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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box: [_] Confidential, for Use of the
Commission Only (as Permitted by
Rule 14a-6(e)(2))
[X] Preliminary Proxy Statement
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
HIGHLAND BANCORP, INC.
(Name of Registrant as Specified In Its Charter)
N/A
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock and Options convertible into Common Stock.
(2) Aggregate number of securities to which transaction applies:
4,243,474 shares of Common Stock
475,730 options convertible into same number of shares of Common Stock
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
$25.45 for each outstanding share of common stock (based on cash
consideration set forth in merger agreement; $11.59 for each option
convertible into common stock, ($25.45 minus $13.86; $13.86 is the
average conversion price for each option).
(4) Proposed maximum aggregate value of transaction:
$113,510,124.00
(5) Total fee paid:
$22,702.02
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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PROXY STATEMENT
MERGER PROPOSED
YOUR VOTE IS VERY IMPORTANT
June 26, 2000
Dear Stockholders:
The Board of Directors of Highland Bancorp, Inc. has unanimously approved
and recommends an agreement and plan of merger with Jackson Federal Bank.
If we complete the merger, stockholders of Highland Bancorp, Inc. will
receive the right to receive $25.45 for each share of common stock. This amount
will be reduced in the event Highland Bancorp's professional fees exceed $1.2
million. We do not currently anticipate that our professional fees will exceed
such amount.
This document gives you detailed information about the merger and includes a
copy of the merger agreement, and you should read it carefully. It is a proxy
statement that Highland Bancorp, Inc. is using to solicit proxies for use at
its annual stockholder meeting.
We are enthusiastic about the merger. We join all the other members of our
Board of Directors in recommending that you vote in favor of the merger.
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<S> <C>
Richard J. Cross Stephen N. Rippe
-------------------------------------- -----------------------------------------
Chairman of the Board of Directors President and Chief Executive Officer
</TABLE>
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HIGHLAND BANCORP, INC.
601 South Glenoaks Boulevard
Burbank, California 91502
(818) 848-4265
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held On August 8, 2000
----------------
TO EACH STOCKHOLDER OF HIGHLAND BANCORP, INC.:
NOTICE IS HEREBY GIVEN that the 2000 Annual Meeting of Stockholders of
Highland Bancorp, Inc. will be held at 10:00 a.m. on Tuesday, August 8, 2000 at
the Hilton Glendale, 100 W. Glenoaks Boulevard, Glendale, CA 91202 for the
following purposes, all as set forth in the attached Proxy Statement:
1. To consider and adopt an Agreement and Plan of Merger, dated as of
April 24, 2000, by and among Highland Bancorp, Highland Federal Bank and
Jackson Federal Bank, pursuant to which Jackson will acquire Highland
Bancorp.
2. To elect three directors to serve until the election of directors in
2003. The nominees of the Board of Directors are Woodrow W. DeWitt, Richard
O. Oxford, and Shirley Simmons, each of whom is currently a director of
Highland Bancorp;
3. To consider and act on the ratification of KPMG LLP as independent
auditors for Highland Bancorp for 2000;
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Only holders of record of Highland Bancorp common stock at the close of
business on June 9, 2000 are entitled to notice of and to vote in person or by
proxy at the meeting.
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. HOWEVER, WHETHER
OR NOT YOU EXPECT TO ATTEND, YOU ARE URGED TO READ THE ATTACHED PROXY STATEMENT
AND THEN COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT IN THE
ENCLOSED POSTAGE-PREPAID ENVELOPE AS PROMPTLY AS POSSIBLE. IF YOU RECEIVED MORE
THAN ONE PROXY CARD BECAUSE YOU OWN SHARES REGISTERED IN DIFFERENT NAMES OR AT
DIFFERENT ADDRESSES, EACH PROXY CARD SHOULD BE SEPARATELY COMPLETED AND
RETURNED. IF YOU ATTEND THE MEETING AND WISH TO VOTE IN PERSON, YOU MAY
WITHDRAW YOUR PROXY. THE PROXY MAY BE REVOKED AT ANY TIME PRIOR TO ITS
EXERCISE. IN ORDER TO FACILITATE THE PROVIDING OF ADEQUATE ACCOMMODATIONS;
PLEASE INDICATE ON THE PROXY WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING.
By Order of the Board of Directors
Kelly Andrews
Corporate Secretary
Dated: June , 2000
<PAGE>
TABLE OF CONTENTS
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Page
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SUMMARY.................................................................... 1
General.................................................................. 1
Parties to the Merger Agreement.......................................... 1
Recommendation of the Board.............................................. 1
Opinion of the Financial Advisor......................................... 2
Interests of Certain Persons in the Merger............................... 2
Material Federal Income Tax Consequences................................. 2
Rights of Dissenting Stockholders........................................ 2
Regulatory Approvals..................................................... 3
The Merger Agreement..................................................... 3
The Merger............................................................... 3
Effective Time of the Merger and Payment for Shares...................... 3
Conditions to the Merger................................................. 3
Termination.............................................................. 4
No Solicitation.......................................................... 4
Fiduciary Out............................................................ 4
Transaction and Other Fees Payable to Jackson............................ 5
Security Ownership of Management and Certain Beneficial Owners........... 5
Market Prices of Common Shares........................................... 5
Voting Rights and Votes Required......................................... 5
ANNUAL MEETING OF STOCKHOLDERS............................................. 6
Matters to be Considered................................................. 6
Voting Rights and Votes Required......................................... 6
Solicitation and Voting of Proxies....................................... 7
Incorporation by Reference............................................... 7
Highland Bancorp, Inc. Filings........................................... 8
SECURITY OWNERSHIP OF MANAGEMENT........................................... 9
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS............................ 10
MARKET PRICE AND DIVIDEND INFORMATION...................................... 11
PROPOSAL 1: AGREEMENT AND PLAN OF MERGER AND THE MERGER.................... 12
Background and Reasons for the Merger.................................... 12
Recommendation of the Board of Directors and Reasons for the Merger...... 13
Opinion of Financial Advisor............................................. 14
Summary of Proposal.................................................... 15
Stock Trading History.................................................. 16
Comparable Company Analysis............................................ 16
Analysis of Selected Merger Transactions............................... 17
Discounted Dividend Stream and Terminal Value Analysis................. 18
Description of Jackson's Business...................................... 20
Description of Highland Bancorp's Business............................. 20
Description of the Merger Agreement and the Merger....................... 21
Structure, Timing and Effective Time................................... 21
In General............................................................. 21
Possible Adjustments to Price.......................................... 21
How to Surrender Your Shares and Receive Purchase Price................ 21
Representations and Warranties......................................... 21
Covenants of the Parties............................................... 22
No Solicitation........................................................ 22
Conditions to the Merger............................................... 23
</TABLE>
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TABLE OF CONTENTS--(Continued)
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Page
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Employee Benefits..................................................... 24
Termination and Termination Fees...................................... 24
Expenses.............................................................. 25
Regulatory Matters and Amendments..................................... 25
Indemnification of Officers and Directors............................. 25
Stock Options........................................................... 25
Interests of Certain Persons in the Merger.............................. 25
Material Federal Income Tax Consequences................................ 26
Introduction.......................................................... 26
General............................................................... 26
Limitation on Deductibility of Capital Losses......................... 27
Tax Treatment of Dissenting Stockholders.............................. 27
Appraisal Rights........................................................ 27
Electing Appraisal Rights............................................. 27
Only Record Holders May Demand Appraisal Rights....................... 28
Notification of Merger's Effectiveness................................ 28
Court Petition Must Be Filed.......................................... 28
Notification Regarding Shares Not Voted For Merger.................... 28
Appraisal Proceeding by Delaware Court................................ 28
Effect of Appraisal Demand on Voting and Right to Dividends........... 29
Loss, Waiver, or Withdrawal of Appraisal Rights....................... 29
Dismissal of Appraisal Proceeding..................................... 29
Transactions between the Parties........................................ 29
PROPOSAL 2: ELECTION OF DIRECTORS......................................... 30
Nominees for Election................................................... 30
Committees of the Board of Directors.................................... 33
Meetings of Directors................................................... 33
Compensation of Directors............................................... 34
EXECUTIVE COMPENSATION.................................................... 35
Option Grants........................................................... 36
Option Exercises and Holdings........................................... 36
Executive Officer Change of Control Agreements.......................... 36
Acceleration Events Under the Option Plan............................... 37
PERSONNEL/COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION......... 38
Compensation Committee Interlocks and Insider Participation............. 39
PERFORMANCE GRAPH......................................................... 40
PROPOSAL 3: RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS................ 41
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934...... 41
STOCKHOLDER PROPOSALS..................................................... 41
ANNUAL REPORT............................................................. 42
OTHER BUSINESS............................................................ 42
ANNEX A--AGREEMENT AND PLAN OF MERGER..................................... A-1
ANNEX B--FAIRNESS OPINION OF SANDLER O'NEILL & PARTNERS, L.P. ............ B-1
ANNEX C--SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW.............. C-1
</TABLE>
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SUMMARY
This summary highlights selected information from this proxy statement
relating to the proposed merger and the other matters to be voted up and may
not contain all of the information that may be important to you. To understand
the merger and related matters fully and for a more complete description of the
legal terms of the merger, you should carefully read this entire proxy
statement and the attached documents, including the merger agreement attached
as Annex A. Where appropriate, items in this summary include a cross-reference
directing you to a more complete description including elsewhere in this proxy
statement.
General (page 21)
At the annual meeting, you will vote on a proposal for Jackson Federal Bank
to acquire Highland Bancorp. You will also vote to elect three directors and
approve the appointment of our independent auditors.
The merger agreement provides that you will receive $25.45 cash per share,
subject to reduction in the event professional fees in connection with the
transaction exceed $1.2 million. After the merger, Jackson will own Highland
Bancorp and you will no longer have any investment or voting rights in Highland
Bancorp.
Parties to the Merger Agreement (page 20)
Highland Bancorp, Inc. and
Highland Federal Bank
601 South Glenoaks Boulevard
Burbank, California 91502
(818) 848-4265
Highland Bancorp and our subsidiary bank, Highland Federal Bank, have
executed the merger agreement with Jackson. Highland Federal is a federally
chartered savings bank which operates 7 branches in Los Angeles County.
Jackson Federal Bank
599 North E Street
San Bernardino, California 92401
(909) 383-2200
Jackson is a federally chartered savings bank owned by Jackson National Life
Insurance Company, Lansing, Michigan. Jackson operates 6 banking offices in San
Bernardino County and 1 banking office in Orange County. Jackson National, a
subsidiary of Prudential plc, is one of the largest life insurance and
financial services organizations in the country. Prudential is one of the
largest life insurance companies in the United Kingdom.
Recommendation of the Board (page 13)
On April 24, 2000, our Board unanimously approved the merger agreement and
recommended that you approve the merger agreement. In connection with its
recommendations, our Board relied upon, among other things, the analyses and
findings of its financial advisor, Sandler O'Neill Partners, LP. See
"Background and Reasons for the Merger" beginning on page 12, and "Opinion of
the Financial Advisor" beginning on page 14.
OUR BOARD RECOMMENDS THAT YOU VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT.
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Opinion of the Financial Advisor (page 14)
Sandler O'Neill provided its opinion to our Board that, as of April 24,
2000, the merger consideration was fair from a financial point of view to you.
Sandler O'Neill has confirmed its opinion in writing as of the date of this
proxy statement.
The full text of Sandler O'Neill's opinion, which sets forth assumptions
made, matters considered and limitations on the review undertaken in connection
with the opinion, is attached as Annex B and incorporated by reference into
this proxy statement. The opinion of Sandler O'Neill does not constitute a
recommendation as to how you should vote with respect to the merger agreement.
We urge you to read the opinion in its entirety. See "Opinion of Financial
Advisor" beginning on page 14.
We have agreed to pay Sandler O'Neill a fee equal to .701% of the aggregate
merger consideration. If the merger is consummated at the $25.45 per common
share price stated in the merger agreement, Sandler O'Neill's fee will be
approximately $800,000 for services as financial advisor and rendering its
opinion to the Board. We have also agreed to indemnify Sandler O'Neill against
certain liabilities, including certain liabilities under the federal securities
laws. See "Opinion of Financial Advisor" beginning on page 14.
Interests of Certain Persons in the Merger
(page 25)
In considering the Board's recommendation with respect to the merger
agreement, you should be aware that some of our officers and directors have
interests in connection with the merger which may present them with actual or
potential conflicts of interest, which are described in more detail under
"Interests of Certain Persons in the Merger" beginning on page 25.
Certain of our officers and directors hold options convertible into shares
of common stock totaling 475,730 shares for which they'll receive approximately
$5,513,710 if the merger is consummated. Three officers have also executed 3-
year employment agreements with Jackson to take effect upon completion of the
merger. Certain officers also have change in control agreements with Highland
Bancorp which provide for payments to them after the merger is completed.
Material Federal Income Tax Consequences
(page 26)
Your receipt of the cash merger consideration will be a taxable transaction
for U.S. federal income tax purposes. We urge you to consult your tax advisors
to determine the effect of the merger under applicable federal, state, local
and foreign tax laws. See "Material Federal Income Tax Consequences" beginning
on page 26.
Rights of Dissenting Stockholders (page 27)
If the merger is completed, a stockholder who properly objects to the terms
of the merger and follows the procedures required by Delaware law may seek an
appraisal of the fair value of the shares of common stock owned. See "Appraisal
Rights" beginning on page 27.
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Regulatory Approvals (page 25)
The Office of Thrift Supervision, or "OTS", must approve the merger. We
understand that, as of the date of this proxy statement, Jackson has filed the
necessary application, but such approval has not yet been obtained. See
"Conditions to the Merger" beginning on page 23 and "Regulatory Matters and
Amendments" beginning on page 25.
The Merger Agreement
The Merger (page 21)
The merger agreement provides that, subject to satisfaction of certain
conditions, a wholly-owned subsidiary of Jackson will be merged with and into
Highland Bancorp. Following the merger, the separate existence of Merger Sub
will cease and Highland Bancorp will continue as the surviving corporation.
Upon completion of the merger, each issued and outstanding share of common
stock will be canceled and converted into the right to receive $25.45 in cash,
without interest, subject to possible reduction. See "Description of the Merger
Agreement and the Merger--In General", page 21.
Effective Time of the Merger and Payment for Shares (page 21)
We currently expect the merger to occur during the fourth quarter of 2000.
The effective time of the merger will occur upon the filing of a Certificate of
Merger with the Delaware Secretary of State promptly after the satisfaction or
waiver of the conditions to the merger contained in the merger agreement. See
"Conditions to the Merger" beginning on page 23. The exchange agent will
forward to you detailed instructions with regard to the surrender of share
certificates, together with a letter of transmittal, promptly following the
effective time of the merger. You should not submit your certificates to the
exchange agent until you have received such materials. The exchange agent will
send payment of the merger consideration to you as promptly as practicable
following receipt by the exchange agent of certificates and other required
documents. No interest will be paid or accrued on the cash payable upon the
surrender of certificates. See "How to Surrender Shares and Receive Purchase
Price" beginning on page 21.
You should not send any share certificates to us at this time.
Conditions to the Merger (page 23)
Each party's obligation to complete the merger is subject to satisfaction of
a number of conditions, including with respect to one or both parties:
. holders of a majority of the outstanding shares of our common stock shall
have approved the merger agreement;
. the OTS shall have approved the merger;
. three specified officers of Highland Federal shall have entered into
employment agreements with Jackson (which condition has been met); and
. the representations and warranties of Highland Bancorp, Highland Federal
and Jackson shall be true and correct as of the effective time of the
merger to an extent which does not have a material adverse effect on
Highland Bancorp or Jackson.
Any or all of the conditions that have not been satisfied may be waived,
other than conditions that are required by law, such as approval of the merger
agreement by our stockholders, certain regulatory approvals
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and the absence of injunctions enjoining the merger. See "Conditions to the
Merger" beginning on page 23. Even if you approve the merger agreement, we
cannot assure you that the merger will be consummated.
Termination (page 24)
The parties may mutually agree to terminate the merger agreement at any
time.
Jackson or we may terminate the merger agreement if:
. the merger is not consummated by January 5, 2001 unless the merger is not
consummated due to a breach of the merger agreement by the party seeking
to terminate it;
. 30 days after any approval or determination of any governmental authority
required for consummation of the merger and the other transactions
contemplated by the merger agreement is denied unless Jackson elects to
appeal the denial; or
. one day later after the approval of our stockholders is not obtained at
our stockholders' meeting.
Jackson may terminate the merger agreement if:
. we breach the merger agreement in a material respect and such breach is
not cured within 30 days and would entitle Jackson not to consummate the
merger agreement; or
. our Board fails to recommend the merger, withdraws such recommendation or
modifies or changes such recommendation in a manner adverse to Jackson or
approves or recommends to you an acquisition proposal other than the
merger.
We may terminate the merger agreement if:
. Jackson breaches the merger agreement in a material respect and such
breach is not cured within 30 days and would entitle us not to consummate
the merger agreement; or
. at any time prior to the approval of our stockholders in accordance with
our ability to terminate the agreement because of the exercise by our
Board of its fiduciary duties and the payment of a $4 million fee.
See "Termination and Termination Fees" beginning on page 24.
No Solicitation (page 22)
Pursuant to the merger agreement, we have agreed that we will not, nor allow
our directors, officers or employees to, directly or indirectly, solicit,
initiate, endorse or encourage any inquiry or proposal for any merger or other
acquisition proposal from a third party. See "No Solicitation" beginning on
page 22.
Fiduciary Out (page 24)
If we receive an acquisition proposal for a merger or another business
combination or the acquisition of a substantial equity interest in or a
substantial portion of the consolidated assets of Highland Bancorp, the Board
is not prevented from taking any action with respect to the acquisition
proposal if the Board concludes in good faith after consultation with outside
legal counsel that it must so act in a manner consistent with its fiduciary
duties. In such event, we must pay a termination fee of $4 million. See
"Termination and Termination Fees" beginning at page 24.
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Transaction and Other Fees Payable to Jackson (page 24)
We will pay Jackson a $4 million fee if:
. we receive a fully financed competing acquisition proposal made in cash;
we provide Jackson an opportunity for at least 5 business days to
increase the cash merger consideration; Jackson does not increase the
cash merger consideration and we decide to make such payment and
terminate the merger agreement; or
. we have received a competing acquisition proposal and either (1) the
Board has failed to recommend approval of the merger agreement to you or
withdrawn or changed its recommendation in a manner adverse to Jackson;
(2) our stockholders have not approved the merger agreement or (3) we
have breached the merger agreement to the extent that it would entitle
Jackson to terminate the merger agreement and Jackson elects to terminate
the merger agreement and requests the fee.
See "Termination and Termination Fees" beginning on page 24.
Security Ownership of Management and Certain Beneficial Owners (page 9)
At the close of business on the record date, our directors and executive
officers beneficially owned in the aggregate approximately 567,375, or
approximately 13.4%, of the outstanding shares of our common stock, including
shares issuable upon exercise of stock options. To our knowledge, all of our
directors and executive officers intend to vote in favor of approval of the
merger agreement. See "Security Ownership of Management" beginning on page 9.
Market Prices of Common Shares (page 11)
Our common stock is listed for trading on the Nasdaq National Market. The
closing price of our common stock on June 9, 2000, was $24.125.
Voting Rights and Votes Required (page 6)
The affirmative vote of the holders of a majority of the outstanding shares
of our common stock is required to approve the merger agreement. A failure to
vote or a vote to abstain will have the same effect as a vote cast against
approval of the merger agreement.
Brokers who hold shares of common stock as nominees will not have
discretionary authority to vote such shares in the absence of instructions from
the beneficial owners. A broker non-vote will have the same effect as a vote
against the merger agreement.
Each holder of record of shares of our common stock at the close of business
on June 9, 2000 is entitled to one vote for each share then held on each matter
submitted to a vote of stockholders except that a stockholder may cumulate
votes for the election of directors. At the close of business on the record
date, 4,243,474 shares of our common stock were outstanding. The holders of a
majority of the outstanding shares of common stock must be present in person or
represented by proxy to constitute a quorum for the transaction of business.
See "Voting Rights and Votes Required" beginning on page 6.
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HIGHLAND BANCORP, INC.
601 South Glenoaks Boulevard
Burbank, California 91502
(818) 848-4265
----------------
PROXY STATEMENT
----------------
ANNUAL MEETING OF STOCKHOLDERS
To Be Held On August 8, 2000
This proxy statement is furnished to you in connection with the solicitation
by the Board of Directors of Highland Bancorp of proxies for use at Highland
Bancorp's Annual Meeting of Stockholders to be held at 10:00 a.m. on Tuesday,
August 8, 2000 and at any and all adjournments thereof, for the purposes set
forth in the foregoing notice of the meeting. The proxy statement and the
enclosed form of proxy are first being mailed to you on or about June 26, 2000.
Matters to be Considered
At the meeting, you will vote upon
. the Agreement and Plan of Merger dated as of April 24, 2000 by and among
Highland Bancorp, Highland Federal and Jackson Federal Bank, providing
for the merger of a subsidiary of Jackson with Highland Bancorp;
. the election of three directors;
. the ratification of the selection of KPMG LLP as Highland Bancorp's
independent auditors for 2000; and
. such other business as may properly come before the meeting or any
adjournment thereof.
The Board of Directors does not know of any matter to be brought before the
meeting other than those described in this proxy statement.
Voting Rights and Votes Required
The Board of Directors has fixed June 9, 2000 as the record date for the
determination of stockholders entitled to notice of, and to vote at, the
meeting. At the close of business on the record date, 4,243,474 shares of our
common stock were outstanding and entitled to vote.
A majority of the outstanding shares of common stock must be represented in
person or by proxy at the meeting in order to constitute a quorum for the
transaction of business. Except as set forth below with respect to the election
of directors, you will have one vote for each share held on the record date on
each matter to be presented at the meeting.
The affirmative vote of a majority of the outstanding shares of common stock
is required to approve the merger agreement and the transactions contemplated
by the merger agreement.
