SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
January 10, 2000
HEMLOCK FEDERAL FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its Charter)
Delaware 0-22103 36-4126192
- --------------------------------------------------------------------------------
(State or other jurisdiction (Commission File No.) (IRS Employer
of incorporation) Identification No.)
5700 West 159th Street, Oak Forest, Illinois 60452
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (708) 687-9400
N/A
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
Item 5. Other Events
On January 10, 2000, Hemlock Federal Financial Corporation, a Delaware
corporation ("Hemlock"), and Midwest Savings Bank ("Midwest") issued a joint
press release announcing the execution of a definitive agreement as of January
7, 2000 by and between Hemlock Federal Bank for Savings (the "Bank"), the
wholly-owned subsidiary of Hemlock, and Midwest (the "Merger Agreement"). Under
the terms of the Merger Agreement, Midwest will merge into a to-be-formed wholly
owned subsidiary of the Bank (the "Merger"). Following the Merger, Midwest will
then be merged into the Bank.
Pursuant to the Merger Agreement, each issued and outstanding share of
Midwest common stock, par value $0.01 (other than dissenting shares), shall be
converted into and represent the right to receive cash equal to stockholders'
equity of Midwest as of December 31, 1999, plus the net income of Midwest
through the month-end prior to the closing date, subject to certain adjustments,
including a credit to Midwest for transaction-related expenses. However, any
shares of Midwest common stock owned beneficially or as of record by either
Midwest or Hemlock or any of their subsidiaries (other than shares held in a
fiduciary capacity for the benefit of third parties or as a result of debts
previously contracted) shall be canceled.
The Merger is intended to qualify as a tax-free reorganization under
the Internal Revenue Code of 1986, as amended. The receipt of cash by the
stockholders of Midwest will be a taxable event for the stockholders.
Consummation of the Merger is subject to various conditions, including:
(1) receipt of approval by the stockholders of Midwest, (2) receipt of requisite
regulatory approvals, and (3) satisfaction of certain other conditions.
The Merger Agreement and the press release announcing the Merger issued
on January 10, 2000 are attached as exhibits to this report and are incorporated
herein by reference. The foregoing summary of the Merger Agreement does not
purport to be complete and are qualified in its entirety by reference to such
agreement.
Item 7. Financial Statements and Exhibits
(c) EXHIBITS:
2 Agreement and Plan of Merger, dated as of January 7, 2000, by
and between Hemlock Federal Bank for Savings and Midwest
Savings Bank.
20 Press Release issued January 10, 2000.
<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.
HEMLOCK FEDERAL FINANCIAL CORPORATION
Date: January 15, 2000 By: /s/Maureen Partynski
----------------------------------
Maureen Partynski, Chairman and
Chief Executive Officer (Principal
Financial and Accounting Officer)
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
2 Agreement and Plan of Merger dated as of January 7, 2000, by and
between Hemlock Federal Bank for Savings and Midwest Savings Bank.
20 Press Release issued January 10, 2000.
EXHIBIT 2
AGREEMENT AND PLAN OF MERGER
between
HEMLOCK FEDERAL BANK FOR SAVINGS
and
MIDWEST SAVINGS BANK
dated as of January 7, 2000
<PAGE>
AGREEMENT AND PLAN OF MERGER
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS..........................................................1
ARTICLE II
THE MERGER...........................................................6
2.1 The Corporate Merger.....................................6
2.2 Effective Time; Closing..................................6
2.3 Treatment of Capital Stock...............................6
2.4 Stockholder Rights; Stock Transfers......................7
2.5 Options..................................................7
2.6 Exchange Procedures......................................7
2.7 Dissenting Shares........................................8
2.8 Additional Actions.......................................9
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER.............................9
3.1 Capital Structure........................................9
3.2 Organization, Standing and Authority of Seller...........9
3.3 Seller Subsidiaries.....................................10
3.4 Registration Obligations................................10
3.5 Authorized and Effective Agreement......................10
3.6 Securities Documents and Regulatory Reports.............11
3.7 Financial Statements....................................11
3.8 Material Adverse Change.................................11
3.9 Environmental Matters...................................12
3.10 Tax Matters.............................................12
3.11 Legal Proceedings.......................................13
3.12 Compliance with Laws....................................13
3.13 Certain Information.....................................13
3.14 Employee Benefit Plans..................................14
3.15 Certain Contracts.......................................14
3.16 Brokers and Finders.....................................15
3.17 Insurance...............................................15
3.18 Properties..............................................15
3.19 Labor...................................................16
3.20 Allowance for Loan Losses...............................16
3.21 Year 2000 Compliant.....................................16
3.22 Material Interests of Certain Persons...................16
3.23 Fairness Opinion........................................16
3.24 Disclosures.............................................16
3.25 No Undisclosed Liabilities..............................17
3.26 Indemnification.........................................17
3.27 Loan Portfolio..........................................17
3.28 Investment Portfolio....................................17
3.29 Corporate Records.......................................18
i
<PAGE>
3.30 Interim Events..........................................18
3.31 Defaults................................................18
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER.............................18
4.1 Organization, Standing and Authority of Buyer...........18
4.2 Authorized and Effective Agreement......................18
4.3 Securities Documents and Regulatory Reports.............19
4.4 Financial Statements....................................19
4.5 Material Adverse Change.................................20
4.6 Legal Proceedings.......................................20
4.7 Certain Information.....................................20
4.8 Brokers and Finders.....................................20
4.9 Disclosures.............................................20
4.10 Financial Resources.....................................20
ARTICLE V
COVENANTS...........................................................21
5.1 Reasonable Best Efforts.................................21
5.2 Stockholder Meeting.....................................21
5.3 Regulatory Matters......................................21
5.4 Investigation and Confidentiality.......................22
5.5 Press Releases..........................................22
5.6 Business of the Parties.................................23
5.7 Certain Actions.........................................25
5.8 Current Information.....................................25
5.9 Indemnification; Insurance..............................26
5.10 Environmental Reports...................................26
5.11 Employees and Employee Benefit Plans....................26
5.12 Company Merger..........................................27
5.13 Litigation Matters......................................28
5.14 Organization of Merger Sub..............................28
5.15 Conforming Entries......................................28
5.16 Integration of Policies.................................28
5.17 Disclosure Supplements..................................29
5.18 Failure to Fulfill Conditions...........................29
5.19 Proxy Solicitor.........................................29
5.20 CNB Lease...............................................29
ARTICLE VI
CONDITIONS PRECEDENT................................................29
6.1 Conditions Precedent - Buyer and Seller.................29
6.2 Conditions Precedent - Seller...........................30
6.3 Conditions Precedent - Buyer............................30
ARTICLE VII
TERMINATION, WAIVER AND AMENDMENT...................................31
7.1 Termination.............................................31
7.2 Effect of Termination...................................32
ii
<PAGE>
7.3 Survival of Representations, Warranties and Covenants...32
7.4 Waiver..................................................32
7.5 Amendment or Supplement.................................33
7.6 Break-Up Fee and Expenses...............................33
ARTICLE VIII
MISCELLANEOUS.......................................................34
8.1 Expenses................................................34
8.2 Entire Agreement........................................34
8.3 No Assignment...........................................34
8.4 Notices.................................................34
8.5 Alternative Structure...................................35
8.6 Interpretation..........................................35
8.7 Counterparts............................................35
8.8 Governing Law...........................................35
8.9 Severability............................................35
Exhibit A Form of Voting Agreement
Exhibit B Offices of the Resulting Institution
Exhibit C Directors of the Resulting Institution
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
WHEREAS, the Boards of Directors of Buyer and Seller (all terms as
defined in Article I hereof) have determined to consummate certain business
combination transactions subject to the terms and conditions set forth herein;
and
WHEREAS, as an inducement and condition to Buyer's willingness to enter
into this Agreement, Buyer and each of the directors of Seller will concurrently
enter into voting agreements in the form attached hereto as Exhibit A; and
NOW, THEREFORE, in consideration of such inducements and of the mutual
covenants and agreements contained herein, the Parties hereby agree as follows:
ARTICLE I
DEFINITIONS
The following terms shall have the meanings ascribed to them for all
purposes of this Agreement.
"Agreement" shall mean this Agreement and Plan of Merger dated as of
January 7, 2000 between Buyer and Seller.
"Alternative Proposal" shall mean any bona fide written proposal by any
person other than Buyer to engage in a merger, consolidation, purchase or lease
of substantially all assets, purchase of securities representing more than 20%
of the voting power, or any similar transaction involving Seller.
"Articles of Combination" shall mean the articles of combination to be
filed with the OTS.
"Buyer" shall mean Hemlock Federal Bank for Savings, a federally
chartered savings bank.
"Cause" shall mean termination because of the employee's personal
dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties or willful
violation of any law, rule or regulation (other than traffic violations or
similar offenses).
"Certificate" shall mean any certificate which prior to the Effective
Time represented shares of Seller Common Stock.
"Closing" shall mean the closing of the Corporate Merger at a time and
place selected by Buyer no later than five days following the satisfaction or
waiver of all conditions to the Corporate Merger, provided that Buyer shall have
no obligation to schedule a Closing prior to May 31, 2000.
"Closing Date" shall mean the date on which the Closing occurs.
"CNB Lease" shall mean the Lease, dated October 30, 1972, by and
between Central National Bank as Trustee and Seller.
1
<PAGE>
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Company Merger" shall mean the contemplated merger of the Resulting
Institution into Buyer.
"Corporate Merger" shall mean the merger of Merger Sub into Seller,
with Seller as the Resulting Institution.
"CRA" shall mean the Community Reinvestment Act.
"Defined Benefit Plan" shall mean any Seller Employee Plan constituting
within the meaning of Section 3(35) of ERISA.
"Dissenting Shares" shall mean any shares of Seller Common Stock whose
holder becomes entitled to fair value under the Thrift Regulations.
"Effective Time" shall mean the time that the Articles of Combination
with respect to the Corporate Merger are endorsed by the Secretary of the OTS.
"Environmental Claim" shall mean any written notice from any
Governmental Entity or third party alleging potential liability (including
potential liability for investigatory costs, cleanup costs, governmental
response costs, natural resources damages, property damages, personal injuries
or penalties) arising out of, based on, or resulting from the presence, or
release into the environment, of any Materials of Environmental Concern.
"Environmental Laws" shall mean any federal, state or local law,
statute, ordinance, rule, regulation, code, license, permit, authorization,
approval, consent, order, judgment, decree, injunction or agreement with any
Governmental Entity relating to (i) the protection, preservation or restoration
of the environment (including air, water vapor, surface water, groundwater,
drinking water supply, surface soil, subsurface soil, plant and animal life or
any other natural resource), and/or (ii) the use, storage, recycling, treatment,
generation, transportation, processing, handling, labeling, production, release
or disposal of Materials of Environmental Concern. The term Environmental Law
includes (i) the Comprehensive Environmental Response, Compensation and
Liability Act, as amended, 42 U.S.C. ss.9601, et seq; the Resource Conservation
and Recovery Act, as amended, 42 U.S.C. ss.6901, et seq; the Clean Air Act, as
amended, 42 U.S.C. ss.7401, et seq; the Federal Water Pollution Control Act, as
amended, 33 U.S.C. ss.1251, et seq; the Toxic Substances Control Act, as
amended, 15 U.S.C. ss.9601, et seq; the Emergency Planning and Community Right
to Know Act, 42 U.S.C. ss.1101, et seq; the Safe Drinking Water Act, 42 U.S.C.
ss.300f, et seq; and all comparable state and local laws, and (ii) any common
law (including common law that may impose strict liability) that may impose
liability or obligations for injuries or damages due to, or threatened as a
result of, the presence of or exposure to any Materials of Environmental
Concern.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
2
<PAGE>
"Exchange Agent" shall mean an exchange agent designated by Buyer and
reasonably acceptable to Seller.
"FDIA" shall mean the Federal Deposit Insurance Act, as amended.
"FDIC" shall mean the Federal Deposit Insurance Corporation or any
successor thereto.
"FHLB" shall mean Federal Home Loan Bank.
"GAAP" shall mean generally accepted accounting principles consistently
applied with the prior practices of an entity.
"Governmental Entity" shall mean any federal or state court,
administrative agency or commission or other governmental authority or
instrumentality.
"HOLA" shall mean the Home Owners' Loan Act, as amended.
"include," "includes" and "including" shall be deemed to be followed by
the phrase "without limitation."
"Insider Loans" shall mean loans from Seller to any officer, director
or employee of Seller or any associate or related interest of any such person.
"IRS" shall mean the Internal Revenue Service or any successor thereto.
"Knowledge Qualification" shall mean to the best knowledge, after
reasonable investigation, of the party receiving the benefit of the
qualification.
"MAE Qualification" shall mean except for any failures,
non-compliances, facts, events or circumstances, which when aggregated with all
other failures, non-compliances, facts, events or circumstances would not have a
Material Adverse Effect.
"Material Adverse Effect" shall mean, with respect to any party, any
effect that is material and adverse to the condition (financial or otherwise),
results of operations or business of that party taken as whole, or that
materially impairs the ability of any party to consummate the Corporate Merger,
provided, however, that Material Adverse Effect shall not be deemed to include
the impact of (a) changes in laws and regulations or interpretations thereof
that are generally applicable to the banking or savings institution industries,
(b) changes in GAAP that are generally applicable to the banking or savings
institution industries, (c) expenses incurred in connection with the
transactions contemplated hereby, (d) actions or omissions of a party taken with
the prior informed written consent of the other party or parties in
contemplation of the transactions contemplated hereby or (e) changes
attributable to or resulting from changes in general economic conditions which
have a uniform affect on the banking or savings institution industries,
including changes in the prevailing level of interest rates.
