UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
___X___ QUARTERLY REPORT PERSUANT TO SECTION 13 OR 15 (d) OF
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
_______ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ___________.
Commission file number: 0-28080
UNITED FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
MINNESOTA 81-0507591
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 2779; 120 1st Ave. North, Great Falls, Montana 59403
(Address of principal executive offices) (Zip Code)
(406) 727-6106
Registrant's telephone number, including area code:
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of each of the Issuer's
Classes of Common Stock, as of the latest date is:
Class: Common Stock, No par value; Outstanding at August 7, 1998
-- 1,698,312 shares
<PAGE>
UNITED FINANCIAL CORP.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
<S> <C>
ITEM 1 FINANCIAL STATEMENTS...............................................................1
Consolidated Condensed Statements of Financial Condition at
June 30, 1998 (unaudited) and December 31, 1997...................................1
Consolidated Condensed Statements of Income - Three and Six Months Ended
June 30, 1998 and June 30, 1997 (unaudited).......................................2
Consolidated Condensed Statements of Cash Flows - Six Months Ended
June 30, 1998 and June 30, 1997 (unaudited).......................................3
Notes to Consolidated Condensed Financial Statements................................4
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................................................9
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK........................17
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS.................................................................17
ITEM 2 CHANGE IN SECURITIES..............................................................17
ITEM 3 DEFAULTS ON SENIOR SECURITIES.....................................................17
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.............................17
ITEM 5 OTHER INFORMATION.................................................................18
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K..................................................18
SIGNATURES..................................................................................19
</TABLE>
i
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PART I - FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS.
UNITED FINANCIAL CORP.
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except per share data)
(Unaudited, except December 31)
<TABLE>
<CAPTION>
JUNE 30, December 31,
-------- ------------
1998 1997
-------- --------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 8,714 9,869
Time deposits in banks 98 98
Investment securities available-for-sale 58,336 14,219
Loans receivable, net 126,513 56,796
Loans held for sale 3,425 1,467
Premises and equipment, net 3,379 1,636
Real estate owned, net 439 -
Accrued interest receivable 1,745 688
Federal Home Loan Bank stock, at cost 1,087 404
Goodwill, net of accumulated amortization of $191,537
and 150,444 at June 30, 1998 and December 31, 1997,
respectively 1,012 494
Cash surrender value of life insurance 261 257
Other assets 336 341
-------- --------
Total assets $205,345 $ 86,269
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits 145,783 70,386
FHLB advances 15,425 6,425
Securities sold under agreements to repurchase 11,786 3,173
Accrued interest payable 1,242 807
Advance payments by borrowers for taxes and insurance 299 138
Income taxes payable 68 34
Other liabilities 465 208
Long-term debt - 2,350
-------- --------
Total liabilities 175,068 83,521
Stockholders' equity:
Preferred stock, no par value (2,000,000 shares
authorized; none outstanding) - -
Common stock, no par value (8,000,000 shares
authorized; 1,698,312 outstanding) 28,002 1,080
Retained earnings-partially restricted 2,184 1,540
Unrealized gain on securities available-for-sale, net 91 128
-------- --------
Total stockholders' equity 30,277 2,748
-------- --------
Total liabilities and stockholders' equity $205,345 $ 86,269
======== ========
Equity/Assets 14.7% 3.2%
Book Value/Share $ 17.83 $ 5.79
</TABLE>
See Notes to Consolidated Condensed Financial Statements
Page 1
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UNITED FINANCIAL CORP.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans $2,539 $1,079 $4,492 $2,063
Mortgage-backed securities 583 217 1,016 436
Investment securities 249 62 463 99
Other interest earning assets 126 27 341 69
------ ------ ------ ------
Total interest income 3,497 1,385 6,312 2,667
INTEREST EXPENSE
Deposits 1,530 642 2,770 1,243
Short-term borrowings 249 43 440 85
Long-term debt - 50 12 98
------ ------ ------ ------
Total interest expense 1,779 735 3,222 1,426
------ ------ ------ ------
Net interest income 1,718 650 3,090 1,241
Provision for losses on loans 175 93 220 93
------ ------ ------ ------
Net interest income after provision for 1,543 557 2,870 1,148
losses on loans
NON-INTEREST INCOME
Loan origination fees and discounts 684 163 1,045 300
Loan servicing fees 19 15 38 34
Customer service charges 87 67 157 132
FHLB stock dividends 21 6 36 12
Gain on sales of investment securities, net 18 - 12 -
Other income 69 25 122 49
------ ------ ------ ------
Total non-interest income 898 276 1,410 527
NON-INTEREST EXPENSE
Salaries and employee benefits 844 290 1,403 568
Net occupancy and equipment expense 156 59 270 115
Data processing expense 71 49 142 96
Other expenses 421 129 726 307
------ ------ ------ ------
Total non-interest expense 1,492 527 2,541 1,086
------ ------ ------ ------
Income before income taxes 949 306 1,739 589
Provision for income tax expense 375 86 670 216
------ ------ ------ ------
Net income $ 574 $ 220 $1,069 $ 373
====== ====== ====== ======
Net income per share $ .34 $ .46 $ .72 $ .79
------ ------ ------ ------
Weighed average shares outstanding 1,698 475 1,475 475
------ ------ ------ ------
</TABLE>
See Notes to Consolidated Condensed Financial Statements
Page 2
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UNITED FINANCIAL CORP.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands, Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------------------
JUNE 30, 1998 JUNE 30, 1997
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,069 $ 373
Adjustments to reconcile net income to net
Cash provided by (used in) operating activities:
Provision for loan losses 220 93
Amortization of goodwill 41 22
Amortization of premiums on loans 36 5
Amortization of core deposit premium 7 -
Depreciation and amortization of bank premises and
equipment 113 55
Depreciation of real estate held for investment 25 -
Deferred loan fees, net (3) (17)
Amortization of discounts and premiums on investments, net (11) (26)
Gain on sales of available-for-sale, net (12) -
Net change in loans held for sale (260) 697
Federal Home Loan Bank stock dividends (39) (12)
Net change in income taxes payable (23) (5)
Net change in accrued interest receivable (259) (139)
Net change in accrued interest payable 151 180
Increase in the cash surrender value of life insurance (4) (7)
Net change in other assets 135 2
Net change in other liabilities (1,930) (173)
-------- --------
Net cash provided by (used in) operating activities (744) 1,048
-------- --------
INVESTING ACTIVITIES
Purchases of investment securities available-for-sale (8,617) (1,498)
Purchases of mortgage-backed securities available-for-sale (16,958) (1,989)
Purchase of Federal Home Loan Bank stock (109) -
Proceeds from maturities, calls, and paydowns of securities
available-for-sale 12,055 500
Mortgage-backed securities principal payments 8,039 1,244
Proceeds from sale of investment securities available-for-sale 5,716 -
Proceeds from sale of real-estate held for investment 360 -
Net change in loans receivable (30,419) (10,032)
Purchases of premises and equipment (180) (86)
Purchase of loan production offices (225) -
Acquired United Financial Corp.'s cash and cash equivalents 8,112 -
-------- --------
Net cash used in investing activities (22,226) (11,861)
-------- --------
FINANCING ACTIVITIES
Net increase in deposits 4,804 8,469
Net increase in Federal Home Loan Bank advances 9,000 4,500
Net increase (decrease) in securities sold under repurchase
agreements 8,613 (4,918)
Net increase (decrease) in advance by borrowers for taxes and
insurance (103) 25
Payments on long-term debt (2,350) -
Cash dividends paid to shareholders (424) -
Capital contribution 2,275 -
-------- --------
Net cash provided by financing activities 21,815 8,076
-------- --------
Decrease in cash and cash equivalents (1,155) (2,737)
Cash and cash equivalents at beginning of year 9,869 10,089
-------- --------
Cash and cash equivalents at end of period $ 8,714 $ 7,352
======== ========
SUPPLEMENTAL CASH FLOW DISCLOSURE
- ---------------------------------------------------------------------
Cash payments for interest $ 2,874 $ 1,580
Cash payments for income taxes $ 699 $ 178
</TABLE>
See Notes to Consolidated Condensed Financial Statements
Page 3
<PAGE>
UNITED FINANCIAL CORP.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. GENERAL
United Financial Corp. (United) is a bank holding company
headquartered in Great Falls, Montana. United was approved as a bank
holding company by the Federal Reserve System on August 7, 1998 as the
result of the formation of its newly chartered banking subsidiary,
Heritage State Bank (see note 15 for more information regarding Heritage
State Bank). United has two wholly owned subsidiaries, Heritage Bank,
F.S.B. (Heritage Bank) and Heritage State Bank. Heritage Bank is a
federally chartered stock savings bank and Heritage State Bank is a state
chartered community bank. Heritage Bank has a wholly owned subsidiary,
Community Service Corporation, which owns and manages real estate held
for investment. United and its subsidiaries are collectively referred to
as the Company and United Financial is sometimes used to refer to the
Company as it existed prior to the Heritage Merger described below. Full
service branches are located in Shelby, Chester, Havre and Glendive,
Montana, and loan production offices are located in Bozeman, Missoula,
Hamilton, Libby, Polson and Kalispell, Montana. Heritage Bank's deposits
are insured by the Federal Deposit Insurance Corporation - Savings
Association Insurance Fund (SAIF). Heritage Bank is a member of the
Federal Home Loan Bank of Seattle, Washington and is subject to
comprehensive supervision, regulation, and examination by the Office of
Thrift Supervision and the FDIC. Heritage Bank is also subject to the
regulations of the Board of Governors of the Federal Reserve System. See
Note 2 for additional information regarding the Heritage Merger.
The Company's principal business is attracting deposits from the
general public through its offices and using those deposits, together
with other available funds, to originate commercial (including lease
financing), commercial real estate, residential, agriculture and consumer
loans. The Company also invests in mortgage-backed securities, U.S.
Treasury obligations, other U.S. Government agency obligations and
interest-earning deposits.
The Company's financial condition and results of operations are
dependent primarily on net interest income and fee income. Net interest
income is the difference between the interest income earned on loans,
mortgage-backed securities, other investment securities and
interest-earning deposits, less cost of funds, consisting of interest
paid on deposits and borrowed money. The Company's financial condition
and results of operations are also significantly influenced by local and
national economic conditions, changes in market interest rates,
governmental policies, tax laws and the actions of various regulatory
agencies.
2. HERITAGE MERGER
On February 3, 1998, United Financial and Heritage Bancorporation
(Heritage) merged (the Heritage Merger). In connection with the Heritage
Merger, which was structured as a merger of Heritage into United
Financial, each outstanding share of Heritage common stock was converted
into 47.5 shares of United Financial's common stock. An aggregate of
475,000 shares (or 28%) of United Financial's common stock was issued in
connection with the Heritage Merger. A capital contribution of $2,275,000
was made just prior to the Heritage Merger and the proceeds were used to
pay-off the outstanding long-term debt as part of the conditions of the
Heritage Merger.
The Heritage Merger was treated as a reverse acquisition and
accounted for as a purchase by Heritage in accordance with generally
accepted accounting principles (GAAP). Heritage was considered the
accounting acquirer because Heritage effectively acquired the operations
of United Financial as a result of the change in control and other
related consequences of the Heritage Merger.
Page 4
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Prior to the Heritage Merger, United Financial owned one
subsidiary, United Savings Bank, F.A. (United Bank) and Heritage owned
Heritage Bank. The merger of Heritage Bank and United Bank (collectively
referred to as the Banks) was completed on May 4, 1998, with United Bank
merging into Heritage Bank. On that date, the operations of the Banks
merged into one main branch located at 120 First Avenue North, Great
Falls, Montana and United Bank's former location was closed, except for
its drive-up facility. In addition, United Bank was converted to Heritage
Bank's data center.
3. BASIS OF PRESENTATION
The Company's consolidated condensed financial statements included
herein have been prepared in accordance with GAAP for interim financial
information and the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X of the Securities and Exchange Commission. Accordingly,
they do not include all of the information and footnotes required by GAAP
for complete financial statements. In the opinion of management, the
information contained herein reflects all postings and disclosures
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the consolidated financial condition, results of
operations, and changes in cash flows for the periods disclosed.
Operating results for the three and six months ended June 30, 1998, are
not necessarily indicative of the results anticipated for the year ending
December 31, 1998. For additional information, refer to the consolidated
audited financial statements and footnotes thereto included in the
Company's Annual Report to Shareholders and Annual Report on Form 10-K
for the year ended December 31, 1997.
Consistent with Heritage being the acquiring corporation for
accounting purposes, the historical financial statements of the Company,
commencing with the Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998, were those of Heritage, and not United Financial as it
existed prior to the Heritage Merger. Accordingly, the historical
statements of operations of the Company reflect only the operations of
United Financial commencing with the closing date of the Merger. Under
the purchase method of accounting, the assets and liabilities of United
Financial and its subsidiary were adjusted to their estimated fair value
and combined with the historical book values of the assets and
liabilities of Heritage. The actual revaluation of United Financial's net
assets acquired is subject to the completion of studies and evaluations
of management.
4. COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standard (SFAS) No. 130,
"Reporting Comprehensive Income," which establishes standards for
reporting and display of comprehensive income and its components in a
full set of general-purpose financial statements. This statement requires
that all items required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement
that is displayed with the some prominence as other financial statements.
This Company adopted the provisions of SFAS No. 130 as of January 1,
1998.
Page 5
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COMPREHENSIVE INCOME DISCLOSURE:
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED Three Months Ended
JUNE 30, 1998 June 30, 1997
--------------------------------------- ---------------------------------------
BEFORE TAX TAX EXPENSE AFTER TAX Before Tax Tax Expense After Tax
----------- ------------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Unrealized holding gains
arising during period $166 $64 $102 $97 $36 $61
Less: reclassification
adjustment for gains
included in net income 18 7 11 - - -
----------- ------------- ----------- ----------- ------------- -----------
Net unrealized gains on
securities $148 $57 $91 $97 $36 $61
=========== ============= =========== =========== ============= ===========
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1998 JUNE 30, 1997
--------------------------------------- ---------------------------------------
BEFORE TAX TAX EXPENSE AFTER TAX Before Tax Tax Expense After Tax
----------- ------------- ----------- ----------- ------------- -----------
Unrealized holding gains
arising during period $160 $62 $98 $97 $36 $61
Less: reclassification
adjustment for gains
included in net income 12 5 7 - - -
----------- ------------- ----------- ----------- ------------- -----------
Net unrealized gains on
securities $148 $57 $91 $97 $36 $61
=========== ============= =========== =========== ============= ===========
</TABLE>
5. RECLASSIFICATIONS
Certain reclassifications have been made to the June 30, 1997 and
December 31, 1997 financial statements to conform with the June 30, 1998
presentation.
6. CASH EQUIVALENTS
For purposes of the Consolidated Condensed Statements of Cash
Flows, the Company considers all cash, daily interest and non-interest
bearing demand deposits with banks with maturities of three months or
less at the date of purchase to be cash equivalents.
7. INVESTMENT PORTFOLIO
The investment activities of the Company are designed to provide
an investment alternative for funds not presently required to meet loan
demand, assist Heritage Bank in meeting potential liquidity requirements,
assist in maximizing income consistent with quality and liquidity
requirements, supply collateral to secure public funds and retail
repurchase agreements, provide a means for balancing market and credit
risks, and provide consistent income and market value throughout changing
economic times.
The Company's portfolio consists primarily of obligations of U.S.
government and its agencies and mortgage backed securities, state and
local governments, and agency collateralized obligation securities. The
Company's investment portfolio does not contain concentration of
investments in any one issuer in excess of 10% of Heritage's total
investment portfolio. Exempt from this calculation are securities of the
U.S. government and U.S. government agencies. All of Heritage's
investments are classified as available-for-sale.
Page 6
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8. STOCKHOLDERS' EQUITY
Stockholder's equity increased $27,529,000 from December 31, 1997
of which $24,646,000 was the purchase price consideration of the stock
deemed to be issued to United Financial in connection with the Heritage
Merger. A capital contribution of $2,275,000 was made just prior to the
Heritage Merger and the proceeds were used to pay-off the outstanding
long-term debt of Heritage as part of the conditions of the Heritage
Merger. The Company had net income for the six months ended June 30, 1998
of 1,069,000. The Company paid cash dividends to shareholders totaling
$424,000. There was a $37,000 decrease in the unrealized gain on
investment securities available-for-sale. The balance of paid-in capital
was capitalized into common stock due to the fact that the Company's
stock has no par value.
On February 3, 1998 the Company issued a warrant (the Warrant) to
purchase 10,000 shares of its common stock to D.A. Davidson & Co.,
exercisable at the price of $26.25 per share, in exchange for investment
banking services provided to the Company.
9. COMPUTATION OF NET INCOME PER SHARE
Basic earnings per share (EPS) excludes dilution and is computed
by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock
that then shared in the earnings of the equity. Basic and diluted EPS are
the same, as the potential common shares do not have a material impact.
10. DIVIDENDS DECLARED
On July 27, 1998, the Board of Directors of the Company declared a
third-quarter cash dividend of $.25 per share, payable August 10, 1998,
to shareholders of record on August 24, 1998.
11. RELATED PARTIES
Central Financial Services, Inc. (CFS) provides various management
services to the Company, including accounting and tax services,
investment consulting, personnel consulting, insurance advisory services
and regulatory consulting. CFS is owned by the Company's Chairman of the
Board of Directors and largest shareholder. CFS fees were $75,000, and
$40,000 for the six months ended June 30, 1998 and 1997, respectively.
12. COMMITMENTS AND CONTINGENCIES
The Bank has sold loans to various investors in the secondary
market under sales agreements that contain recourse provisions. Under the
recourse provisions, the Bank may be required to repurchase a loan if a
borrower fails to make three monthly payments within 120 days after the
sale of the loan. The balance of loans sold with recourse provisions
remaining at June 30, 1998 is approximately $18.5 million.
In June 1997, Heritage Bank entered into a five-year service
contract for data processing services. In the event of early termination
of the service contract by Heritage Bank, the bank has agreed to pay an
amount equal to fifty percent of the average monthly fee paid for
services multiplied by the number of months remaining under the term of
the contract.
The Company has a Salary Continuation Agreement with the Banks'
President, Kevin P. Clark. The agreement contains a lifetime retirement
benefit, a disability benefit, a change of control benefit and a death
benefit. The benefits are based on Mr. Clark's
Page 7
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years of service. The Company holds a fully funded life insurance policy
in connection with this agreement.
13. SIGNIFICANT TRANSACTIONS
In February 1998, the Company purchased the assets of three loan
production offices located in Missoula, Hamilton, and Libby, Montana, for
approximately $225,000.
On June 30, 1998, the Company sold real estate held for investment
consisting of a twenty-four unit apartment building owned and managed by
Heritage Bank's subsidiary, Community Service Corporation, for $360,000
in cash. There was no gain or loss recorded in conjunction with this
transaction.
14. ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Statement of Financial Accounting Standards No. 133, issued June
1998, establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, (collectively referred to as derivatives) and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure
those instruments at fair value. This statement is effective for the
fiscal year beginning after June 15, 1999. Management has not determined
its strategy for the adoption of Statement No. 133 or its effect on the
financial statements.
15. SUBSEQUENT EVENT
On July 8, 1998, the Company and Chouteau County Bancshares, Inc.
(Chouteau) announced that they have signed a definitive merger agreement
involving their previously announced merger. Chouteau is a bank holding
company based in Fort Benton, Montana. Its wholly owned subsidiary, First
State Bank of Fort Benton is a commercial bank with approximately $66
million in assets and one banking office in Fort Benton, Montana. The
Company will serve as the parent company of the combined entity, which
would include Heritage Bank and its subsidiary, Community Service
Corporation, and First State Bank of Fort Benton and Fort Benton
Insurance Agency, Inc. The merger is subject to regulatory and
shareholder approval.
On August 7, 1998 the Federal Deposit Insurance Corporation
("FDIC") has approved the assumption of the insured deposits of Q Bank,
Fort Benton, Montana, by Heritage State Bank, Fort Benton, a newly
chartered banking subsidiary of the Company. Q Bank, with total assets of
$15.1 million, was closed by Montana's Commissioner of Financial
Institutions, and the FDIC was named receiver. The failed bank had total
deposits of about $13.6 million. Q Bank had offices in Fort Benton and
Geraldine, Montana. Heritage State Bank assumed the failed bank's
deposits and purchased $2.5 million of the failed bank's assets. The
Company paid a premium of $454,000 to the FDIC for the right to enter
into this transaction.
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ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
1. MATERIAL CHANGES IN FINANCIAL CONDITION. COMPARISON OF THE SIX MONTHS ENDED
JUNE 30, 1998 TO THE YEAR ENDED DECEMBER 31, 1997.
(Dollars in thousands)
(Unaudited, except December 31)
<TABLE>
<CAPTION>
SELECTED FINANCIAL CONDITION RECAP
-----------------------------------------------------------------------
United Financial
JUNE 30, December 31, Acquired
1998 1997 Change Feb. 3, 1998
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total assets $205,345 $86,269 $119,076 $98,042
Cash and cash equivalents 8,714 9,869 (1,155) 8,112
Mortgage-backed securities 40,590 10,664 29,926 20,967
Investment securities 17,746 3,555 14,191 23,417
Loans receivable, net 126,513 56,796 69,717 39,551
Loans held for sale 3,425 1,467 1,958 1,698
FHLB stock 1,087 404 683 535
Real estate owned 439 - 439 824
Premises and equipment 3,379 1,636 1,743 1,635
Goodwill 1,012 494 518 375
All other assets 2,440 1,384 1,056 928
Deposits 145,783 70,386 75,397 70,586
Borrowed funds 27,211 9,598 17,613 -
Long-term debt - 2,350 (2,350) -
All other liabilities 2,074 1,187 887 2,810
Total liabilities 175,068 83,521 91,547 73,396
Stockholders' equity, net 30,277 2,748 27,529 24,646
</TABLE>
GENERAL - The consolidated financial statements for the year ended
December 31, 1997 contained in this Report reflect the historical
financial position and results of operations of Heritage and thus do not
reflect or include the financial position and results of operations of
United Financial.