In the election of directors, you may cumulate your votes for the candidates
in nomination. Each share of common stock will be entitled to the number of
votes equal to the number of directors to be elected, and you may cast all your
votes for a single candidate or may distribute your votes among three or more
candidates in such manner, as you deem appropriate. The candidates receiving
the highest number of votes will be elected as
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directors. The Board is soliciting discretionary authority to cumulate votes,
and the return of an executed proxy confers such authority.
The affirmative vote of the holders of a majority of the common stock
present in person or represented by proxy and entitled to vote at the meeting
will be required to ratify the selection of KPMG LLP as independent auditors.
Abstentions and broker non-votes will be treated as shares present and
entitled to vote for purposes of determining the presence of a quorum. For the
purpose of determining whether a proposal has received the necessary votes to
be approved, abstentions from voting on any matter other than the election of
directors, will have the effect of a vote AGAINST such matter. Because broker
non-votes are not affirmative votes, they will have the effect of a vote
against the proposal to approve the merger agreement.
In the event that the votes necessary to approve any of the proposals have
not been obtained by the date of the meeting, the Chairman of the meeting may,
in his discretion, adjourn the meeting from time to time to permit the
solicitation of additional proxies.
Solicitation and Voting of Proxies
In connection with the solicitation by the Board of Directors of proxies for
use at the meeting, the Board of Directors has designated Richard J. Cross,
Chairman of the Board of Directors, and Stephen N. Rippe, President and Chief
Executive Officer, as proxy holders. Common stock represented by all properly
executed proxies will be voted at the meeting in accordance with the
instructions specified thereon.
If no instructions are specified, common stock represented by any properly
executed proxy will be voted FOR the approval of the merger agreement and the
transactions evidenced thereby, FOR the election of each of the nominees listed
below under "Election of Directors," and FOR the ratification of the selection
of KPMG LLP as independent auditors for Highland Bancorp.
The Board of Directors is not aware of any matters that will come before the
meeting other than those described above. If any other matters are properly
presented at the meeting, the proxies will be voted by the proxy holders in
accordance with the recommendations of the Board of Directors.
You may revoke your proxy at any time prior to its exercise by filing with
the secretary of Highland Bancorp an instrument of revocation or a valid proxy
bearing a later date, or by attending the meeting and requesting that such
proxy be revoked. Attendance at the meeting will not, in itself, constitute
revocation of a previously granted proxy.
We are paying all costs of soliciting proxies relating to the meeting.
Proxies will be solicited by mail. Our directors, officers and employees may
also solicit proxies personally or by telephone or telegram. We will not pay
them additional compensation for those efforts.
We also will provide nominees, such as banks and brokerage firms, with proxy
materials to transmit to their beneficial owners and will reimburse the
nominees for their expenses in doing so. Further, we have retained D.F. King &
Co., Inc. to assist us in soliciting proxies from banks, brokers, and nominees.
We have agreed to pay $5,000 plus expenses to D.F. King for these services.
Incorporation by Reference
We file annual, quarterly and current reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
any reports, statements or other information that Highland Bancorp submits at
the SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further
information on its public reference rooms. Our
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public submissions are also available to the public from commercial document
retrieval services and at the Internet World Wide Web site maintained
http://www.sec.gov.
As allowed under SEC rules, this proxy statement does not contain all the
information that you can find in other public filings. The SEC allows us to
"incorporate by reference" information into this proxy statement. This means
that we can disclose information to you by referring you to another document
filed separately with the SEC. Information incorporated by reference is deemed
to be a part of this proxy statement, except for information superseded by
information contained in a later filing, including this proxy statement. Set
forth below are those documents previously filed with the SEC that contain
important business information about us and our financial condition and are
incorporated herein by reference.
Highland Bancorp, Inc. Filings:
. Annual Report on Form 10-K for the period ended December 31, 1999, as
amended by the Form 10K/A filed on April 28, 2000.
. Quarterly Report on Form 10-Q for the period ending March 31, 2000.
. Current Report on Form 8-K dated April 25, 2000.
We incorporate by reference additional documents that we may file with the
SEC between the date of this Proxy Statement and the date of the meeting. These
include periodic reports such as quarterly reports on Form 10-Q and current
reports on Form 8-K.
Documents incorporated by reference are available without charge, excluding
all exhibits unless specifically incorporated by reference as an exhibit to
this document. You may obtain them by requesting them in writing or by
telephone at the following:
HIGHLAND BANCORP, INC.
601 Glenoaks Boulevard, Suite 200
Burbank, CA 91502
Attn: Kelly Andrews
(818) 848-4265
8
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the beneficial ownership of our common stock
as of June 9, 2000 by each director and executive officer and by all directors
and executive officers of Highland Bancorp as a group. Except as noted all such
shares are beneficially owned solely by such individual or jointly with such
individual's spouse.
<TABLE>
<CAPTION>
Amount Percent
Beneficially of
Name of Beneficial Owner Owned Class(1)
------------------------ ------------ --------
<S> <C> <C>
Richard J. Cross.................................... 41,000(2)(3) 1.0%
Woodrow W. DeWitt................................... 105,104(2) 2.5%
William G. Dyess.................................... 44,264(2)(4) 1.0%
Ellen B. Geiger..................................... 50,000(5) 1.2%
Richard O. Oxford................................... 42,714(2) 1.0%
Stephen N. Rippe.................................... 178,002(6) 4.2%
Shirley E. Simmons.................................. 28,030(2) *
Garry P. Warren..................................... 33,611(7) *
Kelly Andrews....................................... 42,650(8) 1.0%
Stephen Cooper...................................... 2,000(9) *
All directors and executive officers as a group (10
persons)........................................... 567,375(10) 13.4%
</TABLE>
--------
* Less than 1%.
(1) Shares which the person (or group) has the right to acquire within 60 days
after June 9, 2000 are deemed to be outstanding in calculating the
percentage ownership of the person (or group) but are not deemed to be
outstanding as to any other person (or group).
(2) Includes 21,000 shares, which may be acquired within 60 days after June 9,
2000 upon exercise of outstanding options.
(3) Does not include 6,000 shares owned by Mr. Cross's wife as to which Mr.
Cross disclaims beneficial ownership.
(4) Does not include 3,200 shares owned by Mr. Dyess's wife as to which Mr.
Dyess disclaims beneficial ownership.
(5) Includes 50,000 shares, which may be acquired within 60 days after June 9,
2000 upon exercise of outstanding options.
(6) Includes 136,668 shares, which may be acquired within 60 days after June
9, 2000 upon exercise of outstanding options.
(7) Includes 28,564 shares, which may be acquired within 60 days after June 9,
2000 upon exercise of outstanding options.
(8) Includes 2,000 shares, which may be acquired within 60 days after June 9,
2000 upon exercise of outstanding options.
(9) Includes 2,000 shares, which may be acquired within 60 days after June 9,
2000 upon exercise of outstanding options.
(10) Includes a total of 324,232 shares, which may be acquired within 60 days
after June 9, 2000 upon exercise of outstanding options.
9
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table identifies those stockholders known as of June 9, 2000
to management as beneficially owning in excess of 5% of the outstanding common
stock.
<TABLE>
<CAPTION>
Common Stock
Beneficially Owned at
June 9, 2000
------------------------
Number of Percent
Name and Address of Beneficial Owner Shares of Class
------------------------------------ ------------ -----------
<S> <C> <C>
Wellington Management Company, LLP(1)................ 378,400 8.9%
75 State Street
Boston, Massachusetts 02109
Gabriel Capital Corporation and J. Ezra Merkin(2).... 241,500 5.7%
450 Park Avenue
New York, NY 10022
John Hancock Mutual Life Insurance Company(3)........ 331,334 7.8%
101 Huntington Avenue
Boston, Massachusetts 02199
</TABLE>
--------
(1) Based on a Schedule 13G filed by Wellington Management Company, LLP on
February 9, 2000.
(2) Based on a Schedule 13G filed by Gabriel Capital Corporation and J. Ezra
Merkin on May 26, 2000.
(3) Based on a Schedule 13G filed by John Hancock Mutual Life Insurance Company
on January 19, 2000. Direct beneficial ownership of the shares is held by
John Hancock Advisors, Inc., which is a wholly-owned subsidiary of the
Berkley Financial Group, which is a wholly-owned subsidiary of John Hancock
Subsidiaries, Inc., which is a wholly-owned subsidiary of John Hancock
Mutual Life Insurance Company.
10
<PAGE>
MARKET PRICE AND DIVIDEND INFORMATION
Our common stock is listed on The Nasdaq National Market under the symbol
"HBNK." On the record date for the meeting, there were approximately 525
holders of record of Highland Bancorp common stock. The following table sets
forth for the calendar quarter indicated, the high and low closing sale prices
per share of our common stock as reported on The Nasdaq National Market, and
the dividends per share on our common stock. The per share prices of our common
stock set forth below have been adjusted to reflect a two-for-one stock split
effected as a 100% stock dividend which was effective as of May 14, 1999.
<TABLE>
<CAPTION>
Dividends
Quarter Ended High Low Declared
------------- ------ ------ ---------
<S> <C> <C> <C>
1998:
First quarter......................................... $19.25 $16.63 $0.000
Second quarter........................................ 21.75 18.75 0.125
Third quarter......................................... 21.28 18.94 0.065
Fourth quarter........................................ 18.06 15.75 0.065
1999:
First quarter......................................... $18.63 $15.25 $0.0625
Second quarter........................................ 20.63 18.25 0.0625
Third quarter......................................... 19.50 18.13 0.0625
Fourth quarter........................................ 19.75 17.63 0.0625
2000:
First quarter......................................... $18.00 $15.00 $0.075
Second quarter (through June 9, 2000)................. 24.13 15.00 0.075
</TABLE>
On April 24, 2000, the day before the merger was announced, our common stock
closed at $17.25 per share. On June 9, 2000, the common stock closed at $24.125
per share.
11
<PAGE>
PROPOSAL 1:
AGREEMENT AND PLAN OF MERGER AND THE MERGER
This part of the proxy statement contains information regarding the terms
and conditions of the merger that are set forth in the merger agreement, a copy
of which is attached to this proxy statement as Annex A. The statements made in
this proxy statement are qualified in their entirety by, and made subject to,
the terms and conditions set forth in the merger agreement which you should
read prior to voting upon this proposal.
Background and Reasons for the Merger
Your Board of Directors has always considered enhancing stockholder value as
its first priority. We have observed the considerable consolidation in the
financial institutions industry occurring in recent years. At the same time, we
have experienced increased competition for customers from other industries,
including the insurance, mortgage banking and securities industries. Therefore,
the Board has monitored and explored expansion and acquisition opportunities
for several years and has also considered the sale of our company as a
possibility if that would provide acceptable value for you.
At the peak of the high stock prices for banks and savings banks in mid-
1998, the Board determined it should engage advisers to evaluate our strategic
options and the acquisition or sale opportunities then available. Sandler
O'Neill & Partners, L.P. was engaged and presented a market valuation of our
company in May 1998. The Board directed Sandler O'Neill to discreetly explore
interest among identified potential acquirers. In July 1998, the Board
considered expressions of interest from three potential buyers identified by
Sandler O'Neill and entered negotiations with one party that would have offered
our stockholders its stock. Unfortunately, due to the severe decline in stock
market prices in the fall of 1998, the Board decided that the transaction was
no longer attractive. The Board did not consider the other expressions of
interest attractive.
Between October 1998 and February 1999, the Board explored potential mergers
with other institutions. The Board determined, however, that the potential
price in an exchange of stock and other aspects of matching the business of
those institutions with ours did not make those opportunities attractive enough
for you.
In September 1999, the President of Jackson approached our President, Steve
Rippe, about a possible acquisition. We provided certain public information
about us to Jackson. On November 15, 1999, the Board held a merger and
acquisition strategic planning meeting where updated market information was
discussed and Sandler O'Neill presented strategic alternatives. The Board then
directed Mr. Rippe to contact another institution identified as a potential
acquirer and to contact Jackson to ascertain its interest in acquiring Highland
Bancorp.
In late November 1999 and into December 1999, Mr. Rippe met with the senior
management of Jackson and another institution and explored other acquisition
opportunities presented by Sandler O'Neill. On December 20, 1999, Mr. Rippe
updated the Board on these opportunities.
On December 29, 1999, Jackson sent a written expression of interest to
acquire us for a cash price between $23.00 and $25.00 per share. After
consulting with its advisors, the Board rejected Jackson's request to pursue a
transaction at that price.
On January 6, 2000, Jackson's senior officers visited our senior management
and held further discussions. Thereafter, on January 19, 2000, Jackson advised
us that it would increase its proposed price to between $25.00 and $26.00 per
share.
On February 2, 2000 Sandler O'Neill made a presentation to the Board on
other potential acquirers. After the presentation the Board decided to permit
Jackson to conduct due diligence. This arrangement did not preclude us from
pursuing other opportunities and the Board directed Sandler O'Neill to continue
to solicit
12
<PAGE>
offers discreetly. Thereafter, Sandler O'Neill received two additional
expressions of interest that the Board determined were inferior to Jackson's
offer.
After conducting on site due diligence, on February 29, 2000, Jackson
offered to acquire us for $25.00 per share. On March 1, 2000, the Board elected
a merger committee to negotiate the terms of a possible definitive merger
agreement with Jackson for the full Board's consideration. Manatt, Phelps &
Phillips, LLP was engaged as special counsel. Mr. Rippe and representatives of
Manatt, Phelps and Sandler O'Neill then conducted meetings and negotiations
throughout March 2000 and reported periodically to the committee. On March 29,
2000, Mr. Rippe reported the progress of discussions to the Board. Thereafter,
following a meeting with Jackson, Sandler O'Neill reported that Jackson had
agreed to a cash price of $25.45 per share.
The Boards of Directors of Highland Bancorp and Highland Federal held a
joint special meeting on April 14, 2000. Representatives of Sandler O'Neill and
legal counsel met with the directors to discuss the status of the transaction.
At the meeting, the Board received information regarding the due diligence
process and discussed the pending transaction. A draft of the merger agreement
and related documents were distributed to each director. Legal counsel reviewed
in detail with the Board the draft of the merger agreement. Legal counsel and
management responded to questions from the directors concerning the merger
agreement and the directors reached a consensus on the remaining open issues to
be negotiated.
Another joint meeting of the Boards of Highland Bancorp and Highland Federal
was then held on April 17, 2000 for the purpose of receiving an update from
counsel on the final terms of the proposed merger agreement still under
negotiation and to receive a presentation from Sandler O'Neill. Legal counsel
also reviewed the general terms of the employment contracts, which Jackson was
offering to three of our officers, and which were required to be executed prior
to or contemporaneously with the signing of the merger agreement.
Representatives of Sandler O'Neill next presented a detailed financial
review of the transaction. Sandler O'Neill's presentation included an
explanation of the financial analyses Sandler O'Neill engaged in rendering its
opinion.
The Boards of Directors of Highland Bancorp and Highland Federal next met on
April 24, 2000 to discuss the status of the transaction. Legal counsel attended
and representatives of Sandler O'Neill participated by telephone. A proposed
final draft of the merger agreement was distributed to each director and legal
counsel discussed the revisions to the merger agreement that had been
negotiated since the preceding Board meetings. Sandler O'Neill delivered its
oral opinion, which was confirmed in writing, that the merger price of $25.45
per share was fair to the stockholders of Highland Bancorp from a financial
point of view based on the financial analysis underlying its fairness opinion.
See "Opinion of Financial Advisor" beginning on page 14 for further details.
As a result of its review of the proposed merger, the merger agreement and
the Sandler O'Neill fairness opinion, the Board unanimously approved the
proposed merger and authorized management to execute and deliver the merger
agreement in substantially the form presented. The merger agreement was then
executed as of April 24, 2000 by Highland Bancorp, Highland Federal and
Jackson. Thereafter, Highland Bancorp received from Sandler O'Neill
confirmation of its written fairness opinion dated five days prior to the date
of this document.
Recommendation of the Board of Directors and Reasons for the Merger
The Board has determined that the merger agreement is in the best interests
of Highland Bancorp and its stockholders, and unanimously recommends that you
approve the merger agreement. In reaching its conclusion and recommendation,
the Board consulted with management, legal counsel and its financial advisor,
and considered various factors. Although the Board did not assign any specific
or relative weight to any factors, these factors included:
. the business, operations, financial condition and earnings of Highland
Bancorp on a historical and a prospective basis;
13
<PAGE>
. the nature of Highland Federal's deposit base and the absence of any
substantial market share in any geographic region;
. the challenges Highland Bancorp and Highland Federal would face in the
future with respect to funding asset growth;
. the likelihood of Highland Bancorp continuing to improve its efficiency
and overhead ratios;
. the general short-term and long-term outlook for the savings and loan and
banking industries;
. the oral presentations of Sandler O'Neill to the Board on April 14, 2000
and 24, 2000 and the fairness opinion of Sandler O'Neill rendered on
April 24, 2000, and confirmed as of the date of this proxy statement,
that the merger consideration of $25.45 was fair from a financial point
of view to the holders of Highland Bancorp's common stock;
. the fact that Jackson's offer contained a considerable premium in excess
of the market price prevailing for Highland Bancorp's common stock prior
to the announcement of the signing of the merger agreement (which market
price was approximately $17.00 compared to the cash price of $25.45); and
. the opinion of Highland Bancorp's financial advisor that the cash price
of $25.45 per share was in the high end of the range that other banks and
savings institutions would be willing to pay for Highland Bancorp and
Highland Federal.
The foregoing discussion of information and factors considered by the Board
is not intended to be exhaustive, but is believed to include all material
factors considered by the Board.
Opinion of Financial Advisor
By letter agreement dated as of February 1, 2000, we retained Sandler
O'Neill as an independent financial advisor in connection with the Board's
consideration of a possible business combination with a second party. Sandler
O'Neill is a nationally recognized investment banking firm whose principal
business specialty is financial institutions. In the ordinary course of its
investment banking business, Sandler O'Neill is regularly engaged in the
valuation of financial institutions and their securities in connection with
mergers and acquisitions and other corporate transactions.
Sandler O'Neill acted as financial advisor to us in connection with the
merger and participated in certain of the negotiations leading to the merger
agreement. At the request of our Board, representatives of Sandler O'Neill
attended the meetings of the Board of Directors on April 17 and 24, 2000 at
which the Board considered and approved the merger agreement. At the April 24
meeting, which Sandler O'Neill attended via telephone, Sandler O'Neill
delivered to the Highland Bancorp Board its oral opinion that, as of such date,
the consideration to be received by Highland Bancorp stockholders in the merger
was fair to you from a financial point of view. Sandler O'Neill has also
delivered to the Board of Directors a written opinion dated the date of this
proxy statement which is substantially identical to the April 24, 2000 opinion.
The full text of Sandler O'Neill's opinion is attached as Annex B to this proxy
statement. The opinion outlines the procedures followed, assumptions made,
matters considered and qualifications and limitations on the review undertaken
by Sandler O'Neill in rendering the opinion. The opinion is incorporated by
reference into this description and this description is qualified in its
entirety by reference to the opinion. You are urged to carefully read the
opinion in connection with your consideration of the proposed merger.
Sandler O'Neill's opinion was directed to the Highland Bancorp Board and was
provided to Highland Bancorp for its information in considering the merger. The
opinion is directed only to the fairness of the merger consideration to you
from a financial point of view. It does not address the underlying business
decision of Highland Bancorp to engage in the merger or any other aspect of the
merger and is not a recommendation to you as to how you should vote at the
special meeting with respect to the merger or any other related matter.
14
<PAGE>
In rendering its April 24, 2000 opinion, Sandler O'Neill performed a variety
of financial analyses. The following is a summary of the material analyses
performed by Sandler O'Neill, but is not a complete description of all the
analyses underlying Sandler O'Neill's opinion. The preparation of a fairness
opinion is a complex process involving subjective judgments as to the most
appropriate and relevant methods of financial analysis and the application of
those methods to the particular circumstances. The process, therefore, is not
necessarily susceptible to a partial analysis or summary description. Sandler
O'Neill believes that its analyses must be considered as a whole and that
selecting only certain factors and analyses, or attempting to ascribe relative
weights to some or all factors and analyses, could create an incomplete view of
the evaluation process underlying its opinion. Also, no company included in
Sandler O'Neill's comparative analyses described below is identical to Highland
Bancorp and no transaction is identical to the merger. Accordingly, an analysis
of comparable companies or transactions involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the companies and other factors that could affect the public trading value or
merger transaction value of Highland Bancorp and the companies to which it is
being compared.
The earnings projections for Highland Bancorp relied upon by Sandler O'Neill
in its analyses were reviewed with management and were based upon internal
projections of Highland Bancorp for the year ending December 31, 2000. For
periods after 2000, Sandler O'Neill assumed, with Highland Bancorp's consent,
an annual growth rate on earning assets of 6.00%. The earnings projections
furnished to Sandler O'Neill were prepared by the senior management of Highland
Bancorp for internal purposes only and not with a view towards public
disclosure. These projections were based on numerous variables and assumptions
which are inherently uncertain and, accordingly, actual results could vary
materially from those shown in such projections.
In performing its analyses, Sandler O'Neill also made numerous assumptions
with respect to industry performance, business and economic conditions and
various other matters, many of which cannot be predicted and are beyond the
control of Highland Bancorp, Jackson and Sandler O'Neill. The analyses
performed by Sandler O'Neill are not necessarily indicative of actual values or
future results, which may be significantly more or less favorable than
suggested by such analyses. Sandler O'Neill prepared its analyses solely for
purposes of rendering its opinion and provided such analyses to the Board of
Directors at the April 17th and 24th meetings. Estimates of the values of
companies do not purport to be appraisals or necessarily reflect the prices at
which companies or their securities may actually be sold. Such estimates are
inherently subject to uncertainty and actual values may be materially
different. Accordingly, Sandler O'Neill's analyses do not necessarily reflect
the value of Highland Bancorp common stock or the prices at which Highland
Bancorp common stock may be sold at any time.
