted for as a pooling-of-interests.
EL CAPITAN BANCSHARES, INC.: On February 2, 1996, El Capitan Bancshares, Inc.
(El Capitan) together with its wholly-owned subsidiary, El Capitan National
Bank, were merged with and into ValliCorp Holdings, Inc. and its wholly-owned
subsidiary, ValliWide Bank, respectively. Pursuant to the amended Agreement and
Plan of Reorganization each outstanding share of El Capitan common stock was
exchanged for 2.3286 shares of ValliCorp's common stock resulting in
approximately 2 million shares being issued. At the date of the merger, El
Capitan had unaudited total assets of $128 million, including $63 million in
loans and $48 million
F-11
<PAGE>
VALLICORP HOLDINGS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
in investment securities, and total unaudited liabilities of $113 million,
including $112 million in deposits. The merger was accounted for as a
pooling-of-interests.
Merger costs totaling $4,576,000 ($2,767,000 net of tax) were recorded in 1996
in connection with the El Capitan and CoBank mergers. Such costs primarily
related to separation and benefit costs, professional, legal and investment
banking fees, facilities termination fees and other merger related costs.
MINERAL KING: On December 16, 1994, Mineral King, together with its wholly-owned
subsidiary, Mineral King National Bank, was merged with and into ValliCorp.
Pursuant to the amended Agreement and Plan of Reorganization, each share of
Mineral King was exchanged for 2.0103 shares of ValliCorp common stock resulting
in approximately 2.5 million shares being issued. At the date of merger, Mineral
King had total assets of $185 million, including $124 million in loans and $45
million in investment securities, and $173 million in liabilities, including
$167 million in deposits. The merger was accounted for as a pooling-of-
interests.
BANK ONE, FRESNO: On December 2, 1994, the Company acquired, for $17 million,
all of the deposits and the majority of the assets of Bank One, Fresno, a
wholly-owned subsidiary of Bank One Arizona Corporation. Bank One, Fresno was
concurrently merged with and into the Company's subsidiary, ValliWide Bank. The
transaction was accounted for as a purchase. In connection with the transaction,
ValliWide acquired $99 million in deposits and $109 million in loans and
recorded a core deposit intangible of $4 million and goodwill of $3 million. The
impact of pro forma adjustments on the combined results of operations for 1994
and 1993 are not significant.
PACIFIC BANCORPORATION: On November 5, 1993, Pacific Bancorporation and its
subsidiary, Community First Bank, (Pacific), were merged with and into the
Company in a transaction accounted for under the purchase method of accounting.
Each outstanding share of Pacific common stock was converted into .80 of a share
of ValliCorp common stock resulting in approximately 1,200,000 shares being
issued at a fair value of $7.50 per share. Additionally, each holder of Pacific
10% Exchange Stock had an option to redeem his stock including cumulative
dividends for cash or to convert into ValliCorp common stock at a conversion
price of $8.25 per share. Approximately 79% of the Exchange Stockholders elected
to receive ValliCorp common stock resulting in approximately 330,000 shares
being issued. The purchase price of the Pacific merger totaled approximately $13
million in cash and stock, including professional fees and other merger related
expenses. At the merger date, the fair value of the assets acquired totaled
approximately $225 million, including loans of approximately $150 million and
investment securities of approximately $50 million. The fair value of
liabilities assumed was approximately $212 million, including deposits of $211
million. Assuming the merger had been effective on January 1, 1993, unaudited
pro forma combined net interest income, net income and fully-diluted earnings
per share for 1993 would have been approximately $60.6 million, $10.8 million
and $0.94, respectively.
F-12
<PAGE>
VALLICORP HOLDINGS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
The following table presents preacquisition net interest income, net income and
fully-diluted earnings per share for ValliCorp, Mineral King, El Capitan and
CoBank and such information on a combined basis.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1995 1994 1993
----------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
NET INTEREST INCOME:
ValliCorp $59,364 $43,977 $28,579
Mineral King - 10,445 9,026
El Capitan 6,849 7,503 7,902
CoBank 6,096 5,158 4,590
--------------------------------------
Combined $72,309 $67,083 $50,097
======================================
NET INCOME:
ValliCorp $10,247 $ 6,800 $ 6,136
Mineral King - 994 1,980
El Capitan 1,045 1,882 2,317
CoBank 510 775 803
--------------------------------------
Combined $11,802 $10,451 $11,236
======================================
FULLY-DILUTED EARNINGS PER SHARE:
ValliCorp $ 0.98 $ 0.85 $ 1.17
Mineral King - 0.41 0.86
El Capitan 1.22 2.21 2.73
CoBank 0.60 0.97 0.95
Combined 0.87 0.78 1.07
</TABLE>
PENDING TRANSACTION
AUBURN BANCORP: ValliCorp and Auburn Bancorp, Inc. ("Auburn") have entered into
an Agreement and Plan of Reorganization (the "Auburn Agreement") dated March 27,
1996, whereby ValliCorp has agreed to acquire the outstanding shares of Auburn
in a merger. Auburn, as of March 31, 1996, has three branches with unaudited
total loans, deposits and equity of approximately $48,000,000, $67,000,000 and
$8,000,000, respectively. Under the terms of the Auburn Agreement, Auburn
shareholders will receive 0.8209 shares of ValliCorp common stock for each share
of Auburn common stock resulting in approximately 927,000 shares being issued.
In May 1996, the Company announced a plan to repurchase up to 927,000 shares of
its common stock in connection with the acquisition of Auburn. The Company
expects to issue these shares of ValliCorp common stock at the completion of the
merger with Auburn. The Auburn Agreement calls for the merger of Auburn with
and into ValliCorp, and the merger of Auburn's subsidiary, The Bank of Commerce,
N.A., into ValliWide Bank. The Company anticipates that the merger will be
consummated in the third quarter 1996 and will be accounted for using the
purchase method. Completion of the merger is subject to, among other things,
the approval of Auburn's shareholders and regulatory authorities.
F-13
<PAGE>
VALLICORP HOLDINGS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
NOTE D - SECURITIES
Following is a comparison of the amortized cost and approximate fair value of
available for sale securities.
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
DECEMBER 31, 1995
U.S. Treasury securities $ 55,506 $ 113 $ (202) $ 55,417
U.S. Government agencies 121,190 150 (848) 120,492
U.S. Government agency mortgage-backed
securities 50,681 25 (1,161) 49,545
State and political subdivisions 15,503 995 (2) 16,496
Corporate and other securities 7,626 14 (4) 7,636
------------------------------------------------------------
$250,506 $ 1,297 $(2,217) $249,586
============================================================
DECEMBER 31, 1994
U.S. Treasury securities $ 72,052 $ - $(2,879) $ 69,173
U.S. Government agencies 44,126 62 (2,728) 41,460
U.S. Government agency mortgage-backed
securities 10,382 137 (1,132) 9,387
State and political subdivisions 2,282 45 (12) 2,315
Corporate and other securities 7,078 - (55) 7,023
------------------------------------------------------------
$135,920 $ 244 $(6,806) $129,358
============================================================
</TABLE>
Gross realized gains and losses related to these securities were approximately
$117,000 and $230,000, respectively, in 1995 and $141,000 and $134,000,
respectively, in 1994.
In November 1995, the FASB issued additional implementation guidance regarding
previously issued SFAS No. 115. In accordance with this guidance and prior to
December 31, 1995, companies were allowed a one-time reassessment of their
classification of securities and were required to account for any resulting
transfers at fair value. Transfers from the held to maturity category that
result from this one-time reassessment will not call into question the intent to
hold other securities to maturity in the future. The Company transferred
approximately $115,144,000 of securities from the held to maturity portfolio to
the available for sale portfolio. Available for sale securities were adjusted to
fair value and stockholders' equity was decreased by $143,000, net of income
taxes of $104,000. This transfer was made to allow the Company greater
flexibility in managing its interest rate risk and liquidity.
The Company transferred approximately $3,019,000 of securities from the
available for sale portfolio to the held to maturity portfolio. The securities
were transferred at their fair value which approximated amortized cost at the
date of transfer.
F-14
<PAGE>
VALLICORP HOLDINGS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
The amortized cost and approximate fair value of available for sale securities
at December 31, 1995, by contractual maturity, are as shown below. Actual
maturities may differ from contractual maturities because issuers generally have
the right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------------------
AMORTIZED FAIR
COST VALUE
-----------------------------
(IN THOUSANDS)
<S> <C> <C>
Due in one year or less $ 76,166 $ 76,087
Due after one year through five years 88,674 88,905
Due after five years through ten years 28,885 28,987
Due after ten years 6,100 6,062
-----------------------------
199,825 200,041
Mortgage-backed securities 50,681 49,545
-----------------------------
$250,506 $249,586
=============================
</TABLE>
The amortized cost and approximate fair value of held to maturity securities are
as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
DECEMBER 31, 1995
U.S. Treasury securities $ 982 $ 14 $ - $ 996
U.S. Government agencies 42,578 - (44) 42,534
U.S. Government agency mortgage-backed securities 8,258 139 (175) 8,222
State and political subdivisions 13,828 554 (60) 14,322
----------------------------------------------------------
$ 65,646 $707 $(279) $66,074
==========================================================
DECEMBER 31, 1994
U.S. Treasury securities $ 26,279 $ - $ (717) $ 25,562
U.S. Government agencies 75,869 15 (5,012) 70,872
U.S. Government agency mortgage-backed securities 37,228 - (4,480) 32,748
State and political subdivisions 31,589 752 (127) 32,214
----------------------------------------------------------
$170,965 $767 $(10,336) $161,396
==========================================================
</TABLE>
The amortized cost and approximate fair value of held to maturity securities at
December 31, 1995, by contractual maturity, are as shown below. Actual
maturities may differ from contractual maturities because issuers generally have
the right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------------
AMORTIZED FAIR
COST VALUE
-----------------------
(IN THOUSANDS)
<S> <C> <C>
Due in one year or less $42,658 $42,694
Due after one year through five years 10,160 10,457
Due after five years through ten years 2,854 3,051
Due after ten years 1,716 1,650
-----------------------
57,388 57,852
Mortgage-backed securities 8,258 8,222
-----------------------
$65,646 $66,074
=======================
</TABLE>
F-15
<PAGE>
VALLICORP HOLDINGS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995,1994, AND 1993
At December 31, 1995 and 1994, securities with carrying values of approximately
$93,000,000 and $122,000,000, respectively, were pledged as collateral for
deposits of public funds and other purposes as required by law or contract.
NOTE E - LOANS
The carrying amounts of loans consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1994
----------------------
(IN THOUSANDS)
<S> <C> <C>
Commercial, financial and agribusiness $443,660 $430,973
Real estate-construction 74,720 102,469
Real estate-mortgage 136,278 126,208
Installment 205,869 215,440
Other 5,222 4,623
----------------------
865,749 879,713
Allowance for loan losses (14,986) (14,130)
----------------------
Net loans $850,763 $865,583
======================
</TABLE>
In the ordinary course of business, the Company, through its banking subsidiary,
makes loans to directors and executive officers of the Company and their related
businesses. Such loans are made on substantially the same terms, including
interest rates and collateral, as those for comparable transactions with
unrelated parties and do not, in the opinion of management, involve more than
the normal risk of collectibility or present other unfavorable features. Changes
in loans to, or guaranteed by, directors and executive officers and their
related businesses are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------------
1995 1994
------------------------------
(IN THOUSANDS)
<S> <C> <C>
Balance at beginning of year $13,101 $18,310
New loans 10,858 19,016
Payments (12,907) (22,261)
Other changes (3,510) (1,964)
-----------------------------
Balance at end of year $ 7,542 $13,101
=============================
</TABLE>
Other changes in 1995 and 1994 represent loans to former directors and executive
officers of the Company who are no longer related parties.
At December 31, 1995, the Company's loan portfolio is highly diversified among
industry groups within the Company's customer service area. The Company's
largest loan concentration is related to real estate-construction and real
estate-mortgage lending, which represented approximately 9% and 16% of the loan
portfolio at December 31, 1995, respectively. The Company's loan portfolio is
concentrated within Central California.
The Company has collateral management policies in place to assure that
collateral lending of all types is approached on a basis which management
believes is consistent with safe and sound lending standards. Valuation analyses
are utilized to take into consideration the potentially adverse economic
conditions under
F-16
<PAGE>
VALLICORP HOLDINGS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
which liquidation could occur. The Company requires collateral on all real
estate loans. Other collateral accepted as security for loans includes deposits,
securities, accounts receivable, inventories, equipment and other assets.
The outstanding principal balance of loans placed on nonaccrual status was
approximately $17,480,502 and $7,303,161 at December 31, 1995 and 1994,
respectively. Interest income not recognized on nonaccrual loans approximated
$2,204,000, $678,000 and $514,000 during 1995, 1994 and 1993, respectively.
Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1994 1993
----------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year $14,130 $12,368 $ 8,144
Provision for loan losses 9,633 3,958 2,922
Charge-offs (9,448) (4,401) (2,663)
Recoveries 671 450 535
Allowance acquired through merger - 1,755 3,430
----------------------------
Balance at end of year $14,986 $14,130 $12,368
============================
</TABLE>
At December 31, 1995, the Company's recorded investment in loans for which an
impairment has been recognized totaled approximately $16,689,000. Included in
this amount were $10,957,000 of impaired loans for which the related SFAS No.
114 allowance was $3,464,000, as well as $5,732,000 of impaired loans that, as a
result of write-downs or the fair value of collateral, did not have a SFAS No.
114 allowance. The average recorded investment in impaired loans was $11,245,000
for 1995. Except for restructured loans, the Company uses the cash basis method
of income recognition for impaired loans. For the year ended December 31, 1995,
the Company recognized approximately $179,000 of income on such loans.
NOTE F - OTHER REAL ESTATE OWNED
Other real estate owned, net of the allowance, was approximately $2,512,000 and
$3,665,000 at December 31, 1995 and 1994, respectively.
Changes in the allowance for losses on other real estate owned are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1994 1993
------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year $ 250 $ 932 $ 742
Provision for losses on other real estate owned 1,002 437 108
Net charge-offs (756) (1,119) 60
Allowance acquired through merger - - 22
------------------------
Balance at end of year $ 496 $ 250 $ 932
========================
</TABLE>
F-17
<PAGE>
VALLICORP HOLDINGS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
NOTE G - PREMISES AND EQUIPMENT
Premises and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
-------------------
(IN THOUSANDS)
<S> <C> <C>
Land and leasehold interest $ 3,428 $ 3,526
Premises and improvements 9,475 9,949
Leasehold improvements 8,348 5,912
Furniture and equipment 20,654 18,331
------ ------
41,905 37,718
Accumulated depreciation and amortization (15,986) (12,679)
------- -------
Premises and equipment, net $25,919 $25,039
==================
</TABLE>
Depreciation and amortization of premises and equipment totaled $3,939,000,
$2,962,000 and $1,825,000 for 1995, 1994 and 1993, respectively.
NOTE H - SHORT-TERM BORROWINGS
Short-term borrowings consist primarily of federal funds purchased and
securities sold under repurchase agreements which generally mature within one to
thirty-one days from the transaction date. The Company has arranged unsecured
federal funds lines of credit totaling approximately $73,500,000 with eight
major banks.
Short-term borrowings consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
-------------------
(IN THOUSANDS)
<S> <C> <C>
Federal funds purchased $ - $5,500
Securities sold under repurchase agreements 10,410 -
-------------------
$10,410 $5,500
===================
</TABLE>
The weighted average rates on such borrowings during 1995 and 1994 were 5.60%
and 4.79%, respectively.
F-18
<PAGE>
VALLICORP HOLDINGS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
NOTE I - DEBT FINANCING
Debt financing consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1994
---------------------------
(IN THOUSANDS)
<S> <C> <C>
Mandatory convertible subordinated debentures dated April 1, 1986; interest
payable quarterly at prime plus 1.5%; principal mandatorily convertible
into common stock in March 1998 or prior thereto at the option of the
holder, at $5.50 per share $ 728 $ 828
Optional convertible subordinated debentures dated April 1, 1986; interest
payable quarterly at prime plus .75%; principal payable quarterly at
$22,734 with final payment due April 1998; convertible, at the option
of the holder, into common stock at $5.50 per share 204 295
Federal Home Loan Bank notes in increments of $5,000,000 each dated
December 1, 1994; interest payable quarterly at prime minus 2.05% to
2.32%; principal payable annually in $5,000,000 increments 20,000 25,000
------------------------
$20,932 $26,123
========================
</TABLE>
The prime interest rate related to all financing arrangements was 8.50% at
December 31, 1995 and 1994.
The Company has pledged approximately $39,000,000 in commercial and mortgage
loans as collateral for the Federal Home Loan Bank notes.
Scheduled maturities are $5,091,000 in 1996 and 1997, $5,750,000 in 1998 and
$5,000,000 in 1999.
NOTE J - STOCKHOLDERS' EQUITY
In December 1995, the Board of Directors approved the first quarter 1996 cash
dividend of $0.10 per share, payable on February 26, 1996 to stockholders of
record on February 1, 1996.
In December 1995, the Company announced a plan to repurchase up to 500,000
shares of its common stock through 1997. As of December 31, 1995, no shares have
been repurchased. Under the plan, shares will be repurchased from time to time,
at management's discretion, in the open market. Repurchased shares will be held
in treasury and subsequently reissued in connection with various employee
incentive, stock option and benefit plans, the Company's Dividend Reinvestment
and Stock Purchase Plan and other corporate purposes. This plan was terminated
subsequent to December 31, 1995.
Under the Company's Dividend Reinvestment and Stock Purchase Plan, stockholders
may reinvest all or part of their quarterly cash dividends in shares of common
stock.
In May 1996, the Company announced a plan to repurchase up to 927,000 shares of
its common stock in connection with the acquisition of Auburn.
NOTE K - REGULATORY MATTERS
The Company is subject to various regulatory capital requirements administered
by federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory - and, possibly, additional discretionary - actions
by regulators that, if undertaken, could have a direct material effect on the
Company's financial statements. Capital adequacy guidelines and the regulatory
framework for prompt corrective action require that the Company meet specific
capital adequacy guidelines that involve quantitative measures of the
F-19
<PAGE>
VALLICORP HOLDINGS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
Company's assets, liabilities and certain off-balance sheet items as calculated
under regulatory accounting practices. The Company's capital classification is
also subject to qualitative judgments by the regulators about components, risk
weighting and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company to maintain minimum ratios of total and Tier 1 capital (as
defined in the regulations) to risk-weighted assets (as defined) and of Tier 1
capital to average assets (as defined). Management believes, as of December 31,
1995, that the Company meets all capital adequacy requirements to which it is
subject.
The following table shows the Company's capital ratios at December 31, 1995 and
1994 as well as the minimum capital ratios required to be deemed "well
capitalized" under the regulatory framework.
<TABLE>
<CAPTION>
MINIMUM
WELL
DECEMBER 31, CAPITALIZED
--------------------
1995 1994 RATIOS
--------------------------------
<S> <C> <C> <C>
CAPITAL RATIOS:
Total risk-based capital ratio 13.37% 12.63% 10.00%
Tier 1 capital to risk-weighted assets 12.08% 11.31% 6.00%
Leverage ratio 8.74% 8.69% 5.00%
</TABLE>
Under federal and California state banking laws, dividends paid by the Company's
subsidiary bank in any calendar year may not exceed certain limitations without
the prior written approval of the appropriate bank regulatory agency. At
December 31, 1995, the amount available for such dividends without prior written
approval was approximately $23 million. Similar restrictions apply to the
amounts and terms of loans, advances and other transfers of funds from the
subsidiary bank to the Company.
NOTE L - EMPLOYEE BENEFIT PLANS
The Company sponsors an employee benefit plan (Plan) which includes 401(k),
savings and employee stock ownership features. During 1995, 1994 and 1993, the
Company contributed approximately $652,000, $515,000 and $335,000, respectively,
to the Plan.
The capital accumulation provisions included within the Plan allow participating
employees to contribute between 1% and 10% of their eligible pretax annual
compensation. The Company contributes funds matching the employees'
contributions up to 2% of the employees' eligible annual compensation.
The employee savings provisions included within the Plan allow participating
employees to contribute between 1% and 10% of their eligible after-tax annual
compensation. The Company contributes funds matching 60% of the employees'
elected contributions not to exceed 5% of the employees' eligible annual
compensation.
Under the provisions of the employee stock ownership portion of the Plan, the
Company can make discretionary contributions each fiscal year to be allocated to
participants in proportion to their individual annual eligible compensation. The
aggregate contribution is a specified percentage of eligible compensation during
each year.
F-20
<PAGE>
VALLICORP HOLDINGS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
In connection with the acquisition of El Capitan in February 1996, the
previously existing employee profit sharing plan of El Capitan was terminated
and the net assets were transferred to the Company's Plan. El Capitan's
contributions totaled $361,000 in 1995, $392,000 in 1994 and $367,000 in 1993.
In connection with the acquisition of CoBank in March 1996, the previously
existing employee profit sharing plan of CoBank was terminated and the net
assets were paid to CoBank's employees. Contributions totaled $75,000 in 1995,
$67,000 in 1994, and $56,000 in 1993.
NOTE M - STOCK OPTION PLANS
The Company has a Directors' Stock Option Plan and a Key Employees' Stock Option
Plan, under which the Company may issue options to purchase 750,000 and
1,550,000 shares of common stock, respectively.
Options to purchase shares of common stock are available for grant under the
Director's Stock Option Plan at prices (historically market value) determined by
the Compensation Committee of the Board of Directors. Options may be granted to
any non-employee director as nonqualified options. The options become
exercisable 20% annually and expire 10 years from the date of grant.
Options to purchase shares of common stock are available for grant under the Key
Employees' Stock Option Plan at prices determined by the Compensation Committee
of the Board of Directors. Options may be granted to any employee, including
those who serve as a director, as either incentive or nonqualified options.
Incentive options are to be granted at not less than fair market value at the
date of grant. The options become exercisable 25% annually and expire 10 years
from the date of grant.
A summary of activity related to the Company's stock option plans is as follows:
<TABLE>
<CAPTION>
NUMBER OPTION PRICE
OF SHARES PER SHARE
------------------------
<S> <C> <C>
Balance at December 31, 1992 853,009 $ 4.21-11.16
Options granted 157,663 8.88-13.13
Options exercised (27,906) 5.25-9.88
Options forfeited (46,476) 4.25-11.16
----------------------
Balance at December 31, 1993 936,290 4.21-13.13
Effect of Mineral King 10% stock dividend 26,641 4.25-6.58
Options granted 420,112 7.96-14.88
Options exercised (241,442) 4.21-13.13
Options forfeited (196,477) 4.21-14.88
----------------------
Balance at December 31, 1994 945,124 4.25-14.88
Options granted 188,000 14.63-16.13
Options exercised (162,330) 5.25-13.13
Options forfeited (74,289) 6.58-16.13
----------------------
Balance at December 31, 1995 896,505 $ 4.25-16.13
======================
</TABLE>
F-21
<PAGE>
VALLICORP HOLDINGS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
At December 31, 1995, a total of 367,030 shares were exercisable and 1,329,112
shares were available for grant.
In connection with the acquisitions of El Capitan and CoBank in February 1996
and March 1996, respectively, the Company assumed certain outstanding options to
purchase common stock of El Capitan and CoBank and exchanged them for options to
acquire 51,695 and 36,575 shares, respectively, of the Company's common stock at
exercise prices of $9.88 per share and $7.58 to $10.95 per share, respectively.
NOTE N - INCOME TAXES
Significant components of the Company's deferred tax assets and liabilities are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1994
--------------------------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $5,371 $4,025
Merger adjustments 140 142
Tax basis over book basis of OREO 363 373
State franchise taxes 722 660
Interest on nonaccrual loans 927 195
Net unrealized securities losses 442 2,774
Net deferred loan fees - 267
Alternative minimum tax credit 349 196
Other 142 268
----------------------
Total deferred tax assets 8,456 8,900
----------------------
Deferred tax liabilities:
Core deposit intangibles 299 712
Book basis over tax basis of premises and equipment 1,306 1,020
Leases 753 331
Net deferred loan costs 940 -
Goodwill 467 -
Other 226 198
------------------------
Total deferred tax liabilities 3,991 2,261
------------------------
Net deferred tax assets $4,465 $6,639
=======================
</TABLE>
The provisions for income taxes consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1995 1994 1993
-----------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current: Federal $6,085 $5,922 $5,599
State 2,023 2,291 2,304
---------------------------------------
8,108 8,213 7,903
Deferred: Federal (347) (500) (869)
State 189 104 (438)
-----------------------------------------
(158) (396) (1,307)
-----------------------------------------
$7,950 $7,817 $6,596
========================================
</TABLE>
F-22
<PAGE>
VALLICORP HOLDINGS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
The effective income tax rate varies from the statutory federal income tax rate
as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1995 1994 1993
---------------------------------
<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 35.0% 35.0%
State franchise taxes, net of federal tax benefit 7.3 7.5 7.3
Tax exempt interest income (3.9) (4.3) (5.1)
Costs related to acquisitions 1.2 3.5 -
Other, net 0.6 1.1 (0.2)
-------------------------------
40.2% 42.8% 37.0%
==== ==== ====
</TABLE>
Income tax expense (benefit) related to the sale of securities totaled
($47,000), $3,000 and $96,000 for the years ended December 31, 1995, 1994 and
1993, respectively, based on the above effective tax rates for such years.
NOTE O - LEASES
The Company leases certain premises used for banking purposes. Such leases are
accounted for as operating leases. Certain leases provide for increases in
rentals, after initial periods, to be computed in accordance with predetermined
formulas contained in the lease agreements. Rent expense is recorded on a
straight-line basis over the term of the lease.
Future minimum payments under noncancelable operating leases consist of the
following at December 31, 1995:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1996 $ 3,806
1997 3,406
1998 3,009
1999 2,484
2000 2,022
Thereafter 11,638
-------
$26,365
=======
</TABLE>
Rent expense for all operating leases was approximately $2,886,000, $2,597,000
and $2,001,000 in 1995, 1994 and 1993, respectively.
F-23
<PAGE>
VALLICORP HOLDINGS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
NOTE P - OTHER EXPENSES
Other expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1995 1994 1993
-----------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Professional and legal fees $ 2,348 $ 1,937 $ 1,353
Amortization of intangible assets 1,679 1,092 847
Stationery and supplies 1,655 1,404 1,146
FDIC assessments 1,405 2,589 1,978
Marketing 1,237 1,215 676
External data processing 1,366 1,743 1,087
OREO expense 1,066 987 630
Other 8,061 7,118 5,375
-----------------------------------
$18,817 $18,085 $13,092
===================================
</TABLE>
NOTE Q - FINANCIAL INSTRUMENTS FAIR VALUE DISCLOSURE
The following summary disclosures are made in accordance with the provisions of
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments," which
requires the disclosure of fair value information about both on- and off-balance
sheet financial instruments where it is practicable to estimate that value. Fair
value is defined in SFAS No. 107 as the amount at which an instrument could be
exchanged in a current transaction between willing parties, other than in a
forced or liquidation sale. It is not the Company's intent to enter into such
exchanges.
In cases where quoted market prices were not available, fair values were
estimated using present value or other valuation methods, as described below.
The use of different assumptions (e.g., discount rates and cash flow estimates)
and estimation methods could have a significant effect on the resulting fair
value amounts. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts the Company could realize in a current market
exchange. Because SFAS No. 107 excludes certain financial instruments and all
nonfinancial instruments from its disclosure requirements, any aggregation of
the fair value amounts presented would not represent the underlying value of the
Company.
F-24
<PAGE>
VALLICORP HOLDINGS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
CARRYING ESTIMATED
AMOUNT FAIR VALUE
--------------------------
(IN THOUSANDS)
<S> <C> <C>
DECEMBER 31, 1995
FINANCIAL ASSETS
Cash and cash equivalents $ 160,774 $ 160,774
Loans held for sale 5,158 5,158
Securities 315,232 315,660
Loans, net 850,763 845,860
FINANCIAL LIABILITIES
Deposits 1,221,386 1,224,589
Federal funds purchased and repurchase agreements 10,410 10,410
Debt financing 20,932 22,351
COMMITMENTS TO EXTEND CREDIT - 2,232
DECEMBER 31, 1994
FINANCIAL ASSETS
Cash and cash equivalents $ 106,968 $ 106,968
Loans held for sale 3,116 3,116
Securities 300,323 290,754
Loans, net 865,583 855,048
FINANCIAL LIABILITIES
Deposits 1,178,131 1,178,944
Federal funds purchased 5,500 5,500
Debt financing 26,123 28,218
COMMITMENTS TO EXTEND CREDIT - 2,578
</TABLE>
The following methods and assumptions were used in estimating the fair values of
financial instruments.
CASH AND CASH EQUIVALENTS: The carrying amounts reported in the balance sheets
for cash and cash equivalents approximate their estimated fair values.
LOANS HELD FOR SALE: The carrying amounts reported in the balance sheets for
loans held for sale approximate their estimated fair values.
SECURITIES: Fair values for securities, including mortgage-backed securities,
are based on quoted market prices.
LOANS: Fair values of variable rate loans which reprice frequently and with no
significant change in credit risk are based on carrying values. Fair values for
all other loans are estimated using discounted cash flow analyses over their
remaining maturities, using interest rates at which similar loans would
currently be offered to borrowers with similar credit ratings and for the same
remaining maturities.
DEPOSITS: Fair values for transaction and savings accounts are equal to the
respective amounts payable on demand at December 31, 1995 and 1994, i.e., their
carrying amounts. Fair values of fixed-maturity certificates of deposit were
estimated using the rates currently offered for deposits with similar remaining
maturities.
F-25
<PAGE>
VALLICORP HOLDINGS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
DEBT FINANCING: Fair values of variable rate convertible debt financing are
based on their conversion features. Fair values for other debt financing
approximates the carrying values since the rates currently available to the
Company for debt with similar terms and remaining maturities are comparable to
the stated rates of the notes.
FEDERAL FUNDS PURCHASED AND REPURCHASE AGREEMENTS: The carrying amounts reported
on the balance sheets for federal funds purchased and repurchase agreements
approximate their estimated fair values.
COMMITMENTS TO EXTEND CREDIT: Fair values of commitments to extend credit are
estimated using the fees currently charged to enter into similar agreements and
the present counterparties' credit standing. Fair values of standby letters of
credit are based on fees currently charged for similar agreements.
NOTE R - COMMITMENTS, CONTINGENCIES AND OTHER DISCLOSURES
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK: In the ordinary course of
business, the Company enters into transactions which involve financial
instruments with off-balance sheet risk. These financial instruments include
commitments to extend credit and standby letters of credit and involve, to
varying degrees, elements of credit and interest rate risk in excess of amounts
recognized in the accompanying consolidated financial statements. The Company
applies the same credit policies in making commitments as it does for on-balance
sheet instruments. The Company's off-balance sheet risk exposure is the
contractual amount of commitments to extend credit and standby letters of
credit. Management does not anticipate any losses to result from these
commitments.
The following summarizes the Company's significant contractual commitments
(which generally expire within 12 months) at December 31, 1995.
<TABLE>
<CAPTION>
CONTRACTUAL
COMMITMENTS
-----------
(IN THOUSANDS)
<S> <C>
Commitments to extend credit $210,983
Standby letters of credit 8,724
</TABLE>
Commitments to extend credit are agreements to lend to customers. These
commitments have specified interest rates and fixed expiration dates but may be
terminated by the Company if certain conditions of the contracts are violated.
Although currently subject to draw down, many of these commitments are expected
to expire or terminate without funding. Therefore, the total commitment amounts
do not necessarily represent future cash requirements. Collateral relating to
these commitments varies but may include deposits, securities, accounts
receivable, inventories, equipment and real estate.
Standby letters of credit are conditional commitments issued by the Company to
guarantee the performance of a customer to a third party. Credit risk arises in
these transactions from the possibility that the customer may not be able to
repay the Company upon default of performance. Collateral relating to these
commitments varies but may include deposits, securities, accounts receivable,
inventories, equipment and real estate.
LITIGATION: The Company is party to legal proceedings and claims which arise
during the ordinary course of business. In the opinion of management, the
ultimate outcome of the claims and litigation will not have a material effect on
the Company's financial position or results of operations.
F-26
<PAGE>
VALLICORP HOLDINGS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
RESTRICTIONS ON CASH AND DUE FROM BANKS: ValliWide Bank is required to maintain
an average reserve balance relative to certain deposit balances with the Federal
Reserve Bank. Deposits in the Federal Reserve Bank, included in cash and due
from banks, satisfy this requirement.
F-27
<PAGE>
VALICORP HOLDINGS, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
NOTE S - PARENT COMPANY ONLY FINANCIAL STATEMENTS
Following are the condensed financial statements of ValliCorp Holdings, Inc.:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
BALANCE SHEETS 1995 1994
--------------------------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and short-term investments $ 5,098 $ 4,585
Investment in bank subsidiary 121,446 112,648
Available for sale securities - 1,882
Other assets 3,123 1,767
-----------------------
Total assets $129,667 $120,882
=======================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Subordinated notes $ 932 $ 1,123
Other liabilities 2,052 1,932
-----------------------
Total liabilities 2,984 3,055
STOCKHOLDERS' EQUITY
Common stock 133 131
Paid-in capital 84,135 82,931
Net unrealized securities losses, net of income taxes (974) (2,469)
Retained earnings 43,389 37,234
-----------------------
Total stockholders' equity 126,683 117,827
-----------------------
Total liabilities and stockholders' equity $129,667 $120,882
=======================
<CAPTION>
DECEMBER 31,
---------------------------------------
STATEMENTS OF INCOME 1995 1994 1993
---------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
INCOME
Dividends from bank subsidiary $ 4,655 $ 3,599 $ 3,071
Interest 49 824 252
Loss on sale of available for sale securities (44) - -
Other 272 - 63
Management fees from bank subsidiary - 2,460 2,801
---------------------------------------
Total income 4,932 6,883 6,187
EXPENSES
Interest 101 102 98
Merger costs 300 1,297 -
Management fees to bank subsidiary 541 - -
Other 121 3,920 2,971
---------------------------------------
Total expenses 1,063 5,319 3,069
---------------------------------------
Income before income taxes and equity in undistributed
earnings of bank subsidiary 3,869 1,564 3,118
Income tax benefit (expense) 159 233 (208)
Equity in undistributed earnings of bank subsidiary,
net of income taxes 7,774 8,654 8,326
---------------------------------------
Net income $11,802 $ 10,451 $ 11,236
=====================================
</TABLE>
F-28
<PAGE>
VALLICORP HOLDINGS, INC.
Notes to Supplemental Consolidated Financial Statements
Years ended December 31, 1995, 1994, and 1993
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
STATEMENTS OF CASH FLOWS 1995 1994 1993
-------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $11,802 $10,451 $11,236
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed earnings of bank (7,774) (8,654) (8,326)
subsidiary
Loss on sale of available for sale securities 44 - -
Amortization 141 242 146
(Increase) decrease in other assets (1,167) (441) 57
(Decrease) increase in other liabilities (915) 1,345 251
---------------------------------
Net cash provided by operating activities 2,131 2,943 3,364
INVESTING ACTIVITIES:
Net cash used in merger - - (1,870)
Capital contribution to subsidiary bank - - (4,500)
Proceeds from note receivable from subsidiary - 1,400 -
Purchases of securities - - (16,382)
Proceeds from maturities of available for sale - 395 -
securities
Proceeds from sales of available for sale securities 1,979 - -
---------------------------------
Net cash provided by (used in) investing 1,979 1,795 (22,752)
activities
FINANCING ACTIVITIES:
Principal payments on subordinated notes (7) (55) (10)
Issuance of common stock 1,022 1,443 214
Proceeds from stock offering - - 21,488
Cash dividends (4,612) (3,623) (2,504)
------ ------ ------
Net cash (used in) provided by financing (3,597) (2,235) 19,188
------ ------ ------
activities
Increase (decrease) in cash and cash equivalents 513 2,503 (200)
Cash and cash equivalents at beginning of year 4,585 2,082 2,282
---------------------------------
Cash and cash equivalents at end of year $ 5,098 $ 4,585 $ 2,082
===================================
SUPPLEMENTAL CASH FLOW INFORMATION:
Conversion of subordinated notes into common stock $ 184 $ 84 $ 358
Common stock issued for Pacific merger - - 11,311
Capital contribution to subsidiary 741 12,380 -
Dividends declared, not yet paid 1,884 849 764
</TABLE>
F-29
<PAGE>
VALLICORP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
NOTE T - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
1995
------------------------------------------------------
QUARTER ENDED DEC 31 SEPT 30 JUNE 30 MAR 31
------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Interest income $27,681 $27,292 $27,903 $26,448
Interest expense 9,491 9,647 9,743 8,134
----------------------------------------------------
Net interest income 18,190 17,645 18,160 18,314
Provision for loan losses 1,820 6,051 1,084 678
Other income 3,556 3,201 3,198 2,867
Other expenses 15,002 13,495 13,640 13,609
----------------------------------------------------
Income before income taxes 4,924 1,300 6,634 6,894
Income taxes 2,016 554 2,611 2,769
----------------------------------------------------
Net income $ 2,908 $ 746/(1)/ $ 4,023 $ 4,125
====================================================
Earnings per share
Primary $ 0.22 $ 0.06/(1)/ $ 0.30 $ 0.31
Fully-diluted 0.21 0.06/(1)/ 0.30 0.31
Dividends per share paid by ValliCorp $ 0.09 $ 0.09 $ 0.09 $ 0.09
<CAPTION>
1994
------------------------------------------------------
QUARTER ENDED DEC 31 SEPT 30 JUNE 30 MAR 31
------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Interest income $25,289 $23,255 $21,536 $20,464
Interest expense 6,688 5,870 5,504 5,399
----------------------------------------------------
Net interest income 18,601 17,385 16,032 15,065
Provision for loan losses 1,298 1,275 827 558
Other income 2,405 3,213 2,983 3,062
Other expenses 17,200 13,298 12,716 13,306
----------------------------------------------------
Income before income taxes 2,508 6,025 5,472 4,263
Income taxes 1,508 2,478 2,180 1,651
------------------------------------------------------
Net income $ 1,000/(3)/ $ 3,547 $ 3,292 $ 2,612/(2)/
======================================================
Earnings per share
Primary $ 0.08/(3)/ $ 0.28 $ 0.25 $ 0.20/(2)/
Fully-diluted 0.08/(3)/ 0.28 0.25 0.20/(2)/
Dividends per share paid by ValliCorp $ 0.08 $ 0.08 $ 0.08 $ 0.08
</TABLE>
___________________________
/(1)/ Net income and earnings per share were affected by the increase in the
provision for loan losses. This increase is primarily attributable to the
increase in nonperforming assets reflecting weak economic conditions that
have contributed to the softening of real estate values and a downturn in
residential real estate sales in Central California.