3
<PAGE>
"Materials of Environmental Concern" shall mean pollutants,
contaminants, wastes, toxic substances, petroleum and petroleum products and any
other materials regulated under Environmental Laws.
"Merger" shall mean the Corporate Merger and the Company Merger.
"Merger Consideration" shall mean a payment, in cash without interest,
for each share of Seller Common Stock equal to stockholders' equity of Seller as
reflected in the December 31, 1999 audited Seller Financial Statements, plus net
income of Seller (excluding gains on sale and extraordinary items of income) or
minus the after-tax net loss of Seller for the period from January 1, 2000
through the month end prior to the Closing Date, calculated in accordance with
GAAP and the auditing practices used by Seller in preparation of the audited
Seller Financial Statements, plus the following amounts (on an after tax basis)
paid or accrued by Seller (but only to the extent not capitalized) through the
month end prior to the Closing Date: (a) the amount of prepayments made on the
outstanding balance of the Seller ESOP loan, to the extent deductible as
contributions (b) transaction costs directly related to this Agreement,
including any costs of single premium tail coverage paid by Seller, (c) payments
made under employment contracts relating to the termination of employment and a
change in control, (d) the financial reporting expense arising from full vesting
of outstanding awards under the Seller's 1998 Recognition and Retention Plan,
(e) the financial reporting expense arising from conforming entries made
pursuant to a request of Buyer under Section 5.15, and (f) the aggregate
exercise price of the Seller Options (but not in excess of the Merger
Consideration on a per share basis) that are outstanding immediately prior to
the Effective Time and which are to be canceled pursuant to this Agreement;
divided by the total number of shares of Seller Common Stock (including awarded
but unissued shares of Seller Restricted Stock, Seller ESOP shares (whether
allocated or unallocated) and shares of Seller Common Stock subject to Seller
Options) outstanding immediately prior to the Effective Time.
"Merger Sub Common Stock" shall mean the common stock of Merger Sub.
"OTS" shall mean the Office of Thrift Supervision of the U.S.
Department of the Treasury or any successor thereto.
"Parent" shall mean Hemlock Federal Financial Corporation, the sole
stockholder of Buyer.
"Parent Accountant" shall mean Crowe, Chizek and Company LLP,
independent certified public accountants with respect to Parent.
"Parent Financial Statements" shall mean (i) the consolidated balance
sheets (including related notes and schedules, if any) of Parent as of December
31, 1998 and 1997 and the consolidated statements of income and statements of
changes in stockholders' equity and cash flows (including related notes and
schedules, if any) of Parent for each of the three years ended December 31,
1998, 1997 and 1996, as filed by Parent in its Securities Documents, and (ii)
the consolidated balance sheets (including related notes and schedules, if any)
of Parent and the consolidated statements of income and statements of changes in
stockholders' equity and cash flows (including
4
<PAGE>
related notes and schedules, if any) of Parent included in Securities Documents
filed by Parent with respect to the periods ended subsequent to December 31,
1998.
"Parties" shall mean Buyer and Seller.
"PBGC" shall mean the Pension Benefit Guaranty Corporation, or any
successor thereto.
"Previously Disclosed" shall mean disclosed in a written disclosure
schedule delivered prior to the date hereof by the disclosing party to the other
party specifically referring to the appropriate section of this Agreement and
describing in reasonable detail the matters contained therein.
"Proposal" shall mean the proposals to be submitted to the stockholders
of Seller for the adoption of this Agreement and the amendment of Seller's
Charter to delete Section 8A thereof.
"Proxy Statement" shall mean the proxy statement to be delivered to
stockholders of Seller in connection with the solicitation of their approval of
this Agreement.
"Resulting Institution" shall mean Seller after the Corporate Merger.
"Resulting Institution Common Stock" shall mean the common stock of the
Resulting Institution.
"Rights" shall mean all warrants, options, rights, convertible
securities and other arrangements or commitments which obligate an entity to
issue or dispose of any of its capital stock or other ownership interests.
"SAIF" shall mean the Savings Association Insurance Fund administered
by the FDIC or any successor thereto.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Securities Documents" shall mean all reports, offering circulars,
proxy statements, registration statements and all similar documents filed, or
required to be filed, pursuant to the Securities Laws.
"Securities Laws" shall mean the Securities Act; the Exchange Act; the
Investment Company Act of 1940, as amended; the Investment Advisers Act of 1940,
as amended; the Trust Indenture Act of 1939, as amended, the rules and
regulations of the SEC promulgated thereunder, and all OTS regulations which
incorporate or apply any of the foregoing.
"Seller" shall mean Midwest Savings Bank, a federally chartered savings
bank.
5
<PAGE>
"Seller Advisor" shall mean Charles Webb & Company, a division of Keefe
Bruyette & Woods, Inc.
"Seller Accountant" shall mean Crowe, Chizek and Company LLP,
independent certified public accountants with respect to Seller.
"Seller Common Stock" shall mean the common stock, par value $1.00 per
share, of Seller.
"Seller Employee Plans" shall mean all stock option, restricted stock,
employee stock purchase and stock bonus plans, pension, profit-sharing and
retirement plans, deferred compensation, consultant, bonus and group insurance
contracts and agreements and all other incentive, health, welfare and benefit
plans and arrangements maintained for the benefit of any present or former
directors or employees of Seller, whether written or oral.
"Seller ESOP" shall mean the employee stock ownership plan of Seller,
as in effect as of the date hereof.
"Seller Financial Statements" shall mean (i) the condensed balance
sheets (including related notes and schedules, if any) of Seller as of December
31, 1998 and 1997 and the condensed statements of income, changes in
stockholders' equity and cash flows (including related notes and schedules, if
any) of Seller for each of the three years ended December 31, 1998, 1997 and
1996 as filed by Seller in its Securities Documents, and (ii) the condensed
balance sheets of Seller (including related notes and schedules, if any) and the
condensed statements of income, changes in stockholders' equity and cash flows
(including related notes and schedules, if any) of Seller included in the
Securities Documents filed by Seller with respect to the periods ended
subsequent to December 31, 1998.
"Seller Options" shall mean options to purchase shares of Seller Common
Stock granted pursuant to Seller's 1998 Stock Option and Incentive Plan.
"Seller Preferred Stock" shall mean the shares of preferred stock, par
value $1.00 per share, of Seller.
"Seller Restricted Stock" shall mean Seller Common Stock awarded
pursuant to Seller's 1998 Recognition and Retention Plan to be issued upon the
vesting of such Seller Common Stock.
"Thrift Regulations" shall mean the FDIA, the HOLA and the rules and
regulations promulgated thereunder.
"Year 2000 Compliant" shall mean that all hardware, firmware, software
and computer systems (i) completely and accurately address, produce, store and
calculate data involving dates both before and after January 1, 2000 without
error or interruption; and (ii) provide that all "date"-related functionalities
and data fields include the indication of century and millennium, and will
perform calculations which involve a four-digit year.
6
<PAGE>
ARTICLE II
THE MERGER
2.1 The Corporate Merger
(a) Subject to the terms and conditions of this Agreement, at the
Effective Time, Merger Sub shall be merged into Seller in accordance with the
provisions of the Thrift Regulations, and the separate corporate existence of
Merger Sub shall cease. Seller shall be the Resulting Institution of the
Corporate Merger, and shall continue its corporate existence under the laws of
the United States. The name of the Resulting Institution shall be Midwest
Savings Bank.
(b) The Charter and Bylaws of Seller as in effect immediately prior to
the Effective Time shall be the Charter and Bylaws of the Resulting Institution.
(c) The officers of Merger Sub immediately prior to the Effective Time
shall be the officers of the Resulting Institution.
(d) The home office and other offices of the Resulting Institution
shall be as set forth on Exhibit B.
(e) The number, names, residence addresses and terms of the directors
of the Resulting Institution shall be as set forth on Exhibit C.
(f) The terms of the deposit accounts of Seller will be unaffected by
the Corporate Merger.
(g) The liquidation account of Seller will be unaffected by the
Corporate Merger.
2.2 Effective Time; Closing
The Corporate Merger shall become effective at the Effective Time. The
Articles of Combination with respect to the Corporate Merger shall be filed on
the Closing Date.
2.3 Treatment of Capital Stock
Subject to the provisions of this Agreement, at the Effective Time,
automatically by virtue of the Corporate Merger and without any action on the
part of any stockholder:
(a) each outstanding share of Merger Sub Common Stock shall
automatically convert into a share of Resulting Institution Common Stock;
(b) each share of Buyer's common stock shall continue unchanged as the
same share of Buyer's common stock; and
7
<PAGE>
(c) each share of Seller Common Stock issued and outstanding
immediately prior to the Effective Time (other than Dissenting Shares) shall, by
virtue of the Corporate Merger and without any action of any kind by any person
or entity, be converted into the right to receive the Merger Consideration from
Buyer; provided, however, that each share of Seller Common Stock which is owned
beneficially or of record by Seller (including treasury shares), Parent or Buyer
(other than shares held in a fiduciary capacity for the benefit of third parties
or as a result of debts previously contracted) shall be canceled and retired
without consideration or conversion.
2.4 Stockholder Rights; Stock Transfers
At the Effective Time, holders of Certificates shall cease to be and
shall have no rights as stockholders of Seller, other than such rights as they
may have under the Thrift Regulations. After the Effective Time, there shall be
no transfers on the stock transfer books of Seller or the Resulting Institution
of Certificates and if Certificates are presented for transfer after the
Effective Time, they shall be delivered to Buyer or the Exchange Agent for
cancellation against delivery of the Merger Consideration. No interest shall be
paid on the Merger Consideration.
2.5 Options
Each Seller Option outstanding on the date hereof and remaining
outstanding at the Effective Time, whether or not the option is then
exercisable, shall be converted at the Effective Time into the right to receive
a cancellation payment in an amount equal to the product of (i) the number of
shares of Seller Common Stock subject to such option at the Effective Time and
(ii) the excess, if any, of the Merger Consideration over the exercise price per
share of such option, net of any cash which must be withheld under federal and
state income and employment tax requirements. Such cash payments shall be in
consideration for, and shall result in, the settlement and cancellation of all
such Seller Options. As a condition to the receipt of a cash payment in
cancellation of options, each option holder shall execute a cancellation
agreement in form and substance reasonably satisfactory to Buyer.
2.6 Exchange Procedures
(a) No later than five business days following the Effective Time,
Buyer shall cause the Exchange Agent to mail or make available to each holder of
record of any Certificate a notice and letter of transmittal disclosing the
effectiveness of the Corporate Merger and the procedure for exchanging
Certificates for the Merger Consideration. Such letter of transmittal shall
specify that delivery shall be effected and risk of loss and title shall pass
only upon proper delivery of Certificates to the Exchange Agent.
(b) Buyer shall deliver to the Exchange Agent within five business days
after the Effective Time an amount of cash equal to the aggregate Merger
Consideration.
(c) Each holder of any outstanding Certificate (other than holders of
Dissenting Shares) who surrenders such Certificate to the Exchange Agent will,
upon acceptance thereof by the Exchange Agent, be entitled to the Merger
Consideration. The Exchange Agent shall accept
8
<PAGE>
Certificates upon compliance with such reasonable terms and conditions as the
Exchange Agent may impose to effect an orderly exchange in accordance with
normal exchange practices. Each outstanding Certificate which is not surrendered
to the Exchange Agent shall, except as otherwise herein provided, evidence
ownership of only the right to receive the Merger Consideration without
interest.
(d) The Exchange Agent shall not be obligated to deliver the Merger
Consideration until the holder surrenders a Certificate as provided in this
Section 2.6, or, in default thereof, an appropriate affidavit of loss and
indemnity agreement and/or a bond as may be required in each case by the
Exchange Agent. If any check is to be issued in a name other than that in which
the Certificate is registered, it shall be a condition of the issuance thereof
that the Certificate so surrendered shall be properly endorsed or accompanied by
an executed form of assignment separate from the Certificate and otherwise in
proper form for transfer and that the person requesting such exchange pay to the
Exchange Agent any transfer or other tax required by reason of the issuance of a
check in any name other than that of the registered holder of the Certificate
surrendered or otherwise establish to the satisfaction of the Exchange Agent
that such tax has been paid or is not payable.
(e) Any portion of the cash delivered to the Exchange Agent by Buyer
pursuant to Section 2.6(b) that remains unclaimed by the stockholders of Seller
for six months after the Closing Date shall be delivered by the Exchange Agent
to Buyer. Any stockholders of Seller who have not theretofore complied with
Section 2.6(c) shall thereafter look only to Buyer for the Merger Consideration.
If outstanding Certificates are not surrendered or the payment for them is not
claimed prior to the date on which such payment would otherwise escheat to or
become the property of any Governmental Entity, the unclaimed items shall, to
the extent permitted by abandoned property and any other applicable law, become
the property of Buyer (and to the extent not in its possession shall be
delivered to it), free and clear of all claims or interest of any person
previously entitled to such property. Neither the Exchange Agent nor any party
to this Agreement shall be liable to any holder of Seller Common Stock
represented by any Certificate for any consideration paid to a public official
pursuant to applicable abandoned property, escheat or similar laws. Buyer and
the Exchange Agent shall be entitled to rely upon the stock transfer books of
Seller to establish the identity of those persons entitled to receive the Merger
Consideration, which books shall be conclusive with respect thereto.
(f) The Exchange Agent or Buyer shall be entitled to deduct and
withhold from consideration otherwise payable pursuant to this Agreement to any
holder of Certificates such amounts as it is required to deduct and withhold
with respect to the making of such payment under the Code, or any provision of
state, local or foreign tax law. To the extent that amounts are so withheld by
the Exchange Agent or Buyer, such withheld amounts shall be treated for all
purposes of this Agreement as having been paid to the holder of the Certificates
in respect of which such deduction and withholding was made.