Summary of Proposal. Sandler O'Neill reviewed the financial terms of the
proposed transaction. Based upon the per share merger consideration of $25.45
and Highland Bancorp's December 31, 1999 financial information, Sandler O'Neill
calculated the following ratios:
<TABLE>
<S> <C>
Transaction value/Tangible book value.................................. 2.24x
Transaction value/Book value........................................... 2.24x
Transaction value/Last 12 Months fully-diluted EPS..................... 11.3x
Tangible book premium/core deposits(1)................................. 15.8%
Transaction value/Total deposits....................................... 27.4%
Transaction value/Total assets......................................... 17.3%
</TABLE>
--------
(1) Assumes all deposits are core deposits
The aggregate transaction value was approximately $113.5 million, based upon
4.46 million fully diluted shares of Highland Bancorp common stock outstanding,
which was determined using the treasury stock method at the per share
transaction value. For purposes of Sandler O'Neill's analyses, earnings per
share were based on fully diluted earnings per share. Sandler O'Neill noted
that the transaction value represented a 66.9% premium over the April 14, 2000
closing price of Highland Bancorp common stock of $15.25.
15
<PAGE>
Stock Trading History. Sandler O'Neill reviewed the history of the reported
trading prices and volume of Highland Bancorp common stock and the relationship
between the movements in the prices of Highland Bancorp common stock to
movements in certain stock indices, including the Standard & Poor's 500 Index,
the NASDAQ Bank Index and the median performance of a composite group of
publicly traded California savings institutions selected by Sandler O'Neill.
During the one year period ending April 14, 2000, the Highland Bancorp common
stock outperformed the NASDAQ Bank Index and its composite group and
underperformed the S&P Index.
<TABLE>
<CAPTION>
Beginning Index Value Ending Index Value
April 14, 1999 April 14, 2000
--------------------- ------------------
<S> <C> <C>
Highland Bancorp................... 100.00% 81.61%
Highland Bancorp Composite Group... 100.00% 61.32%
Nasdaq Bank Index.................. 100.00% 79.45%
S&P 500 Index...................... 100.00% 102.12%
</TABLE>
Comparable Company Analysis. Sandler O'Neill used publicly available
information to compare selected financial and market trading information for
Highland Bancorp and two groups of savings institutions selected by Sandler
O'Neill. The "Regional Group" consisted of Highland Bancorp and the following 8
publicly traded California savings institutions:
<TABLE>
<C> <S>
Bank Plus Corp. Quaker City Bancorp, Inc
Hawthorne Financial Group Life Financial Corp.
Provident Financial Holdings Monterey Bay Bancorp, Inc.
United PanAm Financial
ITLA Capital Corp. Corp.
</TABLE>
The "Highly Valued Group" consisted of Highland Bancorp and the following 16
publicly traded nationwide savings institutions which had a return on average
equity (based on last twelve months' earnings) of greater than 13% and a price-
to-tangible book value of greater than 130%:
<TABLE>
<C> <S>
InterWest Bancorp, Inc. First Bell Bancorp, Inc.
First Financial Holdings, Inc. Progress Financial Corp.
American Bank of
First Federal Capital Corp. Connecticut
Queens County Bancorp, Inc. MetroWest Bank
WSFS Financial Corp. Coastal Financial Corp.
Andover Bancorp, Inc. Bancorp Connecticut, Inc.
Medford Bancorp, Inc. Warren Bancorp, Inc.
People's Bancshares, Inc. Home Port Bancorp, Inc.
</TABLE>
16
<PAGE>
The analysis compared publicly available financial information for Highland
Bancorp and the median data for each of the Regional Group and Highly Valued
Group as of and for each of the years ended December 31, 1994 through December
31, 1999. The table below sets forth selected comparative data as of and for
the twelve months ended December 31, 1999.
<TABLE>
<CAPTION>
Highland Highly
Bancorp Regional Group Valued Group
------------ -------------- ------------
<S> <C> <C> <C>
Total Assets................... $654,778,000 $1,109,668,000 $808,011,000
Tangible equity/total assets... 7.36% 7.36% 6.81%
Net loans/total assets......... 83.34% 80.84% 66.57%
Gross loans/total deposits..... 134.82% 106.32% 103.99%
Total borrowings/total assets.. 28.09% 12.42% 27.60%
Non-performing assets/total
assets........................ 0.63% 1.50% 0.33%
Loan loss reserve/gross loans.. 2.14% 1.65% 1.18%
Net interest margin............ 4.66% 3.87% 3.60%
Non-interest income/average
assets........................ 0.40% 0.44% 0.53%
Non-interest expense/average
assets........................ 1.50% 2.06% 2.21%
Efficiency ratio............... 31.68% 61.53% 54.49%
Return on average assets....... 1.60% 0.73% 1.17%
Return on average equity....... 21.76% 11.66% 16.07%
Price/tangible book value per
share......................... 135.34% 69.21% 152.07%
Price/earnings per share....... 6.83x 6.57x 9.60x
Dividend yield................. 1.63% 0.00% 3.62%
Dividend payout ratio.......... 11.11% 0.00% 30.91%
</TABLE>
Analysis of Selected Merger Transactions. Sandler O'Neill reviewed certain
other transactions announced from January 1, 1999 to March 28, 2000 involving
publicly traded savings institutions as acquired institutions with transaction
values greater than $15 million. Sandler O'Neill reviewed 52 transactions
announced nationwide, 14 transactions announced nationwide involving sellers
which had an equity/assets ratio of less than 8% ("Fully Leveraged
Transactions"), and 8 transactions announced nationwide involving sellers which
had a return on average equity ratio of greater than 13% at announcement ("High
Performing Transactions"). Sandler O'Neill computed high, low, mean, and median
multiples and premiums for the respective groups of transactions. These
multiples were applied to Highland Bancorp's financial information as of and
for the year ended December 31, 1999. As illustrated in the following table,
Sandler O'Neill derived an imputed range of values per share of Highland
Bancorp common stock of $12.60 to $52.83 based upon the median multiples for
Nationwide Transactions, $14.58 to $44.71 based upon the median multiples for
Fully Leveraged Transactions and $14.81 to $43.22 based upon the median
multiples for High Performing Transactions.
<TABLE>
<CAPTION>
Nationwide Fully Leveraged High Performing
Transactions Transactions Transactions
---------------- ---------------- ----------------
Median Implied Median Implied Median Implied
Multiple Value Multiple Value Multiple Value
-------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Deal price/LTM EPS...... 23.43x $52.83 19.83x $44.71 19.17x $43.22
Relative Price/LTM
EPS(1)................. 1.26x $28.98 1.17x $27.06 1.09x $25.12
Deal price/Book value... 1.65x $18.74 1.97x $22.39 2.91x $33.05
Relative Price/Book
value(2)............... 0.81x $12.60 .94x $14.58 .95x $14.81
Deal price/Tangible book
value.................. 1.67x $18.93 2.01x $22.80 3.21x $36.43
Tangible book
premium/Core deposits.. 11.47% $20.94 11.36% $20.84 32.00% $39.05
Deal price/Total
assets................. 20.08% $29.51 14.44% $21.22 28.52% $41.92
Deal price/Total
deposits............... 28.53% $26.49 18.38% $17.06 38.66% $35.89
</TABLE>
--------
(1) Implied value based on the median price/earnings trading multiple of
publicly traded California financial institutions with assets greater than
$800m (10.26X)
17
<PAGE>
(2) Implied value based on the median price/book value trading multiple of
publicly traded California financial institutions with assets greater than
$800m (1.37x)
In considering the results of the above analysis and in discussing the
analysis with the Board of Directors, Sandler O'Neill considered the range of
values suggested by its analysis as a whole, noting that the per share
transaction value of $25.45 was within the range of values suggested by the
analysis.
Discounted Dividend Stream and Terminal Value Analysis. Sandler O'Neill
also performed an analysis which estimated the future stream of after-tax
dividend flows of Highland Bancorp through December 31, 2003 under various
circumstances, assuming Highland Bancorp's current dividend payout ratio and
that Highland Bancorp performed in accordance with the earnings forecasts
reviewed with management. To approximate the terminal value of Highland
Bancorp common stock at December 31, 2003, Sandler O'Neill applied
price/earnings multiples ranging from 6x to 14x and applied multiples of
tangible book value ranging from 75% to 275%. The dividend income streams and
terminal values were then discounted to present values using different
discount rates ranging from 9% to 15% chosen to reflect different assumptions
regarding required rates of return of holders or prospective buyers of
Highland Bancorp common stock. As illustrated in the following table, this
analysis indicated an imputed range of values per share of Highland Bancorp
common stock of $10.61 to $44.81 when applying the price/earnings multiples
and $11.91 to $33.68 when applying multiples of tangible book value.
<TABLE>
<CAPTION>
Tangible Book
Price/Earnings Value
Multiples Multiples
--------------- -------------
Discount Rate 6x 14x .75x 2.75x
------------- ------- ------- ------ ------
<S> <C> <C> <C> <C>
9%........................................... $ 15.43 $ 33.68 $13.69 $44.81
11........................................... 14.14 30.78 12.57 40.91
13........................................... 12.97 28.14 11.54 37.38
15........................................... 11.91 25.74 10.61 34.17
</TABLE>
In connection with its analysis, Sandler O'Neill considered and discussed
with the Board of Directors how the present value analysis would be affected
by changes in the underlying assumptions, including variations with respect to
the growth rate of assets, net interest spread, non-interest income, non-
interest expenses and dividend payout ratio. Sandler O'Neill noted that the
discounted dividend stream and terminal value analysis is a widely used
valuation methodology, but the results of such methodology are highly
dependent upon the numerous assumptions that must be made, and the results
thereof are not necessarily indicative of actual values or future results.
In connection with rendering its April 24, 2000 opinion, Sandler O'Neill
reviewed, among other things:
. the merger agreement and exhibits and schedules thereto;
. certain publicly available financial statements and other historical
financial information of Highland Bancorp that it deemed relevant;
. certain publicly available financial information of Jackson that it
deemed relevant;
. certain limited financial information, including published credit
ratings, of certain of Jackson's affiliates;
. certain internal financial analyses and forecasts of Highland Bancorp
prepared by and/or reviewed with management of Highland Bancorp and the
views of senior management of Highland Bancorp, based on certain limited
discussions with certain members of senior management, regarding Highland
Bancorp's past and current business, financial condition, results of
operations and future prospects;
. the views of senior management of Jackson, based on certain limited
discussions with certain members of senior management, regarding
Jackson's ability to obtain regulatory approval of the Merger and to fund
the merger consideration;
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. the publicly reported historical price and trading activity for Highland
Bancorp's common stock, including a comparison of certain financial and
stock market information for Highland Bancorp with similar publicly
available information for certain other companies the securities of which
are publicly traded;
. the financial terms of recent business combinations in the savings
institution industry, to the extent publicly available;
. the current market environment generally and the banking environment in
particular; and
. such other information, financial studies, analyses and investigations
and financial, economic and market criteria as they considered relevant.
In connection with rendering the Sandler Opinion, Sandler O'Neill confirmed
the appropriateness of its reliance on the analyses used to render its April
24, 2000 opinion by performing procedures to update certain of such analyses
and by reviewing the assumptions upon which such analyses were based and the
other factors considered in rendering its opinion.
In performing its reviews and analyses, Sandler O'Neill assumed and relied
upon the accuracy and completeness of all the financial information, analyses
and other information that was publicly available or otherwise furnished to,
reviewed by or discussed with it, and Sandler O'Neill did not assume any
responsibility or liability for independently verifying the accuracy or
completeness of any of such information. Sandler O'Neill did not make an
independent evaluation or appraisal of the assets, the collateral securing
assets or the liabilities, contingent or otherwise, of Highland Bancorp or
Jackson or any of their respective subsidiaries or affiliates, or the
collectibility of any such assets, nor was it furnished with any such
evaluations or appraisals. Sandler O'Neill is not an expert in the evaluation
of allowances for loan losses and it has not made an independent evaluation of
the adequacy of the allowance for loan losses of Highland Bancorp or Jackson,
nor has it reviewed any individual credit files relating to Highland Bancorp or
Jackson. With Highland Bancorp's consent, Sandler O'Neill has assumed that the
respective allowances for loan losses for both Highland Bancorp and Jackson are
adequate to cover such losses and will be adequate on a pro forma basis for the
combined entity. In addition, Sandler O'Neill has not conducted any physical
inspection of the properties or facilities of Highland Bancorp or Jackson. With
respect to all financial projections reviewed with Highland Bancorp's
management and used by Sandler O'Neill in its analyses, Sandler O'Neill assumed
that they reflected the best currently available estimates and judgments of the
management of the future financial performance of Highland Bancorp and that
such performances will be achieved. Sandler O'Neill expressed no opinion as to
such financial projections or the assumptions on which they were based.
Sandler O'Neill's opinion was necessarily based upon market, economic and
other conditions as they existed on, and could be evaluated as of, the date of
its opinion. Sandler O'Neill assumed, in all respects material to its analysis,
that all of the representations and warranties contained in the merger
agreement and all related agreements are true and correct, that each party to
such agreements will perform all of the covenants required to be performed by
such party under such agreements, that no adjustments will be required pursuant
to Section 8.9(e) of the Agreement and that the conditions precedent in the
merger agreement are not waived. Sandler O'Neill also assumed, with Highland
Bancorp's consent, that there has been no material change in Highland Bancorp's
and Jackson's assets, financial condition, results of operations, business or
prospects since the date of the last publicly filed financial statements
available to it, that Highland Bancorp and Jackson will remain as going
concerns for all periods relevant to its analyses, and that the merger will be
accounted for as a purchase transaction.
Highland Bancorp has agreed to pay Sandler O'Neill a transaction fee of
$795,706 in connection with the merger, of which $119,356 has been paid. The
balance of the fee is contingent, and will be paid, upon the closing of the
merger. Highland Bancorp has also paid Sandler O'Neill a fee of $125,000 for
rendering its fairness opinion, which will be credited against that portion of
the transaction fee due upon closing of the merger. Highland Bancorp has also
agreed to reimburse Sandler O'Neill for its reasonable out-of-pocket
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expenses incurred in connection with its engagement and to indemnify Sandler
O'Neill and its affiliates and their respective partners, directors, officers,
employees, agents, and controlling persons against certain expenses and
liabilities, including liabilities under securities laws.
Sandler O'Neill has in the past provided certain other investment banking
services to Highland Bancorp and has received compensation for such services.
In the ordinary course of its business as a broker-dealer, Sandler O'Neill may
also purchase securities from and sell securities to Highland Bancorp and
Jackson and may actively trade the equity or debt securities of Highland
Bancorp and Jackson and their respective affiliates for its own account and for
the accounts of customers and, accordingly, may at any time hold a long or
short position in such securities.
Description of Jackson's Business
Jackson is a federally chartered savings bank headquartered in San
Bernardino, California, with six banking offices in San Bernardino County,
California and one banking office in Orange County, California. Jackson offers
single and multi-family home loans, other types of consumer loans and
commercial real estate loans as well as a full range of deposit account
services, certificates of deposit and other retail investment products and
services. At March 31, 2000, Jackson had assets of $337,702,000, customer
deposits of $273,899,000, and stockholder equity of $36,244,000. Jackson is a
wholly owned subsidiary of Jackson National Life Insurance Company, Lansing,
Michigan, which is a wholly owned subsidiary of Prudential, plc, London,
England. Jackson National is one of the largest life insurance and financial
services organizations in the United States and is a leading provider of fixed,
indexed and variable annuities, as well as term and permanent life insurance.
At March 31, 2000 Jackson National had total consolidated assets of
$42,877,509,000 and stockholders' equity of $2,517,746,000. Prudential is one
of the largest life insurance companies in the United Kingdom and offers life
insurance, other retail financial products and services and fund management
services in Europe, the United States and Asia. Its shares are publicly traded
on the London Stock Exchange. At December 31, 1999, it had total consolidated
assets of (Pounds)150,643,000,000 ($243,439,088,000, based on an exchange rate
of $1.616 to (Pounds)1 at that date) and stockholders' equity of
(Pounds)3,424,000,000 ($5,533,184,001).
Description of Highland Bancorp's Business
Highland Bancorp is a corporation organized under the laws of the State of
Delaware on September 29, 1997.
Highland Federal is a federally chartered and insured savings bank, which
was organized in 1968 as a federal mutual savings and loan association and
converted in 1982 to a federal stock savings and loan association. In 1989,
Highland Federal changed its name from Highland Federal Savings and Loan
Association to its present name, Highland Federal Bank, a Federal Savings Bank.
Highland Federal provides financial services through seven offices located
in communities within Los Angeles County, California, including two offices in
the South Bay area and five offices spread out across the San Gabriel Valley,
Northern Los Angeles and Santa Monica. Highland Federal's lending activity
focuses on originating multi-family residential mortgage loans, commercial real
estate loans and construction loans principally in Southern California.
Highland Federal's lending and investment activities are funded primarily
through deposits derived from Highland Federal's branch network and through
borrowings from the Federal Home Loan Bank of San Francisco.
At December 31, 1999, Highland Bancorp had total consolidated assets of a
$654.8 million, total consolidated deposits of $413.6 million and total
consolidated stockholders' equity of $48.2 million. Highland Bancorp's
principal sources of funds have been and are expected to be dividends paid by
Highland Federal. Regulatory limitations are imposed on the amount of fees and
dividends that may be paid by Highland Federal to Highland Bancorp.
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Description of the Merger Agreement and the Merger
Structure, Timing and Effective Time
The merger will be accomplished by a statutory merger of Highland Bancorp
and Merger Sub, a wholly owned subsidiary of Jackson to be formed for the sole
purpose of completing the merger in accordance with the Delaware General
Corporate law, or the "DGCL". At the time the merger is effected, Merger Sub
will be merged into Highland Bancorp. The effective time of the merger will be
the date and time designated in the Certificate of Merger filed with the
Delaware Secretary of State.
In General
Under the terms of the merger agreement, upon consummation of the merger at
the effective time, holders of our common stock who do not exercise appraisal
rights will have the right to receive $25.45 cash per share, subject to
possible reduction as described below, or the "Merger Consideration".
Accordingly, after the merger, you will no longer have an ownership interest in
Highland Bancorp.
Under the terms of the merger agreement, in advance of the effective time,
all outstanding employee stock options to purchase our common stock, or
"Options", are to be cancelled in exchange for a payment by Highland Bancorp to
the option holder of the difference between the exercise price of the Option
and the Merger Consideration multiplied by the number of shares of common stock
covered by the Option.
Possible Adjustments to Price
In the event that the broker's and finder's fees and our legal fees incurred
in connection with the transaction, or "Professional Fees", are greater than
$1,200,000, the $25.45 per share cash merger price shall be reduced by an
amount equal to the quotient derived by dividing the amount that the
Professional Fees exceed $1,200,000 by an amount equal to the sum of shares of
common stock plus the number of shares of common stock subject to Options to be
cancelled. Sandler O'Neill's fee, based on the Merger Consideration of $25.45,
is approximately $800,000. Legal fees to date are approximately $150,000.
Accordingly, we do not anticipate that the Professional Fees will exceed $1.2
million. However, if the Professional Fees did exceed $1,200,000, approximately
every $47,000 of additional Professional Fees would reduce the Merger
Consideration by $.01 per share.
How to Surrender Your Shares and Receive Purchase Price
Prior to the merger, Jackson will designate a bank, trust company or other
entity engaged in the business of acting as a securities transfer agent and
reasonably acceptable to Highland Bancorp to act as exchange agent. Jackson
will, at or prior to the effective time of the merger, deposit in trust with
the exchange agent cash sufficient to pay the Merger Consideration. Promptly
after the effective time, the exchange agent will mail a letter of transmittal
to each record holder of certificates that immediately prior to the effective
time represented shares of Highland Bancorp common stock with instructions to
be used in surrendering their certificates. After the effective time,
certificates that represented shares of the common stock will represent only
the right to receive the Merger Consideration unless appraisal rights have been
exercised with respect to such shares.
YOU SHOULD NOT SURRENDER YOUR CERTIFICATES AT THIS TIME. THE EXCHANGE AGENT
WILL CONTACT YOU AFTER CONSUMMATION OF THE MERGER AND GIVE SPECIFIC WRITTEN
INSTRUCTIONS FOR SURRENDERING YOUR CERTIFICATES AT THAT TIME.
Representations and Warranties
We have made representations and warranties in the merger agreement about
the organization, corporate authority, financial condition and conduct of
business of Highland Bancorp and its subsidiaries and other customary matters.
Jackson has also made representations and warranties under the merger agreement
regarding its organization and corporate authority and that it has available
the funds necessary to consummate the merger.
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Covenants of the Parties
Under the merger agreement, the parties have agreed to take certain actions
and to refrain from taking certain other actions except as contemplated by the
merger agreement.
Between the date of the merger agreement and the effective time, we have,
among other things, agreed to and agreed to cause our subsidiaries to:
. conduct business only in the ordinary course consistent with past
practice;
. not make any changes in our capital stock or issue any securities (other
than with respect to outstanding options as provided in the merger
agreement);
. not declare any cash dividends except dividends out of earnings for the
quarter that are consistent with past practice and do not exceed $0.075
per share per quarter;
. with certain exceptions, not enter into, amend or terminate any material
contracts;
. with certain exceptions, incur no new indebtedness for borrowed money;
. deliver financial statements to Jackson and provide Jackson access to our
books and records;
. adopt, amend or terminate any employee benefit plan; or
. except for certain agreed retention and other bonuses, increase
compensation or pay bonuses to any employees who have titles of Vice
President or above.
Further, we have agreed to:
. cooperate in the preparation and filing of all applications necessary to
obtain all required regulatory approvals necessary to consummate the
merger and other transactions contemplated by the merger agreement;
. file a proxy statement with the Securities and Exchange Commission and
call a meeting of stockholders to vote upon approval of the merger
agreement and the merger;
. take all appropriate actions necessary and advisable to consummate the
transactions contemplated by the merger agreement; and
. consult with Jackson with respect to any press or news releases with
respect to the transactions contemplated by the merger agreement.