/(2)/ Net income and earnings per share were affected by nonrecurring
restructuring costs recorded in March 1994. See Note B for further
discussion of restructuring costs.
/(3)/ Net income and earnings per share were affected by nonrecurring merger
costs recorded in December 1994 in connection with the Mineral King
merger. See Note B for further discussion of merger costs.
F-30
<PAGE>
VALLICORP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
Earnings per share is based on the weighted average number of shares and common
stock equivalents outstanding during each period. Full-year weighted average
shares differ from quarterly weighted average shares and, therefore, annual
earnings per share may not equal the sum of the quarters.
F-31
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF REORGANIZATION
BETWEEN
VALLICORP HOLDINGS, INC.
AND
AUBURN BANCORP
- --------------------------------------------------------------------------------
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE 1
THE MERGER................................................................... -1-
1.1 The Merger............................................................. -1-
----------
1.2 Effective Time of the Merger........................................... -1-
----------------------------
1.3 Closing................................................................ -2-
-------
1.4 Absence of Control..................................................... -2-
------------------
ARTICLE 2
EFFECT OF THE MERGER ON AUBURN COMMON STOCK.................................. -2-
2.1 Effect on Common Stock................................................. -2-
----------------------
2.2 Effects of the Merger.................................................. -4-
---------------------
2.3 Exchange of Certificates............................................... -5-
------------------------
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF............................................ -8-
3.1 Organization, Standing and Power....................................... -8-
--------------------------------
3.2 Auburn Subsidiary...................................................... -8-
-----------------
3.3 Capital Structure...................................................... -9-
-----------------
3.4 Authority..............................................................-10-
---------
3.5 Auburn Financial Statements and Reports................................-11-
---------------------------------------
3.6 Information Supplied...................................................-13-
--------------------
3.7 Authorizations; Compliance with Applicable Laws........................-13-
-----------------------------------------------
3.8 Litigation and Claims..................................................-14-
---------------------
3.9 Taxes..................................................................-15-
-----
3.10 Certain Agreements.....................................................-16-
------------------
3.11 Benefit Plans..........................................................-16-
-------------
3.12 Insurance..............................................................-17-
---------
3.13 Conduct of Auburn to Date..............................................-18-
-------------------------
3.14 Material Adverse Change................................................-19-
-----------------------
3.15 Properties, Leases, and Other Agreements...............................-19-
----------------------------------------
3.16 Opinion of Financial Advisor...........................................-19-
----------------------------
3.17 Vote Requirement.......................................................-20-
----------------
3.18 Tax Matters............................................................-20-
-----------
3.19 Accuracy of Representations and Warranties.............................-20-
------------------------------------------
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF VALLICORP..................................-20-
4.1 Organization, Standing and Power........................................-20-
--------------------------------
4.2 Capital Structure.......................................................-21-
-----------------
4.3 Authority...............................................................-21-
---------
4.4 ValliCorp Financial Statements and Reports..............................-22-
------------------------------------------
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
4.5 Material Adverse Change............................................... -24-
-----------------------
4.6 Information Supplied.................................................. -24-
--------------------
4.7 Authorizations; Compliance with Applicable Laws....................... -24-
-----------------------------------------------
4.8 Litigation............................................................ -25-
----------
4.9 Taxes................................................................. -25-
-----
4.10 Benefit Plans......................................................... -26-
-------------
4.11 Absence of Certain Changes or Events.................................. -28-
------------------------------------
4.12 Properties, Leases, and Other Agreements.............................. -28-
----------------------------------------
4.13 Tax Matters........................................................... -29-
-----------
4.14 Accuracy of Representations and Warranties............................ -29-
------------------------------------------
ARTICLE 5
COVENANTS OF AUBURN......................................................... -29-
5.1 Affirmative Covenants................................................. -29-
---------------------
5.2 Negative Covenants.................................................... -30-
------------------
5.3 Access and Information................................................ -33-
----------------------
5.4 Update Disclosure; Breaches........................................... -34-
---------------------------
5.5 Affiliates; Tax Treatment............................................. -34-
-------------------------
5.6 Dissent Process....................................................... -35-
---------------
5.7 Expenses.............................................................. -35-
--------
5.8 Delivery of Shareholder List.......................................... -36-
----------------------------
5.9 Employees; Directors.................................................. -36-
--------------------
5.10 Competing Transaction Fee............................................. -37-
-------------------------
ARTICLE 6
COVENANTS OF VALLICORP...................................................... -37-
6.1 Affirmative Covenants................................................. -37-
---------------------
6.2 Negative Covenants.................................................... -37-
------------------
6.3 Access and Information................................................ -38-
----------------------
6.4 Update Disclosure..................................................... -38-
-----------------
6.5 Breaches.............................................................. -39-
--------
6.6 NASDAQ Listing........................................................ -39-
--------------
6.7 Indemnification.
---------------
6.8 Tax Treatment......................................................... -40-
-------------
6.9 Business Combinations................................................. -40-
---------------------
6.10 Expenses.............................................................. -40-
--------
6.11 ValliCorp Board....................................................... -40-
---------------
ARTICLE 7
ADDITIONAL AGREEMENTS....................................................... -41-
7.1 Reservation, Issuance and Registration of ValliCorp Common Stock...... -41-
----------------------------------------------------------------
7.2 Preparation of S-4 and the Proxy Statement............................ -41-
------------------------------------------
7.3 Auburn Shareholder Meeting............................................ -41-
--------------------------
7.4 Legal Conditions to Merger............................................ -42-
--------------------------
7.5 Reports............................................................... -42-
-------
7.6 Brokers or Finders.................................................... -43-
------------------
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C> <C>
7.7 Additional Agreements; Reasonable Efforts..............................-43-
-----------------------------------------
7.8 Merger of TBOC and ValliWide...........................................-43-
----------------------------
7.9 Attendance at Meetings; Reports........................................-44-
-------------------------------
7.10 Stock Options..........................................................-44-
-------------
7.11 Employee Benefit Plans.................................................-45-
----------------------
7.12 Press Releases.........................................................-45-
--------------
7.13 Cooperation Regarding Approvals........................................-45-
-------------------------------
ARTICLE 8
CONDITIONS PRECEDENT.........................................................-45-
8.1 Conditions to Each Party's Obligation to Effect the Merger.............-45-
----------------------------------------------------------
8.2 Conditions to Obligation of ValliCorp..................................-46-
-------------------------------------
8.3 Conditions to Obligation of Auburn.....................................-48-
----------------------------------
ARTICLE 9
SHAREHOLDER AND INVESTMENT AGREEMENT.........................................-51-
9.1 Shareholder Agreement..................................................-51-
---------------------
9.2 Investment Agreement...................................................-51-
--------------------
ARTICLE 10
TERMINATION AND AMENDMENT....................................................-51-
10.1 Termination............................................................-51-
-----------
10.2 Effect of Termination..................................................-52-
---------------------
10.3 Amendment..............................................................-52-
---------
10.4 Extension; Waiver......................................................-53-
-----------------
ARTICLE 11
GENERAL PROVISIONS...........................................................-53-
11.1 Nonsurvival of Representations, Warranties and Agreements..............-53-
---------------------------------------------------------
11.2 Notices................................................................-53-
-------
11.3 Interpretation.........................................................-54-
--------------
11.4 Counterparts...........................................................-54-
------------
11.5 Entire Agreement; No Third Party Beneficiaries; Rights of Ownership....-54-
-------------------------------------------------------------------
11.6 Governing Law..........................................................-54-
-------------
11.7 Assignment.............................................................-54-
----------
11.8 Attorneys' Fees........................................................-55-
---------------
11.9 No Rule of Strict Construction.........................................-55-
------------------------------
11.10 Knowledge of the Parties...............................................-55-
------------------------
</TABLE>
List of Exhibits
- ----------------
5.5 Form of Affiliate Letter
7.8 Agreement of Merger of ValliWide Bank and The Bank of Commerce, N.A.
-iii-
<PAGE>
9.1 Shareholder Agreement
9.2 Investment Agreement
-iv-
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
------------------------------------
AGREEMENT AND PLAN OF REORGANIZATION, dated as of March 27, 1996
("Agreement"), between VALLICORP HOLDINGS, INC., a Delaware corporation
("ValliCorp"), and AUBURN BANCORP, a California corporation ("Auburn").
WHEREAS, the respective Boards of Directors of ValliCorp and Auburn have
approved the merger of Auburn with and into ValliCorp (the "Merger");
WHEREAS, the respective Boards of Directors of ValliCorp and Auburn believe
that such proposed Merger and the exchange of shares of ValliCorp Common Stock
(as defined in Section 1 hereof) for shares of Auburn Common Stock (as defined
in Section 1 hereof), pursuant and subject to the terms of this Agreement, is
desirable and in the best short-term and long-term interests of their respective
corporations and shareholders;
WHEREAS, ValliCorp and Auburn desire to make certain representations,
warranties, and agreements in connection with the Merger and also to prescribe
various conditions to the Merger; and
WHEREAS, Auburn and ValliCorp desire to cause The Bank of Commerce, N.A.
("TBOC") to be merged with and into ValliWide Bank ("ValliWide") at the
Effective Time (as hereinafter defined) or as soon thereafter as practicable;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, and agreements herein contained, the parties hereto agree as
follows:
ARTICLE 1
THE MERGER
1.1 The Merger. Subject to the terms and conditions of this Agreement,
----------
Auburn and ValliCorp agree to effect the Merger of Auburn with and into
ValliCorp, which will be the surviving corporation, in accordance with the
Delaware General Corporation Law (the "Delaware Act").
1.2 Effective Time of the Merger. Subject to the provisions hereof, a
----------------------------
certificate of merger (the "Certificate of Merger") shall be duly prepared and
executed by ValliCorp and Auburn and thereafter delivered to the Secretary of
State of the State of Delaware for filing, as provided in the Delaware Act, as
soon as practicable on or after the Closing Date (as defined in Section 1).
The Merger shall become effective upon the filing of the Certificate of Merger
with the Secretary of State of the State of Delaware or at such time within two
(2) business days thereafter as is provided in the Certificate of Merger (the
"Effective Time"). As soon as practicable after the Effective Time, a copy of
the Certificate of Merger certified by the Secretary of State of the
-1-
<PAGE>
State of Delaware or counterpart original of it shall also be filed with the
California Secretary of State.
1.3 Closing. The closing of the Merger (the "Closing") will take place
-------
at 8:00 a.m. on a date (the "Closing Date") to be specified by the parties,
which shall be no later than the tenth business day after the later to occur of
(a) approval of the Merger by the Board of Governors of the Federal Reserve
System (the "Federal Reserve Board") and the expiration of any waiting period,
and (b) the date of the later of the shareholders' meeting of Auburn, and, if
required, the shareholders meeting of ValliCorp, called to approve the Merger,
at the offices of ValliCorp in Fresno, California, unless another date or place
is agreed to in writing by the parties hereto. Notwithstanding the foregoing, if
the Closing does not take place on the date referred to in the preceding
sentence because any condition to the obligations of ValliCorp, on the one hand,
or Auburn, on the other hand, under this Agreement is not met on that date, the
other party may postpone the Closing from time to time (but not more than twice
without the other party's prior written consent) to any designated subsequent
business day not more than ten (10) business days after the original or
postponed date on which the Closing was to occur by delivering notice of such
postponement on the date the Closing was to occur.
1.4 Absence of Control. Subject to any specific provisions of this
------------------
Agreement, it is the intent of the parties that ValliCorp by reason of this
Agreement shall not (until consummation of the transactions contemplated hereby)
control, and shall not be deemed to control, directly or indirectly, Auburn or
TBOC and shall not exercise, or be deemed to exercise, directly or indirectly, a
controlling influence over the management or policies of Auburn or TBOC.
ARTICLE 2
EFFECT OF THE MERGER ON AUBURN COMMON STOCK
2.1 Effect on Common Stock. As of the Effective Time, by virtue of the
----------------------
Merger and without any action on the part of the holder of any shares of
Auburn's common stock, no par value ("Auburn Common Stock"), but subject to the
provisions of the California Corporations Code with respect to the rights of
dissenting shareholders of Auburn:
(a) Conversion of Auburn Common Stock. Each share of Auburn Common
---------------------------------
Stock outstanding immediately prior to the Effective Time shall be converted at
the Effective Time into .8209 shares of common stock, par value one cent ($.01),
of ValliCorp ("ValliCorp Common Stock"), subject to adjustment as specified in
Subsections (b) and (c) hereof, if applicable (the "Conversion Ratio").
(b) Adjustment for Number of Shares of ValliCorp Common Stock. The
---------------------------------------------------------
Conversion Ratio will be adjusted downward, if necessary, so that the total
number of shares of ValliCorp Common
-2-
<PAGE>
Stock issued in exchange for shares of Auburn Common Stock outstanding at the
Effective Time and upon the exercise of Auburn Stock Options (as hereinafter
defined), assumed by ValliCorp pursuant to Section 7.10 hereof, does not exceed
926,768. The Conversion Ratio, as adjusted pursuant to this Section 2.1(b), will
equal the quotient (rounded to four digits to the right of the decimal point)
obtained by dividing 926,768 by the sum of (i) the number of shares of Auburn
Common Stock outstanding at the Effective Time, and (ii) the number of Shares of
Auburn Common Stock (hereinafter defined) available upon the exercise of Auburn
Stock Options assumed by ValliCorp.
(c) Adjustments for ValliCorp Dilution. If prior to the Effective
----------------------------------
Time, ValliCorp shall declare a stock dividend or distribution upon or
subdivide, split up, reclassify or combine the ValliCorp Common Stock, or
declare a dividend, or make a distribution on the ValliCorp Common Stock in any
security convertible into ValliCorp Common Stock, as of a record date prior to
the Effective Time, appropriate adjustment or adjustments (rounded to four
digits to the right of the decimal point) will be made to the Conversion Ratio
and the total number of shares of ValliCorp Common Stock to be issued in the
transaction so as to maintain the proportional interest in ValliCorp Common
Stock which the shareholders of Auburn would otherwise have received.
In the event of a Triggering of the Rights (as hereinafter defined)
prior to the Effective Time, for each share of Common Stock that the
shareholders of Auburn are entitled to receive hereunder without regard to this
Section 2.1(c), the shareholders of Auburn shall receive one share of Common
Stock plus Rights Securities (as hereinafter defined) having an aggregate value
equal to the Spread (as defined in Section 11(a)(iii) of the Rights Plan (as
hereinafter defined)). "Rights Securities" shall mean one one-hundredths of a
share of Preferred Stock, unless, the Board of Directors makes available for
distribution to or purchase by Rights holders any other securities or assets or
cash, in which case Rights Securities shall be deemed to include such
securities, assets or cash. A "Triggering of the Rights" shall be deemed to
occur at the close of business on the tenth business day following the
occurrence of a Section 11(a)(ii) Event (as defined in the Rights Agreement
dated as of March 25, 1996 between ValliCorp and First Interstate Bank of
California (the "Rights Plan")), unless prior to the end of such ten (10)
business day period: (a) the Board of Directors or a Committee thereof redeems
the Rights in accordance with Section 23 of the Rights Plan or (b) the person
triggering exercisability of the Rights reduces its ownership of ValliCorp
Common Stock to less than 10% of the outstanding shares of ValliCorp Common
Stock and there are no other shareholders who are the Beneficial Owners of 10%
or more of the outstanding shares of ValliCorp Common Stock.
(d) Cancellation of Shares. All shares of Auburn Common Stock
----------------------
issued and outstanding immediately prior to the Effective Time shall no longer
be outstanding and shall
-3-
<PAGE>
automatically be cancelled and retired and shall cease to exist, and each holder
of a certificate representing any such shares shall cease to have any rights
with respect thereto. Such shares shall thereafter represent the ValliCorp
Common Stock into which such shares of Auburn Common Stock have been converted.
Certificates representing Auburn Common Stock shall be exchanged for
certificates representing whole shares of ValliCorp Common Stock issued in
consideration therefor upon the surrender of such certificates in accordance
with Section 2.3 hereof, without interest.
2.2 Effects of the Merger.
---------------------
(a) At the Effective Time, (i) the separate existence of Auburn
shall cease and Auburn shall be merged with and into ValliCorp as provided in
the Delaware Act (Auburn and ValliCorp are sometimes referred to in this Section
2.2 as the "Constituent Corporations" and ValliCorp is sometimes referred to in
this Section 2.2 as the "Surviving Corporation"), (ii) the Certificate of
Incorporation of ValliCorp in effect as of the Effective Time shall be the
Certificate of Incorporation of the Surviving Corporation, (iii) the Bylaws of
ValliCorp in effect as of the Effective Time shall be the Bylaws of the
Surviving Corporation, and (iv) the members of the Board of Directors and
committees thereof and the officers of ValliCorp immediately prior to the
Effective Time shall be the members of the Board of Directors and committees
thereof and the officers of the Surviving Corporation, respectively, subject to
the provisions of Section 6.11 hereof.
(b) At and after the Effective Time, the Surviving Corporation shall
possess all the rights, privileges, powers and franchises of a public as well as
of a private nature, and be subject to all the restrictions, disabilities and
duties of each of the Constituent Corporations; and all and singular rights,
privileges, powers and franchises of each of the Constituent Corporations, and
all property, real, personal and mixed and all debts due to either of the
Constituent Corporations on whatever account, as well as for stock subscriptions
and all other things in action or belonging to each of the Constituent
Corporations, shall be vested in the Surviving Corporation; and all property,
rights, privileges, powers and franchises, and all and every other interest
shall be thereafter as effectively the property of the Surviving Corporation as
they were of the Constituent Corporations, and the title to any real estate
vested by deed or otherwise, in either of the Constituent Corporations, shall
not revert or be in any way impaired; but all rights of creditors and all liens
upon any property of either of the Constituent Corporations shall be preserved
unimpaired, and all debts, liabilities and duties of the Constituent
Corporations shall thenceforth attach to the Surviving Corporation, and may be
enforced against it to the same extent as if said debts and liabilities had been
incurred by it. Any action or proceeding, whether civil, criminal or
administrative, pending by or against either Constituent Corporation shall be
prosecuted as if the Merger had not taken place, and the Surviving Corporation
-4-
<PAGE>
may be substituted as a party in such action or proceeding in place of any
Constituent Corporation.
2.3 Exchange of Certificates.
------------------------
(a) Exchange Agent. As of the Effective Time, ValliCorp shall
--------------
deposit with First Interstate Bank or such other bank or trust company
designated by ValliCorp (and reasonably acceptable to Auburn) (the "Exchange
Agent") for the benefit of the holders of shares of Auburn Common Stock, for
exchange in accordance with this Section 2.3 hereof through the Exchange Agent,
certificates representing the shares of ValliCorp Common Stock (such shares of
ValliCorp Common Stock, together with any dividends or distributions with
respect thereto, being hereinafter referred to as the "Exchange Fund") issuable
pursuant to Section in exchange for shares of Auburn Common Stock outstanding
immediately prior to the Effective Time. To the extent ValliCorp owns shares of
ValliCorp Common Stock as treasury stock, such shares may be deposited into the
Exchange Fund.
(b) Exchange Procedures. As soon as reasonably practicable after
-------------------
the Effective Time, the Exchange Agent shall mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Auburn Common Stock (the "Certificates") whose
shares were converted into the right to receive shares of ValliCorp Common Stock
pursuant to Section ? hereof, a letter of transmittal (which shall specify
that delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon delivery of the Certificates to the Exchange Agent and
shall be in such form and have such other provisions as ValliCorp and Auburn may
reasonably specify), and (ii) instructions for use in effecting the surrender of
the Certificates in exchange for certificates representing shares of ValliCorp
Common Stock. Upon surrender of a Certificate for cancellation to the Exchange
Agent or to such other agent or agents as may be appointed by ValliCorp,
together with such letter of transmittal, duly executed, the holder of such
Certificate shall be entitled to receive in exchange therefor a certificate
representing that number of whole shares of ValliCorp Common Stock which such
holder has the right to receive pursuant to the provisions of this Section 2.1
hereof, and the Certificate so surrendered shall forthwith be cancelled. In the
event of a transfer of ownership of ownership Common Stock which is not
registered in the transfer records of Auburn, a certificate representing the
proper number of shares of ValliCorp Common Stock may be issued to a transferee
if the Certificate representing such Auburn Common Stock is presented to the
Exchange Agent, accompanied by all documents required to evidence and effect
such transfer and by evidence that any applicable stock transfer taxes have been
paid. Until surrendered as contemplated by this Section 2.3, each Certificate
shall be deemed at any time after the Effective Time to represent only the right
to receive upon such surrender the certificate representing shares of ValliCorp
Common Stock and cash
-5-
<PAGE>
in lieu of any fractional shares of ValliCorp Common Stock as contemplated by
this Section 2.3.
(c) Distributions with Respect to Unexchanged Shares. No dividends
------------------------------------------------
or other distributions declared or made after the Effective Time with respect to
ValliCorp Common Stock with a record date after the Effective Time shall be paid
to the holder of any unsurrendered Certificate with respect to the shares of
ValliCorp Common Stock represented thereby and no cash payment in lieu of
fractional shares shall be paid to any such holder pursuant to Section 2.3(e)
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 ValliCorp Common Stock issued in exchange therefor,
without interest, (i) at the time of such surrender, the amount of any cash
payable in lieu of a fractional share of ValliCorp Common Stock to which such
holder is entitled pursuant to Section 2.3(e) and the amount of dividends or
other distributions with a record date after the Effective Time theretofore paid
with respect to such whole shares of ValliCorp Common Stock, and (ii) at the
appropriate payment date, the amount of dividends or other distributions with a
record date after the Effective Time but prior to surrender and a payment date
subsequent to surrender payable with respect to such whole shares of ValliCorp
Common Stock.
(d) No Further Ownership Rights in Auburn Common Stock. All shares
--------------------------------------------------
of ValliCorp Common Stock issued upon the surrender for exchange of shares of
Auburn Common Stock in accordance with the terms hereof (including any cash paid
pursuant to Section 2.3(c) or 2.3(e) shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Auburn Common Stock, and
there shall be no further registration of transfers on the stock transfer books
of the Surviving Corporation of the shares of Auburn Common Stock which were
outstanding immediately prior to the Effective Time. If, after the Effective
time, Certificates are presented to the Surviving Corporation for any reason,
they shall be cancelled and exchanged as provided in this Agreement.
(e) No Fractional Shares. Notwithstanding any other provision of
--------------------
this Agreement to the contrary, neither certificates nor script representing
fractional shares of ValliCorp Common Stock shall be issued upon the surrender
for exchange of Certificates, and such fractional share interests will not
entitle the owner thereof to vote or to any rights of a shareholder of
ValliCorp. Each holder of shares of Auburn Common Stock who would otherwise have
been entitled to a fraction of a share of ValliCorp Common Stock shall receive
in lieu thereof cash (without interest) in an amount determined by multiplying
the fractional share interest to which such holder would otherwise be entitled
by the Average Closing Price (as such term is hereafter defined) of a share of
ValliCorp Common Stock. From time to time at the request of the Exchange Agent
after the determination of amounts of cash to be
-6-
<PAGE>
paid to holders of Auburn Common Stock in lieu of any fractional share
interests, ValliCorp shall make available such amounts to the Exchange Agent.
The "Average Closing Price" shall be the daily closing prices of a share of
ValliCorp Common Stock reported on The NASDAQ Stock Market during the period of
5 consecutive trading days (whether or not there were any trades in ValliCorp
Common Stock) ending at the end of the third trading day immediately preceding
the Effective Time.
(f) Affiliates. Securities representing ValliCorp Common Stock
----------
issued to affiliates of Auburn (as reasonably determined by counsel to
ValliCorp) under Rule 145 of the Rules and Regulations under the 1933 Act may be
subject to stop transfer orders and may bear a restrictive legend in
substantially the following form:
The security represented by this instrument has been issued
or transferred to the registered holder as the result of a
transaction to which Rule 145 under the 1933 Act applies.
The security represented by this instrument may not be
sold, hypothecated, transferred or assigned, and the issuer
shall not be required to give effect to any attempted sale,
hypothecation, transfer or assignment, except (i) pursuant
to a then current effective registration under the 1933
Act, or (ii) in a transaction which, in the opinion of
counsel satisfactory to the issuer is not required to be
registered under the 1933 Act.
Should any opinion of counsel described in clause (ii) of the foregoing legend
indicate that the legend and any stop transfer order then in effect with respect
to the shares may be removed, ValliCorp will upon request substitute unlegended
securities and remove any stop transfer orders. ValliCorp also agrees to timely
file annual and quarterly reports pursuant to all applicable securities laws.
(g) Termination of Exchange Fund. Any portion of the Exchange Fund
----------------------------
which remains undistributed to the shareholders of Auburn for six months after
the Effective Time shall be delivered to ValliCorp, upon demand, and any
shareholders of Auburn who have not theretofore complied with this Section 2.3
shall thereafter look only to ValliCorp for payment of their claim for ValliCorp
Common Stock, any cash in lieu of fractional shares of ValliCorp Common Stock
and any dividends or distributions with respect to ValliCorp Common Stock.
(h) No Liability. Neither Auburn nor ValliCorp shall be liable to
------------
any holder of shares of Auburn Common Stock or ValliCorp Common Stock, as the
case may be, for such shares (or
-7-
<PAGE>
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.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF AUBURN
Auburn represents and warrants to ValliCorp as follows:
3.1 Organization, Standing and Power. Auburn is a corporation duly
--------------------------------
organized, validly existing and in good standing under the laws of the State of
California and has all requisite corporate power and authority to own, lease,
and operate its properties and to carry on its business as now being conducted,
except where the failure to have such power or authority would not have a
material adverse effect on the business, operations, or financial condition of
Auburn or TBOC taken as a whole. Auburn is qualified to do business and is in
good standing in each other state or foreign jurisdiction where its ownership or
leasing of property or the conduct of its business requires it to be so
qualified and where the failure to be so qualified would have a material adverse
effect on the business, operations, or financial condition of Auburn or TBOC.
Auburn is registered as a bank holding company with the Federal Reserve Board
under the Bank Holding Company Act of 1956, as amended (the "BHC Act"). Auburn
has delivered to ValliCorp true, accurate, and complete copies of the currently
effective Articles of Incorporation and Bylaws of Auburn, including all
amendments thereto. Except as disclosed in the Auburn Disclosure Letter, the
minute books of Auburn made available to ValliCorp contain an accurate and
complete record of all meetings of Auburn's Board of Directors (and committees
thereof) and stockholders. Except as disclosed in the Auburn Disclosure Letter,
the corporate books and records (including financial statements) of Auburn
fairly reflect the material transactions to which Auburn or any of its
subsidiaries is a party or by which any of their properties are subject or
bound, and such books and records have been properly kept and maintained. The
Articles of Incorporation and Bylaws of Auburn and all amendments thereto have
been duly approved by all requisite corporate action and said Articles of
Incorporation and all amendments thereto have been duly filed with the
California Secretary of State.
3.2 Auburn Subsidiary. Auburn beneficially owns, directly, all of
-----------------
the shares of the outstanding capital stock of TBOC, which constitutes Auburn's
sole Subsidiary (as defined in Section 4.1 hereof). As of the date hereof, the
authorized capital stock of TBOC consists of 337,500 shares of its Common Stock,
250,000 shares of which are outstanding, all of which are duly authorized,
validly issued, fully paid and nonassessable, except as provided for under any
applicable banking statute. No equity securities of TBOC are or may become
required to be issued by reason of any option, warrants, calls, rights, or
agreements of any character whatsoever; there are outstanding no securities or
rights convertible into or exchangeable for shares of any capital stock of TBOC
and there are
-8-
<PAGE>
no other contracts, commitments, understandings, or arrangements by which TBOC
is bound to issue additional shares of its capital stock or options, warrants,
calls, rights, or agreements to purchase or acquire any additional shares of its
capital stock. All of the shares of capital stock of TBOC are owned by Auburn
free and clear of any claim, lien, encumbrance, or agreement with respect
thereto. TBOC is a national banking association, duly organized, validly
existing, and in good standing under the laws of the United States, and has the
corporate power and authority to own or lease its properties and assets and to
carry on its business as it is now being conducted except where the failure to
have such power or authority would not have a material adverse effect on the
business, operations, or financial condition of TBOC. TBOC is a member of the
Federal Reserve System. The deposits of TBOC are insured by the Federal Deposit
Insurance Corporation ("FDIC") to the extent provided by law. Auburn has
delivered to ValliCorp true, accurate, and complete copies of the currently
effective Articles of Association and Bylaws of TBOC, including all amendments
thereto. Except as set forth in the Auburn Disclosure Letter, Auburn does not
own beneficially, directly, or indirectly, any shares of any class of equity
securities or similar interests of any corporation, bank, business trust,
association, or similar organization, other than those of TBOC. Except as
disclosed in the Auburn Disclosure Letter, the minute books of TBOC made
available to ValliCorp contain an accurate and complete record of all meetings
of TBOC's Board of Directors (and committees thereof) and stockholders. The
corporate books and records (including financial statements) of TBOC fairly
reflect the material transactions to which TBOC is a party or by which its
properties are subject or bound, and such books and records have been properly
kept and maintained. The Articles of Association and Bylaws of TBOC and all
amendments thereto have been duly approved by all requisite corporate action and
said Articles of Association and all amendments thereto have been duly filed
with the Office of the Comptroller of the Currency (the "OCC"). TBOC currently
holds a valid license issued by the OCC to engage in the commercial banking
business at the offices at which such business is conducted.
3.3 Capital Structure. As of the date hereof, the authorized capital
-----------------
stock of Auburn consists of 10,000,000 shares of Auburn Common Stock and
10,000,000 shares of Auburn Preferred Stock. As of the date hereof, (a)
1,004,955 shares of Auburn Common Stock are outstanding, (b) stock options in
respect of 124,011 shares of Auburn Common Stock (the "Auburn Option Shares")
were outstanding on the date hereof pursuant to the Auburn Bancorp 1994 Stock
Option Plan and the Auburn Bancorp 1982 Non-Qualified Stock Option Plan (each an
"Auburn Stock Plan and collectively the Auburn Stock Plans"), (c) Auburn does
not have any treasury stock, and (d) neither Auburn nor TBOC has issued any
outstanding bonds, debentures, notes, or other indebtedness having the right to
vote (or convertible into securities having the right to vote) on any matters on
which shareholders may vote ("Voting Debt"). All outstanding shares of Auburn
capital stock are duly authorized, validly issued, fully paid, and nonassessable
and not subject to
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preemptive rights. As of the date of this Agreement, except pursuant to this
Agreement and the Auburn Stock Plans, there are no options, warrants, calls,
rights, or agreements of any character whatsoever to which Auburn is a party or
by which it is bound obligating Auburn to cause to be issued, delivered or sold,
additional shares of capital stock or any debt securities of Auburn or
obligating Auburn to grant, extend, or enter into any such option, warrant,
call, right, or agreement. Except for Auburn Stock Options (as hereinafter
defined) assumed by ValliCorp pursuant to this Agreement, immediately after the
Effective Time, there will be no option, warrant, call, right, or agreement
obligating Auburn or TBOC to issue, deliver, or sell, or cause to be issued,
delivered, or sold, any shares of capital stock or any debt securities of Auburn
or TBOC, or obligating Auburn or TBOC to grant, extend, or enter into any such
option, warrant, call, right, or agreement. The Auburn Disclosure Letter sets
forth as of the date hereof, for each holder of options under the Auburn Stock
Plans on a per holder basis and identified separately by the Auburn Stock Plans
under which the options were issued, (a) the number of shares of Auburn Common
Stock subject to such options, (b) the exercise prices for each of such options,
(c) the number of shares as to which options were then vested, (d) the number of
shares as to which options were not vested, and (e) for unvested options, the
dates upon which such options become vested and the number of shares subject to
options which may have their vesting accelerated as a result of the Merger.
3.4 Authority. Auburn has all requisite corporate power and authority to
---------
enter into this Agreement and to consummate the transactions contemplated
hereby, subject only to approval of this Agreement by at least a majority of the
outstanding shares of Auburn Common Stock. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of Auburn, subject
to the aforementioned approval of this Agreement by the shareholders of Auburn.
This Agreement has been duly executed and delivered by Auburn and (assuming due
execution and delivery by and enforceability against ValliCorp) constitutes a
valid and binding obligation of Auburn enforceable in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general equitable principles and subject to the
aforementioned approval of this Agreement by the shareholders of Auburn. The
execution and delivery of this Agreement, the Investment Agreement (as defined
in Section 9.1 hereof) and the Shareholder Agreement (as defined in Section 9.2
hereof) does not, and the consummation of the transactions contemplated hereby
will not, conflict with, or result in any violation of, or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or the loss of a
material benefit under, or the creation of a lien, pledge, security interest, or
other encumbrance on assets (any such conflict, violation, default, right of
termination, cancellation,
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<PAGE>
or acceleration loss or creation, a "Violation"), pursuant to any provision of
(a) the Articles of Incorporation or Bylaws of Auburn or Articles of Association
or Bylaws of TBOC, or (b) except (i) as set forth in the Auburn Disclosure
Letter or (ii) as contemplated by the next sentence hereof, any loan or credit
agreement, note, mortgage, indenture, lease, Auburn Benefit Plan (as defined in
Section 3.11) or other agreement, obligation, instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule, or
regulation applicable to Auburn or TBOC or their respective properties or assets
which Violation would have a material adverse effect on Auburn or TBOC taken
as a whole (assuming (1) receipt of all required government approvals, (2)
receipt of the requisite shareholder approval referred to in Section 7.3 hereof
and any required ValliCorp shareholder approval, (3) due registration of the
ValliCorp Common Stock under the 1933 Act, and (4) receipt of appropriate
permits or approvals under applicable state securities laws). Other than in
connection or in compliance with the provisions of the Delaware Act, the
California Corporations Code, the Securities Act of 1933, as amended, and the
rules and regulations thereunder (the "Securities Act"), the Securities Exchange
Act of 1934, as amended, and the rules and regulations thereunder (the "Exchange
Act"), the securities or blue sky laws of the various states, and consents,
authorizations, approvals, notices, or exemptions required under the BHC Act,
the National Bank Act, as amended, and the rules and regulations thereunder and
from the California Superintendent of Banks (the "California Superintendent"),
no consent, approval, order, or authorization of, or registration, declaration,
or filing with, any court, administrative agency, or commission or other
governmental authority or instrumentality, domestic or foreign (a "Governmental
Entity"), is required by Auburn or TBOC in connection with the execution and
delivery of this Agreement, the Investment Agreement and the Shareholder
Agreement by Auburn or the consummation by Auburn of the transactions
contemplated hereby and thereby, the failure to obtain which would have a
material adverse effect on Auburn or TBOC.
3.5 Auburn Financial Statements and Reports.
---------------------------------------
(a) The consolidated balance sheets of Auburn as of December 31, 1995
and 1994 and the related consolidated statements of income, consolidated
statements of cash flows and consolidated statements of shareholders equity for
the three (3) years in the period ended December 31, 1995 (the "Latest Statement
Date"), certified by Perry Smith & Company, copies of which have been furnished
by Auburn to ValliCorp; and FR Y-6 Report for the year ended December 31, 1995
as filed with the Federal Reserve Bank, copies of which have been furnished by
Auburn to ValliCorp (collectively the "Auburn Financial Statements"), have been
prepared in accordance with generally accepted accounting principles and
practices in effect at the time as utilized in the Auburn Financial Statements
applied on a consistent basis, and present fairly in all material respects the
consolidated financial
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condition of Auburn at the dates, and the consolidated results of operations and
cash flows for the periods, stated therein.
(b) Without limitation to the foregoing, Auburn's allowance for loan
losses included in the most recent Auburn Financial Statements for the period
ended December 31, 1995 was adequate to absorb foreseeable losses in the loan
portfolio of TBOC based on information available as of the date hereof. To the
knowledge of Auburn, based on information as of the date hereof, there are no
facts which would cause it to increase materially the level of such allowance
for loan losses.
(c) Since January 1, 1991, Auburn and TBOC have timely filed all
material reports, registrations, and statements, together with any amendments
required to be made with respect thereto, that were required to be filed with
(a) the SEC, including, but not limited to, Forms 10-K, Forms 10-Q, Forms 8-K
and proxy statements, (b) the Federal Reserve Board, (c) the United States
Comptroller of the Currency (the "Comptroller"), (d) the FDIC, (e) the
California Department of Banking (the "Banking Department"), or (f) any other
applicable state securities or banking authorities (all such reports and
statements are collectively referred to herein as the "Auburn Reports"). As of
their respective dates, the Auburn Reports filed prior to the date hereof
complied in all material respects with all of the statutes, rules, and
regulations enforced or promulgated by the regulatory authority with which they
were filed and did not contain any untrue statement of a material fact or omit
to state a 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; provided, that information as of a later date shall be
deemed to modify information as of any earlier date.