2.7 Dissenting Shares
(a) Any holders of Dissenting Shares shall be entitled to payment for
such shares only to the extent permitted by and in accordance with the Thrift
Regulations; provided, however, that
9
<PAGE>
if any holder of Dissenting Shares shall forfeit such right to payment, such
shares shall thereupon be deemed to have been converted into and to have become
exchangeable for, as of the Effective Time, the right to receive the Merger
Consideration without interest from Buyer. Dissenting Shares shall not, after
the Effective Time, be entitled to vote for any purpose or receive any dividends
or other distributions and shall be entitled only to such rights as are afforded
in respect of Dissenting Shares pursuant to the Thrift Regulations.
(b) Seller shall give Buyer (i) prompt notice of any written objections
to the Corporate Merger and any written demands for the payment of the fair
value of any shares, withdrawals of such demands, and any other instruments
served pursuant to the Thrift Regulations received by Seller and (ii) the
opportunity to participate in all negotiations and proceedings with respect to
such demands under the Thrift Regulations. Seller shall not voluntarily make any
payment with respect to any demands for payment of fair value and shall not,
except with the prior written consent of Buyer, settle or offer to settle any
such demands.
2.8 Additional Actions
If, at any time after the Effective Time, Buyer shall consider that any
further assignments or assurances in law or any other acts are necessary or
desirable to (i) vest, perfect or confirm, of record or otherwise, in Buyer its
right, title or interest in, to or under any of the rights, properties or assets
of Seller acquired or to be acquired by Buyer as a result of, or in connection
with, the Merger, or (ii) otherwise carry out the purposes of this Agreement,
Seller and its proper officers and directors shall be deemed to have granted to
Buyer an irrevocable power of attorney to execute and deliver all such proper
deeds, assignments and assurances in law and to do all acts necessary or proper
to vest, perfect or confirm title to and possession of such rights, properties
or assets in Buyer and otherwise to carry out the purposes of this Agreement;
and the proper officers and directors of Buyer are fully authorized in the name
of Seller or otherwise to take any and all such action.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as follows:
3.1 Capital Structure
The authorized capital stock of Seller consists of 2,000,000 shares of
Seller Common Stock and 500,000 shares of Seller Preferred Stock. As of the date
hereof, 192,914 shares of Seller Common Stock are outstanding. No shares of
Seller Common Stock are held in treasury and no shares of Seller Preferred Stock
have been issued. All outstanding shares of Seller Common Stock have been duly
authorized and validly issued and are fully paid and nonassessable, and none of
the outstanding shares of Seller Common Stock has been issued in violation of
the preemptive rights of any person or entity. Except for 4,603 shares of Seller
Restricted Stock and Seller Options to acquire not more than 19,176 shares of
Seller Common Stock, a schedule of which has been Previously Disclosed that
includes the name of each optionee, the number of Seller Options held by each
10
<PAGE>
optionee and the exercise price of each Seller Option, there are no Rights
authorized, issued or outstanding with respect to the capital stock of Seller as
of the date hereof.
3.2 Organization, Standing and Authority of Seller
Seller is a savings bank duly organized, validly existing and in good
standing under the laws of the United States, with full corporate power and
authority to own and lease all of its properties and assets and to carry on its
business as now conducted, and Seller is duly licensed or qualified to do
business and is in good standing in each jurisdiction in which its ownership or
leasing of property or the conduct of its business requires such licensing or
qualification. Seller is a member in good standing of the FHLB System. The
deposit accounts of Seller are insured by the SAIF to the maximum extent
permitted by the FDIA and Seller has paid all deposit insurance premiums and
assessments required by the FDIA payable on or prior to the Closing Date. Seller
is a "domestic building and loan association" as defined in Section 7701(a)(19)
of the Code and a "qualified thrift lender" as defined in Section 10(m) of HOLA.
The liquidation account established by Seller in connection with its conversion
from mutual to stock form has been maintained since its establishment in
accordance with applicable laws and the records with respect to said account are
complete and accurate in all material respects. Seller has heretofore delivered
to Buyer true and complete copies of the Charter and Bylaws of Seller as in
effect as of the date hereof.
3.3 Seller Subsidiaries
Seller has no subsidiaries. Seller does not own or have the right to
acquire, in either case, directly or indirectly, any outstanding capital stock
or other voting securities or ownership interests of any corporation, bank,
savings association, partnership, joint venture or other organization, other
than investment securities representing not more than 5% of any entity.
3.4 Registration Obligations
Seller is not under any obligation, contingent or otherwise, which will
survive the Effective Time by reason of any agreement to register any of its
securities under the Securities Act or other federal or state securities laws or
regulations.
3.5 Authorized and Effective Agreement
(a) Seller has all requisite power and authority to enter into this
Agreement and (subject to receipt of all necessary approvals of Governmental
Entities and the approval of Seller's stockholders of the Proposal) to perform
all of its obligations hereunder. The execution and delivery of this Agreement
and the completion of the transactions contemplated hereby have been duly
authorized by the Board of Directors of Seller and approved by all necessary
corporate action in respect thereof on the part of Seller, except for the
approval of the Proposal by Seller's stockholders. This Agreement has been duly
and validly executed and delivered by Seller and, assuming due authorization,
execution and delivery by Buyer, constitutes the legal, valid and binding
obligation of Seller, enforceable against Seller in accordance with its terms,
subject, as to enforceability, to
11
<PAGE>
bankruptcy, insolvency and other laws of general applicability relating to or
affecting creditors' rights, including the FDIA, and to general equity
principles.
(b) Except as Previously Disclosed, neither the execution and delivery
of this Agreement nor completion of the transactions contemplated hereby,
including the Merger, nor compliance by Seller with any of the provisions hereof
does or will (i) conflict with or result in a breach of any provisions of the
Charter or Bylaws of Seller, subject to the deletion of Section 8A of Seller's
Charter, (ii) violate, conflict with or result in a breach of any term,
condition or provision of, or constitute a default (or an event which, with
notice or lapse of time, or both, would constitute a default) under, or give
rise to any right of termination, cancellation or acceleration with respect to,
or result in the creation of any lien, charge or encumbrance upon any property
or asset of Seller pursuant to, any note, bond, mortgage, indenture, deed of
trust, license, lease, agreement or other instrument or obligation to which
Seller is a party, or by which any of its properties or assets may be bound or
affected, or (iii) subject to receipt of all required governmental and
stockholder approvals, violates any order, writ, injunction, decree, statute,
rule or regulation applicable to Seller.
(c) Subject to the Knowledge Qualification, except for (i) the filing
of applications and the approvals of the OTS, (ii) the filing and clearance of
the Proxy Statement, (iii) the approval of the Proposal by the requisite vote of
the stockholders of Seller, and (iv) the filing of Articles of Combination with
the OTS with respect to the Corporate Merger, no consents or approvals of or
filings or registrations with any Governmental Entity or with any third party
are necessary on the part of Seller in connection with the completion of the
Corporate Merger.
(d) As of the date hereof, Seller is not aware of any reasons relating
to Seller (including CRA compliance) why all consents and approvals shall not be
procured from all Governmental Entities having jurisdiction over the Merger as
shall be necessary for the completion of the Merger and the continuation by
Buyer after the Merger of the business of Seller, as such business is carried on
immediately prior to the Effective Time, free of any conditions or requirements
which would materially reduce the value of Seller.
3.6 Securities Documents and Regulatory Reports
(a) Since September 20, 1996, Seller has timely filed all Securities
Documents required by the Securities Laws and such Securities Documents complied
in all material respects with the Securities Laws and did not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
(b) Since September 20, 1996, Seller has duly filed with the OTS and
any other applicable federal or state banking authority, as the case may be, the
reports required to be filed under applicable laws and regulations and such
reports were in all material respects complete and accurate and in compliance
with the requirements of applicable laws and regulations. In connection with the
examinations of Seller by the OTS, Seller was not required to correct or change
any action, procedure or proceeding which Seller believes has not been corrected
or changed as required.
12
<PAGE>
3.7 Financial Statements
(a) Seller has previously delivered or made available to Buyer accurate
and complete copies of the Seller Financial Statements, which, in the case of
year-end Seller Financial Statements, are accompanied by the audit reports of
Seller Accountant. The Seller Financial Statements, as well as the Seller
Financial Statements to be delivered pursuant to Section 5.8 hereof, fairly
present or will fairly present, as the case may be, the financial condition of
Seller as of the respective dates set forth therein, and the income, changes in
stockholders' equity and cash flows of Seller for the respective periods set
forth therein.
(b) Each of the Seller Financial Statements referred to in Section
3.7(a) has been or will be, as the case may be, prepared in accordance with
GAAP, except as stated therein. The audits of Seller have been conducted in
accordance with generally accepted auditing standards. The accounting books and
records of Seller are being maintained in compliance with applicable legal and
accounting requirements, and such books and records accurately reflect, in all
material respects, all dealings and transactions in respect of the business,
assets, liabilities and affairs of Seller.
3.8 Material Adverse Change
Since September 30, 1999, (i) Seller has conducted its business in the
ordinary and usual course (excluding the entering into of this Agreement and the
incurrence of expenses in connection with this Agreement and the transactions
contemplated hereby) and (ii) no event has occurred or circumstance arisen that,
in the aggregate, has had or is reasonably likely to have a Material Adverse
Effect on Seller.
3.9 Environmental Matters
(a) Seller is in compliance with all Environmental Laws. Seller has not
received any communication alleging that Seller is not in such compliance and,
subject to the Knowledge Qualification, there are no present circumstances that
would prevent or interfere with the continuation of such compliance.
(b) Subject to the Knowledge Qualification, none of the properties
owned, leased or operated by Seller has been or is in violation of or liable
under any Environmental Law.
(c) Subject to the Knowledge Qualification, there are no past or
present actions, activities, circumstances, conditions, events or incidents that
could reasonably form the basis of any Environmental Claim or other claim or
action or governmental investigation that could result in the imposition of any
liability against or obligation on the part of Seller or any person or entity
whose liability or obligation for any Environmental Claim Seller has or may have
retained or assumed either contractually or by operation of law.
(d) Seller has not conducted any environmental studies with respect to
any properties owned by it, leased by it or securing loans held by it.
13
<PAGE>
3.10 Tax Matters
(a) Seller has timely filed all federal, state and local (and, if
applicable, foreign) income, franchise, bank, excise, real property, personal
property and other tax returns required by applicable law to be filed by it
(including estimated tax returns, income tax returns, information returns and
withholding and employment tax returns) and has paid, or where payment is not
required to have been made, has set up an adequate reserve or accrual for the
payment of, all taxes in respect of the periods covered by such returns and, as
of the Effective Time, will have paid, or where payment is not required to have
been made will have set up an adequate reserve or accrual for the payment of,
all material taxes for any subsequent periods ending on or prior to the
Effective Time. Seller will not have any material liability for any such taxes
in excess of the amounts so paid or reserves or accruals so established.
(b) All federal, state and local (and, if applicable, foreign) income,
franchise, bank, excise, real property, personal property and other tax returns
filed by Seller are complete and accurate in all material respects. Seller
either is not delinquent in the payment of any tax, assessment or governmental
charge or has requested an extension of time without penalty within which to
file any tax returns in respect of any fiscal year or portion thereof. The
federal, state and local income tax returns of Seller have never been audited by
the applicable tax authorities and no deficiencies for any tax, assessment or
governmental charge have been proposed, asserted or assessed (tentatively or
otherwise) against Seller as a result of such audits or otherwise which have not
been settled and paid. There are currently no agreements in effect with respect
to Seller to extend the period of limitations for the assessment or collection
of any tax. As of the date hereof, no audit, examination or deficiency or refund
litigation with respect to any such return is pending or, subject to the
Knowledge Qualification, threatened.
(c) Seller (i), except as Previously Disclosed, is not a party to any
agreement providing for the allocation or sharing of taxes, (ii) is not required
to include in income any adjustment pursuant to Section 481(a) of the Code or by
reason of any change in accounting method (nor does Seller have any knowledge
that the IRS has proposed any such adjustment or change of accounting method)
and (iii) has not filed a consent pursuant to Section 341(f) of the Code or
agreed to have Section 341(f)(2) of the Code apply.
(d) Seller has withheld amounts from its employees, stockholders, or
holders of public deposit accounts in compliance with the tax withholding
provisions of applicable federal, state and local laws, has filed all federal,
state and local returns and reports for all periods for which such returns or
reports would be due with respect to income tax withholding, social security,
unemployment taxes, income and other taxes and all payments or deposits with
respect to such taxes have been timely made.
3.11 Legal Proceedings
Except as Previously Disclosed, there are no actions, suits, claims,
governmental investigations or proceedings instituted, pending or, subject to
the Knowledge Qualification, unasserted or threatened against Seller or against
any asset, interest or right of Seller, or against any
14
<PAGE>
officer, director or employee of Seller in such capacity, involving a monetary
amount in excess of $10,000 or a request for specific performance, injunctive
relief or other equitable relief.
3.12 Compliance with Laws
(a) Seller has all permits, licenses, certificates of authority, orders
and approvals of, and has made all filings, applications and registrations with,
all Governmental Entities that are required in order to permit it to carry on
its business in all material respects as it is presently being conducted; all
such permits, licenses, certificates of authority, orders and approvals are in
full force and effect and, subject to the Knowledge Qualification, will not be
adversely affected by virtue of the completion of the Merger; and, subject to
the Knowledge Qualification, no suspension or cancellation of any of the same is
threatened.