Jackson has agreed to, and has agreed to cause its affiliates to:
. cooperate in the preparation and filing of all applications necessary to
obtain all required regulatory approvals necessary to consummate the
merger and other transaction evidenced by the merger agreement;
. cause the organization of Merger Sub and take, and cause Merger Sub to
take, all reasonable actions necessary to consummate the merger;
. take all appropriate actions necessary and advisable to consummate the
transactions contemplated by the merger agreement; and
. consult with us with respect to any press or news releases with respect
to the transactions contemplated by the merger agreement.
No Solicitation
We have agreed to refrain from initiating, soliciting, endorsing or
encouraging any inquiries or proposals with respect to a merger or another
business combination or the acquisition of a substantial equity interest in
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Highland Bancorp or Highland Federal or a substantial portion of our assets on
a consolidated basis. If we receive any such inquiries or proposals we must
promptly notify Jackson and furnish Jackson with copies of any written
proposals received and a summary of the material terms of any oral acquisition
proposals received. However, the Board is not prevented under the merger
agreement from taking any action with respect to an acquisition proposal if the
Board concludes in good faith after consultation with its outside legal counsel
that such action is necessary for it to act in a manner consistent with its
fiduciary duties under applicable law, but Highland Bancorp would be required
to pay a $4 million termination fee to terminate the merger agreement. See
"Termination and Termination Fees," page 24.
Conditions to the Merger
The obligations of each party to consummate the merger are subject to the
following conditions:
. no legal or administrative proceedings shall be pending to challenge the
regulatory approvals or to restrain or prohibit the merger;
. all required regulatory approvals shall have been obtained; and
. you shall have approved the merger agreement and the merger.
The obligations of Jackson to consummate the merger are subject to certain
additional conditions, including the following:
. our representations and warranties shall be true and correct within the
standard provided in Section 3.30 of the merger agreement; We shall have
performed each of its covenants and agreements except as provided in the
merger agreement, and Jackson shall have received a certificate from our
Chief Executive Officer to such effect;
. we shall have received the consents or approval of those parties whose
consent are required in order to permit the succession of Jackson or a
subsidiary Jackson owns after the merger to material agreements, notes,
licenses and leases except as provided in the merger agreement;
. Jackson shall have received the legal opinion of Manatt, Phelps &
Phillips, LLP with respect to specified legal matters;
. each of our directors and directors of our subsidiaries shall have
resigned;
. holders of no more than 5% of the outstanding shares of common stock
shall have given notice requesting treatment of their shares as
dissenting stock;
. we shall have delivered customary "good standing" and tax certificates
required by the merger agreement; and
. each of Garry Warren, Gary Terrazas and Jeff Gollins, officers of
Highland Federal, shall have entered into employment agreements with
Jackson.
Our obligation to consummate the merger is also subject to certain
additional conditions, including the following:
. the representations and warranties of Jackson shall be true and correct
within the standard provided in Section 4.7 of the merger agreement;
Jackson shall have performed, in all material respects, each of its
covenants and agreements except as provided in the merger agreement; and
we shall have received a certificate signed by the Chief Executive
Officer of Jackson as to such effect; and
. the exchange agent shall have confirmed that funds sufficient to pay the
merger consideration as required by the merger agreement have been
delivered to the exchange agent.
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Employee Benefits
Except for several officers who have already executed employment agreements
with Jackson that go into effect upon the effective time of the merger, Jackson
is not obligated to offer employment after the merger to any persons who are
expected to be officers and employees of Highland Bancorp immediately before
the effective time. Jackson will honor the existing severance and change in
control provisions in the employment contracts of certain of our executive
officers. In addition, Jackson will honor the retention bonuses and severance
packages offered by Highland Bancorp to its employees.
Our employees who are offered and accept employment with Jackson will be
eligible to participate in Jackson's employee benefit plans in which similarly
situated employees of Jackson participate, and generally to the same extent as
similarly situated employees of Jackson.
Termination and Termination Fees
The merger agreement may be terminated:
. by the mutual consent of the parties;
. by either party one day after the failure of our stockholders to approve
the merger by the majority required by law;
. by either party with written notice after the expiration of 30 days after
any approval, consent or waiver of a governmental authority required to
permit consummation of the merger shall have been denied unless Jackson
elects to appeal such denial or refusal as provided in the merger
agreement;
. by either party, immediately upon the expiration of 30 days from the date
that it has given notice to the other party of the other party's material
misrepresentation in respect of, or material breach of, any warranty,
representation or agreement in the merger agreement, unless such
misrepresentation or breach has been fully and completely corrected or
cured prior to the expiration of such 30-day period; provided that any
such breach or failure would entitle the party giving notice not to
consummate the merger;
. by either party, in the event that the merger is not consummated by
January 5, 2001, unless failure to consummate the merger by such time is
due to the breach of any representation, warranty or covenant contained
in the merger agreement by the party seeking to terminate;
. by Jackson if the Board of Directors shall have failed to recommend
adoption of the merger agreement and approval of the merger to you or
withdraws, modifies or changes in any manner adverse to Jackson, its
recommendation to you to approve the merger;
. by us if we are presented with and notify Jackson of any fully financed
competing acquisition proposal made in cash by a financially sound party;
we provide an opportunity to Jackson for at least 5 business days to
increase the merger consideration and elects to pay the $4 million fee
and terminate the merger agreement in the event that Jackson chooses not
to increase the merger consideration.
As an inducement to entering into the merger agreement, Jackson required our
agreement that Jackson may request and we must pay within one day of such
request, a fee of $4 million to Jackson in immediately available funds as
follows:
. in the event that the Board fails to recommend the adoption of the merger
agreement and the approval of the merger,
. we are in material and willful breach of any covenants to such an extent
as would authorize Jackson to terminate the merger agreement, or
. our stockholders do not adopt the merger agreement and approve the
merger. In each of the above cases after a third party has made an
acquisition proposal.
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Expenses
Each party to the merger agreement will bear all expenses incurred by it in
connection with the merger agreement and the transactions contemplated thereby.
Regulatory Matters and Amendments
The merger cannot be consummated until the parties have received all
required regulatory approvals or consents of the OTS. After the closing,
Jackson must notify the California Department of Insurance of the change of
control of Hi-Fed Investments, a subsidiary of the Highland Federal holding an
insurance broker's license. This proxy statement has been prepared and proxies
may be solicited from Highland Bancorp's stockholders prior to the receipt of
these approvals. There can be no assurance whether or when such approvals may
be obtained.
Indemnification of Officers and Directors
Jackson will indemnify directors, officers, and employees of Highland
Bancorp and its subsidiaries to the extent Highland Bancorp would be permitted
to do so under its certificate of incorporation or bylaws in effect on the date
of the merger agreement against any covered losses, claims, damages,
liabilities, costs, expenses (including attorneys' fees), judgments, fines and
settlements in connection with any such threatened or actual claim, to the
fullest extent permitted by law upon receipt of any undertaking required by
applicable law. Jackson shall not be liable for any settlement effected without
its prior written consent. Jackson has also agreed to use all reasonable
efforts to provide directors and officers liability insurance covering each
person who was a director or officer of Highland Bancorp or any subsidiary
prior to the effective time for a period of three years after the effective
time, with terms and coverages not materially less favorable to such persons
than those provided under Highland Bancorp's existing coverage. Jackson is not
required to pay annual premiums for such issuance in excess of 125% of the
annual premiums now paid by Highland Bancorp.
Stock Options
We are required to take such actions as are necessary to provide that as of
the effective time, all outstanding Options under the Highland Bancorp Stock
Option Plan will be cancelled. Each holder of an Option will receive payment in
an amount equal to the number of shares subject to such Option multiplied by
the difference between the Merger Consideration and the exercise price per
share for each of the Options.
We presently have outstanding Options to purchase 475,730 shares of common
stock. The merger agreement prohibits us from granting additional stock options
prior to the effective time. Accordingly, the amount of payments to be made to
the holders of the outstanding Options as a result of the merger would be
approximately $5,513,710 if none of the outstanding Options were exercised
prior to the effective time.
Interests of Certain Persons in the Merger
Our directors and executive officers who own common stock and options will
receive the same price per share and the same payment for cancelled options as
all other stockholders and option holders.
The directors and executive officers have beneficial ownership of
approximately 567,375 shares of common stock (including shares issuable upon
exercise of stock options) and will receive approximately $14,439,673.45 for
those shares in the merger.
Under the terms of a change of control agreement entered into with Mr.
Rippe, President, upon a change in control (as defined in the agreement) such
as the merger, Mr. Rippe would be entitled to receive a lump sum payment of
$700,000. Likewise, Ellen Geiger, Chief Operating Officer of Highland Federal,
Kelly Andrews,
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our Secretary and Treasurer and Stephen Cooper, our Controller, have similar
change of control agreements, under which they would be entitled to receive
lump sum payments of $240,000, $135,000 and $47,500, respectively.
Jackson will employ each of Garry Warren (President and Chief Lending
Officer of Highland Federal), Gary Terrazas (Senior Vice President and Chief
Credit Officer of Highland Federal) and Jeff Gollins (Senior Vice President and
Manager of Loan Servicing of Highland Federal) after the merger.
Mr. Warren will receive a pay raise from $185,000 per year to $210,000 per
year. He is eligible for a yearly bonus of 50% of his salary and he will
receive a $500,000 bonus at the end of three years of employment with Jackson.
When the merger closes, he will also receive an additional $100,000 from
Highland Federal.
Mr. Terrazas will receive a retention bonus of $125,000 payable over three
years in lieu of a lump sum payment of $125,000 under his employment agreement.
His salary will remain $125,000, and he is eligible for the same bonus he would
have received from Highland Federal.
Mr. Gollins will receive a retention bonus of $121,000 payable over three
years in lieu of a lump sum payment of $121,000 under his employment agreement.
His salary will remain $121,000, and he is eligible for the same bonus he would
have received from Highland Federal.
Material Federal Income Tax Consequences
Introduction
The following is a general discussion of the material federal income tax
consequences arising you under the pertinent provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), the applicable treasury regulations
promulgated and proposed thereunder, judicial authority, and current
administrative rulings and practice. This summary does not discuss the tax
consequences that may be applicable to stockholders that acquired their shares
in Highland Bancorp through the exercise of employee stock options or through
any other means that could be deemed compensation for services.
Matters not discussed below may affect the federal income tax consequences
to you. For example, certain types of stockholders (including citizens of
countries other than the United States of America, life insurance companies,
and tax exempt organizations) may be subject to special rules not addressed
below. There also may be state, local or foreign tax considerations applicable
to you.
The discussion set forth below is based upon the assumption that:
. the shares of the common stock owned by a stockholder constitute capital
assets in the hands of that stockholder, and
. the collapsible corporation rules set forth in Section 341 of the Code do
not apply to Highland Bancorp.
THE DISCUSSION SET FORTH BELOW IS INCLUDED FOR GENERAL INFORMATION ONLY. YOU
ARE URGED TO CONSULT YOUR OWN TAX ADVISOR AS TO THE MATTERS DISCUSSED HEREIN
AND ANY ADDITIONAL FEDERAL, STATE, LOCAL OR FOREIGN TAX CONSEQUENCES THAT COULD
RESULT FROM THE MERGER.
General
The conversion of the shares of Highland Bancorp common stock into cash
pursuant to the merger will generally be a taxable event to Highland Bancorp's
stockholders for federal income tax purposes. As a consequence, all the gain or
loss realized by a stockholder (measured by the difference between your
adjusted tax basis in the shares and the cash received as a result of the
merger) will be recognized in full in the taxable year of the stockholder in
which the effective time occurs.
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Generally, the gain or loss realized by a stockholder will be capital gain
or loss if the shares of the common stock are capital assets in the hands of
the stockholder at the effective date. Short-term capital gains are currently
taxed at the same rates as ordinary income. Any capital gain or loss realized
by you from the merger will be long-term capital gain or loss provided you held
the shares as of the effective date for more than 12 months. Long-term capital
gains for shares held longer than 12 months are currently taxable at a maximum
federal income tax rate of 20% for individuals.
Limitation on Deductibility of Capital Losses
The federal tax law significantly limits the deductibility of capital
losses. For corporate taxpayers, capital losses can be deducted only to the
extent of capital gains. For individual taxpayers, capital losses are similarly
deductible up to the extent of capital gains, but may further be deductible up
to a maximum of $3,000 in any one taxable year. Carryovers of unused capital
losses to other taxable years may be permitted.
Tax Treatment of Dissenting Stockholders
Any stockholder of Highland Bancorp who effectively dissents and receives
cash for his or her shares will recognize a gain or loss for federal income tax
purposes equal to the amount by which the cash received for those shares
exceeds or is less than the stockholder's adjusted tax basis for the shares.
The amount of gain or loss, if any, will be treated as ordinary income or loss,
or long or short-term capital gain or loss, depending, on the length of time
the shares were held by the stockholder and on whether the shares are held as a
capital asset by the stockholder.
Appraisal Rights
If the merger is consummated, a holder of record of shares of common stock
who objects to the terms of the merger may seek an appraisal under Delaware law
of the fair value of such holder's shares. The following is a summary of the
material provisions of Delaware law regarding appraisal rights. A copy of the
pertinent provisions of Delaware law is attached to this proxy statement as
Annex C. If you fail to take any action required by Delaware law, your rights
to an appraisal will be waived or terminated.
Electing Appraisal Rights
To exercise appraisal rights, the record holder of common stock must
. deliver a written demand for appraisal to Highland Bancorp before
Highland Bancorp stockholders vote on the merger;
. continuously hold shares from the date of demand through the effective
date of the merger; and
. not vote in favor of the merger.
A proxy or vote against the merger does not constitute a demand to exercise
appraisal rights. A stockholder demanding appraisal rights must do so by a
separate written demand. This demand must reasonably inform Highland Bancorp of
the identity of the holder of record and that the stockholder demands appraisal
of his or her shares of common stock.
If you deliver a proxy that has been left blank, the proxy will be voted FOR
the merger, unless the proxy is revoked before the vote is taken. Therefore, if
you intend to exercise your appraisal rights and you vote by proxy, you must
not leave the proxy blank. You should either vote AGAINST the merger or ABSTAIN
from voting for or against the merger.
The demand must be delivered to Highland Bancorp, Inc., 601 Glenoaks
Boulevard, Suite 200, Burbank, California 91502, Attention: Kelly Andrews.
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Only Record Holders May Demand Appraisal Rights
Only the record holder of common stock is entitled to demand appraisal
rights. The demand must be executed by or for the record holder, fully and
correctly, as the holder's name appears on the holder's stock certificates.
. If common stock is owned of record in a fiduciary capacity, such as by a
trustee, guardian or custodian, the demand should be executed in that
capacity.
. If common stock is owned of record by more than one person, as in a joint
tenancy or tenancy in common, the demand should be executed by or for all
owners.
. An authorized agent, including one of two or more joint owners, may
execute the demand for appraisal for a holder of record. The agent must
identify the owner or owners of record and expressly disclose the fact
that, in executing the demand, the agent is acting as agent for the owner
or owners of record.
. A holder of record, such as a broker, who holds common stock as nominee
for beneficial owners, may exercise a holder's right of appraisal with
respect to common stock held for all or less than all of such beneficial
owners. In that case, the written demand should set forth the number of
shares of common stock covered by the demand. Where no number of shares
of common stock is expressly mentioned, the demand will be presumed to
cover all shares of common stock standing in the name of the record
holder.
Notification of Merger's Effectiveness
Within ten days after the effective time, the surviving corporation in the
merger will send notice of the effectiveness of the merger to each person who
has satisfied the foregoing conditions.
Court Petition Must Be Filed
Within 120 days after the effective time any former Highland Bancorp
stockholder who has satisfied the foregoing conditions regarding appraisal
rights may file a petition in the Delaware Court of Chancery demanding a
determination of the fair value of such stockholder's common stock.
Stockholders seeking to exercise appraisal rights should initiate all necessary
action to perfect their appraisal rights within the time periods prescribed by
Delaware law. Highland Bancorp, as the surviving corporation, must also be
served with a copy of the petition.
Notification Regarding Shares Not Voted For Merger
Within 120 days after the effective time any stockholder who has complied
with the requirements for exercise of appraisal rights is entitled, upon
written request, to receive a statement setting forth the aggregate number of
shares of common stock not voted in favor of the merger and with respect to
which demands for appraisal have been made and the aggregate number of holders
of such stock. The continuing corporation in the merger is required to mail
this statement within ten days after (1) it receives the written request or
(2) expiration of the period for delivery of demands, whichever is later.
Appraisal Proceeding by Delaware Court
If a petition for an appraisal is timely filed, after a hearing on the
petition, the Delaware Court of Chancery will determine the stockholders
entitled to appraisal rights. The court will appraise the common stock owned by
the stockholders and determine its fair value. In determining fair value, the
court will exclude any element of value arising from the accomplishment or
expectation of the merger. The court will also determine the amount of
interest, if any, to be paid upon the value of the common stock to the
stockholders entitled to appraisal.
Any such judicial determination of the fair value of common stock could be
based upon considerations other than or in addition to the price paid in the
merger and the market value of common stock, including asset
28
<PAGE>
values, the investment value of the common stock, and any other valuation
considerations generally accepted in the investment community. The value
determined by the court for common stock could be more than, less than, or the
same as the merger consideration. The court may also order that all or a
portion of any stockholder's expenses incurred in connection with an appraisal
proceeding, including reasonable attorneys' fees and fees and expenses of
experts utilized in the appraisal proceeding, be charged against the value of
all common stock entitled to appraisal.
Effect of Appraisal Demand on Voting and Right to Dividends
Any stockholder who has duly demanded an appraisal in compliance with
Delaware law will not, after the effective time, be entitled to vote the shares
subject to the demand for any purpose. The shares subject to the demand will
not be entitled to dividends or other distributions, other than those payable
or deemed to be payable to stockholders of record as of a date prior to the
effective time.
Loss, Waiver, or Withdrawal of Appraisal Rights
Holders of common stock lose the right to appraisal if no petition for
appraisal is filed within 120 days after the effective time. A stockholder will
also lose the right to an appraisal by delivering to Highland Bancorp a written
withdrawal of such stockholder's demand for an appraisal and an acceptance of
the merger. In addition, any attempt to withdraw that is made more than 60 days
after the effective time requires the written approval of Highland Bancorp as
the surviving corporation. If appraisal rights are not perfected or a demand
for appraisal rights is withdrawn, a stockholder will be entitled to receive
the consideration otherwise payable pursuant to the merger.
Dismissal of Appraisal Proceeding
If an appraisal proceeding is timely instituted, such proceeding may not be
dismissed as to any stockholder who has perfected a right of appraisal without
the approval of the court.
Transactions between the Parties
There are no past, present or proposed material contracts, arrangements,
understandings, relationships, negotiations or transactions during the period
for which financial statements are presented in this proxy statement between
Jackson and Highland Bancorp, other than confidentiality agreements, and the
merger agreement described herein.
29
<PAGE>
PROPOSAL 2:
ELECTION OF DIRECTORS
Our bylaws provide that the number of directors of Highland Bancorp shall be
fixed from time to time by resolution of the Board of Directors, but shall not
be less than six (6) nor more than fifteen (15), divided into three classes as
nearly equal in number as possible. The Board of Directors currently consists
of six members, and is divided into three classes designated as Class I
(consisting of one member), Class II (consisting of three members) and Class
III (consisting of two members). The members of Class II, whose term of office
expires at the meeting are, Woodrow W. DeWitt, Richard O. Oxford and Shirley E.
Simmons. The members of Class III, whose term of office expires in 2001, are
Richard J. Cross and William G. Dyess. The member of Class I, whose term of
office expires in 2002, is Stephen N. Rippe. Each director's term of office
expires at the Annual Meeting of Stockholders in the year in which his or her
term expires and when his or her successor is elected and has qualified. Each
of the members of the Board of Directors of Highland Bancorp is also a member
of the Board of Directors of Highland Federal.
Because of the recent death of George Piercy, a Class I director, the
classes of directors are not equal, as our bylaws require. If all Class II
directors are elected at the meeting, Mr. Oxford has agreed to become a Class I
director and his term of office will expire at the annual meeting in 2002.
Nominees for Election
Our bylaws provide that the Board of Directors shall act as a nominating
committee for selecting management's nominees for election as directors. The
bylaws also provide that, if the Board of Directors makes such nominations, no
nominations for directors except those made by the Board of Directors shall be
voted upon at the annual meeting unless made in accordance with the following.
Nominations for directors may be made by any stockholder of Highland Bancorp
entitled to vote for the election of directors at that meeting pursuant to
timely notice in writing to the secretary of Highland Bancorp. To be timely, a
stockholder's notice shall be delivered to or received at our principal
executive offices of not less than twenty (20) days prior to the meeting;
provided, however, that in the event that less than thirty (30) days' notice of
the date of the meeting is given to stockholders, notice by the stockholder to
be timely must be so received not later than the close of business on the tenth
(10th) day following the day on which such notice of the date of the meeting
was mailed. Such stockholder's notice shall set forth: (i) as to each person
whom the stockholder proposes to nominate for election or reelection as a
director: (a) the name, age, business address and residence address of such
person; (b) the principal occupation or employment of such person; and (c) such
person's written consent to serving as a director, if elected; and (ii) as to
the stockholder giving the notice: (a) the name and address of such
stockholder; and (b) the class and number of shares of Highland Bancorp which
are owned of record by such stockholder.
The nominees of the Board of Directors for election as directors at the
meeting are Woodrow W. DeWitt, Richard O. Oxford and Shirley E. Simmons. Unless
otherwise indicated on a proxy, each proxy will be voted for the election of
such individuals to serve until the annual meeting of stockholders to be held
in 2003 and until their successors are elected and have qualified. Each of the
nominees is an incumbent director and has consented to being named as a nominee
for election of directors in this Proxy Statement and to serving as a director
if elected.