(d) No financial statement or other document provided or to be
provided to ValliCorp as required by Section 5.3 hereof, as of the date of such
document, contained, or as to documents delivered after the date hereof, will
contain, any untrue statement of a material fact, or, at the date thereof,
omitted or will omit to state a material fact necessary in order to make the
statements contained therein, in light of the circumstances under which such
statements were or will be made, not misleading; provided, however, that
information as of a later date shall be deemed to modify information as of any
earlier date. All compliance or corrective action relating to Auburn or TBOC
required by governmental authorities and regulatory agencies having jurisdiction
over Auburn or TBOC has been taken. Auburn and TBOC have received no
notification, formally or informally, from any agency or department of any
federal, state or local government or any regulatory agency or the staff thereof
(A) asserting that Auburn or TBOC are not in compliance with any of the
statutes, regulations or ordinances which such government or regulatory
authority enforces, except as included in ordinary and customary examination
reports and which assertions of noncompliance are not materially adverse to
Auburn and TBOC as a whole, or (B) threatening to revoke any license,
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franchise, permit or governmental authorization of Auburn or TBOC. Neither
Auburn nor TBOC is subject to any order, agreement, or written directive with
any regulatory authority with respect to its assets or business except for
matters of general application. Auburn and TBOC have paid all assessments made
or imposed by any governmental agency. The financial records of Auburn have
been, and are being and shall be, maintained in all material respects in
accordance with all applicable legal and accounting requirements sufficient to
insure that all transactions reflected therein are, in all material respects,
executed in accordance with management's general or specific authorization and
recorded in conformity with GAAP at the time in effect.
3.6 Information Supplied. None of the information supplied or to be
--------------------
supplied by Auburn for inclusion or incorporation by reference in (a) the
registration statement on Form S-4 to be filed with the SEC by ValliCorp in
connection with the issuance of shares of ValliCorp Common Stock in the Merger
(the "S-4") will, at the time the S-4 is filed with the SEC and at the time it
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein in light of the circumstances under
which such statements were made, not misleading, provided, that information as
of a later date shall be deemed to modify information as of any earlier date,
(b) the proxy statement in definitive form relating to the meeting of Auburn's
shareholders to be held in connection with the Merger (the "Proxy Statement"),
will, at the date mailed to shareholders and at the time of the meeting of
shareholders to be held in connection with the Merger, 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 are made, not misleading, and (c) any other
material documents to be filed with the SEC, the Federal Reserve Board, the
Banking Department, or any regulatory agency in connection with the transactions
contemplated hereby will, at the time of filing, contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading, provided, that information as of a later
date shall be deemed to modify information as of any earlier date. The Proxy
Statement, insofar as it relates to information supplied by Auburn, will comply
as to form in all material respects with the provisions of the Exchange Act and
the rules and regulations thereunder.
3.7 Authorizations; Compliance with Applicable Laws.
-----------------------------------------------
(a) Auburn and TBOC hold all authorizations, permits, licenses,
variances, exemptions, orders, and approvals of all Governmental Entities which
are material to the operations of the businesses of Auburn and TBOC taken as a
whole (the "Auburn Permits"). Auburn and TBOC are in compliance with the terms
of the Auburn Permits, except where the failure so to comply would not
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<PAGE>
have a material adverse effect on Auburn and TBOC. Except as disclosed in the
Auburn Disclosure Letter, the businesses of Auburn and TBOC are not being
conducted in violation of any domestic (federal or state) or foreign law,
statute, ordinance, or regulation of any Governmental Entity (collectively
"Laws"), including, without limitation, Regulations B and O of the Federal
Reserve Board, except for possible violations which individually or in the
aggregate do not and, insofar as reasonably can be foreseen, in the future will
not, have a material adverse effect on Auburn and TBOC taken as a whole. Except
as set forth in the Auburn Disclosure Letter, or as of the date hereof, no
investigation or review by any Governmental Entity with respect to Auburn and
TBOC is pending or, to the knowledge of Auburn, threatened, nor has any
Governmental Entity indicated an intention to conduct the same.
(b) Except as set forth in the Auburn Disclosure Letter, to the best
of Auburn's knowledge, there are no properties of Auburn or TBOC or no
properties in which Auburn or TBOC holds a security or contingent interest or
purchase option, which are the subject of any pending or threatened
investigation, claim or proceeding relating to the use, storage or disposal on
such property of or contamination of such property by any toxic or hazardous
waste material or substance. Except as set forth in the Disclosure Letter, to
the best of Auburn's knowledge, neither Auburn nor TBOC owns, possesses or has a
security or contingent interest or purchase option in any properties or other
assets which contain or have located within or thereon any hazardous or toxic
waste material or substance unless the location of such hazardous or toxic waste
material or other substance or its use thereon conforms in all material respects
with all federal, state and local laws, rules, regulations or other provisions
regulating the discharge of materials into the environment. As used in this
Agreement, toxic or hazardous waste means 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.
3.8 Litigation and Claims. Except as disclosed in the Auburn Disclosure
---------------------
Letter: (a) neither Auburn nor TBOC is subject to any continuing order of, or
written agreement or memorandum of understanding with, or continuing material
investigation by, any federal or California banking or insurance authority or
other Governmental Entity, or any judgment, order, writ, injunction, decree, or
award of any federal or state Governmental Entity or arbitrator, including,
without limitation, cease-and-desist or other orders of any bank regulatory
authority, (b) there is no claim of any kind, action, suit, litigation,
proceeding, arbitration, investigation, or controversy affecting Auburn or TBOC
pending or, to the knowledge of Auburn, threatened, except for matters which in
the aggregate will not have, and cannot reasonably be expected to have, a
material adverse effect on Auburn or TBOC taken as a whole, and (c) there are no
uncured material violations, or violations with respect to which material
refunds or restitutions may be required, cited in any compliance report to
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<PAGE>
Auburn or TBOC as a result of the examination by any bank or bank holding
company regulatory authority.
3.9 Taxes.
-----
(a) Except as set forth in the Auburn Disclosure Letter, Auburn and
TBOC have filed all federal and state tax returns required to be filed by them
and have paid, or have set up an adequate reserve for the payment of, all taxes
required to be paid as shown on such returns, and the most recent Auburn
financial statements contained in the Auburn Reports reflect an adequate reserve
for all federal and state taxes payable by Auburn and TBOC accrued through the
date of such financial statements. The Auburn Disclosure Letter will set forth,
as of the date hereof, the following information with respect to Auburn and
TBOC: (i) the most recent tax year through which the United States Internal
Revenue Service ("IRS") has completed its examination of such corporation, (ii)
whether there is an examination pending by the IRS with respect to such
corporation and, if so, the tax years involved, (iii) whether such corporation
has executed or filed with the IRS any agreement which is still in effect
extending the period for assessment and collection of any federal tax and, if
so, the tax years covered by such agreement and the expiration date of such
extension, and (iv) whether there are any existing material disputes as to
foreign, state, or local taxes. There are no material liens for taxes upon the
assets of Auburn or of TBOC, except for statutory liens for taxes not yet
delinquent or the validity of which is being contested in good faith by
appropriate pro ceedings and, in either case, only if adequate reserves
therefore have been established on Auburn's books. Except as disclosed in the
Auburn Disclosure Letter and except for any action proceeding or claim as to
which the taxes sought do not exceed $10,000, neither Auburn nor TBOC is a party
to any action or proceeding by any governmental authority for assessment and
collection of taxes, and no claim for assessment and collection of taxes has
been asserted against any of them. For the purpose of this Agreement, the term
"tax" (including, with correlative meaning, the terms "taxes" and "taxable")
shall include all income, profits, franchise, gross receipts, payroll, sales,
employment, use, personal and real property, withholding, excise and other
taxes, duties or assessments of any nature whatsoever, together with all
interest, penalties, and additions imposed with respect to such amounts. Each of
Auburn and TBOC has withheld from its employees (and timely paid to the
appropriate governmental agency) proper and accurate amounts for all periods
through the date hereof in material compliance with all tax withholding
provisions of applicable federal, state, foreign, and local laws (including
without limitation income, social security, and employment tax withholding for
all types of compensation).
(b) To Auburn's knowledge as of the date hereof, there is no plan or
intention on the part of shareholders of Auburn who will receive ValliCorp
Common Stock to sell or otherwise dispose of an amount of ValliCorp Common Stock
to be received in
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the Merger which would reduce their ownership of ValliCorp Common Stock to a
number of shares having in the aggregate a value at the time of the Merger of
less than fifty percent (50%) of the total value of the Auburn stock outstanding
immediately prior to the Merger.
3.10 Certain Agreements. Except as discussed or listed in the Auburn
------------------
Reports filed prior to the date of this Agreement or as disclosed in the Auburn
Disclosure Letter, as of the date hereof, neither Auburn nor TBOC is a party to
any (a) consulting agreement not terminable on sixty (60) days' or less notice
or employment agreement or other agreement providing any term of employment,
compensation guarantee, or severance or supplemental retirement benefit
involving payments in excess of $10,000 individually or $50,000 in the
aggregate, (b) union, guild, or collective bargaining agreement, (c) agreement
or plan, including any stock option plan, stock appreciation right plan,
restricted stock plan or stock purchase plan, any of the benefits of which will
be increased, or the vesting of the benefits of which will be accelerated, by
the occurrence of any of the transactions contemplated by this Agreement or the
value of any of the benefits of which will be calculated on the basis of the
transactions contemplated by this Agreement, or (d) contract containing
covenants which limit the ability of Auburn or TBOC to compete in any line of
business or with any person or which involve any restriction of the geographical
area in which, or method by which, Auburn or TBOC may carry on its business
(other than as may be required by law or applicable regulatory authorities).
3.11 Benefit Plans.
-------------
(a) The Auburn Disclosure Letter lists (i) each employee bonus,
incentive, deferred compensation, stock purchase, stock appreciation right,
stock option, and severance pay plan, (ii) each pension, profit sharing, stock
bonus, thrift, savings, and employee stock ownership plan, and (iii) every other
employee benefit plan (within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") (collectively
"Benefit Plans"), which Auburn or TBOC maintains or to which Auburn or TBOC
contributes on behalf of current or former employees. Except as disclosed in the
Auburn Disclosure Letter, all of the plans and programs listed in the Auburn
Disclosure Letter (collectively, "Auburn Benefit Plans") comply in all material
respects with all applicable requirements of ERISA and all other applicable
federal and state laws, including without limitation the reporting and
disclosure requirements of Part 1 of Title I of ERISA. Each of the Auburn
Benefit Plans that is intended to be a pension, profit sharing, stock bonus,
thrift, savings, or employee stock ownership plan that is qualified under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
has been determined by the IRS to qualify under Section 401(a) of the Code, or
an application for the determination of such qualification will be made to the
IRS prior to the end of the applicable remedial amendment period under Section
401(b) of the Code and the
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regulations thereunder, and there exist no circumstances that would materially
adversely affect the qualified status of any such Auburn Benefit Plan under that
section. Except as set forth in the Auburn Disclosure Letter, each Auburn
Benefit Plan that is a defined benefit pension plan has assets with an aggregate
value that exceeds the actuarially determined present value of its liability for
accrued benefits as determined on the basis of the actuarial assumptions used
for the most recent actuarial valuation of such Plan, no such Plan has incurred
an accumulated funding deficiency within the meaning of Section 412(a) of the
Code, and no such Plan is a "multi-employer plan" within the meaning of Section
3(37) of ERISA. Except as set forth in the Auburn Disclosure Letter, there is no
pending or, to the knowledge of Auburn, threatened litigation, governmental
proceeding or investigation against or relating to any Auburn Benefit Plan, and
to the knowledge of Auburn there is no reasonable basis for any material
proceedings, claims, actions, or proceedings, against any Plan. Except as set
forth in the Auburn Disclosure Letter, no "reportable event" (as defined in
Section 4043(b) of ERISA) has occurred with respect to any Auburn Benefit Plan,
and no Auburn Benefit Plan has engaged in a "prohibited transaction" (as defined
in Section 406 of ERISA and Section 4975(c) of the Code) since the date on which
said sections became applicable to such Plan which could reasonably result in a
material liability.
(b) Auburn has delivered to ValliCorp copies of (i) each Auburn
Benefit Plan, (ii) the most recent summary plan descriptions of each Auburn
Benefit Plan, (iii) each trust agreement, insurance policy, or other instrument
relating to the funding of any Auburn Benefit Plan, (iv) the most recent Annual
Reports (Form 5500 series) and accompanying schedules filed with the IRS or
United States Department of Labor with respect to each Auburn Benefit Plan, (v)
the most recent determination letter issued by the IRS with respect to each
Auburn Benefit Plan that is intended to qualify under Section 401 of the Code,
(vi) the most recent available financial statements for each Auburn Benefit Plan
that has assets, (vii) the most recent actuarial report for any Auburn Benefit
Plan that is a defined benefit pension plan, and if any such Plan was amended
subsequent to the date of such report, information about the financial effects
of such amendment, and (viii) the most recent audited financial statements for
each Auburn Benefit Plan for which audited financial statements are required by
ERISA.
(c) The Auburn Disclosure Letter describes briefly any obligation
that Auburn or TBOC has to provide health and welfare benefits to retirees and
other former employees or their dependents (other than rights arising solely
under Section 601 of ERISA or Section 4980B of the Code).
3.12 Insurance. Auburn has delivered to ValliCorp correct and complete
---------
copies of all material policies of insurance of Auburn and TBOC currently in
effect. Neither Auburn nor TBOC has any
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liability for unpaid premiums or premium adjustments not properly reflected on
the Auburn Financial Statements.
3.13 Conduct of Auburn to Date. Except as disclosed in Auburn Reports
-------------------------
filed prior to the date of this Agreement or in the Auburn Disclosure Letter as
of the date hereof, and except as contemplated by this Agreement from and after
January 1, 1996 through the date of this Agreement: (a) Auburn and TBOC have
carried on their respective businesses in the ordinary and usual course
consistent with past practices, (b) Auburn has not issued or sold any of its
capital stock, except pursuant to exercise of options under the Auburn Stock
Plans, or made grants of options to purchase of Auburn Common Stock pursuant to
the Auburn Stock Plans, or issued or sold any corporate debt securities which
would be classified as long-term debt on the balance sheet of Auburn, (c) Auburn
has not granted any option for the purchase of its capital stock, effected any
stock split, or otherwise changed its capitalization, (d) Auburn has not
declared, set aside, or paid any dividend or other distribution in respect of
its capital stock, or, directly or indirectly, redeemed or otherwise acquired
any of its capital stock, (e) neither Auburn nor TBOC has incurred any material
obligation or liability (absolute or contingent), except normal trade or
business obligations or liabilities incurred in the normal course of business,
or mortgaged, pledged, or subjected to lien, claim, security interest, charge,
encumbrance, or material restriction of any of its assets or properties, (f)
neither Auburn nor TBOC has discharged or satisfied any material lien, mortgage,
pledge, claim, security interest, charge, encumbrance, or restriction or paid
any material obligation or liability (absolute or contingent), other than in the
ordinary course of business, (g) neither Auburn nor TBOC has sold, assigned,
transferred, leased, exchanged, or otherwise disposed of any of its properties
or assets other than for a fair consideration in the ordinary course of
business, (h) neither Auburn nor TBOC has increased the rate of compensation of,
or paid any bonus to, any of its directors, officers, or other employees, except
merit or promotion increases in accordance with existing policy; entered into
any new, or amended or supplemented any existing employment, management,
consulting, deferred compensation, severance, or other similar contract;
adopted, entered into, terminated, amended, or modified any Auburn Benefit Plan
in respect of any of present or former directors, officers of other employees;
or, agreed to do any of the foregoing, (i) neither Auburn nor TBOC has suffered
any material damage, destruction, or loss, whether as a result of (1) flood or
(2) fire, explosion, earthquake, accident, casualty, labor trouble, requisition,
or taking of property by any government or any agency of any government,
windstorm, embargo, riot, act of God or the enemy, or other similar or
dissimilar casualty or event or otherwise, not adequately covered by insurance,
(j) neither Auburn nor TBOC has cancelled or compromised any debt to an extent
exceeding $50,000 owed to Auburn or TBOC or claim to an extent exceeding $50,000
asserted by Auburn or TBOC, (k) neither Auburn nor TBOC has entered into any
material transaction, contract, or commitment outside the ordinary course of its
business, (l) neither
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Auburn nor TBOC has entered, or agreed to enter, into any agreement or
arrangement granting any preferential right to purchase any of its material
assets, properties, or rights or requiring the consent of any party to transfer
and assignment of any such material assets, properties, or rights, (m) there has
not been any other transaction, commitment, dispute, or other event or condition
(financial or otherwise) of any character (whether or not in the ordinary course
of business) individually or in the aggregate having or which, insofar as
reasonably can be foreseen, in the future is reasonably likely to have, a
material adverse effect on Auburn and TBOC taken as a whole, and (n) there has
not been any change in the method of accounting or accounting practices of
Auburn and TBOC, other than changes required pursuant to generally accepted
accounting principles.
3.14 Material Adverse Change. Since December 31, 1995, there has been no
-----------------------
material adverse change in the financial condition, results of operations or
business of Auburn or TBOC taken as a whole.
3.15 Properties, Leases, and Other Agreements. Except (i) as may be
----------------------------------------
reflected in the Auburn Financial Statements or as set forth in the Auburn
Disclosure Letter, (ii) for any lien for current taxes not yet delinquent, or
(iii) for pledges to secure deposits and for such other liens, security
interests, claims, charges, options, or other encumbrances and imperfections of
title which do not materially affect the value of personal or real property
reflected in the Auburn Financial Statements as being owned by Auburn or
acquired since the date of such Statements and which do not materially interfere
with or impair the present and continued use of such property, Auburn and TBOC
have good title, free and clear of any liens, security interests, claims,
charges, options, or other encumbrances to all of the personal and real property
reflected in the Auburn Financial Statements as being owned by Auburn, and all
personal and real property acquired since the date of such Statements, except
such personal and real property as has been disposed of in the ordinary course
of business. Substantially all Auburn's and TBOC's buildings and equipment in
regular use have been reasonably maintained and are in good and serviceable
condition, reasonable wear and tear excepted. All leases material to Auburn and
TBOC pursuant to which either Auburn and TBOC, as lessee, leases real or
personal property are valid and effective in accordance with their respective
terms and there is not, under any of such leases, any material existing default
by Auburn, TBOC, or, to the best knowledge of Auburn, any other party thereto,
or any event with notice or lapse of time or both would constitute such a
material default.
3.16 Opinion of Financial Advisor. Auburn has received the oral opinion
----------------------------
of The Findley Group as of the date hereof to the effect that, as of the date
hereof, the consideration to be received in the Merger by Auburn's shareholders
is fair to Auburn's shareholders from a financial point of view.
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3.17 Vote Requirement. The affirmative vote of a majority of the holders
----------------
of the outstanding shares of Auburn Common Stock are required to approve this
Agreement and the Auburn Common Stock is the only class of stock entitled to
vote to approve this Agreement and the transactions contemplated hereby.
3.18 Tax Matters. To the knowledge of Auburn, neither Auburn nor any of
-----------
its affiliates has through the date hereof taken or agreed to take any action
that would prevent the Merger from qualifying as a tax-free reorganization under
the Code.
3.19 Accuracy of Representations and Warranties. No representation or
------------------------------------------
warranty by Auburn and no statement by Auburn in any certificate, agreement,
schedule or other document furnished in connection with the transactions
contemplated by this Agreement contains or will contain any untrue statement of
material fact or omits or will omit to state any material fact necessary to make
such representation, warranty or statement not misleading to ValliCorp;
provided, however, that information as of a later date shall be deemed to modify
information as of an earlier date.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF VALLICORP
4.1 Organization, Standing and Power. ValliCorp is a corporation duly
--------------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite corporate power and authority to own, lease, and
operate its properties and to carry on its business as now being conducted,
except where the failure to have such power or authority would not have a
material adverse effect on the business, operations, or financial condition of
ValliCorp and its Subsidiaries (as hereinafter defined) taken as a whole.
ValliCorp is qualified to do business and is in good standing in each other
state or foreign jurisdiction where its ownership or leasing of property or the
conduct of its business requires it to be so qualified and where the failure to
be so qualified would have a material adverse effect on the business,
operations, or financial condition of ValliCorp and its Subsidiaries taken as a
whole. ValliCorp is registered as a bank holding company with the Federal
Reserve Board under the BHC Act. ValliWide Bank currently holds a valid license
issued by the Superintendent to engage in the commercial banking business in
California at the offices at which such business is conducted. ValliCorp has
delivered to Auburn true, accurate, and complete copies of the currently
effective Articles of Incorporation and Bylaws of ValliCorp, including all
amendments thereto. The minute books of ValliCorp made available to Auburn
contain an accurate and complete record of all meetings of ValliCorp's Board of
Directors (and committees thereof) and stockholders. The corporate books and
records (including financial statements) of ValliCorp fairly reflect the
material transactions to which ValliCorp or any of its Subsidiaries is a party
or by which any of their properties are subject or bound, and such books and
records have been properly kept and maintained. The Certificate of Incorporation
and Bylaws
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of ValliCorp and all amendments thereto have been duly approved by all requisite
corporate action and said Certificate of Incorporation and all amendments
thereto have been duly filed with the Delaware Secretary of State. As used in
this Agreement, the word "Subsidiary" means any corporation or other
organization, including limited liability companies, whether incorporated or
unincorporated (i) of which such party or any other Subsidiary of such party is
a general partner (excluding partnerships, the general partnership interest of
which held by such party or any Subsidiary of such party does not have a
majority of the voting interests in such partnership), or (ii) which is directly
or indirectly owned or controlled by such party or by any one or more of its
Subsidiaries, or by such party and one or more of its Subsidiaries, excluding
ValliPlaza del Rio in which ValliCorp is a limited partner.
4.2 Capital Structure. As of the date hereof, the authorized capital
-----------------
stock of ValliCorp consists of 20,000,000 shares of ValliCorp Common Stock and
5,000,000 shares of Preferred Stock. At the close of business on March 21, 1996,
(a) 12,321,333 shares of ValliCorp Common Stock were duly authorized, fully
paid, validly issued, nonassessable and are currently outstanding, (b) 973,848
shares of ValliCorp Common Stock were reserved for issuance upon the exercise of
outstanding stock options, in each case granted pursuant to employee benefit
plans (collectively the "ValliCorp Stock Plans"), and upon the conversion of
ValliCorp's outstanding convertible debentures (the "Convertible Debentures"),
(c) -0- shares of ValliCorp Common Stock were held by ValliCorp in its treasury,
(d) except for the Convertible Debentures, neither ValliCorp nor any of its
Subsidiaries had Voting Debt issued or outstanding, and (e) no shares of
Preferred Stock were outstanding. As of the date of this Agreement, except
pursuant to this Agreement, ValliCorp Stock Plans, ValliCorp Convertible
Debentures and the Rights Plan, there are no options, warrants, calls, rights,
or agreements of any character whatsoever to which ValliCorp or any Subsidiary
of ValliCorp is a party or by which it is bound obligating ValliCorp or any
Subsidiary of ValliCorp to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock or any debt of ValliCorp
or of any Subsidiary of ValliCorp or obligating ValliCorp or any Subsidiary of
ValliCorp to grant, extend, or enter into any such option, warrant, call, right,
or agreement.
4.3 Authority. ValliCorp has all requisite corporate power and authority
---------
to enter into this Agreement and to consummate the transactions contemplated
hereby, subject only to approval of this Agreement by the shareholders of
ValliCorp, if required by the Delaware Act or the Rules of the National
Association of Securities Dealers for NASDAQ/NMS issuers (the "NASD Rules"). The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action on the part of ValliCorp. This Agreement has been
duly executed and delivered by ValliCorp, and constitutes a valid and binding
obligation of
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ValliCorp enforceable in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights and to general
equitable principles. The execution and delivery of this Agreement and the
Investment Agreement (as defined in Section 9.2) do not, and the consummation of
the transactions contemplated hereby and thereby will not, result in any
Violation pursuant to any provision of the Certificate of Incorporation or
Bylaws of ValliCorp or any of its Subsidiaries, or except as contemplated by the
next sentence hereof, result in any Violation of any material loan or credit
agreement, note, mortgage, indenture or lease or other agreement, obligation,
instrument, permit, concession, franchise or license, and will not violate any
judgment, order, decree, statute, law, ordinance, rule, or regulation applicable
to ValliCorp or any of its Subsidiaries or their respective properties or assets
or the ValliCorp Benefit Plans (as defined in Section 4.10). Other than in
connection or in compliance with the provisions of the Delaware Act, the
California Corporations Code, the Securities Act, the Exchange Act, the
securities or blue sky laws of the various states, and consents, authorizations,
approvals, notices, or exemptions required under the BHC Act, the National Bank
Act and the rules and regulations thereunder, and from the California
Superintendent, no consent, approval, order, or authorization of, or
registration, declaration, or filing with, any Governmental Entity, is required
by or with respect to ValliCorp or any of its Subsidiaries in connection with
the execution and delivery of this Agreement and the Investment Agreement by
ValliCorp or the consummation by ValliCorp of the transactions contemplated
hereby and thereby, the failure to obtain which would have a material adverse
effect on ValliCorp and its Subsidiaries taken as a whole.
4.4 ValliCorp Financial Statements and Reports.
------------------------------------------
(a) The consolidated balance sheets of ValliCorp as of December 31,
1995 and 1994 and the related consolidated statements of income, consolidated
statements of cash flows and consolidated statements of shareholders equity for
the three (3) years in the period ended December 31, 1995, certified by
independent auditors, copies of which have been furnished by ValliCorp to Auburn
(collectively the "ValliCorp Financial Statements"), have been prepared in
accordance with generally accepted accounting principles and practices as
utilized in the ValliCorp Financial Statements applied on a consistent basis
(except as may be indicated therein or in the notes thereto), and present fairly
the consolidated financial condition of ValliCorp at the dates, and the
consolidated results of operation and cash flows for the periods stated therein.
(b) Without limitation to the foregoing, ValliCorp's allowance for
loan losses included in the most recent ValliCorp Financial Statements was
adequate to absorb foreseeable losses in the loan portfolios of ValliCorp and
each of ValliCorp's Subsidiaries, based on information as of the date hereof. To
the
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knowledge of ValliCorp, there are no facts which would cause it to increase
materially the level of such allowance for loan losses.
(c) Since January 1, 1991, ValliCorp and the ValliCorp Subsidiaries
have filed all material reports, registrations, and statements, together with
any amendments required to be made with respect thereto, that were and are
required to be filed with (a) the SEC, including but not limited to Registration
Statements and amendments thereto under the Securities Act of 1933, as amended,
and Forms 10-K, Forms 10-Q, Forms 8-K, and proxy statements, (b) the Federal
Reserve Board, (c) the Comptroller, (d) the FDIC, and, (e) any other applicable
state securities, banking and other governmental authorities having jurisdiction
over its business and that of its Subsidiaries (all such reports and statements
are collectively referred to herein as the "ValliCorp Reports"). As of their
respective dates, the ValliCorp Reports complied in all material respects with
all of the statutes, rules, and regulations enforced or promulgated by the
regulatory authority with which they were filed and did not contain any untrue
statement of a material fact or omit to state a 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; provided, that
information as of a later date shall be deemed to modify information as of any
earlier date.
(d) No financial statement or other document provided or to be
provided to Auburn as required by Section 6.3 hereof, as of the date of such
document, contained, or as to documents delivered after the date hereof, will
contain, any untrue statement of a material fact, or, at the date thereof,
omitted or will omit to state a material fact necessary in order to make the
statements contained therein, in light of the circumstances under which such
statements were or will be made, not misleading; provided, however, that
information as of a later date shall be deemed to modify information as of any
earlier date. All compliance or corrective action relating to ValliCorp or its
Subsidiaries required by governmental authorities and regulatory agencies having
jurisdiction over ValliCorp or its Subsidiaries has been taken. ValliCorp and
its Subsidiaries have received no notification, formally or informally, from any
agency or department of any federal, state or local government or any regulatory
agency or the staff thereof (A) asserting that ValliCorp or its Subsidiaries are
not in compliance with any of the statutes, regulations or ordinances which such
government or regulatory authority enforces, except as included in ordinary and
customary examination reports and which assertions of noncompliance are not
materially adverse to ValliCorp, or (B) threatening to revoke any license,
franchise, permit or governmental authorization of ValliCorp or its
Subsidiaries. Neither ValliCorp nor any of its Subsidiaries is subject to any
order, agreement, or written directive with any regulatory authority with
respect to its assets or business except for matters of general application.
ValliCorp and its Subsidiaries have paid all assessments made or imposed by any
governmental
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<PAGE>
agency. The financial records of ValliCorp have been, and are being and shall
be, maintained in all material respects in accordance with all applicable legal
and accounting requirements sufficient to insure that all transactions reflected
therein are, in all material respects, executed in accordance with management's
general or specific authorization and recorded in conformity with GAAP at the
time in effect.
4.5 Material Adverse Change. There has been no material adverse change in
-----------------------
the financial condition, results of operation or assets of ValliCorp and its
Subsidiaries from the financial conditions, results of operation or assets
indicated in the financial statements of ValliCorp and its Subsidiaries, taken
as a whole, at December 31, 1995.
4.6 Information Supplied. None of the information supplied or to be
--------------------
supplied by ValliCorp for inclusion or incorporation by reference in (a) the S-4
(or any other registration statement) will, at the time the S-4 (or any other
registration statement) is filed with the SEC and at the time it becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, (b) the Proxy Statement
will, at the date mailed to shareholders at the time of the meeting of Auburn
shareholders to be held in connection with the Merger, 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 are made, not misleading, and (c) any other
documents to be filed with the SEC, the Federal Reserve Board, the Banking
Superintendent, the Comptroller or any regulatory agency in connection with the
transactions contemplated hereby will, at the time of filing, contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The S-4 (or any other
registration statement) will comply as to form in all material respects with the
provisions of the Securities Act and the rules and regulations thereunder.
4.7 Authorizations; Compliance with Applicable Laws.
-----------------------------------------------
(a) ValliCorp and its Subsidiaries hold all authorizations, permits,
licenses, variances, exemptions, orders, and approvals of all Governmental
Entities which are material to the operations of the businesses of ValliCorp and
its Subsidiaries taken as a whole (the "ValliCorp Permits"). ValliCorp and its
Subsidiaries are in compliance with the terms of the ValliCorp Permits, except
where the failure so to comply would not have a material adverse effect on
ValliCorp and its Subsidiaries taken as a whole. Except as disclosed in the
ValliCorp Reports, the businesses of ValliCorp and its Subsidiaries are not
being conducted in violation of any Law, except for possible violations which
individually or in the aggregate do not and, insofar as
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reasonably can be foreseen, in the future will not, have a material adverse
effect on ValliCorp and its Subsidiaries taken as a whole. Except as set forth
in the ValliCorp Reports, no investigation or review by any Governmental Entity
with respect to ValliCorp or any of its Subsidiaries is pending or, to the
knowledge of ValliCorp, threatened, nor has any Governmental Entity indicated an
intention to conduct the same, other than, in each case, those the outcome of
which, as far as reasonably can be foreseen, will not have a material effect on
ValliCorp and its Subsidiaries taken as a whole.
(b) Except as set forth in the ValliCorp Disclosure Letter, to the
best of ValliCorp's knowledge, there are no properties in which ValliCorp or its
subsidiaries holds a security or contingent interest or purchase option, which
are the subject of any pending or threatened investigation, claim or proceeding
relating to the use, storage or disposal on such property of or contamination of
such property by any toxic or hazardous waste material or substance, except such
matters which in the aggregate will not have, and cannot reasonably be expected
to have, a material adverse effect on ValliCorp or ValliWide taken as a whole.
Except as set forth in the Disclosure Letter, and except such matters which in
the aggregate will not have, and cannot reasonably be expected to have, a
material adverse effect on ValliCorp or ValliWide taken as a whole, to the best
of ValliCorp's knowledge, neither ValliCorp nor its subsidiaries owns, possesses
or has a security or contingent interest or purchase option in any properties or
other assets which contain or have located within or thereon any hazardous or
toxic waste material or substance unless the location of such hazardous or toxic
waste material or other substance or its use thereon conforms in all material
respects with all federal, state and local laws, rules, regulations or other
provisions regulating the discharge of materials into the environment. As used
in this Agreement, toxic or hazardous waste means 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.
4.8 Litigation. Except as disclosed in the ValliCorp Reports, there is no
----------
suit, action, or proceeding pending or, to the knowledge of ValliCorp,
threatened against or affecting ValliCorp or any Subsidiary of ValliCorp which
is reasonably likely to have a material adverse effect on ValliCorp and its
Subsidiaries taken as a whole, nor is there any judgment, order, writ,
injunction, decree, or award of any Governmental Entity or arbitrator
outstanding against ValliCorp or any Subsidiary of ValliCorp having, or which,
insofar as reasonably can be foreseen, in the future could have, any such
effect.
4.9 Taxes.
-----
(a) ValliCorp and each of its Subsidiaries have filed all tax returns
required to be filed by them and have paid, or have set up an adequate reserve
for the payment of, all taxes required to be paid as shown in such returns, and
the most recent ValliCorp
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<PAGE>
financial statements contained in the ValliCorp Reports reflect an adequate
reserve for all taxes payable by ValliCorp and each of its Subsidiaries accrued
from the date of such financial statements. There are no liens or taxes upon the
assets of ValliCorp or any of its Subsidiaries, except for statutory liens for
taxes not yet delinquent or the validity of which is being contested in good
faith by appropriate proceedings and, in either case, only if adequate reserves
therefore have been established on ValliCorp's books. Except as disclosed in the
ValliCorp Disclosure Letter and except for any action, proceeding or claim as to
which the taxes sought do not exceed $100,000, neither ValliCorp nor any of its
Subsidiaries is a party to any action or proceeding by any governmental
authority for assessment and collection of taxes, and no claim for assessment
and collection of taxes has been asserted against any of them.
(b) ValliCorp has no plan or intention to reacquire any of its stock
issued in the transaction.
(c) ValliCorp has no plan or intention to sell or otherwise dispose
of any of the assets of Auburn acquired in the merger except for dispositions
made in the ordinary course of business and transfers to a subsidiary described
in Internal Revenue Code Section 368(a)(2)(C).
(d) Following the Merger, ValliCorp will continue the historic
business of Auburn, or will use a significant portion of Auburn's historic
business assets in a business.
(e) To ValliCorp's knowledge, as of the date hereof, thereof is no
intercorporate indebtedness existing between ValliCorp and Auburn, or their
subsidiaries, that was issued, acquired or will be settled at a discount.
(f) ValliCorp is not an investment company as defined in Internal
Revenue Code Section 368(a)(2)(F)(iii) and (iv).
4.10 Benefit Plans.
-------------
(a) The ValliCorp Disclosure Letter lists (i) each employee bonus,
incentive, deferred compensation, stock purchase, stock appreciation right,
stock option, and severance pay plan, (ii) each pension, profit sharing, stock
bonus, thrift, savings, and employee stock ownership plan, and (iii) every other
employee benefit plan (within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") (collectively
"Benefit Plans"), which ValliCorp or any of its Subsidiaries maintains or to
which ValliCorp or any of its Subsidiaries contributes on behalf of current or
former employees. Except as disclosed in the ValliCorp Disclosure Letter, all of
the plans and programs listed in the ValliCorp Disclosure Letter (collectively,
"ValliCorp Benefit Plans") comply in all material respects with all applicable
requirements of ERISA and all other applicable federal and state laws, including
without limitation the
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reporting and disclosure requirements of Part 1 of Title I of ERISA. Each of the
ValliCorp Benefit Plans that is intended to be a pension, profit sharing, stock
bonus, thrift, savings, or employee stock ownership plan that is qualified under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
has been determined by the IRS to qualify under Section 401(a) of the Code, or
an application for the determination of such qualification will be made to the
IRS prior to the end of the applicable remedial amendment period under Section
401(b) of the Code and the regulations thereunder, and there exist no
circumstances that would materially adversely affect the qualified status of any
such ValliCorp Benefit Plan under that section. Except as set forth in the
ValliCorp Disclosure Letter, each ValliCorp Benefit Plan that is a defined
benefit pension plan has assets with an aggregate value that exceeds the
actuarially determined present value of its liability for accrued benefits as
determined on the basis of the actuarial assumptions used for the most recent
actuarial valuation of such Plan, no such Plan has incurred an accumulated
funding deficiency within the meaning of Section 412(a) of the Code, and no such
Plan is a "multi-employer plan" within the meaning of Section 3(37) of ERISA.
Except as set forth in the ValliCorp Disclosure Letter, there is no pending or,
to the knowledge of ValliCorp, threatened litigation, governmental proceeding or
investigation against or relating to any ValliCorp Benefit Plan, and to the
knowledge of ValliCorp there is no reasonable basis for any material
proceedings, claims, actions, or proceedings, against any Plan. Except as set
forth in the ValliCorp Disclosure Letter, no "reportable event" (as defined in
Section 4043(b) of ERISA) has occurred with respect to any ValliCorp Benefit
Plan, and no ValliCorp Benefit Plan has engaged in a "prohibited transaction"
(as defined in Section 406 of ERISA and Section 4975(c) of the Code) since the
date on which said sections became applicable to such Plan which could
reasonably result in a material liability.
(b) ValliCorp has delivered to Auburn copies of (i) each ValliCorp
Benefit Plan, with the exception of employee bonus and incentive plans for those
other than the Executive Officers of ValliCorp, (ii) the most recent summary
plan descriptions of each ValliCorp Benefit Plan, (iii) each trust agreement,
insurance policy, or other instrument relating to the funding of any ValliCorp
Benefit Plan, (iv) the most recent Annual Reports (Form 5500 series) and
accompanying schedules filed with the IRS or United States Department of Labor
with respect to each ValliCorp Benefit Plan, (v) the most recent determination
letter issued by the IRS with respect to each ValliCorp Benefit Plan that is
intended to qualify under Section 401 of the Code, (vi) the most recent
available financial statements for each ValliCorp Benefit Plan that has assets,
(vii) the most recent actuarial report for any ValliCorp Benefit Plan that is a
defined benefit pension plan, and if any such Plan was amended subsequent to the
date of such report, information about the financial effects of such amendment,
and (viii) the most recent audited financial statements for each
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ValliCorp Benefit Plan for which audited financial statements are required by
ERISA.