Total assets increased $119.0 million to $205.3 million at June
30, 1998 from $86.3 million at December 31, 1997. The increase in assets
was primarily the result of the acquisition of $98.0 million of assets
from United Financial in connection with the Heritage Merger.
Mortgage-backed securities increased $29.9 million, investment securities
increased $14.2 million and loans receivable increased $69.7 million. In
addition, deposits increased $75.4 million and stockholders' equity
increased $27.5 million.
MORTGAGE-BACKED AND INVESTMENT SECURITIES - Mortgage-backed
securities increased $29.9 million to $40.6 million at June 30, 1998 from
$10.7 million at December 31, 1997. The increase was the result of the
acquisition of $21.0 million of mortgage-backed securities associated
with the Heritage Merger and $16.9 million of purchases, partially offset
by $8.0 million of principal repayments.
Investment securities increased $14.2 million to $17.7 million at
June 30, 1998 from $3.5 million at December 31, 1997. The increase was
the result of the acquisition of $23.4 million of investment securities
related to the Heritage Merger and the purchase of $8.6 million of
investments. These increases were offset by the sale of the $5.3 million
Kemper U.S. Government bond mutual fund at a realized loss of $6,000, the
sale of two
Page 9
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corporate bonds with a book values of $.4 million for a gain of $18,000
and $12.1 million of calls, maturities, and principal payments on other
investments and securities.
A comparison of the amortized cost and estimated fair value of the
Company's available-for-sale investment portfolio at the dates indicated
is as follows:
(Dollars in thousands)
(Unaudited, except for December 31, 1997)
June 30, 1998
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- -------- --------
<S> <C> <C> <C> <C>
U.S. Government and agencies $ 16,369 $ 85 $ (59) $ 16,395
Mortgage backed securities 40,430 373 (213) 40,590
Municipal bonds 1,200 43 (6) 1,237
Other investments 117 - (3) 114
---------- ---------- -------- --------
$ 58,116 $ 501 $ (281) $ 58,336
========== ========== ======== ========
</TABLE>
December 31, 1997
<TABLE>
<S> <C> <C> <C> <C>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- -------- --------
U.S. Government and agencies $ 1,890 $ 21 $ (2) $ 1,909
Mortgage backed securities 10,529 152 (17) 10,664
Municipal bonds 1,207 40 (8) 1,239
Other investments 390 17 - 407
---------- ---------- -------- --------
$ 14,016 $ 230 $ (27) $ 14,219
========== ========== ======== ========
</TABLE>
ANALYSIS OF INVESTMENT YIELDS AND MATURITIES
(Dollars in thousands)
(unaudited except for December 31)
June 30, 1998
<TABLE>
<CAPTION>
Up to 1 - 5 5 - 10 10 Years
1 year years years and beyond Total
------- ------- ------- ---------- -------
<S> <C> <C> <C> <C> <C>
U.S. Government and agencies $ 1,999 $12,902 $ 1,494 - $16,395
Mortgage backed securities 901 15,443 3,822 20,424 40,590
Municipal bonds - 7 1,176 54 1,237
Other securities 114 - - - 114
------- ------- ------- ------- -------
Total investments $ 3,014 $28,352 $ 6,492 $20,478 $58,336
======= ======= ======= ======= =======
Weighted average yield 6.41% 6.39% 6.25% 5.89% 6.20%
</TABLE>
December 31, 1997
<TABLE>
<S> <C> <C> <C> <C> <C>
Up to 1 - 5 5 - 10 10 Years
1 year years years and beyond Total
------- ------- ------- ---------- -------
U.S. Government and agencies - $ 1,402 $ 507 - $ 1,909
Mortgage backed securities 884 5,024 1,125 3,631 10,664
Municipal bonds - 67 1,069 103 1,239
Other securities - - 407 - 407
------- ------- ------- ------- -------
Total investments $ 884 $ 6,493 $ 3,108 $ 3,734 $14,219
======= ======= ======= ======= =======
Weighted average yield 5.64% 6.69% 6.27% 7.42% 6.70%
</TABLE>
Expected maturities of mortgage-backed securities will differ from
contractual maturities because borrowers have the right to prepay
obligations with or without penalties.
Page 10
<PAGE>
LOANS RECEIVABLE AND LOANS HELD FOR SALE - Net loans receivable
increased $69.7 million to $126.5 million at June 30, 1998 from $56.8
million at December 31, 1997. This increase was primarily due to the
acquisition of $39.6 million of net loans receivable in connection with
the Heritage Merger. The additional $30.1 million net loans receivable
increase is a direct result of strong loan demand generated through
officer call programs, the Heritage Bank's four branches and four loan
production offices, continued purchase of participation loans and lease
financing loans, and a favorable interest rate environment in the past
six months. Heritage Bank is in the process of establishing two
additional loan production offices in the western Montana cities of
Kalispell and Polson. The Heritage Bank diverse loan portfolio includes:
real estate residential mortgages, commercial and agricultural mortgages,
agricultural and commercial non-mortgage, consumer loans secured by real
estate, and various consumer installment loans. Heritage Bank also
purchases and participates in commercial and lease financing loans.
Heritage Bank sells and retains servicing for a portion of its
residential real estate loans to agencies of Montana such as the Montana
Board of Investments and the Montana Board of Housing.
The loan loss reserve at June 30, 1998 was $1,344,000 compared to
846,000 at December 31, 1997. The increase in the reserve was primarily
the result of $302,000 of loan loss reserves acquired in connection with
the Heritage Merger. The provision for loan losses was $220,000 for the
six months ended June 30, 1998 and loans in the amount of $23,000 were
determined by management to be uncollectable and subsequently
charged-off. However, management aggressively pursues recoveries. The
loan loss reserve at June 30, 1998 is an amount which management believes
is adequate given the low level of non-performing assets and management's
assessment of loan risk.
Heritage Bank follows regulatory guidelines with respect to
placing loans on non-accrual status. When a loan is placed on non-accrual
status, all previously accrued and uncollected interest is reversed. At
June 30, 1998 Heritage Bank had one non-accrual loan of $65,000 and
$335,500 of loans past due 90 days and still accruing.
During the six months ended June 30, 1998, loans held for sale
increased $2.0 million to $3.4 million at June 30, 1998 from
approximately $1.4 at December 31, 1997. This increase was primarily due
to the acquisition of $1.7 million of loans held for sale in connection
with the Heritage Merger. Approximately $34.6 million loans were
originated for sale and $34.3 million of loans were sold to the secondary
market during the six month period ending June 30, 1998.
REAL ESTATE HELD FOR INVESTMENT - The $439,000 increase from
December 31, 1997 was primarily the result of $824,000 of real estate
acquired in connection with the Heritage Merger which consisted of two
24-unit apartment complexes in Glendive, Montana, owned by Heritage
Bank's wholly owned subsidiary, Community Service Corporation. On June
30, 1998, one of the 24-unit apartment building was sold for $360,000 in
cash. There was no gain or loss recorded in conjunction with this sale.
FHLB STOCK - FHLB stock increased approximately $683,000 to
$1,087,000 at June 30, 1998 from $404,000 at December 31, 1997. This
increase was the result of $535,000 of FHLB stock acquired in connection
with the Heritage Merger, $109,000 of FHLB stock purchases, and $39,000
of reinvested stock dividends.
PREMISES AND EQUIPMENT - This category increased $1.7 million to
$3.3 million at June 30, 1998 from $1.6 million at December 31, 1997.
This increase was primarily due to the acquisition of $1.6 million of
premises and equipment related to the Heritage Merger. Approximately
$180,000 of the increase was due to the purchase of computer and office
equipment acquired in conjunction with the purchase of the loan
production facilities (approximately $41,000) and remodeling of the main
banking facility in Great Falls, Montana. The purchases of premises and
equipment were offset by approximately $113,000 of depreciation.
Page 11
<PAGE>
GOODWILL - Goodwill increased $518,000 to $1,012,000 at June 30,
1998 from $494,000 at December 31, 1997. This increase is primarily due
to $375,000 of goodwill acquired in relation to the Heritage Merger and
$184,000 acquired in the purchase of the loan production offices. The
goodwill is being amortized over 10 years.
DEPOSITS - Deposits increased $75.4 million to $145.8 million at
June 30, 1998 from $70.4 million at December 31, 1997. This increase was
primarily the result of the acquisition of $70.6 million of deposits from
United Financial. The additional $4.8 million increase was comprised of
an increase of $2.2 million in NOW and money market demand accounts, a
decrease of $1.9 million in savings accounts and an increase of 4.5
million in time deposits.
BORROWED FUNDS - Borrowed funds increased $17.6 million to $27.2
million at June 30, 1998 from $9.6 million at December 31, 1997. United
Financial did not have any outstanding debt at the time of the Heritage
Merger. The increase was due to $19.2 million in new FHLB advances less
$10.2 million in repayments of FHLB advances and a net increase of $8.6
million in securities sold under repurchase agreements.
LONG-TERM DEBT - This category decreased $2.35 million to zero
from $2.35 million at December 31, 1997. The reduction was the result of
a principal reduction payment of $75,000 made by Heritage in January
1998, and the balance of the long-term debt being paid on February 3,
1998 immediately preceding the Merger with funding from a corresponding
$2,275,000 contribution of capital.
STOCKHOLDERS' EQUITY - Stockholders' equity increased $27.6
million to $30.3 million at June 30, 1998 from $2.7 million at December
31, 1997. This increase is due to $1,069,000 of net income for the six
months ended June 30, 1998 less cash dividends paid to shareholders of
$424,000, a $37,000 decrease in unrealized gains associated with assets
classified as available-for-sale being adjusted to market value, a $2.3
million contribution of capital, and $24.6 million, which is net of
$180,000 of direct acquisition cost, of net stockholders' equity acquired
in connection with the Heritage Merger.
2. MATERIAL CHANGES IN RESULTS OF OPERATIONS - COMPARISON OF THE THREE MONTHS
ENDED JUNE 30, 1998, AND JUNE 30, 1997
(Dollars in thousands)
(Unaudited)
INCOME RECAP
----------------------------------
THREE MONTHS ENDED JUNE 30,
----------------------------------
1998 1997 Change
------ ------ ------
Interest income $3,497 $1,385 $2,112
Interest expense 1,779 735 1,044
------ ------ ------
Net interest income 1,718 650 1,068
Provision for loan losses 175 93 82
Non-interest income 898 276 622
Non-interest expense 1,492 527 965
------ ------ ------
Income before income taxes 949 306 643
Provision for income taxes 375 86 289
------ ------ ------
Net income $ 574 $ 220 $ 354
====== ====== ======
Page 12
<PAGE>
The following chart compares the unaudited statement of income for
the three months ended June 30, 1998 to the unaudited pro forma statement
of income for the three months ended June 30, 1997. The unaudited pro
forma combined financial information for the three months ended June 30,
1997 gives effect to the Heritage Merger based on the purchase accounting
adjustments, estimates and other assumptions as if the Heritage Merger
had become effective on January 1, 1997.
UNITED FINANCIAL CORP.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
(Unaudited)
THREE MONTHS ENDED JUNE 30,
---------------------------
1998 1997
------ ------
Interest income 3,497 3,233
Interest expense 1,779 1,597
------ ------
Net interest income 1,718 1,636
Provision for losses on loans 175 93
Non-interest income 898 425
Non-interest expense 1,492 1,076
------ ------
Income before income taxes 949 892
Provision for income tax expense 375 306
------ ------
Net income $ 574 $ 586
====== ======
Net income per share $ .34 $ .35
------ ------
Weighed average shares outstanding 1,698 1,698
------ ------
See Notes to Consolidated Condensed Financial Statements
GENERAL - Consistent with the purchase method of accounting, the
historical information being presented reflects only the operations of
Heritage for the three months ended June 30, 1997.
NET INCOME - Net income increased $353,600, or 16.1%, to $573,800
for the three months ended June 30, 1998 from $220,200 for the same
period last year. Net income decreased $12,300 to $573,800 for the three
months ended June 30, 1998 compared to pro forma net income of $586,100
for the same period last year.
INTEREST INCOME - Interest income increased $2.1 million to $3.5
million for the three months ended June 30, 1998 from $1.4 million for
the same period last year. The increase was primarily the result of
income from the interest earning assets acquired in the Heritage Merger
and an increase in interest earning assets from the same period in 1997.
Interest income on loans receivable increased $1.5 million to $2.5
million for the three months ended June 30, 1998 from $1.0 million for
the same period last year. Interest income on mortgage-backed securities
increased $367,000 to $583,300 for the three months ended June 30, 1998
from $216,200 for the same period last year. Interest income on all other
interest earning investments including investment securities increased
$284,700 to $374,500 for the three months ended June 30, 1998 from
$89,800 for the same period last year. Interest income increased 8.2%, or
$.3 million, to $3.5 million for the three months ended June 30, 1998
compared to pro forma net income of $3.2 million for the same period in
1997.
Page 13
<PAGE>
INTEREST EXPENSE - Total interest expense increased approximately
$1.1 million or 142%, to $1.8 million for the three months ended June 30,
1998 from $.7 million for the same period last year. The increase was
primarily the result of the deposit expense associated with the deposit
base acquired in the Heritage Merger. Interest expense on deposits
increased $.9 million to $1.5 million for the three months ended June 30,
1998 from $.6 million for the same period last year. Interest expense on
FHLB advances and securities sold under agreements to repurchase
increased $205,800 to $248,900 for the three months ended June 30, 1998
from $43,100 for the same period last year. This increase is primarily
due to an increase in average interest bearing liabilities. Interest
expense on long-term debt decreased $50,000 to zero for the three months
ended June 30, 1998 from $50,000 for the same period last year. The
decrease in interest expense on long-term debt is due to the fact that
the debt was paid off on February 3, 1998 from cash provided by a capital
contribution to the Company. Interest expense increased approximately $.2
million, or 11.4%, to $1.8 million for the three months ended June 30,
1998, compared to pro forma interest expense of $1.6 million for the same
period last year.
PROVISION FOR LOAN LOSSES - The provision for loan losses
increased $82,600 to 175,000 for the three months ended June 30, 1998 as
compared to $92,400 for the same period last year. The Company increased
the provision for loan losses due to the increase in total loans held in
its portfolio.
The provision for loan losses is determined by management as the
amount to be added to the allowance for loan losses after net charge-offs
have been deducted to bring the allowance to a level which is considered
adequate to absorb losses inherent in the loan portfolio in accordance
with GAAP. Future additions to the Company's allowance for loan losses
and any change in the related ratio of the allowance for loan losses to
non-performing loans are dependent upon the performance and composition
of the Company's loan portfolio, the economy, inflation, changes in real
estate values and interest rates and the view of the regulatory
authorities toward adequate reserve levels.
NON-INTEREST INCOME - Non-interest income increased $621,900, or
225%, to $897,900 for the three months ended June 30, 1998 from $276,000
for the same period last year. This increase was primarily the result of
loan origination fees and discounts increasing $520,000, or 319%, in the
second quarter of 1998 compared to the same period last year. The Company
sold two corporate bonds for a gain of $17,900 in the second quarter of
1998. Non-interest income increased $473,300 to $897,900 for the three
months ended June 30, 1998 compared to pro forma non-interest income of
$424,600 for the same quarter last year.
NON-INTEREST EXPENSE - This category increased 1.0 million, or
183%, to $1.5 for the three months ended June 30, 1998 from $.5 million
for the same period last year. This increase was primarily due to the
Heritage Merger. Salary and employee benefits increased $553,300 to
$844,400 for the three months ended June 30, 1998 compared to $291,100
for the same quarter last year. This increase was primarily due to the
addition of the employees of United Bank. Net occupancy and equipment
increased $96,900 to $155,500 for the three months ended June 30, 1998
from $58,600 for the same quarter last year. This increase was primarily
due to the Heritage Merger and the acquisition of United Bank's four
branches, as well as the purchase of three loan production offices.
Non-interest expense increased $.4 million to $1.5 million for the three
months ended June 30, 1998, compared to pro forma non-interest expense of
$1.1 million for the same quarter last year.
INCOME TAXES - Income tax expense increased $289,000 due to the
$642,600 increase in income before taxes, which is tax affected for
non-deductible goodwill amortization and tax-free interest on municipal
bonds and loans. Income tax expense was approximately $375,000 for the
second quarter 1998 compared to pro forma income tax expense of $305,200
for the same period last year.
Page 14
<PAGE>
3. MATERIAL CHANGES IN RESULTS OF OPERATIONS - COMPARISON OF THE SIX MONTHS
ENDED JUNE 30, 1998, AND JUNE 30, 1997
(Dollars in thousands)
(Unaudited)
INCOME RECAP
----------------------------------
SIX MONTHS ENDED JUNE 30,
----------------------------------
1998 1997 Change
------ ------ ------
Interest income $6,312 $2,667 $3,645
Interest expense 3,222 1,426 1,796
------ ------ ------
Net interest income 3,090 1,241 1,849
Provision for loan losses 220 93 127
Non-interest income 1,410 527 883
Non-interest expense 2,541 1,086 1,455
------ ------ ------
Income before income taxes 1,739 589 1,150
Provision for income taxes 670 216 454
------ ------ ------
Net income $1,069 $ 373 $ 696
====== ====== ======
The following unaudited pro forma combined financial information
gives effect to the Heritage Merger based on the purchase accounting
adjustments, estimates and other assumptions. The unaudited pro forma
combined statement of income for the six months ended June 30, 1998
combines the historical consolidated statements of income of Heritage and
United Financial as if the Merger had become effective on January 1,
1998. The unaudited pro forma combined statement of income for the six
months ended June 30, 1997 combines the historical consolidated
statements of income of Heritage and United Financial as if the Heritage
Merger had become effective on January 1, 1997.
UNITED FINANCIAL CORP.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
(Unaudited)
SIX MONTHS ENDED JUNE 30,
-------------------------
1998 1997
------ ------
Interest income 6,872 6,300
Interest expense 3,478 3,095
------ ------
Net interest income 3,394 3,205
Provision for losses on loans 225 93
Non-interest income 1,498 817
Non-interest expense 2,830 2,189
------ ------
Income before income taxes 1,837 1,740
Provision for income tax expense 706 648
------ ------
Net income $1,131 $1,092
====== ======
Net income per share $ .67 $ .64
------ ------
Weighed average shares outstanding 1,698 1,698
------ ------
See Notes to Consolidated Condensed Financial Statements
GENERAL - Consistent with the purchase method of accounting, the
historical information being presented reflects only the operations of
Heritage for the six months ended June 30, 1997. The statement of
operations for the six months ended June 30, 1998 includes the results of
operations of Heritage combined with the results of operations of United
Financial commencing after the Heritage Merger on February 3, 1998.
Page 15
<PAGE>
NET INCOME - Net income increased $696,300, or 187%, to $1,069,200
for the six months ended June 30, 1998 from $372,900 for the same period
last year. Pro forma net income increased $38,500 to $1,130,600 for the
six months ended June 30, 1998 from $1,092,100 for the same period last
year.
INTEREST INCOME - Interest income increased $3.6 million to $6.3
million for the six months ended June 30, 1998 from $2.7 million for the
same period last year. The increase was primarily the result of income
from the interest earning assets acquired in the Heritage Merger and an
increase in interest earning assets from the same period in 1997.
Interest income on loans receivable increased $2.4 million to $4.5
million for the six months ended June 30, 1998 from $2.1 million for the
same period last year. Interest income on mortgage-backed securities
increased $.6 million to $1.0 million for the six months ended June 30,
1998 from $.4 million for the same period last year. Interest income on
all other interest earning investments including investment securities
increased $635,400 to $803,700 for the six months ended June 30, 1998
from $168,300 for the same period last year. Pro forma interest income
increased 9.1%, or $.6 million to $6.9 million for the six months ended
June 30, 1998 from $6.3 million for the same period in 1997.
INTEREST EXPENSE - Total interest expense increased approximately
$1.8 million, or 126%, to $3.2 million for the six months ended June 30,
1998 from $1.4 million for the same period last year. The increase was
primarily the result of the deposit expense associated with the deposit
base acquired in the Heritage Merger. Interest expense on deposits
increased $1.5 million to $2.8 million for the six months ended June 30,
1998 from $1.3 million for the same period last year. Interest expense on
FHLB advances and securities sold under agreements to repurchase
increased $354,900 to $440,100 for the six months ended June 30, 1998
from $85,200 for the same period last year. This increase is primarily
due to an increase in average interest bearing liabilities. Interest
expense on long-term debt decreased $86,400 to 11,900 for the three
months ended June 30, 1998 from $98,300 for the same period last year.
The decrease in interest expense on long-term debt is primarily due to
the fact that the debt was paid off on February 3, 1998 from cash
provided by a capital contribution to the Company. Pro forma interest
expense increased approximately $.4 million, or 12.4%, to $3.5 million
for the six months ended June 30, 1998 from $3.1 million for the same
period last year.
PROVISION FOR LOAN LOSSES - The provision for loan losses
increased $127,600 to $220,000 for the six months ended June 30, 1998 as
compared to $92,400 for the same period last year. The Company increased
the provision for loan losses due to the increase in total loans held in
its portfolio.
The provision for loan losses is determined by management as the
amount to be added to the allowance for loan losses after net charge-offs
have been deducted to bring the allowance to a level which is considered
adequate to absorb losses inherent in the loan portfolio in accordance
with GAAP. Future additions to the Company's allowance for loan losses
and any change in the related ratio of the allowance for loan losses to
non-performing loans are dependent upon the performance and composition
of the Company's loan portfolio, the economy, inflation, changes in real
estate values and interest rates and the view of the regulatory
authorities toward adequate reserve levels.