Although the Board of Directors does not know of any reason why any nominee
will be unavailable for election, in the event any nominee should be
unavailable at the time of the meeting, the proxies may be voted for a
substitute nominee selected by the Board of Directors.
30
<PAGE>
The following sets forth, as of June 9, 2000, certain information concerning
each of the individuals nominated for election as a director (Class II) at the
meeting:
<TABLE>
<CAPTION>
Position with Highland Principal Occupation and
Name and Age Bancorp Business Experience
------------ ---------------------- ------------------------
<C> <C> <S>
Woodrow W. DeWitt(84)... Director Director of Highland Bancorp
since 1997. Director of
Highland Federal since 1968.
Chairman of the Board of
Highland Federal from 1975
to 1976. Chairman of the
Board of DeWitt companies
since 1955.
Richard O. Oxford(62)... Director Director of Highland Bancorp
since 1997. Director of
Highland Federal since 1991.
President and Chief
Executive Officer of Dial
Industries, Inc. (a
manufacturer of housewares)
since 1978. Associate,
McKinsey & Co.
(international management
consulting firm) from 1965
to 1968.
Shirley E. Simmons(65).. Vice Chairman of the Director of Highland Bancorp
Board of Directors since 1997. Vice Chairman of
the Board of Directors of
Highland Federal since 1995
and a Director of Highland
Federal since 1991. Retired
since 1991. Various
executive positions with
Security Pacific National
Bank from 1958 to 1991, most
recently as Regional Vice
President (1988 to 1991).
</TABLE>
The following sets forth, as of June 9, 2000, certain information concerning
each of Highland Bancorp's Class III directors:
<TABLE>
<CAPTION>
Position with Highland Principal Occupation and
Name and Age Bancorp Business Experience
------------ ---------------------- ------------------------
<C> <C> <S>
Richard J. Cross(71).... Chairman of the Board of Chairman of the Board of
Directors Directors of Highland
Bancorp since 1997. Chairman
of the Board of Directors of
Highland Federal since 1993.
Vice Chairman of the Board
of Directors of Highland
Federal from 1992 to 1993
and a Director of Highland
Federal since 1990. Managing
Partner of Cross Investment
Company (an investment and
consulting company) since
1971 and Professor of
Management and Finance at
Woodbury University since
1985. Twenty-seven years'
commercial banking
experience, including
various executive positions
with Lloyds Bank from 1962
to 1981, most recently as
Executive Vice President.
William G. Dyess(74).... Director Director of Highland Bancorp
since 1997. Director of
Highland Federal since 1968.
An independent real estate
appraiser since 1955.
</TABLE>
31
<PAGE>
The following sets forth, as of June 9, 2000, certain information concerning
each of Highland Bancorp's Class I director:
<TABLE>
<CAPTION>
Position with Highland
Bancorp and Highland Principal Occupation and
Name and Age Federal Business Experience
------------ ---------------------- ------------------------
<C> <C> <S>
Stephen N. Rippe(54).... President, Chief Director of Highland Bancorp
Executive Officer and since 1997. President of
Director of Highland Highland Federal since April
Bancorp. 1994 and Executive Vice
President from February to
April 1994. Director of
Highland Federal since
February 1994. Chief
Operating Officer of
Imperial Thrift and Loan
Association from 1991 to
1994. Various executive
positions with Security
Pacific National Bank from
1971 to 1989, including
President of Security
Pacific Bank Nevada from
1987 to 1989 and Regional
Manager for business banking
from 1984 to 1987.
</TABLE>
The following sets forth, as of June 9, 2000, certain information concerning
each of Highland Bancorp's and Highland Federal's executive officers, other
than Mr. Rippe.
<TABLE>
<CAPTION>
Position with Highland
Bancorp and Highland Principal Occupation and
Name and Age Federal Business Experience
------------ ---------------------- ------------------------
<C> <C> <S>
Ellen B. Geiger(47)..... Executive Vice Chief Operating Officer
President, Chief since December 1999.
Operating Officer, and Executive Vice President and
Branch Administrator of Branch Administrator of
Highland Federal Highland Federal since
January 1997. Senior Vice
President and Branch
Administrator of Highland
Federal from July 1995 to
January 1997. Founder and
President of Geiger/Kochakji
& Associates (banking
industry consultants) from
1991 to 1995. Various
executive positions with
Security Pacific National
Bank from 1979 to 1991, most
recently as Senior Vice
President and Branch
Administrator.
Garry P. Warren(49)..... President and Chief President since December
Lending Officer of 1999. Executive Vice
Highland Federal. President and Chief Lending
Officer of Highland Federal
since January 1997. Senior
Vice President and Chief
Lending Officer of Highland
Federal from May 1994 to
January 1997. Southern
California Regional Manager
of Imperial Thrift and Loan
Association from 1993 to
1994. Vice President of
Pacific First Mortgage from
1990 to 1992. Senior
Director of Grubb and Ellis,
Mortgage Banking Division,
from 1987 to 1990. Senior
Vice President of American
Savings from 1983 to 1987.
Vice President and Manager
for Citicorp from 1981 to
1983.
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
Position with Highland
Bancorp and Highland Principal Occupation and
Name and Age Federal Business Experience
------------ ---------------------- ------------------------
<C> <C> <S>
Kelly A. Andrews(52).... Senior Vice President, Senior Vice President,
Treasurer (Principal Treasurer (Principal
Financial Officer) and Financial Officer) and
Secretary of Highland Secretary of Highland
Bancorp and Treasurer of Bancorp since July of 1999.
Highland Federal. Treasurer of Highland
Federal since 1987. Chief
Financial Officer of
Highland Federal from 1985
to 1996.
Stephen D. Cooper(49)... Senior Vice President, Senior Vice President,
Controller (Principal Controller (Principal
Accounting Officer) of Accounting Officer) of
Highland Bancorp and Highland Bancorp since
Controller and Secretary December 1999. Secretary of
of Highland Federal. Highland Federal since
December 1999. Vice
President and Controller of
Highland Federal since May
1998. Assistant Controller
at People's Bank of
California from February
through May 1998. Executive
recruiter in 1997. Various
financial positions, ending
as Vice President and
Treasurer, for Imperial
Thrift and Loan Association,
from April 1990 through
January 1997. Vice President
and Controller with
Brookside Savings and Loan
from 1987 to 1990.
</TABLE>
Committees of the Board of Directors
The Board of Directors has established, in addition to certain other
committees, an Audit Committee and a Personnel/Compensation Committee.
The Audit Committee, currently comprised of Ms. Simmons (chairman of the
Committee) and the four other directors who are not employees of Highland
Bancorp, reviews the examinations of Highland Federal conducted by the Office
of Thrift Supervision, meets with Highland Bancorp's independent auditors to
receive their evaluation of the condition of Highland Bancorp and the adequacy
of its internal controls and procedures, reviews the annual audit of Highland
Bancorp, considers the adequacy of auditing procedures, recommends appointment
of Highland Bancorp's independent auditors and reviews proposed and actual fees
for both audit and non-audit accounting services. This committee also reviews
reimbursement of expenses incurred by officers. The Audit Committee held five
meetings in 1999.
The Personnel/Compensation Committee, currently comprised of Mr. Oxford
(chairman of the Committee), Mr. Cross and Ms. Simmons, reviews recommendations
from management concerning the policies governing the setting of salaries and
bonuses of all employees, sets the compensation of the executive officers, is
responsible for the administration of Highland Bancorp's Stock Option Plan,
makes all awards of options and shares pursuant to the stock option plan, and
has responsibility for designing and submitting to the Board policies and plans
with respect to long-term and incentive compensation programs. The Personnel/
Compensation Committee held one meeting in 1999.
Meetings of Directors
During 1999, the Board of Directors of Highland Bancorp held 13 meetings and
the Board of Directors of Highland Federal held 13 meetings. Each director
attended at least 75% of the total number of meetings of the Board of Directors
of Highland Bancorp and Highland Federal and the committees of which he or she
was a member.
33
<PAGE>
Compensation of Directors
During 1999, each director of Highland Federal, other than directors who
were also employees of Highland Federal, was paid directors' fees of $2,000 per
month and $175 for each committee meeting attended. Mr. Cross (Chairman of the
Board) received additional fees of $417 per month as compensation for that
position. Ms. Simmons (Chairman of the Audit Committee) received additional
fees of $208 per month as compensation for that position. Pursuant to this
arrangement, Highland Federal paid $172,175 in aggregate compensation to
directors during 1999. Each director of Highland Federal who has reached the
age of 72 and has served as a director for at least 18 years or was a director
on August 19, 1985, or who becomes unable to continue to serve as a director
for reasons of ill health, may be designated a "emeritus director" by the Board
of Directors.
Each non-employee director is also eligible to participate in the Option
Plan. During 1999, each of the non-employee directors was granted non-qualified
options to acquire 8,000 shares of common stock at an exercise price of $17.81
per share.
Prior to July 1992, each of Messrs. DeWitt and Dyess and George Piercy (a
former member of the Board) had retirement agreements with Highland Federal
that provided for certain retirement benefits in the event of the retirement or
death of such director, payable in annual installments over 15 years. Such
benefits would have been not less than $6,400 annually in the event of
retirement or death occurring after June 19, 1992 and not more than $9,600
annually in the event of retirement or death occurring after June 19, 1996.
Effective July 1992, each of Messrs. DeWitt, Dyess and Piercy elected to
receive, commencing in 1992 and in lieu of such retirement benefits, 15 annual
payments of $6,400. Pursuant to this arrangement, Highland Federal paid $19,200
in aggregate compensation to such directors during 1999.
THE BOARD OF DIRECTORS HAS APPROVED THE ELECTION OF THE NOMINEES NAMED ABOVE
AND RECOMMENDS THAT YOU VOTE FOR EACH OF THEM AS A DIRECTOR OF HIGHLAND
BANCORP.
34
<PAGE>
EXECUTIVE COMPENSATION
Set forth below is certain information concerning the compensation of
Stephen N. Rippe, Chief Executive Officer of Highland Bancorp and Highland
Federal, Garry P. Warren, President and Chief Lending Officer of Highland
Federal, Ellen B. Geiger, Chief Operating Officer, Executive Vice President and
Branch Administrator of Highland Federal and Anthony Frey, former Chief
Financial Officer of Highland, for each of the last three fiscal years or such
lesser period that such individual has been employed by Highland Federal. No
other executive officer of Highland Federal received salary and bonus at a rate
in excess of $100,000 during 1999. Executive officers of Highland Bancorp
currently receive no compensation in their capacities as executive officers of
Highland Bancorp but are compensated as employees of Highland Federal.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
----------------------------------- --------------------------------
Other Annual Performance
Name and Principal Compensation Stock Options All Other
Position Year Salary Bonus (1) Awards(2) (#)(3) Compensation
------------------ ---- -------- -------- ------------ ----------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Stephen N. Rippe....... 1999 $267,616 $111,338 -0- $ 20,000 $13,622(4)
President and Chief 1998 235,050 89,730 -0- -- 13,345(4)
Executive Officer 1997 215,185 66,500 -0- 106,250 90,000 12,632(4)
Garry P. Warren........ 1999 177,192 66,298 20,102 16,000 10,615(5)
Executive Vice
President, 1998 152,988 90,683 -0- -- 10,826(5)
and Chief Lending
Officer 1997 146,243 39,750 -0- 90,313 34,000 11,109(5)
Ellen B. Geiger........ 1999 141,816 50,678 49,612 12,000 11,430(6)
Executive Vice
President, 1998 118,925 40,069 -0- -- 8,753(6)
and Branch
Administrator 1997 113,839 31,500 -0- 63,750 22,000 10,774(6)
Anthony Frey........... 1999 78,905 61,353 141,959 -- -0-(7)
Chief Financial
Officer(8) 1998 142,680 48,155 -0- -- 12,080(7)
1997 137,531 26,000 -0- 58,437 13,000 7,726(7)
</TABLE>
--------
(1) Amounts reported in 1999 consist of a tax-off set cash bonus in connection
with a program to exchange incentive stock options for non-qualified stock
options.
(2) Pursuant to the stock option plan, Messrs. Rippe and Warren and Ms. Geiger
were granted 10,000, 8,500 and 6,000 shares, respectively, in fiscal 1997,
which had a market value at December 31, 1999 of $190,000, $161,500 and
$114,000, respectively. The dollar amounts set forth in the table represent
the market value of the shares on the date of issuance.
(3) Consists of the number of shares of stock underlying stock options granted
during the periods indicated, adjusted for two-for-one stock split effected
in May 1999.
(4) Consists of $5,000, $5,000, and $4,750 contributions to Highland Federal's
401(k) Plan, $1,028, $1,268, and $1,318 in imputed life insurance payments
and $4,385, $3,868, and $3,355 for personal use of a bank automobile and
$3,209, $3,209, and $3,209 in lieu of disability insurance coverage in
1999, 1998, and 1997, respectively.
(5) Consists of $5,000, $5,000, and $4,750 contributions to Highland Federal's
401(k) Plan, $515, $953, and $1,146 in imputed life insurance payments and
$2,578, $2,351, and $2,691 for personal use of a bank automobile and
$2,522, $2,522, and $2,522 in lieu of disability insurance coverage in
1999, 1998, and 1997, respectively.
(6) Consists of $5,000, $3,098 and $4,596 contributions to Highland Federal's
401(k) Plan, $445, $930, and $796 in imputed life insurance payments and
$2,522, $1,262, and $1,919 for personal use of a bank automobile and
$3,463, $3,463, and $3,463 in lieu of disability insurance coverage 1999,
1998, and 1997, respectively.
(7) Consists of $5,000, $5,000 and $4,750 contributions to Highland Federal's
401(k) Plan, $240, $1,268 and $1,318 in imputed life insurance payments and
$-0-, $3,868 and $3,355 for personal use of a bank automobile in 1999, 1998
and 1997, respectively.
(8) Served as Chief Financial Officer until June 25, 1999.
35
<PAGE>
Option Grants
The following table sets forth certain information concerning stock options
granted to the named executive officers during the fiscal year ended December
31, 1999.
<TABLE>
<CAPTION>
Potential
Realizable Value
Individual Grant at Assumed Annual
-------------------------------------------- Rate of Stock
Number of Percent of Price
Shares of Total Options Appreciation for
Stock Granted to Option Term(1)
Underlying Employees in Exercise Expiration -----------------
Name Options Fiscal Year Price Date 5% 10%
---- ---------- ------------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Stephen N. Rippe........ 20,000 27.8% $17.81 02/24/09 $580,300 $923,900
Garry P. Warren......... 16,000 22.2% 17.81 02/24/09 464,300 739,200
Ellen B. Geiger......... 12,000 16.7% 17.81 02/24/09 348,200 554,400
Anthony Frey............ -0- -0- N/A N/A -0- -0-
</TABLE>
--------
(1) The amounts shown are hypothetical gains based on the indicated assumed
rates of appreciation of the common stock, compounded annually over a ten-
year period and assuming that the closing price was the market value of the
grant. The actual value (if any) than an executive officer receives from a
stock option will depend upon the amount by which the market price of
common stock exceeds the exercise price of the option on the date of
exercise. Highland Bancorp does not assume that the common stock will
appreciate at any particular rate or at all in future years.
(2) The options granted are exercisable 33.3% per year beginning on each of the
first 3 anniversary dates of grant.
Option Exercises and Holdings
The following table provides information with respect to the named
executives concerning their exercise of options during 1999 and their year-end
option holdings.
<TABLE>
<CAPTION>
Value of Unexercised
Shares Number of Unexercised In-the-Money Options
Acquired Options at Year-End at Year-End(1)
on Value ------------------------- -------------------------
Name Exercised Realized Exercisable/Unexercisable Exercisable/Unexercisable
---- --------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Stephen N. Rippe........ 20,000 $195,000 102,500/47,500 $957,500/$266,250
Garry P. Warren......... 7,100 67,006 11,730/27,500 105,551/ 122,625
Ellen B. Geiger......... 12,000 165,375 37,500/20,500 373,500/ 92,750
Anthony Frey............ 52,000 545,289 0/0 0/0
</TABLE>
--------
(1) Value of an exercise "in-the money" options is the difference between the
fair market value of the securities underlying the options and the exercise
price of the options as of December 31, 1999. The closing sale price of the
common stock on December 31, 1999 was $19.00 per share.
Executive Officer Change of Control Agreements
In 1995, Highland Federal entered into a Change of Control Employment
Agreement with each of Messrs. Rippe and Warren, Ms. Geiger, and three other
officers of Highland Federal, and in 1998, Highland Federal entered into a
Change of Control Agreement with another officer of Highland Federal, each
amended this year to extend their terms among other things. Such agreements
provide that if a change of control of Highland Federal or Highland Bancorp
(defined to include a merger, consolidation or asset transfer where Highland
Bancorp is not the surviving entity and the acquisition by a person or group of
more than 50% of the outstanding shares of Highland Bancorp) occurs during the
employment of the individual and the individual's position is subsequently
eliminated or materially altered or the individual resigns his or her
employment for good reason (defined to include a reduction in salary levels or
benefits, material diminution in title or
36
<PAGE>
responsibilities or a job relocation of more than 50 miles), the individual
will be entitled to a lump sum payment equal to his or her salary for a
specified period. In the case of Mr. Rippe, such period is two and one-half
years and in the case of Mr. Warren and Ms. Geiger, such period is one and one-
half years.
Acceleration Events Under the Option Plan
In the event Highland Bancorp enters into an agreement to dispose of all or
substantially all of its assets or if Highland Bancorp's stockholders dispose
or agree to become obligated to dispose of fifty percent or more of the
outstanding shares of common stock, then each outstanding option will be
exercisable during the thirty days immediately preceding such Acceleration
Event. However, no Acceleration Event will be deemed to occur in the event that
(1) the terms of the agreements pursuant to which such transaction is occurring
require as a condition to the consummation of the transaction that each option
will be either assumed by a successor corporation or be replaced with a
comparable option to purchase shares of stock of the successor corporation, and
(2) the transaction is approved by a majority of the directors who have been in
office for more than twelve months prior to the scheduled consummation of the
transaction. Upon consummation of the Acceleration Event, all outstanding
options, whether or not so accelerated, will terminate and cease to be
exercisable, unless assumed by the successor corporation. The merger is an
acceleration event, and option holders will receive the merger consideration
(see "Stock Options", page 27).
37
<PAGE>
PERSONNEL/COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
The following Report of the Personnel/Compensation Committee of the Board of
Directors on Executive Compensation shall not be deemed filed under the
Securities Act of 1933, as amended (the "Securities Act"), or under the
Exchange Act of 1934, as amended (the "Exchange Act").
The Personnel/Compensation Committee of the Board of Directors (the
"Committee") is composed of four directors who are not also employees of
Highland Bancorp. There is currently a vacancy on the committee due to the
recent death of George Piercy. The Committee establishes the overall
compensation and employee benefits of Highland Bancorp and the specific
compensation of Highland Bancorp's and Highland Federal's executive officers.
It is a goal of the Committee to implement executive officer compensation
programs that further the business objectives of Highland Bancorp and that
attract, retain and motivate the best-qualified executive officers.
Highland Bancorp's executive compensation policies and specific executive
compensation programs are adopted and administered in accordance with the
principal goal of maximizing return on stockholders' equity. The Committee
believes that this performance goal and the long-term interests of Highland
Bancorp's stockholders generally are best achieved by attracting and retaining
management of high quality, and that such management will require commensurate
compensation. The Committee believes that Highland Bancorp's executive officer
compensation policies are consistent with this policy.
Except for messrs. Warren, Terrazas and Gollins, none of Highland Bancorp's
or Highland Federal's executive officers has a written employment agreement or
other formal assurance of continued employment by Highland Bancorp. (See
"Executive Compensation--Executive Officer Change of Control Agreements.") As a
result, each of the executive officer's compensation is determined each year by
the Committee, based on factors that the Committee deems appropriate. As
indicated below, the overall financial performance of Highland Bancorp is a
factor considered by the Committee in setting compensation levels for executive
officers.
Annual compensation levels for each executive officer, including the Chief
Executive Officer, are determined by the Committee based primarily on its
review and analysis of the following factors: (1) the responsibilities of the
position, (2) the performance of the individual and his or her general
experience and qualifications, (3) the overall financial performance (including
return on equity, earnings per share, problem asset levels, levels of general
and administrative expense and loan and deposit production) for Highland
Bancorp for the previous year and the contributions to such performance
measures by the individual or his or her department, (4) the officer's total
compensation during the previous year, (5) a comparison to compensation levels
paid by comparable financial institutions, and (6) the officer's length of
service with Highland Bancorp. In addition, the Committee receives the
recommendations of the Chief Executive Officer with respect to the compensation
of other executive officers, which the Committee reviews in light of the above
factors. The Committee believes, based on a review of relevant compensation
surveys, that the base compensation of the executive officers is competitive
with financial institutions of similar size and with comparable operating
results.
Bonus compensation for 1999 was based in large part on return on equity for
Highland Bancorp and the following performance criteria, (1) net interest
income, (2) noninterest income, (3) loan delinquency levels, and (4) cost
management. The Committee established a target return on equity, for payment of
the full bonus related to this factor, of 20.5%. Assuming achievement of the
target return, the President and Chief Executive Officer of Highland Bancorp
and Highland Federal would receive 60% of the bonus award based on achieving
the target return on equity and 40% of the bonus award based on other company
results as measured against specific performance objectives and standards
established at the beginning of the year. Other executives had similar
performance objectives except their target percentages related to the
performance criteria varied depending on their areas of responsibility. The
actual return on average equity for Highland Bancorp for the year was 23.5%.
All bonuses paid to executive officers for service during 1999 were approved by
the Compensation Committee of the Board of Directors.
38
<PAGE>
Mr. Rippe, President and Chief Executive Officer of Highland Bancorp and
Highland Federal, was eligible to receive a bonus of up to 50% of his base
salary for services during 1999 based on specific performance achievements
discussed above. In 2000, Mr. Rippe received an annual bonus related to 1999
performance of $140,000, or 50% of his year end 1999 base salary.