(c) The ValliCorp Disclosure Letter describes briefly any obligation
that ValliCorp has to provide health and welfare benefits to retirees and other
former employees or their dependents (other than rights arising solely under
Section 601 of ERISA or Section 4980B of the Code).
4.11 Absence of Certain Changes or Events. Except as disclosed in the
------------------------------------
ValliCorp Reports or in the ValliCorp Disclosure Letter, and except as
contemplated by this Agreement and the Investment Agreement, from and after
January 1, 1996, and to the date of this Agreement: (a) ValliCorp and the
ValliCorp Subsidiaries have conducted their respective businesses only in the
ordinary and usual course consistent with past practice, (b) ValliCorp has not
declared, set aside, or paid any dividend or other distribution in respect to
any of ValliCorp's capital stock, except for the Rights Plan and regular
quarterly cash dividends of $.10 per share on ValliCorp Common Stock, with usual
record and payment dates for such dividends, (c) there has not been any
transaction, commitment, dispute, or other event or condition (financial or
otherwise) of any character (whether or not in the ordinary course of business)
individually or in the aggregate having or which, insofar as reasonably can be
foreseen, in the future is reasonably likely to have, a material adverse effect
on ValliCorp and its Subsidiaries taken as a whole and (d) there has not been
any material change in the method of accounting or accounting practices of
ValliCorp and its Subsidiaries.
4.12 Properties, Leases, and Other Agreements. Except as may be reflected
----------------------------------------
in the ValliCorp Financial Statements, for any lien for current taxes not yet
delinquent, for pledges to secure deposits and for such other liens, security
interests, claims, charges, options, or other encumbrances and imperfections of
title which do not materially affect the value of personal or real property
reflected in the ValliCorp Financial Statements or acquired since the date of
such Statements and which do not materially interfere with or impair the present
and continued use of such property, ValliCorp and its Subsidiaries have good
title, free and clear of any liens, security interests, claims, charges,
options, or other encumbrances to all of the personal and real property
reflected in the ValliCorp Financial Statements, and all personal and real
property acquired since the date of such Statements, except such personal and
real property as has been disposed of in the ordinary course of business. All
leases material to ValliCorp and its Subsidiaries pursuant to which ValliCorp or
any of its Subsidiaries, as lessee, leases real or personal property are valid
and effective in accordance with their respective terms and there is not, under
any of such leases, any material existing default by ValliCorp, its Subsidiaries
or, to the best knowledge of ValliCorp, any other party thereto, or any event
with notice or lapse of time or both would constitute such a material default.
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4.13 Tax Matters. To the knowledge of ValliCorp, neither ValliCorp nor
-----------
any of its affiliates has through the date hereof taken or agreed to take any
action that would prevent the Merger from qualifying as a tax-free
reorganization under the Code.
4.14 Accuracy of Representations and Warranties. No representation or
------------------------------------------
warranty by ValliCorp and no statement by ValliCorp in any certificate,
agreement, schedule or other document furnished in connection with the
transactions contemplated by this Agreement contains or will contain any untrue
statement of material fact or omits or will omit to state any material fact
necessary to make such representation, warranty or statement not misleading to
Auburn; provided, however, that information as of a later date shall be deemed
to modify information as of an earlier date.
ARTICLE 5
COVENANTS OF AUBURN
5.1 Affirmative Covenants. Auburn hereby covenants and agrees with
---------------------
ValliCorp that prior to the Effective Time, unless the prior written consent of
ValliCorp shall have been obtained and except as otherwise contemplated herein,
it will and it will cause TBOC to:
(a) operate its business only in the usual, regular, and ordinary
course consistent with past practices;
(b) use best efforts to (i) preserve intact its business organization
and assets, maintain its rights and franchises, (ii) retain the services of its
officers and key employees (except that it shall have the right to terminate the
employment of any officer or key employee in accordance with established
employment procedures), (iii) maintain its relationships with customers; and
(iv) cause its employees to operate fully with ValliCorp in its evaluation of
the business, services, personnel, policies and systems of Auburn and TBOC with
a view to implementing their integration into the business, policies and systems
of ValliCorp and ValliWide upon the occurrence of the Merger;
(c) use reasonable efforts to maintain and keep its properties in as
good repair and condition as at present, except for depreciation due to ordinary
wear and tear;
(d) use best efforts to keep in full force and effect insurance and
bonds comparable in amount and scope of coverage to that now maintained by it;
provided, however, that Auburn and TBOC shall not maintain existing insurance
policies and/or liabilities at an aggregate annual premium cost equal to or in
excess of one hundred twenty-five percent (125%) of the current annual premiums
paid by Auburn and TBOC on its existing policies.
(e) perform in all material respects all obligations required to be
performed by it under all material contracts,
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leases, and documents relating to or affecting its assets, properties, and
business; and,
(f) comply with and perform in all material respects all obligations
and duties imposed upon it by all Laws.
5.2 Negative Covenants. Except as specifically contemplated by this
------------------
Agreement, from the date hereof until the Effective Time, Auburn shall not do,
or permit TBOC to do, without the prior written consent of ValliCorp (which
consent shall not be unreasonably withheld and which consent shall be deemed
granted if within five (5) business days of ValliCorp's receipt of written
notice of a request for prior written consent, written notice of objection is
not received by Auburn), any of the following:
(a) incur any material liabilities or material obligations, whether
directly or by way of guaranty, including any obligation for borrowed money
whether or not evidenced by a note, bond, debenture, or similar instrument,
except in the ordinary course of business consistent with past practice;
(b) (i) grant any increase in compensation to its employees as a
class, or to its officers or directors, or pay any bonuses or other incentive
compensation, other than in each case in the ordinary course consistent with
past practices (which in no event will include any retroactive increase), not to
exceed increases of five percent (5%) per year over the past year's compensation
for any director or five percent (5%) per year over the past year's compensation
for any officer or employee, (ii) effect any change in retirement benefits to
any class of employees or officers (unless any such change shall be required by
applicable law) which would increase its retirement benefit liabilities, except
as contemplated under this Agreement, (iii) adopt, enter into, amend, modify or
make any contribution to any Auburn Benefit Plan, except as (A) contemplated
under this Agreement, (B) as required by law, or (C) matching contributions to
Auburn's 401(K) Plan not to exceed $25,000.00 in the aggregate, (iv) act to
accelerate the vesting of any options under the Auburn Stock Plans, (v) make any
amendment to, or grants of options under, the Auburn Stock Plans, except as
contemplated under this Agreement, or (vi) enter into or amend any employment,
severance, or similar agreements or arrangements with any directors or officers.
(c) declare or pay any dividend on, or make any other distribution in
respect of, its outstanding shares of capital stock, except for its regular
annual cash dividend.
(d) (i) redeem, purchase, or otherwise acquire any shares of its
capital stock or any securities or obligations convertible into or exchangeable
for any shares of its capital stock, or any options, warrants, conversion or
other rights to acquire any shares of its capital stock or any such securities
or obligations; (ii) subject to the continuing fiduciary duty of the Board of
Directors of Auburn to the shareholders of Auburn, merge
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with or into any other corporation or bank, permit any other corporation or bank
to merge into it or consolidate with any other corporation or bank, or effect
any reorganization or recapitalization; (iii) purchase or otherwise acquire any
portion of the assets, or any class of stock of any corporation, bank, or other
business other than in connection with the liquidation in the ordinary course of
business of collateral for a loan; (iv) subject to the continuing fiduciary duty
of the Board of Directors of Auburn to the shareholders of Auburn, liquidate,
sell, dispose of, or encumber any assets or acquire any assets, other than in
the ordinary course of its business consistent with past practice; or, (v)
split, combine, or reclassify any of its capital stock or issue or authorize or
propose the issuance of any other securities in respect of, in lieu of, or in
substitution for shares of its capital stock;
(e) issue, deliver, award, grant, or sell, or authorize or propose
the issuance, delivery, award, grant, or sale of, any shares of its capital
stock of any class (including shares held in treasury), any Voting Debt or any
securities convertible into, or any rights, warrants, or options to acquire, any
such shares, Voting Debt, or convertible securities, other than (i) the issuance
of Auburn Common Stock pursuant to the Auburn Stock Plans in accordance with
their present terms, and (ii) issuance by TBOC of its capital stock to Auburn;
(f) 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 it or any of its Subsidiaries to take any such
action, and Auburn shall promptly notify ValliCorp orally and in writing of all
of the relevant details 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 Auburn or
TBOC: any merger, consolidation, share exchange or other business combination; a
sale, lease, exchange, mortgage, pledge, transfer or other disposition of a
substantial portion of assets; 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); a tender offer or
exchange offer for at least ten percent (10%) of the outstanding shares; a
solicitation of proxies in opposition to approval of the Merger by Auburn's
shareholders; or a public announcement of a bona fide proposal, plan, or
---------
intention to do any of the foregoing. Notwithstanding any other provision in
this Section 5.2(f) or elsewhere in this Agreement, the obligations of Auburn in
this Agreement are subject to the continuing fiduciary
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duties of the Board of Directors of Auburn to the shareholders of Auburn. In the
event the Board of Directors of Auburn 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 shareholders of
Auburn, 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 ValliCorp to terminate this Agreement pursuant to
Section 10.1(d) and in no event shall this sentence or the previous sentence
operate to excuse or modify the obligations of Auburn under Section 5.7 or
Section 5.10 hereof or the Investment Agreement.
(g) propose or adopt any amendments to its corporate charter or
bylaws in any way adverse to ValliCorp;
(h) authorize, recommend, propose, or announce an intention to
authorize, recommend, or propose, or enter into an agreement in principle with
respect to any acquisition of a material amount of assets or securities or any
release or relinquishment of any material contract rights not in the ordinary
course of business;
(i) except in their fiduciary capacities, purchase any shares of
ValliCorp Common Stock;
(j) change any of its methods of accounting in effect at December 31,
1995, or change any of its methods of reporting income or deductions for federal
income tax purposes from those employed in the preparation of the federal income
tax returns for the taxable year ending December 31, 1995, except as may be
required by law or generally accepted accounting principles (including, but not
limited to, implementation of FASB 114) or by the remainder of this Section
5.0(f). Prior to the Closing, Auburn shall review and during the Modification
Interval described in the penultimate sentence of this Section 5.0(f), to the
extent determined necessary or advisable, consistent with generally accepted
accounting principles ("GAAP") and the accounting rules, regulations, and
interpretations of the Securities and Exchange Commission ("SEC") and its staff,
modify and change its loan, accrual, and reserve policies and practices
(including loan classification and levels of reserves and accruals) to (i)
reflect ValliCorp's plans with respect to the conduct of Auburn's business
following the Merger, and (ii) make adequate provision for the costs and
expenses relating thereto so as to be applied consistently on a mutually
satisfactory basis with those of ValliCorp. During such Modification Interval,
Auburn also will adjust loan loss and OREO reserves as may be appropriate,
consistent with GAAP and the accounting rules, regulations, and interpretations
of the SEC and its staff. The parties agree to cooperate in preparing for the
implementation of the adjustments
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contemplated by this Section 5.0(f). The term "Modification Interval" shall mean
the period of time ending the day before the day of the Effective Time and
beginning on the day of the later to occur of approval of the Merger Agreement
by the shareholders of Auburn and obtaining the last necessary approval from a
regulator. Notwithstanding the foregoing, Auburn shall not be obligated to take
in any respect any such action pursuant to this Section 5.2(j) (other than
pursuant to the second immediately preceding sentence above) unless and until
ValliCorp acknowledges that all conditions to its obligations to consummate the
Merger have been satisfied.
(k) take action which would or is reasonably likely to (i) adversely
affect the ability of either of ValliCorp or Auburn to obtain any necessary
approvals of governmental authorities required for the transactions contemplated
hereby; (ii) adversely affect Auburn's ability to perform its covenants and
agreements under this Agreement; or (iii) result in any of the conditions to the
Merger set forth in Article 8 not being satisfied or in a violation of any
provision of the Investment Agreement;
(l) change the lending, investment, liability management and other
material policies concerning the banking business of Auburn and TBOC, unless
required by Law or order or unless such change does not cause a materially
adverse effect on Auburn and TBOC;
(m) make any capital expenditure in excess of $25,000, in the
aggregate, except for ordinary repairs and replacement;
(n) incur any obligation under or enter into or extend any lease (i)
under which Auburn or TBOC is the lessee or the lessor and which provides for an
annual payment obligation of more that $25,000, or (ii) under which Auburn or
TBOC is the lessor which is not consistent with commercially reasonable
practices;
(o) make any material expenditures, whether for operating expenses or
otherwise, other than in the ordinary course consistent with past practice; or
(p) agree in writing or otherwise to do any of the foregoing.
5.3 Access and Information. Upon reasonable notice, Auburn shall (and
----------------------
shall cause TBOC to) afford to ValliCorp officers, employees, accountants,
counsel, and other representatives, access, during normal business hours during
the period prior to the Effective Time, to all its properties, books, contracts,
commitments, and records. During such period, Auburn shall (and shall cause
TBOC to) furnish promptly to ValliCorp (a) a copy of each Auburn Report filed or
received by it during such period pursuant to the requirements of federal
securities laws promptly after such documents are available, (b) the monthly
financial statements of Auburn and TBOC (as prepared by Auburn in accordance
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with its normal accounting procedures) promptly after such financial statements
are available, (c) a summary of any action taken by the Board of Directors, or
any committee thereof, of Auburn, and (d) all other information concerning its
business, properties, and personnel as ValliCorp may reasonably request. Unless
otherwise required by law, the parties will hold any such information which is
nonpublic in confidence until such time as such information otherwise becomes
publicly available through no wrongful act of either party, and in the event of
termination of this Agreement for any reason each party shall promptly return
all nonpublic documents obtained from any other party, and any copies made of
such documents, to such other party or destroy such documents and copies.
Notwithstanding the foregoing provisions of this Section 5.3, neither Auburn nor
TBOC shall be required to grant access or furnish information to ValliCorp to
the extent that such access or the furnishing of such information is prohibited
by law; provided that Auburn shall take or cause TBOC to take all appropriate
actions to permit ValliCorp to review regulatory examination reports concerning
Auburn and TBOC.
5.4 Update Disclosure; Breaches.
---------------------------
(a) From and after the date hereof until the Effective Time, Auburn
shall update the Auburn Disclosure Letter on a monthly basis (to the extent that
changes thereto are necessary) by notice to ValliCorp to reflect any matters
which have occurred from and after the date hereof which, if existing on the
date hereof, would have been required to be described therein; provided,
however, that no such update shall affect the conditions to the obligation of
ValliCorp to consummate the transactions contemplated hereby, and any and all
changes contained in any such update shall be considered in determining whether
the conditions to the obligation of ValliCorp to consummate the transactions
hereunder have been satisfied; provided further that, without limiting
ValliCorp's rights under Section 5.3, to the extent that any information that
would be required to be included in an update under this Section 5.4(a) has in
the past been contained in internal reports prepared by Auburn or TBOC in the
ordinary course, such update may occur at the time such information becomes
available in such internal reports prepared in accordance with past practice.
(b) Auburn shall, in the event it becomes aware of the impending or
threatened occurrence of any event or condition which would cause or constitute
a breach (or would have caused or constituted a breach had such event occurred
or been known prior to the date hereof) of any of its representations or
agreements contained or referred to herein, give prompt written notice thereof
to ValliCorp and use its best efforts to prevent or promptly remedy the same.
5.5 Affiliates; Tax Treatment. At least forty (40) days prior to the
-------------------------
Closing Date, (a) Auburn shall deliver to ValliCorp a letter identifying all
persons who are then "affiliates" of Auburn
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for purposes of Rule 145 under the Securities Act, and (b) Auburn shall advise
the persons identified in such letter of the resale restrictions imposed by
applicable securities laws and shall use reasonable efforts to obtain from each
person identified in such letter a written agreement, substantially in the form
attached as Exhibit 5.5 hereto. Auburn shall use reasonable efforts to obtain
from any person who becomes an affiliate of Auburn after Auburn's delivery of
the letter referred to above, and on or prior to the Closing Date, a written
agreement substantially in the form attached as Exhibit 5.5 hereto as soon as
practicable after attaining such status. Auburn will use its best efforts to
cause the Merger to qualify as a tax-free reorganization under the Code.
5.6 Dissent Process. Auburn will give to ValliCorp prompt notice of its
---------------
receipt of any written notice relating to the exercise of dissenters' rights
granted under the California Corporations Code, including the name of the
dissenting shareholder and the number of shares of Auburn Common Stock to which
the dissent relates. ValliCorp will have the right to participate in all
negotiations and proceedings with Auburn shareholders relating to any such
notice or the exercise of such rights, and except as required by law, Auburn
will not make any payment with respect to, or settle or offer to settle, any
dissent demands without the prior written consent of ValliCorp.
5.7 Expenses.
--------
(a) Auburn hereby agrees that (i) if this Agreement or the
transactions contemplated hereby are terminated, other than pursuant to (1) a
termination by Auburn pursuant to Section 10.1(b), (2) a termination by either
party pursuant to Section 10.1(c) or Section 10.1(f), (3) a termination by
mutual consent pursuant to Section 10.1(a), or (4) a termination pursuant to
Section 10.1(e) in which (A) the denial has been issued by the Board of
Governors of the Federal Reserve System, (B) the reasons for such denial do not
include a reason attributable to or relating to actions taken by Auburn or TBOC,
or attributable to the business or operations of Auburn or TBOC, and (C) at the
time of such termination, a Competing Transaction shall not have occurred, or
(ii) if this Agreement or the transaction contemplated hereby are terminated and
an event described in Section 2 of the Investment Agreement has occurred, then
Auburn shall promptly (and in any event within two days after such termination)
pay ValliCorp all Expenses (as defined in Section 5.7(d) hereof) of ValliCorp,
but not to exceed $500,000.
(b) Auburn hereby agrees that if it shall not have obtained the
approvals of this Agreement by the holders of at least a majority of the
outstanding shares of Auburn Common Stock by August 1, 1996, then Auburn shall
promptly (and in any event within two (2) days after such termination) pay
ValliCorp all of its Expenses, but not to exceed $250,000, provided that if
Auburn fails to obtain such shareholder approvals due to reasons beyond the
control of Auburn, such as but not limited to the situation where
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the S-4 Registration Statement is not declared effective by the SEC in
reasonable time for shareholders of Auburn to receive the related proxy
materials and return the proxies, then Auburn shall not have to pay such
Expenses.
(c) Except as otherwise provided herein, all Expenses incurred by
ValliCorp or TBOC and Auburn in connection with or related to the authorization,
preparation and execution of this Agreement, the Investment 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, ValliCorp shall be solely responsible
for all fees payable pursuant to state securities laws, fees related to
obtaining a revenue ruling or tax opinion and the fee required to be paid to the
Commission to register the ValliCorp Common Stock.
(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.
5.8 Delivery of Shareholder List. Auburn shall arrange to have its
----------------------------
transfer agent deliver to ValliCorp or its designee, from time to time prior to
the Closing Date, a true and complete list setting forth the names and addresses
of the Auburn shareholders, their holdings of stock as of the latest practicable
date, and such other shareholder information as ValliCorp may reasonably
request.
5.9 Employees; Directors.
--------------------
(a) Auburn shall cooperate and cause TBOC to cooperate with ValliCorp
in ValliCorp's evaluation of the employees of Auburn and TBOC and in
preparation, dependent upon consummation of the Merger, for implementation of
ValliCorp's employment policies and practices; provided that neither Auburn nor
TBOC shall have any obligation hereunder to terminate the employment of any of
their respective employees prior to or effective upon the consummation of the
Merger.
(b) Auburn shall cause all of its directors and directors of TBOC to
submit their resignations as directors effective as of the date of the Effective
Date.
(c) Effective as of the Effective Time, Auburn employees who become
ValliCorp or ValliWide employees by virtue of the Merger will be covered by any
severance program then maintained by ValliCorp for its employees generally, to
the same extent as
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<PAGE>
such program applies to all ValliCorp employees, and will be credited for their
years of service with Auburn or TBOC with respect to such severance program;
provided that coverage of such Auburn employees will be subject to all the terms
of such severance program, and ValliCorp may modify or eliminate such severance
program at any time following the date six (6) months after the Effective Time.
The material provisions of the current ValliCorp severance program have been
provided to Auburn.
5.10 Competing Transaction Fee. As an inducement to ValliCorp to enter
-------------------------
into this Agreement, Auburn shall pay or cause the third party to any Competing
Transaction with Auburn consummated by December 31, 1997 to pay to ValliCorp the
sum of $1,000,000 promptly upon the consummation of such Competing Transaction,
which sum represents (i) ValliCorp's direct costs and expenses (including, but
not limited to, fees and expenses of financial or other consultants, printing
costs, accountants, and counsel) incurred in negotiating and undertaking to
carry out the transactions contemplated by this Agreement, including ValliCorp's
management time devoted to negotiation and preparation for the transactions
contemplated by this Agreement; (ii) ValliCorp's indirect costs and expenses
incurred in connection with the transactions contemplated by this Agreement; and
(iii) ValliCorp's loss as a result of the transactions contemplated by this
Agreement not being consummated. Payment of such amount under this Section 5.10
shall also discharge the obligations of Auburn under Section 5.7 hereof.
ARTICLE
COVENANTS OF VALLICORP
6.1 Affirmative Covenants. ValliCorp hereby covenants and agrees with
---------------------
Auburn that prior to the Effective Time, unless the prior written consent of
Auburn shall have been obtained and except as otherwise contemplated herein, it
will:
(a) maintain its corporate existence in good standing and maintain
all books and records in accordance with accounting principles and practices as
utilized in the ValliCorp Financial Statements applied on a consistent basis;
and
(b) conduct its business in a manner that does not violate any Law,
except for possible violations which individually or in the aggregate do not,
and, insofar as reasonably can be foreseen, in the future will not, have a
material adverse effect on ValliCorp and its subsidiaries taken as a whole.
6.2 Negative Covenants. Except as specifically contemplated by this
------------------
Agreement, from the date hereof until the Effective Time, ValliCorp shall not
do, or agree or commit to do, or permit any of its Subsidiaries to do, without
the prior written consent of Auburn, any of the following:
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(a) take action which would or is reasonably likely to (i) adversely
affect the ability of either of ValliCorp or Auburn to obtain any necessary
approvals of governmental authorities required for the transactions contemplated
hereby; (ii) adversely affect ValliCorp's ability to perform its covenants and
agreements under this Agreement; or (iii) result in any of the conditions to the
Merger set forth in Article 8 not being satisfied; or
(b) agree in writing or otherwise to do any of the foregoing.
6.3 Access and Information. After the date hereof and prior to the
----------------------
Closing Date, upon reasonable notice, ValliCorp shall (and shall cause each of
its respective Subsidiaries to) afford to the officers, employees, accountants,
counsel and other representatives of Auburn, access, during normal business
hours to all its properties, books, contracts, commitments and records. During
the period prior to the Effective Time, ValliCorp shall (and shall cause each of
its respective Subsidiaries to) furnish promptly to Auburn (a) a copy of each
ValliCorp Report filed by it during such period (i) pursuant to the requirements
of federal securities laws, or (ii) that relates to any of its Subsidiaries and
is filed with the Federal Reserve Board, the FDIC or state securities banking or
other governmental authorities, promptly after such documents are available, and
(b) all other information concerning its business, properties and personnel as
Auburn may reasonably request. Unless otherwise required by law, the parties
will hold any such information which is nonpublic in confidence until such time
as such information otherwise becomes publicly available through no wrongful act
of either party, and in the event of termination of this Agreement for any
reason Auburn shall promptly return all nonpublic documents obtained from
ValliCorp, and any copies made of such documents, to ValliCorp or destroy such
documents or copies.
6.4 Update Disclosure. From and after the date hereof until the Effective
-----------------
Time, ValliCorp shall update the ValliCorp Disclosure Letter on a monthly basis
(to the extent that changes thereto are necessary) by notice to Auburn to
reflect any matters which have occurred from and after the date hereof which, if
existing on the date hereof, would have been required to be described therein as
required by Sections 4.9(a); provided, however, that no such update shall affect
the condition to the obligation of Auburn to consummate the transactions
contemplated hereby, and any and all changes contained in any such update shall
be considered in determining whether the conditions to the obligation of Auburn
to consummate the transactions hereunder have been satisfied; provided further
that, without limiting Auburn's rights under Section 6.3, to the extent that any
information that would be required to be included in an update under this
Section 6.4 has in the past been contained in internal reports prepared by
ValliCorp in the ordinary course, such update may occur at the time
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<PAGE>
such information becomes available in such internal reports prepared in
accordance with past practice.
6.5 Breaches. ValliCorp shall, in the event it becomes aware of the
--------
impending or threatened occurrence of any event or condition which would cause
or constitute a breach (or would have caused or constituted a breach had such
event occurred or been known prior to the date hereof) of any of its
representations or agreements contained or referred to herein, give prompt
written notice thereof to Auburn and use its best efforts to prevent or promptly
remedy the same.
6.6 NASDAQ Listing. ValliCorp shall use all reasonable efforts to cause
--------------
the shares of ValliCorp Common Stock to be issued in the Merger to be approved
for listing on the National Association of Security Dealers Automatic Quotation
("NASDAQ") System prior to the Closing Date.
6.7 Indemnification.
---------------
(a) ValliCorp agrees that all rights to indemnification or
exculpation now existing in favor of the directors, officers, employees and
agents of Auburn and TBOC as provided in their respective charters, by-laws,
indemnification agreements or otherwise in effect as of the date hereof with
respect to matters occurring prior to the Effective Time shall survive the
Merger and shall continue in full force and effect. If ValliCorp or any of its
successors or assigns (i) shall consolidate with or merge into any other
corporation or entity and shall be the continuing or surviving corporation or
entity of such consolidation or merger or (ii) shall transfer all or
substantially all of its properties and assets to any individual, corporation or
other entity, then, and in each such case, proper provision shall be made so
that the successors and assigns of ValliCorp shall assume the obligations set
forth in this Section 6.7.
(b) For a period of four (4) years after the Effective Time,
ValliCorp shall maintain in effect the current policies of directors' and
officers' liability insurance maintained by Auburn (provided that ValliCorp may
substitute therefor policies of at least the same coverage and amounts
containing terms and conditions which are no less advantageous to the
beneficiaries thereof) covering the parties covered thereby with respect to
claims arising from facts or events which occurred before the Effective Time;
provided, however, that ValliCorp shall not be obligated to make annual premium
- -------- -------
payments for such insurance to the extent such premiums exceed 200% of the
premiums paid as of the date hereof by Auburn for such insurance.
(c) The provisions of this Section 6.7 are intended to be for the
benefit of, and shall be enforceable by, each of the present and former
officers, directors and employees of Auburn and TBOC (each, an "Indemnified
Party"), and each Indemnified Party's heirs and representatives.
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6.8 Tax Treatment. ValliCorp will use its best efforts to cause the
-------------
Merger to qualify as a tax-free reorganization under the Code.
6.9 Business Combinations. ValliCorp shall not accept any offer from any
---------------------
third party regarding a ValliCorp Business Combination of ValliCorp with any
other entity unless such offer is expressly conditioned upon the performance by
ValliCorp or its successor in interest of ValliCorp's obligations under this
Agreement. In the event ValliCorp or its successor in interest (deemed for
purposes of this Section 6.9 to include a third party which consummates a
ValliCorp Business Combination) fails to comply with the provisions of this
Section 6.9, Auburn shall be entitled to terminate this Agreement without any
liability to ValliCorp or its successor-in-interest or any agent thereof
pursuant to Section 10.1(f). Upon such a termination by Auburn, ValliCorp or its
successor-in-interest shall pay to Auburn, on demand, the sum of $1,000,000.00.
As used in this Agreement, "ValliCorp Business Combination" shall mean any
tender or exchange offer, a proposal for a merger, consolidation or other
takeover proposal involving any party hereto (except as explicitly contemplated
in this Agreement) or any offer or proposal to acquire in any manner a
substantial equity interest in, or a substantial portion of any party hereto
other than transactions contemplated hereunder.
6.10 Expenses.
--------
(a) ValliCorp hereby agrees that (i) if this Agreement or the
transactions contemplated hereby are terminated, other than pursuant to (1) a
termination by ValliCorp pursuant to Section 10.1(d) or Section 10.1(d), (2) a
termination by either party pursuant to Section 10.1(c) or Section 10.1(f), (3)
a termination by mutual consent pursuant to Section 10.1(a), or (4) a
termination pursuant to Section 10.1(e) in which (A) the denial has been issued
by the Board of Governors of the Federal Reserve System, and (B) the reasons for
such denial do not include a reason attributable to or relating to actions taken
by ValliCorp or ValliWide, or attributable to the business or operations of
ValliCorp or ValliWide, then ValliCorp shall promptly (and in any event within
two days after such termination) pay Auburn all Expenses of Auburn, but not to
exceed $500,000.00.
6.11 ValliCorp Board. Promptly after the Effective Time, ValliCorp shall
---------------
cause the number of directors on its Board of Directors to be increased by one
and the vacancy thus created to be filled by the election of one person who is a
director of Auburn on the date hereof, who is mutually acceptable to Auburn and
ValliCorp. Within the limits of ValliCorp's charter and bylaws and the Delaware
Act, such person shall hold the longest term of office possible at the time of
his election.
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ARTICLE 7
ADDITIONAL AGREEMENTS
7.1 Reservation, Issuance and Registration of ValliCorp Common Stock.
----------------------------------------------------------------
ValliCorp shall reserve and make available for issuance in connection with the
Merger and in accordance with the terms of this Agreement (i) the ValliCorp
Common Stock; and (ii) the maximum number of shares of common stock of ValliCorp
to which the option holders of Auburn may be entitled pursuant to Section 7.10
hereof at or after the Effective Time. All ValliCorp Common Stock (including
shares issued upon exercise of options by Option Holders (as hereinafter
defined)) will, when issued and delivered pursuant to and in accordance with the
terms of this Agreement, be duly authorized, validly issued, fully paid and
nonassessable. ValliCorp shall file and cause to be declared effective pursuant
to the Securities Act one or more registration statements covering all such
shares and shall cause all such shares to be issued in compliance with the
Securities Act and in compliance with all applicable state securities laws and
regulations.
7.2 Preparation of S-4 and the Proxy Statement. Auburn shall promptly
------------------------------------------
prepare the Proxy Statement, and ValliCorp shall promptly prepare and file with
the SEC the S-4, in which the Proxy Statement will be included. ValliCorp shall
cause the shares of ValliCorp Common Stock covered by the S-4 to be issued in
compliance with the Securities Act of 1933, as amended (the "1933 Act"). Each of
ValliCorp and Auburn shall use its best efforts to have the S-4 declared
effective under the Securities Act as promptly as practicable after such filing.
ValliCorp shall also take any action (other than qualifying to do business in
any jurisdiction in which it is now not so qualified) required to be taken under
any applicable state securities laws in connection with the issuance of
ValliCorp Common Stock in the Merger, and Auburn shall furnish all information
concerning Auburn and the holders of Auburn Common Stock as may be reasonably
requested in connection with any such action.
7.3 Auburn Shareholder Meeting.
--------------------------
(a) Auburn shall call a meeting of its shareholders to be held as
promptly as practicable for the purpose of voting upon this Agreement.
(b) Auburn will, through its Board of Directors, subject to the
continuing fiduciary duty of the Board of Directors of Auburn to the
shareholders of Auburn (i) unanimously recommend to its shareholders approval of
such matters, (ii) not withdraw, modify or amend such recommendations, and (iii)
use its best efforts to obtain such shareholder approval. Auburn shall
coordinate and cooperate with ValliCorp with respect to the timing of such
meeting and shall use its best efforts to hold such meeting as soon as
practicable after the date hereof. Auburn shall not submit any other matter for
approval of its shareholders at such
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meeting (except for election of directors, ratification of the appointment of
independent auditors and other incidental matters).
7.4 Legal Conditions to Merger. Each of ValliCorp and Auburn will take
--------------------------
all reasonable actions necessary to comply promptly with all legal requirements
which may be imposed on itself with respect to the Merger (including furnishing
all information required by the Federal Reserve Board or in connection with
approvals of or filings with any other Governmental Entity) and will promptly
cooperate with and furnish information to each other in connection with any such
requirements imposed upon any of them or any of their Subsidiaries in connection
with the Merger. Each of ValliCorp and Auburn will, and will cause its
Subsidiaries to, subject to the continuing fiduciary duty of the Board of
Directors of Auburn to the shareholders of Auburn, take in a prompt manner all
reasonable actions necessary to obtain (and will cooperate with each other in
obtaining) any agreements, consent, authorization, order or approval of, or any
exemption by, any Governmental Entity or other public or private third party,
required to be obtained or made by ValliCorp, Auburn or any of their
Subsidiaries in connection with the Merger or the taking of any action
contemplated thereby or by this Agreement. The obligation to take all reasonable
actions shall not be construed as including an obligation to accept any terms of
or conditions to an agreement, consent, authorization, order or approval of, or
any exemption by, any party that are not customarily contained in approvals of
similar transactions granted by such regulators or if ValliCorp in good faith
determines that such terms or conditions would have a material adverse effect on
its business or financial condition or would materially detract from the value
of Auburn to ValliCorp. In the event of a restraining order or injunction which
prevents the Closing by reason of the operation of Section 8.1(d), Auburn,
ValliCorp and TBOC shall use their respective best efforts to cause such order
or injunction to be lifted and the Closing consummated as soon as reasonably
practicable.
7.5 Reports.
-------
(a) Prior to the Effective Time, (i) Auburn shall prepare and file
as and when required all Auburn Reports, and (ii) ValliCorp shall prepare and
file as and when required all ValliCorp Reports.
(b) Auburn and ValliCorp shall prepare such Auburn Reports and
ValliCorp Reports, respectively, such that (i) they comply in all material
respects with all of the statutes, rules and regulations enforced or promulgated
by the regulatory authority with which they are filed and do not contain any
untrue statement of a material fact or omit to state a 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, and (ii) with
respect to any Auburn Reports or ValliCorp Reports containing financial
information of the type included in the Auburn Financial Statements or the
ValliCorp Financial Statements, respectively, the financial information (1) is
prepared in accordance with generally accepted accounting principles and
practices as utilized in the Auburn Financial Statements or the ValliCorp
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Financial Statements, as the case may be, applied on a consistent basis (except
as stated therein or in the notes thereto), (2) presents fairly the consolidated
financial condition of Auburn or ValliCorp, as the case may be, at the dates,
and the consolidated results of operations and cash flows for the periods,
stated therein, and (3) in the case of interim fiscal periods, reflects all
adjustments, consisting only of normal recurring items, subject to year-end
audit adjustments.
7.6 Brokers or Finders. Each of ValliCorp and Auburn represents, as to
------------------
itself, its Subsidiaries and its affiliates, that no agent, broker, investment
banker, financial advisor or other firm or person is or will be entitled to any
broker's or finder's fee or any other commission or similar fee in connection
with any of the transactions contemplated by this Agreement, except The Findley
Group, whose fees and expenses will be paid at the Closing Date by Auburn in
accordance with Auburn's agreement with such firm (a copy of which has been
delivered by Auburn to ValliCorp prior to the date of this Agreement), and each
of ValliCorp and Auburn respectively agree to indemnify and hold the other
harmless from and against any and all claims, liabilities or obligations with
respect to any other fees, commissions or expenses asserted by any person on the
basis of any act or statement alleged to have been made by such party or its
affiliate.
7.7 Additional Agreements; Reasonable Efforts. Subject to the terms and
-----------------------------------------
conditions of this Agreement, and subject to the continuing fiduciary duty of
the Board of Directors of Auburn to the shareholders of Auburn, each of the
parties hereto agrees to use all reasonable efforts to take, or cause to be
taken, all action and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement, subject to the
appropriate vote of the shareholders of Auburn and ValliCorp, if required,
described in Section 8.1(a), including cooperating fully with the other party.
In case at any time after the Effective Time any further action is reasonably
necessary or desirable to carry out the purposes of this Agreement or to vest
ValliCorp with full title to all properties, assets, rights, approvals,
immunities and franchises of Auburn, the proper officers and directors of each
party to this Agreement shall take all such necessary action.
7.8 Merger of TBOC and ValliWide. The parties agree to use their
----------------------------
reasonable efforts between the date of this Agreement and the Closing to take
all actions necessary or desirable, including the filing of any regulatory
applications, so that the merger of TBOC with and into ValliWide will occur
substantially concurrently with, or as soon as practicable after, the Effective
Time. A copy of the Agreement of Merger of TBOC with and into ValliWide is
attached hereto as Exhibit 7.8.
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7.9 Attendance at Meetings; Reports. Auburn shall give ValliCorp timely
-------------------------------
notice of, and all financial and other data given to directors in connection
with, and ValliCorp shall be entitled to send a representative as an observer
to, all meetings of the Board of Directors and all major committees (including,
without limitation, executive, loan, personnel, and audit committees) of Auburn
and TBOC; provided, however, such representative shall excuse himself or herself
at the request of Auburn or TBOC.
7.10 Stock Options.
-------------
(a) At and as of the Effective Time, ValliCorp shall assume each
and every outstanding option to purchase shares of Auburn Common Stock ("Auburn
Stock Option") and all obligations of Auburn under the Auburn Stock Plans. Each
and every Auburn Stock Option so assumed by ValliCorp under this Agreement shall
continue to have, and be subject to, the same terms and conditions set forth in
the Auburn Stock Plans and in the other documents governing such Auburn Stock
Option immediately prior to the Effective Time, except that: (i) Such Auburn
Stock Option shall be exercisable for that number of whole shares of ValliCorp
Common Stock equal to the product of (A) the number of shares of Auburn Common
Stock that were purchasable under such Auburn Stock Option immediately prior to
the Effective Time multiplied by (B) the Conversion Ratio, rounded down to the
nearest whole number of shares of ValliCorp Common Stock; and (ii) The per share
exercise price for the shares of ValliCorp Common Stock issuable upon exercise
of such Auburn Stock Option shall be equal to the quotient determined by
dividing (A) the exercise price per share of Auburn Common Stock at which such
Auburn Stock Option was exercisable immediately prior to the Effective Time by
(B) the Conversion Ratio. At the Effective Time, ValliCorp shall issue to each
holder of an outstanding Auburn Stock Option a document evidencing the
assumption of such Auburn Stock Option by ValliCorp pursuant to this Section
7.10.