NON-INTEREST INCOME - Non-interest income increased $.9 million or
167%, to $1.4 million for the six months ended June 30, 1998 from $.5
million for the same period last year. This increase was primarily the
result of loan origination fees and discounts increasing $744,800, or
248%, in the six months ended June 30, 1998 compared to last same period
year. The Company sold the Kemper U.S. Government mutual bond fund for a
loss of $6,000 in the first quarter of 1998 and two corporate bonds for a
gain of $17,900 in the second quarter of 1988. Pro forma non-interest
income increased $.7 million to $1.5 million for the six months ended
June 30, 1998 from $.8 million for the same period last year.
Page 16
<PAGE>
NON-INTEREST EXPENSE - This category increased 1.4 million, or
187%, to $2.5 million for the six months ended June 30, 1998 from $1.1
million for the same quarter last year. This increase was primarily due
to the Heritage Merger. Salary and employee benefits increased $.8
million to $1.4 million for the six months ended June 30, 1998 compared
to $.6 million for the same period last year. This increase was primarily
due to the addition of the employees of United Bank. Net occupancy and
equipment increased $155,300 to $269,800 for the six months ended June
30, 1998 from $114,500 for the same quarter last year. This increase was
primarily due to the Heritage Merger and the acquisition of United Bank's
four branches, as well as the purchase of three loan production offices.
Also included in non-interest expense were one-time Heritage Merger
related costs incurred in the first quarter of approximately $85,000, and
increased data processing expense and other services due to duplication
of services prior to the merger of the Banks on May 4th, 1998. Pro forma
non-interest expense increased $.6 to $2.8 million for the six months
ended June 30, 1998 from $2.2 million for the same period last year.
INCOME TAXES - Income tax expense increased $453,700 due to the
$1,150,100 increase in income before taxes, which is tax affected for
non-deductible goodwill amortization and tax-free interest on municipal
bonds and loans. Pro forma income tax expense was approximately $705,800
for the six month period ending June 30, 1998 compared to $647,600 for
the same period last year.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Management believes there has been no material change in interest
rate risk since December 31, 1997. For additional information, see
Management's Discussion and Analysis of Financial Condition and Results
of Operations included herein in Item 2 and refer to the Interest Rate
Risk Management discussion included in United Financial's Annual Report
on Form 10-K for the year ended December 31, 1997.
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS.
The Company is involved from time to time in litigation normal for its
type of business.
ITEM 2 CHANGE IN SECURITIES.
None
ITEM 3 DEFAULTS ON SENIOR SECURITIES.
None
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.
On May 18, 1998, United Financial Corp. held its Annual Meeting of
Shareholders. The shareholders elected five directors and ratified KPMG Peat
Marwick LLP as independent auditors for the Company.
Page 17
<PAGE>
The shareholders of United Financial Corp. voted as follows with respect
to the approval of the Directors:
FOR WITHHELD
J. William Bloemendaal 1,571,604 4,675
Elliott L. Dybdal 1,571,604 4,675
William L. Madison 1,571,604 4,675
Kevin P. Clark 1,571,584 4,675
Steve L. Feurt 1,552,334 4,375
To ratify appointment of KPMG Peat Marwick LLP as independent auditors
for the Company:
For: 1,572,404
Against: 900
Abstain: 2,975
ITEM 5 OTHER INFORMATION.
On July 8, 1998, the Company and Chouteau County Bancshares, Inc.
(Chouteau) announced that they have signed a definitive merger agreement
involving their previously announced merger. Chouteau is a bank holding company.
Its wholly owned subsidiary, First State Bank of Fort Benton is a commercial
bank with approximately $66 million in assets and one banking office in Fort
Benton, Montana. The Company will serve as the parent company of the combined
entity, which would include Heritage Bank and its subsidiary, Community Service
Corporation, and First State Bank of Fort Benton and its subsidiary, Fort Benton
Insurance Agency, Inc. The merger is subject to regulatory and shareholder
approval.
On August 7, 1998 the Federal Deposit Insurance Corporation ("FDIC")
has approved the assumption of the insured deposits of Q Bank, Fort Benton,
Montana, by Heritage State Bank, Fort Benton, a newly chartered banking
subsidiary of the Company. Q Bank, with total assets of $15.1 million, was
closed by Montana's Commissioner of Financial Institutions, and the FDIC was
named receiver. The failed bank had total deposits of about $13.6 million. Q
Bank had offices in Fort Benton and Geraldine, Montana. Heritage State Bank
assumed the failed bank's deposits and purchased $2.5 million of the failed
bank's assets. The Company paid a premium of $454,000 to the FDIC for the right
to enter into this transaction.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K.
A. The following exhibits are included herein:
Exhibit
Number Description of Exhibit
- ------- ----------------------
2.1 Agreement and Plan of Merger (Dated July 8, 1998 and entered into
by and among United Financial Corp., Great Falls, Montana and
Chouteau County Bancshares, Inc., Fort Benton, Montana)
27.1 Financial Data Schedule
B. Reports on Form 8-K
The Company did not file a current Report on form 8-K in the quarter
ended June 30, 1998.
Page 18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized:
United Financial Corp.
Date August 14, 1998 /s/ John M. Morrison
--------------------- -------------------------------
John M. Morrison
Chairman and Chief
Executive Officer
(Duly Authorized
Representative)
Date August 14, 1998 /s/ Kurt R. Weise
--------------------- -------------------------------
Kurt R. Weise
President and Chief
Operating Officer
(Duly Authorized
Representative)
Page 19
Exhibit 2.1
-----------
AGREEMENT AND PLAN OF MERGER
BETWEEN
UNITED FINANCIAL CORP.
AND
CHOUTEAU COUNTY BANCSHARES, INC.
July 8, 1998
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1--MERGER 1
1.1. Effect of Merger ...........................................1
1.2. Conversion of Chouteau Common Stock;
Capital Stock of United ....................................2
1.3. Election, Allocation and Conversion Procedures .............3
1.4. Additional Exchange Procedures .............................6
1.5. Dissenting Shares...........................................7
ARTICLE 2--REPRESENTATIONS AND WARRANTIES OF UNITED ..........................8
2.1. Organization and Qualification .............................8
2.2. Authority Relative to this Agreement; Non-Contravention ....8
2.3. Validity of United Common Stock ............................8
2.4. Capital Stock ..............................................9
2.5. 1934 Act Reports ...........................................9
2.6. No Material Adverse Changes ................................9
2.7. Reports and Filings ........................................9
2.8. Registration Statement; Proxy Statement ....................9
2.9. Tax Treatment .............................................10
2.10. Absence of Undisclosed Liabilities ........................10
2.11. Litigation ................................................10
2.12. Compliance with Laws; Permits .............................10
2.13. Disclosure ................................................11
2.14. Regulatory Approval .......................................11
ARTICLE 3--REPRESENTATIONS AND WARRANTIES OF CHOUTEAU .......................11
3.1. Organization and Qualification ............................11
3.2. Authority Relative to this Agreement; Non-Contravention ...11
3.3. Capitalization ............................................12
3.4. Financial Statements ......................................13
3.5. Loans ..................................................13
3.6. Reports and Filings .......................................13
3.7. Subsidiaries ..............................................14
3.8. Absence of Undisclosed Liabilities ........................14
3.9. No Material Adverse Changes ...............................14
3.10. Absence of Certain Developments ...........................14
3.11. Properties ................................................15
3.12. Tax Matters ...............................................17
3.13. Contracts and Commitments .................................18
3.14. Litigation ................................................19
3.15. No Brokers or Finders .....................................19
3.16. Employees .................................................19
3.17. Employee Benefit Plans ....................................19
3.18. Insurance .................................................21
3.19. Affiliate Transactions ....................................21
3.20. Compliance with Laws; Permits .............................21
3.21. Administration of Fiduciary Accounts ......................22
3.22. Disclosure ................................................22
3.23. Proxy Statement ...........................................22
3.24. Regulatory Approvals ......................................23
3.25. Interest Rate Risk Management Instruments .................23
3.26. Loan Participations .......................................23
3.27. Disclosures in Schedules ..................................23
3.28. Tax Treatment .............................................23
ARTICLE 4--CONDUCT OF BUSINESS PENDING THE MERGER ...........................23
4.1. Conduct of Business .......................................23
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ARTICLE 5--ADDITIONAL COVENANTS AND AGREEMENTS ..............................25
5.1. Filings and Approvals .....................................25
5.2. Certain Loans and Related Matters .........................26
5.3. Monthly Financial Statements ..............................26
5.4. Expenses ..................................................26
5.5. No Negotiations, etc. .....................................26
5.6. Notification of Certain Matters ...........................26
5.7. United Access to Information; Confidentiality .............27
5.8. Filing of Tax Returns and Adjustments .....................27
5.9. Establishment of Accruals .................................28
5.10. Employee and Director Matters .............................28
5.11. Tax Treatment .............................................29
5.12. Registration Statements; Shareholder Approvals ............29
5.13. Nasdaq Listing ............................................30
5.14. Affiliate Letters .........................................30
ARTICLE 6--CONDITIONS .......................................................30
6.1. Conditions to Obligations of Each Party ...................30
6.2. Additional Conditions to Obligation of Chouteau ...........31
6.3. Additional Conditions to Obligation of United .............33
ARTICLE 7--TERMINATION, AMENDMENT AND WAIVER ................................37
7.1. Termination ...............................................37
7.2. Effect of Termination .....................................37
7.3. Amendment .................................................38
7.4. Waiver ....................................................38
ARTICLE 8--GENERAL PROVISIONS ...............................................38
8.1. Public Statements .........................................38
8.2. Notices ...................................................38
8.3. Interpretation ............................................39
8.4. Severability ..............................................39
8.5. Miscellaneous .............................................39
8.6. Representations, Warranties and Covenants .................39
SIGNATURES ..................................................................40
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AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated
July 8, 1998, is made and entered into by and between UNITED FINANCIAL CORP., a
Minnesota corporation ("United"), and CHOUTEAU COUNTY BANCSHARES, INC. a Montana
corporation ("Chouteau").
WHEREAS, the respective Boards of Directors of United and
Chouteau have determined that it is advisable and in the best interests of
United and Chouteau and their respective shareholders to consummate the merger
of Chouteau with and into United as described in Article1 of this Agreement (the
"Merger");
WHEREAS, United will be the surviving corporation of the
Merger and, as a result of the Merger, all of the outstanding shares of the
common stock, $10 par value, of Chouteau ("Chouteau Common Stock"), will be
converted into the right to receive a combination of cash and shares of common
stock, $1.00 par value, of United ("United Common Stock") on the terms and
subject to the conditions set forth in this Agreement;
WHEREAS, Chouteau owns all of the issued and outstanding
capital stock of (a) First State Bank of Fort Benton, a Montana corporation (the
"Bank"), and (b) Fort Benton Insurance Agency, Inc., a Montana corporation (the
"Insurance Agency") (the Bank and Insurance Agency are sometimes hereafter
collectively referred to as the "Subsidiaries"); and
WHEREAS, United and Chouteau desire that the Merger be made on
the terms and subject to the conditions set forth in this Agreement and that the
Merger qualify as a reorganization within the meaning of Section368(a) of the
Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the representations,
warranties and covenants contained herein, the parties hereto agree as follows:
ARTICLE 1
MERGER
Subject to the satisfaction or waiver of the conditions set
forth in Article6, on a date mutually satisfactory to the parties as soon as
practicable following receipt of all necessary regulatory approvals of the Board
of Governors of the Federal Reserve System ("FRB") and any other applicable
regulatory authorities, Chouteau will merge with and into United. United, in its
capacity as the corporation surviving the Merger, is sometimes referred to
herein as the "Surviving Corporation". The Merger will be effected pursuant to
the provisions of, and with the effect provided in Part 8, Chapter 1 of Title 35
of the Montana Code Annotated ("MCA") and Section 601 of the Minnesota Business
Corporation Act (the "MBCA").
1.1. Effect of Merger.
(a) On the Effective Date (as defined in Section1.1(d)),
Chouteau shall be merged with and into United, and the separate existence of
Chouteau shall cease. The Charter (as defined Section2.2) and the Bylaws of
United, as in effect immediately prior to the Effective Date, shall be the
Charter and the Bylaws of the Surviving Corporation, until the same may be
further amended as provided therein and in accordance with applicable law.
Subject to the additional appointment to be made as provided in Section 5.10(f),
the directors and officers of United immediately prior to the Effective Date
will be the directors and officers of the Surviving Corporation, in each case
until their respective successors are duly elected or appointed and shall
qualify.
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(b) On the Effective Date and thereafter, the Surviving
Corporation shall be responsible and liable for all the liabilities, debts,
obligations and penalties of each of United and Chouteau.
(c) On the Effective Date and thereafter, the Surviving
Corporation shall possess all the rights, privileges, immunities and franchises,
of a public as well as of a private nature, of each of United and Chouteau; all
property, real, personal and mixed, and all debts due on whatever account, and
all and every other interest, of or belonging to or due to each of United and
Chouteau, shall be taken and deemed to be transferred to and vested in the
Surviving Corporation without further act or deed; and the title to any real
estate or any interest therein, vested in United or Chouteau, shall not revert
or be in any way impaired by reason of the Merger.
(d) To effect the Merger, the parties hereto will cause
appropriate certificates of merger relating to the Merger to be filed with the
Secretary of State of Minnesota and the Secretary of State of Montana. The
Merger shall become effective upon the later of such certificates of merger to
be filed. As used herein, the term "Effective Date" shall mean the date on which
the Merger shall become effective as provided in the preceding sentence.
1.2. Conversion of Chouteau Common Stock; Capital Stock of
United.
To effectuate the Merger and subject to the terms and
conditions of this Agreement:
(a) At the Effective Date, by virtue of the Merger and without
any action on the part of United, Chouteau, the Surviving Corporation or the
holder of any of the following securities:
(i) Each share of Chouteau Common Stock issued and
outstanding immediately prior to the Effective Date
(other than (x)shares of Chouteau Common Stock owned by
Chouteau or any direct or indirect subsidiary of
Chouteau and (y)any Dissenting Shares (as defined in
Section 1.5)) shall be canceled and extinguished and be
converted into and become a right to receive, at the
election of each holder thereof but subject to the
other provisions of this Section 1.2,
(A) cash in an amount equal to the product of 42.12
multiplied by the United Average Stock Price (as
hereafter defined), subject to adjustment as hereinafter
provided (the "Per Share Cash Consideration"), or
(B) 42.12 shares of United Common Stock (the "Exchange
Ratio"), subject to adjustment as hereinafter provided
(the "Per Share Stock Consideration");
provided, however, that if the United Average Stock Price
shall be:
(C) more than $31.35, then the Exchange Ratio shall be
adjusted downward to equal the quotient of $1,320.00
divided by the United Average Stock Price and the Per
Share Cash Consideration shall be equal to $1,320.00; or
(D) less than $25.65, then the Exchange Ratio shall be
adjusted upward to equal the quotient of $1,080.00
divided by the United Average Stock Price and the Per
Share Cash Consideration shall be equal to $1,080.00;
and provided further that, subject to the election, allocation
and conversion procedures set forth in Sections 1.3:
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(E) at least 20% and no more than 50% of the shares of
Chouteau Common Stock outstanding immediately prior to
the Effective Date shall be converted into the right to
receive the Per Share Cash Consideration (such number of
shares, the "Cash Number"); and
(F) at least 50% and no more than 80% of the shares of
Chouteau Common Stock outstanding immediately prior to
the Effective Date shall be converted into the right to
receive the Per Share Stock Consideration (such number
of shares representing 50% of the shares of Chouteau
Common Stock outstanding immediately prior the Effective
Date, the "Minimum Stock Number" and such number of
shares representing 80% of the shares of Chouteau Common
Stock outstanding immediately prior to the Effective
Date, the "Maximum Stock Number").
The term "United Average Stock Price" means the average
midpoint of the closing bid and ask prices for United Common
Stock on the NASDAQ National Market ("NMS") (or, in the
absence thereof, as reported in such other source upon which
United and Chouteau shall agree) during the 10 consecutive NMS
trading days on which United Common Stock is traded on the NMS
ending on, and including, the NMS trading day three business
days prior to the Election Deadline (as defined in Section
1.3(c)).
(ii) Notwithstanding any other provision hereof, if United
effects a stock dividend, reclassification,
recapitalization, split-up, combination, exchange of
shares or similar transaction, after the date hereof and
before the Effective Date, the Exchange Ratio, the
$31.35 figure in Section 1.2(a)(i)(C) and the $25.65
figure in Section 1.2(a)(i)(D) shall be appropriately
adjusted.
(b) At the Effective Date, each share of Chouteau Common Stock that,
immediately prior to the Effective Date, shall be owned by Chouteau or any
direct or indirect subsidiary of Chouteau shall, by virtue of the Merger and
without any action on the part of United, Chouteau, the Surviving Corporation or
any holder of shares of United Common Stock or Chouteau Common Stock, be
canceled and extinguished and shall cease to exist, and no exchange or payment
shall be made therefor.
(c) At and after the Effective Date, each share of United Common Stock
issued and outstanding immediately prior to the Effective Date shall remain an
issued and outstanding share of common stock of the Surviving Corporation and
shall not be affected by the Merger.
1.3 Election, Allocation and Conversion Procedures.
(a) Subject to the allocation and conversion procedures set forth in
Section 1.3(b), each record holder of Chouteau Common Stock immediately prior to
the Effective Date will be entitled (i) to elect to receive United Common Stock
for all or some of the shares of Chouteau Common Stock ("Stock Election Shares")
held by such record holder, (ii) to elect to receive cash for all or some of the
shares of Chouteau Common Stock ("Cash Election Shares") held by such record
holder or (iii) to indicate that such holder makes no such election for all or
some of the shares of Chouteau Common Stock ("No-Election Shares") held by such
record holder. All such elections (each, an "Election") shall be made on a form
designated for that purpose by United and reasonably acceptable to Chouteau (an
"Election Form"). Any shares of Chouteau Common Stock with respect to which the
record holder thereof shall not, as of the Election Deadline (as defined below),
have properly submitted to the Exchange Agent (as defined below) a properly
completed Election Form shall be deemed to be No-Election Shares. A record
holder
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acting in different capacities or acting on behalf of other persons in any way
shall be entitled to submit an Election Form for each capacity in which such
record holder so acts with respect to each person for which it so acts. The
exchange agent (the "Exchange Agent") shall be a bank or trust company (with an
office in Montana) selected by United, may be a subsidiary of United and shall
be reasonably acceptable to Chouteau.
(b) Not later than two business days after the Election Deadline,
United shall cause the Exchange Agent to effect the allocations and conversions
among the holders of Chouteau Common Stock of rights to receive the Per Share
Stock Consideration or the Per Share Cash Consideration in the Merger as
follows:
(i) If the number of Stock Election Shares (on the basis of
Election Forms received as of the Election Deadline, and assuming that all
shares of Chouteau Common Stock declared to be Dissenting Shares as of such date
are converted into Per Share Cash Consideration pursuant to Section 1.5), is
less than the Minimum Stock Number, then
(W) all Stock Election Shares shall be deemed, as of
the Effective Date, to have become and been converted into the right to
receive the Per Share Stock Consideration,
(X) the Exchange Agent shall convert (pro rata
according to each holder's total number of No-Election Shares) a
sufficient number of No-Election Shares such that the sum of such
number and the number of Stock Election Shares shall equal as closely
as practicable the Minimum Stock Number, and all such selected shares
("Stock-Selected No-Election Shares") shall be deemed, as of the
Effective Date, to have become and been converted into the right to
receive the Per Share Stock Consideration, provided that if the sum of
all No-Election Shares and Stock Election Shares is equal to or less
than the Minimum Stock Number, all No-Election Shares shall be
Stock-Selected No-Election Shares,
(Y) if the sum of Stock Election Shares and
No-Election Shares is less than the Minimum Stock Number, the Exchange
Agent shall convert (pro rata according to each holder's total number
of Cash Election Shares) a sufficient number of Cash Election Shares
such that the sum of such number and the number of Stock Election
Shares and Stock-Selected No-Election Shares shall equal as closely as
practicable the Minimum Stock Number, and all such selected shares
("Converted Cash Election Shares") shall be deemed, as of the Effective
Date, to have become and been converted into the right to receive the
Per Share Stock Consideration, and
(Z) the No-Election Shares and Cash Election Shares
that are not Stock Selected No-Election Shares or Converted Cash
Election Shares (as the case may be) shall be deemed, as of the
Effective Date, to have become and been converted into the right to
receive the Per Share Cash Consideration; or
(ii) If the number of Stock Election Shares (on the basis of
Election Forms received by the Election Deadline, and assuming that all shares
of Chouteau Common Stock declared to be Dissenting Shares as of such date are
converted into Per Share Cash Consideration pursuant to Section 1.5) is greater
than the Maximum Stock Number, then
(X) all Cash Election Shares and No-Election Shares
shall be deemed, as of the Effective Date, to have become and been
converted into the right to receive the Per Share Cash Consideration,
(Y) the Exchange Agent shall convert (pro rata
according to each holder's total number of Stock Election Shares) a
sufficient number of Stock Election Shares into Cash Election Shares
("Converted Stock Election Shares") such that the remainder of (x) the
Stock Election Shares less (y)
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the Converted Stock Election Shares shall equal as closely as
practicable the Maximum Stock Number, and all Converted Stock Election
Shares shall be deemed, as of the Effective Date, to have become and
been converted into the right to receive the Per Share Cash
Consideration, and
(Z) the Stock Election Shares that are not Converted
Stock Election Shares shall be deemed, as of the Effective Date, to
have become and been converted into the right to receive the Per Share
Stock Consideration; or
(iii) If the number of Stock Election Shares (on the basis of
Election Forms received by the Election Deadline, and assuming that all shares
of Chouteau Common Stock declared to be Dissenting Shares as of such date are
converted into Per Share Cash Consideration pursuant to Section 1.5), is equal
to or less than the Maximum Stock Number and equal to or greater than the
Minimum Stock Number, then all Stock Election Shares and all Cash Election
Shares shall be deemed, as of the Effective Date, to have become and been
converted into the right to receive the Per Share Stock Consideration or the Per
Share Cash Consideration, respectively, and all No-Election Shares shall be
deemed, as of the Effective Date, to have become and been converted into the
right to receive the Per Share Cash Consideration.