While the Committee establishes salary and bonus levels based on the above
described criteria, the Committee also believes that encouraging equity
ownership by executive officers further aligns the interests of the officers
with the performance objectives of Highland Bancorp's stockholders and enhances
Highland Bancorp's ability to attract and retain highly qualified personnel on
a basis competitive with industry practices. Stock options granted by Highland
Bancorp pursuant to the Option Plan help achieve this objective, and provide
additional compensation to the officers to the extent that the price of the
common stock increases over fair market value on the date of grant. Stock
options have been granted to each of the named executive officers and to other
officers and employees of Highland Federal. Through the Option Plan, there will
be an additional direct relationship between Highland Bancorp's performance and
benefits to executive officer Option Plan participants.
Dated: June 15, 2000 Richard O. Oxford, Chairman
Richard J. Cross
Shirley E. Simmons
Compensation Committee Interlocks and Insider Participation
None of the members of the Personnel/Compensation Committee during 1999 has
ever been an officer or employee of Highland Bancorp or any of its
subsidiaries.
39
<PAGE>
PERFORMANCE GRAPH
Set forth below is a graph that compares the yearly percentage change in the
cumulative total stockholder return on common stock (or the common stock of
Highland Federal, prior to the reorganization whereby Highland Bancorp became
the holding company of Highland Federal) with (1) the cumulative total return
of the issuers included in the Nasdaq Composite Index as reported to Highland
Bancorp by SNL Securities LC, and (2) the cumulative total return of the
issuers included in the SNL Securities $500M-$1B Thrift Composite Index as
reported to Highland Bancorp by SNL Securities, in each case assuming the
reinvestment of dividends.
The graph shall not be deemed incorporated by reference by any general
statement incorporating by reference this Proxy Statement into any filing under
the Securities Act or under the Exchange Act, except to the extent that
Highland Bancorp specifically incorporates this information by reference, and
shall not otherwise be deemed filed under such Acts.
Prior to the commencement of trading in the common stock on the Nasdaq
Small-Cap Market on October 16, 1995 (and the subsequent listing of the stock
on the Nasdaq National Market in December 1995), there was no established
public trading market for the common stock and only infrequent trades executed
by a securities broker. Information for periods prior to the listing of the
common stock on the Nasdaq Small-Cap Market are based on the average bid and
ask prices for the common stock as reported to Highland Bancorp by J. Alexander
Securities, Los Angeles, California, as of the date of the last transaction of
which such firm is aware during each such year. Thus, the prices used by
Highland Bancorp in determining the five-year cumulative return for the common
stock prior to the listing of the common stock with Nasdaq may not represent
actual transactions.
COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
HIGHLAND BANCORP, INC.
NASDAQ MARKET INDEX, SNL $500M-$1B THRIFT INDEX AND PEER GROUP INDEX
Highland Bancorp, Inc.
[TABLE/GRAPHIC--TO BE INSERTED]
[PERFORMANCE CHART
APPEARS HERE]
<TABLE>
<CAPTION>
Period Ending
-----------------------------------------------------
Index 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
----- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Highland Bancorp, Inc... 100.00 129.68 141.66 272.93 264.81 323.79
NASDAQ--Total US*....... 100.00 141.33 173.89 213.07 300.25 542.43
SNL $500M-$1B Thrift
Index.................. 100.00 149.78 185.72 313.72 287.82 235.29
</TABLE>
ASSUMES $100 INVESTED ON JAN. 1, 1994
ASSUMES DIVIDEND REINVESTED FISCAL YEAR ENDED DEC. 31, 1999
40
<PAGE>
PROPOSAL 3:
RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Audit Committee has selected KPMG LLP as the independent auditors to
audit the consolidated financial statements of Highland Bancorp and its
subsidiaries for 2000. A member of KPMG is expected to be present at the
meeting, will have an opportunity to make a statement if so desired, and will
be available to respond to appropriate questions.
If you do not ratify the selection of KPMG, or if KPMG should decline to act
or otherwise become incapable of acting, or if its employment is discontinued,
the Board of Directors or the Audit Committee will appoint other independent
auditors.
Ratification of the selection of KPMG as Highland Bancorp's independent
auditors requires the affirmative vote of a majority of the holders of the
common stock present in person or represented by proxy and entitled to vote at
the meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO RATIFY THE
SELECTION OF KPMG LLP AS HIGHLAND'S INDEPENDENT AUDITORS.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires our executive
officers and directors, and persons who own more than ten percent of Highland
Bancorp's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission and the Nasdaq National
Market. The SEC requires executive officers, directors and greater than ten
percent stockholders to furnish to us all Section 16(a) forms they file.
Based solely on our review of these reports and of certifications furnished
to us, we believe that during the fiscal year ended December 31, 1999 all
executive officers, directors and greater than ten percent beneficial owners
complied with all applicable Section 16(a) filing requirements.
STOCKHOLDER PROPOSALS
Stockholder proposals to be presented at the 2001 Annual Meeting of
Stockholders must be received at Highland Bancorp's executive offices at 601
South Glenoaks Blvd., Suite 200, Burbank, California 91502, addressed to the
attention of the Secretary, by March 3, 2001 in order to be considered for
inclusion in the proxy statement and form of proxy relating to such meeting.
In addition, in the event a stockholder proposal is not submitted to
Highland Bancorp prior to May 4, 2001, the proxy to be solicited by the Board
of Directors for the 2001 annual meeting of stockholders will confer authority
on the holders of the proxy to vote the shares in accordance with their best
judgment and discretion, if the proposal is presented at the 2001 annual
meeting of stockholders, without any discussion of the proposal and the proxy
statement for such meeting.
41
<PAGE>
ANNUAL REPORT
The Annual Report of Highland Bancorp for the year ended December 31, 1999
is being mailed to you with this proxy statement. The Annual Report contains
consolidated financial statements of Highland Bancorp and its subsidiaries,
financial statement schedules and management's discussion and analysis of such
financial statements, and the report thereon of KPMG LLP, Highland Bancorp's
independent auditors.
YOU MAY OBTAIN WITHOUT CHARGE A COPY OF HIGHLAND BANCORP'S ANNUAL REPORT ON
FORM 10-K, INCLUDING FINANCIAL STATEMENTS REQUIRED TO BE FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO THE EXCHANGE ACT FOR THE FISCAL
YEAR ENDED DECEMBER 31, 1999 BY WRITING TO US AT 601 SOUTH GLENOAKS BOULEVARD,
BURBANK, CALIFORNIA 91502, ATTENTION: KELLY ANDREWS.
OTHER BUSINESS
The Board of Directors knows of no business that will be presented for
consideration at the meeting other than as stated in the notice of meeting. If,
however, other matters are properly brought before the meeting, it is the
intention of the proxy holders to vote the shares represented by the proxies on
such matters in accordance with the recommendations of the Board of Directors
and authority to do so is included in the proxy.
By Order of the Board of Directors,
Kelly Andrews
Corporate Secretary
Dated: June 26, 2000
42
<PAGE>
ANNEX A
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
by and among
JACKSON FEDERAL BANK,
HIGHLAND BANCORP, INC.
and
HIGHLAND FEDERAL BANK
----------------
April 24, 2000
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<C> <C> <S> <C>
I. THE MERGER......................................................... A-1
1.1 The Merger................................................... A-1
1.2 Effective Time of the Merger................................. A-1
1.3 Corporate Organization....................................... A-1
1.4 Conversion of Shares......................................... A-2
1.5 Stock Option Plan............................................ A-3
1.6 Exchange of Certificates..................................... A-3
Additional Rights; Taking of Necessary Action; Further
1.7 Action....................................................... A-4
1.8 Alternative Structure........................................ A-5
II. THE CLOSING........................................................ A-5
2.1 Closing Date................................................. A-5
2.2 Procedure.................................................... A-5
III. REPRESENTATIONS AND WARRANTIES OF HIGHLAND......................... A-5
3.1 Organization................................................. A-5
3.2 Non-Contravention; Binding Effect............................ A-6
3.3 No Consent................................................... A-6
3.4 Compliance with Laws......................................... A-6
3.5 Capitalization............................................... A-7
3.6 Subsidiaries................................................. A-7
3.7 Charter Documents; Management................................ A-8
3.8 Financial Statements and Reports; Books and Records.......... A-8
3.9 Properties................................................... A-9
3.10 Absence of Certain Changes................................... A-10
3.11 Material Contracts........................................... A-11
3.12 Litigation................................................... A-11
3.13 Contingent Liabilities....................................... A-11
3.14 Taxes........................................................ A-11
3.15 Employee Benefit Plans; ERISA................................ A-13
3.16 Labor Relations.............................................. A-15
Employment and Similar Agreements; Obligations Upon Change in
3.17 Control...................................................... A-15
3.18 Broker's and Finder's Fees................................... A-16
3.19 Regulatory Applications...................................... A-16
3.20 Hazardous Materials.......................................... A-16
3.21 Damage to Mortgaged Properties............................... A-16
3.22 Corporate Approval........................................... A-17
3.23 Deposit Accounts............................................. A-17
3.24 Intellectual Property........................................ A-17
3.25 Certain Legal and Regulatory Matters......................... A-17
3.26 Material Interests of Certain Persons........................ A-17
3.27 Derivative Contracts; Structured Notes; etc.................. A-17
3.28 Disclosure................................................... A-18
3.29 Insurance Agency Activity.................................... A-18
3.30 Standard..................................................... A-18
IV. REPRESENTATIONS AND WARRANTIES OF JACKSON.......................... A-18
4.1 Organization................................................. A-18
4.2 Non-Contravention; Binding Effect............................ A-18
4.3 No Consent................................................... A-19
4.4 Regulatory Applications...................................... A-19
4.5 Regulatory Approvals......................................... A-19
</TABLE>
A-i
<PAGE>
TABLE OF CONTENTS--(Continued)
<TABLE>
<C> <C> <S> <C>
4.6 Access to Funds............................................... A-19
4.7 Standard...................................................... A-19
V. COVENANTS OF HIGHLAND AND JACKSON................................... A-19
5.1 Covenants of Jackson and Highland............................. A-19
5.2 Affirmative Covenants of Highland............................. A-20
5.3 Negative Covenants of Highland................................ A-21
5.4 Notification.................................................. A-22
5.5 No Shopping................................................... A-22
5.6 Indemnification............................................... A-23
5.7 Employment and Severance Agreements........................... A-24
5.8 Tax Matters................................................... A-24
VI. CONDITIONS TO CLOSING............................................... A-25
6.1 Conditions to Highland's Obligation to Close.................. A-25
6.2 Conditions to Jackson's Obligation to Close................... A-25
VII. TERMINATION......................................................... A-27
7.1 Termination................................................... A-27
7.2 Effect of Termination......................................... A-28
VIII. MISCELLANEOUS....................................................... A-29
8.1 Notices....................................................... A-29
8.2 Governing Law................................................. A-29
8.3 Entire Agreement.............................................. A-29
8.4 Amendments and Waivers........................................ A-30
8.5 Severability.................................................. A-30
8.6 Counterparts.................................................. A-30
8.7 Interpretation of Agreement................................... A-30
8.8 Survival of Representations, Warrants and Covenants........... A-30
8.9 Expenses...................................................... A-30
8.10 Definitions................................................... A-31
8.11 Attorneys' Fees............................................... A-31
8.12 Publicity..................................................... A-31
8.13 Binding Effect................................................ A-32
8.14 Further Action................................................ A-32
8.15 Parties....................................................... A-32
</TABLE>
A-ii
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of April 24, 2000 (this "Agreement"),
among HIGHLAND BANCORP, INC., a Delaware corporation ("Highland"), HIGHLAND
FEDERAL BANK, a federally chartered savings bank ("Highland Federal") and
JACKSON FEDERAL BANK, a federally chartered savings bank ("Jackson").
RECITALS:
A. Highland. Highland is a corporation duly organized, validly existing and
in good standing, under the laws of the State of Delaware that owns all of the
outstanding stock of Highland Federal, a federally chartered savings bank, and
is duly registered as a unitary savings and loan holding company pursuant to
Section 10 of the Home Owner's Loan Act ("HOLA"). Unless the context otherwise
requires all references to Highland in this Agreement include Highland and each
of its direct and indirect subsidiaries.
B. Highland Federal owns all of the outstanding stock of Highland
Corporation, (hereinafter "HC"), a corporation duly organized, validly existing
and in good standing under the laws of the State of California, and Highland
Insurance Agency (hereinafter "HI"), an insurance agency duly organized,
validly existing and in good standing under the laws of the State of
California. (Highland Federal, HC and HI are collectively referred to herein as
the "Subsidiaries.")
C. Jackson. Jackson is a federally chartered savings bank, which is an
indirect wholly-owned subsidiary of Jackson National Life Insurance Company, a
unitary savings and loan holding company under HOLA.
D. Board Approvals. The respective boards of directors of Highland and its
Subsidiaries, including Highland Federal, and Jackson have approved, and deem
it to be advisable and in the best interests of their respective stockholders
to complete, the business combination provided for herein, in which a wholly-
owned subsidiary of Jackson that is to be formed for the sole purpose of
completing the business combination transaction provided for herein ("Merger
Sub") is to be merged (the "Merger") with and into Highland and Highland is
thereby to become a wholly-owned subsidiary of Jackson.
I. THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions set forth
herein, at the Effective Time (as defined in Section 1.2), Merger Sub shall be
merged with and into Highland in accordance with the General Corporation Law of
the State of Delaware (the "Delaware Corporation Law"). The separate existence
of Merger Sub shall thereupon cease and Highland shall be the surviving
corporation in the Merger (the "Surviving Corporation"). The Merger shall have
the effects set forth in the Delaware Corporation Law.
1.2 Effective Time of the Merger. The Merger shall become effective when a
properly executed certificate of merger (the "Certificate of Merger") is duly
filed with the Secretary of State of Delaware in accordance with the Delaware
Corporation Law, or at such later time as may be specified in the Certificate
of Merger. When used in this Agreement, the term "Effective Time" shall mean
the date and time at which the Certificate of Merger is so filed, or such later
date and time of the effectiveness of the Merger as may be specified in the
Certificate of Merger.
1.3 Corporate Organization.
(a) Certificate of Incorporation. The certificate of incorporation of Merger
Sub as in effect at the Effective Time shall be the certificate of
incorporation of the Surviving Corporation after the Effective Time unless and
until amended in accordance with its terms and applicable law.
A-1
<PAGE>
(b) By-Laws. The by-laws of Merger Sub as in effect at the Effective Time
shall be the by-laws of the Surviving Corporation unless and until amended in
accordance with their terms, the certificate of incorporation of the Surviving
Corporation and applicable law.
(c) Board of Directors and Officers. The board of directors of the Surviving
Corporation shall consist of the directors of Merger Sub immediately prior to
the Effective Time and such individuals shall serve until their respective
successors are duly elected and qualified. The officers of Merger Sub
immediately prior to the Effective Time shall be the officers of the Surviving
Corporation until their respective successors are duly elected and/or appointed
and qualified in the manner provided in the certificate of incorporation and
by-laws of the Surviving Corporation, or as otherwise provided by applicable
law.
1.4 Conversion of Shares.
(a) At the Effective Time, by virtue of the Merger and without necessity of
any action on the part of Jackson, Highland or any holder of any of the
following securities:
(i) each share of common stock, par value $.01 per share, of Highland
(the "Highland Common Stock"), issued and outstanding immediately prior to
the Effective Time (other than shares of Highland Common Stock to be
canceled pursuant to Section 1.4(a)(ii) and shares of Highland Common Stock
held by any holder who shall have taken the necessary steps under the
Delaware Corporation Law to seek appraisal of and demand payment for such
shares of Highland Common Stock and who is otherwise entitled to such
payment under the Delaware Corporation Law ("Dissenting Stock"), shall be
canceled and extinguished and be converted into the right to receive $25.45
in cash (the "Merger Consideration"), subject to possible reduction
pursuant to Section 8.9(e), without interest; provided, that in no event
shall the aggregate amount of Merger Consideration payable pursuant to this
Agreement exceed an amount equal to the per share Merger Consideration
stated herein multiplied by the sum of (A) 4,243,474 plus (B) such number
of shares, not exceeding 475,730, as may be issued after the date hereof
pursuant to stock options issued pursuant to the Stock Option Plan (as
defined in Section 1.5) that are outstanding as of the date hereof;
(ii) except as otherwise provided herein, each share of Highland Common
Stock which is issued and outstanding immediately prior to the Effective
Time and owned by Jackson or any direct or indirect subsidiary (as defined
in Section 8.10) of Jackson (other than shares held by Jackson or any such
subsidiary in a fiduciary or custodial capacity on behalf of persons other
than Highland and its Subsidiaries), or which is held in the treasury of
Highland or by any of its Subsidiaries, shall be canceled and retired and
no payment shall be made with respect thereto; and
(iii) each share of common stock of Merger Sub issued and outstanding
immediately prior to the Effective Time shall remain issued and outstanding
and shall not be altered or changed by the Merger.
(b) Notwithstanding the foregoing provisions or any other provision of this
Agreement to the contrary, Dissenting Stock shall not be converted into the
right to receive the Merger Consideration at or after the Effective Time unless
and until the holder of such Dissenting Stock withdraws such holder's demand
for appraisal, with the consent of Highland to the extent such consent may be
required, or becomes ineligible for such appraisal. If a holder of Dissenting
Stock shall withdraw in writing such holder's demand for appraisal, with the
consent of Highland to the extent such consent may be required, or shall become
ineligible for such appraisal, whether through failure to comply with the
applicable provisions of the Delaware Corporation Law or otherwise, then, as of
the later of the Effective Time or the occurrence of such event, such holder's
Dissenting Stock shall be automatically converted into and represent solely the
right to receive the Merger Consideration without interest thereon. Highland
shall give Merger Sub and Jackson prompt written notice of any demands for
appraisal, withdrawals of demands for appraisal and any other instruments
served pursuant to Section 262 of the Delaware Corporation Law received by
Highland. Highland shall not voluntarily make any payment with respect to any
demands for appraisal and shall not, except with the prior written consent of
Merger Sub, settle or offer to settle any such demands. Each holder of
Dissenting Stock shall have only such
A-2
<PAGE>
rights and remedies as are granted to such holder under Section 262 of the
Delaware Corporation Law. Dissenting Stock shall not, after the Effective Time,
be entitled to vote for any purpose or be entitled to the payment of dividends
or other distributions, other than dividends or other distributions payable to
stockholders of record prior to the Effective Time.
1.5 Stock Option Plan.
(a) Promptly following the date of this Agreement but contingent upon the
completion of the Merger, the Board of Directors of Highland (or, if
appropriate, any committee administering the Stock Option Plan of Highland (as
defined below)) shall adopt such resolutions or take such other actions with
respect to all outstanding employee stock options to purchase Highland Common
Stock, whether or not such options would otherwise be vested and exercisable at
the Effective Time ("Options"), which heretofore have been granted under any
stock option or other stock-related compensation plan, program or arrangement
of Highland or any Subsidiary thereof, including, without limitation, the
Highland Stock Option Plan (the "Stock Option Plan"), as are necessary to
provide that effective as of the Effective Time all Options outstanding
immediately prior to the Effective Time shall be canceled in exchange for a
payment by Highland of an amount equal to (A) the difference between (1) the
per share exercise price of the Option and (2) the amount equal to the per
share Merger Consideration, as the same may be reduced pursuant to Section
8.9(e), multiplied by (B) the number of shares of Highland Common Stock covered
by the Option. Any rights granted in connection with an Option shall be
canceled upon such Option's cancellation as provided in this Section 1.5(a).
(b) Except as provided herein, the Stock Option Plan and any other plan,
program or arrangement providing for the issuance or grant of any interest in
respect of the capital stock of Highland or any Subsidiary (other than the
Highland Profit Sharing Plan (the "Profit Sharing Plan"), shall terminate as of
the Effective Time, and prior to the Effective Time, Highland shall take or
cause to be taken all necessary actions to ensure that following the Effective
Time no participant in any such plan, program or arrangement shall have any
right thereunder to acquire any equity securities of Highland or the Surviving
Corporation or any subsidiary thereof.
(c) Highland and Jackson shall take all such steps as may be required or
reasonably requested to cause the payments in respect of the Options provided
for in this Section 1.5 with respect to each individual who is a director or
officer of Highland required to file reports with the Securities and Exchange
Commission (the "SEC") pursuant to Section 16(a) of the Securities Exchange Act
of 1934 (the "Exchange Act") and the rules and regulations of the SEC
thereunder to be exempt under SEC Rule 16b-3, such steps to be taken in
accordance with the No-Action Letter dated January 12, 1999, issued by the
staff of the SEC to Skadden, Arps, Slate, Meagher and Flom LLP.
1.6 Exchange of Certificates.
(a) From and after the Effective Time, a bank, trust company or company
regularly engaged in the business of acting as securities transfer agent to be
designated by Jackson and reasonably acceptable to Highland, (the "Exchange
Agent") shall act as exchange agent in effecting the exchange for the Merger
Consideration of certificates that, prior to the Effective Time, represented
shares of Highland Common Stock entitled to payment pursuant to Section 1.4 or
1.5. Upon the surrender of each such certificate, the Exchange Agent shall pay
the holder of such certificate the aggregate Merger Consideration to which such
holder is entitled hereunder, and such certificate shall forthwith be canceled.