(b) Seller is not in violation of its Charter or Bylaws, or, any
applicable federal, state or local law or ordinance or any order, rule or
regulation of any Governmental Entity (including all banking (including all
regulatory capital requirements), truth-in-lending, usury, fair credit
reporting, consumer protection, securities, municipal securities, safety,
health, environmental, zoning, anti-discrimination, antitrust, and wage and hour
laws, ordinances, orders, rules and regulations), or in default with respect to
any order, writ, injunction or decree of any court, or in default under any
order, license, regulation or demand of any Governmental Entity; and Seller has
not received any notice or communication from any Governmental Entity asserting
that Seller is in violation of any of the foregoing. Seller is not subject to
any regulatory or supervisory cease and desist order, assistance agreement,
other agreement, written directive, memorandum of understanding or written
commitment (other than those of general applicability to savings banks issued by
Governmental Entities), and has not received any written communication
requesting that it enter into any of the foregoing.
3.13 Certain Information
None of the information relating to Seller supplied or to be supplied
by it for inclusion in the Proxy Statement, as of the date such Proxy Statement
is mailed to stockholders of Seller and up to and including the date of the
meeting of stockholders to which such Proxy Statement relates, will contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading, provided that information as of a later date shall be
deemed to modify information as of an earlier date.
3.14 Employee Benefit Plans
(a) Seller has Previously Disclosed all Seller Employee Plans and has
heretofore delivered to Buyer accurate and complete copies of each (including
amendments and agreements relating thereto) together with, in the case of
qualified plans, (i) the most recent financial reports prepared with respect
thereto, (ii) the most recent annual reports filed with any Governmental Entity
with respect thereto, and (iii) all rulings and determination letters and any
open requests for rulings or letters that pertain thereto.
15
<PAGE>
(b) Seller has never had any Defined Benefit Plan.
(c) Seller does not participate in and has not incurred any liability
under Section 4201 of ERISA for a complete or partial withdrawal from a
multi-employer plan (as such term is defined in ERISA).
(d) No transaction prohibited by Section 406 of ERISA (and not exempt
under Section 408 of ERISA or Section 4975 of the Code) has occurred with
respect to any Seller Employee Plan which would result in the imposition,
directly or indirectly, of an excise tax under Section 4975 of the Code.
(e) Full payment has been made (or proper accruals have been
established) of all contributions which have been made or accrued for periods
prior to the date hereof, and full payment will be so made (or proper accruals
will be so established) for all contributions which are made or accrued for
periods after the date hereof and prior to the Effective Time, under the terms
of each Seller Employee Plan or ERISA.
(f) The Seller Employee Plans have been maintained and operated in
compliance in all material respects with the applicable provisions of ERISA, the
Code, all regulations, rulings and announcements promulgated or issued
thereunder and all other applicable governmental laws and regulations. All
contributions required to be made to Seller Employee Plans at the date hereof
have been made, and all contributions required to be made to Seller Employee
Plans as of the Effective Time will have been made as of such date.
(g) There are no pending or, subject to the Knowledge Qualification,
threatened claims (other than routine claims for benefits) by, on behalf of or
against any of Seller Employee Plans or any trust related thereto or any
fiduciary thereof.
(h) Except as Previously Disclosed, Seller has not made any payments,
or been a party to any agreement or any Seller Employee Plan, that under any
circumstances could obligate it or its successor to make payments or deemed
payments that (i) are not or will not be deductible because of Sections 162(m)
or 280G of the Code or (ii) require Buyer to record any charge or expense
therefor (or any tax gross-up payments) for financial reporting purposes on a
post-acquisition basis.
3.15 Certain Contracts
(a) Except as Previously Disclosed, Seller is not a party to, is not
bound or affected by, and does not receive and is not obligated to pay benefits
under (i) any agreement, arrangement or commitment, including any agreement,
indenture or other instrument, relating to the borrowing of money by Seller
(other than in the case of deposits, FHLB advances and federal funds purchased)
or the guarantee by Seller of any obligation, (ii) any agreement, arrangement or
commitment relating to the employment of a consultant or the employment,
election or retention in office of any present or former director, advisory
director, officer or employee of Seller, (iii) any agreement, arrangement or
understanding pursuant to which any payment (whether of severance pay or
otherwise) became or may become due to any present or former director, advisory
director, officer or employee of
16
<PAGE>
Seller; (iv) any agreement, arrangement or understanding pursuant to which
Seller is obligated to indemnify any present or former director, advisory
director, officer, employee or agent of Seller; (v) any agreement, arrangement
or understanding to which Seller is a party or by which it is bound which limits
the freedom of Seller to compete in any line of business or with any person;
(vi) any agreement, arrangement or understanding which would be required to be
filed as an exhibit to Seller's Annual Report on Form 10-KSB under the Thrift
Regulations and which has not been so filed; (vii) any agreement pursuant to
which loans have been sold by Seller, which impose any potential recourse
obligations (by representation, warranty, covenant or other contractual terms)
upon Seller; or (viii) any subservicing agreement.
(b) Seller is not in default or in non-compliance in any material
respect under any contract, agreement, commitment, arrangement, lease, insurance
policy or other instrument to which it is a party or by which its assets,
business or operations may be bound or affected, whether entered into in the
ordinary course of business or otherwise and whether written or oral, and there
has not occurred any event that with the lapse of time or the giving of notice,
or both, would constitute such a default or non-compliance.
3.16 Brokers and Finders
Except for the Previously Disclosed agreement with Seller Advisor,
neither Seller nor any of its directors, officers or employees, has employed any
broker or finder or incurred any liability for any broker or finder fees or
commissions in connection with the transactions contemplated hereby.
3.17 Insurance
Seller is insured for reasonable amounts with financially sound and
reputable insurance companies against such risks as institutions engaged in a
similar business would, in accordance with good business practice, customarily
be insured and has maintained all insurance required by applicable laws and
regulations. Seller has not, during the past five years, had an insurance policy
canceled or non-renewed or been denied any insurance coverage for which it has
applied.
3.18 Properties
All material real and personal property owned by Seller or presently
used in its business is in good condition (ordinary wear and tear excepted) and
is sufficient to carry on the business of Seller in the ordinary course of
business consistent with its past practices. Seller has good and marketable
title free and clear of all liens, encumbrances, charges, defaults or equities
(other than equitable rights of redemption under applicable foreclosure laws) to
all of its material properties and assets, real and personal, except (i) liens
for current taxes not yet due or payable, (ii) pledges to secure deposits, (iii)
such imperfections of title, easements and non-monetary encumbrances affecting
real property, if any, which do not adversely affect the value or use of such
real property, and (iv) monetary liens, if any, reflected in the Seller
Financial Statements as of September 30, 1999. Except as Previously Disclosed,
all real and personal property which is material to Seller's business that is
leased or licensed by Seller is held pursuant to leases or licenses which are
valid and
17
<PAGE>
enforceable in accordance with their respective terms and such leases and
licenses will not terminate or lapse prior to the Effective Time or thereafter
by reason of completion of the Merger. All improved real property owned or
leased by Seller is in compliance in all material respects with all applicable
zoning laws.
3.19 Labor
No work stoppage involving Seller is pending or, subject to the
Knowledge Qualification, threatened. Seller is not involved in or, subject to
the Knowledge Qualification, threatened with or affected by, any labor dispute,
arbitration, lawsuit or administrative proceeding involving any employees of
Seller.
3.20 Allowance for Loan Losses
The allowance for loan losses reflected on Seller's condensed balance
sheet included in the Seller Financial Statements is, and will be in the case of
subsequently delivered Seller Financial Statements, in the opinion of Seller's
management, adequate as of their respective dates under the requirements of
GAAP. The real estate owned, if any, reflected in the Seller Financial
Statements is, and will be in the case of subsequently delivered Seller
Financial Statements, carried at the lower of cost or fair value, less estimated
costs to sell, as required by GAAP. Subject to the Knowledge Qualification, the
aggregate principal amount of loans and accrued interest thereon contained (or
that will be contained) in the loan portfolio of Seller in excess of such
reserve, as reflected in the Seller Financial Statements, was (and will be)
fully collectible.
3.21 Year 2000 Compliant
All hardware, firmware, software and computer systems of Seller are
Year 2000 Compliant and shall continue to function in accordance with their
intended purpose without error or interruption during and after the year 2000.
3.22 Material Interests of Certain Persons
(a) No officer, director or employee of Seller or any "associate" (as
such term is defined in Rule 14a-1 under the Exchange Act) or related interest
of any such person has any material interest in any material contract or
property (real or personal, tangible or intangible), used in, or pertaining to,
the business of Seller.
(b) Except as Previously Disclosed or as set forth in Seller's proxy
statement for its 1999 Annual Meeting of Stockholders there are no Insider
Loans. All outstanding Insider Loans were made in the ordinary course of
business and on substantially the same terms as those prevailing at the time for
comparable transactions with third parties and were, with respect to executive
officers and directors, approved by the Seller Board of Directors in accordance
with applicable law and regulations.
18
<PAGE>
3.23 Fairness Opinion
Seller has received an opinion from Seller Advisor to the effect that,
as of the date hereof, the Merger Consideration is fair, from a financial point
of view, to the stockholders of Seller.
3.24 Disclosures
None of the representations and warranties of Seller or any of the
written information or documents furnished or to be furnished by Seller to Buyer
in connection with or pursuant to this Agreement or the completion of the
transactions contemplated hereby, when considered as a whole, contains or will
contain any untrue statement of a material fact, or omits or will omit to state
any material fact required to be stated or necessary to make any such
information or document, in light of the circumstances, not misleading.
3.25 No Undisclosed Liabilities
Seller does not have any liability, whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become due,
including any liability for taxes (and there is no past or present fact,
situation, circumstance, condition or other basis for any present or future
action, suit or proceeding, hearing, charge, complaint, claim or demand against
Seller giving rise to any such liability) required in accordance with GAAP to be
reflected in an audited consolidated balance sheet of Seller, except (i) for
liabilities set forth or reserved against in the Seller Financial Statements as
at September 30, 1999, and (ii) liabilities occurring in the ordinary course of
business since September 30, 1999 or relating to the transactions contemplated
by this Agreement.
3.26 Indemnification
Subject to the Knowledge Qualification, except as Previously Disclosed,
no action or failure to take action by any present or former director, advisory
director, officer, employee or agent of Seller has occurred which would give
rise to a claim or a potential claim by any such person for indemnification from
Seller.
3.27 Loan Portfolio
Except as Previously Disclosed, each loan reflected as an asset on the
Seller Financial Statements as at September 30, 1999, and each loan originated
or acquired by Seller thereafter is (or will be) evidenced by appropriate and
sufficient documentation and constitutes (or will constitute), the legal, valid
and binding obligation of the obligor named therein, enforceable in accordance
with its terms, except to the extent that the enforceability thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or
equitable principles or doctrines. Except as Previously Disclosed, all such
loans are, and the loans held at the Effective Time will be, free and clear of
any security interest, lien, encumbrance or other charge. Except as Previously
Disclosed, there is no loan or other asset of Seller that as of the date hereof
has been classified by examiners or others as "Other Loans of Concern,"
"Substandard," "Doubtful" or "Loss." Seller has Previously
19
<PAGE>
Disclosed a complete list of the real estate acquired by Seller through
foreclosure, repossession or deed in lieu thereof.
3.28 Investment Portfolio
All investment securities held by Seller, as reflected in the condensed
balance sheets of Seller included in the Seller Financial Statements, are
carried in accordance with GAAP, specifically including but not limited to,
Statement of Financial Accounting Standards No. 115. Except as Previously
Disclosed and except for pledges to secure public and trust deposits, none of
the investments reflected in the Seller Financial Statements and none of the
investments since made by Seller is subject to any restriction, whether
contractual or statutory, which materially impairs the ability of Seller to
freely dispose of such investment at any time, other than those restrictions
imposed on securities held to maturity under GAAP.
3.29 Corporate Records
The corporate record books and stock ledgers of Seller are complete and
accurate in all material respects and reflect all meetings, consents and other
material actions of the organizers, incorporators, stockholders, Board of
Directors and committees of the Board of Directors of Seller, and all
transactions in its capital stock, since its inception.
3.30 Interim Events
Except as Previously Disclosed, since September 30, 1999, Seller has
not paid or declared any dividend or made any other distribution to stockholders
or taken any action which if taken after the date hereof would require the prior
written consent of Buyer pursuant to Section 5.6 hereof.
3.31 Defaults
There has not been any default in any material obligation to be
performed by Seller under any material contract or commitment and Seller has not
waived, and will not waive prior to the Effective Time, any material right under
any material contract or commitment. Subject to the Knowledge Qualification, no
other party to any material contract or commitment is in default in any material
obligation to be performed by such party.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
4.1 Organization, Standing and Authority of Buyer
Buyer is a savings bank duly organized, validly existing and in good
standing under the laws of the United States, with full corporate power and
authority to own or lease all of its properties and assets and to carry on its
business as now conducted, and Buyer is duly licensed or qualified to do
20
<PAGE>
business and is in good standing in each jurisdiction in which its ownership or
leasing of property or the conduct of its business requires such licensing or
qualification. Buyer is a member in good standing of the FHLB System and a
"qualified thrift lender" as defined in Section 10(m) of HOLA. Parent is a
unitary savings and loan holding company under the Thrift Regulations. When
organized, Merger Sub will be a saving bank duly organized, validly existing and
in good standing under the laws of the United States.