(c) Not later than the 25th business day prior to the anticipated
Effective Date or such other date as the United and Chouteau may agree in
writing (the "Mailing Date"), United shall mail an Election Form and a letter of
transmittal to each person that was a holder of record of Chouteau Common Stock
at that time. To be effective, an Election Form must be properly completed,
signed and actually received by the Exchange Agent not later than 5:00 p.m.
prevailing Mountain Time, on the 20th business day after the Mailing Date (the
"Election Deadline") and accompanied by the certificates representing all the
shares of Chouteau Common Stock ("Chouteau Certificates") as to which the
Election is being made (or an appropriate guarantee of delivery by an eligible
organization). United shall have reasonable discretion, which it may delegate in
whole or in part to the Exchange Agent, to determine whether Election Forms have
been properly completed, signed and timely submitted or to disregard defects in
Election Forms; such decisions of United (or of the Exchange Agent) shall be
conclusive and binding. Neither United nor the Exchange Agent shall be under any
obligation to notify any person of any defect in an Election Form submitted to
the Exchange Agent, except that if United determines not to disregard a defect,
United shall notify Chouteau of such defect and provide a reasonable opportunity
for the defect to be cured. The Exchange Agent shall also make, and United shall
verify, all computations contemplated by this Section 1.3, and all such
computations shall be conclusive and binding on the former holders of Chouteau
Common Stock, absent manifest error. The Exchange Agent shall promptly provide
Chouteau with a copy of the completed computation. Shares of Chouteau Common
Stock covered by an Election Form which is not effective shall be treated as if
no Election has been made with respect to such shares of Chouteau Common Stock.
Once an Election is made it may not be revoked unless such revocation has been
communicated in writing to the Exchange Agent prior to the Election Deadline.
(d) No fractional interests in shares of United Common Stock, and no
certificates representing such fractional interests, shall be issued upon the
surrender for exchange of certificates representing Chouteau Common Stock. In
lieu of any fractional share, United shall pay to each former holder of Chouteau
Common Stock who otherwise would be entitled to receive a fractional interest in
a share of United Common Stock an amount of cash (without interest) determined
by multiplying (i) the United Average Stock Price by (ii) the fractional
interest (including fractional interests to which ESOP participants are
entitled) to which such holder would otherwise be entitled.
(e) Election Forms shall be promptly forwarded by the trustee (the
"ESOP Trustee") of Chouteau's Employee Stock Ownership Trust ("ESOP") to all
participants in the ESOP. The ESOP Trustee shall gather Election Forms from the
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ESOP participants prior to the Election Deadline and shall submit a master
Election Form to the Exchange Agent making elections in the manner directed by
the ESOP participants. The ESOP Trustee shall designate as No-Election Shares,
any allocated shares for which an ESOP participant does not timely submit a
valid Election Form.
1.4 Additional Exchange Procedures.
(a) The letter of transmittal which accompanies the Election Form
(which shall specify that delivery shall be effected and the risk of loss and
title to the Chouteau Certificates (and the shares of Chouteau Common Stock and
consideration therefor represented by such Chouteau Certificates) shall pass
after the Effective Date only upon proper delivery of such Chouteau Certificates
to the Exchange Agent) will advise the holders of Chouteau Certificates of the
procedure for surrendering to the Exchange Agent Chouteau Certificates in
exchange for either the certificates representing the Per Share Stock
Consideration (the "Merger Shares") or the Per Share Cash Consideration (either,
"Merger Consideration").
(b) Each former holder of shares of Chouteau Common Stock that have
been converted into a right to receive the Merger Consideration shall, upon
surrender to the Exchange Agent of a Chouteau Certificate or Certificates
together with a properly completed letter of transmittal, be entitled to receive
the Merger Consideration as provided herein.
(c) Until so surrendered, each Chouteau Certificate, and each share of
Chouteau Common Stock represented thereby, shall, at and after the Effective
Date, represent for all purposes only the right to receive the Merger
Consideration as provided herein, and nothing else, subject to applicable law in
the case of Dissenting Shares.
(d) If any of the Merger Consideration is to be issued to a person
other than the registered holder of the shares of Chouteau Common Stock formerly
represented by the Chouteau Certificate or Certificates surrendered with respect
thereto, it shall be a condition to such issuances that the Chouteau Certificate
or Certificates so surrendered shall be properly endorsed or otherwise be in
proper form for transfer and that the person requesting such issuance shall pay
to the Exchange Agent any transfer or other taxes required as a result of such
issuance to a person other than the registered holder of such shares of Chouteau
Common Stock or shall establish to the satisfaction of the Exchange Agent that
such tax has been paid or is not payable.
(e) At and after the Mailing Date, there shall be no further
registration or transfers of shares of Chouteau Common Stock (other than
transfers by operation of law), and the stock ledgers of Chouteau shall be
closed. After the Effective Date, Chouteau Certificates presented to the
Surviving Corporation for transfer shall be canceled and exchanged for the
Merger Consideration provided for, without interest, and in accordance with the
procedures set forth, in this Article 1.
(f) Thirty days after the Effective Date, any United Common Stock or
cash made available to the Exchange Agent that remains unclaimed by the former
holders of Chouteau Common Stock shall be returned to the Surviving Corporation,
upon its demand therefor. Any such holder who has not delivered Chouteau
Certificates to the Exchange Agent in accordance with this Section 1.4 prior to
that time shall thereafter look only to the Surviving Corporation (and only as
general creditors thereof) for the Merger Consideration in respect of any shares
of Chouteau Common Stock formerly requested thereby. Notwithstanding the
foregoing, neither the Surviving Corporation nor the Exchange Agent shall be
liable to any former holder of Chouteau Common Stock for any securities
delivered or any cash paid to a public official pursuant to applicable escheat
or abandoned property laws or for any securities or cash retained by the
Surviving Corporation as permitted by any such law.
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(g) No dividends, interest or other distributions with respect to the
Merger Consideration shall be paid to the holder of any unsurrendered Chouteau
Certificates until such Chouteau Certificates are surrendered as provided in
this Section 1.4. Upon such surrender, there shall be paid, without interest, to
the person in whose name any Per Share Stock Consideration is registered, all
dividends and other distributions payable in respect of such securities on a
date subsequent to, and in respect of a record date after, the Effective Date.
(h) In the event that any Chouteau Certificates shall have been lost,
stolen or destroyed, the Exchange Agent shall pay in respect of such lost,
stolen or destroyed certificate, upon the making of an affidavit of that fact by
the holder thereof, the Merger Consideration as may be provided pursuant to this
Agreement; provided, however, that United may, in its sole discretion and as a
condition precedent to the payment thereof, require the owner of such lost,
stolen or destroyed certificate to deliver an indemnity agreement or a bond in
such sum as it may reasonably direct as indemnity against any claim that may be
made against United, Chouteau, the Surviving Corporation, the Exchange Agent or
any other party with respect to the certificate alleged to have been lost,
stolen or destroyed.
(i) If the holder of any shares of Chouteau Common Stock shall become
entitled to receive payment for such shares pursuant to Sections 35-1-826
through 35-1-839 of MCA and Section 1.5, such payment shall be made by the
Surviving Corporation in accordance with Section 1.5.
(j) (i) Payments of Per Share Cash Consideration and payments in lieu
of fractional shares shall be made in immediately available funds on the
Effective Date, and (ii) certificates representing Per Share Stock Consideration
shall be delivered by hand or mailed by certified mail, return receipt
requested, on the Effective Date; provided the Chouteau Certificates have been
provided by the surrendering shareholder to United in compliance with Section
1.4. Risk of loss shall remain on United until such certificate for United
Common Stock is actually received by the surrendering shareholder.
1.5 Dissenting Shares.
(a) Notwithstanding any provision of this Agreement to the contrary,
any shares of Chouteau Common Stock held by a holder (a "Dissenting
Shareholder") who has demanded and perfected his demand for the fair value of
his shares in accordance with Sections 35-1-826 through 35-1-839 of MCA and as
of the Effective Date has neither effectively withdrawn nor lost his right to
demand such fair value shall not represent a right to receive any part of the
Merger Consideration, but in lieu thereof the holder thereof shall be entitled
to only such rights as are granted by MCA.
(b) Notwithstanding any provision of the Agreement to the contrary, if
any Dissenting Shareholder demanding the fair value of such Dissenting
Shareholder's shares of Chouteau Common Stock ("Dissenting Shares") under MCA
shall effectively withdraw or lose (through failure to perfect or otherwise) his
right to a determination of the fair value of his shares, then as of the
Effective Date or the occurrence of such event, whichever later occurs, such
Dissenting Shares shall automatically be converted into and represent only the
right to receive the Per Share Cash Consideration upon surrender of the
certificate or certificates representing such Dissenting Shares.
(c) Chouteau shall give United prompt notice of any demands by a
Dissenting Shareholder for payment, or notices of intent to demand payment
received by Chouteau under MCA, and United shall have the right to participate
in all negotiations and proceedings with respect to such demands. Chouteau shall
not, except with the prior written consent of United (which will not be
unreasonably withheld or delayed) or as otherwise required by law, make any
payment with respect to, or settle, or offer to settle, any such demands.
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ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF UNITED
United hereby represents and warrants to Chouteau as follows:
2.1. Organization and Qualification. United is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Minnesota, and has the requisite corporate power to carry on its
business as now conducted. United is registered as a savings and loan holding
company under the Home Owners' Loan Act of 1933, as amended (the "HOLA"), and,
as of the Effective Date, will be registered as a bank holding company under the
Bank Holding Company Act of 1956, as amended (the "BHC Act"). United is licensed
or qualified to do business in every jurisdiction in which the nature of its
business or its ownership of property requires it to be licensed or qualified,
except where the failure to be so licensed or qualified would not have or would
not reasonably be expected to have a material adverse effect on the business,
operations or financial condition of United and its subsidiaries, taken as a
whole.
2.2. Authority Relative to this Agreement; Non-Contravention.
United has the requisite corporate power and authority to enter into this
Agreement and to carry out its obligations hereunder. The execution and delivery
of this Agreement by United and the consummation by United of the transactions
contemplated hereby have been duly authorized by the Board of Directors of
United, and no other corporate proceedings on the part of United are necessary
to authorize this Agreement and such transactions. This Agreement has been duly
executed and delivered by United and constitutes a valid and binding obligation
of United, enforceable in accordance with its terms. United is not subject to,
or obligated under, any provision of (a)its Charter (as hereinafter defined) or
Bylaws, (b)any agreement, arrangement or understanding, (c)any license,
franchise or permit or (d)subject to obtaining the approvals referred to in the
next sentence, any law, regulation, order, judgment or decree, which would be
breached or violated, or in respect of which a right of termination or
acceleration or any encumbrance on any of its or any of its subsidiaries' assets
would be created, by its execution, delivery and performance of this Agreement
and the consummation by it of the transactions contemplated hereby, other than
any such breaches or violations which will not, individually or in the
aggregate, have a material adverse effect on the business, operations or
financial condition of United and its subsidiaries, taken as a whole, or the
consummation of the transactions contemplated hereby. Other than in connection
with obtaining any approvals required by the BHC Act, the Securities Act of
1933, as amended, and the rules and regulations thereunder (the "1993 Act"), the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder (the "1934 Act"), rules of the NMS; state securities or blue sky
laws, and the rules and regulations thereunder (the "Blue Sky Laws"), and the
filing of certificates of merger with the Secretary of State of Minnesota and
the Secretary of State of Montana, no authorization, consent or approval of, or
filing with, any public body, court or authority is necessary on the part of
United for the consummation by it of the transactions contemplated by this
Agreement, except for such authorizations, consents, approvals and filings as to
which the failure to obtain or make would not, individually or in the aggregate,
have a material adverse effect on the business, operations or financial
condition of United and its subsidiaries, taken as a whole, or the consummation
of the transactions contemplated hereby. As used in this Agreement, the term
"Charter" with respect to any corporation, banking association or savings and
loan association shall mean those instruments that at that time constitute its
charter as filed or recorded under the general corporation or other applicable
law of the jurisdiction of incorporation or association, including the articles
or certificate of incorporation or association, any amendments thereto and any
articles or certificate of merger or consolidation.
2.3. Validity of United Common Stock. The shares of United
Common Stock to be issued pursuant to this Agreement will be, when issued, duly
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authorized, validly issued, fully paid and nonassessable and free and clear of
any lien, pledge, security interest, encumbrance or charge of any kind.
2.4. Capital Stock. The authorized capital stock of United
consists of 8,000,000 shares of Common Stock, par value $1.00 per share, and
2,000,000 shares of preferred stock, no par value. As of April 30, 1998,
(a)1,698,312 shares of United Common Stock were issued and outstanding, (b)
10,000 shares of United Common Stock were reserved for issuance pursuant to a
warrant in favor of D.A. Davidson & Co. and (c) none of United's preferred
shares were issued and outstanding.
2.5. 1934 Act Reports.
(a) Prior to the execution of this Agreement, United has
delivered or made available to Chouteau complete and accurate copies of
(i)United's Annual Reports on Form10-K for the years ended December31, 1997 and
1996, as amended (the "United 10-K Reports"), as filed under the 1934 Act with
the Securities and Exchange Commission (the "SEC"), (ii)all United proxy
statements and annual reports to shareholders used in connection with meetings
of United shareholders held since January 1, 1996, and (iii)United's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1998 (the "United 10-Q
Report"), as filed under the 1934 Act with the SEC. United has filed all
documents required to be filed by it with the SEC under the 1934 Act since
January 1, 1996 (collectively the "SEC Documents").
(b) The United financial statements (including any footnotes
thereto) contained in the United 10-K Reports and the United 10-Q Report were
prepared in accordance with generally accepted accounting principles applied on
a consistent basis during the periods involved and fairly present the
consolidated financial position of United and its subsidiaries as of the dates
thereof and the consolidated results of operations, changes in shareholders'
equity and cash flows for the periods then ended.
(c) None of the SEC Documents included an untrue statement of
a material fact or omitted to state a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading.
2.6. No Material Adverse Changes. Since December 31, 1997,
there has been no material adverse change in, and no event, occurrence or
development in the business of United or its subsidiaries, taken as a whole,
that, taken together with other events, occurrences and developments with
respect to such business, has had or would reasonably be expected to have a
material adverse effect on the business operations or financial condition of
United and its subsidiaries, taken as a whole, or the ability of United to
consummate the transactions contemplated hereby.
2.7. Reports and Filings. Since January 1, 1996, each of
United and its subsidiaries has filed each report or other filing it was
required to file with any federal or state savings and loan or savings and loan
holding company authorities or other regulatory authority having jurisdiction
over it (together with all exhibits thereto, the "United Regulatory Reports"),
except for such reports and filings which the failure to so file would not have
a material adverse effect on the business, operations or financial condition of
United and its subsidiaries, taken as a whole. As of their respective dates or
as subsequently amended prior to the date hereof, each of the United Regulatory
Reports was true and correct in all material respects and complied in all
material respects with applicable laws, rules and regulations.
2.8. Registration Statement; Proxy Statement. At the time the
Registration Statement (as defined in Section 5.12) becomes effective under the
1933 Act, the Registration Statement will (a) comply in all material respects
with applicable provisions of the 1933 Act and, to the extent applicable, the
1934 Act
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and (b) not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading. At the time the Proxy Statement (as defined in
Section5.12) is mailed to the shareholders of Chouteau for the purpose of
obtaining their approval referred to in Section5.12 and at all times subsequent
to such mailing up to and including the time of such approval, and up to and
including the Effective Date, the Proxy Statement (including any amendments or
supplements thereto), with respect to all information set forth therein supplied
by United for inclusion therein and relating to United, the United Common Stock,
this Agreement, the Merger and all other transactions contemplated hereby, will
(a)comply in all material respects with applicable provisions of the 1933 Act
and, to the extent applicable, the 1934 Act and (b)not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements contained therein, in light
of the circumstances under which they were made, not misleading.
2.9. Tax Treatment. United is not aware of any fact or
circumstance which would disqualify the Merger as a "reorganization" that would
be tax-free to the shareholders of Chouteau pursuant to Section 368(a) of the
Code.
2.10. Absence of Undisclosed Liabilities. Except as otherwise
disclosed on Schedule 2.10, all of the obligations or liabilities (whether
accrued, absolute, contingent, unliquidated or otherwise, whether due or to
become due, and regardless of when asserted, including United Taxes (as defined
below)) with respect to or based upon transactions or events theretofore
occurring ("United Liabilities"), required to be reflected on the latest balance
sheets in its latest Form 10-Q in accordance with generally accepted accounting
principles have been so reflected. United has no United Liabilities except (a)as
reflected on the latest balance sheets in its latest Form 10-Q, (b)United
Liabilities which have arisen after the date of the latest balance sheets in its
latest Form 10-Q in the ordinary course of business, none of which is a material
unaccrued liability, and (c)as otherwise disclosed on Schedule 2.10. "United
Taxes" shall have the same meaning as "Taxes" in Section 3.12 except the
reference to Chouteau and the Subsidiaries shall be changed to United and its
subsidiaries.
2.11. Litigation. Except as set forth on Schedule2.11, there
are no actions, suits, proceedings, orders or investigations pending or, to the
best knowledge of United, threatened against United or its subsidiaries, at law
or in equity, or before or by any federal, state or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign. None of the matters set forth on Schedule 2.11, individually or in the
aggregate, will have or could reasonably be expected to have a material adverse
effect on the business, operations or financial condition of United and its
subsidiaries, taken as a whole.
2.12. Compliance with Laws; Permits. United and its
subsidiaries has complied in all material respects with all applicable laws and
regulations of foreign, federal, state and local governments and all agencies
thereof which affect the business or any owned or leased properties of United
and its subsidiaries and to which United and its subsidiaries may be subject
(including, without limitation, the Occupational Safety and Health Act of 1970,
the Home Owners Loan Act, the Federal Deposit Insurance Act, as amended, (the
"FDIA"), the Real Estate Settlement Procedures Act, the Home Mortgage Disclosure
Act of 1975, the Fair Housing Act, the Equal Credit Opportunity Act and the
Federal Reserve Act, each as amended, and any other state or federal acts
(including rules and regulations thereunder) regulating or otherwise affecting
employee health and safety or the environment), and no claims have been filed by
any such governments or agencies against United and its subsidiaries alleging
such a violation of any such law or regulation which have not been resolved to
the satisfaction of such governments or agencies. United and its subsidiaries
hold all of the permits, licenses, certificates and other authorizations of
foreign, federal, state and local governmental agencies required for the conduct
of its business, except where
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failure to obtain such authorizations would not, individually or in the
aggregate, have a material adverse effect on the business, operations or
financial condition of United and its subsidiaries, taken as whole, or the
ability of United to consummate the transactions contemplated hereby. Neither of
United or Heritage Bank FSB is subject to any cease and desist order, written
agreement or memorandum of understanding with, or is a party to any commitment
letter or similar undertaking to, or is subject to any order or directive by, or
is a recipient of any extraordinary supervisory agreement letter from, or has
adopted any board resolutions at the request of, federal or state governmental
authorities charged with the supervision or regulation of thrifts or banks or
thrift holding companies or bank holding companies or engaged in the insurance
of bank deposits (collectively, the "Thrift Regulators"), nor have either of
United or Heritage Bank FSB been advised by any Thrift Regulator that it is
contemplating issuing or requesting (or is considering the appropriateness of
issuing or requesting) any such order, directive, written agreement, memorandum
of understanding, extraordinary supervisory letter, commitment letter, board
resolutions or similar undertaking. Neither of United or Heritage Bank FSB is
subject to Section 32 of the FDIA.
2.13. Disclosure. The representations and warranties of United
contained in this Agreement are true and correct in all material respects, and
such representations and warranties do not omit any material fact necessary to
make the statements contained therein, in light of the circumstances under which
they were made, not misleading. There is no fact known to United which has not
been disclosed to Chouteau pursuant to this Agreement (including the documents
referred to in Section 2.5(a)) and the Schedules hereto which would have or
would reasonably be expected to have a material adverse effect on the business,
operations, financial condition or prospects of United and its subsidiaries,
taken as a whole, or the ability of United to consummate the transactions
contemplated hereby.
2.14. Regulatory Approvals. As of the date hereof, neither of
United or Heritage Bank FSB is aware of any fact that would likely result in the
regulatory approvals specified in Section 5.1 not being obtained.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF CHOUTEAU
Chouteau hereby represents and warrants to United as follows:
3.1. Organization and Qualification. Chouteau is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Montana, and has the requisite corporate power to carry on its business
as now conducted. Chouteau is registered as a bank holding company under the BHC
Act . The Bank is a state banking corporation duly organized, validly existing
and in good standing under the laws of the State of Montana, and has the
requisite corporate power to carry on its business as now conducted. The
Insurance Agency is a corporation duly organized, validly existing and in good
standing under the laws of the State of Montana, and has the requisite corporate
power to carry on its business as now conducted. The copies of the Charter and
Bylaws of each of Chouteau, the Bank and the Insurance Agency which have been
provided to United prior to the date of this Agreement are correct and complete
and reflect all amendments made thereto through the date hereof. Each of
Chouteau, the Bank and the Insurance Agency is licensed or qualified to do
business in every jurisdiction in which the nature of its respective business or
its ownership of property requires it to be licensed or qualified, except where
the failure to be so licensed or qualified would not have or would not
reasonably be expected to have a material adverse effect on the business,
operations or financial condition of Chouteau, the Bank and the Insurance
Agency, taken as a whole.