Until so surrendered and exchanged, each such certificate (other than
certificates representing Dissenting Stock or shares of Highland Common Stock
which are to be canceled pursuant to Section 1.4(a)(ii)), shall represent
solely the right to receive the Merger Consideration and the holder thereof
shall not be entitled to be paid the consideration to which such holder would
otherwise be entitled. No interest shall be paid or shall accrue on the
consideration to which a certificate holder shall be entitled pursuant to
Section 1.4. If the Merger Consideration (or any portion thereof) is to be
delivered to any person other than the person in whose name the certificate
representing shares of Highland Common Stock surrendered in exchange therefor
is registered, it shall be a condition to such exchange that the certificate so
surrendered shall be properly endorsed or otherwise be in proper form for
transfer and that the
A-3
<PAGE>
person requesting such exchange shall pay to the Exchange Agent any transfer or
other taxes required by reason of the payment of the Merger Consideration to a
person other than the registered holder of the certificate surrendered, or
shall establish to the satisfaction of the Exchange Agent that such tax has
been paid or is not applicable. Notwithstanding the foregoing, neither the
Exchange Agent nor any party hereto shall be liable to a holder of shares of
Highland Common Stock for any Merger Consideration delivered to a public
official pursuant to applicable abandoned property, escheat and similar laws.
(b) At or prior to the Effective Time, Jackson shall deposit, or cause to be
deposited, in trust with the Exchange Agent cash in an aggregate amount equal
to the product of (i) the number of shares of Highland Common Stock outstanding
immediately prior to the Effective Time (other than those shares of Highland
Common Stock to be canceled pursuant to Section 1.4(a)(ii) and shares known at
the Effective Time to be Dissenting Stock) multiplied by (ii) the Merger
Consideration (such amount being hereinafter referred to as the "Exchange
Fund"). The Exchange Fund shall be invested by the Exchange Agent as directed
by Jackson in direct obligations of the United States of America, obligations
for which the full faith and credit of the United States of America is pledged
to provide for the payment of principal and interest, commercial paper rated of
the highest quality by Moody's Investors Services, Inc. ("Moody's") or Standard
and Poor's Corporation ("S&P") or certificates of deposit issued by a
commercial bank having at least $500,000,000 in assets and a long-term debt
rating from Moody's of P-1 or from S&P of Al, and any net earnings with respect
thereto shall be paid to Jackson as and when requested by Jackson. The Exchange
Fund may be invested in obligations of such maturities as Jackson may direct,
as long as such investments do not impair the ability of the Exchange Agent to
make the payments required by this Section 1.6 on a timely basis to holders of
certificates that prior to the Effective Time evidenced shares of Highland
Common Stock. The Exchange Fund shall not be used for any other purpose except
as provided herein.
(c) Promptly following the date which is six months after the Effective
Time, the Exchange Agent shall deliver to Jackson any cash and all certificates
and other documents in its possession relating to the transactions described in
this Agreement, and the Exchange Agent's duties shall thereupon terminate.
Thereafter, each holder of a certificate formerly representing a share of
Highland Common Stock may surrender such certificate to Jackson and (subject to
applicable abandoned property, escheat and similar laws) receive in exchange
therefor the Merger Consideration without interest thereon. Such holders shall
have no greater rights against the Surviving Corporation than may be accorded
to general creditors of the Surviving Corporation under applicable law.
(d) Promptly after the Effective Time, the Exchange Agent shall mail to each
record holder of certificates that immediately prior to the Effective Time
represented shares of Highland Common Stock a form of letter of transmittal and
instructions for use in surrendering such certificates and receiving the Merger
Consideration.
(e) After the Effective Time, there shall be no transfers on the stock
transfer books of the Surviving Corporation of any shares of Highland Common
Stock. If, after the Effective Time, certificates formerly representing shares
of Highland Common Stock are presented to the Surviving Corporation or the
Exchange Agent, they shall be canceled and exchanged for the Merger
Consideration, subject to applicable law in the case of Dissenting Stock and to
applicable abandoned property, escheat and similar laws.
1.7 Additional Rights; Taking of Necessary Action; Further Action.
(a) Jackson reserves the right prior to the Effective Time from time to time
to make, or to cause any of its subsidiaries or affiliates to make, open market
or privately negotiated purchases of shares of Highland Common Stock in
accordance with applicable law and the certificate of incorporation of
Highland, at such price or prices as they may determine in their sole
discretion.
(b) Jackson and Highland, respectively, shall each use its best efforts to
take or cause to be taken all such action as may be necessary or appropriate in
order to effectuate the Merger under the Delaware Corporation Law as promptly
as possible. Highland and its Subsidiaries, including Highland Federal, shall,
prior to the
A-4
<PAGE>
Closing, take all such action as may reasonably be requested by Jackson to
facilitate changes in the corporate structure of the Surviving Corporation and
Highland Federal, promptly after the Effective Time. If at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of either Jackson or Highland or their respective subsidiaries,
the officers of the Surviving Corporation are fully authorized in the name of
Highland or the Surviving Corporation or otherwise to take all such lawful and
necessary action.
1.8 Alternative Structure. Notwithstanding any other provision of this
Agreement, Jackson may at any time change the method of effecting the
acquisition of Highland, and its Subsidiaries by Jackson, including by
providing for a merger of Highland with and into an affiliate of Jackson other
than Merger Sub or for mergers among certain of the subsidiaries or other
affiliates of Jackson and Highland to occur substantially simultaneously with,
or promptly following, the Effective Time. Highland and its Subsidiaries shall
comply with any such alternative structure presented by Jackson and shall
cooperate fully with Jackson to achieve such alternative structure as promptly
as practicable; provided, however, that Highland shall not be obligated to
comply with any such alternative structure that would (a) change the amount or
kind of consideration to be issued to holders of the Highland Common Stock or
the Options, (b) in the reasonable judgment of Highland (i) materially increase
the possibility that the amount of time required to complete the acquisition of
Highland and its Subsidiaries pursuant to this Agreement will extend beyond the
Termination Date (as defined in Section 7.1), or (ii) affect the likelihood of
any Regulatory Approval (as such term is defined in Section 5.1(a)) being
obtained or any other condition to Closing set forth in Article VI being
satisfied, or (c) eliminate or materially reduce the obligations of Jackson or
the rights of Highland under this Agreement.
II. THE CLOSING
2.1 Closing Date. Subject to Article VII, the closing (the "Closing") of the
transactions contemplated by this Agreement shall take place on such date as
Highland and Jackson agree (the "Closing Date"); provided, that in the absence
of an agreement by the parties to the contrary such Closing Date shall be the
first Friday which follows the last of satisfaction or waiver of each of the
conditions to Closing set forth in Article VI occurs.
2.2 Procedure. The Closing shall be held at the offices of Mayer, Brown &
Platt, 350 South Grand Avenue, 25th Floor, Los Angeles, California 90071-1503,
or at such other place as to which the parties hereto shall agree. On the
Closing Date and subject to the terms and conditions provided herein, the
Certificate of Merger with respect to the Merger shall be filed with the
Secretary of State of Delaware.
III. REPRESENTATIONS AND WARRANTIES OF HIGHLAND
Except as otherwise disclosed to Jackson in a schedule dated as of the date
hereof and delivered concurrently with the execution of this Agreement, and
made a part of this Agreement (the "Highland Schedule"), Highland and Highland
Federal each represent and warrant to Jackson as follows:
3.1 Organization.
(a) Each of Highland and its Subsidiaries is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization. Each of Highland and its Subsidiaries has all
requisite power and authority to carry on its businesses as now conducted and
is qualified to do business as a foreign corporation and in good standing in
each jurisdiction in which such qualification is necessary under applicable
law.
(b) Highland is a Delaware corporation and is duly registered as a savings
and loan holding company under Section 10 of the HOLA and the rules and
regulations of the Office of Thrift Supervision ("OTS")
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thereunder. Highland is not a "diversified" or "multiple" savings and loan
holding company under Section 10 of the HOLA and the rules and regulations of
the OTS thereunder. Highland Federal is a federally chartered stock savings
bank and is a direct wholly-owned subsidiary of Highland. HC is a California
corporation, acts as the trustee for deeds of trust on behalf of Highland
Federal, and is a direct wholly-owned subsidiary of Highland Federal. HI is a
California corporation, engages in insurance agency activities, including the
sale of fixed and variable insurance products and mutual funds, and is a direct
wholly-owned subsidiary of Highland Federal.
3.2 Non-Contravention; Binding Effect. Each of Highland and its Subsidiaries
has all requisite corporate power and authority to enter into this Agreement
and, subject to the approval of this Agreement by the stockholders of Highland,
to consummate the transactions contemplated hereby and thereby and to perform
its obligations hereunder. This Agreement has been duly and validly authorized,
executed and delivered by Highland and its Subsidiaries, as applicable, and
constitute the valid and legally binding obligations of Highland and its
Subsidiaries, as applicable, enforceable against Highland and its Subsidiaries,
as applicable, in accordance with their terms, except as may be limited by
bankruptcy, insolvency, moratorium, reorganization or similar laws affecting
the rights of creditors generally. Neither the execution and delivery of this
Agreement nor the consummation of it or the transactions contemplated hereby
and thereby, nor compliance with any of the provisions hereof and thereof will
(i) conflict with or result in a breach of any provision of Highland's
certificate of incorporation or by-laws or the charter or other organizational
documents or of those of any of its Subsidiaries; or (ii) except as set forth
in Section 3.2 of the Highland Schedule, constitute or result in the breach of
any term, condition or provision of, or 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 assets of Highland or any of its Subsidiaries pursuant to, any note, bond,
mortgage, indenture, license, agreement, lease or other instrument, contract or
obligation to which Highland or any of its Subsidiaries is a party or by which
any of their properties or assets may be bound; or (iii) subject to obtaining
the requisite Regulatory Approvals violate any order, writ, injunction, decree,
statute, rule or regulation applicable to Highland or any of its Subsidiaries
or any of their respective properties or assets.
3.3 No Consent. Except as set forth in Section 3.3 of the Highland Schedule,
no consents, approvals, orders, resolutions or forebearances, by or from any
state or federal governmental agency or self-regulatory organization,
authority, corporation, board, commission, department or other state or federal
governmental, instrumentality (each a "Governmental Authority") or any other
third party, are required for Highland or its Subsidiaries to enter into this
Agreement and to consummate the transactions contemplated hereby or to perform
their obligations hereunder or thereunder.
3.4 Compliance with Laws.
(a) Each of Highland and its Subsidiaries has conducted its business in
compliance with all laws, regulations, ordinances, permits, reporting and
licensing requirements and orders applicable to its business or properties or
any of its employees, including the Equal Credit Opportunity Act, the Fair
Housing Act, the Community Reinvestment Act, the Home Mortgage Disclosure Act,
all other fair lending laws and laws relating to discriminatory business
practices or for the protection of consumers. Each of Highland and its
Subsidiaries hold all required permits, licenses, certificates of authority,
variances, exemptions, orders and approvals of all Governmental Authorities.
(b) Neither Highland nor any Subsidiary thereof has received any
notification from any Governmental Authority asserting that Highland or such
Subsidiary is not in compliance with any of the statutes, regulations or
ordinances that such Governmental Authority enforces. Neither Highland nor any
Subsidiary thereof is party to or the subject of any supervisory agreement,
memorandum of understanding, cease-and-desist order, consent decree, assistance
agreement or any similar agreement or arrangement with any Governmental
Authority with respect to its assets, capital, operations or business (nor has
Highland or any of its Subsidiaries adopted any board resolutions or made any
written commitments with respect to any of the foregoing at the request of any
Governmental Authority), and neither Highland nor any of its Subsidiaries has
been advised by any
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Governmental Authority that it contemplates issuing or requesting (or is
considering the appropriateness of issuing or requesting) any such supervisory
agreement, memorandum of understanding, cease-and-desist order, consent decree,
assistance agreement or similar agreement or arrangement or any such board
resolutions or written commitments. Except for routine examinations by federal
Governmental Authorities charged with the supervision or regulation of savings
and loan holding companies and savings associations, or insurance agencies, to
the best knowledge of Highland, and, except as set forth in Section 3.4(b) of
the Highland Schedule, no investigation by any Governmental Authority is
pending or threatened against Highland or any Subsidiary or, in the reasonable
judgment of Highland, probable of assertion after the date hereof.
3.5 Capitalization.
(a) As of the date hereof, Highland is authorized to issue 1,000,000 shares
of serial preferred stock, $.01 par value, and 8,000,000 shares of Highland
Common Stock, $.01 par value. As of the date hereof, no shares of preferred
stock of Highland are issued and outstanding, and 4,243,474 shares of Highland
Common Stock are issued and outstanding, 496,730 shares of Highland Common
Stock are reserved for issuance pursuant to currently outstanding Options
issued under the Stock Option Plan (of which 21,000 shares relate to Options
that will expire without having vested upon completion of the Merger), no
"performance shares" are outstanding as such pursuant to the Stock Option Plan
or any other plan of Highland. As of the date hereof, 419,513 shares of
Highland Common Stock are owned beneficially or of record by Highland or by its
Subsidiaries as treasury stock.
(b) As of the date hereof, no bonds, debentures, notes or other indebtedness
having the right to vote on any matters on which stockholders of Highland may
vote ("Voting Debt") are issued or outstanding.
(c) All of the issued and outstanding shares of Highland Common Stock have
been validly authorized and issued, are fully paid and nonassessable and were
not issued in violation of any preemptive rights of stockholders of Highland.
The Highland Common Stock has been duly and validly registered pursuant to
Section 12(g) of the Exchange Act and such registration is in full force and
effect. Except as set forth in Section 3.5(a) hereof or in the Highland
Schedule, there are no outstanding subscriptions, options, rights, warrants,
convertible securities or other agreements or commitments obligating Highland
to issue, transfer from the treasury, deliver or sell any additional shares of
Highland's capital stock or Voting Debt and no unissued shares of the Highland
Common Stock are subject to any preemptive rights of stockholders of Highland.
There are no outstanding contractual obligations of Highland to repurchase,
redeem or otherwise acquire any outstanding shares of capital stock of or other
ownership interest in Highland. Except as set forth in Section 3.5(c) of the
Highland Schedule, which shall incorporate and reflect the information
contained in Schedule 13D and Schedule 13G filings made with the SEC prior to
the date hereof, as of the date of this Agreement, no person to the best
knowledge of Highland, beneficially owns, 5% or more of the outstanding shares
of Highland Common Stock.
3.6 Subsidiaries. Section 3.6 of the Highland Schedule lists each
Subsidiary, direct or indirect, of Highland. Section 3.6 of the Highland
Schedule shows as to each such Subsidiary the correct name thereof, the
jurisdiction of its incorporation or organization, licenses, (including all
states in which each entity is licensed in, type of license, date of last
renewal, or status of license), appointments and authorizations held by such
entity, the number of shares of each class of its stock or other equity
interests and any Voting Debt outstanding, the number or percent of the shares
of stock or other equity interests or Voting Debt held by Highland or any of
its Subsidiaries, and the number or percent of the shares of stock or other
equity interests or Voting Debt held by third parties. Except as shown in
Section 3.6 of the Highland Schedule, Highland owns directly or indirectly all
of the outstanding capital stock of, and all other ownership interests in, each
of its direct and indirect Subsidiaries, free and clear of all liens, claims,
charges and encumbrances. There are no outstanding options, warrants or other
rights to subscribe for or purchase from Highland or any of its Subsidiaries,
or any plans, contracts or commitments providing for the issuance of, or the
granting of rights to acquire, (i) any capital stock of or other ownership
interest in or Voting Debt of any Subsidiary of Highland, or (ii) any
securities convertible into or exchangeable for any capital stock of or other
ownership interest in or Voting Debt of any
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Subsidiary of Highland. There are no outstanding contractual obligations of
Highland or any Subsidiary of Highland to repurchase, redeem or otherwise
acquire any outstanding shares of capital stock of or other ownership interest
in any Subsidiary of Highland. All of the outstanding shares of the capital
stock of each Subsidiary of Highland have been validly issued, are fully paid
and nonassessable and were not issued in violation of any preemptive rights.
Highland has no direct or indirect equity interest in any other firm,
corporation, savings association, partnership, joint venture or business
enterprise other than as listed in Section 3.6 of the Highland Schedule
3.7 Charter Documents; Management.
(a) The copies of the certificate of incorporation and by-laws of Highland,
and the charter and by-laws or other organizational documents of all
Subsidiaries of Highland (and any amendments thereto), delivered to Jackson
prior to the date of this Agreement, complete copies of each of which are
attached as Exhibit 3.7(a) of the Highland Schedule, are true and complete
copies thereof, and such certificate of incorporation, by-laws, charter and
other organizational documents are in full force and effect.
(b) The name and title or position of each executive officer or director as
of the date hereof of Highland and its Subsidiaries are set forth in Section
3.7(b) of the Highland Schedule.
3.8 Financial Statements and Reports; Books and Records.
(a) Highland has furnished to Jackson or will furnish promptly upon filing
thereof, true and complete copies of each of the following with respect to each
of Highland and Highland Federal (i) annual reports on Form 10-K in respect of
the fiscal years ended December 31, 1997, 1998, and 1999, each as filed with
the SEC or the OTS; (ii) quarterly reports on Form 10-Q for each of the first
three calendar quarters of 1999, as filed with the SEC; (iii) proxy statements
relating to all meetings of its stockholders (whether annual or special) after
December 31, 1996; and (iv) all other reports and registration statements filed
by Highland or any Subsidiary with the SEC or the OTS after December 31, 1996,
and prior to the Effective Time pursuant to the Securities Act of 1933, as
amended (the "Securities Act") or the Exchange Act, as the case may be (such
reports and registration statements, together with any amendments or
supplements thereto, collectively, the "SEC/OTS Filings").
(b) As of their respective dates, the Filings complied and, in the case of
SEC/OTS Filings made after the date hereof, will comply, as to form and
substance in all material respects with the requirements of the Securities Act
and the Exchange Act, as the case may be. The audited consolidated financial
statements and any unaudited interim consolidated financial statements of
Highland included in the SEC/OTS Filings complied and, in the case of SEC/OTS
Filings made after the date hereof, will comply, as to form and substance in
all material respects with the applicable rules and regulations of the SEC and
the OTS, were or will be, as the case may be, prepared in accordance with
generally accepted accounting principles applied on a consistent basis (except
as may be indicated therein or in the notes thereto or, with respect to interim
financial statements, as permitted by Form 10-Q) and fairly present or will
fairly present, as the case may be, the financial condition of Highland and its
Subsidiaries or of Highland Federal and its Subsidiaries, as applicable, as at
the dates thereof and the consolidated results of their operations and cash
flows for the periods then ended. All agreements, contracts and other documents
required to be filed as exhibits to any of the SEC/OTS Filings have been or
will be, as the case may be, so filed as required.
(c) No registration statement, offering circular, proxy statement, schedule
or report (including, without limitation, the SEC/OTS Filings) filed by
Highland or any Subsidiary with the SEC, the OTS, the Federal Deposit Insurance
Corporation (the "FDIC") or any other Governmental Authority under the
Securities Act, the Exchange Act, or any other applicable federal or state laws
or regulations, as of the date thereof, contained or, in the case of filings
made after the date hereof, will contain any untrue statement of a material
fact or omitted, or in the case of filings made after the date hereof will
omit, to state a material fact required to be stated therein, or necessary to
make the statements therein, in light of the circumstances under which they
were
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made, not misleading. Each of Highland and its Subsidiaries has filed and will
file in a timely manner all required filings with the SEC, the OTS, the FDIC
and all other appropriate Governmental Authorities, and all such filings
complied and will comply as to required form and substance in all material
aspects with the regulatory requirements applicable thereto.
(d) The books and records of Highland and its Subsidiaries, including
Highland Federal, have been fully, properly and accurately maintained in all
material respects, and there are no material inaccuracies or discrepancies of
any kind contained or reflected therein. Such books and records fairly present
the financial position, assets, liabilities and transactions of Highland and
each of such Subsidiaries in accordance with generally accepted accounting
principles.
3.9 Properties.
(a) Highland or a Subsidiary thereof has good and marketable title to all
properties and assets owned and used in the business of Highland and its
Subsidiaries, including the real properties reflected in the financial
statements as of December 31, 1999 and for the year then ended included in
Highland's annual report on Form 10-K for the year ended December 31, 1999 (the
"Form 10-K")(the "1999 Financial Statements") (except to the extent that any
such owned properties or assets have been disposed of since such date in the
ordinary course of business), free and clear of all liens, claims, charges,
security interests or other encumbrances, other than liens, claims, charges,
security interests and encumbrances disclosed in the notes to the 1999
Financial Statements, or which do not, individually or in the aggregate,
adversely affect the use and enjoyment of the properties or assets subject
thereto or Highland's business and liens for taxes not yet due and payable.
(b) Section 3.9(b) of the Highland Schedule lists all of the offices and
branches maintained and operated by Highland and its Subsidiaries, including
the address or description thereof and whether it is held in fee or leasehold.
Except as shown on the Highland Schedule Section 3.9(b), neither Highland nor
any of its Subsidiaries maintains any office or conducts business at any other
location.
(c) Section 3.9(c) of the Highland Schedule lists all properties and assets
held by Highland or its Subsidiaries under lease. All such properties are held
under valid lease instruments, enforceable in accordance with their terms,
except as may be limited by bankruptcy, insolvency, moratorium, reorganization
or similar laws affecting the rights of creditors generally. To the knowledge
of Highland, as of the date hereof, there is no default or basis for
termination (or event or circumstance which, with the giving of notice or lapse
of time, would constitute such a default or basis for termination) by the
lessee or the lessor under any such lease.
Highland and its Subsidiaries are insured with reputable insurers, in such
amounts as have been disclosed to Jackson and against all risks normally
insured against by corporations in similar lines of business, and all insurance
policies and bonds maintained by Highland and each of its Subsidiaries as of
the date hereof are listed in Section 3.9(d) of the Highland Schedule and are
in full force and effect. As of the date hereof, neither Highland nor any of
its Subsidiaries has received any notice of cancellation or material amendment
of any insurance policy or bond or is in default under any such policy or bond,
no coverage thereunder is being disputed, and all claims thereunder have been
filed in timely fashion.
Except as disclosed in Section 3.9(e) of the Highland Schedule, neither
Highland nor any Subsidiary has outstanding, as of the date hereof, any
commitment for capital expenditures.