4.2 Authorized and Effective Agreement
(a) Buyer has all requisite power and authority to enter into this
Agreement and (subject to receipt of all necessary approvals of Government
Entities) to perform all of its obligations hereunder. The execution and
delivery of this Agreement and the completion of the transactions contemplated
hereby have been duly authorized by the Board of Directors of Buyer and approved
by all necessary corporate action in respect thereof on the part of Buyer. This
Agreement has been duly and validly executed and delivered by Buyer and,
assuming due authorization, execution and delivery by Seller, constitutes the
legal, valid and binding obligation of Buyer, enforceable against Buyer in
accordance with its terms, subject, as to enforceability, to bankruptcy,
insolvency and other laws of general applicability relating to or affecting
creditors' rights, including the FDIA, and to general equity principles.
(b) Neither the execution and delivery of this Agreement, nor
completion of the transactions contemplated hereby, including the Merger, nor
compliance by Buyer with any of the provisions hereof (i) does or will conflict
with or result in a breach of any provisions of the Charter or Bylaws of Buyer,
(ii) violate, conflict with or result in a breach of any term, condition or
provision of, or constitute a default (or an event which, with notice or lapse
of time, or both, would constitute a default) under, or give rise to any right
of termination, cancellation or acceleration with respect to, or result in the
creation of any lien, charge or encumbrance upon any property or asset of Buyer
pursuant to, any note, bond, mortgage, indenture, deed of trust, license, lease,
agreement or other instrument or obligation to which Buyer is a party, or by
which any of its properties or assets may be bound or affected, or (iii) subject
to receipt of all required governmental approvals, violates any order, writ,
injunction, decree, statute, rule or regulation applicable to Buyer.
(c) Subject to the Knowledge Qualification, except for (i) the filing
of applications with and the approvals of the OTS; and (ii) the filing of
Articles of Combination with the OTS with respect to the Corporate Merger, no
consents or approvals of or filings or registrations with any Governmental
Entity or with any third party are necessary on the part of Buyer or Merger Sub
in connection with the completion of Corporate Merger.
(d) As of the date hereof, Buyer is not aware of any reasons relating
to Buyer (including CRA compliance) why all consents and approvals shall not be
procured from all Governmental Entities having jurisdiction over the Merger as
shall be necessary for completion of the Merger.
21
<PAGE>
4.3 Securities Documents and Regulatory Reports
(a) Since February 5, 1997, Parent has timely filed all Securities
Documents required by the Securities Laws and such Securities Documents complied
in all material respects with the Securities Laws and did not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
(b) Buyer has since February 5, 1997, duly filed with the OTS and any
other applicable federal or state banking authority, as the case may be, the
reports required to be filed under applicable laws and regulations and such
reports were in all material respects complete and accurate and in compliance
with the requirements of applicable laws and regulations. In connection with the
most recent examinations of Buyer by the OTS, Buyer was not required to correct
or change any action, procedure or proceeding which Buyer believes has not been
corrected or changed as required.
4.4 Financial Statements
(a) Buyer has previously delivered or made available to Seller accurate
and complete copies of the Parent Financial Statements, which, in the case of
year-end Parent Financial Statements, are accompanied by the audit reports of
Parent Accountant. The Parent Financial Statements fairly present and will
fairly present, as the case may be, the consolidated financial condition of
Parent as of the respective dates set forth therein, and the consolidated
income, changes in stockholders' equity and cash flows of Parent for the
respective periods or as of the respective dates set forth therein.
(b) Each of the Parent Financial Statements referred to in Section
4.4(a) has been or will be, as the case may be, prepared in accordance with
GAAP, except as stated therein. The audits of Parent have been conducted in
accordance with generally accepted auditing standards. The accounting books and
records of Parent and Buyer are being maintained in compliance with applicable
legal and accounting requirements, and all such books and records accurately
reflect in all material respects all dealings and transactions in respect of the
business, assets, liabilities and affairs of Parent and Buyer.
4.5 Material Adverse Change
Since September 30, 1999 to the date hereof, (i) Buyer has conducted
its business in the ordinary and usual course (excluding the incurrence of
expenses in connection with this Agreement and the transactions contemplated
hereby) and (ii) no event has occurred or circumstance arisen that, in the
aggregate, has had or is reasonably likely to have a Material Adverse Effect on
Buyer.
4.6 Legal Proceedings
Except as disclosed in Parent's Securities Documents, or as Previously
Disclosed, there are no actions, suits, claims, governmental investigations or
proceedings instituted, pending or, subject to the Knowledge Qualification,
unasserted or threatened against Buyer or against any asset, interest
22
<PAGE>
or right of Buyer, or against any officer, director or employee of Buyer, in
such capacity, which seeks material monetary relief, specific performance,
injunctive relief or other equitable relief. Buyer is not a party to any order,
judgment or decree.
4.7 Certain Information
None of the information relating to Buyer supplied or to be supplied by
it for inclusion in the Proxy Statement, as of the date such Proxy Statement is
mailed to stockholders of Seller and up to and including the date of the meeting
of stockholders to which such Proxy Statement relates, will contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading, provided that information as of a later date shall be
deemed to modify information as of an earlier date.
4.8 Brokers and Finders
Neither Buyer nor any of its directors, officers or employees has
employed any broker or finder or incurred any liability for any broker or finder
fees or commissions in connection with the transactions contemplated hereby.
4.9 Disclosures
None of the representations and warranties of Buyer or any of the
written information or documents furnished or to be furnished by Buyer to Seller
in connection with or pursuant to this Agreement or the completion of the
transactions contemplated hereby, when considered as a whole, contains or will
contain any untrue statement of a material fact, or omits or will omit to state
any material fact required to be stated or necessary to make any such
information or document, in light of the circumstances, not misleading.
4.10 Financial Resources
Buyer has the financial wherewithal and has, or will have prior to the
Effective Time, sufficient funds to pay the Merger Consideration.
ARTICLE V
COVENANTS
5.1 Reasonable Best Efforts
Subject to the terms and conditions of this Agreement, each of Seller
and Buyer (i) shall use its reasonable best efforts in good faith to take, or
cause to be taken, all actions, and to do, or cause to be done, all things
necessary or advisable under applicable laws and regulations so as to permit and
otherwise enable completion of the Corporate Merger as promptly as reasonably
practicable, and (ii) shall cooperate fully with each other to that end.
23
<PAGE>
5.2 Stockholder Meeting
Seller shall take all action necessary to properly call and convene a
meeting of its stockholders as soon as practicable after the date hereof to
consider and vote upon the Proposal. The Board of Directors of Seller will
recommend that the stockholders of Seller approve the Proposal, provided that
the Board of Directors of Seller may fail to make such recommendation, or
withdraw, modify or change any such recommendation, if such Board of Directors,
after having consulted with and considered the advice of outside counsel, has
determined that as a result of an Alternative Proposal the making of such
recommendation, or the failure to withdraw, modify or change such
recommendation, would constitute a breach of the fiduciary duties of such
directors under applicable law.
5.3 Regulatory Matters
(a) The parties hereto shall promptly cooperate with each other in the
preparation and filing of the Proxy Statement with the OTS and after the OTS has
cleared the Proxy Statement, Seller shall promptly mail the Proxy Statement to
its stockholders.
(b) The Parties hereto shall cooperate with each other and use their
reasonable best efforts to promptly prepare and file within 45 days after the
date hereof or as soon thereafter as is reasonably practicable, all necessary
documentation, to effect all applications (including applications of Parent and
Merger Sub), notices, petitions and filings, and to obtain as promptly as
practicable all permits, consents, approvals and authorizations of all
Governmental Entities and third parties which are necessary or advisable to
consummate the transactions contemplated by this Agreement. Buyer and Seller
shall have the right to review in advance, and to the extent practicable each
will consult with the other on, in each case subject to applicable laws relating
to the exchange of information, all the information which appears in any filing
made by the other Party or written materials submitted by the other Party to any
third party or any Governmental Entity in connection with the transactions
contemplated by this Agreement. In exercising the foregoing right, each of the
Parties shall act reasonably and as promptly as practicable. The Parties agree
that they will consult with each other with respect to the obtaining of all
permits, consents, approvals and authorizations of all third parties and
Governmental Entities necessary or advisable to consummate the transactions
contemplated by this Agreement and each Party will keep the other apprised of
the status of matters relating to completion of the transactions contemplated
herein. The Parties agree that they will use their reasonable best efforts to
cause the Closing Date to occur by May 31, 2000.
(c) Buyer and Seller shall, upon request, furnish each other with all
information concerning themselves, their respective present and former directors
and officers, the stockholders of Seller and such other matters as may be
reasonably necessary or advisable in connection with any statement, filing,
notice or application made by or on behalf of Buyer, Parent, Merger Sub, or
Seller to any Governmental Entity in connection with the transactions
contemplated hereby.
(d) Buyer and Seller shall promptly furnish each other with copies of
written communications received from, or delivered to, any Governmental Entity
in respect of the transactions contemplated hereby.
24
<PAGE>
5.4 Investigation and Confidentiality
(a) Seller shall permit Buyer and its representatives reasonable access
to Seller's properties and personnel, and shall disclose and make available to
Buyer, upon Buyer's reasonable request, all books, papers and records relating
to Seller's assets, stock ownership, properties, operations, obligations and
liabilities, including all books of account (including the general ledger), tax
records, minute books of meetings of boards of directors (and any committees
thereof) and stockholders, organizational documents, bylaws, material contracts
and agreements, filings with any Governmental Entity, accountants' work papers,
litigation files, loan files, plans affecting employees, and any other business
activities or prospects in which Buyer may have a reasonable interest, provided
that such access and any such reasonable request shall be reasonably related to
the transactions contemplated hereby and shall not unduly interfere with
Seller's normal operations. Seller shall make its directors, officers, employees
and agents and authorized representatives (including counsel and independent
public accountants) available to confer with Buyer and its representatives,
provided that such access shall be reasonably related to the transactions
contemplated hereby and shall not unduly interfere with Seller's normal
operations.
(b) All information furnished previously in connection with the
transactions contemplated by this Agreement or pursuant hereto shall be treated
as the sole property of the Party furnishing the information until completion of
the transactions contemplated hereby and, if such transactions shall not occur,
the Party receiving the information shall either destroy or return to the Party
which furnished such information all documents or other materials containing,
reflecting or referring to such information, shall use its best efforts to keep
confidential all such information, and shall not directly or indirectly use such
information for any competitive or other commercial purposes. The obligation to
keep such information confidential shall continue for five years from the date
the proposed transactions are abandoned but shall not apply to (i) any
information which (x) the Party receiving the information can establish was
already in its possession prior to the disclosure thereof by the Party
furnishing the information; (y) was then generally known to the public; or (z)
became known to the public through no fault of the Party receiving the
information; or (ii) disclosures pursuant to a legal requirement or in
accordance with an order of a court of competent jurisdiction, provided that the
Party which is the subject of any such legal requirement or order shall use its
best efforts to give the other Party at least ten business days' prior notice
thereof.
5.5 Press Releases
Buyer and Seller shall agree with each other as to the form and
substance of any press release related to this Agreement or the transactions
contemplated hereby, and consult with each other as to the form and substance of
other public disclosures which may relate to the transactions contemplated by
this Agreement, provided, however, that nothing contained herein shall prohibit
either party, following notification to the other party, from making any
disclosure which such party believes is required by law or regulation.
25
<PAGE>
5.6 Business of the Parties
(a) During the period from the date of this Agreement and continuing
until the Effective Time, except as expressly contemplated or permitted by this
Agreement or with the prior written consent of Buyer, Seller shall carry on its
business only in the ordinary course consistent with past practice. During such
period, Seller also will use all reasonable efforts to (x) preserve its business
organization intact, (y) keep available to itself and Buyer the present services
of the employees of Seller and (z) preserve for itself and Buyer the goodwill of
the customers of Seller and others with whom business relationships exist.