(b) ValliCorp shall comply with the terms of the Auburn Stock Plans
and insure, to the extent required by, and subject to the provisions of, such
Plans, that Auburn Stock Options which qualify as incentive stock options prior
to the Effective Time qualify as incentive stock options of ValliCorp after the
Effective Time.
(c) At or prior to the Effective Time, ValliCorp shall take all
corporate action necessary to reserve for issuance a sufficient number of shares
of ValliCorp Common Stock for delivery upon exercise of Auburn Stock Options
assumed by it in accordance with this Section 7.10. At the Effective Time, or as
soon as practicable thereafter, ValliCorp shall file a registration statement on
Form S-4 or Form S-8, as the case may be (or any successor or other appropriate
forms), or another appropriate form with respect to the shares of ValliCorp
Common Stock subject to such options and shall use all reasonable efforts to
maintain the effectiveness of such registration statement (and maintain the
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current status of the prospectus or prospectuses contained therein) for so long
as such options remain outstanding.
7.11 Employee Benefit Plans. As soon as practicable after the Effective
----------------------
Time, Auburn Benefit Plans will be discontinued or merged into ValliCorp plans,
in the discretion of ValliCorp, and employees of Auburn shall become eligible
for the employee benefit plans of ValliCorp on the same terms as such plans and
benefits are generally offered from time to time to employees of ValliCorp in
comparable positions with ValliCorp. Such employees shall be credited for the
years of service with Auburn or TBOC under the employee benefit plans to be
provided by ValliCorp to such employees, to the same extent that such service
was recognized for similar plans of Auburn or TBOC. Following the Effective
Date, ValliCorp shall have the same legal rights and legal obligations, which it
shall honor, subject to the terms hereof, including the rights of termination
thereof, as Auburn arising under all employment, severance and other
compensation contracts disclosed in the Auburn Disclosure Letter.
7.12 Press Releases. No press release or other public disclosure of
--------------
matters related to this Agreement or any of the transactions contemplated hereby
shall be made by ValliCorp or Auburn unless the other party shall have provided
its 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.
7.13 Cooperation Regarding Approvals. ValliCorp and Auburn shall
-------------------------------
cooperate in good faith and use their respective commercially reasonable efforts
(i) to prepare as promptly as practicable all documentation, to effect all
filings, obtain effectiveness of the ValliCorp S-4 as soon as possible and to
obtain all other necessary approvals of governmental authorities required for
the transactions contemplated hereby, and (ii) to cause the Merger to be
consummated as expeditiously as reasonably practicable following the meeting of
the shareholders of Auburn for the purpose of voting upon this Agreement.
ARTICLE 8
CONDITIONS PRECEDENT
8.1 Conditions to Each Party's Obligation to Effect the Merger. The
----------------------------------------------------------
respective obligations of each party to effect the Merger shall be subject to
the satisfaction prior to the Closing Date of the following conditions:
(a) Shareholder Approval. The Agreement and the transactions
--------------------
contemplated thereby shall have been approved and adopted by the requisite vote
of the holders of the outstanding shares of Auburn Common Stock and, if required
by the Delaware Act or NASD Rules, the requisite vote of the holders of the
outstanding shares of ValliCorp Common Stock.
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(b) Federal Reserve Board. The Agreement and the transactions
---------------------
contemplated hereby shall have been approved by the Federal Reserve Board and
without any condition not customarily contained in approvals of similar
transactions by the Federal Reserve Board, all conditions required to be
satisfied prior to the Effective Time imposed by the terms of such approvals
shall have been satisfied and all waiting periods relating to such approvals
shall have expired.
(c) S-4; Securities Laws. The S-4 and any amendments and
--------------------
supplements thereto shall have become effective under the Securities Act and
shall not be the subject of any stop order or proceedings seeking or threatening
a stop order. ValliCorp shall have received all state securities or "Blue Sky"
permits and other authorizations necessary to issue the ValliCorp common stock
in exchange for the Auburn Common Stock and to consummate the Merger.
(d) No Injunctions or Restraints. No temporary restraining order,
----------------------------
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition (an "Injunction")
preventing the consummation of the Merger shall be in effect.
(e) Listing of ValliCorp Common Stock. The ValliCorp Common Stock
---------------------------------
issuable in the Merger shall have been included for listing on NASDAQ.
(f) Tax Opinion. An opinion of Deloitte & Touche LLP, to the
-----------
effect that the Merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code, and that
ValliCorp and Auburn will each be a party to that reorganization within the
meaning of Section 368(b) of the Code, dated prior to the date the Proxy
Statement is first mailed to shareholders of Auburn, shall have been delivered
and shall not have been withdrawn or modified in any material respect.
8.2 Conditions to Obligation of ValliCorp. The obligations of ValliCorp
-------------------------------------
to effect the Merger are subject to the satisfaction of the following conditions
unless waived in writing by ValliCorp:
(a) Representations and Warranties. The representations and
------------------------------
warranties of Auburn set forth in this Agreement shall, as of the date hereof
and as of the Effective Time (as though made on and as of the Effective Time
except to the extent such representations and warranties by their express
provisions are made as of a specified date), not contain any inaccuracies or
omissions of circumstances as to which either individually or in the aggregate
have, or reasonably could be expected to have, a material adverse effect on
Auburn and TBOC as a whole, except for changes in Auburn's business or
operations expressly contemplated by this Agreement or approved in writing by
ValliCorp, and ValliCorp shall have received a certificate signed on behalf of
Auburn by the chief executive officer to such effect.
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(b) Performance of Obligations of Auburn. Auburn shall have
------------------------------------
performed in all material respects each of the obligations required to be
performed by it under this Agreement at or prior to the Closing Date, and
ValliCorp shall have received a certificate signed on behalf of Auburn by the
chief executive officer of Auburn to such effect.
(c) Consents Under Agreements. Auburn shall have obtained the
-------------------------
consent or approval of each person whose consent or approval shall be required
in order to permit the succession by ValliCorp pursuant to the Merger to any
obligation, right or interest of Auburn or TBOC under any loan or credit
agreement, note, mortgage, indenture, lease or other agreement or instrument,
except those for which failure to obtain such consents and approvals would not,
individually or in the aggregate, have a material adverse effect on Auburn or
TBOC, whether prior to or following the consummation of the transactions
contemplated hereby.
(d) No Amendments to Resolution. Neither the Board of Directors of
---------------------------
Auburn nor any committee thereof shall have amended, modified, rescinded or
repealed the resolutions adopted by the Board of Directors at a meeting duly
called and held on March 20, 1996 (accurate and complete copies of which have
been provided to ValliCorp) and shall not have adopted any other resolutions in
connection with this Agreement and any transactions contemplated hereby
inconsistent with such resolutions.
(e) No Material Adverse Change. There shall have been no material
--------------------------
adverse change since the Latest Statement Date in the financial condition,
results in operations or business of Auburn and TBOC.
(f) No Proceeding or Litigation. No material action, suit or
---------------------------
proceeding before any court or any governmental or regulatory authority shall
have been commenced against ValliCorp, Auburn or any affiliate, associate,
officer or director of either of them (other than litigation commenced by
ValliCorp or any of its affiliates so long as no order or injunction of a court
of competent jurisdiction is in effect in such litigation on the Closing Date
that restrains, enjoins or prevents the Closing), seeking to restrain, enjoin,
prevent, change or rescind the transactions contemplated hereby or questioning
the validity or legality of any such transactions.
(g) Opinion of Counsel. Auburn shall have delivered to ValliCorp
------------------
an opinion of its counsel, dated as of the Closing Date and in form and
substance satisfactory to the counsel of ValliCorp, to the aggregate effect
that: (i) Auburn is a corporation validly existing under the laws of its
jurisdiction of incorporation with full corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated thereby;
(ii) all corporate proceedings on the part of Auburn necessary to be taken in
connection with the Merger and (except for the filing of the Certificate of
Merger) necessary to make the same
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effective have been duly and validly taken; (iii) this Agreement has been duly
and validly authorized, executed and delivered on behalf of Auburn and
constitute (subject to standard exceptions to enforceability arising from the
bankruptcy laws and rules of equity) valid and binding agreements of Auburn;
(iv) the authorized capital stock of Auburn consists of 10,000,000 shares of
Auburn Common Stock and 10,000,000 shares of Auburn Preferred Stock; and (v) all
consents and approvals of, notices to, and other actions by, any governmental
entity required on the part of Auburn, for the execution, delivery or
performance by Auburn of the Agreement have, as appropriate, been made, obtained
or given.
In addition, such counsel shall deliver to Auburn with such opinion
a statement to the effect that based upon the participation of such counsel in
conferences with representatives of ValliCorp, Auburn and both parties'
accountants in the course of the preparation of the S-4, nothing has come to
such counsel's attention that leads them to believe that the S-4 (excluding the
statements therein relating solely to ValliCorp and/or any of its Subsidiaries),
at the time it became effective contained any untrue statement of a material
fact or omitted 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, or that the Proxy Statement
(excluding the statements therein relating solely to ValliCorp and/or any of its
Subsidiaries), on the date of the mailing thereof and the date of such counsel's
opinion, contained any untrue statement of a material fact or omitted 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 (it being understood that such counsel will not berequested
and need not make any comment in its opinion, with respect to the financial
statements, supporting schedules, footnotes and other financial and statistical
information contained in the S-4).
8.3 Conditions to Obligation of Auburn. The obligation of Auburn to
----------------------------------
effect the Merger is subject to the satisfaction of the following conditions
unless waived by Auburn:
(a) Representations and Warranties. Each of the representations
------------------------------
and warranties of ValliCorp set forth in this Agreement shall be true and
correct in all material respects (except that where any statement in a
representation or warranty expressly includes a standard of materiality, such
statement shall be true and correct in all respects) as of the date of this
Agreement and (except to the extent such representations speak as of an earlier
date) as of the Closing Date as though made on and as of the Closing Date,
except for changes expressly contemplated by this Agreement, and Auburn shall
have received a certificate signed on behalf of ValliCorp by the Chief Executive
Officer and by the Chief Financial Officer of ValliCorp to such effect.
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(b) Performance of Obligations of ValliCorp. ValliCorp shall have
---------------------------------------
performed in all material respects each of the obligations required to be
performed by it under this Agreement at or prior to the Closing Date, and Auburn
shall have received a certificate signed on behalf of ValliCorp by the Chief
Executive Officer and by the Chief Financial Officer of ValliCorp to such
effect.
(c) Tax Opinion. An opinion of Deloitte & Touche, LLP, dated as of
-----------
the Closing Date, shall have been delivered, dated no more than three (3)
business days prior to the Effective Time, addressed to the Board of Directors
of ValliCorp and Auburn, substantially to the effect that under federal income
tax law and California and franchise tax law:
(i) The Merger will not result in any recognized gain or
loss to ValliCorp or Auburn;
(ii) Except for any cash received in lieu of any fractional
share, no gain or loss will be recognized by holders of shares of Auburn
Common Stock in exchange for the shares of Auburn Common Stock which they
hold;
(iii) The holding period of shares of ValliCorp Common Stock
exchanged for shares of Auburn Common Stock will include the holding period
of the shares of Auburn Common Stock for which it is exchanged, assuming
the shares of Auburn Common Stock are capital assets in the hands of the
holder thereof at the Effective Time;
(iv) The basis of the shares of ValliCorp Common Stock
received in exchange will be the same as the basis of the shares of Auburn
Common Stock for which it was exchanged, less any basis attributable to
fractional shares for which cash is received;
(v) The Merger will be treated for federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the
Code; and
(vi) ValliCorp and Auburn will each be a party to that
reorganization within the meaning of Section 368(b) of the Code.
(d) No Amendments to Resolutions. Neither the Board of Directors
----------------------------
of ValliCorp not any committee thereof shall have amended, modified, rescinded
or repealed the resolutions adopted by the Board of Directors at a meeting duly
called and held on February 26, 1996 (accurate and complete copies of which have
been provided to Auburn) and shall not have adopted any other resolutions in
connection with this Agreement and the transactions contemplated hereby
inconsistent with such resolutions.
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(e) Opinion of Counsel. ValliCorp shall have delivered to Auburn
------------------
an opinion of its counsel reasonably acceptable to the counsel of Auburn dated
as of the Closing Date and in form and substance satisfactory to the counsel of
Auburn, to the aggregate effect that: (i) ValliCorp is a corporation duly
organized and validly existing under the laws of its jurisdiction of
incorporation with full corporate power and authority to enter into this
Agreement and to consummate the transactions contemplated thereby; (ii) all
corporate proceedings on the part of ValliCorp necessary to be taken in
connection with the Merger and (except for the filing of the Certificate of
Merger) necessary to make the same effective have been duly and validly taken;
(iii) this Agreement has been duly and validly authorized, executed and
delivered on behalf of ValliCorp and constitutes (subject to standard bankruptcy
laws and rules of equity) a valid and binding agreement of ValliCorp; (iv) the
execution of the Certificate of Merger by ValliCorp has been duly and validly
authorized; (v) the shares of ValliCorp Common Stock to be issued in the Merger
will, when issued, be duly authorized, validly issued, fully paid and non-
assessable; (vi) the Commission has reported that the S-4 has become effective
under the Act, and, to the best of such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement or preventing the use
of the prospectus has been issued and no proceedings for that purpose have been
instituted or are pending or contemplated by the Commission; (vii) the S-4, the
prospectus and each amendment or supplement thereto (except for the financial
statements and schedules included therein as to which such counsel need express
no opinion) comply as to form in all material respects with the requirements of
the Act and the Exchange Act and the rules and regulations thereunder; (viii)
all other consents and approvals of, notices to, and other actions by, any
governmental entity required on the part of ValliCorp, for the execution,
delivery or performance by ValliCorp of the Agreement have, as appropriate, been
made, obtained or given; and (ix) the ValliCorp Common Stock conforms in all
material respects to the description thereof contained under the heading
"Description of Capital Stock of ValliCorp" in the S-4.
In addition, such counsel shall deliver with such opinion a statement
substantially to the effect that based upon the participation of such counsel in
conferences with representatives of ValliCorp, Auburn and both parties'
accountants in the course of the preparation of the S-4, nothing has come to
such counsel's attention that leads them to believe that the S-4 (excluding the
statements therein relating solely to Auburn and/or any of its Subsidiaries), at
the time it became effective contained any untrue statement of a material fact
or omitted 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, or that the Proxy Statement (excluding the
statements therein relating solely to Auburn and/or any of its Subsidiaries), on
the date of the mailing thereof, and the date of such counsel's opinion,
contained any untrue statement of a material fact or omitted to state any
material fact required to be
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<PAGE>
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading (it being
understood that such counsel will not be requested and need not make any comment
in its opinion with respect to the financial statements, supporting schedules,
footnotes and other financial and statistical information contained in the S-4).
(f) No Material Adverse Change. There shall have been no material
--------------------------
adverse change since the Latest Statement Date in the financial condition,
results of operations or business of ValliCorp taken as a whole.
(g) Fairness Opinion. The Board of Directors of Auburn shall have
----------------
received a fairness opinion, dated no more than three (3) business days prior to
the effective date of the S-4, from The Findley Group, to the effect that the
terms of Merger are fair, from a financial point of view, to Auburn and its
Shareholders.
ARTICLE 9
SHAREHOLDER AND INVESTMENT AGREEMENT
9.1 Shareholder Agreement. A Shareholder Agreement in the form attached
---------------------
to this Agreement as Exhibit 9.1 (the "Shareholder Agreement") shall be executed
by the persons named in the Shareholder Agreement and delivered to ValliCorp on
the same day this Agreement is executed by Auburn and delivered to ValliCorp.
9.2 Investment Agreement. Simultaneously herewith, ValliCorp and Auburn
--------------------
shall execute and deliver the Investment Agreement in the form attached hereto
as Exhibit 9.2.
ARTICLE 10
TERMINATION AND AMENDMENT
10.1 Termination. Notwithstanding any other provisions of this
-----------
Agreement, this Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval of the matters presented in connection
with the Merger by the shareholders of Auburn:
(a) by mutual consent of ValliCorp and Auburn;
(b) by either ValliCorp or Auburn (i) if there has been a breach in
any material respect (except that where any statement in a representation or
warranty expressly includes a standard of materiality, such statement shall have
been breached in any respect) of any representation, warranty, covenant or
agreement on the part of Auburn, on the one hand, or ValliCorp, on the other
hand, respectively, set forth in this Agreement; (ii) if any representation or
warranty of Auburn, on the one hand, or ValliCorp, on the other hand,
respectively, shall be discovered to have become untrue in any material respect
(except that where any statement in a representation or warranty expressly
includes a
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standard of materiality, such statement shall have become untrue in any
respect); or (iii) if on or after October 31, 1996 there has been a failure or
prospective failure of the other party to comply with any of the conditions set
forth in Article 8 hereof, or such conditions have been fulfilled or waived by
one party and the other shall have failed to complete the Merger; in any case
which breach or other condition has not been cured within 10 business days
following receipt by the nonterminating party of notice of such breach or other
condition;
(c) by either ValliCorp or Auburn if any permanent Injunction
preventing the consummation of the Merger shall have become final and
nonappealable;
(d) by ValliCorp if Auburn shall have failed to act or refrain from
doing any act pursuant to Section 5.2(f);
(e) by ValliCorp or Auburn if the Federal Reserve has denied
approval of the Merger and neither ValliCorp or Auburn has, within 30 days after
the entry of the Federal Reserve Board's order denying such approval, filed a
petition seeking review of such order as provided by Section 9 of the BHC Act;
(f) by either ValliCorp or Auburn if the Merger shall not have been
consummated before December 31, 1996, for a reason other than the failure of the
terminating party to comply with its obligations under this Agreement.
10.2 Effect of Termination. Termination of this Agreement shall not
---------------------
terminate or affect the obligations of the parties to pay expenses as provided
elsewhere herein, to maintain the confidentiality of the other party's
information, the provisions of this Section 10.2 or of Sections 5.10, 11.2,
11.3, 11.6, 11.9 or the Investment Agreement. Except as provided in Section
5.2(f) or Section 6.9, ValliCorp and Auburn agree that any termination of this
Agreement shall not in any manner release or be construed as so releasing the
nonterminating party or parties from any liability or damage to the other party
or parties arising out of, in connection with or otherwise relating to, directly
or indirectly, such parties' failure in performance of any of its covenants or
agreements hereunder.
10.3 Amendment. Subject to the next following sentence, this Agreement
---------
may be amended by the parties hereto by action taken or authorized by their
respective Board of Directors at any time before or after approval of the
matters presented in connection with the Merger by the shareholders of Auburn,
but after any such approval by the shareholders of Auburn, no amendment shall be
made which by law requires further approval by such shareholders without such
further approval. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
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10.4 Extension; Waiver. At any time prior to the Effective Time,
-----------------
ValliCorp, on the one hand, and Auburn, on the other hand, by action taken or
authorized by their respective Board of Directors, may, to the extent legally
allowed, (a) extend the time for the performance of any of the obligations or
other acts of the other party hereto, (b) waive any inaccuracies in the
representations and warranties of the other contained herein or in any document
delivered by the other pursuant hereto, and (c) waive compliance by the other
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party.
ARTICLE 11
GENERAL PROVISIONS
11.1 Nonsurvival of Representations, Warranties and Agreements. None of
---------------------------------------------------------
the representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Effective
Time, except for the Agreements contained in Sections 2.1, 2.3, 4.14, 6.7, 6.8,
7.1, 7.6, 7.7, 7.10, Article 11 and the agreements of the Affiliates contained
in the letters referred to in Section 5.5.
11.2 Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed given if delivered personally, telecopied (with
receipt confirmed) or mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice);
(a) if to ValliCorp, to:
ValliCorp Holdings, Inc.
Attn: E. L. Herbert, Esq.
Executive Vice President, General Counsel
& Secretary
8405 North Fresno Street
Fresno, CA 93720
Telecopy: (209) 437-0231
(b) if to Auburn, to:
Auburn Bancorp
Attn: John G. Briner, President
540 Wall Street
Auburn, CA 95603
Telecopy: (916) 888-9185
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with a copy to:
Loeb and Loeb
Attn: Robert S. Barry, Jr., Esq.
1000 Wilshire Blvd., Suite 1800
Los Angeles, CA 90017-2475
Telecopy: (213) 688-3460
Gary Steven Findley & Associates
Attn: Gary Steven Findley, Esq.
1470 North Hundley Street
Anaheim, CA 92806
Telecopy: (714) 630-7910
11.3 Interpretation. When a reference is made in this Agreement to
--------------
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation." The phrase "made available" in this
Agreement shall mean that the information referred to has been made available if
requested by the party to whom such information is to be made available.
11.4 Counterparts. This Agreement may be executed in two or more
------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
11.5 Entire Agreement; No Third Party Beneficiaries; Rights of Ownership.
-------------------------------------------------------------------
This Agreement (including the documents and the instruments referred to herein,
including the Investment Agreement and Shareholder Agreement) (a) constitutes
the entire agreement and supersedes all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof, and (b) except as provided in Sections 2.3, 6.7 and 7.10, is not
intended to confer upon any person other than the parties hereto any rights or
remedies hereunder. The parties hereby acknowledge that, except as otherwise
specifically provided in the Investment Agreement or as hereinafter agreed to in
writing, no party shall have the right to acquire or shall be deemed to have
acquired shares of common stock of the other party pursuant to the Merger until
consummation thereof.
11.6 Governing Law. This Agreement shall be governed and construed in
-------------
accordance with the laws of the State of California, except as the Delaware Act
is expressly applicable to the Merger.
11.7 Assignment. Neither this Agreement nor any of the rights, interests
----------
or obligations hereunder shall be assigned by any
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of the parties hereto (whether by operation of law or otherwise) without the
prior written consent of the other parties, and any such attempted assignment
will be null and void. Subject to the preceding sentence, this Agreement will be
binding upon, inure to the benefit of and be enforceable by the parties and
their respective successors and assigns.
11.8 Attorneys' Fees. If any legal action or any arbitration upon mutual
---------------
agreement is brought for the enforcement of this Agreement or because of an
alleged dispute, breach, or default in connection with this Agreement, the
prevailing party shall be entitled to recover reasonable attorneys' fees and
other costs and expenses incurred in that action or proceeding, in addition to
any other relief to which it may be entitled.
11.9 No Rule of Strict Construction. The parties acknowledge that the
------------------------------
language of this Agreement has been the subject of mutual negotiations and no
rule of strict construction shall apply thereto.
11.10 Knowledge of the Parties. Wherever in this Agreement any
------------------------
representation or warranty is made upon the knowledge of a party hereto that is
not an individual, such knowledge shall include the actual knowledge, after due
inquiry, of any executive officer of such party or an executive officer of any
Subsidiary thereof.
IN WITNESS WHEREOF, ValliCorp and Auburn have caused this Agreement to be
signed by their respective officers thereunto duly authorized, all as of the
date first written above.
VALLICORP HOLDINGS, INC.
By: /s/ J. Mike McGowan
--------------------------------
J. MIKE McGOWAN
Its: President and Chief
Executive Officer
ATTEST:
/s/ E.L. Herbert
- -----------------------------
E.L. HERBERT
Its: Secretary
AUBURN BANCORP
By: /s/ John G. Briner
-------------------------------
JOHN G. BRINER
Its: President
-55-
<PAGE>
ATTEST:
/s/ Hideo Ray Yamasaki
- ----------------------------
Its: Vice Chairman
-56-
<PAGE>
EXHIBIT 5.5
[FORM OF AFFILIATE LETTER]
______________, 1996
ValliCorp Holdings, Inc.
8405 North Fresno Street
Fresno, CA 93720
Dear Sir or Madam:
I have been advised that as of the date hereof I may be deemed to be an
"affiliate" of Auburn Bancorp, a California corporation (the "Company"), as that
term is defined for purposes of Rule 145 of the Rules and Regulations of the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Securities Act"), although nothing contained herein
should be construed as an admission of such fact. An Agreement and Plan of
Reorganization, dated as of March 27, 1996 (the "Agreement"), has been entered
into by ValliCorp Holdings, Inc., a Delaware corporation ("ValliCorp"), and the
Company. The Agreement provides that the Company shall be merged with and into
ValliCorp, and that ValliCorp shall be the surviving corporation (such
transaction being hereinafter referred to as the "Merger"). In accordance with
the Agreement, shares of Common Stock, no par value of the Company (the "Company
Shares"), owned by the undersigned on the Effective Time (as defined in the
Agreement) of the Merger, shall be converted into shares of Common Stock, One
Cent ($.01) par value, of ValliCorp (the "ValliCorp Shares"), as described in
the Agreement. Any terms not defined in this letter have the meaning set forth
in the Agreement.
The undersigned represents, warrants, understands, and agrees as follows:
1. In connection with the Merger, except as disclosed on the attached
schedule, the undersigned has no intention of disposing of the undersigned's
ValliCorp Shares.
2. The undersigned knows of no plan (written or oral) pursuant to which
the holders of fifty percent (50%) or more of the outstanding Company Shares
intend to sell or otherwise dispose of the ValliCorp Shares to be received by
them in the Merger.
3. The undersigned has been advised that the issuance of the ValliCorp
Shares to the undersigned pursuant to the Agreement will be registered with the
Commission under the Securities Act 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 the Company for approval, the
undersigned may be an "affiliate" of the Company, any sale or disposition by the
undersigned of any of the ValliCorp Shares may, under current law, only be made
in accordance with the provisions of paragraph (d) of Rule 145 under the
Securities Act, pursuant to
<PAGE>
Vallicorp Holdings, Inc.
__________________, 1996
Page 2
an effective registration statement under the Securities Act or pursuant to an
exemption provided thereunder. The undersigned understands that the provisions
of Rule 145(d) may restrict the undersigned's sales and sales may be made during
the two years after the Effective Time, in general, only while ValliCorp is
subject to the requirements to file, and is filing, periodic reports under
Section 13 or 15(d) of the Securities Exchange Act of 1934, in brokers'
transactions where the aggregate number of shares sold at any time, together
with all sales of restricted ValliCorp Shares sold for the undersigned's account
during the preceding three (3) month period, does not exceed the greater of (i)
one percent (1%) of the number of ValliCorp Shares outstanding, or (ii) the
average weekly volume of trading in ValliCorp Shares on all national securities
exchanges, and/or reported through the automated quotation system of a
registered securities association, during the four (4) week period preceding any
such sale.
4. The undersigned understands that ValliCorp is under no obligation to
register the sale, transfer or other disposition of the ValliCorp Shares by the
undersigned or in the undersigned's behalf or, subject to Section 2.3(f) of the
Agreement, to take any other action necessary in order to make compliance with
an exemption from registration available.
5. The undersigned has carefully read this letter and discussed its
requirements and other applicable limitations upon the sale, transfer or other
disposition of the ValliCorp Shares to be acquired by the undersigned in the
Merger, to the extent the undersigned felt necessary, with the undersigned's
counsel or counsel for the Company.
6. The undersigned understands that, subject to Section 2.3(f) of the
Agreement, stop transfer instructions may be given to the Company's and
ValliCorp's transfer agent with respect to the Company Shares and ValliCorp
Shares and that there may be placed on the certificates for such shares, or any
substitution therefore, a legend to the foregoing effect.
Very truly yours,
________________________________
Accepted this _____ day of ______________, 1996
ValliCorp Holdings, Inc.
By: _______________________________________
President and Chief Executive Officer
-2-
<PAGE>
EXHIBIT 7.8
-----------
AGREEMENT OF MERGER OF VALLIWIDE BANK AND
SUNRISE BANK
This Agreement of Merger (the "Bank Agreement of Merger") is entered into
as of _______________, 1996 between ValliWide Bank, a California banking
corporation ("Bank" or "Resulting Banking Corporation"), and Sunrise Bank
("SB"). This Bank Agreement of Merger is being entered into pursuant to an
Agreement and Plan of Reorganization (the "Agreement") dated as of ________,
1996, between ValliCorp Holdings, Inc., a Delaware corporation ("ValliCorp"),
and Sunrise Bancorp, a _______ corporation ("uburn"). Bank and TBOC are
sometimes referred to herein as the "Constituent Corporations." Pursuant to the
terms of the Agreement, Auburn will be merged with and into ValliCorp.
The Constituent Corporations do hereby agree, for the purpose of
prescribing the terms and conditions of the merger of TBOC with and into Bank
(the "Bank Merger"), as follows:
1. The Parties.
-----------
(a) Bank is a California banking corporation and has 50 shares of its
capital stock outstanding, all of which are owned of record and beneficially by
ValliCorp.
(b) TBOC is a national bank and has 250,000 shares of its Common
Stock outstanding, all of which are owned of record and beneficially by Auburn.
2. The Bank Merger. TBOC shall be merged with and into Bank.
---------------
3. Effective Date. The Bank Merger shall become effective following
--------------
the merger of Auburn with and into ValliCorp, upon the filing of a copy of this
Bank Agreement of Merger, certified by the California Secretary of State, with
the Superintendent of Banks of the State of California (the "Bank Effective
Date").
4. Cancellation of TBOC Shares. Upon the Bank Merger, the outstanding
---------------------------
shares of capital stock of TBOC are cancelled and no shares of Bank or other
securities or consideration shall be issued in exchange therefor.
5. Bank Shares. Upon the Bank Merger, the outstanding shares of
-----------
capital stock of Bank shall remain outstanding and are not affected by the Bank
Merger.
6. Articles of Incorporation. The Articles of Incorporation of Bank,
-------------------------
as in effect immediately prior to the Bank
-1-
<PAGE>
Effective Date, shall be the Articles of Incorporation of the Resulting Banking
Corporation.
7. Board of Directors. Upon the Bank Merger, the membership of the Board
------------------
of Directors of Bank shall remain the same.
8. Corporate Existence. Upon the Bank Merger, the separate existence
-------------------
of TBOC ceases and Bank shall succeed, without other transfer, to all the rights
and property of TBOC and shall be subject to all the debts and liabilities
thereof in the same manner as if Bank had itself incurred them. All rights of
creditors and all liens upon the property of each corporation shall be preserved
unimpaired, provided that such liens upon property of TBOC shall be limited to
the property affected thereby immediately prior to the time the Bank Merger is
effective.
9. Further Assurances. After the Bank Merger becomes effective, TBOC,
------------------
through the persons who were its officers immediately prior to the Bank Merger,
shall execute or cause to be executed such further assignments, assurances or
other documents as may be necessary or desirable to confirm title to properties,
assets and rights in Bank.
10. Bylaws. The Bylaws of Bank, as in effect immediately prior to the
------
Bank Effective Date, shall be the Bylaws of the Resulting Banking Corporation.
11. Location of Offices. Upon the Bank Effective Date, all offices
-------------------
(including authorized but unopened offices) of TBOC shall be combined with those
of Bank. All branches of TBOC shall be maintained as separate branches of Bank.
12. Agreements. This Bank Agreement of Merger and the Agreement are
----------
intended to be construed together in order to effectuate their purposes.
13. Termination Provision. This Bank Agreement of Merger shall be
---------------------
terminated and the Bank Merger abandoned at any time prior to the Bank Effective
Date and whether before or after approval of this Bank Agreement of Merger by
mutual agreement of the Board of Directors or shareholders of either of the
respective Constituent Corporations or in the event that the Agreements are
terminated in accordance with their terms.
14. Counterparts. This Bank Agreement of Merger may be executed in one
------------
or more counterparts.
-2-
<PAGE>
IN WITNESS WHEREOF, Bank and TBOC have caused this Bank Agreement of
Merger to be executed on their behalf by their officers pursuant to the approval
and authority duly given by resolutions of their respective Boards of Directors,
all as of the date set forth above.
ValliWide Bank
By:__________________________
J. Mike McGowan
President and Chief
Executive Officer
The Bank of Commerce, N.A.
By:__________________________
President
-3-
<PAGE>
OFFICERS' CERTIFICATE
J. Mike McGowan and Edwin L. Herbert certify that:
1. They are the President and Chief Executive Officer and the
Secretary, respectively, of VALLIWIDE BANK, a corporation organized under the
laws of the State of California.
2. The corporation has only one class of shares and the total number of
outstanding shares is 50.
3. The principal terms of the agreement in the form attached were
approved by the corporation by the vote of a number of shares of each class
which equaled or exceeded the vote required.
4. The percentage vote required of each class is more than 50%.
______________________________________
J. Mike McGowan
President and Chief Executive
Officer
______________________________________
Edwin L. Herbert
Secretary
The undersigned declare under penalty of perjury under the laws of the
State of California that they have read the foregoing certificate and know the
contents thereof and that the same is true of their own knowledge. Executed at
Fresno, Fresno County, California on ___________, 1996.
___________________________________
J. Mike McGowan
President and Chief Executive
Officer
___________________________________
Edwin L. Herbert
Secretary
-4-
<PAGE>
OFFICERS' CERTIFICATE
________________ and _________________ certify that:
1. They are the President and the Secretary, respectively, of The Bank
of Commerce, N.A., organized under the laws of the United States.
2. The corporation has only one class of shares and the total number of
outstanding shares is 250,000.
3. The principal terms of the agreement in the form attached were
approved by the corporation by the vote of a number of shares of each class
which equaled or exceeded the vote required.
4. The percentage vote required of each class is more than 50%.
___________________________________
President
___________________________________
Secretary
The undersigned declare under penalty of perjury under the laws of the
State of California that they have read the foregoing certificate and know the
contents thereof and that the same is true of their own knowledge. Executed at
_____________ County, California on _______________, 1996.
___________________________________
President
___________________________________
Secretary
-5-
<PAGE>
SHAREHOLDER AGREEMENT
---------------------
This Shareholder Agreement (the "Agreement") dated as of March 27, 1996,
is made by and among VALLICORP HOLDINGS, INC., a Delaware corporation
("ValliCorp"), the undersigned shareholders (the "Shareholders") of AUBURN
BANCORP, a California corporation ("Auburn").
WHEREAS, the Shareholders are the record and beneficial owners and have
the power to vote the respective number of shares of Auburn's Common Stock, no
par value ("Auburn Common Stock"), set forth opposite their respective names on
Schedule A; and,
WHEREAS, the Shareholders desire that Auburn and ValliCorp enter into an
Agreement and Plan of Reorganization (the "Agreement") with respect to the
merger of Auburn into ValliCorp (the "Merger"); and
WHEREAS, in addition to obligating themselves to each other, the
Shareholders are executing this Agreement as an inducement to ValliCorp to enter
into and execute the Agreement.
NOW THEREFORE, in consideration of the execution and delivery by ValliCorp
of the Agreement and the mutual covenants, conditions and agreements contained
herein and therein the parties agree as follows:
1. At any meeting of Auburn shareholders called to vote upon the Merger
and the Agreement or at any adjournment thereof or in any other circumstances
upon which such vote or other approval of the Merger and the Agreement is
sought, and subject to the provisions of Section 4 hereof, the Shareholders
severally shall vote (or cause to be voted) the shares of Auburn Common Stock
set forth opposite their respective names in Schedule A hereto in favor of the
Merger and the Agreement.
2. At any meeting of Auburn shareholders or at any adjournment thereof
or in any other circumstances upon which their vote or approval is sought, the
Shareholders shall vote (or cause to be voted) such shares of Auburn Common
Stock against any proposal or transaction which would in any manner impede,
frustrate, prevent or nullify the Merger, the Agreement or any of the other
transactions contemplated by the Agreement.
3. During the period commencing on the date of this Agreement and ending
on the earlier of either (a) the date that the Agreement terminates in
accordance with its terms or (b) the Effective Time of the Merger (as such term
is defined in the Agreement), each Shareholder shall not transfer (which term
shall include, without limitation, for the purposes of this Agreement any sale,
gift or pledge) any or all of such Shareholder's shares of Auburn Common Stock
or any interest therein, except pursuant to the Merger. Except as permitted by
the Agreement, during such period
<PAGE>
the Shareholders shall not engage or cooperate in any discussion or negotiations
with any person or entity other than ValliCorp, or make or solicit any offers,
with respect to the transfer of any or all of the shares of Auburn Common Stock
or the acquisition (by merger, tender offer or otherwise) of Auburn or all or
substantially all of its stock, business or assets.
4. Each of the Shareholders agrees, unless, based on the written advice
of counsel, such Shareholder determines in good faith that such action would
violate his or her duties to shareholders imposed by law or would violate his or
her continuing fiduciary duty to the shareholders of Auburn (a) to cooperate
with and assist ValliCorp and Auburn to obtain all regulatory consents required
to complete the Merger and the merger of The Bank of Commerce, N.A. and
ValliWide Bank, (b) to use his or her best efforts to the extent permitted by
law, to cause Auburn (i) to perform its obligations under the Agreement and (ii)
to recommend approval of the Merger and the Agreement and the principal terms
thereto to the shareholders of Auburn, and (c) to recommend to the Board of
Directors and shareholders of Auburn the approval of the Merger and the
Agreement.
5. Each of the Shareholders severally represents and warrants to
ValliCorp that such Shareholder is the beneficial and record owner of, and has
power and authority to dispose of, and the unrestricted right to vote, the
number of shares of Auburn Common Stock set forth opposite such Shareholder's
name in Schedule A hereto.
6. The Shareholders hereby severally agree that if the shareholders of
Auburn vote to approve the Merger and the Agreement, the Shareholder's shares of
Auburn Common Stock will, pursuant to the terms of the Agreement, be exchanged
for the consideration provided in the Agreement. The Shareholders hereby waive
any rights of appraisal, or rights to dissent from the Merger, that they may
have.