3.2. Authority Relative to this Agreement; Non-Contravention.
Chouteau has the requisite corporate power and authority to enter into this
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Agreement and to carry out its obligations hereunder. The execution and delivery
of this Agreement by Chouteau and the consummation by Chouteau of the
transactions contemplated hereby have been duly authorized by the Board of
Directors of Chouteau and, except for approval of this Agreement and the Merger
by the shareholders of Chouteau, no other corporate proceedings on the part of
Chouteau are necessary to authorize this Agreement, the Merger and such
transactions. This Agreement has been duly executed and delivered by Chouteau
and constitutes a valid and binding obligation of Chouteau, enforceable in
accordance with its terms. Except as disclosed on Schedule 3.2, neither of the
Chouteau nor the Bank nor the Insurance Agency is subject to, or obligated
under, any provision of (a)its Charter or Bylaws, (b)any agreement, arrangement
or understanding, (c)any license, franchise or permit or (d)subject to obtaining
the approvals referred to in the next sentence, any law, regulation, order,
judgment or decree, which would be breached or violated, or in respect of which
a right of termination or acceleration or any encumbrance on any of its assets
would be created, by the execution, delivery or performance of this Agreement,
or the consummation of the transactions contemplated hereby, other than any such
breaches or violations which will not, individually or in the aggregate, have a
material adverse effect on the business, operations or financial condition of
Chouteau, the Bank or the Insurance Agency, taken as a whole, or the
consummation of the transactions contemplated hereby. Other than in connection
with obtaining any approvals required by the BHC Act, the 1933 Act, the 1934
Act, the Blue Sky Laws, and the filing of the certificate of merger with the
Secretary of State of Montana, no authorization, consent or approval of, or
filing with, any public body, court or authority is necessary on the part of
Chouteau, the Bank or the Insurance Agency for the consummation by Chouteau of
the transactions contemplated by this Agreement, except for such authorizations,
consents, approvals and filings as to which the failure to obtain or make would
not, individually or in the aggregate, have a material adverse effect on the
business, operations or financial condition of Chouteau, the Bank and the
Insurance Agency taken as a whole, or the consummation of the transactions
contemplated hereby.
3.3. Capitalization. The authorized, issued and outstanding
capital stock of each of Chouteau, the Bank and the Insurance Agency, as of the
date hereof, is set forth on Schedule 3.3. To the knowledge of Chouteau, all of
the issued and outstanding shares of capital stock of Chouteau are owned by the
shareholders of Chouteau set forth on Schedule 3.3 free and clear of any lien,
pledge, security interest, encumbrance or charge of any kind, other than such as
are set forth on Schedule 3.3. All of the issued and outstanding shares of
capital stock of the Subsidiaries are owned by Chouteau. All of the shares of
capital stock of the Subsidiaries owned by Chouteau are owned free and clear of
any lien, pledge, security interest, encumbrance or charge of any kind, other
than the encumbrances arising as a result of requisite regulatory approvals for
transfer or as set forth on Schedule 3.3. The issued and outstanding shares of
capital stock of each of Chouteau, the Bank and the Insurance Agency are duly
authorized, validly issued, fully paid and nonassessable, except the outstanding
shares of the Bank may become subject to assessment pursuant to Section 32-1-506
of the MCA, and have not been issued in violation of any preemptive rights.
Except as set forth on Schedule 3.3, there are no options, warrants, conversion
privileges or other rights, agreements, arrangements or commitments obligating
Chouteau, the Bank and the Insurance Agency to issue, sell, purchase or redeem
any shares of their capital stock or securities or obligations of any kind
convertible into or exchangeable for any shares of their capital stock or of any
of their subsidiaries or affiliates, nor are there any stock appreciation,
phantom or similar rights outstanding based upon the book value or any other
attribute of any of the capital stock Chouteau or the Subsidiaries, or the
earnings or other attributes of Chouteau, the Bank and the Insurance Agency.
Chouteau has heretofore delivered to United true and correct copies of all such
agreements, arrangements (including all stock option plans) or commitments
identified on Schedule 3.3.
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3.4. Financial Statements.
(a) Chouteau has furnished United with the financial
statements identified on Schedule 3.4 (collectively, together with any notes
thereto, the "Chouteau Financial Statements"). The balance sheet of Chouteau as
of December 31, 1997, is herein referred to as the "Latest Chouteau Balance
Sheet," and the related statements of operation and changes in shareholders'
equity for the year then ended are herein referred to as the "Related Chouteau
Statements". The Chouteau Financial Statements have been prepared in accordance
with generally accepted accounting principles (except as disclosed on
Schedule 3.4) applied on a consistent basis during the periods involved and
fairly present the financial position of Chouteau as of the dates thereof and
the results of operations, changes in shareholders' equity and cash flows for
the periods then ended.
(b) Chouteau has furnished United with copies of the balance
sheets of each of the Subsidiaries as of March 31, 1998 and December 31, 1997,
and the related statements of operations (collectively, together with any notes
thereto, the "Subsidiaries' Financial Statements"). The balance sheets of the
Subsidiaries as of December 31, 1997, is herein referred to as the "Latest
Subsidiaries' Balance Sheet," and the related statements of operations for the
year then ended are herein referred to as the "Related Subsidiaries'
Statements". The Subsidiaries' Financial Statements have been prepared in
accordance with generally accepted accounting principles (except as disclosed on
Schedule 3.4) applied on a consistent basis during the periods involved and
fairly present the financial position of the Subsidiaries as of the dates
thereof and the results of operations for the periods then ended.
(c) The Latest Chouteau Balance Sheet and the Latest
Subsidiaries' Balance Sheet are collectively referred to as the "Latest Balance
Sheets," and the Related Chouteau Statements and the Related Subsidiaries'
Statements are collectively referred to as the "Related Statements".
3.5. Loans.
(a) Except as set forth in Schedule 3.5(a) and except as set
forth in the loan classification schedules Chouteau or the Bank has previously
delivered to United, to the knowledge of Chouteau and the Bank, the
documentation relating to each loan made by the Bank and relating to all
security interests, mortgages and other liens with respect to all collateral for
each such loan, taken as a whole, are adequate for the enforcement of the
material terms of each such loan and of the related security interests,
mortgages and other liens. The terms of each such loan and of the related
security interests, mortgages and other liens comply in all material respects
with all applicable laws, rules and regulations (including, without limitation,
laws, rules and regulations relating to the extension of credit).
(b) Except as set forth in Schedule 3.5(b) and except as set
forth in loan classification schedules Chouteau or the Bank has previously
delivered to United, (i) there are no loans, leases, other extensions of credit
or commitments to extend credit of the Bank that have been or, to the knowledge
of Chouteau and the Bank, should have been classified by the Bank as
non-accrual, as restructured, as 90 days past due, as still accruing and
doubtful of collection or any comparable classification, (ii) Chouteau has
provided to United written information requested by United concerning the loan
portfolios of the Bank that is true, correct and complete in all material
respects, and (iii)no material information requested by United with respect to
the loan portfolio of the Bank has been withheld from United.
3.6. Reports and Filings. Since January 1, 1996, each of
Chouteau and the Subsidiaries has filed each report or other filing that it was
required to file with any federal or state banking, bank holding company or
other applicable regulatory authorities having jurisdiction over it (together
with all exhibits thereto, the "Chouteau Regulatory Reports"). Chouteau has
provided or made
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available to United copies of all of the Chouteau Regulatory Reports. As of
their respective dates or as subsequently amended prior to the date hereof, each
of the Chouteau Regulatory Reports was true and correct in all material respects
and complied in all material respects with applicable laws, rules and
regulations.
3.7. Subsidiaries. Except for the stock of the Subsidiaries
owned by Chouteau and except as otherwise disclosed on Schedule 3.7, none of
Chouteau or the Subsidiaries owns any stock, partnership interest, limited
liability company, joint venture interest or any other security issued by any
other corporation, organization or entity, except securities owned by the Bank
in the ordinary course of its business.
3.8. Absence of Undisclosed Liabilities. Except as otherwise
disclosed on Schedule 3.8, all of the obligations or liabilities (whether
accrued, absolute, contingent, unliquidated or otherwise, whether due or to
become due, and regardless of when asserted, including Taxes (as defined in
Section 3.12)) with respect to or based upon transactions or events theretofore
occurring ("Liabilities"), required to be reflected on the Latest Balance Sheets
in accordance with generally accepted accounting principles have been so
reflected. Chouteau and the Subsidiaries have no Liabilities except (a)as
reflected on the Latest Balance Sheets, (b)Liabilities which have arisen after
the date of the Latest Balance Sheets in the ordinary course of business, none
of which is a material unaccrued liability, and (c)as otherwise disclosed on
Schedule 3.8. As of the date of this Agreement, there are no agreements or
commitments binding the Bank to extend credit, in the amount per "one borrower"
(as defined in 12 C.F.R. ss. 563.93), of $250,000 or more, except as set forth
on Schedule 3.8.
3.9. No Material Adverse Changes. Since the date of the Latest
Balance Sheets, there has been no material adverse change in, and no event,
occurrence or development in the business of Chouteau or the Subsidiaries that,
taken together with other events, occurrences and developments with respect to
such business, has had, or would reasonably be expected to have, a material
adverse effect on the business, operations, financial condition or prospects of
Chouteau or the Subsidiaries, taken as a whole, or the ability of Chouteau to
consummate the transactions contemplated hereby.
3.10. Absence of Certain Developments. Except as set forth in
the Latest Balance Sheets and the Related Statements or on Schedule 3.10, since
December 31, 1997, neither of Chouteau or the Subsidiaries has:
(a) issued or sold any of its equity securities, securities
convertible into or exchangeable for its equity securities, warrants, options or
other rights to acquire its equity securities, or any bonds or other securities,
except deposit and other bank obligations in the ordinary course of business;
(b) redeemed, purchased, acquired or offered to acquire,
directly or indirectly, any shares of capital stock or other securities of
Chouteau or the Subsidiaries;
(c) split, combined or reclassified any outstanding shares of
capital stock of Chouteau or the Subsidiaries, or declared, set aside or paid
any dividends or other distribution payable in cash, property or otherwise with
respect to any shares of capital stock of Chouteau or the Subsidiaries or other
securities, except dividends paid in cash prior to the date of this Agreement
and consistent with past practices or as permitted to be made after the date
hereof pursuant to Section 4.1(b)(iv);
(d) borrowed any amount or incurred or become subject to any
material liability, except liabilities incurred in the ordinary course of
business, but in no event has Chouteau or the Subsidiaries entered into any
long-term borrowings with terms of greater than one year;
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(e) discharged or satisfied any material lien or encumbrance
on the properties or assets of Chouteau or the Subsidiaries or paid any material
liability other than in the ordinary course of business;
(f) sold, assigned, transferred, mortgaged, pledged or
subjected to any lien or other encumbrance any of the assets of Chouteau or the
Subsidiaries, except (A)in the ordinary course of business, including real
estate acquired through foreclosure or deed in lieu of foreclosure ("OREO"),
(B)liens and encumbrances for current property taxes not yet due and payable and
(C)liens and encumbrances which do not materially affect the value of, or
interfere with the past or future use or ability to convey, the property subject
thereto or affected thereby;
(g) canceled any material debts or claims or waived any rights
of material value, except in the ordinary course of business or upon payment in
full;
(h) suffered any theft, damage, destruction or loss of or to
any property or properties owned or used by it, whether or not covered by
insurance, which would, individually or in the aggregate, have a material
adverse effect on the business, operations or financial condition of Chouteau or
the Subsidiaries, taken as a whole;
(i) made or granted any bonus or any wage, salary or
compensation increase or severance or termination payment to, or promoted, any
director, officer, employee, group of employees or consultant, entered into any
employment contract or hired any employee, in each case, other than in the
ordinary course of business and consistent with past practice;
(j) made or granted any increase in the benefits payable under
any employee benefit plan or arrangement, amended or terminated any existing
employee benefit plan or arrangement or adopted any new employee benefit plan or
arrangement, except as required by law;
(k) made any single or group of related capital expenditures
or commitment therefor in excess of $25,000 or entered into any lease or group
of related leases with the same party which involves aggregate lease payments
payable of more than $50,000 for any individual lease;
(l) acquired (by merger, exchange, consolidation, acquisition
of stock or assets or otherwise) any corporation, partnership, limited liability
company, joint venture or other business organization or division or material
assets thereof, or assets or deposits that are material to Chouteau or the
Subsidiaries;
(m) taken any other action or entered into any other
transaction other than in the ordinary course of business; or
(n) agreed to do any of the foregoing.
3.11. Properties.
(a) Each of Chouteau and the Subsidiaries owns good and
marketable title to all of the real property and all of the personal property,
fixtures, furniture and equipment reflected on the Latest Balance Sheets or
acquired since the date thereof (other than real property reflected on the
Latest Balance Sheets as OREO), free and clear of all liens and encumbrances,
except for (i)mortgages on real property set forth on Schedule 3.11(a),
(ii)encumbrances which do not materially affect the value of, or interfere with
the past or future use or ability to convey, the property subject thereto or
affected thereby, (iii)liens for current taxes and special assessments not yet
due and payable, and (iv)property disposed of since the date of the Latest
Balance Sheets in the ordinary course of business; provided, that no disposal of
any real property, other than OREO, shall be considered to be in the ordinary
course of business.
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(b) Schedule 3.11(b) correctly sets forth a brief description,
including the term, of each lease for real or personal property to which
Chouteau or the Subsidiariesis a party as lessee, excluding, however, leases
between Chouteau and a Subsidiary or between Subsidiaries. Chouteau has
delivered to United complete and accurate copies of each of the leases described
on Schedule 3.11(b), and none of such leases has been modified in any material
respect, except to the extent that such modifications are disclosed by the
copies delivered to United. At the Effective Date, neither of Chouteau or the
Subsidiaries occupy or use any real property as to which there is no lease in
full force and effect, other than real property owned by Chouteau or the
Subsidiaries. The leases described on Schedule 3.11(b) are in full force and
effect in all material respects. Chouteau or the Subsidiaries, as the case may
be (if lessee under such lease), has a valid and existing leasehold interest
under each lease described on Schedule 3.11(b) for the term set forth therein.
With respect to the leases described on and except as set forth on
Schedule 3.11(b), neither of Chouteau or the Subsidiaries is in default, and, to
the best knowledge of Chouteau and the Subsidiaries, none of the other parties
to any of such leases is in default, and, to the best knowledge of Chouteau and
the Subsidiaries, no circumstances (not in the control of Chouteau and the
Subsidiaries) exist which could result in such a default under any of such
leases.
(c) To the best knowledge of Chouteau and the Subsidiaries,
there has been no cancellation, breach or anticipated breach by any other party
to any lease described on Schedule 3.11(b).
(d) Except as set forth in Schedule 3.11(d), all of the
buildings, fixtures, furniture and equipment necessary for the conduct of the
business of Chouteau and the Subsidiaries are in good condition and repair,
ordinary wear and tear excepted, and are usable in the ordinary course of
business. Each of Chouteau and the Subsidiaries owns, or leases under valid
leases, all buildings, fixtures, furniture, personal property, land improvements
and equipment necessary for the conduct of its business as it is presently being
conducted.
(e) Except as set forth in Schedules 3.11(e) and 3.11(f),
neither of Chouteau or the Subsidiaries and none of the buildings owned or
leased by Chouteau or the Subsidiaries is in violation of any applicable zoning
ordinance or other law, regulation or requirement relating to the operation of
any properties used in the operation of its business, including, without
limitation, applicable environmental protection laws and regulations, which
violations would, individually or in the aggregate, have a material adverse
effect on the business, operations or financial condition of Chouteau or the
Subsidiaries, taken as a whole, and none of Chouteau or the Subsidiaries has
received any notice of any such violation, or of the existence of any
condemnation proceeding with respect to any properties owned or leased by
Chouteau or the Subsidiaries. Except as set forth in Schedule 3.11(e), no
Hazardous Materials (as defined below) have been deposited or disposed of in, on
or under Chouteau's or the Subsidiaries' owned or leased properties (including
properties owned, managed or controlled by the Bank in connection with its
lending or fiduciary operations) during the period in which Chouteau or the
Subsidiaries has owned, occupied, managed, controlled or operated such
properties. Except as set forth on Schedule 3.11(e), to the best knowledge of
Chouteau or the Subsidiaries, no prior owners, occupants or operators of all or
any part of Chouteau's or the Subsidiaries' owned or leased properties
(including properties owned, managed or controlled by the Bank in connection
with its lending or fiduciary operations) ever used such properties as a dump or
gasoline service station, or deposited, disposed of or allowed to be deposited
or disposed of in, on or under such properties any Hazardous Materials. Except
as disclosed on Schedule 3.11(e), to the best knowledge of Chouteau or the
Subsidiaries, no asbestos or any material amount of ureaformaldehyde materials
exists in or on any of Chouteau's or the Subsidiaries' owned or leased
properties (including properties owned, managed or controlled by the Bank in
connection with its lending or fiduciary operations), and no electrical
transformers or capacitors, other than those owned by public utility companies,
on such properties contain any PCBs.
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As used in this Section 3.11(e), the following terms shall
have the following meanings:
(i) "Hazardous Materials" means any dangerous, toxic or
hazardous pollutant, contaminant, chemical, waste, material or
substance as defined in or governed by any federal, state or local law,
statute, code, ordinance, regulation, rule or other requirement
relating to such substance or otherwise relating to the environment or
human health or safety, including without limitation any waste,
material, substance, pollutant or contaminant that might cause any
injury to human health or safety or to the environment or might subject
Chouteau or the Subsidiaries or, after the Effective Date, United or
any of its affiliates, or any of their respective directors or
officers, to any imposition of costs or liability under any
Environmental Laws.
(ii) "Environmental Laws" means all applicable federal, state,
local and foreign laws, rules, regulations, codes, ordinances, orders,
decrees, directives, permits, licenses and judgments relating to
pollution, contamination or protection of health, safety or the
environment (including, without limitation, all applicable federal,
state, local and foreign laws, rules, regulations, codes, ordinances,
orders, decrees, directives, permits, licenses and judgments relating
to Hazardous Materials in effect as of the date of this Agreement).
(f) Except as set forth in Schedule 3.11(f), there are no
aboveground or underground tanks located under, in or about, nor, to the best
knowledge of Chouteau and the Subsidiaries, have there ever been any such tanks
located under, in or about, any of Chouteau's or the Subsidiaries' owned or
leased properties (including properties owned, managed or controlled by the Bank
in connection with its lending or fiduciary operations).
3.12. Tax Matters. Except as disclosed on Schedule 3.12, each
of Chouteau and the Subsidiaries and all members of any consolidated,
affiliated, combined or unitary group of which Chouteau or the Subsidiaries is a
member have filed or will file all Tax (as hereinafter defined) and Tax
information returns or reports required to be filed (taking into account
permissible extensions) by them on or prior to the Effective Date, and have paid
(or have accrued or will accrue, prior to the Effective Date, amounts for the
payment of) all Taxes relating to the time periods covered by such returns and
reports. Except as disclosed on Schedule 3.12, the accrued taxes payable
accounts for Taxes reflected on the Latest Balance Sheets (or the notes thereto)
are sufficient for the payment of all unpaid Taxes of Chouteau and the
Subsidiaries accrued for or applicable to all periods ended on or prior to the
date of the Latest Balance Sheets or which may subsequently be determined to be
owing with respect to any such period. Except as disclosed on Schedule 3.12,
neither of Chouteau or the Subsidiaries has waived any statute of limitations
with respect to Taxes or agreed to any extension of time with respect to an
assessment or deficiency for Taxes. Each of Chouteau and the Subsidiaries has
paid or will pay in a timely manner and as required by law all Taxes due and
payable by it or which it is obligated to withhold from amounts owing to any
employee or third party. Except as disclosed on Schedule 3.12, all Taxes which
will be due and payable, whether now or hereafter, for any period ending on,
prior to or including the Effective Date, shall have been paid by or on behalf
of Chouteau and the Subsidiaries or shall be reflected on the books of Chouteau
and the Subsidiaries as an accrued Tax liability determined in a manner which is
consistent with past practices and the Latest Balance Sheets, without taking
account of the Merger. The aggregate amount of all such accruals for Tax
liability for any such period will be set forth on Schedule 3.12 (and a good
faith estimate of such amount shall be provided in writing to United at least 10
days prior to the Effective Date). In the five years prior to the date of this
Agreement, no Tax returns of Chouteau or the Subsidiaries have been audited by
any governmental authority other than as disclosed on Schedule 3.12; and, except
as set forth on Schedule 3.12, there are no unresolved questions, claims or
disputes
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asserted by any relevant taxing authority concerning the liability for Taxes of
Chouteau or the Subsidiaries. Neither of Chouteau or the Subsidiaries has made
an election under Section 341(f) of the Code, for any taxable years not yet
closed for statute of limitations purposes. In the five years prior to the date
of this Agreement, no demand or claim has been made against Chouteau or the
Subsidiaries with respect to any Taxes arising out of membership or
participation in any consolidated, affiliated, combined or unitary group of
which Chouteau or the Subsidiaries was at any time a member. Chouteau's federal
tax identification number is 81-0443872. The Bank's federal tax identification
number is 81-0119925. The Insurance Agency's federal tax identification number
is 81-0443710. For purposes of this Agreement, the term "Tax" shall mean any
federal, state, local or foreign income, gross receipts, license, payroll,
employment, excise, severance, stamp, occupation, premium, property or windfall
profits tax, environmental tax, customs duty, capital stock, deposits,
franchise, employees' income withholding, foreign or domestic withholding,
social security, unemployment, disability, workers' compensation,
employment-related insurance, real property, personal property, sales, use,
transfer, value added, alternative or add-on minimum or other tax, fee,
assessment or charge of any kind whatsoever, including any interest, penalties
or additions to, or additional amounts in respect of the foregoing, for each of
Chouteau, the Subsidiaries and all members of any consolidated, affiliated,
combined or unitary group of which Chouteau or the Subsidiaries is or was a
member.