Without limiting the generality of the foregoing, except with the prior written
consent of Buyer or as expressly contemplated hereby, between the date hereof
and the Effective Time, Seller shall not:
(i) declare, set aside, make or pay any dividend or other
distribution (whether in cash, stock or property or any combination
thereof) in respect of Seller Common Stock;
(ii) issue any shares of its capital stock, other than the
issuance of previously awarded but unissued shares of Seller Restricted
Stock or upon exercise of Seller Options referred to in Section 3.1
hereof; issue, grant, modify or authorize any Rights; purchase any
shares of Seller Common Stock; or effect any recapitalization,
reclassification, stock dividend, stock split or like change in
capitalization;
(iii) except for the deletion of Section 8A of the Charter,
amend its Charter, Bylaws or similar organizational documents; or waive
or release any material right or cancel or compromise any material debt
or claim;
(iv) increase the rate of compensation of any of its
directors, officers or employees, or pay or agree to pay any bonus or
severance to, or provide any other new benefit or incentive to, any of
its directors, officers or employees, except (i) as may be required
pursuant to Previously Disclosed commitments existing on the date
hereof, or (ii) as may be required by law;
(v) enter into or, except as may be required by law, modify
any Seller Employee Plan or other benefit, incentive or welfare
contract, plan or arrangement, or any trust agreement related thereto,
in respect of any of its directors, officers or employees;
(vi) originate or purchase (x) any brokered loan not pursuant
to a commitment Previously Disclosed and existing on the date hereof,
(y) any loan in excess of $250,000, or (z) any loan not secured by a
first trust or mortgage on a one-to four-family residential property;
(vii) except as otherwise permitted hereunder, enter into (v)
any agreement for the purchase, sale, transfer, mortgage, encumbrance
or other disposition of any
26
<PAGE>
properties or assets or (w) any other transaction, agreement,
arrangement or commitment not made in the ordinary course of business,
(x) any agreement, indenture or other instrument relating to the
borrowing of money by Seller or guarantee by Seller of any such
obligation, except for deposits, FHLB advances not to exceed six months
to maturity, federal funds purchased and securities sold under
agreements to repurchase in the ordinary course of business consistent
with past practice, (y) any agreement, arrangement or commitment
relating to the employment of an employee or consultant, or amend any
such existing agreement, arrangement or commitment; or (z) any
contract, agreement or understanding with a labor union;
(viii) change its method of accounting in effect for the year
ended December 31, 1998, except as required by changes in laws or
regulations or GAAP, or change any of its methods of reporting income
and deductions for federal income tax purposes from those employed in
the preparation of its federal income tax return for such year, except
as required by changes in laws or regulations;
(ix) enter into or renew any lease of real or personal
property or any service contract; or fail to give any required notice
to prevent a lease or service contract from being renewed; or make any
capital expenditures in excess of $20,000 individually or $50,000 in
the aggregate, other than pursuant to binding commitments Previously
Disclosed and existing on the date hereof and expenditures necessary to
maintain existing assets in good repair;
(x) file any applications or make any contract with respect to
branching or site location or relocation;
(xi) purchase any security or acquire in any manner whatsoever
(other than to realize upon collateral for a defaulted loan) control
over or any equity interest in any business or entity;
(xii) enter or agree to enter into any agreement or
arrangement granting any preferential right to purchase any of its
assets or rights or requiring the consent of any party to the transfer
and assignment of any such assets or rights;
(xiii) except as necessitated in the reasonable opinion of
Seller due to changes in interest rates, and in accordance with safe
and sound banking practices, change or modify in any material respect
any of its lending or investment policies, except to the extent
required by law or an applicable regulatory authority;
(xiv) enter into any futures contract, option contract,
interest rate caps, interest rate floors, interest rate exchange
agreement or other agreement for purposes of hedging the exposure of
its interest-earning assets and interest-bearing liabilities to changes
in market rates of interest;
27
<PAGE>
(xv) take any action that would cause any of the
representations and warranties of Seller contained in this Agreement
not to be true and correct in any material respect at the Effective
Time or that would cause any of the conditions of Sections 6.1 or 6.3
hereof not to be satisfied;
(xvi) take any action that would materially impede or delay
the completion of the transactions contemplated by this Agreement or
the ability of Buyer or Seller to perform its covenants and agreements
under this Agreement; or
(xvii) materially increase or decrease the rate of interest
paid on time deposits, or on certificates of deposit, except in a
manner and pursuant to policies consistent with past practices; or
(xviii) agree to do any of the foregoing.
(b) Seller shall promptly notify Buyer in writing of the occurrence of
any matter or event known to and directly involving Seller, other than any
changes in conditions that affect the banking or savings institution industry
generally, that would have, either individually or in the aggregate, a Material
Adverse Effect on Seller.
(c) Except with the prior written consent of Seller or as expressly
contemplated hereby, between the date hereof and the Effective Time, Buyer shall
not:
(i) take any action that would cause any of the
representations and warranties of Buyer contained in this Agreement not
to be true and correct in any material respect at the Effective Time or
that would cause any of the conditions of Sections 6.1 or 6.2 hereof
not to be satisfied;
(ii) take any action that would materially impede or delay the
completion of the transactions contemplated by this Agreement or the
ability of Buyer or Seller to perform its covenants and agreements
under this Agreement; or
(iii) agree to do any of the foregoing.
5.7 Certain Actions
Seller shall not solicit or encourage inquiries or proposals with
respect to, furnish any information relating to, or participate in any
negotiations or discussions concerning, any Alternative Proposal, provided,
however, that the Board of Directors of Seller may furnish such information or
participate in such negotiations or discussions if Seller's Board of Directors,
after having consulted with and considered the advice of outside counsel, has
determined that the failure to do the same would constitute a breach of
fiduciary duties of such directors under applicable law. Seller will promptly
inform Buyer orally and in writing of any such request for information or of any
such negotiations or discussions, as well as instruct its directors, officers,
representatives and agents to
28
<PAGE>
refrain from taking any action prohibited by this Section 5.7. In no event may
Seller provide any information to a third party that it has not provided to
Buyer.
5.8 Current Information
During the period from the date hereof to the Effective Time, Seller
shall, upon the request of Buyer, cause one or more of its designated
representatives to confer on a monthly or more frequent basis with
representatives of Buyer regarding Seller's financial condition, operations and
business and matters relating to the completion of the transactions contemplated
hereby. As soon as reasonably available, but in no event more than two business
days after filing, Seller will deliver to Buyer all reports filed by it under
the Thrift Regulations subsequent to the date hereof. Seller also will deliver
to Buyer each call report or similar report filed by it with the FDIC or the OTS
concurrently with the filing of such call report. Seller will also deliver to
Buyer as soon as practicable all quarterly and annual Seller Financial
Statements prepared with respect to periods ending subsequent to September 30,
1999. Within 45 days after the end of each month, Seller will deliver to Buyer
an unaudited balance sheet and an unaudited statement of income, without related
notes, for such month prepared in accordance with GAAP.
5.9 Indemnification; Insurance
(a) From and after the Effective Time, Buyer agrees to indemnify and
hold harmless the past and present directors and officers of Seller (the
"Indemnified Parties") for all acts or omissions occurring at or prior to the
Effective Time to the same extent such persons have the right to be indemnified
and held harmless by Seller under 12 C.F.R. ss.545.121 as in effect at the date
of this Agreement, and such right shall continue in full force and effect for so
long as it would (but for the Merger) otherwise survive and continue in full
force and effect. Without limiting the foregoing, all limitations of liability
existing in favor of the Indemnified Parties as of the date hereof, to the
extent permissible under the Thrift Regulations as of the date hereof, arising
out of matters existing or occurring at or prior to the Effective Time, shall
survive the Merger and shall continue in full force and effect. Seller may, at a
cost not in excess of 150% of the current annual premium cost of Seller's
existing directors and officers' insurance, purchase single premium tail
coverage with policy limits equal to Seller's existing annual coverage limits.
(b) In the event that Buyer or any of its successors or assigns (i)
consolidates with or merges into any other person and shall not be the
continuing or resulting institution of such consolidation or merger or (ii)
transfers all or substantially all of its properties and assets to any person,
then, and in each such case such successor or assign shall assume the
obligations set forth in this Section 5.9, which obligations are expressly
intended to be for the irrevocable benefit of, and shall be enforceable by, each
director and officer covered hereby.
5.10 Environmental Reports
If requested by Buyer within 15 business days of the date hereof (or
within ten days after Seller's acquisition or lease of any real property
acquired or leased after the date hereof), Seller shall provide to Buyer, as
soon as reasonably practical, but not later than 45 days from the receipt by
29
<PAGE>
Seller of the request of Buyer therefor, a report of a phase one environmental
investigation on real property owned or leased by Seller (but excluding space in
office or retail and similar establishments leased by Seller for automatic
teller machines or bank branch facilities or other office uses where the space
leased comprises less than 20% of the total space leased to all tenants of such
property). If required by the phase one environmental investigation in Buyer's
reasonable opinion, Seller shall provide to Buyer, within 60 days of the receipt
by Seller of the request of Buyer therefor, a report of a phase two
environmental investigation on properties requiring such additional study. The
costs of the phase one and phase two environmental investigations, if any, shall
be borne by Buyer.
5.11 Employees and Employee Benefit Plans
(a) Full time employees of Seller who remain employed after the
Effective Time will be eligible to participate in Buyer benefit plans that are
generally available to full-time employees of Buyer on a uniform and
non-discriminatory basis with credit for years of service with Seller for the
purpose of eligibility and vesting (but not for the purpose of accrual of
benefits or allocation of employer contributions). Buyer shall use its best
efforts to cause any and all pre-existing condition limitations (to the extent
such limitations did not apply to a pre-existing condition under any Seller
Employee Plan) and eligibility waiting periods under its group health plans to
be waived with respect to such participants and their eligible dependents.
(b) To the extent that Buyer terminates the employment of any full-time
employee of Seller other than for Cause within six months following the
Effective Time, Buyer shall provide severance benefits in a cash amount equal to
such employee's regular salary for a one-week period (as in effect immediately
prior to the Effective Time) multiplied by the total number of whole years of
such employee's full-time employment (up to a maximum of twenty-six years) at
Seller and Buyer; provided, however that in no event shall Buyer have any
obligation to provide severance benefits to any full-time Seller employee whose
termination of employment occurs due to resignation or discharge for Cause or
who is entitled to severance benefits or the equivalent thereof under the terms
of any other compensation plan or individual contract with Seller.
(c) Buyer agrees to honor the terms of all Previously Disclosed
employment, consulting, severance and termination agreements. Buyer agrees to
expressly assume every such agreement which by its terms requires express
assumption by a successor to Seller. Such express assumption shall occur by
virtue of Buyer's execution of this Agreement without any further action
required by Buyer upon the completion of the Merger.
(d) In the sole discretion of Buyer, payments made by it in full and
complete satisfaction of obligations of Seller under any Seller Employee Plan or
under any agreement referred to in Section 5.11(c) shall be subject to the
recipient's delivery to Buyer of (i) a written acknowledgment signed by such
recipient that the payment or payments and benefits to be made to him or her is
in full and complete satisfaction of all liabilities and obligations thereunder
of Seller, Buyer, and each of their respective affiliates, directors, officers,
employees and agents, and (ii) a release by such recipient of all such parties
from further liability in connection with the particular Seller Employee Plan or
agreement, as applicable.
30
<PAGE>
(e) As of the Effective Time, the Seller ESOP shall be terminated in
accordance with its terms. Any cash received by the Seller ESOP trustee in
connection with the Corporate Merger with respect to the unallocated shares of
Seller Common Stock shall be first applied by the Seller ESOP trustee to the
full repayment of the Seller ESOP loan. The balance of the cash (if any)
received by the Seller ESOP trustee in connection with the Corporate Merger with
respect to the unallocated shares of Seller Common Stock shall be allocated to
the accounts of all participants in the Seller ESOP who have accounts remaining
under the Seller ESOP (whether or not such participants are then actively
employed) and beneficiaries in proportion to the account balances of such
participants and beneficiaries as they exist as of the Effective Time as
earnings, unless otherwise required to be allocated as annual additions subject
to the limitations of Section 415 of the Code. As soon as practicable after
receipt of a favorable determination letter from the IRS with respect to
termination, the assets of the Seller ESOP shall be distributed to participants
and beneficiaries or transferred to an eligible individual retirement account as
a participant or beneficiary may direct. Prior to the Effective Time, Seller
shall be entitled to make prepayments on the Seller ESOP loan to the extent such
prepayments (i) are fully deductible for tax purposes as contributions to the
ESOP and (ii) do not adversely affect the qualified status of the Seller ESOP.
(f) As of the Effective Time, the Seller 401(k) Plan shall be
terminated or continued in effect at the discretion of Buyer and in accordance
with applicable law; provided, that at the request of Buyer, Seller shall cause
the Seller 401(k) Plan to be terminated at or immediately prior to the Effective
Time in accordance with applicable law and in a manner that will not result in
the imposition of any liability or responsibility upon Buyer.
5.12 Company Merger
Buyer and Seller shall take all necessary and appropriate actions to
make it possible for the Company Merger to be authorized, agreed to, and
accomplished immediately after the Effective Time, or at such other time
thereafter as may be determined by Buyer in its sole discretion.
5.13 Litigation Matters
Seller will consult with Buyer about any proposed settlement, or any
disposition of, any litigation.
5.14 Organization of Merger Sub
Buyer shall cause Merger Sub to be organized under the Thrift
Regulations. The Board of Directors of Merger Sub shall approve this Agreement
and the transactions contemplated hereby, whereupon Merger Sub shall become a
party to, and be bound by, this Agreement, and Buyer shall approve this
Agreement in its capacity as the sole stockholder of Merger Sub.
5.15 Conforming Entries
(a) Seller recognizes that Buyer may have adopted different loan,
accrual and reserve policies (including loan classifications and levels of
reserves for possible loan losses). Subject to
31
<PAGE>
applicable laws, from and after the date of this Agreement to the Effective
Time, Seller and Buyer shall consult and cooperate with each other with respect
to conforming the loan, accrual and reserve policies of Seller to those policies
of Buyer, as specified in each case in writing to Seller, based upon such
consultation and subject to the conditions in Section 5.15(c) below.
(b) Subject to applicable laws, Seller and Buyer shall consult and
cooperate with each other with respect to determining, as specified in a written
notice from Buyer to Seller, based upon such consultation and subject to the
conditions in Section 5.15(c) below, the amount and the timing for recognizing
for financial accounting purposes Seller's expenses of the Merger and the
restructuring charges relating to or to be incurred in connection with the
Merger.
(c) Subject to applicable laws, Seller shall (i) establish and take
such reserves and accruals at such time as Buyer shall reasonably request to
conform Seller's loan, accrual and reserve policies to Buyer's policies, and
(ii) establish and take such accruals, reserves and charges in order to
implement such policies and to recognize for financial accounting purposes such
expenses of the Merger and restructuring charges related to or to be incurred in
connection with the Merger, in each case at such times as are reasonably
requested by Buyer, but in no event prior to five days before the Closing Date;
provided, however, that on the date such reserves, accruals and charges are to
be taken, Buyer shall certify to Seller that all conditions to Buyer's
obligation to consummate the Corporate Merger set forth in Sections 6.1 and 6.3
hereof (other than the delivery of certificates, opinions and other instruments
and documents to be delivered at the Closing or otherwise to be dated at the
Effective Time, the delivery of which shall continue to be conditions to Buyer's
obligation to consummate the Merger) have been satisfied or waived; and
provided, further, that Seller shall not be required to take any such action
that is not consistent with GAAP and regulatory accounting principles.
(d) No reserves, accruals or charges taken in accordance with this
Section 5.15 may be a basis to assert a violation of a breach of a
representation, warranty or covenant of Seller herein.