7. The Shareholders hereby agree to provide the affiliate letters
contemplated by Section 5.6 of the Agreement upon request to do so by Auburn.
8. Auburn represents and warrants to each of ValliCorp and the
Shareholders that it has the corporate power and authority to enter into this
Agreement.
9. Each of the Shareholders severally agrees that this Agreement and the
obligations hereunder shall attach to the shares of Auburn Common Stock and
shall be binding upon any person or entity to whom legal or beneficial ownership
of the shares of Auburn Common Stock shall pass, whether by operation of law or
otherwise, including without limitation their respective heirs, guardian,
administrator or successor. In the event of any stock split, stock dividend,
merger, reorganization, recapitalization or
-2-
<PAGE>
other change in the capital structure of Auburn affecting the Auburn Common
Stock, or acquisition of additional shares of Auburn Common Stock by any of the
Shareholders, the number of shares listed in Schedule A beside the name of each
Shareholder shall be adjusted appropriately and this Agreement and the
obligations hereunder shall attach to any additional shares of Auburn Common
Stock or other securities issued to or acquired by the Shareholders.
10. Auburn and the Shareholders of Auburn Common Stock hereby agree that
each of such Shareholders will tender to Auburn any and all certificates
representing the shares of Auburn Common Stock and Auburn will inscribe upon
those certificates the following legend: "The shares of Common Stock, no par
value, of Auburn represented by this certificate are subject to a Shareholder
Agreement of even date therewith. Copies of such Shareholder Agreement may be
obtained at the principal executive offices of Auburn Bancorp."
11. No person executing this Agreement who is or becomes during the term
hereof a director of Auburn makes any agreement or understanding herein in his
or her capacity as such director. The parties sign solely in their capacities as
owners or holders of the power to vote shares of Auburn Common Stock.
12. Each of the provisions of this Agreement is subject to compliance
with applicable regulatory conditions.
13. This Agreement may be executed in two or more counterparts, each of
which shall be considered an original but all of which together shall constitute
the same instrument.
14. This Agreement shall terminate on the earlier of either (a) the date
the Agreement terminates in accordance with its terms or (b) the Effective Time
of the Merger (as such term is defined in the Agreement.
15. All notices, requests, claims, demands and other communications
hereunder shall be in writing and shall be given (and shall be deemed to have
been duly received if so given) by delivery, by cable, telecopier, telegram or
telex, or by registered or certified mail, postage prepaid, return receipt
requested, to the respective parties as follows:
If to the Shareholders, at the addresses appearing below their respective
signatures at the end of this Agreement, with a copy, if any, to the person and
at the address shown below their respective signatures at the end of this
Agreement.
-3-
<PAGE>
If to ValliCorp:
ValliCorp Holdings, Inc.
8405 North Fresno Street
Third Floor
Fresno, California 93720
Attn: E. L. Herbert, Executive Vice
President/General Counsel and Secretary
Telecopy: (209) 437-0231
If to Auburn: Auburn Bancorp
Attn: John G. Briner, President
540 Wall Street
Auburn, California 95603
Telecopy: (916) 888-9185
With a copy to:
Loeb and Loeb
Attn: Robert S. Barry, Jr., Esq.
1000 Wilshire Blvd., Suite 1800
Los Angeles, CA 90017-2475
Telecopy: (213) 688-3460
Gary Steven Findley & Associates
Attn: Gary Steven Findley, Esq.
1470 North Hundley Street
Anaheim, CA 92806
Telecopy: (714) 630-7910
or to such other address as any of the foregoing parties may have furnished to
the others in writing in accordance herewith, except that notices of change of
address shall only be effective upon receipt.
16. This Agreement is intended as an exclusive statement of the terms of
the agreement among the parties with respect to its subject matter, supersedes
all prior agreements with respect thereto, and cannot be changed or terminated
except by written instrument executed by the party or parties against whom
enforcement thereof is sought and shall be governed by and construed in
accordance with the substantive laws of the State of California without giving
effect to the principles of conflicts of law thereof.
"VALLICORP"
ATTEST: VALLICORP HOLDINGS, INC.
_________________________ By: _____________________________
Secretary J. Mike McGowan
President and Chief Executive
Officer
-4-
<PAGE>
"AUBURN"
ATTEST: AUBURN BANCORP
_______________________ By: _____________________________
Vice Chairman President
"SHAREHOLDERS"
[FOR SIGNATURE BY ALL AUBURN BANCORP DIRECTORS]
____________________________________________________________
Address: ______________________________________
______________________________________
With a copy, if any, to:
______________________________________
______________________________________
______________________________________
______________________________________
-5-
<PAGE>
SCHEDULE A
----------
SHAREHOLDERS SHARES OF COMMON STOCK
- ------------ ----------------------
<PAGE>
INVESTMENT AGREEMENT
INVESTMENT AGREEMENT, dated as of March 27, 1996 (the "Agreement"), by and
between VALLICORP HOLDINGS, INC., a Delaware corporation ("ValliCorp"), and
AUBURN BANCORP, a California corporation ("Auburn").
WHEREAS, ValliCorp and Auburn have entered into an Agreement and Plan of
Reorganization dated as of the date hereof (the "Merger Agreement"; capitalized
terms not defined herein shall have the meanings set forth in the Merger
Agreement), providing for among other things, the merger of Auburn with and into
ValliCorp with ValliCorp as the surviving corporation; and,
WHEREAS, as a condition and inducement to ValliCorp's willingness to enter
into the Merger Agreement, ValliCorp has requested that Auburn agree, and Auburn
has agreed, to grant ValliCorp the Option (as defined below);
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants, and agreements set forth herein, and in
the Merger Agreement, ValliCorp and Auburn agree as follows:
1. Grant of Option. Subject to the terms and conditions set forth
---------------
herein, Auburn hereby irrevocably grants an option (the "Option") to ValliCorp
to purchase an aggregate of 199,986 authorized but unissued shares of Auburn
Common Stock, no par value (the "Common Stock"), at a per share price of $10.00
(the "Option Price").
2. Exercise of Option. Subject to the provisions of this Section 10.(b)
------------------
and of Section 14(a) of this Agreement, this Option may be exercised by
ValliCorp or any transferee as set forth in Section 10.(f) of this Agreement, in
whole or in part, at any time, or from time to time in any of the following
circumstances:
(c) any entity, person, or group (other than ValliCorp), within the
meaning of Section 13(d)(3) of the Exchange Act of 1934, as amended (the
"Exchange Act") (any of the foregoing hereinafter in this Section 10.(b), a
"Person"), shall have commenced (as such term is defined in Rule 14d-2 under the
Exchange Act), or shall have filed a registration statement under the Securities
Act of 1933, as amended (the "Securities Act"), with respect to, a tender offer
or exchange offer to purchase any shares of Common Stock such that, upon
consummation of such offer, such Person would own or control ten percent (10%)
or more of the then outstanding Common Stock;
(d) Auburn or any subsidiary of Auburn shall have authorized,
recommended, proposed, or publicly announced an
-1-
<PAGE>
intention to authorize, recommend or propose, or entered into, an agreement with
any Person (other than ValliCorp) to (i) effect a merger, consolidation or
similar transaction involving Auburn or any of its subsidiaries, (ii) sell,
lease, or otherwise dispose of assets of Auburn or its subsidiaries representing
ten percent (10%) or more of the consolidated assets of Auburn and its
subsidiaries, or (iii) issue, sell, or otherwise dispose of (including by way of
merger, consolidation, share exchange, or any similar transaction) securities
representing ten percent (10%) or more of the voting power of Auburn or any of
its subsidiaries (any of the foregoing an "Acquisition Transaction");
(e) any Person (other than ValliCorp) shall have acquired beneficial
ownership (as such term is defined in Rule 13d-3 under the Exchange Act) or the
right to acquire beneficial ownership of, or any "group" (as such term is
defined under the Exchange Act) shall have been formed which beneficially owns
or has the right to acquire beneficial ownership of, ten percent (10%) or more
of the then outstanding Common Stock; or,
(f) the holders of Common Stock shall not have approved the Merger
Agreement at the meeting of such stockholders held for the purpose of voting on
the Merger Agreement, such meeting shall not have been held or shall have been
cancelled prior to termination of the Merger Agreement or Auburn's Board of
Directors shall have withdrawn or modified in a manner adverse to ValliCorp the
unanimous recommendation of Auburn's Board of Directors with respect to the
Merger Agreement, in each case after any Person (other than ValliCorp) shall
have (i) publicly announced a proposal, or publicly disclosed an intention to
make a proposal, to engage in an Acquisition Transaction, or (ii) filed an
application (or given a notice), whether in draft or final form, under the Bank
Holding Company Act of 1956, as amended, or the Change in Bank Control Act of
1978 for approval to engage in an Acquisition Transaction.
Notwithstanding the foregoing, the Option may not be exercised if
either (A) any applicable and required governmental approvals have not been
obtained with respect to such exercise or if such exercise would violate any
applicable regulatory restrictions, or (B) at the time of exercise ValliCorp is
failing in any material respect to perform or observe its covenants or
conditions under the Merger Agreement unless the reason for such failure is that
Auburn is failing to perform or observe its covenants or conditions under the
Merger Agreement.
3. Notice, Time, and Place of Exercise. Each time that ValliCorp or any
-----------------------------------
transferee wishes to exercise any portion of the Option, ValliCorp or such
transferee shall give written notice of its intention to exercise the Option
specifying the number of shares as to which the Option is being exercised
("Option Shares") and the place and date for the closing of the exercise (which
date shall be not later than ten (10) business days from the date such
-2-
<PAGE>
notice is mailed). If any law, regulation, or other restriction will not permit
such exercise to be consummated during such ten-day period, the date for the
closing of such exercise shall be within five (5) days following the cessation
of such restriction on consummation.
4. Payment and Delivery of Certificate(s). At any closing for an
--------------------------------------
exercise of the Option or any portion thereof, (a) ValliCorp and Auburn will
each deliver to the other certificates of their respective chief executive
officers as to the accuracy, as of the closing date, of their respective
representations and warranties hereunder, (b) ValliCorp or the transferees will
pay the aggregate purchase price for the shares of Common Stock to be purchased
by delivery of a certified or bank cashier's check in immediately available
funds payable to the order of Auburn, and (c) Auburn will deliver to ValliCorp
or the transferees a certificate or certificates representing the shares so
purchased.
5. Transferability of the Option and Option Shares. Prior to the time the
-----------------------------------------------
Option, or a portion thereof, becomes exercisable pursuant to the provisions of
Section 10.(b) of this Agreement, neither the Option nor any portion thereof
shall be transferable. Upon the occurrence of any of the events or circumstances
set forth in Sections 2(a) through 2(d) above, the Option or any portion thereof
or any of the Option Shares may be freely transferred by ValliCorp. For purposes
of this Agreement, a merger or consolidation of ValliCorp (whether or not
ValliCorp is the surviving entity) or an acquisition of ValliCorp shall not be
deemed a transfer.
6. Representations, Warranties, and Covenants of Auburn. Auburn hereby
----------------------------------------------------
represents, warrants, and covenants to ValliCorp as follows:
(a) Due Authorization. This Agreement has been duly authorized by
-----------------
all necessary corporate action on the part of Auburn, has been duly executed by
a duly authorized officer of Auburn, and constitutes a valid and binding
obligation of Auburn. No shareholder approval by Auburn shareholders is required
by applicable law or otherwise prior to the exercise of the Option in whole or
in part.
(b) Option Shares. Auburn has taken all necessary corporate and
-------------
other action to authorize and reserve and to permit it to issue, and at all
times from the date hereof to such time as the obligation to deliver shares
hereunder terminates will have reserved for issuance, at the closing(s) upon
exercise of the Option, or any portion thereof, the Option Shares (subject to
adjustment, as provided in Section 10.(f) below), all of which, upon issuance
pursuant hereto shall be duly and validly issued, fully paid, and nonassessable,
and shall be delivered free and clear of all claims, liens, encumbrances, and
security interests,
-3-
<PAGE>
including any preemptive right of any of the shareholders of Auburn.
(c) No Conflicts. Neither the execution and delivery of this
------------
Agreement nor the consummation of the transactions contemplated hereby will
violate or result in any violation of or be in conflict with or constitute a
default under any term of the charter documents or bylaws of Auburn or any
agreement, instrument, judgment, decree, law, rule, or order applicable to
Auburn or any Subsidiary of Auburn or to which Auburn or any such Subsidiary is
a party.
(d) Notification of Record Date. At any time from and after the date
---------------------------
of this Agreement until such time as the Option is no longer exercisable, Auburn
shall give ValliCorp or any transferee fifteen (15) days prior written notice
before setting the record date for determining the holders of record of the
Common Stock entitled to vote on any matter, to receive any dividend or
distribution, or to participate in any rights offering or other matters, or to
receive any other benefit or right, with respect to the Common Stock.
7. Representations, Warranties, and Covenants of ValliCorp. ValliCorp
-------------------------------------------------------
hereby represents, warrants, and covenants to Auburn as follows:
(a) Due Authorization. This Agreement has been duly authorized by
-----------------
all necessary corporate action on the part of ValliCorp, has been duly executed
by a duly authorized officer of ValliCorp, and constitutes a valid and binding
obligation of ValliCorp.
(b) Transfers of Common Stock. No shares of Common Stock acquired
-------------------------
upon exercise of the Option will be transferred except in a transaction
registered or exempt from registration under any applicable securities laws.
(c) No Conflicts. Neither the execution and delivery of this
------------
Agreement nor the consummation of the transactions contemplated hereby will
violate or result in any violation of or be in conflict with or constitute a
default under any term of the charter documents or bylaws of ValliCorp or any
agreement, instrument, judgment, decree, law, rule, or order applicable to
ValliCorp or any Subsidiary of ValliCorp or to which ValliCorp or any such
Subsidiary is a party.
8. Adjustment Upon Changes in Capitalization. In the event of any change
-----------------------------------------
in the Common Stock by reason of stock dividends, split-ups, mergers,
recapitalizations, combinations, exchanges of shares or the like, the number and
kind of shares or securities subject to the Option and the purchase price per
share of Common Stock shall be appropriately adjusted. If prior to the
termination or exercise of the Option, Auburn shall be acquired by
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<PAGE>
another party, consolidate with or merge into another corporation or liquidate,
ValliCorp or any transferee shall thereafter receive upon exercise of the Option
the securities or properties to which a holder of the number of shares of Common
Stock then deliverable upon the exercise thereof would have been entitled upon
such acquisition, consolidation, merger, or liquidation, and Auburn shall take
such steps in connection with such acquisition, consolidation, merger, or
liquidation as may be necessary to assure that the provisions hereof shall
thereafter be applicable, as nearly as reasonably may be practicable, in
relation to any securities or property thereafter deliverable upon exercise of
the Option.
9. Registration Under Applicable Securities Laws. Upon the written
---------------------------------------------
request of ValliCorp or any transferee Auburn agrees (a) to use its best efforts
to effect a registration for ValliCorp and any transferees under the Securities
Act of 1933 (the "Securities Act"), if applicable, any other applicable federal
law or regulation and any applicable state securities laws covering any part or
all of the Option Shares owned by ValliCorp or any transferee, no later than 120
days after ValliCorp or any transferee requests such registration, and (b) to
include any part or all of the Option Shares in any registration filed by Auburn
under the Securities Act and any other applicable federal law or regulation and
in any related applicable state securities laws registrations or applications in
which such inclusion is appropriate under applicable rules and regulations of
the Securities and Exchange Commission, unless, in the written opinion of
securities law counsel to Auburn, addressed to ValliCorp or any transferee, (i)
ValliCorp would be able to dispose of all of the Option Shares owned by it
pursuant to Rule 144 or Rule 144A under the Securities Act within three (3)
months of such opinion, or (ii) registration is not otherwise required for the
sale and distribution of such Option Shares. The registration effected under
this Section 10.(f) shall be effected at Auburn's expense except for any
underwriting commissions, fees, and disbursements of ValliCorp's counsel and
other experts and filing fees attributable to Option Shares provided that such
fees and expenses to be paid by Auburn shall not exceed $100,000 (with the
excess above $100,000, if any, to be paid by ValliCorp or any transferee). In
connection with registration under this Section 10.(f), the parties agree to
indemnify each other in the customary manner, and, in the case of an organized
secondary or primary underwritten offering, Auburn agrees to indemnify ValliCorp
or any transferee and the underwriters, and ValliCorp or any transferee agrees
to indemnify Auburn and the underwriters, in the manner and to such extent as is
customary in such secondary or primary underwritten offerings. In the event of
any demand for registration pursuant to clause (a) above, Auburn may delay the
filing of such registration statement for a period of up to one hundred twenty
(120) days if, in the good faith judgment of Auburn's Board of Directors, such
delay is necessary in order to avoid interference with a planned material
transaction involving Auburn or Auburn is in possession of material
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<PAGE>
information that it deems advisable in good faith not to disclose in a
registration statement. With respect to any registration pursuant to clause (b)
above, if such registration relates to a firm commitment underwriting of
securities to be sold by Auburn, Auburn may decline to include all or any
portion of the Option Shares owned by ValliCorp or any transferee if the
inclusion of such shares would, in the judgment of the managing underwriter in
such underwriting, materially interfere therewith, and, further, nothing herein
shall prevent Auburn from abandoning or delaying at any time any registration
pursuant to clause (b) above.
10. Non-Assignability. This Agreement shall be binding upon and inure to
-----------------
the benefit of the parties hereto and the successors of each of the undersigned.
This Agreement and any right hereunder shall not be assignable by either party
except that ValliCorp may transfer the Option, the Option Shares, or any portion
thereof in accordance with Section 10.(f). A merger or consolidation of
ValliCorp (whether or not ValliCorp is the surviving entity) or an acquisition
of ValliCorp shall not be deemed an assignment or transfer.
11. Regulatory Restrictions. Auburn shall use its best efforts to
-----------------------
obtain or to cooperate with ValliCorp or any transferee in obtaining all
necessary regulatory consents, approvals, waivers, or other action (whether
regulatory, corporate, or other) to permit the acquisition of any or all Option
Shares by ValliCorp or any transferee.
12. Remedies. Auburn agrees that if for any reason ValliCorp or any
--------
transferee shall have exercised its rights under this Agreement and Auburn shall
have failed to issue the Option Shares to be issued upon such exercise or to
perform its other obligations under this Agreement, unless such action would
violate any applicable law or regulation by which Auburn is bound, then
ValliCorp or any transferee shall be entitled to specific performance and
injunctive and other equitable relief. ValliCorp agrees that if it shall fail to
perform any of its obligations under this Agreement, then Auburn shall be
entitled to specific performance and injunctive and other equitable relief. This
provision is without prejudice to any other rights that Auburn or ValliCorp or
any transferee may have against the other party for any failure to perform its
obligations under this Agreement.
13. No Rights as Stockholder. This Option, prior to the exercise
------------------------
hereof, shall not entitle the holder hereof to any rights as a stockholder of
Auburn at law or in equity; specifically this Option shall not entitle the
holder to vote on any matter presented to the stockholders of Auburn or to any
notice of any meetings of stockholders or any other proceedings of Auburn.
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<PAGE>
14. Miscellaneous.
-------------
(a) Termination. This Agreement and the Option, to the extent not
-----------
previously exercised, shall terminate upon the earliest of (i) December 31,
1996; (ii) the mutual agreement of the parties hereto; (iii) thirty-one (31)
days after the date on which any application for regulatory approval for the
Merger shall have been denied; provided, however, that if prior to the
expiration of such thirty-one (31) day period Auburn or ValliCorp is engaged in
litigation or an appeal procedure relating to an attempt to obtain approval of
the Merger, this Agreement will not terminate until the earlier of (A) December
31, 1996 or (B) thirty-one (31) days after the completion of such litigation and
appeal procedure; (iv) the ninetieth (90) day following the termination of the
Merger Agreement for any reason other than a material noncompliance or default
by ValliCorp with respect to its conditions or obligations thereunder; or, (v)
the date of termination of the Merger Agreement if such termination is due to a
material noncompliance or default by ValliCorp with respect to its conditions or
obligations thereunder; provided, however, that if the Option has been
exercised, in whole or in part, prior to the termination of this Agreement, then
such exercise shall close pursuant to Section 4 hereof even though such closing
date is after the termination of this Agreement; and, provided further, that if
the Option is sold prior to the termination of this Agreement, such Option may
be exercised by the transferee at any time within thirty-one (31) days after the
date of termination even though such exercise or the closing of such exercise
occurs after the termination of this Agreement.
(b) Amendments. This Agreement may not be modified, amended,
----------
altered, or supplemented, except upon the execution and delivery of a written
agreement executed by the parties hereto.
(c) Severability of Terms. Any provision of this Agreement that is
---------------------
invalid, illegal, or unenforceable shall be ineffective only to the extent of
such invalidity, illegality, or unenforceability without affecting in any way
the remaining provisions hereof or rendering any other provisions of this
Agreement invalid, illegal, or unenforceable. Without limiting the generality
of the foregoing, if the right of ValliCorp or any transferee to exercise the
Option in full for the total number of shares of Common Stock or other
securities or property issuable upon the exercise of the Option is limited by
applicable law, or otherwise, ValliCorp or any transferee may, nevertheless,
exercise the Option to the fullest extent permissible.
(d) Attorneys' Fees. If any legal action or any arbitration upon
---------------
mutual agreement is brought for the enforcement of this Agreement or because of
an alleged dispute, breach, or default in connection with this Agreement, the
prevailing party shall be entitled to recover reasonable attorneys' fees and
other costs and
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<PAGE>
expenses incurred in that action or proceeding, in addition to any other relief
to which it may be entitled.
(e) Notices. All notices, requests, claims, demands, and other
-------
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly received if so given) by delivery, by cable,
telecopier, or telex, or by registered or certified mail, postage prepaid,
return receipt requested, to the respective parties as follows:
If to Auburn:
Auburn Bancorp
Attn: John G. Briner, President
540 Wall Street
Auburn, CA 95603
Telecopy: (916) 888-9185
With copies to:
Loeb and Loeb
Attn: Robert S. Barry, Jr., Esq.
1000 Wilshire Blvd., Suite 1800
Los Angeles, CA 90017-2475
Telecopy: (213) 688-3460
Gary Steven Findley & Associates
Attn: Gary Steven Findley, Esq.
1470 North Hundley Street
Anaheim, CA 92806
Telecopy: (714) 630-7910
If to ValliCorp:
ValliCorp Holdings, Inc.
8405 North Fresno Street
Third Floor
Fresno, California 93720
Attn: E.L. Herbert, Esq.,
Executive Vice President/General Counsel
and Secretary
Telecopy: (209) 437-0231
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
only be effective upon receipt.
(f) Governing Law. This Agreement and the Option, in all respects,
-------------
including all matters of construction, validity, and performance, are governed
by the internal laws of the State of California without giving effect to the
principles of conflicts of law thereof. This Agreement is being delivered in
Fresno, California.
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<PAGE>
(g) Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
(h) Effects of Headings. The section headings herein are for
-------------------
convenience only and shall not affect the construction hereof.
Dated as of the day and year first written above.
VALLICORP HOLDINGS, INC. AUBURN BANCORP
By:__________________________ By: ______________________________
Its:_________________________ By: ______________________________
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<PAGE>
APPENDIX B
FAIRNESS OPINION OF
THE FINDLEY GROUP
<PAGE>
May 29, 1996
The Board of Directors
Auburn Bancorp
540 Wall Street
Auburn, California 95603
Attn: Dwight D. Odom, Chairman
Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to the common shareholders of Auburn Bancorp ("Auburn") of the Conversion
Ratio as defined in the Agreement and Plan of Reorganization and Merger, dated
as of March 27, 1996 (the "Merger Agreement"), by and among Auburn and ValliCorp
Holdings, Inc. ("ValliCorp"). The Merger Agreement provides for the merger of
Auburn with and into ValliCorp (the "Merger"). In addition, The Bank of
Commerce, N.A., Auburn's wholly owned subsidiary ("Bank") shall be merged with
and into ValliWide Bank, ValliCorp's wholly owned subsidiary ("ValliWide"). In
connection with the Merger, each outstanding share of common stock no par value,
of Auburn ("Auburn Common Stock"), except as otherwise set forth in the Merger
Agreement, will be exchanged for .8209 shares of ValliCorp common stock, no par
value. All capitalized terms used but not defined in this letter, shall have
the meanings specified in the Merger Agreement.
Please be advised that while certain provisions of the Merger are summarized
above, the terms of the Merger are more fully described in the Merger Agreement.
As a result, the description of the Merger and certain other information
contained herein is qualified in its entirety by reference to the more detailed
information appearing or incorporated by reference in the Merger Agreement.
In arriving at our opinion, we have reviewed (i) the Merger Agreement; (ii) a
draft of the proxy statement/prospectus relating to the special meeting to be
held in connection with the Merger Agreement (the "Proxy Statement"); (iii) the
audited annual financial statements of ValliCorp on Form 10-K and Auburn on Form
10-K for the five years ended December 31, 1995 and the quarterly unaudited
financial statements of ValliWide on Form 10-Q and Auburn on Form 10-Q for the
period ended March 31, 1996, and certain unaudited financial analyses and
projections of Auburn; (iv) the March 31, 1996 Call Reports for ValliWide and
Bank; (v) current and historical market prices of the common stock of ValliCorp
and Auburn; (vi) certain publicly available information concerning the business
of ValliCorp and Auburn and of certain other companies engaged in businesses
comparable to ValliCorp and Auburn, and the reported prices for certain other
companies' securities deemed comparable; (vii) publicly available terms of
certain transactions involving companies comparable to Auburn and the
consideration
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Auburn Board of Directors - 2 - May 29, 1996
received for such companies; (viii) certain internal financial analyses and
forecasts prepared by Auburn and its management; (ix) the terms of other
relevant business combinations; (x) such other financial studies, analyses and
other information we deemed appropriate for the purposes of this opinion; and
(xi) a valuation report provided to the Board of Directors of Auburn from Gerry
Findley, Incorporated, dated May 22, 1996.
During the first quarter of 1996, ValliCorp completed the acquisition of two
financial institutions on a share exchange basis, which transactions were
accounted for on a pooling of interest basis. Such accounting reduced first
quarter reported net income per share due to the expensing of merger costs for
those transactions. We have also reviewed restated December 31, 1995 and March
31, 1996 financial statements for ValliCorp that reflect these recent
acquisitions.
In addition, we have held discussions with certain members of the management of
Auburn and ValliCorp with respect to certain aspects of the Merger; the past and
current business operations of Auburn and ValliCorp; the financial condition,
regulatory condition, and future prospects and operations of Auburn and
ValliCorp; and certain other matters we believed necessary or appropriate to our
inquiry.
In performing such analysis, we have used such valuation methodologies as we
have deemed necessary or appropriate for the purposes of this opinion. Our view
is based on (i) our consideration of the information Auburn and ValliCorp have
supplied to us to date, (ii) our understanding of the terms upon which Auburn
and ValliCorp intend to consummate the Merger, and (iii) the consummation of the
Merger within the time periods contemplated by the Merger Agreement.
In rendering our opinion, we have relied upon and assumed, without assuming any
responsibility or liability for independent verification, the accuracy and
completeness of all information that was publicly available or was furnished to
us by Auburn or ValliCorp or otherwise reviewed by The Findley Group, and we
have not assumed any responsibility or liability therefore. We have not
conducted any valuation or appraisal of any assets or liabilities, nor have any
such valuations or appraisals been provided to us. In relying on financial
analyses provided to us by Auburn, we have assumed that they have been
reasonably prepared based on assumptions reflecting the best currently available
estimates and judgments by management as to the expected future results of
operations and financial condition of Auburn, including, without limitation,
projections regarding underperforming and nonperforming assets and net charge-
offs to which such analyses or forecasts relate. We are not experts in the
evaluation of allowances for loan losses and we have not assumed any
responsibility for making
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Auburn Board of Directors - 3 - May 29, 1996
an independent evaluation of the adequacy of the allowance for loan losses of
Auburn or ValliCorp nor have we reviewed any of the credit files. We have also
assumed that the Merger Will have the tax consequences described in the Proxy
Statement and in discussions with, and materials furnished to us by,
representatives of Auburn. We have relied as to all legal matters relevant to
rendering our opinion upon the advice of counsel.
Our opinion is necessarily based on economic, market and of the conditions as in
effect on, and the information made available to us as of, the date hereof. It
should be understood that subsequent developments may affect this opinion and
that we do not have any obligation to update, revise, or reaffirm this opinion.
We have acted as investment banker and financial advisor to Auburn with respect
to the proposed Merger and will receive a fee from Auburn for our services.
Please be advised that we have no other current financial advisory or other
relationships with Auburn or ValliCorp except that Gary Steven Findley &
Associates, which is an affiliated company to The Findley Group, has provided
ongoing consulting/legal services to Auburn. Gerry Findley, Incorporated, a
consulting firm operated by the father of the principal of The Findley Group and
Gary Steven Findley & Associates, has provided consulting services to Auburn and
the principal of Gerry Findley, Incorporated has beneficial ownership of 12,991
shares of Auburn common stock. Principals of The Findley Group and Gary Steven
Findley & Associates have beneficial ownership in Auburn common stock of 10,165
shares and have beneficial ownership in ValliCorp common stock of 247 shares.
This letter is provided solely for the benefit of the Board of Directors of
Auburn in connection with and for the purposes of its evaluation of the Merger.
This opinion may not be disclosed, referred to, or communicated by you (in whole
or in part) to any third party for any purpose whatsoever except with our prior
written consent in each instance. This opinion may be reproduced in full in any
proxy or information statement mailed to common stockholders of Auburn but may
not otherwise be disclosed publicly in any manner without our prior written
approval and must be treated as confidential. Our opinion is directed to the
Board of Directors of Auburn and does not constitute a recommendation to any
shareholder of Auburn as to how such shareholder should vote at any meeting of
Auburn held in connection with the Merger or as to any other action which such
shareholders may take.
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Auburn Board of Directors - 4 - May 29, 1996
On the basis of and subject to the foregoing, it is our opinion as of the date
hereof that the Conversion Ratio is fair, from a financial point of view, to the
common shareholders of Auburn.
Very truly yours,
THE FINDLEY GROUP
By: /s/ Gary Steven Findley
Director
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<PAGE>
APPENDIX C
CHAPTER 13 OF THE CALIFORNIA
GENERAL CORPORATION LAW
<PAGE>
APPENDIX C
CALIFORNIA GENERAL CORPORATION LAW
(S) 1300. REORGANIZATION OR SHORT-FORM MERGER; DISSENTING SHARES; CORPORATION
PURCHASE AT FAIR MARKET VALUE; DEFINITIONS
(a) If the approval of the outstanding shares (Section 152) of a
corporation is required for a reorganization under subdivisions (a) and (b) or
subdivision (e) or (f) of Section 1201, each shareholder of the corporation
entitled to vote on the transaction and each shareholder of a subsidiary
corporation in a short-form merger may, by complying with this chapter, require
the corporation in which the shareholder holds shares to purchase for cash at
their fair market value the shares owned by the shareholder which are dissenting
shares as defined in subdivision (b). The fair market value shall be determined
as of the day before the first announcement of the terms of the proposed
reorganization or short-form merger, excluding any appreciation or depreciation
in consequence of the proposed action, but adjusted for any stock split, reverse
stock split, or share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which
come within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or short-
form merger either (A) listed on any national securities exchange certified by
the Commissioner of Corporations under subdivision (o) of Section 25100 or (B)
listed on the list of OTC margin stocks issued by the Board of Governors of the
Federal Reserve System, and the notice of meeting of shareholders to act upon
the reorganization summarizes this section and Sections 1301, 1302, 1303 and
1304; provided, however, that this provision does not apply to any shares with
respect to which there exists any restriction on transfer imposed by the
corporation or by any law or regulation; and provided, further, that this
provision does not apply to any class of shares described in subparagraph (A) or
(B) if demands for payment are filed with respect to 5 percent or more of the
outstanding shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted in
favor of the reorganization or, (B) if described in subparagraph (A) or (B) of
paragraph (1) (without regard to the provisos in that paragraph), were voted
against the reorganization, or which were held of record on the effective date
of a short-form merger; provided, however, that subparagraph (A) rather than
subparagraph (B) of this paragraph applies in any case where the approval
required by Section 1201 is sought by written consent rather than at a meeting.
(3) Which the dissenting shareholder has determined that the
corporation purchase at their fair market value, in accordance with Section
1301.
(4) Which the dissenting shareholder has submitted for endorsement,
in accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the
recordholder of dissenting shares and includes a transferee of record.
(S) 1301. NOTICE TO HOLDERS OF DISSENTING SHARES IN REORGANIZATIONS; DEMAND FOR
PURCHASE; TIME; CONTENTS.
(a) If, in the case of a reorganization, any shareholders of a
corporation have a right under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, to require the corporation to
purchase their shares for cash, such corporation shall mail to each such
shareholder a notice of
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the approval of the reorganization by its outstanding shares (Section 152)
within ten (10) days after the date of such approval, accompanied by a copy of
Sections 1300, 1302, 1303, 1304 and this section, a statement of the price
determined by the corporation to represent the fair market value of the
dissenting shares, and a brief description of the procedure to be followed if
the shareholder desires to exercise the shareholder's right under such sections.
The statement of price constitutes an offer by the corporation to purchase at
the price stated any dissenting shares as defined in subdivision (b) of Section
1300, unless they lose their status as dissenting shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to
purchase the shareholder's shares for cash under Section 1300, subject to
compliance with paragraphs (3) and (4) of subdivision (b) thereof, and who
desires the corporation to purchase such shares shall make written demand upon
the corporation for the purchase of such shares and payment to the shareholder
in cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within thirty (30) days after the
date on which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of
record by the shareholder which the shareholder demands that the corporation
purchase and shall contain a statement of what such shareholder claims to be the
fair market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market
value constitutes an offer by the shareholder to sell the shares at such price.
(S) 1302. SUBMISSION OF SHARE CERTIFICATES FOR ENDORSEMENT; UNCERTIFICATED
SECURITIES
Within thirty (30) days after the date on which notice of the approval
by the outstanding shares or the notice pursuant to subdivision (i) of Section
1110 was mailed to the shareholder, the shareholder shall submit to the
corporation at its principal office or at the office of any transfer agent
thereof, (a) if the shares are certificated securities, the shareholder's
certificates representing any shares which the shareholder demands that the
corporation purchase, to be stamped or endorsed with a statement that the shares
are dissenting shares or to be exchanged for certificates of appropriate
denomination so stamped or endorsed or (b) if the shares are uncertificated
securities, written notice of the number of shares which the shareholder demands
that the corporation purchase. Upon subsequent transfers of the dissenting
shares on the books of the corporation, the new certificates, initial
transaction statement, and other written statements issued therefor shall bear a
like statement, together with the name of the original dissenting holder of the
shares.
(S) 1303. PAYMENT OF AGREED PRICE WITH INTEREST; AGREEMENT FIXING FAIR MARKET
VALUE; FILING; TIME OF PAYMENT
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the
fair market value of any dissenting shares as between the corporation and the
holders thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair
market value of dissenting shares shall be made within thirty (30) days after
the amount thereof has been agreed or within thirty (30) days after any
statutory or contractual conditions to the reorganization are satisfied,
whichever is later, and in the case of certificated securities, subject to
surrender of the certificates therefor, unless provided otherwise by agreement.
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<PAGE>
(S) 1304. ACTION TO DETERMINE WHETHER SHARES ARE DISSENTING SHARES OR FAIR
MARKET VALUE; LIMITATION; JOINDER; CONSOLIDATION; DETERMINATION OF ISSUES;
APPOINTMENT OF APPRAISERS
(a) If the corporation denies that the shares are dissenting shares,
or the corporation and the shareholder fail to agree upon the fair market value
of the shares, then the shareholder demanding purchase of such shares as
dissenting shares or any interested corporation, within six months after the
date on which notice of the approval by the outstanding shares (Section 152) or
notice pursuant to subdivision (i) of Section 1110 was mailed to the
shareholder, but not thereafter, may file a complaint in the superior court of
the proper county praying the court to determine whether the shares are
dissenting shares or the fair market value of the dissenting shares or both or
may intervene in any action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be
joined as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues.
If the status of the shares as dissenting shares is in issue, the court shall
first determine that issue. If the fair market value of the dissenting shares is
in issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
(S) 1305. REPORT OF APPRAISERS; CONFIRMATION; DETERMINATION BY COURT; JUDGMENT;
PAYMENT; APPEAL; COSTS
(a) If the court appoints an appraiser or appraisers, they shall
proceed forthwith to determine the fair market value per share. Within the time
fixed by the court, the appraisers, or a majority of them, shall make and file a
report in the office of the clerk of the court. Thereupon, on the motion of any
party, the report shall be submitted to the court and considered on such
evidence as the court considers relevant. If the court finds the report
reasonable, the court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a
report within ten (10) days from the date of their appointment or within such
further time as may be allowed by the court or the report is not confirmed by
the court, the court shall determine the fair market value of the dissenting
shares.
(c) Subject to the provisions of Section 1306, judgment shall be
rendered against the corporation for payment of an amount equal to the fair
market value of each dissenting share multiplied by the number of dissenting
shares which any dissenting shareholder who is a party, or who has intervened,
is entitled to require the corporation to purchase, with interest thereon at the
legal rate from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considered equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of Section
1301).
(S) 1306. PREVENTION OF IMMEDIATE PAYMENT; STATUS AS CREDITORS; INTEREST
To the extent that the provisions of Chapter 5 prevent the payment to
any holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other
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<PAGE>
creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
(S) 1307. DIVIDENDS ON DISSENTING SHARES
Cash dividends declared and paid by the corporation upon the
dissenting shares after the date of approval of the reorganization by the
outstanding shares (Section 152) and prior to payment for the shares by the
corporation shall be credited against the total amount to be paid by the
corporation therefor.