3.13. Contracts and Commitments.
(a) Except as set forth on Schedule 3.13, neither of Chouteau
or the Subsidiaries (i) is a party to any collective bargaining agreement or
contract with any labor union, (ii) is a party to any written or oral contract
relating to any consulting services or to severance pay for any person, (iii) is
a party to any written or oral agreement or understanding to repurchase assets
previously sold (or to indemnify or otherwise compensate the purchaser in
respect of such assets), except for securities sold under a repurchase agreement
providing for a repurchase date 30 days or less after the purchase date, (iv) is
a party to any (A) contract or group of related contracts with the same party
for the purchase or sale of products or services, under which the undelivered
balance of such products and services has a purchase price in excess of $50,000
for any individual contract, or (B) other contract or group of related contracts
with the same party continuing over a period of more than six months from the
date or dates thereof, which is not entered into in the ordinary course of
business and is either not terminable by it on 30 days' or less notice without
penalty or involves more than $50,000 for any individual contract, or (C) other
agreement material to the business of Chouteau and the Subsidiaries, taken as a
whole, which is not entered into in the ordinary course of business, or (v) has
any commitments for capital expenditures in excess of $25,000.
(b) Except as disclosed on Schedule 3.13, (i) to the best
knowledge of Chouteau and the Subsidiaries, since the date of the Latest Balance
Sheets, no customer has indicated that it will stop or decrease the rate of
business done with Chouteau or the Subsidiaries (except for changes in the
ordinary course of such business) that would, individually or in the aggregate,
have a material adverse effect on the business, operations or financial
condition of Chouteau and the Subsidiaries, taken as a whole; (ii) each of
Chouteau and the Subsidiaries has performed all obligations required to be
performed by it prior to the date hereof in connection with the contracts or
commitments set forth on Schedule 3.13, and neither of Chouteau or the
Subsidiaries is in receipt of any claim of default under any contract or
commitment set forth on Schedule 3.13, except for any failures to perform,
breaches or defaults which would not, individually or in the aggregate, have a
material adverse effect on the business, operations or financial condition of
Chouteau and the Subsidiaries, taken as a whole; (iii) neither of Chouteau or
the Subsidiaries has any present expectation or intention of not fully
performing any material obligation pursuant to any contract or commitment set
forth on Schedule 3.13; and (iv) to the best knowledge of Chouteau and the
Subsidiaries, there has been no cancellation, breach or anticipated breach by
any
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other party to any contract or commitment set forth on Schedule 3.13, except for
any cancellation, breach or anticipated breach which would not, individually or
in the aggregate, have a material adverse effect on the business, operations or
financial condition of Chouteau and the Subsidiaries, taken as a whole.
3.14. Litigation. Except as set forth on Schedule 3.14, there
are no actions, suits, proceedings, orders or investigations pending or, to the
best knowledge of Chouteau and the Subsidiaries, threatened against Chouteau or
the Subsidiaries, at law or in equity, or before or by any federal, state or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign. None of the matters set forth on Schedule
3.14, individually or in the aggregate, will have or could reasonably be
expected to have a material adverse effect on the business, operations or
financial condition of Chouteau or the Subsidiaries, taken as a whole.
3.15. No Brokers or Finders. Except as disclosed on Schedule
3.15, there are no claims for brokerage commissions, finders' fees, investment
advisory fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement, understanding,
commitment or agreement made by or on behalf of Chouteau or the Subsidiaries.
3.16. Employees. Except as set forth on Schedule 3.16, neither
of Chouteau or the Subsidiaries has any knowledge of the announced or
anticipated resignation of any officer of Chouteau or the Subsidiaries. Except
as set forth on Schedule 3.16, Chouteau and the Subsidiaries have each complied
in all material respects with all laws relating to the employment of labor,
including provisions thereof relating to wages, hours, equal opportunity,
collective bargaining, non-discrimination and the payment of social security and
other taxes.
3.17. Employee Benefit Plans.
(a) For the purposes of this Section 3.17, unless the context
clearly requires otherwise, the term "Plan" or "Plans" includes all employee
benefit plans as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and all other benefit arrangements,
whether written or oral, (including, without limitation, any employment
agreement or any program, agreement, perquisites, automobile allowances, country
or health club allowances, policy or commitment providing for insurance coverage
of employees, workers' compensation, disability benefits, supplemental
unemployment benefits, vacation benefits, retirement benefits, life, health,
disability or accidental benefits) applicable to the employees of Chouteau or
the Subsidiaries, to which Chouteau or the Subsidiaries contribute, or which
Chouteau or the Subsidiaries have committed to implement for their employees
prior to the date of this Agreement. Unless the context clearly requires
otherwise, "Plan" or "Plans" shall also include any similar program or
arrangement maintained by any organization affiliated by ownership with Chouteau
or the Subsidiaries under Section 414(b), (c), (m) or (o) of the Code.
(b) Except as disclosed on Schedule 3.17:
(i) Schedule 3.17 sets forth all Plans with a brief
description of each, including specific identification of any Plan
described below:
(A) any nonqualified deferred compensation or
retirement plans, contracts or arrangements;
(B) any qualified defined contribution plans (as
defined in Section 3(34) of ERISA or Section 414(i) of the
Code);
(C) any qualified defined benefit plans (as defined
in Section 3(35) of ERISA or Section 414(j) of the Code)
("Defined Benefit Plans"); and
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(D) any employee welfare benefit plans (as defined in
Section 3(1) of ERISA).
(ii) With respect to the Plans, (A) all required contributions
which are due have either been made or properly accrued and (B) neither
of Chouteau or the Subsidiaries is liable for any "accumulated funding
deficiency" as that term is defined in Section 412 of the Code or any
penalty or excise tax in connection therewith.
(iii) With respect to all Plans sponsored or administered by
Chouteau or the Subsidiaries and with respect to any other Plan if
available to Chouteau or the Subsidiaries, Chouteau has furnished
United with true and complete copies of (A) the most recent
determination letter, if any, received by Chouteau or the Subsidiaries
from the Internal Revenue Service regarding each qualified Plan, (B)
the Form 5500 and all Schedules and accompanying financial statements,
if any, for each Plan for which such form is required to be filed for
the three most recent fiscal Plan years, (C) the most recently prepared
actuarial valuation report, if any, for each Plan, and (D) copies of
the current Plan documents, trust agreements, insurance contracts and
all related contracts and documents (including any material employee
communications) with respect to each Plan. To the extent Chouteau or
the Subsidiaries may be deemed to maintain any Plan for which there are
no such documents, agreements or contracts, United has received a
complete and accurate description of the terms of such Plan.
(iv) Neither of Chouteau or the Subsidiaries nor any affiliate
of Chouteau or the Subsidiaries maintains or has ever maintained any
Defined Benefit Plans.
(v) Neither of Chouteau or the Subsidiaries has any actual or
potential liabilities under Sections 4201 or 4205 of ERISA for any
complete or partial withdrawal from any multiemployer plan.
(vi) Neither of Chouteau or the Subsidiaries nor any of their
respective directors, officers, employees or other "fiduciaries" (as
such term is defined in Section 3(21) of ERISA) has committed any
breach of fiduciary duty imposed by ERISA or any other applicable law
with respect to the Plans which would subject Chouteau or the
Subsidiaries, directly or indirectly, to any material liability under
ERISA or any applicable law. There are no actions, suits or claims
pending against Chouteau or the Subsidiaries relating to benefits other
than routine, uncontested claims for benefits.
(vii) Neither of Chouteau or the Subsidiaries nor any officer,
director, employee, agent or fiduciary of any Plan has incurred any
liability for any civil penalty imposed by Section 4975 of the Code or
Section 502(i) of ERISA.
(viii) All Plans have been consistently administered in
accordance with their terms in all material respects. To the extent
required either as a matter of law or to obtain the intended tax
treatment and tax benefits, all Plans comply in all material respects
with the requirements of ERISA and the Code. All Tax information
returns or reports and all other required filings, disclosures and
contributions have been made with respect to all Plans. No condition
exists that limits the right of Chouteau or the Subsidiaries to amend
or terminate any such Plan (except as provided in such Plans or limited
under ERISA or the Code). No condition exists with respect to any Plan
that could result in any excise tax or other penalty or liability to
Chouteau or the Subsidiaries or United.
(ix) No Plan is funded in whole or in part through a voluntary
employees' beneficiary association exempt from tax under
Section 501(c)(9) of the Code. The limitations under Sections 419 and
419A of the Code have been
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computed, all unrelated business income tax returns have been filed and
appropriate adjustments have been made on all other Tax returns.
(x) Neither of Chouteau or the Subsidiaries has actual or potential
liability under current law for benefits after separation from
employment other than (y)benefits under Plans described in clauses (A),
(B) or (C) of Section 3.17(b)(i) and set forth on Schedule 3.17, and
(z)health care continuation benefits described in Section 4980B of the
Code or Part G of Subtitle B of Title I of ERISA or any comparable
provisions under the laws of any state.
(xi) No Plan is maintained in whole or in part pursuant to
collective bargaining.
(xii) No employee of Chouteau or the Subsidiaries is absent
due to (A) a disability that currently entitles the employee to
benefits under any long-term disability plan sponsored by Chouteau or
the Subsidiaries or (B) military service leave of absence. All
employees of Chouteau and the Subsidiaries are "at will" employees.
(xiii) No Plan requires or would result, separately or in the
aggregate, in the payment of any "excess parachute payments" within the
meaning of Section 280G of the Code, and the consummation of the
transactions contemplated by this Agreement will not be a factor in
causing payments to be made by Chouteau, the Subsidiaries or United
that are not deductible (in whole or in part) under Section 280G of the
Code.
(xiv) Neither Chouteau nor the Subsidiaries engage the
services of any persons on an independent contractor basis or other
basis (other than as an employee) as a result of which such persons may
have a claim to benefits from any Plan on the grounds they are common
law employees of Chouteau or the Subsidiaries.
3.18. Insurance. Schedule 3.18 hereto lists each insurance
policy maintained by Chouteau or the Subsidiaries with respect to its properties
and assets. Prior to the date hereof, Chouteau has delivered to United complete
and accurate copies of each of the insurance policies described on Schedule
3.18. All such insurance policies are in full force and effect, and none of
Chouteau or the Subsidiaries is in default with respect to its obligations under
any of such insurance policies.
3.19. Affiliate Transactions. Except as set forth on
Schedule 3.19, neither of Chouteau or the Subsidiaries, or any of their
respective executive officers or directors, or any member of the immediate
family of any such executive officer or director (which for the purposes hereof
shall mean a spouse, minor child or adult child living at the home of any such
executive officer or director), or any entity which any of such persons
"controls" (within the meaning of Regulation O of the FRB), has any loan
agreement, note or borrowing arrangement or any other agreement with Chouteau or
the Subsidiaries (other than normal employment arrangements, deposit account
relationships or loans or borrowing arrangements made in compliance with
Regulation O) or any interest in any property, real, personal or mixed, tangible
or intangible, used in or pertaining to the business of Chouteau or the
Subsidiaries.
3.20. Compliance with Laws; Permits. Each of Chouteau and the
Subsidiaries has complied in all material respects with all applicable laws and
regulations of foreign, federal, state and local governments and all agencies
thereof which affect the business or any owned or leased properties of Chouteau
or the Subsidiaries and to which Chouteau or the Subsidiaries may be subject
(including, without limitation, the Occupational Safety and Health Act of 1970,
the Home Owners Loan Act, the Federal Deposit Insurance Act, as amended, (the
"FDIA"), the Real Estate Settlement Procedures Act, the Home Mortgage Disclosure
Act of 1975, the Fair Housing Act, the Equal Credit Opportunity Act and the
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Federal Reserve Act, each as amended, and any other state or federal acts
(including rules and regulations thereunder) regulating or otherwise affecting
employee health and safety or the environment), and no claims have been filed by
any such governments or agencies against Chouteau or the Subsidiaries alleging
such a violation of any such law or regulation which have not been resolved to
the satisfaction of such governments or agencies. Each of Chouteau and the
Subsidiaries holds all of the permits, licenses, certificates and other
authorizations of foreign, federal, state and local governmental agencies
required for the conduct of its business, except where failure to obtain such
authorizations would not, individually or in the aggregate, have a material
adverse effect on the business, operations or financial condition of Chouteau
and the Subsidiaries, taken as whole, or the ability of Chouteau to consummate
the transactions contemplated hereby. Except as set on Schedule 3.20, neither of
Chouteau or the Subsidiaries is subject to any cease and desist order, written
agreement or memorandum of understanding with, or is a party to any commitment
letter or similar undertaking to, or is subject to any order or directive by, or
is a recipient of any extraordinary supervisory agreement letter from, or has
adopted any board resolutions at the request of, federal or state governmental
authorities charged with the supervision or regulation of banks or bank holding
companies or engaged in the insurance of bank deposits (collectively, the "Bank
Regulators"), nor have either of Chouteau or the Subsidiaries been advised by
any Bank Regulator that it is contemplating issuing or requesting (or is
considering the appropriateness of issuing or requesting) any such order,
directive, written agreement, memorandum of understanding, extraordinary
supervisory letter, commitment letter, board resolutions or similar undertaking.
Neither of Chouteau or the Subsidiaries is subject to Section 32 of the FDIA.
3.21. Administration of Fiduciary Accounts. Except as set
forth on Schedule 3.21, the Bank has properly administered, in all respects
material and which could reasonably be expected to be material to the business,
operations or financial condition of Chouteau and the Subsidiaries, taken as a
whole, all accounts for which it acts as a fiduciary, including but not limited
to accounts for which it serves as a trustee, agent, custodian, personal
representative, guardian, conservator or investment advisor, in accordance with
the terms of the governing documents and applicable state and federal law and
regulation and common law. None of Chouteau, the Subsidiaries or any of their
respective officers or directors has committed any breach of trust with respect
to any such fiduciary account which is material to or could reasonably be
expected to be material to the business, operations or financial condition of
Chouteau and the Subsidiaries, taken as a whole, and the accountings for each
such fiduciary account are true and correct in all material respects and
accurately reflect the assets of such fiduciary account in all material
respects.
3.22. Disclosure. The representations and warranties of
Chouteau contained in this Agreement are true and correct in all material
respects, and such representations and warranties do not omit any material fact
necessary to make the statements contained therein, in light of the
circumstances under which they were made, not misleading. There is no fact known
to Chouteau or the Subsidiaries which has not been disclosed to United pursuant
to this Agreement and the Schedules hereto which would have or would reasonably
be expected to have a material adverse effect on the business, operations,
financial condition or prospects of Chouteau and the Subsidiaries, taken as a
whole, or the ability of Chouteau to consummate the transactions contemplated
hereby.
3.23. Proxy Statement. At the time the Proxy Statement is
mailed to the shareholders of Chouteau in order to obtain their approval
referred to in Section 5.12 and at all times subsequent to such mailing up to
and including the time of such approval, such Proxy Statement (including any
supplements thereto), with respect to all information set forth therein relating
to Chouteau (including the Subsidiaries) and its shareholders, Chouteau Common
Stock, this Agreement, the Merger and all other transactions contemplated hereby
supplied by Chouteau or the Subsidiaries for inclusion therein, will (a)comply
in all material respects with applicable provisions of the 1933 Act, and (b)not
contain any untrue statement of
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material fact or omit to state a material fact required to be stated therein or
necessary to make the statements contained therein, in light of the
circumstances under which they are made, not misleading.
3.24. Regulatory Approvals. As of the date hereof, neither of
Chouteau or the Subsidiaries is aware of any fact that would likely result in
the regulatory approvals specified in Section 5.1 not being obtained.
3.25. Interest Rate Risk Management Instruments.
(a) Schedule 3.25 sets forth a true, correct and complete list
of all interest rate swaps, caps, floors and option agreements and other
interest rate risk management arrangements to which Chouteau or the Subsidiaries
is a party or by which any of their properties or assets may be bound. Chouteau
has delivered to United true, correct and complete copies of all such interest
rate risk management agreements and arrangements.
(b) All interest rate swaps, caps, floors and option
agreements and other interest rate risk management arrangements to which
Chouteau or the Subsidiaries is a party or by which any of their properties or
assets may be bound were entered into in the ordinary course of business and, to
the knowledge of Chouteau and the Subsidiaries, in accordance with prudent
banking practice and applicable rules, regulations and policies of the Bank
Regulators and with counterparties believed to be financially responsible at the
time and are legal, valid and binding obligations enforceable in accordance with
their terms (except as may be limited by bankruptcy, insolvency, moratorium,
reorganization or similar laws affecting the rights of creditors generally and
the availability of equitable remedies), and are in full force and effect. Each
of Chouteau and the Subsidiaries has duly performed in all material respects all
of its obligations thereunder to the extent that such obligations to perform
have accrued; and to the knowledge of Chouteau and the Subsidiaries, there are
no breaches, violations or defaults or allegations or assertions of such by any
party thereunder.
3.26. Loan Participations. Each loan of the Bank for which
a participation has been sold is disclosed on Schedule 3.26.
3.27. Disclosures in Schedules. Any matter disclosed in any
Schedule to this Agreement shall be deemed to have been disclosed in all
Schedules to this Agreement.
3.28. Tax Treatment. Neither Chouteau nor the Subsidiaries are
aware of any fact or circumstance which would disqualify the Merger as a
"reorganization" that would be tax-free to the shareholders of Chouteau pursuant
to Section 368(a) of Code.
ARTICLE 4
CONDUCT OF BUSINESS PENDING THE MERGER
4.1. Conduct of Business. From the date of this Agreement to
the Effective Date, unless United shall otherwise agree in writing or as
otherwise expressly contemplated or permitted by other provisions of this
Agreement, including this Section 4.1:
(a) the business of Chouteau and the Subsidiaries shall be
conducted only in, and neither of Chouteau or the Subsidiaries shall take any
action except in, the ordinary course, on an arms-length basis and in
accordance, in all material respects, with all applicable laws, rules and
regulations and past practices;
(b) neither of Chouteau or the Subsidiaries shall, directly or
indirectly, (i) amend or propose to amend its Charter or Bylaws; (ii) issue or
sell any of its equity securities, securities convertible into or exchangeable
for its
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equity securities, warrants, options or other rights to acquire its equity
securities, or any bonds or other securities, except (A) deposit and other bank
obligations in the ordinary course of business and (B) pursuant to the exercise
of the options, warrants, conversion privileges and other rights set forth on
Schedule 3.3; (iii) redeem, purchase, acquire or offer to acquire, directly or
indirectly, any shares of capital stock of Chouteau or the Subsidiaries; (iv)
split, combine or reclassify any outstanding shares of capital stock of Chouteau
or the Subsidiaries, or declare, set aside or pay any dividend or other
distribution payable in cash, property or otherwise with respect to shares of
capital stock of Chouteau, except that (A) Chouteau shall be permitted to pay
calendar quarter dividends (or a pro rata amount thereof for the quarter in
which the Effective Date occurs) on the outstanding shares of Chouteau Common
Stock in accordance with Chouteau's recent historical practice (not to exceed
$7.00 per share per calendar quarter), and (B) the Subsidiaries shall be
permitted to pay dividends on the shares of common stock of the Subsidiaries
owned by Chouteau; (v) borrow any amount or incur or become subject to any
material liability, except liabilities incurred in the ordinary course of
business, but in no event will Chouteau or the Subsidiaries enter into any
long-term borrowings with a term of greater than one year; (vi) discharge or
satisfy any material lien or encumbrance on the properties or assets of Chouteau
or the Subsidiaries or pay any material liability, except otherwise in the
ordinary course of business; (vii) sell, assign, transfer, mortgage, pledge or
subject to any lien or other encumbrance any of its assets, except (A) in the
ordinary course of business; provided, that any such sale, assignment or
transfer of any real property, other than OREO, shall not be considered in the
ordinary course of business, (B) liens and encumbrances for current property
taxes not yet due and payable, and (C) liens and encumbrances which do not
materially affect the value of, or interfere with the past or future use or
ability to convey, the property subject thereto or affected thereby; (viii)
cancel any material debt or claims or waive any rights of material value, except
in the ordinary course of business; (ix) acquire (by merger, exchange,
consolidation, acquisition of stock or assets or otherwise) any corporation,
partnership, limited liability company, joint venture or other business
organization or division or material assets thereof, or assets or deposits that
are material to Chouteau or the Subsidiaries, except in exchange for debt
previously contracted, including OREO; (x) other than as set forth on Schedule
3.10, make any single or group of related capital expenditures or commitments
therefor in excess of $25,000 or enter into any lease or group of related leases
with the same party which involves aggregate lease payments payable of more than
$50,000 for any individual lease; or (xi) enter into or propose to enter into,
or modify or propose to modify, any agreement, arrangement or understanding with
respect to any of the matters set forth in this Section 4.1(b);
(c) neither of Chouteau or the Subsidiaries shall, directly or
indirectly, enter into or modify any employment, severance or similar agreements
or arrangements with, or grant any bonuses, wage, salary or compensation
increases, or severance or termination pay to, or promote, any director,
officer, employee, group of employees or consultant or hire any employee, except
in the ordinary course of business consistent with past practice;
(d) neither of Chouteau or the Subsidiaries shall adopt or
amend any bonus, profit sharing, stock option, pension, retirement, deferred
compensation, or other employee benefit plan, trust, fund, contract or
arrangement for the benefit or welfare of any employees provided that Chouteau
may make contributions to the ESOP in an amount equal to the amount accrued by
Chouteau for such contribution prior to the Effective Date;
(e) each of Chouteau and the Subsidiaries shall use
commercially reasonable efforts to cause its current insurance policies not to
be canceled or terminated or any of the coverage thereunder to lapse, unless
simultaneously with such termination, cancellation or lapse, replacement
policies providing coverage substantially equal to the coverage under the
canceled, terminated or lapsed policies are in full force and effect;
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(f) neither of Chouteau or the Subsidiaries shall enter into
any settlement or similar agreement with respect to, or take any other
significant action with respect to the conduct of, any action, suit, proceeding,
order or investigation which is set forth on Schedule 3.14 or to which Chouteau
or the Subsidiaries becomes a party after the date of this Agreement, without
prior consultation with United;
(g) each of Chouteau and the Subsidiaries shall use
commercially reasonable efforts to preserve intact in all material respects the
business organization and the goodwill of each of Chouteau and the Subsidiaries
and to keep available the services of its officers and employees as a group and
preserve intact material agreements and credit facilities, and Chouteau shall
confer on a regular and frequent basis with representatives of United, as
reasonably requested by United, to report on operational matters and the general
status of ongoing operations;
(h) neither of Chouteau or the Subsidiaries shall take any
action with respect to investment securities held or controlled by any of them
inconsistent with past practices, alter its investment portfolio duration policy
as heretofore in effect or, without prior consultation with United, take any
action that would have or could reasonably be expected to have a material effect
on the Subsidiaries's asset/liability position;
(i) the Subsidiaries shall not make any agreements or
commitments binding it to extend credit in an amount in excess of $250,000 to a
new borrower, or make any agreements or commitments binding it to increase the
amount of credit in excess of $250,000 to any borrower, or sell, assign or
otherwise transfer or purchase any participation in any loan, in each case
without prior consultation with United;
(j) with respect to properties leased by Chouteau or the
Subsidiaries, neither of Chouteau or the Subsidiaries shall renew, exercise or
fail to exercise an option to extend or renew, cancel or surrender any lease of
real property nor allow any such lease to lapse, without the consent of United,
which consent shall not be unreasonably withheld; and
(k) neither of Chouteau or the Subsidiaries shall agree to do
any of the foregoing.