5.16 Integration of Policies
During the period from the date hereof to the Effective Time, Seller
shall, and shall cause its directors, officers and employees to, and shall make
all reasonable efforts to cause its data processing service providers to,
cooperate and assist Buyer in connection with an electronic and systematic
conversion of all applicable data regarding Seller to Buyer's system of
electronic data processing. In furtherance of the foregoing, Seller shall make
reasonable arrangements during normal business hours to permit representatives
of Buyer to train Seller employees in Buyer's system of electronic data
processing.
5.17 Disclosure Supplements
From time to time prior to the Effective Time, each party shall
promptly supplement or amend any materials Previously Disclosed and delivered to
the other party pursuant hereto with respect to any matter hereafter arising
which, if existing, occurring or known at the date of this
32
<PAGE>
Agreement, would have been required to be set forth or described in materials
Previously Disclosed to the other party or which is necessary to correct any
information in such materials which has been rendered materially inaccurate
thereby; no such supplement or amendment to such materials shall be deemed to
have modified the representations, warranties and covenants of the parties for
the purpose of determining whether the conditions set forth in Article VI hereof
have been satisfied.
5.18 Failure to Fulfill Conditions
In the event that either of the parties hereto determines that a
condition to its respective obligations to consummate the transactions
contemplated may not be fulfilled on it will promptly notify the other party.
Each party will promptly inform the other party of any facts applicable to it
that would be likely to prevent or materially delay approval of the Merger by
any Governmental Entity or third party or which would otherwise prevent or
materially delay completion of such transactions.
5.19 Proxy Solicitor
Seller may, and if requested by Buyer shall, retain a proxy solicitor
in connection with the meeting of Seller stockholders held to vote on the
Proposal.
5.20 CNB Lease
Seller and Buyer shall use their reasonable best efforts to obtain the
prior written consent of the lessor under the CNB Lease to the assignment of the
CNB Lease in connection with the Merger. Seller shall promptly following the
meeting of stockholders of Seller relating to the vote on the Proposal notify
the lessor under the CNB Lease of the proposed Merger pursuant to Article IX,
Section 4 of the CNB Lease.
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions Precedent - Buyer and Seller
The respective obligations of Buyer and Seller to effect the
transactions contemplated hereby shall be subject to satisfaction (or waiver of
the provided however clause under Section 6.1(b) by Buyer pursuant to Section
7.4) of the following conditions at or prior to the Effective Time.
(a) The approval of the Proposal by the requisite vote of the
stockholders of Seller.
(b) All approvals and consents from any Governmental Entity, the
approval or consent of which is required for the completion of the Corporate
Merger, shall have been received and all statutory waiting periods in respect
thereof shall have expired; and Buyer and Seller shall have procured all other
approvals, consents and waivers of each person (other than the Governmental
Entities referred to above) whose approval, consent or waiver is necessary to
the completion of the Merger; provided, however, that no approval or consent
referred to in this Section 6.1(b) shall be
33
<PAGE>
deemed to have been received if it shall include any condition or requirement
that, in the aggregate, would so materially reduce the economic or business
benefits of the transactions contemplated by this Agreement to Buyer that had
such condition or requirement been known, Buyer, in its reasonable judgment,
would not have entered into this Agreement.
(c) None of Buyer, Merger Sub or Seller shall be subject to any
statute, rule, regulation, injunction or other order or decree which shall have
been enacted, entered, promulgated or enforced by any Governmental Entity which
prohibits, restricts or makes illegal completion of the Merger.
(d) No proceeding initiated by any Government Entity seeking an order,
injunction or decree issued by any court or agency of competent jurisdiction or
other legal restraint or prohibition preventing the completion of the Merger
shall be pending or threatened.
6.2 Conditions Precedent - Seller
The obligations of Seller to effect the transactions contemplated
hereby shall be subject to satisfaction of the following conditions at or prior
to the Effective Time unless waived by Seller pursuant to Section 7.4 hereof.
(a) The representations and warranties of Buyer set forth in Article IV
hereof shall be true and correct in all material respects as of the date of this
Agreement and as of the Closing Date as though made anew on and as of the
Closing Date, unless the representation and warranty which specifically relates
to an earlier date.
(b) Buyer shall have performed in all material respects all obligations
and complied with all covenants required to be performed and complied with by it
pursuant to this Agreement on or prior to the Effective Time.
(c) Buyer shall have delivered to Seller a certificate, dated the
Closing Date and signed by its President and Chief Executive Officer and by its
Chief Financial Officer, to the effect that the conditions set forth in Sections
6.2(a) and 6.2(b) have been satisfied.
(d) Buyer shall have furnished Seller with such certificates of its
officers or others and such other documents to evidence fulfillment of the
conditions set forth in Sections 6.1 and 6.2 as such conditions relate to Buyer
as Seller may reasonably request.
6.3 Conditions Precedent - Buyer
The obligations of Buyer to effect the transactions contemplated hereby
shall be subject to satisfaction of the following conditions at or prior to the
Effective Time unless waived by Buyer pursuant to Section 7.4 hereof.
(a) The representations and warranties of Seller set forth in Article
III hereof shall be true and correct in all material respects as of the date of
this Agreement and as of the Closing Date as though made anew on and as of the
Closing Date, unless the representation and warranty specifically relates to an
earlier date.
34
<PAGE>
(b) Seller shall have performed in all material respects all
obligations and complied with all covenants required to be performed and
complied with by it pursuant to this Agreement on or prior to the Effective
Time.
(c) Seller shall have delivered to Buyer a certificate, dated the
Closing Date and signed by its President and Chief Executive Officer and by its
Chief Financial Officer, to the effect that the conditions set forth in Sections
6.3(a) and 6.3(b) have been satisfied.
(d) Seller shall have furnished Buyer with such certificates of its
officers or others and such other documents to evidence fulfillment of the
conditions set forth in Sections 6.1 and 6.3 as such conditions relate to Seller
as Buyer may reasonably request.
(e) No more than 15% of the outstanding shares of Seller Common Stock
shall be Dissenting Shares.
(f) The directors of Seller who are stockholders of Seller shall have
executed and delivered voting agreements in the form of Exhibit A hereto.
(g) The letter of Fiserv to Seller, dated October 20, 1999, which
provides in pertinent part that no termination fee or penalty shall be payable
to FISERVE ORLANDO upon any termination of the Dollar System and Loanserv
contract, shall be in full force and effect and unaffected by the Merger.
ARTICLE VII
TERMINATION, WAIVER AND AMENDMENT
7.1 Termination
This Agreement may be terminated:
(a) at any time on or prior to the Effective Time, by the mutual
consent in writing of the parties hereto;
(b) at any time on or prior to the Effective Time, by Buyer in writing
if Seller has, or by Seller in writing if Buyer has, breached in any material
respect any covenant or undertaking contained herein or any representation or
warranty contained herein, unless such breach has been cured within 30 days
after written notice of such breach;
(c) at any time, by either Buyer or Seller in writing, (i) if any
application for prior approval of a Governmental Entity which is necessary to
consummate the Merger is denied or withdrawn at the request or recommendation of
the Governmental Entity which must grant such approval, provided, however, that
no party shall have the right to terminate this Agreement pursuant to this
Section 7(c)(i) if such denial or request or recommendation for withdrawal shall
be due to the failure of the party seeking to terminate this Agreement to
perform or observe the covenants and
35
<PAGE>
agreements of such party set forth herein, or (ii) if any Governmental Entity of
competent jurisdiction shall have issued a final nonappealable order enjoining
or otherwise prohibiting the completion of the Merger;
(d) at any time, by either Buyer or Seller in writing, if the
stockholders of Seller do not approve the Proposal after a vote taken thereon at
a meeting duly called for such purpose (or at any adjournment thereof) unless
the failure of such occurrence shall be due to the failure of the party seeking
to terminate to perform or observe in any material respect its agreements set
forth herein to be performed or observed by such party at or before the
Effective Time; and
(e) by either Buyer or Seller in writing if the Effective Time has not
occurred by the close of business on September 30, 2000, provided that a Party
which is then in breach of any of its representations, warranties, covenants or
obligations shall not be entitled to be a terminating Party hereunder.
For purposes of this Section 7.1, termination by Buyer also shall be
deemed to be termination on behalf of Merger Sub.
7.2 Effect of Termination
In the event that this Agreement is terminated pursuant to Section 7.1
hereof, this Agreement shall become void and have no effect, except that (i) the
provisions relating to confidentiality set forth in Section 5.4(b), to expenses
set forth in Section 8.1, to the break-up fee and expenses set forth in Section
7.6, and this Section 7.2, shall survive any such termination and (ii) a
termination pursuant to Section 7.1(b), (c), (d) or (e) shall not relieve the
breaching party from any liability or damages arising out of its willful breach
of any provision of this Agreement giving rise to such termination; provided,
that in the event that this Agreement is terminated by Seller pursuant to
Section 7.1(b) solely by reason of a willful breach by Buyer, Seller shall be
entitled to liquidated damages from Buyer in the amount of $200,000 plus
reimbursement of reasonable and verifiable expenses directly related to this
Agreement in cash as its exclusive remedy.
7.3 Survival of Representations, Warranties and Covenants
All representations, warranties and covenants in this Agreement or in
any instrument delivered pursuant hereto or thereto shall expire on, and be
terminated and extinguished at, the Effective Time other than covenants that by
their terms are to be performed after the Effective Time (including the
covenants set forth in Sections 2.5, 2.6, 2.8, 5.9 and 5.11 hereof), provided
that no such representations, warranties or covenants shall be deemed to be
terminated or extinguished so as to deprive Buyer or Seller (or any director,
officer or controlling person of either thereof) of any defense at law or in
equity which otherwise would be available against the claims of any person,
including any stockholder or former stockholder of either Buyer or Seller.
36
<PAGE>
7.4 Waiver
Each party hereto by written instrument approved by its Board of
Directors and signed by an executive officer of such party, may at any time
(whether before or after approval of this Agreement by the stockholders of
Seller) extend the time for the performance of any of the obligations or other
acts of the other party hereto and may waive (i) any inaccuracies of the other
party in the representations or warranties contained in this Agreement or any
document delivered pursuant hereto, (ii) compliance with any of the covenants,
undertakings or agreements of the other party, (iii) to the extent permitted by
law, satisfaction of any of the conditions precedent to its obligations
contained herein or (iv) the performance by the other party of any of its
obligations set forth herein, provided that any such waiver granted, or any
amendment or supplement pursuant to Section 7.5 hereof executed after
stockholders of Seller have approved this Agreement, shall not modify either the
amount or form of the Merger Consideration or otherwise materially adversely
affect such stockholders without the approval of the stockholders to the extent
required by applicable law.
7.5 Amendment or Supplement
This Agreement may be amended or supplemented at any time by mutual
written agreement of the Parties approved by the Board of Directors of the
Parties hereto, subject to the proviso to Section 7.4 hereof. Any such amendment
or supplement must be in writing and authorized by or under the direction of the
Board of Directors of each of the parties hereto.
7.6 Break-Up Fee and Expenses
Buyer shall be entitled to a break-up fee of $200,000 plus
reimbursement of reasonable and verifiable expenses directly related to this
Agreement in cash from Seller, payable on demand in immediately available funds,
if either the condition set forth in subsection (a) below or the condition set
forth in subsection (b) below is met prior to the date specified in subsection
(c) below.
(a) Seller agrees to an Alternative Proposal.
(b) Any event in subparagraph (i) is followed by any event in
subparagraph (ii).
(i) (A) Seller's Board of Directors fails to recommend
approval of the Proposal to Seller's stockholders, or
adversely alters or modifies such recommendation; or
(B) An Alternative Proposal has been presented to
Seller or publicly announced.
(ii) (A) Seller's stockholder meeting to consider approval
of the Proposal does not take place by May 15, 2000;
37
<PAGE>
(B) Seller's stockholders do not approve the Proposal
at Seller's stockholder meeting; or
(C) Seller commits any breach which would entitle
Buyer to terminate this Agreement.
(c) (i) the Effective Time;
(ii) the date 18 months after Buyer's termination of this
Agreement pursuant to Section 7.1(b) for a willful
breach; or
(iii) the date of proper termination of this Agreement for
any reason other than as set forth under paragraph
(c) (ii) above.
Notwithstanding anything to the contrary herein, a proposal that would
otherwise constitute an Alternative Proposal shall not constitute an Alternative
Proposal solely for purposes of this Section 7.6 if it is publicly rejected by
the Board of Directors of Seller within five business days of such Board
receiving such proposal.
ARTICLE VIII
MISCELLANEOUS
8.1 Expenses
Except as otherwise provided herein, each party hereto shall bear and
pay all costs and expenses incurred by it in connection with the transactions
contemplated by this Agreement, including fees and expenses of its own financial
consultants, investment bankers, accountants and counsel, provided that
notwithstanding anything to the contrary contained in this Agreement, neither
Buyer nor Seller shall be released from any liabilities or damages arising out
of its willful breach of any provision of this Agreement.
8.2 Entire Agreement
This Agreement contains the entire agreement among the parties with
respect to the transactions contemplated hereby and supersede all prior
arrangements or understandings with respect thereto, written or oral, other than
documents referred to herein. The terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the parties hereto and their
respective successors. Nothing in this Agreement, expressed or implied, is
intended to confer upon any party, other than the Parties, and their respective
successors, any rights, remedies, obligations or liabilities other than as set
forth in Sections 2.5, 5.9 and 5.11 hereof.
8.3 No Assignment
None of the parties hereto may assign any of its rights or obligations
under this Agreement to any other person.