(S) 1308. RIGHTS OF DISSENTING SHAREHOLDERS PENDING VALUATION; WITHDRAWAL OF
DEMAND FOR PAYMENT
Except as expressly limited in this chapter, holders of dissenting
shares continue to have all the rights and privileges incident to their shares,
until the fair market value of their shares is agreed upon or determined. A
dissenting shareholder may not withdraw a demand for payment unless the
corporation consents thereto.
(S) 1309. TERMINATION OF DISSENTING SHARE AND SHAREHOLDER STATUS
Dissenting shares lose their status as dissenting shares and the
holders thereof cease to be dissenting shareholders and cease to be entitled to
require the corporation to purchase their shares upon the happening of any of
the following:
(a) The corporation abandons the reorganization. Upon abandonment of
the reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys' fees.
(b) The shares are transferred prior to their submission for
enforcement in accordance with Section 1302 or are surrendered for conversion
into shares of another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon
the status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
(S) 1310. SUSPENSION OF RIGHT TO COMPENSATION OR VALUATION PROCEEDINGS;
LITIGATION OF SHAREHOLDERS' APPROVAL
If litigation is instituted to test the sufficiency or regularity of
the votes of the shareholders in authorizing a reorganization, any proceedings
under Sections 1304 and 1305 shall be suspended until final determination of
such litigation.
(S) 1311. EXEMPT SHARES
This chapter, except Section 1312, does not apply to classes of shares
whose terms and provisions specifically set forth the amount to be paid in
respect to such shares in the event of a reorganization or merger.
(S) 1312. RIGHT OF DISSENTING SHAREHOLDER TO ATTACK, SET ASIDE OR RESCIND
MERGER OR REORGANIZATION; RESTRAINING ORDER OR INJUNCTION; CONDITIONS
(a) No shareholder of a corporation who has a right under this
chapter to demand payment of cash for the shares held by the shareholder shall
have any right at law or in equity to attack the validity of the
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<PAGE>
reorganization or short-form merger, or to have the reorganization or short-form
merger set aside or rescinded, except in an action to test whether the number of
shares required to authorize or approve the reorganization have been legally
voted in favor thereof; but any holder of shares of a class whose terms and
provisions specifically set forth the amount to be paid in respect to them in
the event of a reorganization or short-form merger is entitled to payment in
accordance with those terms and provisions or, if the principal terms of the
reorganization are approved pursuant to subdivision (b) of Section 1202, is
entitled to payment in accordance with the terms and provisions of the approved
reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger subdivision (a) shall not apply
to any shareholder of such party who has not demanded payment of cash for such
shareholder's shares pursuant to this chapter; but if the shareholder institutes
any action to attack the validity of the reorganization or short-form merger or
to have the reorganization or short-form merger set aside or rescinded, the
shareholder shall not thereafter have any right to demand payment of cash for
the shareholder's shares pursuant to this chapter. The court in any action
attacking the validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded shall not restrain or
enjoin the consummation of the transaction except upon ten (10) days' prior
notice to the corporation and upon a determination by the court that clearly no
other remedy will adequately protect the complaining shareholder or the class of
shareholders of which such shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled.
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The directors and officers of ValliCorp (the "Corporation") may be
indemnified by the Corporation pursuant to the provisions of Article VIII of the
Bylaws. Article VIII reads as follows:
"ARTICLE VIII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1. Right to Indemnification. Each person who was or is made a
party or is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative
("proceeding"), by reason of the fact that he or she or a person of whom he or
she is the legal representative, is or was a director or executive officer of
the Corporation or is or was serving at the request of the Corporation as a
director, officer or employee of another corporation, or of a partnership, joint
venture, trust or other enterprise, including service with respect to employee
benefit plans, whether the basis of such proceeding is alleged action in an
official capacity as a director or executive officer or in any other capacity
while serving as a director or executive officer, shall be indemnified and held
harmless by the Corporation to the fullest extent authorized by Delaware law, as
the same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than said Law permitted the Corporation
to provide prior to such amendment) against all expenses, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or penalties,
amounts paid or to be paid in settlement and amounts expended in seeking
indemnification granted to such person under applicable law, this Bylaw or any
agreement with the Corporation) reasonably incurred or suffered by such person
in connection therewith and such indemnification shall continue as to a person
who has ceased to be a director or executive officer and shall inure to the
benefit of his or her heirs, executors and administrators; provided, however,
that, except as provided in Section 2 of this Article VIII, the Corporation
shall indemnify any such person seeking indemnity in connection with an action,
suit or proceeding (or part thereof) initiated by such person only if such
action, suit or proceeding (or part thereof) was authorized by the Board of
Directors of the Corporation. Such right shall be a contract right and shall
include the right to be paid by the Corporation expenses incurred in defending
any such proceeding in advance of its final disposition; provided, however,
that, if the Delaware General Corporation Law then so requires, the payment of
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<PAGE>
such expenses incurred by a director or executive officer of the Corporation in
his or her capacity as a director or executive officer (and not in any other
capacity in which service was or is rendered by such person while a director or
executive officer, including, without limitation, service to an employee benefit
plan) in advance of the final disposition of such proceeding, shall be made only
upon delivery to the Corporation of an undertaking, by or on behalf of such
director or executive officer, to repay all amounts so advanced if it should be
determined ultimately that such director or executive officer is not entitled to
be indemnified under this Section or otherwise. For purposes of this Article
VIII, "executive officer" shall mean the President, Secretary, Chief Financial
Officer, and any other officer who is so designated as such in a resolution of
the Board of Directors that expressly refers to this Article.
Section 2. Right of Claimant to Bring Suit. If a claim under Section 1 is
not paid in full by the Corporation within thirty (30) days after a written
claim has been received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim and, if such suit is not frivolous or brought in bad faith, the
claimant shall be entitled to be paid also the expense of prosecuting such
claim. In making such claim, the claimant shall have the burden of proving that
the claimant has met the standards of conduct which make it permissible under
the Delaware General Corporation Law for the Corporation to indemnity the
claimant for the amount claimed. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
shareholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
Delaware General Corporation Law, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel, or its
shareholders,) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
Section 3. Non-Exclusivity of Rights. The rights conferred on any person
in Section 1 and 2 shall not be exclusive of any other right which such persons
may have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaw, agreement, vote of shareholders or disinterested directors
or otherwise.
Section 4. Indemnification Contracts. The Board of Directors is
authorized to enter into a contract with any director, officer, employee or
agent of the Corporation, or any person serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, including employee
benefit plans, providing for indemnification rights equivalent to or, if the
Board of Directors
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<PAGE>
so determines, greater than, those provided for in this Article VIII.
Section 5. Insurance. The Corporation shall maintain insurance to the
extent that it is reasonably available and the premium costs are not
disproportionate to the amount of coverage provided, at its expense, to protect
itself and any such director or executive officer of the Corporation or another
corporation, partnership, joint venture, trust or other enterprise against any
such expense, liability or loss, whether or not the Corporation would have the
power to indemnify such person against such expense, liability or loss under the
Delaware General Corporation Law.
Section 6. Effect of Amendment. Any amendment, repeal or modification of
any provision of this Article VIII by the shareholders and the directors of the
Corporation shall not adversely affect any right or protection of a director or
officer of the Corporation existing at the time of such amendment, repeal or
modification.
Section 7. Settlement of Claims. The Corporation shall not be liable to
indemnify any director or executive officer under this Article VIII: (i) for
any amounts paid in settlement of any action or claim effected without the
Corporation's written consent, which consent shall not be unreasonably withheld
or (ii) for any judicial award, if the Corporation was not given a reasonable
and timely opportunity, at its expense, to participate in the defense of such
action.
Section 8. Subrogation. In the event of payment under this Article VIII,
the Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of the indemnified party who shall execute all papers
required and shall do everything that may be necessary to secure such rights,
including, without limitation, the execution of such documents necessary to
enable the Corporation effectively to bring suit to enforce such rights.
Section 9. No Duplication of Payments. The Corporation shall not be
liable under this Article VIII to make any payment in connection with any claim
made against the director or executive officer to the extent such director or
executive officer has otherwise actually received payment (under any insurance
policy, agreement, vote, or otherwise) of the amounts otherwise indemnifiable
hereunder."
The Registrant's bylaws provide for indemnification of legal
representatives, directors, and executive officers of the Registrant or persons
serving at the request of the Registrant as a director, officer, or employee of
another corporation, or a partnership, joint venture, trust, or other
enterprise, including service with respect to employee benefits (an
"Indemnitee"). Under the Bylaws, the Registrant must indemnify an Indemnitee to
the
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<PAGE>
fullest extent permitted by Delaware law for losses and expenses incurred in
connection with actions in which the Indemnitee is involved by reason of having
been an Indemnitee of the Registrant. The Registration is also obligated to
advance expenses an Indemnitee may incur in connection with such actions before
any resolution of the action and the Indemnitee may sue to enforce his or her
right to indemnification or advancement of expenses.
The Registrant has agreed to indemnify, and maintain directors' and
officers' liability insurance for, the officers and directors of Auburn if the
Merger is consummated (see "MERGER-Indemnification"). Under similar provisions,
the Registrant has agreed to indemnify, and does provide directors' and
officers' liability insurance for, officers and directors of corporations
previously merged with and into Registrant. The Registrant also maintains an
insurance policy insuring its directors and executive officers against liability
for certain acts and omissions while acting in their official capacities.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
See "INDEX TO EXHIBITS" of this Registration Statement on Form S-4.
ITEM 22. UNDERTAKINGS.
(a) 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 of 1933;
(ii) To reflect in the Prospectus any facts or events arising
after the effective date of the Registration Statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the Registration Statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of
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<PAGE>
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.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
securities Exchange Act of 1934) 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.
(1) 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), 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.
(2) The Registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, 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 of 1933, 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.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the 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
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<PAGE>
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 or appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the 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.
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<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF FRESNO AND THE STATE OF
CALIFORNIA ON THIS 20TH DAY OF JUNE, 1996.
VALLICORP HOLDINGS, INC.
(Registrant)
By: /s/J. Mike McGowan
---------------------------------
J. Mike McGowan,
Chairman of the Board of Directors/
Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
Signature Title Date
- --------- ----- ----
/s/ J. Mike McGowan Chairman of the June 20, 1996
- ----------------------------
J. Mike McGowan Board/Chief Executive
Officer (Principal
Executive Officer)
and Director
/s/Wolfgang T.N. Muelleck Executive Vice June 20, 1996
- ----------------------------
Wolfgang T.N. Muelleck President/Chief
Financial and
Operations Officer
(Principal Financial
Officer and Principal
Accounting Officer)
* Vice Chairman of June 20, 1996
- -----------------------------
Patrick J. MonPere the Board of Directors
and Director
* Director June 20, 1996
- -----------------------------
William A. Benneyan
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<PAGE>
* Director June 20, 1996
- -----------------------------
Louis H. Herwaldt
* Director June 20, 1996
- -----------------------------
Lorenzo Tony Ortega, Ph.D
* Director June 20, 1996
- -----------------------------
Steven C. Pumphrey
* Director June 20, 1996
- -----------------------------
V. Eugene Ross
* Director June 20, 1996
- -----------------------------
Michael J. Ryan, Jr.
* Director June 20, 1996
- -----------------------------
Jerry K. Stanners
* Director June 20, 1996
- -----------------------------
Charles L. Tingey
* J. Mike McGowan hereby signs this Registration Statement on June 20, 1996
on behalf of each of the persons so indicated for whom he is attorney-in-
fact pursuant to a power of attorney filed herewith, which persons
constituted a majority of the members of the Registrant's Board of
Directors.
/s/J Mike McGowan
------------------------------------
J. Mike McGowan
II-8
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT FOOTNOTE REFERENCE
NUMBER EXHIBIT IF NOT ATTACHED
- ------ ------- ---------------
<S> <C> <C>
2.1 Agreement and Plan of (1)
Reorganization between Registrant
and Auburn dated as of March 27,
1996
2.2 Omitted schedules _____
4.1 Form of Indenture, dated as of (2)
April 1, 1986, and as of May 27,
1986, as to The MacDonald Group,
Ltd., relating to Fresno Bancorp's
[Registrant's] Floating Rate
Convertible Subordinated Debenture
(the "Indenture")
4.2 Form of Supplemental Indenture (3)
amending the Indenture, dated as of
March 27, 1987
4.3 Form of Supplemental Indenture (4)
amending the Indenture, dated as of
August 1, 1989
4.4 Registrant's Rights Agreement with (5)
First Interstate Bank of
California, dated as of March 25,
1996
5 Opinion of E.L. Herbert, Esq. as to _____
validity of securities registered
8 Opinion of Deloitte & Touche LLP as _____
to certain Federal and California
state tax consequences
13.1 Auburn's Annual Report on Form 10-K (6)
for the year ended December 31,
1995 (which does not incorporate
---
information from its Annual Report
to Shareholders), a copy of which
is to be delivered to Auburn's
shareholders with the Proxy
Statement-Prospectus
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
13.2 Auburn's Quarterly Report on Form (7)
10-Q for the quarter ended March
31, 1996, a copy of which is to be
delivered to Auburn's shareholders
with the Proxy Statement-Prospectus
23.1 Consent of Deloitte & Touche LLP, _____
independent auditors for the
Registrant
23.2 Consent of Perry-Smith & Co., _____
independent auditors for Auburn
23.3 Consent of Ernst & Young LLP, _____
former independent auditors for the
Registrant
23.4 Consent of Price Waterhouse LLP, _____
independent auditors of Mineral
King Bancorp, Inc., previously
merged into Registrant
23.5 Consent of Grant Thornton LLP, _____
independent auditors for El Capitan
Bancshares, Inc., previously merged
into Registrant
23.6 Consent of E.L. Herbert, Esq. Contained
regarding original opinion in
Exhibit 5
23.7 Consent of Deloitte & Touche LLP as Contained
to opinion about certain Federal in
and California state taxes Exhibit 8
23.8 Consent of The Findley Group with Contained
respect to fairness opinion in
Exhibit 99.1
24 Power of Attorney _____
99.1 Fairness Opinion of The Findley (8)
Group
99.2 Form of Proxy for Auburn's Annual _____
Meeting of Shareholders
</TABLE>
_________________________
(1) Attached as Appendix A to the Proxy Statement-Prospectus contained in Part
I of this Registration Statement.
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<PAGE>
(2) Incorporated by reference from the exhibits included with the Annual
Report on Form 10-K for the fiscal year ended December 31, 1986,
previously filed by Registrant's predecessor, Fresno Bancorp "Bancorp"),
with the Commission.
(3) Incorporated by reference from the exhibits included with Amendment No. 1
to Bancorp's Registration Statement on Form S-4 (Registration No. 33-
13741), previously filed with the Commission.
(4) Incorporated by reference from the exhibits included with Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31, 1989,
previously filed with the Commission.
(5) Incorporated by reference from the exhibits included with the Registrant's
Registration Statement on Form 8-A (Registration No. 8A-0-18202),
previously filed with the Commission.
(6) Incorporated by reference to Auburn Bancorp's Form 10-K for the year ended
December 31, 1995 (I.R.S. Employer Identification No. 94-2827787),
previously filed with the Commission.
(7) Incorporated by reference to Auburn Bancorp's Form 10-Q for the quarter
ended March 31, 1996 (I.R.S. Employer Identification No. 94-2827787),
previously filed with the Commission.
(8) Attached as Appendix B to the Proxy Statement-Prospectus contained in Part
I of this Registration Statement.
NOTE: Certain exhibits listed in the Exhibit Table for Securities Act forms in
Commission Regulation S-K, Item 601(a), are not applicable because the
Registrant has elected under this Form S-4 to provide information about
the Registrant at a level prescribed by Form S-3, and about Auburn Bancorp
(the company being acquired) at a level prescribed by Form S-2, and the
Form S-3 or S-2, as the case may be, would not require the Registrant to
provide such exhibits if it were registering a primary offering.
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<PAGE>
EXHIBIT 2.2
OMITTED SCHEDULES
<PAGE>
EXHIBIT 2.2
There are no schedules or other attachments to the Agreement and Plan of
Reorganization identified as Exhibit Number 2.1 and which is attached as
Appendix A to the Joint Proxy Statement-Prospectus contained in Part I of this
Registration Statement. As reflected in the Agreement and Plan of
Reorganization, both parties provided to the other Disclosure Letters which
contained qualifications to certain representations and warranties, and the
like. By its execution of this Registration Statement, Registrant agrees to
furnish supplementally a copy of either or both of such Disclosure Letters to
the Commission upon request.
<PAGE>
EXHIBIT 5
OPINION OF E.L. HERBERT AS TO VALIDITY
OF SECURITIES REGISTERED
<PAGE>
VALLICORP HOLDINGS, INC.
POST OFFICE BOX 5493
FRESNO, CALIFORNIA 937575-5493
June 18, 1996
Mr. J. Mike McGowan
Chairman and Chief Executive Officer
VALLICORP HOLDINGS, INC.
8405 North Fresno Street
Fresno, CA 93720
RE: REGISTRATION STATEMENT
Dear Mr. McGowan:
At your request, I have examined the Registration Statement on Form S-
4 proposed to be filed with the Securities and Exchange Commission (the
"Registration Statement") in connection with the registration under the
Securities Act of 1933, as amended, of an aggregate of 926,768 shares of Common
Stock of ValliCorp Holdings, Inc., par value one cent ($.01) per share (the
"Shares"). The Shares are to be offered and sold pursuant to an Agreement and
Plan of Reorganization dated as of March 27, 1996 (the "Agreement") between
ValliCorp Holdings, Inc., a Delaware corporation ("ValliCorp"), and Auburn
Bancorp, a California corporation ("Auburn"). The Agreement provides, among
other things, for the merger of Auburn with and into ValliCorp.
In rendering the opinion hereafter expressed, I have examined and
relied upon such documents and instruments as I have deemed appropriate.
In conducting my examination, I have assumed, without investigation,
the genuineness of all signatures, the correctness of all certificates, the
authenticity of all documents submitted to me as originals, the conformity to
original documents of all documents submitted to me as certified or photostatic
copies and the authenticity of the originals of such copies, and the accuracy
and completeness of all records made available to me. In addition, I have
assumed, without investigation, the accuracy of the representations and
statements as to factual matters made by ValliCorp in the Registration Statement
and the accuracy of representations and statements as to factual matters made by
officers, directors and employees of ValliCorp and by public officials. In
making my examination of documents, I have assumed, without investigation, that
each party (other than ValliCorp) to such documents has (i) the power and
capacity to enter into and perform all its obligations under such documents,
(ii) duly authorized all required actions with respect to such documents, and
(iii) duly executed and delivered such documents.
<PAGE>
Mr. J. Mike McGowan Page 2
June 18, 1996
I have also examined the actions heretofore taken and am familiar with
the actions proposed to be taken and the nature of the regulatory approvals and
authorizations that are required to be obtained by ValliCorp in connection with
the authorization and issuance or delivery of the Shares and the merger of
Auburn with and into ValliCorp, and, for purposes of this opinion, I have
assumed that all such actions will be taken and all such regulatory approvals
and authorizations will be obtained.
The opinion hereinafter expressed is subject, without investigation,
to the following additional assumptions:
A. All offers, sales and issuances of the Shares will be made and
consummated in a manner complying with the terms of the Registration Statement,
as finally amended.
B. The Registration Statement, as finally amended, will become and
remain effective, and the prospectus which is a part thereof, and the prospectus
delivery procedures with respect thereto, will fulfill all of the requirements
of the Securities Act of 1933, as amended, throughout all periods relevant to
this opinion.
C. All offers and sales of the Shares will be in compliance with the
securities laws of the states having jurisdiction thereof.
D. The total number of the Shares to be issued or delivered in
exchange for the outstanding shares of the Common Stock of Auburn and upon the
exercise of options to acquire the Common Stock of Auburn that are assumed by
ValliCorp will, upon issuance or delivery, represent less than twenty percent
(20%) of the voting power and total number of shares of ValliCorp outstanding
immediately prior to the effective date of the merger of Auburn with and into
ValliCorp.
E. The stock certificates representing the Shares will comply with
Delaware law and will be duly executed and delivered upon issuance.
F. A sufficient number of authorized and unissued Shares or Shares
held in ValliCorp's treasury will continue to be available.
G. Shares delivered from ValliCorp's treasury will have been validly
issued, fully paid and nonassessable upon the original issuance thereof.
The opinion hereafter expressed is subject to the following
qualifications:
<PAGE>
Mr. J. Mike McGowan Page 3
June 18, 1996
(a) My opinion below is limited to the matters expressly set forth in
this opinion letter, and no opinion is to be implied or may be inferred beyond
the matters expressly so stated.
(b) I disclaim any obligation to update this opinion letter for
events occurring after the date of this opinion letter.
(c) My opinion below is limited to the effect of the Delaware General
Corporation Law and of the federal laws of the United States; accordingly, I
express no opinion with respect to the laws of any other jurisdiction, or the
effect thereof, on the transactions contemplated by the Registration Statement.
Based upon and subject to the foregoing, and subject to the
consummation of the additional actions contemplated in the Registration
Statement, as finally amended, and the Agreement that are required to be taken
prior to the issuance or delivery of the Shares, and the receipt of all
regulatory approvals and authorizations required to be obtained in connection
with the merger of Auburn with and into ValliCorp, the Shares, when issued or
delivered, will be validly issued, fully paid and nonassessable.
This opinion letter is furnished to you in connection with the
registration of the Shares. Except as provided in this opinion letter, without
my prior written consent, this opinion letter may not be: (i) quoted in whole
or in part or otherwise referred to in any report or document, or (ii) furnished
(the original or copies thereof) to any party. Notwithstanding the preceding
sentence, I hereby consent to the filing of this opinion letter as an exhibit to
the Registration Statement and to the reference to my name under the caption
"Legal Matters" in the Proxy Statement-Prospectus which is included as a part of
the Registration Statement.
Sincerely,
E. L. Herbert
Executive Vice President
General Counsel
ELH/klk
<PAGE>
EXHIBIT 8
OPINION OF DELOITTE & TOUCHE LLP AS TO
CERTAIN FEDERAL AND CALIFORNIA STATE
TAX CONSEQUENCES
<PAGE>
June 17, 1996
The Board of Directors
ValliCorp Holdings, Inc.
8405 N. Fresno Street, Third Floor
Fresno, California 93720
Gentlemen:
You have requested our opinion regarding certain U.S. federal income and
California franchise tax consequences of the proposed merger of Auburn Bancorp
("Auburn") with and into ValliCorp Holdings, Inc. ("ValliCorp") (the "Auburn
Merger"), and the proposed merger of The Bank of Commerce ("TBOC") with and into
ValliWide Bank ("VWB") (the "Bank Merger"). (Hereinafter, the Auburn Merger and
the Bank Merger are referred to collectively as the "Mergers".)
In rendering this opinion, we have relied upon the facts, summarized below, as
they have been presented to us in the Statements of Facts and Representations
letters dated June 14, 1996 provided by the management of ValliCorp, VWB, Auburn
and TBOC; the Agreement and Plan of Reorganization dated March 27, 1996 between
ValliCorp Holdings, Inc. and Auburn Bancorp ("Agreement"); and the Registration
Statement (the May 31, 1996 draft of Form S-4) for the Proxy Statement of Auburn
and the Prospectus of ValliCorp Holdings, Inc., to be filed on or about July 15,
1996 (These are sometimes hereinafter referred to collectively as "Documents.")
FACTS
Auburn is a business corporation duly organized under laws of the State of
California, and is a registered bank holding company within the meaning of the
Federal Bank Holding Company Act of 1956, as amended. Auburn had authorized
capital stock consisting of 10,000,000 shares of no par common stock and
10,000,000 of preferred stock. 1,004,955 shares of Auburn common stock were
issued and outstanding as of March 31, 1996, and held by approximately 459
shareholders. No shares of Auburn preferred stock were issued and outstanding
as of March 31, 1996. Additionally, Auburn has authorized or reserved 389,497
shares for issuance under its Stock Option Plans, pursuant to which options
covering 124,011 shares of Auburn common stock were outstanding as of March 31,
1996. Auburn is not traded on any national exchange or on NASDAQ but is traded
over the counter. One individual owns, directly or constructively,
approximately six percent of the stock.
TBOC is a national banking association, duly organized under the laws of the
United States of America, engaged principally in the banking business. As of
March 31, 1996, the authorized capital stock of TBOC consists of 337,500 shares
of common stock, 250,000 of which are outstanding. TBOC is a wholly-owned
subsidiary of Auburn. Auburn and TBOC file a federal consolidated income tax
return.
ValliCorp is a business corporation duly organized under the laws of the State
of Delaware, and is a registered bank holding company within the meaning of the
Federal Bank Holding Company Act of 1956, as amended. ValliCorp has authorized
capital stock consisting of 40,000,000 shares of $.01 par value common stock and
5,000,000 shares of $.01 par value preferred stock, of which 13,309,353 common
shares are currently issued and outstanding as of March 31, 1996. In addition
to the capital stock, convertible debentures are outstanding which are
convertible into approximately 161,200 shares of common stock as of March 31,
1996. ValliCorp is traded on the NASDAQ exchange; the outstanding shares are
held by
<PAGE>
June 17, 1996
The Board of Directors
Page 2
approximately 3,763 shareholders. The directors of ValliCorp collectively own
1,296,225 shares of common stock and 93,271 shares of convertible debentures as
of March 31, 1996.
ValliCorp is the parent corporation of an affiliated group of corporations
filing a Federal consolidated income tax return. A chart of the corporations
expected to be included in ValliCorp's 1996 consolidated return is attached as
Exhibit A. The principal subsidiary of ValliCorp is VWB, a California state
banking corporation duly organized under the laws of California. As of March
31, 1996, the authorized capital stock of VWB consists of 6,000,000 shares of
common stock, 50 of which are outstanding.
BUSINESS REASONS FOR THE MERGERS
--------------------------------
The ValliCorp Board of Directors believes the Mergers offer potential for
achieving cost savings, earnings growth and the ability to compete more
effectively in its target market area. The cost savings are expected to be
achieved through personnel reductions and consolidation and elimination of
selected administrative, data processing and other overhead functions.
As discussed in the Proxy Statement--Prospectus under the caption "Reasons for
the Merger and Recommendation of the Board of Directors," the Auburn Board of
Directors "expects the surviving company to be stronger in terms of
management, growth opportunities and profitability than either institution at
present."
THE PROPOSED TRANSACTIONS
-------------------------
Pursuant to the Agreement and after all necessary regulatory and shareholder
approvals have been granted, there will be the merger of Auburn with and into
ValliCorp (i.e., the Auburn Merger) in accordance with all applicable
provisions of Delaware law. At the Effective Time of the Auburn Merger, the
separate existence of Auburn shall cease and ValliCorp shall thereafter
continue as the surviving corporate entity under the name ValliCorp.
In the Auburn Merger, ValliCorp will acquire all of the assets and assume all
of the liabilities of Auburn. As a result of the Auburn Merger, each issued
and outstanding share of Auburn shall be converted into the right to receive
0.8209 (the "Conversion Ratio") shares of ValliCorp common stock. Each share
of the issued and outstanding Auburn common stock shall cease to be
outstanding. The Conversion Ratio may be subject to a downward adjustment in
order to limit the maximum number of ValliCorp shares which will be issued on
the exchange pursuant to Article 2.1(b) of the Agreement. In the event of any
dilution of ValliCorp shares prior to the Effective Time, appropriate
adjustments will be made to the conversion ratio and the maximum number of
ValliCorp shares to be issued in the exchange pursuant to Article 2.1(c).
Article 2.1(c) of the Agreement also provides that if there is a "Triggering
of the Rights" as defined therein, the consideration received by the Auburn
shareholders would be adjusted to include "Rights Securities," which are
defined as preferred stock, cash or other assets.
At and as of the Effective Time, ValliCorp shall assume each and every
outstanding option to purchase shares of Auburn Common Stock ("Auburn Stock
Option") and all obligations of Auburn under the Auburn Stock Plans. Each and
every Auburn Stock Option so assumed by ValliCorp under
<PAGE>
June 17, 1996
The Board of Directors
Page 3
the Agreement shall continue to have, and be subject to, the same terms and
conditions set forth in the Auburn Stock Plans and in the other documents
governing such Auburn Stock Option immediately prior to the Effective Time,
except that: (i) such Auburn Stock Option shall be exercisable for that number
of whole shares of ValliCorp Common Stock equal to the product of (A) the
number of shares of Auburn Common Stock that were purchasable under such
Auburn Stock Option immediately prior to the Effective Time multiplied by (B)
the Conversion Ratio, rounded down to the nearest whole number of shares of
ValliCorp Common Stock; and (ii) the per share exercise price for the shares
of ValliCorp Common Stock issuable upon exercise of such Auburn Stock Option
shall be equal to the quotient determined by dividing (A) the exercise price
per share of Auburn Common Stock at which such Auburn Stock Option was
exercisable immediately prior to the Effective Time by (B) the Conversion
Ratio.
No fractional shares will be issued. Any shareholder who would be entitled to
receive a fraction of a share of ValliCorp common stock shall receive in lieu
thereof, cash in an amount equal to such fractional part of a share multiplied
by the Average Closing Price of ValliCorp common stock. The Average Closing
Price shall be the daily closing prices of a share of ValliCorp Common Stock
reported on the NASDAQ during the period of five consecutive trading days
(whether or not there were any trades in ValliCorp Common Stock) ending at the
end of the third trading day immediately preceding the Effective Time.
By following certain statutory procedures, shareholders of Auburn may exercise
dissenter's rights entitling them to receive in cash the value of their
respective Auburn common stock in lieu of receiving ValliCorp common stock in
the Auburn Merger.
At the Effective Time or as soon thereafter as practicable, ValliCorp will
cause TBOC to merge with and into VWB (i.e., the Bank Merger). The separate
existence of TBOC shall cease and VWB shall thereafter continue as the
surviving bank.
Pursuant to the Bank Merger, VWB will acquire all the assets and assume all
the liabilities of TBOC. As a result of the Bank Merger, each share of the
issued and outstanding TBOC common stock shall cease to be outstanding. No
stock shall be issued in the Bank Merger.
REPRESENTATIONS
AUBURN MERGER
-------------
In ValliCorp's letter dated June 14, 1996, the following representations of
fact were made regarding the Auburn Merger:
1. The Auburn Merger will qualify as a statutory merger under the laws of
Delaware and California.
2. ValliCorp has no plan or intention to reacquire any of its stock
issued in the proposed Auburn Merger.
<PAGE>
June 17, 1996
The Board of Directors
Page 4
3. ValliCorp has no plan or intention to sell, exchange or otherwise
dispose of the stock of VWB.
4. Following the transaction, ValliCorp will continue Auburn's historic
business or use a significant portion of Auburn's historic business
assets in a business.
5. The fair market value of the ValliCorp common stock to be received by
each shareholder of Auburn common stock will be approximately equal to
the fair market value of the Auburn common stock surrendered in the
transaction.
6. ValliCorp has no plan or intention to sell or otherwise dispose of any
of the assets of Auburn acquired in the transaction, except for the
disposition of the stock of TBOC in its merger with and into VWB and
dispositions made in the ordinary course of business or transfers
described in Section 368(a)(2)(C) of the Internal Revenue Code of
1986, as amended (Code).
7. ValliCorp will pay its own expenses, if any, incurred in connection
with the transaction, except upon the occurrence of certain events
which cause the termination of the Merger as set forth in the
Agreement and Plan of Reorganization, dated March 27, 1996.
8. There is no intercorporate indebtedness existing between ValliCorp and
Auburn that was issued, acquired, or will be settled at a discount.
9. ValliCorp is not an investment company defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
10. The payment of cash in lieu of fractional shares of ValliCorp common
stock is solely for the purposes of avoiding the expense and
inconvenience to ValliCorp of issuing fractional shares and does not
represent separately bargained for consideration. The total
consideration that will be paid in the transaction to the Auburn
shareholders instead of issuing fractional shares of ValliCorp will
not exceed one percent of the total consideration that will be issued
in the transaction to the Auburn shareholders in exchange for their
shares of Auburn common stock. The fractional share interest of each
Auburn shareholder will be aggregated, and no Auburn shareholder will
receive cash in an amount equal to or greater than the value of one
full share of ValliCorp common stock.
In Auburn's letter dated June 14, 1996, the following representations of fact
were made regarding the Auburn Merger:
1. The Auburn Merger will qualify as a statutory merger under the laws of
Delaware and California.
2. The fair market value of the ValliCorp common stock to be received by
each shareholder of Auburn common stock will be approximately equal to
the fair market value of the Auburn common stock surrendered in the
transaction.
<PAGE>
June 17, 1996
The Board of Directors
Page 5
3. To the best of knowledge of management of Auburn, none of the
shareholders of Auburn have a plan or intention to sell, exchange, or
otherwise dispose of a number of shares of ValliCorp common stock to
be received in the transaction that will reduce their ownership to a
number of shares having a value, as of the date of the transaction, of
less than fifty percent of the value of all of the formerly
outstanding stock of Auburn as of the same date. For purposes of this
representation, any shares of Auburn common stock surrendered by
dissenters, or exchanged for cash in lieu of fractional shares of
ValliCorp common stock, will be treated as outstanding Auburn common
stock on the date of the transaction. Moreover, shares of Auburn
common stock and shares of ValliCorp common stock held by former
Auburn shareholders and otherwise sold, redeemed, or disposed of prior
or subsequent to the transaction will be considered in making this
representation.
4. The fair market value of the assets of Auburn to be transferred to
ValliCorp will equal or exceed the sum of the liabilities assumed by
ValliCorp plus the amount of liabilities, if any, to which the
transferred assets are subject.
5. The liabilities of Auburn assumed by ValliCorp and any liabilities to
which the transferred assets of Auburn are subject were incurred by
Auburn in the ordinary course of its business.
6. Auburn and the Auburn Shareholders will each pay their respective
expenses, if any, incurred in connection with the transaction, except
upon the occurrence of certain events which cause the termination of
the Merger as set forth in the Agreement and Plan of Reorganization,
dated March 27, 1996.
7. There is no intercorporate indebtedness existing between ValliCorp and
Auburn that was issued, acquired, or will be settled at a discount.
8. Auburn is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
9. Auburn is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
10. None of the compensation received by any shareholder-employees of
Auburn will be separate consideration for, or allocable to, any of
their shares of Auburn stock; none of the shares of ValliCorp stock
received by any Auburn shareholder-employees will be separate
consideration for, or allocable to, any employment agreement; and the
compensation paid to any Auburn shareholder-employees will be for
services actually rendered and will be commensurate with amounts paid
to third parties bargaining at arms-length for similar services.
<PAGE>
June 17, 1996
The Board of Directors
Page 6
BANK MERGER
-----------
In ValliCorp's letter dated June 14, 1996, the following representations of
fact were made regarding the Bank Merger:
1. The Bank Merger will qualify as a statutory merger under the laws of
California and the United States.
2. Following the transaction, VWB will continue TBOC's historic business
or use a significant portion of TBOC's historic business assets in a
business.
3. VWB has no plan or intention to sell or otherwise dispose of any of
the assets of TBOC acquired in the merger of TBOC with and into VWB,
except for dispositions made in the ordinary course of business or
transfers described in Section 368(a)(2)(C) of the Code.
4. ValliCorp has no plan or intention to sell or otherwise dispose of the
stock of VWB following its merger with TBOC.
5. ValliCorp and VWB will pay their own expenses, if any, incurred in
connection with the transaction, except upon the occurrence of certain
events which cause the termination of the Merger as set forth in the
Agreement and Plan of Reorganization, dated March 27, 1996.
6. There is no intercorporate indebtedness existing between TBOC and VWB
that was issued, acquired, or will be settled at a discount.
7. VWB is not an investment company defined in Section 368(a)(2)(F)(iii)
and (iv) of the Code.
In Auburn's letter dated June 14, 1996, the following representations of fact
were made regarding the Bank Merger:
1. The Bank Merger will qualify as a statutory merger under the laws of
California and the United States.
2. The liabilities of TBOC to be assumed by VWB and the liabilities to
which transferred assets of TBOC are subject were incurred by TBOC in
the ordinary course of its business.
3. TBOC will pay its own respective expenses, if any, incurred in
connection with the transaction, except upon the occurrence of certain
events which cause the termination of the Merger as set forth in the
Agreement and Plan of Reorganization, dated March 27, 1996.
4. There is no intercorporate indebtedness existing between TBOC and VWB
that was issued, acquired, or will be settled at a discount.
<PAGE>
June 17, 1996
The Board of Directors
Page 7
5. TBOC is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
6. TBOC is not under the jurisdiction of a court in a Title 11 or similar
case within the meaning of Section 368(a)(3)(A) of the Code.
7. The fair market value of the assets of TBOC to be transferred to VWB
will equal or exceed the sum of the liabilities to be assumed by VWB
plus the amount of liabilities, if any, to which the transferred
assets are subject.
8. The total adjusted basis of the assets of TBOC transferred to VWB will
equal or exceed the sum of the liabilities to be assumed by VWB plus
the amount of liabilities, if any, to which the transferred assets are
subject.
APPLICABLE LAW
Section 368(a)(1)(A) of the Code provides that a reorganization includes a
statutory merger or consolidation. Section 1.368-2(b)(1) of the Income Tax
Regulations (Regulations) provides that in order to qualify as a
reorganization under Section 368(a)(1)(A), the Auburn Merger and the Bank
Merger must be mergers effected pursuant to the applicable state or Federal
corporation laws. A statutory merger occurs wherein one party (the surviving
corporation) to the transaction absorbs the other party whose corporate
existence ceases. The management of ValliCorp, VWB, Auburn and TBOC have
represented that the Auburn Merger and the Bank Merger will qualify as
statutory mergers under the laws of Delaware and California, and California
and the United States, respectively.
Sections 1.368-1(b) and Section 1.368-2(g) of the Regulations provide that the
following additional requirements must be met for a transaction to qualify as
a reorganization within the meaning of Section 368 of the Code:
(i) "continuity of interest" must be present,
(ii) "continuity of business enterprise" must exist, and
(iii) the transaction must be undertaken for reasons pertaining to
the continuance of the business of a corporation which is a
party to the transaction.