For purposes of this Agreement, the words "prior consultation" with respect to
any action means advance notice of such proposed action and a reasonable
opportunity to discuss such action in good faith prior to taking such action.
ARTICLE 5
ADDITIONAL COVENANTS AND AGREEMENTS
5.1. Filings and Approvals. United and Chouteau will use all
reasonable efforts and will cooperate with the other in the preparation and
filing, as soon as practicable, of all applications or other documents required
to obtain regulatory approvals and consents from the FRB and any other
applicable regulatory authorities and provide copies of the non-confidential
portions of such applications, filings and related correspondence to the other
party. Prior to filing each application, registration statement or other
document with the applicable regulatory authority, each party will provide the
other party with an opportunity to review and comment on the non-confidential
portions of each such application, registration statement or other document and
will discuss with the other party which portions of this Agreement shall be
designated as confidential portions of such applications. Each party will use
all reasonable efforts and will cooperate with the other party in taking any
other actions necessary to obtain such regulatory or other approvals and
consents, including participating in any required hearings or proceedings.
Subject to the terms and conditions herein provided, each party will use all
reasonable efforts to take, or cause to be
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taken, all actions and to do, or cause to be done, all things necessary, proper
or advisable to consummate and make effective as promptly as practicable the
transactions contemplated by this Agreement.
5.2. Certain Loans and Related Matters. Chouteau will furnish
to United a complete and accurate list as of the end of each calendar month
after the date of this Agreement, within 15 business days after the end of each
such calendar month, of (a) all of the Bank's periodic internal credit quality
reports prepared during such calendar month (which reports will be prepared in a
manner consistent with past practices), (b) all loans of the Bank classified as
non-accrual, as restructured, as 90 days past due, as still accruing and
doubtful of collection or any comparable classification, (c) all OREO, including
in-substance foreclosures and real estate in judgment, (d) any current
repurchase obligations of the Bank with respect to any loans, loan
participations or state or municipal obligations or revenue bonds and (e) any
standby letters of credit issued by the Bank.
5.3. Monthly Financial Statements. Chouteau shall furnish
United the Subsidiaries' balance sheets as of the end of each calendar month
after March 31, 1998 and the related statements of operations, within 15 days
after the end of each such calendar month. Such financial statements shall be
prepared on a basis consistent with the Latest Subsidiaries Balance Sheets and
the Related Subsidiaries Statements and on a consistent basis during the periods
involved and shall fairly present the financial positions of the Subsidiaries,
respectively, as of the dates thereof and the results of operations of the
Subsidiaries, respectively, for the periods then ended.
5.4. Expenses. All costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby shall be paid by
the party incurring such costs and expenses, except that without United's prior
written consent, which consent will not be unreasonably withheld, Chouteau and
the Subsidiaries shall neither incur nor pay any expenses related to the Merger
and this Agreement which are in excess of $100,000.
5.5. No Negotiations, etc. Chouteau will not, and will cause
the Subsidiaries and Chouteau's and the Subsidiaries' respective officers,
directors, employees, agents and affiliates, not to, directly or indirectly,
solicit, authorize, initiate or encourage submission of, any proposal, offer,
tender offer or exchange offer from any person or entity (including any of its
or their officers or employees) relating to any liquidation, dissolution,
recapitalization, merger, consolidation or acquisition or purchase of all or a
material portion of the assets or deposits of, or any equity interest in,
Chouteau or the Subsidiaries or other similar transaction or business
combination involving Chouteau or the Subsidiaries, or, unless Chouteau shall
have determined, after receipt of a written opinion of counsel to Chouteau (a
copy of which opinion shall be delivered to United), that the Board of Directors
of Chouteau has a fiduciary duty to do so, (a) participate in any negotiations
in connection with or in furtherance of any of the foregoing or (b) permit any
person other than United and its representatives to have any access to the
facilities of, or furnish to any person other than United and its
representatives any non-public information with respect to, Chouteau or the
Subsidiaries in connection with or in furtherance of any of the foregoing.
Chouteau shall promptly notify United if any such proposal or offer, or any
inquiry from or contact with any person with respect thereto, is made, and shall
promptly provide United with such information regarding such proposal, offer,
inquiry or contact as United may request.
5.6. Notification of Certain Matters. Each party shall give
prompt notice to the other parties of (a) the occurrence or failure to occur of
any event or the discovery of any information, which occurrence, failure or
discovery would be likely to cause any representation or warranty on its part
contained in this Agreement to be materially untrue or inaccurate when made, at
the Effective Date or at any time prior to the Effective Date and (b) any
material failure of such
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party to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder.
5.7. United Access to Information; Confidentiality.
(a) Chouteau shall permit and shall cause the Subsidiaries to
permit United full access on reasonable notice and at reasonable hours to its
properties and shall disclose and make available (together with the right to
copy) to United and to the internal auditors, loan review officers, employees,
attorneys, accountants and other representatives of United all books, papers and
records relating to the assets, stock, properties, operations, obligations and
liabilities of Chouteau and the Subsidiaries, including, without limitation, all
books of account (including, without limitation, the general ledgers), tax
records, minute books of directors' and shareholders' meetings, organizational
documents, bylaws, contracts and agreements, filings with any regulatory
authority, accountants' work papers, litigation files (including, without
limitation, legal research memoranda), documents relating to assets and title
thereto (including, without limitation, abstracts, title insurance policies,
surveys, environmental reports, opinions of title and other information relating
to the real and personal property), Plans affecting employees, securities
transfer records and shareholder lists, and any books, papers and records
relating to other assets, business activities or prospects in which United may
have a reasonable interest, including, without limitation, its interest in
planning for integration and transition with respect to the business of Chouteau
and the Subsidiaries; provided, however, that the foregoing rights granted to
United shall, whether or not and regardless of the extent to which the same are
exercised, in no way affect the nature or scope of the representations,
warranties and covenants of Chouteau set forth herein. In addition, Chouteau
shall cause the Subsidiaries to instruct its officers, employees, counsel and
accountants to be available for, and respond to any questions of, such United
representatives at reasonable hours and with reasonable notice by United to such
individuals, and to cooperate fully with United in planning for the integration
of the business of Chouteau and the Subsidiaries with the business of United and
its affiliates.
(b) All information furnished by Chouteau pursuant hereto
shall be treated as the sole property of Chouteau until the Effective Date, and,
if the Effective Date shall not occur, United shall return to Chouteau all
documents or other materials obtained from Chouteau (including copies thereof)
containing, reflecting or referring to such information; provided, however, that
with respect to documents that reflect or refer to such information, United at
its option may elect to destroy such documents to the extent United reasonably
determines that such documents contain confidential information with respect to
United or its affiliates. In addition, United shall keep confidential all such
information. The obligation to keep such information confidential shall not
apply to (i) any information which (A) was already in United's possession prior
to the disclosure thereof to United by Chouteau, (B) was then generally known to
the public, (C) became known to the public through no fault of United or its
representatives or (D) was disclosed to United by a third party not bound by an
obligation of confidentiality or (ii) disclosures required by law, governmental
or regulatory authority.
(c) In the event that this Agreement shall terminate, neither
party shall disclose, except as required by law or pursuant to the request of an
administrative agency or other regulatory body, the basis or reason for such
termination, without the consent of the other party.
5.8. Filing of Tax Returns and Adjustments.
(a) Chouteau and the Subsidiaries shall file (or cause to be
filed)at their own expense, on or prior to the due date, all Tax returns,
including all Plan returns and reports, for all Tax periods ending on or before
the Effective Date where the due date for such returns or reports (taking into
account valid extensions of the respective due dates) falls on or before the
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Effective Date; provided, however, that neither of Chouteau or the Subsidiaries
shall file any such Tax returns, or other returns, elections or information
statements with respect to any liabilities for Taxes (other than federal, state
or local sales, use, withholding or employment tax returns or statements), or
consent to any adjustment or otherwise compromise or settle any matters with
respect to Taxes, without prior consultation with United; provided, further,
that neither of Chouteau or the Subsidiaries shall make any election or take any
other discretionary position with respect to Taxes, in a manner inconsistent
with past practices, without the prior written approval of United. Chouteau
shall provide United with a copy of appropriate workpapers, schedules, drafts
and final copies of each federal and state income Tax return or election of
Chouteau and the Subsidiaries (including returns of all Plans) at least ten days
before filing such return or election and shall reasonably cooperate with any
request by United in connection therewith.
(b) United, in its sole and absolute discretion, will file (or
cause to be filed) all Tax returns of Chouteau and the Subsidiaries due after
the Effective Date. After the Effective Date, United, in its sole and absolute
discretion and to the extent permitted by law, shall have the right to amend,
modify or otherwise change all Tax returns of Chouteau and the Subsidiaries for
all Tax periods.
5.9. Establishment of Accruals. If requested by United, on the
business day immediately prior to the Effective Date, the Bank shall, consistent
with generally accepted accounting principles, establish such additional
accruals and reserves as may be necessary to conform the Bank's accounting and
credit loss reserve practices and methods to those of United (as such practices
and methods are to be applied to the Bank from and after the Effective Date) and
reflect United's plans with respect to the conduct of the Bank's business
following the Merger and to provide for the costs and expenses relating to the
consummation by the Bank of the transactions contemplated by this Agreement. The
establishment of such accruals and reserves shall not, in and of itself, (i)
constitute a breach of any representation or warranty of Chouteau contained in
this Agreement or constitute a material adverse change in the business,
operations or financial condition of Chouteau and the Subsidiaries, taken as a
whole, or (ii) be taken into account in determining (A) the amount of dividends
Chouteau or its Subsidiaries may properly pay, or (B) any bonuses or other
incentive compensation payable to employees of Chouteau or the Subsidiaries.
5.10. Employee and Director Matters.
(a) Subject to Section 5.10(b), and after the Effective Date,
United shall have the right to continue, amend, merge or terminate any of the
Plans (as defined in Section 3.17) in accordance with the terms thereof and
subject to any limitation arising under applicable law, including tax
qualification requirements. Until United shall take such action, however, such
Plans shall continue in force for the benefit of present and former employees of
Chouteau or the Subsidiaries who have any present or future entitlement to
benefits under any of the Plans ("Chouteau Employees").
(b) If United takes any action to materially amend, merge or
terminate any of the Plans, United shall allow Chouteau's and the Subsidiaries'
employees who remain employees of Chouteau or the Subsidiaries following the
Merger (collectively "Chouteau Employees") to participate in employee benefit
plans in which similarly situated employees of United or Heritage Bank FSB
currently participate. United shall grant the Chouteau Employees credit for all
United or Heritage FSB benefit plans for prior service at the Bank for purposes
of determining eligibility and vesting. Chouteau Employees will not receive
credit for purposes of determining benefit accruals under such plans. United
shall, with respect to all welfare benefit plans in which the Chouteau Employees
participate, waive all waiting periods and preexisting condition limitations and
grant credit for co-payments, out-of-pocket maximums and deductibles, to the
extent applicable
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and permissible under its welfare benefit plans without any increase in the cost
of such welfare benefit plans.
(c) United agrees not to terminate or discharge without cause
any full-time employee of Chouteau or the Subsidiaries (who has been an employee
of Chouteau or the Subsidiaries for at least 180 days at the time of the
Effective Date) without continuing to pay such employee his or her salary for
the period from the date of termination or discharge until the first anniversary
of the Effective Date.
(d) This Section 5.10 is an agreement solely between Chouteau
and United. Nothing in this Section 5.10, whether express or implied, confers
upon any employee of Chouteau, the Subsidiaries or United or any other person,
any rights or remedies, including, but not limited to: (i) any right to
employment or recall, (ii) any right to continued employment for any specified
period, or (iii) any right to claim any particular compensation, benefit or
aggregate of benefits, of any kind or nature whatsoever, as a result of this
Section 5.10, other than any salary under Section 5.10(c).
(e) As of the Effective Date, each of the directors of
Chouteau and the Subsidiaries, except for Craig Rehm and Ron Young, shall enter
into a noncompetition agreement (the "Noncompetition Agreement") substantially
in the form of Exhibit B.
(f) On the Effective Date, United shall appoint to United's
Board of Directors and Heritage Bank FSB's Board of Directors one representative
of Chouteau selected by the mutual agreement of United and Chouteau.
5.11. Tax Treatment. None of Chouteau, the Subsidiaries or
United shall take any action which would disqualify the Merger as a
"reorganization" that would be tax-free to the shareholders of Chouteau pursuant
to Section 368(a) of the Code.
5.12. Registration Statement; Shareholder Approvals.
(a) United shall prepare and file with the SEC as soon as
practicable a registration statement on Form S-4 (the "Registration Statement")
containing a proxy statement/prospectus covering the Merger Shares (the form of
such proxy statement/prospectus, together with any amendments thereof or
supplements thereto, mailed to Chouteau's shareholders in connection with the
meeting referred to in this Section is herein referred to as the "Proxy
Statement") and shall use its best efforts to have the Registration Statement
declared effective by the SEC as soon as practicable.
(b) Chouteau shall furnish to United such information as is
reasonably necessary in order for United to prepare the Registration Statement
and Proxy Statement and shall cooperate with United in the preparation of the
Registration Statement and the Proxy Statement. Chouteau agrees promptly to
notify United if at any time prior to the Chouteau shareholder meeting the Proxy
Statement becomes incorrect or incomplete in any material respect, and to
provide United with the information needed to correct such inaccuracy or
omission.
(c) United shall take any action required to be taken under
state blue sky or securities laws in connection with the issuance of the Merger
Shares.
(d) United shall advise Chouteau, promptly after it receives
notice thereof, of the time when the Registration Statement has become effective
or any supplement or amendment thereto has been filed, of the issuance of any
stop order, of the suspension of the qualification for offering or sale in any
jurisdiction of the Merger Shares or any request by the SEC for an amendment or
supplement of the Registration Statement or for additional information.
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(e) If at any time prior to the Effective Date any event with
respect to United, Chouteau, their directors, officers or any of their
subsidiaries shall occur which is required to be described in the Proxy
Statement or the Registration Statement, such event shall be so described, and
an appropriate amendment or supplement shall be filed promptly with the SEC and,
to the extent required by law, disseminated to the shareholders of Chouteau.
(f) Chouteau shall call a meeting of its shareholders for the
purpose of voting upon this Agreement and the Merger, and shall schedule such
meeting based on consultation with United. The Board of Directors of Chouteau
shall recommend that its shareholders approve this Agreement and the Merger, and
shall use its best efforts (including, without limitation, soliciting proxies
for such approval) to obtain its shareholders' approval.
5.13. Nasdaq Listing. United shall file an application for
listing of additional shares in accordance with the rules of the Nasdaq National
Market in order to have the Merger Shares approved for listing on the Nasdaq
National Market and shall use its best efforts to have such application approved
by the Nasdaq National Market prior to the Effective Date.
5.14. Affiliate Letters. Prior to the Effective Date, Chouteau
shall cause to be prepared and delivered to United a list identifying each
person who, at the time of the shareholder meeting described in Section 5.12,
may be deemed to be an "affiliate" of Chouteau, as such term is defined for
purposes of paragraphs (c) and (d) of Rule 145 under the 1933 Act (the "Rule 145
Affiliates"). Chouteau shall use its reasonable efforts to cause each person who
is identified as a Rule 145 Affiliate in such list to deliver to United on or
prior to the Effective Date, a written agreement related to compliance with Rule
145 in form and substance reasonably satisfactory to United. After the Effective
Date, United shall use its best efforts to satisfy the conditions (within its
control) set forth in Rule 144(c)(1) promulgated by the SEC under the 1933 Act
for so long as any Rule 145 Affiliate is subject to the provisions of Rule
145(d).
ARTICLE 6
CONDITIONS
6.1. Conditions to Obligations of Each Party. The respective
obligations of each party to effect the transactions contemplated hereby shall
be subject to the fulfillment at or prior to the Effective Date of the following
conditions:
(a) Regulatory approval for the consummation of the
transactions contemplated hereby shall have been obtained from the FRB
and any other governmental authority from whom approval is required,
and the applicable waiting periods, if any, under all statutory or
regulatory waiting periods shall have lapsed. None of such approvals
shall contain any conditions or restrictions that United reasonably
believes will materially restrict or limit the business or activities
of United, Chouteau or the Subsidiaries or have a material adverse
effect on, or would be reasonably likely to have a material adverse
effect on, the business, operations or financial condition of United
and its subsidiaries, taken as a whole, on the one hand, or Chouteau
and the Subsidiaries, taken as a whole, on the other hand.
(b) No injunction or other order entered by a state or federal
court of competent jurisdiction shall have been issued and remain in
effect which would impair the consummation of the transactions
contemplated hereby.
(c) There shall have been no law, statute, rule or regulation,
domestic or foreign, enacted or promulgated which would materially
impair the consummation of the transactions contemplated hereby.
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(d) No party hereto shall have terminated this Agreement as
permitted herein.
(e) United shall have been registered as a bank holding
company under the BHC Act.
(f) There shall not be threatened, instituted or pending any
action or proceeding before any court or governmental authority or
agency, domestic or foreign, challenging or seeking to make illegal, or
to delay or otherwise directly or indirectly to restrain or prohibit,
the consummation of the transactions contemplated hereby or seeking to
obtain material damages in connection with the transactions
contemplated hereby.
(g) There shall not be any action taken, or any statute, rule,
regulation, judgment, order or injunction proposed, enacted, entered,
enforced, promulgated, issued or deemed applicable to the transactions
contemplated hereby by any federal, state or other court, government or
governmental authority or agency, which would reasonably be expected to
result, directly or indirectly, in any of the consequences referred to
in Section 6.1(f).
6.2. Additional Conditions to Obligation of Chouteau. The
obligation of Chouteau to consummate the transactions contemplated hereby in
accordance with the terms of this Agreement is also subject to the following
conditions:
(a) The representations and warranties of United set forth in
Article 2 shall have been true and correct as of the date hereof, and
shall be true and correct as of the Effective Date as if made at and as
of the Effective Date, except where the failure to be true and correct
would not have, or would not reasonably be expected to have, a material
adverse effect on the business, operations or financial condition of
United and its subsidiaries, taken as a whole; and United shall in all
material respects have performed each obligation and agreement and
complied with each covenant to be performed and complied with by it
hereunder at or prior to the Effective Date.
(b) United shall have furnished to Chouteau a certificate of a
senior officer of United, dated as of the Effective Date, in which such
officer shall certify that he has no reason to believe that the
conditions set forth in Section 6.2(a) have not been fulfilled.
(c) United shall have furnished to Chouteau (i) copies of the
text of the resolutions by which the corporate action on the part of
United necessary to approve this Agreement and the transactions
contemplated hereby were taken, (ii) a certificate dated as of the
Effective Date executed on behalf of United by its corporate secretary
or one of its assistant corporate secretaries certifying to Chouteau
that such copies are true, correct and complete copies of such
resolutions and that such resolutions were duly adopted and have not
been amended or rescinded and (iii) an incumbency certificate dated as
of the Effective Date executed on behalf of United by its respective
corporate secretary or one of their respective assistant corporate
secretaries certifying the signature and office of each officer of
United, executing this Agreement or any other agreement, certificate or
other instrument executed pursuant hereto.
(d) Chouteau shall have received an opinion letter from Dorsey
& Whitney LLP dated as of the Effective Date addressed to Chouteau from
based on customary reliance and subject to customary qualifications, to
the effect that:
(i) United and its subsidiaries have the requisite
corporate and other power and authority (including all
licenses, permits and
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authorizations) to own and operate its properties and to carry
on its business as now conducted. United is licensed or
qualified to do business in every jurisdiction in which the
nature of its business or its ownership of property requires
it to be licensed or qualified, except where the failure to be
so licensed or qualified would not have or would not be
reasonably expected to have a material adverse effect on the
business, operations, financial condition or operating results
of United.