38
<PAGE>
8.4 Notices
All notices or other communications which are required or permitted
hereunder shall be in writing and sufficient if delivered personally, telecopied
(with confirmation) or sent by overnight mail service or by registered or
certified mail (return receipt requested), postage prepaid, addressed as
follows:
If to Buyer:
Hemlock Federal Bank for Savings
5700 West 159th Street
Oak Forest, Illinois 60452-3198
Attention: Maureen Partynski
Chairman and Chief Executive Officer
With a required copy to:
Silver, Freedman & Taff, L.L.P.
1100 New York Avenue, N.W.
Washington, D. C. 20005
Attn: Robert L. Freedman, P.C.
Christopher R. Kelly, P.C.
Fax: (202) 682-0354
If to Seller:
Midwest Savings Bank
324 Commons Drive
Bolingbrook, Illinois 60440
Attn: John W. Wayne
President and Chief Executive Officer
With a required copy to:
Luse Lehman Gorman Pomerenk & Schick
5335 Wisconsin Avenue, N.W.
Suite 400
Washington, D.C. 20015
Attn: John J. Gorman
Fax: (202) 362-2902
39
<PAGE>
8.5 Alternative Structure
Notwithstanding any provision of this Agreement to the contrary, Buyer
may at any time modify the structure of the acquisition of Seller set forth
herein, provided that (i) the consideration to be paid to the holders of Seller
Common Stock is not thereby changed in kind or reduced in amount as a result of
such modification and (ii) such modification will not materially delay or
jeopardize receipt of any required approvals of Governmental Entities or any
other condition to the obligations of Buyer set forth in Sections 6.1 and 6.3
hereof.
8.6 Interpretation
The captions contained in this Agreement are for reference purposes
only and are not part of this Agreement.
8.7 Counterparts
This Agreement may be executed in any number of counterparts, and each
such counterpart shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one agreement.
8.8 Governing Law
This Agreement shall be governed by and construed in accordance with
the laws of the State of Illinois applicable to agreements made and entirely to
be performed within such jurisdiction. The Parties hereby designate Cook County,
Illinois to be the proper jurisdiction and venue for any suit or action arising
out of this Agreement.
8.9 Severability
Any term, provision, covenant or restriction contained in this
Agreement held to be invalid, void or unenforceable, shall be ineffective to the
extent of such invalidity, voidness or unenforceability, but neither the
remaining terms, provisions, covenants or restrictions contained in this
Agreement nor the validity or enforceability thereof in any other jurisdiction
shall be affected or impaired thereby. Any term, provision, covenant or
restriction contained in this Agreement that is so found to be so broad as to be
unenforceable shall be interpreted to be as broad as is enforceable.
40
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in counterparts by their duly authorized officers and their corporate
seal to be hereunto affixed and attested by their officers thereunto duly
authorized, all as of the day and year first above written.
HEMLOCK FEDERAL BANK FOR SAVINGS
Attest:
/s/ Rosanne Pastorek-Belczak By: /s/ Maureen G. Partynski
- ------------------------------ ----------------------------------
Secretary Maureen Partynski, Chairman and
Chief Executive Officer
MIDWEST SAVINGS BANK
Attest:
/s/ James Lovejoy By: /s/ John S. Wayne
- ------------------------------ ----------------------------------
Secretary John S. Wayne, President
41
<PAGE>
Exhibit A
Form of Voting Agreement
January 7, 2000
Hemlock Federal Bank for Savings
5700 West 159th Street
Oak Forest, Illinois 60452-3198
Dear Sirs:
The undersigned understands that Hemlock Federal Bank for Savings
("Buyer") and Midwest Savings Bank ("Seller") are entering into an Agreement and
Plan of Merger (the "Merger Agreement") providing for, among other things, the
merger of a wholly-owned subsidiary of Buyer into Seller (the "Merger"), in
which the outstanding shares of common stock of Seller will be exchanged for
cash.
The undersigned is a stockholder of Seller and is entering into this
agreement to induce Buyer to enter into the Merger Agreement and to consummate
the transactions contemplated thereby.
The undersigned confirms its agreement with Buyer as follows:
1. The undersigned represents, warrants and agrees that Schedule I
annexed hereto sets forth the shares of the capital stock of Seller of which the
undersigned is the record or beneficial owner, or over which he has voting
control (the "Shares"), and that the undersigned is on the date hereof the
lawful owner of the Shares, free and clear of all liens, charges, encumbrances,
voting agreements and commitments of every kind, except as disclosed in Schedule
I. Except as set forth in Schedule I, the undersigned does not own or hold any
rights to acquire any additional shares of the capital stock of Seller (by
exercise of stock options or otherwise) or any interest therein or any voting
rights with respect to any additional shares.
2. Except as required by law, the undersigned agrees that the
undersigned will not, and will not permit any company, trust or other entity
controlled by the undersigned to, contract to sell, sell or otherwise transfer
or dispose of any of the Shares or any interest therein or securities
convertible thereunto or any voting rights with respect thereto, other than
subsequent to the stockholder meeting of Seller held in connection with the vote
on the Merger Agreement.
3. The undersigned agrees that all of the Shares, together with any
additional shares of capital stock of Seller of which the undersigned is the
record or beneficial owner, or over which he has voting control, at the record
date for any meeting of stockholders of Seller called to consider and vote to
approve the Proposal (as defined in the Merger Agreement), will be voted by the
undersigned in favor thereof.
4. The undersigned agrees to, and will cause any company, trust or
other entity controlled by the undersigned to, cooperate fully with Buyer in
connection with the Merger Agreement and the transactions contemplated thereby.
The undersigned agrees that the undersigned will not, and will not permit any
such company, trust or other entity to, directly or indirectly, (including
through its officers, directors, employees or other representatives) initiate,
solicit or encourage any discussions, inquiries or proposals with any third
party relating to an Alternative Proposal (as defined in the Merger Agreement)),
or provide any such person with information or assistance or negotiate with any
such person with respect
A-1
<PAGE>
Hemlock Federal Bank for Savings
January 7, 2000
Page 2
to an Alternative Proposal or agree to or otherwise assist in the effectuation
of any Alternative Proposal except as permitted by the Merger Agreement.
5. The undersigned represents and warrants to Buyer that (i) the
undersigned has all necessary power and authority to enter into this agreement
and (ii) this agreement is the legal, valid and binding agreement of the
undersigned, and is enforceable against the undersigned in accordance with its
terms.
6. This letter agreement shall automatically terminate (i) upon
termination of the Merger Agreement in accordance with its terms or (ii) at the
Effective Time (as defined in the Merger Agreement).
7. This agreement may be amended, modified or supplemented at any
time by the written approval of such amendment, modification or supplement by
the undersigned and Buyer.
8. This agreement evidences the entire agreement between the parties
hereto with respect to the matters provided for herein and there are no
agreements, representations or warranties with respect to the matters provided
for herein other than those set forth herein.
9. The parties agree that if any provision of this agreement shall
under any circumstances be deemed invalid or inoperative, this agreement shall
be construed with the invalid or inoperative provisions deleted and the rights
and obligations of the parties shall be construed and enforced accordingly.
10. This agreement may be executed in two counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same agreement.
11. The validity, construction, enforcement and effect of this
agreement shall be governed by the laws of the State of Illinois.
12. This agreement shall inure to the benefit of Buyer and its
successors, and shall be binding upon and inure to the benefit of the
undersigned and its successors, executors, personal representatives,
administrators, heirs, legatees, guardians and other legal representatives. This
agreement shall survive the death or incapacity of the undersigned.
13. Nothing in this Agreement shall be construed to give Buyer any
rights to exercise or direct the exercise of voting power as owner of the
Shares, either beneficially or otherwise, for any purpose.
14. The undersigned agrees that in the event of his breach Buyer
shall be entitled to such remedies and relief against the undersigned as are
available at law or in equity. The undersigned acknowledges that there is not an
adequate remedy at law to compensate Buyer for a violation of this Agreement,
and irrevocably waives, to the extent permitted by law, any defense that he
might have based
A-2
<PAGE>
Hemlock Federal Bank for Savings
January 7, 2000
Page 3
on the adequacy of a remedy at law which might be asserted as a bar to specific
performance, injunctive relief, or other equitable relief. The undersigned
agrees to the granting of injunctive relief without the posting of any bond and
further agrees that if any bond shall be required, such bond shall be in a
nominal amount.
Please confirm that the foregoing correctly states the understanding
between the undersigned and Buyer by signing and returning to Buyer a
counterpart hereof.
Very truly yours,
NAME
Accepted as of the 7th day
of January, 2000
Hemlock Federal Bank for Savings
By:
Maureen Partynski
Chairman and Chief Executive Officer
A-3
<PAGE>
Hemlock Federal Bank for Savings
January 7, 2000
Page 4
Schedule I
Number of shares of Seller common stock
beneficially owned........................................
A-4
<PAGE>
Exhibit B
Home and Other Offices of the Resulting Institution
Midwest Savings Bank
324 Commons Drive
Bolingbrook, IL 60440
630 739-3400
3030 West Cermak Road
Chicago, IL 60623
773 277-0606
B-1
<PAGE>
Exhibit C
Names, Residence Addresses and Terms of Directors of the Resulting Institution
The Directors of the Resulting Institution shall be seven:
Name Term Expires Residence Address
- -------------------------------------------------------------------------------
Maureen G. Partynski 2002 13755 Teakwood Drive
Lockport, IL 60441
Charles Gjondla 2002 3718 West 60th Place
Chicago, IL 60629
Rosanne Belczak 2001 13457 Little Creek Drive
Lockport, IL 60441
Frank A. Bucz 2001 10735 South Millard
Chicago, IL 60655
G. Gerald Schiera 2001 13665 West Dublin
Lockport, IL 60441
Michael R. Stevens 2000 6101 Jacquelyn Court
Tinley Park, IL 60477
Kenneth Bazarnik 2000 428 Rockhurst Road
Bolingbrook, IL 60439
C-1
EXHIBIT 20
FOR IMMEDIATE RELEASE
Contact: Hemlock Federal Bank for Savings Midwest Savings Bank
Maureen G. Partynski John S. Wayne
Chairman and CEO President and CEO
Michael R. Stevens Bolingbrook, Illinois
President and Chief Financial Officer (630) 739-3400
(708) 687-9400
HEMLOCK FEDERAL FINANCIAL CORPORATION AND
MIDWEST SAVINGS BANK ANNOUNCE MERGER BETWEEN
HEMLOCK FEDERAL BANK FOR SAVINGS AND MIDWEST SAVINGS BANK
OAK FOREST, ILLINOIS, January 7, 2000. Hemlock Federal Financial
Corporation ("Hemlock") (Nasdaq National Market "HMLK"), the holding company for
Hemlock Federal Bank for Savings ("Hemlock Federal Bank"), and Midwest Savings
Bank ("Midwest") today announced the execution of a definitive agreement
providing for the merger of Midwest into Hemlock Federal Bank. The transaction
is valued on a current basis at approximately $3.36 million.
In the transaction, Midwest shareholders will receive cash for each
share of Midwest common stock approximately equal to the book value per share of
Midwest as of December 31, 1999, plus the net income of Midwest through the
month-end prior to the closing date subject to certain adjustments, including a
credit for transaction related expenses. The transaction is subject to the
approval of the shareholders of Midwest as well as banking regulators, and is
expected to close in the second quarter of this year. The transaction is
expected to be accretive to Hemlock's earnings per share and return on
stockholders' equity beginning in the first quarter after operations are
combined. In addition, Hemlock Federal Bank expects that Midwest's remaining
non-operating loss carry forward tax credits will be fully utilized by Hemlock
in the year 2000.
"We believe this transaction is an excellent opportunity for us to
further leverage our capital, and will be accretive to both earnings and return
on equity," noted Maureen G. Partynski, CEO of Hemlock. "Our considerable
success in launching our Lemont branch in 1998 reflects the fact that we have
the right formula of superior customer service and competitive products to
attract additional customers in what will be our newest facilities in
Bolingbrook and Chicago. We look forward to continuing the fine service Midwest
Savings Bank has provided to its customers."
"We are extremely pleased to announce this transaction," noted John S.
Wayne, President and Chief Executive Officer of Midwest. "This combination will
allow us to better serve our customers with enhanced products and services to be
provided by Hemlock Federal Bank for Savings. We are pleased that Hemlock shares
our commitment to community involvement and quality customer service."
<PAGE>
Midwest has two branch offices serving Bolingbrook and Chicago,
Illinois. At September 30, 1999, Midwest had $31.1 million of deposits, $47.7
million in total assets, and $3.4 million in stockholders' equity.
Headquartered in Oak Forest, Illinois, Hemlock provides banking from
its four full service offices located in Cook County, Illinois. At September 30,
1999, Hemlock had $151.4 million in deposits, $221.2 million in total assets,
and $26.7 million in stockholders' equity.
Except for historical information contained herein, the matters
contained in this news release and other information in Hemlock's SEC filings
and Midwest's OTS filings, may express "forward-looking statements" that involve
risk and uncertainties, including statements that are other than statements of
historical facts. Hemlock and Midwest wish to caution readers not to place undue
reliance on any forward-looking statements, which speak only as of the date
made. Readers are advised that various factors, including but not limited to -
changes in law, regulations or generally accepted accounting principles;
Hemlock's and Midwest's competitive position within their market areas;
increasing consolidation within the banking industry; unforseen changes in
interest rates; any unforseen downturns in the local, regional or national
economies - could cause Hemlock's and/or Midwest's actual results or
circumstances for future periods to differ materially from those indicated or
projected.
Hemlock and Midwest do not undertake, and specifically disclaim any
obligation, to publicly release the results of any revisions that may be made to
any forward-looking statements to reflect the occurrence of anticipated or
unanticipated events or circumstances after the date of such statements.