Under Section 1.368-1(b) of the Regulations, there must be a continuing
interest on the part of those shareholders who, directly or indirectly, were
the shareholder of the enterprise prior to the reorganization. Rev. Proc. 77-
37, 1977-2 C.B. 568 provides that the "continuity of interest" requirement of
Section 1.368-1(b) is satisfied if the former shareholders of the acquired
corporation own, as a result of the transaction, stock in the acquiring
corporation having a value equal to at least 50% of the value of all of the
formerly outstanding stock of the acquired corporation as of the same date. It
is not necessary that each shareholder of the acquired corporation receive in
the exchange stock of the acquiring corporation, which is equal in value to at
least 50% of the value of his/her former stock interest in the acquired
corporation, so long as one or more of the shareholders of the
<PAGE>
June 17, 1996
The Board of Directors
Page 8
acquired corporation have a continuing interest through stock ownership in the
acquiring corporation which is, in the aggregate, equal in value to at least
50% of the value of all of the formerly outstanding stock of the acquired
corporation. Sales, redemption, and other dispositions of stock occurring
prior or subsequent to the exchange which are part of the plan of
reorganization will be considered in determining whether there is a 50%
continuing interest through stock ownership as of the effective date of the
reorganization.
It has been represented that to the best of the knowledge of management of
Auburn, none of the shareholders of Auburn have a plan or intention to sell,
exchange, or otherwise dispose of a number of shares of ValliCorp common stock
to be received in the transaction that will reduce their ownership to a number
of shares having a value, as of the date of the transaction, of less than
fifty percent of the value of all of the formerly outstanding stock of Auburn
as of the same date. For purposes of this representation, any shares of Auburn
common stock surrendered by dissenters, or exchanged for cash in lieu of
fractional shares of ValliCorp common stock, will be treated as outstanding
Auburn common stock on the date of the transaction. Moreover, shares of Auburn
common stock and shares of ValliCorp common stock held by former Auburn
shareholders and otherwise sold, redeemed, or disposed of prior or subsequent
to the transaction will be considered in making this representation.
It has also been represented that ValliCorp has no plan or intention to sell,
exchange or otherwise dispose of the stock of VWB following the merger with
TBOC. Accordingly, the continuity of interest requirement will be met for both
the Auburn Merger and the Bank Merger.
Section 1.368-1(b) of the Regulations also provides that a continuity of
business enterprise (as described in Section 1.368-1(d)) is a requisite to
reorganization. Section 1.368-1(d) provides that continuity of business
enterprise requires that the acquiring corporation either continue the
acquired corporation's historic business or use a significant portion of the
acquired corporation's historic assets in a business. It has been represented
that following the transaction, ValliCorp will continue Auburn's historic
business or use a significant portion of Auburn's historic business assets in
a business and VWB will continue TBOC's historic business or use a
significant portion of TBOC's historic business assets in a business.
According to Rev. Rul. 85-198, 1985-2 C.B. 120, the continuity of business
enterprise requirement of Section 1.368-1(d) of the Regulations is satisfied
when the business of a former subsidiary of a merged bank holding company is
carried on in the same manner and form indirectly, through a second tier
subsidiary, of the surviving bank holding company. Though the facts are
slightly different in this case as TBOC will merge into VWB instead of
operating as a second tier subsidiary of ValliCorp, TBOC's operations will
continue to be carried on indirectly through VWB. Accordingly, the continuity
of business enterprise requirement will be met for both the Auburn Merger and
the Bank Merger.
Section 1.368-2(g) of the Regulations provides that a reorganization must be
undertaken for reasons germane to the continuance of the business of a
corporation which is a party to the reorganization. As previously mentioned
under the caption "Business Reasons for the Mergers," the ValliCorp Board of
Directors believes the Mergers offer potential for achieving cost savings,
earnings growth and the ability to compete more effectively in its target
market area. The Auburn Board of Directors expects the Mergers to result in a
company which is stronger in terms of management, growth opportunities
<PAGE>
June 17, 1996
The Board of Directors
Page 9
and profitability than either institution before the Mergers. Accordingly, the
Mergers each satisfy the business purpose requirement as set forth in the
Regulations.
Based on the analysis set forth above, the Auburn Merger and the Bank Merger
will qualify as reorganizations described in Section 368(a)(1)(A) of the Code.
Section 361(a) of the Code provides that no gain or loss shall be recognized
to a corporation if such corporation is a party to a reorganization and
exchanges property, pursuant to a plan of reorganization, solely for stock or
securities in another corporation who also is a party to the reorganization.
Section 361(b) of the Code provides that if Section 361(a) would apply to an
exchange but for the fact that the property received in exchange consists not
only of stock or securities permitted by Section 361(a) to be received without
the recognition of gain, but also other property or money, then if the
corporation receiving such other property or money distributes it in pursuance
of the plan or reorganization, no gain to the corporation will be recognized
from the exchange.
Section 357(a) of the Code provides that if the taxpayer receives property
which would be permitted to be received under Section 361 without the
recognition of gain if it were the sole consideration, and as part of the
consideration, another party to the exchange assumes a liability of the
taxpayer, or acquires from the taxpayer property subject to a liability, then
such assumption or acquisition shall not be treated as money or other
property, and will not prevent the exchange from being within the provisions
of Section 361.
Section 357(c) of the Code provides that in an exchange of property described
under Section 368(a)(1)(D)/1/, if the sum of the liabilities assumed plus the
amount of the liabilities to which the property is subject, exceeds the basis
of the property transferred pursuant to the exchange, then such excess shall
be considered gain from the sale of a capital asset or of property which is
not a capital asset, as the case may be.
Section 368(b)(2) of the Code provides that, in the case of a reorganization
resulting from the acquisition by one corporation of stock or properties of
another, the term "a party to a reorganization" includes both corporations.
Because Auburn and ValliCorp are each a party to a reorganization and the cash
for dissenters, if any, will be distributed pursuant to the Agreement, no gain
or loss will be recognized to Auburn on the
_________________________
/1/ Section 368(a)(1)(D) provides that a reorganization includes a transfer by
a corporation of all or a part of its assets to another corporation if
immediately after the transfer the transferor, or one or more or its
shareholders is in control of the corporation to which the assets are
transferred; but only if, pursuant to the plan, stock or securities of the
corporation to which the assets are transferred are distributed in a
transaction which qualifies under Section 354, 355, or 356. Section 354(a)(1)
provides that no gain or loss will be recognized if stock or securities in a
corporation a party to a reorganization are, pursuant to the plan of
reorganization, exchanged solely for stock or securities in such corporation
or in another corporation a party to the reorganization. Section 354(b)(1)
states, in part, that the receipt of stock in an exchange pursuant to a
reorganization with the meaning of Section 368(a)(1)(D) does not give rise to
gain or loss where the corporation to which the assets are transferred
acquires substantially all of the properties of the transferor. In the Bank
Merger, VWB will acquire all the assets of TBOC and ValliCorp will be in
control of TBOC and VWB, thus, the transaction may also qualify as a
reorganization under Section 368(a)(1)(D).
<PAGE>
June 17, 1996
The Board of Directors
Page 10
transfer of its property to ValliCorp in exchange for ValliCorp common stock
and cash for dissenters, if any, in the Auburn Merger. In Rev. Rul. 70-240,
1970-1 C.B. 81, the Internal Revenue Service held that the transfer of
property by one corporation, X, to another, Y, where the stock of both
corporations are owned 100% by one shareholder, B, is treated as a
constructive issuance of Y stock. See also Rev. Rul. 75-383, 1975-2 C.B. 127.
Further, because TBOC and VWB are each a party to a reorganization and the
adjusted basis of the assets transferred will exceed the sum of the
liabilities assumed, plus the liabilities to which the transferred assets are
subject, no gain or loss will be recognized to TBOC on the transfer of its
property in constructive exchange for VWB stock in the Bank Merger.
Section 361(c)(1) of the Code provides that except as provided in Section
361(c)(2), no gain or loss is recognized to a corporation, which is a party to
a reorganization, on the distribution to its shareholders of property pursuant
to a plan of reorganization. Section 361(c)(2) provides that the general rule
of Section 361(c)(1) does not apply if the corporation distributes property
other than "qualified property." Qualified property includes stock in a
corporation which is a party to the reorganization if such stock is received
by the distributing corporation in the exchange. Because ValliCorp is a party
to a reorganization, ValliCorp stock is qualified stock; thus, no gain or loss
will be recognized by Auburn on the distribution of ValliCorp stock to the
former Auburn shareholders pursuant to the Agreement. Because VWB is a party
to a reorganization, the constructive VWB stock is qualified stock; thus, no
gain or loss will be recognized by TBOC on the distribution of the
constructive VWB stock to ValliCorp pursuant to the Agreement.
Section 1032(a) of the Code provides that no gain or loss shall be recognized
to a corporation on the receipt of money or other property in exchange for
stock of such corporation. Auburn will merge with and into ValliCorp in
accordance with the Agreement. Accordingly, ValliCorp will not recognize any
gain or loss as a result of the exchange of its stock for the property of
Auburn. TBOC will merge with and into VWB. Accordingly, VWB will not recognize
any gain or loss as a result of the constructive exchange of its stock for the
property of TBOC.
Section 362(b) of the Code provides that if property was acquired by a
corporation in connection with a reorganization, the basis of such property is
the same as it was in the hands of the transferor, increased in the amount of
gain recognized to the transferor on such transfer. Because ValliCorp will
receive property from Auburn in connection with a reorganization within the
meaning of Section 368(a)(1)(A) and Auburn will recognize no gain or loss on
the transfer, the basis of the assets received by ValliCorp will be the same
as the basis of those assets in the hands of Auburn immediately prior to the
Auburn Merger. Because VWB will receive property from TBOC in connection with
a reorganization within the meaning of Section 368(a)(1)(A) and VWB will
recognize no gain or loss on the transfer, the basis of the assets received by
VWB will be the same as the basis of those assets in the hands of TBOC
immediately prior to the Bank Merger.
Section 1223(2) of the Code provides that, in determining the period for which
the taxpayer has held property, however acquired, there shall be included the
period for which such property was held by any other person, if such property
has, for purposes of determining gain or loss from a sale or exchange, the
same basis (in whole or in part) in his hands as it would have had in the
hands of such other person. Because the basis of the assets to be received by
ValliCorp from Auburn will be the same as the basis of those assets in the
hands of Auburn immediately prior to the transfer, the holding
<PAGE>
June 17, 1996
The Board of Directors
Page 11
period for the assets of Auburn to be received by ValliCorp will include the
period during which such assets were held by Auburn. Because the basis of the
assets to be received by VWB from TBOC will be the same as the basis of those
assets in the hands of TBOC immediately prior to the transfer, the holding
period for the assets of TBOC to be received by VWB will include the period
during which such assets were held by TBOC.
Section 354(a)(1) of the Code provides that no gain or loss is recognized if
stock or securities in a corporation a party to a reorganization are, pursuant
to the plan of reorganization, exchanged solely for stock or securities of
another corporation a party to the reorganization. Because Auburn shareholders
will receive solely common stock of ValliCorp/2/, the shareholders of Auburn
will recognize no gain or loss on the exchange of their Auburn stock for
ValliCorp stock. Because ValliCorp will be treated as constructively receiving
solely VWB stock, ValliCorp will recognize no gain or loss on the constructive
exchange of TBOC stock for VWB stock.
Section 358(a)(1) of the Code provides that, in the case of an exchange to
which Section 354 or Section 356 applies, the basis of the property permitted
to be received under Section 356 without the recognition of gain or loss shall
be the same as that of the property exchanged, decreased by (i) the fair
market value of any other property (except money) received by the taxpayer,
(ii) the amount of any money received by the taxpayer, and (iii) the amount of
loss to the taxpayer which was recognized on such exchange, and increased by
(i) the amount which was treated as a dividend, and (ii) the amount of gain to
the taxpayer which was recognized on such exchange (not including any portion
of such gain which was treated as a dividend).
Because the Auburn Merger constitutes an exchange to which Section 354 of the
Code applies, the basis of the ValliCorp common stock (including the
fractional share interests that they would otherwise be entitled to receive)
in the hands of the Auburn shareholders will be the same as the basis of the
Auburn stock held immediately before the exchange under Section 358(a)(1).
Because the Bank Merger constitutes an exchange to which Section 354 of the
Code applies, the basis of the constructive VWB common stock in the hands of
ValliCorp will be the same as the basis of the TBOC stock exchanged. Thus,
ValliCorp's basis in the VWB stock will equal the basis of such stock held
immediately prior to the Bank Merger, plus its basis in the TBOC stock
canceled as a result of the Bank Merger.
Section 1223(1) of the Code provides that, in determining the period for which
the taxpayer has held a capital asset (as defined in Section 1221 or Section
1231) received in an exchange, there shall be included the period for which
the taxpayer held the property exchanged if the property has, for the purpose
of determining gain or loss from a sale or exchange, the same basis (in whole
or in part) in
________________________
/2/ Under the Agreement, shareholders will receive only common stock unless a
"Triggering of the Rights" occurs under Article 2.01(c). Such event would
result in the Auburn shareholders receiving preferred stock, cash, or other
assets. Since this event is very unlikely, our opinion will only address the
receipt of common stock. If in fact such event occurs, the Auburn shareholders
receiving cash or other assets will recognize gain to the extent of the cash
and fair market value of the other property or the amount realized, whichever
is less pursuant to Section 356. In addition, adjustments to basis of the
property received will be required under Section 358. If a shareholder
receives preferred stock under this provision, then no gain or loss will be
recognized on the receipt of the preferred stock under Section 354.
<PAGE>
June 17, 1996
The Board of Directors
Page 12
its hands as the property exchanged. Because the basis of the ValliCorp common
stock (including fractional share interests that they would otherwise be
entitled to receive) held by the Auburn shareholders following the Auburn
Merger will have the same basis as the Auburn stock exchanged, and provided
the Auburn stock exchanged was a capital asset on the date of the exchange,
the holding period of the ValliCorp common stock will include the period for
which the Auburn stock was held. Because the basis of the VWB common stock
constructively held by ValliCorp will have the same basis as the TBOC common
stock, the holding period of ValliCorp in the VWB common stock constructively
held will include the period for which the TBOC common stock was held,
provided that such stock was a capital asset on the date of the exchange.
Section 381(a)(2) of the Code provides that in the case of the acquisition of
the assets of another corporation in a transfer to which Sections 361 and
368(a)(1)(A) apply, the acquiring corporation succeeds to and takes into
account, as of the close of the day of such transfer, the items of the
transferor described in Section 381(c), subject to the conditions and
limitations specified in Section 381(b) and (c). Section 1.381(a)-1(a) of the
Regulations provides that the items of the transferor described in Section
381(c), which the acquiring corporation succeeds to and takes into account are
subject to the provisions and limitations specified in Sections 381, 382 and
383 and the Regulations thereunder. Because the Auburn Merger is a transaction
to which Section 361 and Section 368(a)(1)(A) will apply, ValliCorp will
succeed to and take into account the items of Auburn described in Section
381(c), subject to the conditions and limitations specified in Section 381(b)
and (c). Because the Bank Merger is a transaction to which Section 361 and
Section 368(a)(1)(A) will apply, VWB will succeed to and take into account the
items of TBOC described in Section 381(c), subject to the conditions and
limitations specified in Section 381(b) and (c).
Section 381(c)(2) of the Code and Section 1.381(c)(2)-1 of the Regulations
provide that in the case of a transfer described in Section 381(a), the
earnings and profits of the transferor corporation or deficit in earnings and
profits, are deemed to have been received or incurred by the acquiring
corporation as of the close of the date of the transfer, except that any
deficit in earnings or profits of either the transferor or the transferee will
be used only to offset earnings and profits accumulated after the date of the
transfer. Because the merger of Auburn into ValliCorp will be a transfer
described in Section 381(a), the earnings and profits, or deficit in earnings
and profits, of Auburn will be deemed to have been received or incurred by
ValliCorp as of the close of the date of the transfer, except that any deficit
in earnings or profits of Auburn on the one hand, or ValliCorp on the other
hand, will be used only to offset earnings and profits accumulated after the
date of the transfer. Because the merger of TBOC with and into VWB will also
be a transfer described in Section 381(a), the earnings and profits, or
deficit in earnings and profits, of TBOC will be deemed to have been received
or incurred by VWB as of the close of the date of the transfer, except that
any deficit in earnings or profits of TBOC on the one hand, or VWB on the
other hand, will be used only to offset earnings and profits accumulated after
the date of the transfer.
Rev. Rul. 66-365, 1966-1 C.B. 116, provides that cash received by a
shareholder as part of a plan of reorganization under Section 368(a)(1)(A) of
the Code, which is attributable to fractional shares of stock of the acquiring
corporation, will be treated as if the fractional shares were distributed as
part of the exchange and then were redeemed by the acquirer. Under Section
302(a), such cash payments will be treated as having been received as
distributions in full payment in exchange for the stock redeemed provided the
redemption is not essentially equivalent to a dividend.
<PAGE>
June 17, 1996
The Board of Directors
Page 13
Rev. Proc. 77-41, 1977-2, C.B. 574, provides that the IRS will issue an
advance ruling under Section 302(a) of the Code that cash to be distributed to
shareholders in lieu of fractional share interests arising in corporate
reorganizations will be treated as having been received in part or in full
payment in exchange for the stock redeemed if the cash distribution is
undertaken solely for the purpose of saving the corporation the expense and
inconvenience of issuing and transferring fractional shares, and is not
separately bargained for consideration. The purpose of the transaction giving
rise to the fractional share interest, the maximum amount of cash that may be
received by any one shareholder, and the percentage of the total consideration
that will be cash are among the factors that will be considered in determining
whether a ruling is to be issued.
It has been represented that the payment of cash in lieu of fractional shares
of ValliCorp stock is solely for the purpose of avoiding the expense and
inconvenience to ValliCorp of issuing fractional shares and does not represent
separately bargained for consideration. The total cash consideration that will
be paid in the transaction to the Auburn shareholders instead of issuing
fractional shares of ValliCorp common stock will not exceed one percent of the
total consideration that will be issued in the transaction to the Auburn
shareholders in exchange for their shares of Auburn stock. The fractional
share interests of each Auburn shareholder will be aggregated, and no Auburn
shareholder will receive cash in an amount equal to or greater than the value
of one full share of ValliCorp common stock.
Accordingly, cash received by a shareholder of Auburn otherwise entitled to
receive a fractional share of ValliCorp common stock in the exchange for
Auburn common stock will be treated as if the fractional shares were
distributed as part of the exchange and then were redeemed by ValliCorp. These
cash payments will be treated as having been received as distributions in full
payment in exchange for the stock redeemed as provided in Section 302(a) of
the Code. The receipt of cash will result in gain or loss measured by the
difference between the shareholder's basis of such fractional share interest
exchanged and the cash received. Such gain or loss will be capital gain or
loss to an Auburn shareholder, provided the Auburn shareholder's common stock
was a capital asset in the shareholder's hand and, as such, would be subject
to the provisions and limitations of Subchapter P of Chapter 1.
Section 302(b)(3) of the Code provides that if a redemption is in complete
redemption of all of the stock of a corporation owned by a shareholder, such
redemption shall be treated as a distribution in part or in full payment in
exchange for such stock. In the proposed transaction, former shareholders of
Auburn who dissent to the Auburn Merger will receive only that which is
provided under the California Corporations Code. Accordingly, to the extent
cash is received by a dissenting Auburn Shareholder, such cash will be treated
as received by the Auburn shareholder as a distribution in redemption of the
shareholder's stock subject to the provisions and limitations of Section 302.
OPINION
-------
Based solely upon our review of the Documents, and provided the Auburn Merger
will qualify as a statutory merger under the laws of Delaware and California,
it is our opinion that the Federal income tax consequences will be as follows:
<PAGE>
June 17, 1996
The Board of Directors
Page 14
Auburn Merger:
-------------
(1) The merger of Auburn with and into ValliCorp with ValliCorp surviving,
will constitute a reorganization within the meaning of Section
368(a)(1)(A) of the Code. Auburn and ValliCorp will each be a "party
to a reorganization" within the meaning of Section 368(b).
(2) No gain or loss will be recognized by Auburn upon the transfer of its
assets to ValliCorp in exchange solely for ValliCorp common stock,
cash for dissenters if any, and the assumption by ValliCorp of the
liabilities of Auburn, provided any cash for dissenters is distributed
to the dissenters (Sections 361(b), 357(a) and 357(c) of the Code).
(3) No gain or loss will be recognized by Auburn upon the distribution of
the ValliCorp common stock to the Auburn shareholders and cash to
dissenters, if any (Section 361(c)(1) of the Code).
(4) No gain or loss will be recognized to ValliCorp on receipt of the
Auburn assets in exchange for ValliCorp common stock, and the
assumption by ValliCorp of Auburn's liabilities (Section 1032(a) of
the Code).
(5) The basis of the assets of Auburn in the hands of ValliCorp will, in
each case, be the same as the basis of those assets in the hands of
Auburn immediately prior to the transaction (Section 362(b) of the
Code).
(6) The holding period of the property acquired by ValliCorp from Auburn
will, in each case, include the holding period of such property in the
hands of Auburn immediately prior to the reorganization (Section
1223(2) of the Code).
(7) No gain or loss will be recognized by the shareholders of Auburn who
receive solely ValliCorp common stock (including any fractional share
interests to which they may be entitled) in exchange for their shares
of Auburn common stock (Section 354(a)(1) of the Code).
(8) The basis of ValliCorp common stock to be received by the shareholders
of Auburn (including any fractional share interests to which they may
be entitled) will be, in each instance, the same as the basis of the
common stock of Auburn surrendered in exchange therefore (Section
358(a)(1) of the Code).
(9) The holding period of the ValliCorp common stock to be received by the
shareholders of Auburn (including any fractional share interests to
which they may be entitled) will include in each instance, the holding
period during which the Auburn common stock surrendered in exchange
therefore was held, provided that the stock was held as a capital
asset on the date of the exchange (Section 1223(1) of the Code).
(10) ValliCorp will succeed to and take into account those tax attributes
of Auburn described in Section 381(c) of the Code pursuant to Section
381(a) of the Code and Section 1.381(a)-1 of the Regulations. These
items will be taken into account by ValliCorp subject to the
<PAGE>
June 17, 1996
The Board of Directors
Page 15
conditions and limitations specified in Sections 381, 382, 383 and 384
of the Code and the Regulations thereunder.
(11) As provided by Section 381(c)(2) of the Code and Section 1.381(c)(2)-1
of the Regulations, ValliCorp will succeed to and take into account
the earnings and profits, or deficit in earnings and profits, of
Auburn as of the date of transfer. Any deficit in the earnings and
profits of ValliCorp or Auburn will be used only to offset the
earnings and profits accumulated after the date of transfer.
(12) The payment of cash in lieu of fractional share interest of ValliCorp
common stock will be treated as if the fractional shares where
distributed as part of the exchange and then were redeemed by
ValliCorp. These cash payments will be treated as distributions in
full payment in exchange for the stock redeemed, as provided in
Section 302(a) of the Code.
(13) There cash is received by a dissenting shareholder of Auburn, such
cash will be treated as received by the dissenting shareholder as a
distribution in redemption of the shareholder's Auburn stock, subject
to the provisions and limitations of Section 302 of the Code.
Bank Merger:
-----------
Based solely upon our review of the Documents, and provided the Bank Merger
will qualify as a statutory merger under the laws of California and the United
States, it is our opinion that the Federal income tax consequences will be as
follows:
(1) The merger of TBOC with and into VWB, with VWB surviving, will
constitute a reorganization within the meaning of Section 368(a)(1)(A)
of the Code. TBOC and VWB will each be a "party to a reorganization"
within the meaning of Section 368(b).
(2) TBOC will recognize no gain or loss on the transfer of all of its
assets to VWB in constructive exchange for VWB common stock and the
assumption by VWB of the liabilities of TBOC (Sections 361(a), 357(a)
and 357(c) of the Code).
(3) No gain or loss will be recognized by VWB upon the acquisition by VWB
of all of the assets of TBOC in constructive exchange for VWB common
stock and the assumption of Auburn's liabilities by VWB (Section
1032(a) of the Code).
(4) The basis of the assets of TBOC acquired by VWB will be the same in
the hands of VWB as the basis of such assets in the hands of TBOC
immediately prior to the exchange (Section 362(b) of the Code).
(5) The holding period of the property acquired by VWB from TBOC will, in
each case, include the holding period of such property in the hands of
TBOC immediately prior to the reorganization (Section 1223(2) of the
Code).
(6) ValliCorp will recognize no gain or loss upon the constructive
exchange of TBOC common stock solely for VWB common stock (Section
354(a)(1) of the Code).
<PAGE>
June 17, 1996
The Board of Directors
Page 16
(7) VWB will succeed to and take into account those tax attributes of TBOC
described in Section 381(c) of the Code, pursuant to Section 381(a) of
the Code and Section 1.381(a)-1 of the Regulations. These items will
be taken into account by VWB subject to the conditions and limitations
specified in Sections 381, 382, 383 and 384 of the Code and
Regulations thereunder.
(8) As provided by Section 381(c) of the Code and Section 1.381(c)(2)-1 of
the Regulations, VWB will succeed to and take into account the
earnings and profits, or deficit in earnings and profits, of TBOC as
of the date of transfer. Any deficit in the earnings and profits of
TBOC or VWB will be used only to offset the earnings and profits
accumulated after the date of transfer.
(9) The basis of the VWB common stock in ValliCorp will be increased by
the basis of the TBOC stock in the hands of Auburn immediately prior
to the exchange (Section 358 of the Code).
(10) The holding period of the VWB stock constructively received by
ValliCorp in the transaction will include the period in which the TBOC
stock was held by Auburn provided the TBOC stock was held as a capital
asset on the date of the exchange (Section 1223(1) of the Code).
CALIFORNIA TAX CONSEQUENCES
The following opinion is rendered with respect to the California state
franchise tax consequences to ValliCorp, Auburn, VWB and TBOC upon the
Mergers: pursuant to the California Revenue and Taxation Code, California has
conformed to the Federal statutes cited above; accordingly, the Mergers, as
described above, will result in the same tax consequences under California
state law as under Federal law.
SCOPE OF OPINION
Our opinion is based solely upon:
i. The representations, information, documents, and facts
("representations") referred to in this letter; any variation or
differences in the facts or representation may adversely affect our
opinion and make it inapplicable;
ii. Our assumption (without independent verification or review) that all
of the representations and all of the original, copies, and signatures
of documents are accurate, true and authentic;
iii. Our assumption (without independent verification or review) that there
will be timely execution and delivery of, and performance as required
by the representations and documents;
iv. Our assumption (without independent verification or review) that all
documents pertaining to the proposed transaction and provided for our
review are accurate, true and authentic;
<PAGE>
June 17, 1996
The Board of Directors
Page 17
Our opinion is based upon the law, regulations, cases, rulings and other tax
authorities in effect as of the date of this letter. If there are any
significant changes of the foregoing tax authorities (for which we shall have
no responsibility to advise you), it may result in our opinion being rendered
invalid or necessitating, upon your request, a reconsideration of the opinion.
Our opinion is limited to the specific federal income tax and California
franchise tax consequences of the transactions as stated in opinions (1)
through (13) on the Auburn Merger and (1) through (10) on the Bank Merger. We
have not considered the consequences to the parties involved of any tax other
than the federal income and California franchise tax.
While this opinion letter represents our considered judgment as to the proper
tax treatment to the parties concerned, it is not binding on the IRS or the
courts and should not be considered a guarantee that the IRS or the courts
will concur with our opinion.
This opinion letter is solely for your information, for the information of
your shareholders, for the information of the Auburn shareholders and
inclusion in Form S-4 as filed with the Securities and Exchange Commission
with regard to the transaction described herein. Other than the uses indicated
in the preceding sentence, our opinion may not be relied upon, distributed, or
disclosed by anyone without prior written consent of Deloitte & Touche llp.
Sincerely,
/s/ Deloitte & Touche LLP
<PAGE>
EXHIBIT A
CHART OF CORPORATIONS
IN VALLICORP HOLDINGS, INC.
CONSOLIDATED RETURN
-------------------
VALLICORP
HOLDINGS, INC.
-------------------
100%
-------------------
VALLIWIDE
BANK
-------------------
100% 100%
------------------- ------------------
CALIFORNIA VALLEY COMMERCE
SECURITIES CORP. SECURITIES CORP.
------------------- ------------------
<PAGE>
EXHIBIT 23.1
CONSENT OF DELOITTE & TOUCHE LLP,
INDEPENDENT AUDITORS FOR THE REGISTRANT
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of ValliCorp Holdings, Inc.
on Form S-4 of our report dated June 17, 1996 (which includes an emphasis
paragraph relating to the restatement of the supplemental consolidated financial
statements for poolings of interests subsequent to the date of the historical
financial statements and includes an explanatory paragraph referring to a 1994
change in method of accounting for securities), relating to the supplemental
consolidated financial statements of ValliCorp Holdings, Inc. and subsidiaries,
appearing in the Proxy Statement -Prospectus, which is a part of such
Registration Statement, and to the references to us under the headings "SUMMARY
- - The Merger - Conditions to the Merger; Termination," "- Certain Federal Income
and California State Tax Consequences," "THE MERGER - Conditions to the Merger,"
"-Certain Federal Income and California State Tax Consequences," and "EXPERTS"
in such Proxy Statement - Prospectus.
We also consent to the incorporation by reference in Registration Statements
Nos. 33-37934, 33-37935, 33-87652, 33-31050 and 333-2658 of ValliCorp Holdings,
Inc. on Forms S-8 and in Registration Statement No. 33-80013 of ValliCorp
Holdings, Inc. on Form S-3 of such report dated June 17, 1996, appearing in the
Proxy Statement - Prospectus which is a part of this Registration Statement.
/s/ DELOITTE & TOUCHE LLP
Fresno, California
June 17, 1996
<PAGE>
EXHIBIT 23.2
CONSENT OF PERRY-SMITH & CO.,
INDEPENDENT AUDITORS FOR AUBURN
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement of ValliCorp Holdings, Inc. on Form S-4 of our report dated January
19, 1996, which appears on page F-1 of the annual report on Form 10-K of Auburn
Bancorp and subsidiary for the year ended December 31, 1995, and to the
reference to our Firm under the caption "Experts" in the Prospectus.
/s/Perry-Smith & Co.
Certified Public Accountants
Sacramento, California
June 17, 1996
<PAGE>
EXHIBIT 23.3
CONSENT OF ERNST & YOUNG LLP,
FORMER INDEPENDENT AUDITORS FOR THE REGISTRANT
<PAGE>
EXHIBIT 23.3
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 ValliCorp Holdings,
Inc. for the registration of 926,768 shares of its common stock and to the
incorporation by reference therein of our report dated January 18, 1994 with
respect to the consolidated financial statements of ValliCorp Holdings, Inc.
included in its Annual Report (Form 10-K) for the year ended December 31, 1995
filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Los Angeles, California
June 17, 1996
<PAGE>
EXHIBIT 23.4
CONSENT OF PRICE WATERHOUSE LLP,
INDEPENDENT AUDITORS OF MINERAL KING BANCORP, INC.
PREVIOUSLY MERGED INTO REGISTRANT
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Form S-4 Registration
Statement of ValliCorp Holdings, Inc. pertaining to its proposed merger with
Auburn Bancorp of our report dated February 10, 1994, with respect to the
consolidated financial statements of Mineral King Bancorp and its subsidiary
which appears in the Annual Report on Form 10-K of ValliCorp Holdings, Inc. for
the year ended December 31, 1995.
/s/ PRICE WATERHOUSE LLP
Los Angeles, California
June 14, 1996
<PAGE>
EXHIBIT 23.5
CONSENT OF GRANT THORNTON LLP,
INDEPENDENT AUDITORS FOR EL CAPITAN BANCSHARES, INC.,
PREVIOUSLY MERGED INTO REGISTRANT
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
---------------------------------------------------
We consent to the inclusion in the Form S-4 Registration Statement of ValliCorp
Holdings, Inc. pertaining to its proposed merger with Auburn Bancorp of our
report dated January 19, 1996, with respect to the consolidated financial
statements of El Capitan Bancshares, Inc. and its subsidiary.
GRANT THORNTON LLP
Stockton, California
June 18, 1996
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
<PAGE>
POWER OF ATTORNEY
We, the undersigned directors of ValliCorp Holdings, Inc. (the
"Company"), do hereby constitute and appoint J. Mike McGowan, Wolfgang T.N.
Muelleck, or Edwin L. Herbert, or any of them, our true and lawful attorneys and
agents to sign a Registration Statement on Form S-4 to be filed with the
Securities and Exchange Commission in connection with the proposed merger of
Auburn Bankcorp, Inc. with and into the Company, and the issuance of shares of
the Company's Common Stock in connection therewith, and to do any and all acts
and things and to execute any and all instruments for us and in our names in the
capacities indicated below, which said attorneys and agents, or any of them, may
deem necessary or advisable to enable the Company to comply with the Securities
Act of 1933, as amended, and any rules, regulations, and requirements of the
Securities and Exchange Commission, in connection with such Registration
Statement, including, specifically, but without limitation, power and authority
to sign for us or any of us in our names and in the capacities indicated below,
any and all amendments (including post-effective amendments) to such
Registration Statement on Form S-4; and we do hereby ratify and confirm that the
said attorneys and agents, or any of them, shall do or cause to be done by
virtue of this Power of Attorney.
This Power of Attorney may be executed in one or more counterparts.
Executed below by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/J. Mike McGowan Chairman of the Board June 12, 1996
- ---------------------
J. Mike McGowan of Directors and
Director
/s/Patrick J. MonPere Vice-Chairman of the June 12, 1996
- ---------------------
Patrick J. MonPere Board of Directors
and Director
/s/William A. Benneyan Director June 12, 1996
- ----------------------
William A. Benneyan
/s/Louis H. Herwaldt Director June 7, 1996
- ---------------------
Louis H. Herwaldt
/s/Lorenzo Tony Ortega Director June 5, 1996
- ----------------------
Lorenzo Tony Ortega, Ph.D.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
/s/Steven C. Pumphrey Director June 12, 1996
- ---------------------
Steven C. Pumphrey
/s/V. Eugene Ross Director June 5, 1996
- ---------------------
V. Eugene Ross
/s/Michael J. Ryan, Jr. Director June 12, 1996
- -----------------------
Michael J. Ryan, Jr.
/s/Jerry K. Stanners Director June 5, 1996
- ---------------------
Jerry K. Stanners
/s/Charles L. Tingey Director June 12, 1996
- ---------------------
Charles L. Tingey
</TABLE>
-2-
<PAGE>
EXHIBIT 99.2
FORM OF PROXY
FOR AUBURN ANNUAL MEETING OF SHAREHOLDERS
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS. The undersigned hereby appoints Messrs.
John G. Briner and Harry E. Sands as proxies, with
full power of substitution, to represent, vote and
act with respect to all shares of common stock of
Auburn Bancorp (the "Company") which the
PROXY undersigned would be entitled to vote at the
meeting of shareholders to be held on _____ __,
1996 at 7:30 p.m., at the Company's main office
AUBURN BANCORP located at 500 Wall Street, Auburn, California or
any adjournments thereof, with all the powers the
undersigned would possess if personally present as
follows:
1. Approval of the principal terms of the Agreement and Plan of Reorganization
dated as of March 27, 1996 between ValliCorp Holdings, Inc. and Auburn
Bancorp ("Merger Agreement") as further described in the proxy statement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Election of nine (9) persons to be directors.
John G. Briner Harry E. Sands
Paul Brocker Virgil R. Traynor, D.V.M.
D. Dwight Odom, M.D. Gary N. Weeks
Thomas E. Propp H. Ray Yamasaki
Donald L. Robinson
[ ] FOR ALL NOMINEES LISTED ABOVE [ ] WITHHOLD AUTHORITY
(except as marked to the contrary below)
(INSTRUCTION: To withhold authority to vote for any individual nominee
write that nominee's name on the space below:)
___________________________________________________________________________
3. Ratification of the appointment of Perry-Smith & Co. as the Company's
independent public accountants for 1996.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Transaction of such other business as may properly come before the meeting
and any adjournment or adjournments thereof.
<PAGE>
PLEASE SIGN AND DATE BELOW
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED "FOR" APPROVAL OF THE PRINCIPAL TERMS OF THE MERGER AGREEMENT, "FOR"
ELECTION OF ALL THE DIRECTORS NOMINATED AND NAMED IN THE PROXY STATEMENT, AND
"FOR" RATIFICATION OF PERRY-SMITH & CO., AS THE COMPANY'S INDEPENDENT PUBLIC
ACCOUNTANTS. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ALL OF THE MATTERS
ON THE REVERSE SIDE. IF ANY OTHER BUSINESS IS PRESENTED AT THE MEETING, THIS
PROXY CONFERS AUTHORITY TO AND SHALL BE VOTED IN ACCORDANCE WITH THE
RECOMMENDATIONS OF MANAGEMENT.
(Please date this Proxy and sign your name exactly as it appears on your stock
certificates. Executors, administrators, trustees, etc., should give their full
title. If a corporation, please sign in full corporate name by the president or
other authorized officer. If a partnership, please sign in partnership name by
an authorized person. All joint owners should sign.)
[ ] I DO [ ] DO NOT EXPECT TO ATTEND THE MEETING
______________________________
(Number of Shares)
______________________________
(Please Print Your Name)
______________________________
(Please Print Your Name)
______________________________
(Date)
______________________________
(Signature of Shareholder)
______________________________
(Signature of Shareholder)
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND MAY BE REVOKED
PRIOR TO ITS EXERCISE BY NOTIFYING THE SECRETARY OF THE COMPANY IN WRITING OF
REVOCATION OF THE PROXY, BY FILING A DULY EXECUTED PROXY BEARING A LATER DATE OR
BY ATTENDING THE MEETING AND VOTING IN PERSON.