(ii) The authorized capital of United consists of
8,000,000 shares of United Common Stock, and all of the issued
and outstanding shares of the United Common Stock are duly
authorized, validly issued, fully paid and nonassessable. To
such counsel's knowledge, no holder of the United Common Stock
is entitled to any preemptive or other similar rights with
respect to the capital stock of United.
(iii) Except as set forth in Schedule 2.11, to the
knowledge of such counsel, there are no actions, suits,
proceedings, orders or investigations pending or threatened
against United, at law or in equity, or before or by any
federal, state or other governmental department, commission,
board, bureau, agency or instrumentality.
(iv) United is a corporation duly incorporated,
validly existing and in good standing under the laws of the
State of Minnesota. United is registered as a bank holding
company under the BHC Act.
(v) United has the corporate power to consummate the
transactions on its part contemplated by this Agreement.
United has taken all requisite corporate action to authorize
such agreements, and such agreements have been duly executed
and delivered by United and constitute the valid and binding
obligations of United enforceable in accordance with their
respective terms, subject as to the enforcement of remedies to
applicable bankruptcy, insolvency, moratorium and other laws
affecting the rights of creditors generally and to judicial
limitations on the enforcement of the remedy of specific
performance.
(vi) The execution and delivery of this Agreement by
United and the consummation of the transactions contemplated
hereby and thereby will not constitute a breach, default or
violation under United's Charter or Bylaws or, to such
counsel's knowledge, (A) any material agreement, arrangement
or understanding to which United is a party, (B) any license,
franchise or permit of United or (C) any law, regulation,
order, judgment or decree applicable to United.
(vii) No authorization, consent or approval of, or
filing with, any public body, court or authority is necessary
for the consummation by United of the transactions
contemplated hereby which has not been obtained or made.
(viii) The Merger Shares will be, when issued, duly
authorized, validly issued, fully paid and nonassessable.
(ix) At the time the Registration Statement became
effective, the Registration Statement (other than the
financial statements, financial data, statistical data and
supporting schedules included therein, and information
relating to or supplied by Chouteau, as to which no opinion is
expressed) complied as to form in all material respects with
the requirements of the 1933 Act.
(e) Since the date of this Agreement, there has been no
material adverse change in, and no event, occurrence or development in
the business of United or its subsidiaries that, taken together with
other events,
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occurrences and developments with respect to such business, would have
or would reasonably be expected to have a material adverse effect on,
the business, operations, financial condition or prospects of United
and its subsidiaries, taken as a whole.
(f) This Agreement and the Merger shall have been approved by
the requisite percentage of Chouteau's shareholders as required by MCA.
(g) Chouteau shall have received a fairness opinion from
Columbia Financial Advisors, Inc., in form and substance satisfactory
to Chouteau, as to the fairness of the transaction set forth in this
Agreement to the shareholders of Chouteau.
(h) The Merger Shares have been approved for listing, upon
official notice of issuance, on the Nasdaq National Market.
(i) The Registration Statement shall have been declared
effective by the SEC and no stop order suspending the effectiveness of
the Registration Statement shall have been entered by the SEC. United
shall have received all necessary permits and otherwise complied with
all state securities laws applicable to the issuance of the Merger
Shares pursuant to this Agreement.
(j) Chouteau shall have received an opinion of Holland & Hart
LLP dated as of the Effective Date and in form and substance reasonably
satisfactory to Chouteau, to the effect that, on the basis of the
facts, representations and assumptions set forth in such opinion which
are consistent with the state of facts existing at the Effective Date,
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 accordingly: (i) no gain or loss will be recognized for federal
income tax purposes by shareholders of Chouteau who exchange their
Chouteau Common Stock solely for United Common Stock pursuant to the
Merger; (ii) cash consideration received by Chouteau shareholders in
lieu of fractional shares of United Common Stock will be treated as
distributions in redemption, subject to the limitations of Section 302
of the Code; and (iii) the tax basis of the United Common Stock
received by shareholders of Chouteau who exchange all of the their
Chouteau Common Stock solely for United Common Stock in the Merger will
be the same as the tax basis of the Chouteau Common Stock surrendered
in exchange therefor. In rendering such an opinion, such counsel may
require and rely upon representations and covenants of Chouteau and
United and such other persons as counsel deems appropriate.
6.3. Additional Conditions to Obligation of United. The obligation of
United to consummate the transactions contemplated hereby in accordance with the
terms of this Agreement is also subject to the following conditions:
(a) The representations and warranties of Chouteau in this
Agreement shall have been true and correct as of the date hereof, and
such representations and warranties shall be true and correct as of the
Effective Date as if made at and as of the Effective Date, except (i)
where the failure to be true and correct would not have, or would not
reasonably be expected to have, a material adverse effect on the
business, operations, financial condition or prospects of Chouteau and
the Subsidiaries, taken as a whole; and (ii) Chouteau shall in all
material respects have performed each obligation and agreement and
complied with each covenant to be performed and complied with by them
hereunder at or prior to the Effective Date.
(b) Chouteau shall have furnished to United a certificate of
the President and Chief Executive Officer and the Chief Financial
Officer of Chouteau, dated as of the Effective Date, in which such
officers shall
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certify that they have no reason to believe that the conditions set
forth in Section 6.3(a) have not been fulfilled.
(c) Chouteau shall have furnished to United (i) copies of the
text of the resolutions by which the corporate action on the part of
Chouteau necessary to approve this Agreement and the transactions
contemplated hereby were taken, (ii) a certificate dated as of the
Effective Date executed on behalf of Chouteau by its corporate
secretary or one of its assistant corporate secretaries certifying to
United that such copies are true, correct and complete copies of such
resolutions and that such resolutions were duly adopted and have not
been amended or rescinded and (iii) an incumbency certificate dated as
of the Effective Date executed on behalf of Chouteau by its corporate
secretary or one of its assistant corporate secretaries certifying the
signature and office of each officer executing this Agreement or any
other agreement, certificate or other instrument executed pursuant
hereto.
(d) United shall have received an opinion letter dated as of
the Effective Date addressed to United from Holland & Hart LLP, based
on customary reliance and subject to customary qualifications, to the
effect that:
(i) Chouteau is a corporation duly incorporated,
validly existing and in good standing under the laws of the
State of Montana.
(ii) The Bank is a state banking association duly
organized, validly existing and in good standing under the
laws of the State of Montana.
(iii) The Insurance Agency is a corporation duly
organized, validly existing and in good standing under the
laws of the State of Montana.
(iv) Each of Chouteau and the Subsidiaries has the
requisite corporate and other power and authority (including
all licenses, permits and authorizations) to own and operate
its properties and to carry on its business as now conducted.
Each of Chouteau and the Subsidiaries is licensed or qualified
to do business in every jurisdiction in which the nature of
its business or its ownership of property requires it to be
licensed or qualified, except where the failure to be so
licensed or qualified would not have or would not be
reasonably expected to have a material adverse effect on the
business, operations, financial condition or operating results
of Chouteau or the Subsidiaries.
(v) The execution and delivery of this Agreement by
Chouteau and the consummation of the transactions contemplated
hereby will not constitute a breach, default or violation
under the respective Charter or Bylaws of Chouteau or the
Subsidiaries or, to such counsel's knowledge, (A) any material
agreement, arrangement or understanding to which Chouteau or
the Subsidiaries is a party, (B) any material license,
franchise or permit of Chouteau or the Subsidiaries or (C) any
material law, regulation, order, judgment or decree applicable
to Chouteau or the Subsidiaries.
(vi) The authorized capital of Chouteau consists of
20,000 shares of Chouteau Common Stock, $10 par value, and all
of the issued and outstanding shares of the Chouteau Common
Stock are duly authorized, validly issued, fully paid and
nonassessable. To such counsel's knowledge, no holder of the
Chouteau Common Stock is entitled to any preemptive or other
similar rights with respect to the capital stock of Chouteau.
E-34
<PAGE>
(vii) The authorized capital of the Bank consists of
10,000 shares of common stock, $100 par value. The authorized
capital stock of the Insurance Agency consists of 1,000 shares
of common stock, $1 par value. All of the issued and
outstanding shares of capital stock of the Subsidiaries are
duly authorized, validly issued, fully paid and nonassessable,
except that the common shares of the Bank may become subject
to assessment pursuant to Section 32-1-506 of MCA. To such
counsel's knowledge, no holder of the common stock of the
Subsidiaries is entitled to any preemptive or other similar
rights with respect to the capital stock of the Subsidiaries.
(viii) Except as set forth in Schedule 3.14, to the
knowledge of such counsel, there are no actions, suits,
proceedings, orders or investigations pending or threatened
against Chouteau or the Subsidiaries, at law or in equity, or
before or by any federal, state or other governmental
department, commission, board, bureau, agency or
instrumentality.
(ix) Chouteau has the corporate power to consummate
the transactions on its part contemplated by this Agreement.
Chouteau has duly taken all requisite corporate action to
authorize this Agreement and this Agreement has been duly
executed and delivered by Chouteau and constitutes the valid
and binding obligation of Chouteau enforceable in accordance
with its terms, subject as to the enforcement of remedies to
applicable bankruptcy, insolvency, moratorium and other laws
affecting the rights of creditors generally and to judicial
limitations on the enforcement of the remedy of specific
performance.
(x) No authorization, consent or approval of, or
filing with any public body, court or public authority, is
necessary for the consummation by Chouteau of the transactions
contemplated hereby, which has not been obtained or made.
(e) There shall not be threatened, instituted or pending any
action or proceeding before any court or governmental authority or
agency, domestic or foreign (i) seeking to prohibit direct or indirect
ownership or operation by United of all or a material portion of the
business or assets of Chouteau or the Subsidiaries or of United or any
of its subsidiaries, or to compel United or any of its subsidiaries or
Chouteau or the Subsidiaries to dispose of or to hold separately all or
a material portion of the business or assets of United or any of its
subsidiaries or of Chouteau or the Subsidiaries, as a result of the
transactions contemplated hereby, or (ii) seeking to require direct or
indirect divestiture by United of any of its business or assets or of
the business or assets of Chouteau or the Subsidiaries.
(f) There shall not be any action taken, or any statute, rule,
regulation, judgment, order or injunction proposed, enacted, entered,
enforced, promulgated, issued or deemed applicable to the transactions
contemplated hereby by any federal, state or other court, government or
governmental authority or agency, which would reasonably be expected to
result, directly or indirectly, in any of the consequences referred to
in Section 6.3(e).
(g) United shall not have discovered any fact or circumstance
existing as of the date of this Agreement which has not been disclosed
to United, as of the date of this Agreement, in this Agreement, any
Schedule hereto, or any document specifically required to be furnished
to United hereunder, regarding Chouteau or the Subsidiaries which
would, individually or in the aggregate with other such facts and
circumstances, (i) materially impair the consummation of the
transactions contemplated by this Agreement, or (ii) have a material
adverse effect on the business, operations, financial condition or
prospects of Chouteau and the Subsidiaries, taken as a whole.
E-35
<PAGE>
(h) Since the date of this Agreement, there shall have been no
material adverse change in, and no event, occurrence or development in
the business of Chouteau or the Subsidiaries that, taken together with
other events, occurrences and developments with respect to such
business, would have or would reasonably be expected to have a material
adverse effect on, the business, operations or financial condition of
Chouteau and the Subsidiaries, taken as a whole.
(i) As of the Effective Date, all issued and outstanding
shares of Chouteau Common Stock will be free and clear of any lien,
pledge, security interest, encumbrance or charge of any kind, including
any lien, pledge, security interest, encumbrance or charge set forth on
Schedule 3.3.
(j) The requisite percentage of the Chouteau shareholders
shall have approved the Merger and this Agreement as provided in the
MCA.
(k) The Dissenting Shares shall not be more than 20% of
Chouteau's issued and outstanding common stock on the Effective Date.
(l) United shall have received a fairness opinion from D.A.
Davidson & Co., in form and substance satisfactory to United, as to the
fairness of the transaction set forth in this Agreement to the
shareholders of United.
(m) United shall have received, at its sole cost, from a title
insurance company an extended form title insurance policy covering
Chouteau's and the Subsidiaries' real property (other than the Bank's
OREO) in amounts equal to their respective fair market values showing
Chouteau or the Subsidiaries, as the case may be, to be vested with
good and merchantable fee simple title, free and clear of all liens and
encumbrances other than customary burdens on title such as taxes,
zoning, easements, patent reservations and such other burdens as do not
adversely affect the use of or the ability to convey the real property.
(n) United shall have received a balance sheet of Chouteau and
the Subsidiaries as of December 31, 1997 and the related statement of
operation and changes in shareholder equity and cash flow for the year
then ended which (A) have been audited by KPMG Peat Marwick LLP, (B) is
accompanied by the opinion of KPMG Peat Marwick LLP stating that such
statements present fairly, in all material respects, the financial
position of Chouteau and the Subsidiaries as of December 31, 1997 and
the result of their operations and cash flow for the year ended
December 31, 1997 in conformity with generally accepted accounting
principals, and (C) is not, in United's sole discretion, different in
any material respect from the Latest Balance Sheets and Related
Statements. The statements to be provided pursuant to the preceding
shall be provided at the expense of Chouteau.
(o) No later than thirty (30) days after United has received
the financial statements and opinion of KPMG Peat Marwick LLP pursuant
to Section 6.3(n), United shall have completed its due diligence
investigation regarding the business, assets, properties, condition
(financial or otherwise), results of operations or prospects of the
Chouteau and shall not have discovered any fact or circumstance
(whether known or unknown at the time of this Agreement) which is,
individually or in the aggregate with other such facts and
circumstances, materially adverse to Chouteau or to the value of the
shares of Chouteau Common Stock.
(p) Each of the directors of Chouteau and the Subsidiaries,
except for Craig Rehm and Ron Young, shall have executed and delivered
a Noncompetition Agreement to United and Heritage Bank FSB in
accordance with Section 5.10(d) hereof.
E-36
<PAGE>
(q) On or before August 31, 1998, United shall have
investigated the environmental condition of Chouteau's and the
Subsidiaries' real property and shall have reasonably determined that
no materially adverse environmental condition exists with respect to
any such real property.
(r) United shall have received an opinion from Dorsey &
Whitney LLP dated as of the Effective Date and in form and substance
reasonably satisfactory to United to effect that, on the basis of
facts, representations and assumptions set forth in such opinion which
are consistent with the state of facts existing at the Effective Date,
the Merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code
provided that this Section 6.3(r) shall be a condition to United's
obligations under this Agreement only if (i) Chouteau has been unable
to receive the opinion of Holland and Hart LLP set forth in Section
6.2(j) and (ii) Chouteau has elected to waive the condition set forth
in Section 6.2(j). In rendering such an opinion, such counsel may
require and rely upon representations and covenants of Chouteau and
United and such other persons as counsel deems appropriate.
(s) On or before July 31, 1998, United shall have received the
duly executed Shareholder Consent in the form attached to this
Agreement as Exhibit C.
ARTICLE 7
TERMINATION, AMENDMENT AND WAIVER
7.1. Termination. This Agreement may be terminated prior to
the Effective Date:
(a) by mutual consent of United and Chouteau;
(b) by either United or Chouteau, if any of the conditions to
such party's obligation to consummate the transactions contemplated in this
Agreement shall have become impossible to satisfy;
(c) by either United or Chouteau if the Effective Date is not
on or before November 30, 1998 (unless the failure to consummate the Merger by
such date shall be due to the action or failure to act of the party seeking to
terminate this Agreement in breach of such party's obligations under this
Agreement);
(d) by United if, after the date hereof, the Board of
Directors of Chouteau shall have withdrawn, modified or changed its
recommendation of this Agreement or the Merger;
(e) by Chouteau if the United Average Share Price is more than
$31.35; or
(f) by United if the United Average Share Price is less than
$25.65.
Any party desiring to terminate this Agreement shall give
written notice of such termination and the reasons therefor to the other
parties.
7.2. Effect of Termination. If this Agreement is terminated as
permitted by Section 7.1, such termination shall be without liability or
obligation of any party (or any shareholder, officer, employee, agent,
consultant or representative of such party) to any other party to this
Agreement, except (a) as may be otherwise provided in law or in equity, and (b)
that the covenants contained in Section s 5.4 and 5.7(b) and (c) hereof shall
survive such termination.
E-37
<PAGE>
7.3. Amendment. This Agreement may not be amended except by an
instrument in writing approved by the parties to this Agreement and signed on
behalf of each of the parties hereto.
7.4. Waiver. At any time prior to the Effective Date, any
party hereto may (a)extend the time for the performance of any of the
obligations or other acts of the other parties hereto or (b)waive compliance
with any of the agreements of the other parties or with any conditions to its
own obligations, in each case only to the extent such obligations, agreements
and conditions are intended for its benefit.
ARTICLE 8
GENERAL PROVISIONS
8.1. Public Statements. Neither of Chouteau or United shall
make any public announcement or statement with respect to the Merger, this
Agreement or any related transactions without the approval of the other parties;
provided, however, that United may, upon reasonable notice to Chouteau, make any
public announcement or statement that it believes is required by federal
securities laws.
8.2. Notices. All notices and other communications hereunder
shall be in writing and shall be sufficiently given if made by hand delivery, by
fax, by telecopier, by overnight delivery service, or by registered or certified
mail (postage prepaid and return receipt requested) to the parties at the
following addresses (or at such other address for a party as shall be specified
by it by like notice):
if to United:
United Financial Corp.
c/o Central Financial Services, Inc.
5500 Wayzata Boulevard
Suite 145
Golden Valley MN 55416
Attention: Kurt Weise
Fax: (612) 542-8617
Dorsey & Whitney LLP
507 Davidson Building
8 Third Street North
Great Falls, MT 59401
Attention: Jack Manning
Fax: (406) 727-3638
if to Chouteau:
Craig Rehm
Chouteau County Bancshares, Inc.
1502 Main Street
Fort Benton, MT 59442
Fax: (406) 622-3657
with a copy to:
David R. Chisholm, Esq.
Holland & Hart LLP
Suite 1500, First Interstate Center
401 North 31st Street
Billings, MT 59101
Fax: (406) 252-1669
E-38
<PAGE>
All such notices and other communications shall be deemed to
have been duly given as follows: when delivered by hand, if personally
delivered; five business days after being deposited in the mail, postage
prepaid, if delivered by mail; when receipt electronically acknowledged, if
faxed or telecopied; and the next day after being delivered to an overnight
delivery service.
8.3. Interpretation. When a reference is made in this
Agreement to subsidiaries of United, the word "subsidiary" means any
"majority-owned subsidiary" (as defined in Rule 12b-2 under the 1934 Act) of
United, as the context requires; provided, however, that neither of Chouteau or
the Subsidiaries shall at any time be considered a subsidiary of United for
purposes of this Agreement. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. References to Section s and Articles refer to
Section s and Articles of this Agreement unless otherwise stated. Words such as
"herein," "hereinafter," "hereof," "hereto," "hereby" and "hereunder," and words
of like import, unless the context requires otherwise, refer to this Agreement
(including the Exhibits and Schedules hereto). As used in this Agreement, the
masculine, feminine and neuter genders shall be deemed to include the others if
the context requires.
8.4. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
shall negotiate in good faith to modify this Agreement and to preserve each
party's anticipated benefits under this Agreement.
8.5. Miscellaneous. This Agreement (together with all other
documents and instruments referred to herein): (a) constitutes the entire
agreement, and supersedes all other prior agreements and undertakings, both
written and oral, among the parties, with respect to the subject matter hereof;
(b) is not intended to confer upon any person other than the parties hereto any
rights or remedies hereunder; (c) shall be governed in all respects, including
validity, interpretation and effect, by the internal laws of the State of
Montana, without giving effect to the principles of conflict of laws thereof;
and (d) shall not be assigned by operation of law or otherwise. This Agreement
may be executed in two or more counterparts which together shall constitute a
single agreement.
8.6. Representations, Warranties and Covenants. Except for the
provisions of subparagraphs (a), (b) and (c) of Section 5.10, the
representations, warranties and covenants of the parties set forth herein will
not survive the consummation of the Merger.
E-39
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed on the date first written above, in the case of United
and Chouteau by their respective duly elected and authorized officers.
UNITED FINANCIAL CORP.
By /s/ Kurt R Weise
------------------------------
Kurt R. Weise, its President
-------------- ---------
CHOUTEAU COUNTY BANCSHARES,
INC.
By /s/ Craig Rehm
-------------------------
Craig Rehm, its President
----------- ---------
E-40
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CURRENT
REPORT ON FORM 10Q FOR THE SIX MONTHS ENDED JUNE 30, 1998 IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001011309
<NAME> UNITED FINANCIAL COPR.
<MULTIPLIER> 1000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 6,209
<INT-BEARING-DEPOSITS> 2,505
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 58,116
<INVESTMENTS-MARKET> 58,336
<LOANS> 126,513
<ALLOWANCE> 1,344
<TOTAL-ASSETS> 205,345
<DEPOSITS> 145,783
<SHORT-TERM> 27,211
<LIABILITIES-OTHER> 2,074
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0
0
<COMMON> 28,002
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<TOTAL-LIABILITIES-AND-EQUITY> 205,345
<INTEREST-LOAN> 4,492
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<INTEREST-TOTAL> 6,312
<INTEREST-DEPOSIT> 2,770
<INTEREST-EXPENSE> 3,222
<INTEREST-INCOME-NET> 3,090
<LOAN-LOSSES> 220
<SECURITIES-GAINS> 12
<EXPENSE-OTHER> 2,541
<INCOME-PRETAX> 1,739
<INCOME-PRE-EXTRAORDINARY> 1,739
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,069
<EPS-PRIMARY> .72
<EPS-DILUTED> .72
<YIELD-ACTUAL> 3.30
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<LOANS-TROUBLED> 0
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