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3.10 Absence of Certain Changes. Except as set forth in Section 3.10 of the
Highland Schedule and as expressly required or permitted under this Agreement,
since December 31, 1999, Highland and its Subsidiaries have conducted their
businesses in the ordinary course, consistent with past practice (except as
expressly required to perform their obligations under this Agreement), and from
December 31, 1999 until the date hereof, there has not been:
(a) Any change in the business, assets, financial condition, results of
operations or properties of Highland or any Subsidiary thereof; or
(b) Any amendment to the certificate of incorporation or by-laws of Highland
or the charter, by-laws or other organizational documents of any of its
Subsidiaries; or
(c) Except for the $0.075 per share dividend paid in February, 2000, and the
$0.075 per share dividend declared on April 17, 2000, any declaration, setting
aside or payment of any dividend (whether in cash, stock or other property) or
any other distribution in respect of the capital stock of Highland or its
Subsidiaries (other than dividends paid on the capital stock of wholly-owned
Subsidiaries of Highland); or
(d) Except for capital stock issued or to be issued upon the exercise of
options under the Stock Option Plan, any issuance, reissuance, sale or
acquisition of (or agreement to issue, reissue, sell or acquire) shares of
capital stock, other equity securities or rights, options or warrants to
acquire any such shares of stock or other equity securities of Highland or any
of its Subsidiaries; or
(e) Any subdivision, combination, aggregation or reclassification of any
shares of capital stock or redemption or repurchase of any shares of such
capital stock of Highland or any of its Subsidiaries; or
(f) Any merger or consolidation (or agreement to merge or consolidate) with
any other corporation, or conveyance to any other person, firm or corporation,
or encumbrance of (or agreement to convey or encumber) a material part of
Highland's assets or the assets of any of its Subsidiaries, or the acquisition
(or agreement to acquire) of all or substantially all of the assets of another
person, firm or corporation; or
(g) Entry into any material contract, arrangement or commitment except in
the ordinary course of the respective businesses of Highland and its
Subsidiaries consistent with their past practices; or
(h) Implementation of any pension, retirement, profit sharing, bonus,
welfare benefit or similar plan or arrangement or the material amendment of any
existing plan or arrangement, other than as required by law, or
(i) Incurrence of any indebtedness for borrowed money other than as
permitted by Section 5.3 of this Agreement; or
(j) Any change by Highland or its Subsidiaries in accounting principles or
methods, except as required by the Financial Accounting Standards Board
("FASB"), SEC regulations or regulations promulgated by the OTS with respect to
financial statements required to be filed with it; or
(k) Any increase in compensation payable by Highland or any of its
Subsidiaries to any of their respective directors, officers, employees or
agents, other than pursuant to the terms of the employment agreements delivered
to Jackson prior to the date hereof and listed in Section 3.10(k) of the
Highland Schedule, and normal cost-of-living and regularly scheduled increases
to non-executive employees of Highland and its Subsidiaries; or
(l) Entry into any agreement to (i) do any of the foregoing other than as
expressly provided herein or (ii) take or omit to take any action which, if
taken or omitted to be taken prior to the date hereof would have made any
representation or warranty contained in this Article III untrue or incorrect.
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3.11 Material Contracts.
(a) Except as disclosed in Section 3.11(a) of the Highland Schedule
(including any disclosure made therein in respect of Sections 3.15 and 3.17),
neither Highland nor any of its Subsidiaries is a party to any oral or written
(i) agreement not terminable on 30 days or less notice or involving the
payment of more than $100,000 per annum, (ii) joint venture agreement, or
(iii) noncompetition or other agreement that restricts Highland or its
Subsidiaries from engaging in a line of business.
(b) Neither Highland nor any Subsidiary of Highland is in default under any
contract, agreement, indenture, mortgage, deed of trust, loan instrument,
commitment, arrangement, lease, insurance policy or other instrument to which
it is a party or by which its respective properties or assets may be bound or
subject or under which it or its respective business, properties or assets
receive benefits, and, to the best knowledge of Highland, there has not
occurred any event that with the lapse of time or the giving of notice or both
would constitute such a default.
3.12 Litigation.
(a) Except as disclosed in Section 3.12(a) of the Highland Schedule, there
are no suits, claims, actions or proceedings against or affecting Highland or
any of its Subsidiaries pending or, to the best of knowledge of Highland,
threatened, or that could reasonably be asserted, nor is there any judgment,
decree, injunction, rule or order of any Governmental Authority or arbitrator
outstanding against Highland or any Subsidiary.
(b) Section 3.12(b) of the Highland Schedule sets forth all closed
litigation matters in which Highland or any of its Subsidiaries was a party
and was required to make a payment in settlement or judgment in excess of
$10,000 during the two years preceding the date hereof, the date such
litigation was commenced and concluded, and the nature of the resolution
thereof (including amounts paid in settlement or judgment).
3.13 Contingent Liabilities. Highland and its Subsidiaries have no
contingent liabilities or obligations that are material to Highland and its
Subsidiaries on a consolidated basis and that have not been (i) reflected in
the 1999 Financial Statements, (ii) incurred in the ordinary course of
business consistent with past practices, or (iii) disclosed to Jackson in
Section 3.13 of the Highland Schedule. Highland and its Subsidiaries have no
knowledge of any reasonable basis for the assertion against any of them of any
liability, obligation or claim that is not reflected in the 1999 Financial
Statements or otherwise disclosed in this Agreement or in the Highland
Schedule.
3.14 Taxes.
(a) Definitions. For purposes of this Section 3.14, and Section 5.8 the
following definitions shall apply:
(i) The term "Group" shall encompass, collectively, Highland and each
other corporation that is a member of the affiliated group of corporations
(each such corporation, including Highland, a "Member") within the meaning
of Section 1504 of the Internal Revenue Code of 1986, as amended (the
"Code"), of which Highland is the common parent.
(ii) The term "Taxes" shall mean all taxes, however denominated,
including any interest, penalties or other additions that may become
payable in respect thereof, imposed by any federal, territorial, state,
local or foreign government or any agency or political subdivision of any
such government, which taxes shall include, without limiting the generality
of the foregoing, all income or profits taxes (including, but not limited
to, federal income taxes and state franchise and income taxes), payroll and
employee withholding taxes, unemployment insurance taxes and social
security taxes, sales and use taxes, ad valorem taxes, excise taxes,
franchise taxes, gross receipts taxes, business license taxes, occupation
taxes, real and personal property taxes, stamp taxes, environmental taxes,
transfer taxes, workers' compensation, Pension Benefit Guaranty Corporation
premiums and other governmental charges, backup withholding taxes, and
other obligations of the same or of a similar nature to any of the
foregoing, which the Group, Highland or any Member is required to pay,
withhold or collect.
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(iii) The term "Returns" shall mean all reports, estimates, declarations
of estimated tax, information statements and returns relating to, or
required to be filed in connection with, any Taxes.
(b) Highland and each of its Subsidiaries is, has been and will be a Member
of the Group for all taxable periods ending on or before the Closing Date. The
Group and each Member have timely filed all Returns required to be filed, and
the information contained in each such Return is complete and accurate. No
Member is subject to any state or local taxes in any jurisdiction other than
California.
(c) Each Member has paid all Taxes required to be paid in respect of the
periods covered by such Returns, and no Member has liability for such Taxes
(and, to the best knowledge of Highland, there is no potential liability in
respect of deductions, costs or other allowances taken for federal income tax
purposes likely to be disallowed in any audit by the Internal Revenue Service)
in excess of the amounts so paid or reserves (excluding deferred taxes) so
established.
(d) No Member is delinquent in the payment of any Taxes, and no Member has
requested any extension of time within which to file any Returns that have not
since been filed, and no deficiencies for any Taxes have been claimed, proposed
or assessed. There are no liens for Taxes upon the assets of any Member, except
for statutory liens for current Taxes not yet due. There are no outstanding
extensions of time for the assessment or collection of any Taxes payable by any
Member nor has any such extension been requested.
(e) Except as disclosed in Section 3.14(e) of the Highland Schedule, there
are no pending or, to the best of Highland's knowledge, threatened, tax audits,
investigations, proposed deficiencies, or claims for or relating to any
liability of the Group or any Member in respect of Taxes, and neither the Group
nor any Member has any matters under discussion with any taxing authorities
with respect to Taxes that are likely to result in a tax liability. No power of
attorney which is currently in force has been granted by or with respect to the
Group or any Member with respect to any matter relating to Taxes. No closing
agreement pursuant to Section 7121 of the Code (or any predecessor provision)
or any similar provision of any state, local or foreign law has been entered
into by or with respect to the Group or any Member.
(f) As of the date hereof, the federal income tax Returns of the Group and
each Member have been audited and closed by the Internal Revenue Service, or
the applicable statute of limitations has expired, for all taxable periods
through the year ended December 31, 1990, and the State of California franchise
and income tax Returns have been audited and closed by the California Franchise
Tax Board, or the applicable statute of limitations has expired, for all
taxable periods through the period ended December 31, 1994.
(g) No Member is a "consenting corporation" under Section 341(f) of the
Code. No Member has ever been a member of an affiliated group of corporations
(within the meaning of Section 1504 of the Code) other than the Group.
(h) No Member maintains any compensation plans, programs or arrangements,
payments under which would not be deductible as a result of the limitations
under Section 162(m) of the Code.
(i) Neither the Group nor any Member will be obligated, as a result,
directly or indirectly, of the transactions contemplated by this Agreement, to
make a payment that could be characterized as an "excess parachute payment"
(within the meaning of Section 280G of the Code), without regard to whether
such payment is reasonable compensation for personal services performed or to
be performed in the future.
(j) Neither the Group nor any Member has received any memorandum or opinion
from legal counsel for any other tax advisor that was sought in order to
satisfy the "reasonable cause" exception (set forth in Section 6664(c) of the
Code) applicable to penalties for certain underpayments of Taxes under Sections
6662 through 6664 of the Code.
(k) Neither the Group nor any Member has made any material elections as to
Taxes during the period from January 1, 1999 through the Effective Time, other
than elections made on tax returns filed for the year
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ended on December 31, 1998. Neither the Group nor any Member has any
outstanding rulings or requests for rulings with any Tax authority.
(l) Each Member has timely withheld and paid over to the relevant
Governmental Authority or other appropriate payee, all Taxes required to have
been withheld and paid in connection with amounts paid or owing to all persons.
(m) No Member is or has been a "United States real property holding
corporation" within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(1)(A) (ii) of the Code.
(n) Highland has made available to Jackson true and correct copies of the
United States Federal income tax Returns and California corporate franchise and
income tax Returns for each of the Group's three most recent fiscal years ended
on or before December 31, 1998.
(o) There are no deferred gains or losses arising from deferred intercompany
transactions within the Group (within the meaning of Section 1.1502-13 of the
Regulations), the Group has no deferred gain or loss with respect to stock or
obligations (within the meaning of Section 1.5502-14 of the Regulations), and
the Group has no excess loss accounts (within the meaning of Section 1.1502-19
of the Regulations).
(p) Highland Federal is, and for all taxable years prior to the date hereof
has been, a "domestic building and loan association" as defined in Section
7701(a)(19) of the Code. No event has occurred that has required or will
require any Member to recapture any portion of its pre-1988 reserves pursuant
to Section 593(g)(3) of the Code.
(q) No event has occurred that will require the Group or any Member to make
any adjustments under Code Section 481 for any period extending beyond the
Effective Time.
(r) Except as set forth in Section 3.14(r) of the Highland Schedule, neither
the Group nor any Member is a party to or bound by any tax indemnity, tax
sharing or tax allocation agreement or arrangement. No Member is a party to any
joint venture, partnership, or other arrangement which could be treated as a
partnership for Federal income tax purposes.
3.15 Employee Benefit Plans; ERISA.
(a) Except as set forth in Section 3.15(a) of the Highland Schedule and as
of the date hereof, neither Highland nor any Subsidiary is a party to or has or
could have any liability, contingent liability or obligation with respect to
(i) any "employee benefit plan" within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), (ii) any
profit sharing, pension, deferred compensation, bonus, stock option, stock
purchase, severance, retainer, consulting, health, welfare or incentive plan or
agreement, including any post-employment benefits, whether pursuant to
contract, arrangement, custom or informal understanding, which does not
constitute an employee benefit plan, (iii) any material plan or policy
providing for "fringe benefits" to its employees, including but not limited to
vacation, paid holidays, personal leave, employee discount, educational benefit
or similar programs, or (iv) any employment agreement (individually a "Benefit
Plan", and collectively the "Benefit Plans").
(b) Highland has included correct and complete copies of (A) the Benefit
Plans and all contracts relating thereto or to the funding thereof, (B) any
employment, consulting or termination agreements with respect to current, or
former employees or directors of Highland or any Subsidiary to the extent any
liability or obligation remains thereunder, (C) the most recent Internal
Revenue Service determination letter relating to each Benefit Plan that is an
employee pension benefit plan, as defined in Section 3(2) of ERISA (the
"Employee Pension Benefit Plans") and that is intended to be qualified under
Section 401(a) of the Code, (D) to the extent required to be filed, the two
most recent Annual Reports (Form 5500 Series) and accompanying schedules of
each Benefit Plan, as filed with the Internal Revenue Service, (E) any summary
plan descriptions relating to any Benefit Plan, (F) if applicable, the most
recent audited financial statements of each Employee Pension Benefit
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Plan and (G) the two most recent actuarial valuation reports for each Employee
Pension Benefit Plan for which such reports were prepared in Section 3.15 (b)
of the Highland Schedule. Highland has also included an accurate description of
any Benefit Plan that is not in written form in Section 3.15(b) of the Highland
Schedule.
(c) Highland and each Subsidiary has received, with respect to each of the
Employee Pension Benefit Plans which is intended to qualify under Section
401(a) of the Code, a favorable determination letter issued by the Internal
Revenue Service that covers all amendments to the plan for which the remedial
amendment period (within the meaning of Section 401(b) of the Code and
applicable regulations) has expired, and no events, actions or failures to act,
have occurred which would adversely affect the qualification of any such
Employee Pension Benefit Plan or result in a tax under Section 511 of the Code.
Neither Highland, any Subsidiary nor any entity which is part of a group which
includes Highland or any Subsidiary and which is treated as a single employer
under Section 414 of the Code (a "Controlled Group Member") contributes to a
"multiemployer plan", as defined in Section 4001(a)(3) of ERISA, or has had a
complete or partial withdrawal from any such multiemployer plan, the liability
for which remains unsatisfied. Each of the Benefit Plans has been administered
in all material respects in accordance with its terms, the requirements of
ERISA and any other applicable law.
(d) All reports and information required to be filed with the United States
Department of Labor, Internal Revenue Service or Pension Benefit Guaranty
Corporation ("PBGC"), or distributed to plan participants and their
beneficiaries, which if not timely filed or distributed would result in any
liability to Highland or any Subsidiary with respect to any Benefit Plan, have
been timely filed or distributed. With respect to each Benefit Plan for which
an Annual Report had been filed, no change has occurred with respect to the
matters covered by the most recent Annual Report since the date thereof which
would result in any liability to Highland or any Subsidiary.
(e) None of the Employee Pension Benefit Plans (or any pension plan
maintained by a Controlled Group Member) which is subject to Title IV of ERISA
have (A) completely or partially terminated or (B) been the subject of a
"reportable event" as defined in Section 4043 of ERISA, if any such event would
result in any liability to Highland or any Subsidiary.
(f) No proceedings by the PBGC to terminate pursuant to Subtitle C of Title
IV of ERISA any Employee Pension Benefit Plan of Highland (or any pension plan
maintained by a Controlled Group Member) have been instituted or threatened and
no event has occurred or condition exists which might constitute grounds under
Section 4042 of ERISA for the termination of or the appointment of a trustee to
administer any such plan. No material liability under Title IV of ERISA has
been incurred by Highland or any Subsidiary with respect to an Employee Pension
Benefit Plan (or any pension plan maintained by a Controlled Group Member) and
none of Highland, any Subsidiary or any Controlled Group Member has engaged in
(or is a successor to an entity that has engaged in) a transaction for which
Highland or any Subsidiary would have liability under Section 4069 or 4212(c)
of ERISA. Except as set forth in Section 3.15(f) of the Highland Schedule, none
of the Employee Pension Benefit Plans (or any pension plan of a Controlled
Group Member) which is a defined benefit pension plan has incurred any
"accumulated funding deficiency" (whether or not waived), as that term is
defined in Section 412 of the Code, and the fair market value of the assets
held to fund each such plan equals or exceeds the actuarial present value
(based on the actuarial assumptions used by the actuary of the plan for
purposes of determining the contributions for such plan) of all accrued
benefits, both vested and nonvested, under such plan.
(g) Except as set forth in Section 3.15(g) of the Highland Schedule, all
contributions for all periods ending prior to the Closing Date (including
periods from the first day of the current plan year to the Closing Date) will
be made prior to the Closing Date by Highland or its Subsidiary, as applicable,
in accordance with past practice.
(h) There have been no "prohibited transactions" (as such term is defined in
Section 4975 of the Code or in Part 4 of Subtitle B of Title I of ERISA) with
respect to any Benefit Plan as to which Highland or any
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Subsidiary may have any liability. No penalty or tax for which Highland or any
of its Subsidiaries may be liable has been imposed under Section 502(i) of
ERISA or Section 4975 of the Code.
(i) There are no pending, or to the best knowledge of Highland threatened,
claims by or on behalf of any Benefit Plan, or by any employee or beneficiary
covered under any such Benefit Plan, which allege a breach of fiduciary duties
or violations of other applicable state or federal law which may result in
liability on the part of Highland or any Subsidiary or result in any decrease
in the assets of any Benefit Plan under ERISA or any other law, nor, to
Highland's best knowledge, is there any basis for any such claim. Highland will
notify Jackson in writing of any such threatened or pending claims arising
after the date hereof but before the Effective Time.
(j) Except as set forth in Section 3.15(j) of the Highland Schedule, neither
Highland nor any Subsidiary has any obligation to provide, or liability or
contingent liability with respect to, any post- employment benefits for any
current or former employee under any "welfare benefit plan" as defined in
Section 3(l) of ERISA, other than for group health plan continuation coverage
required under Part 6 of Title I of ERISA.
(k) All expenses and liabilities relating to all of the Benefit Plans
described in Section 3.15(k) of the Highland Schedule have been, and will on
the Closing Date, be fully and properly accrued on Highland's books and
records, to the extent required by generally accepted accounting principles.
(l) Except as set forth in Section 3.15(l) of the Highland Schedule, none of
the assets of any Benefit Plan are invested in employer securities or employer
real property.
(m) There has been no act or omission that would impair the ability of
Highland or any Subsidiary (or any successor thereto) to amend or terminate
unilaterally any Benefit Plan.
(n) There have been no acts or omissions by Highland or any Subsidiary which
have given rise to or may give rise to fines, penalties, taxes or related
charges under Section 502 of ERISA or Chapters 43, 47, 68 and 100 of the Code
for which Highland or any Subsidiary may be liable.
3.16 Labor Relations. Neither Highland nor any of its Subsidiaries is a
party to any collective bargaining agreement. No material labor dispute, strike
or other work stoppage has ever occurred, is continuing or, to the knowledge of
Highland, has ever been threatened with respect to Highland or any of its
Subsidiaries, and, to the knowledge of Highland, no union organizing,
certification or election activities have taken place with respect to Highland
or any of its Subsidiaries. Highland and its Subsidiaries are in compliance
with all currently applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours relating to
their business, and is not engaged in any unfair labor practice. There is no
unfair labor practice complaint pending or, to the knowledge of Highland, or
its Subsidiaries, threatened against Highland or its Subsidiaries before the
National Labor Relations Board or any similar national, state or local
governmental agency.
3.17 Employment and Similar Agreements; Obligations Upon Change in
Control. Except as disclosed in Section 3.17 of the Highland Schedule, there
are no employment, consulting, severance or indemnification agreements or
understandings of legal effect ("Employee Agreements") between Highland or any
of its Subsidiaries, on the one hand, and any director, officer (including
"executive officers" as defined under the Exchange Act) or employee of Highland
or of any of its Subsidiaries or any other party, on the other hand. Except as
set forth in Section 3.17 of the Highland Schedule, there are no such Employee
Agreements (i) under which any of the transactions contemplated by this
Agreement will require any payment by Highland or any of its Subsidiaries, or
Jackson, to any director, officer (including executive officers) or employee of
Highland or of any of its Subsidiaries, or any other party, or (ii) under which
there will occur any acceleration or change in the award, grant, vesting or
determination of options, warrants, rights, severance payments, or other
contingent obligations of any nature whatsoever of Highland or any of its
Subsidiaries in favor of any such parties, or under which the value of any
benefits will be calculated on the basis of any of the transactions
contemplated by this Agreement.
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3.18 Broker's and Finder's Fees. Except for payments to Sandler O'Neill &
Partners, L.P. which has been engaged by Highland as its financial advisor and
investment banker (pursuant to an agreement, a copy of which has been delivered
to Jackson), neither Highland nor any of its Subsidiaries has any liability to
any broker, finder, or similar agent, nor have any of them agreed to pay any
brokerage fee, finder's fee or commission, with respect hereto or to the
transactions contemplated hereby.
3.19 Regulatory Applications. None of the information provided or to be
provided by Highland for inclusion in any applications for Regulatory Approvals
or in the proxy statement to be distributed by Highland to its stockholders in
connection with obtaining stockholder approval of the Merger (the "Proxy
Statement") will contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading.
3.20 Hazardous Materials.
(a) Except as shown in Section 3.20 of the Highland Schedule, to the best of
Highland's knowledge, Hazardous Materials have not been deposited or disposed
of in, on or under, or handled or processed on, or released, emitted or
discharged from, any of Highland's or any of its Subsidiary's properties during
the time when Highland or such Subsidiary owned the property. Except as shown
on the Highland Schedule, neither Highland nor any of its Subsidiaries has any
knowledge or information that any prior owners, occupants or operators of any
such properties ever deposited, disposed of, or allowed to be deposited or
disposed of in, on, or under, or handled or processed on, or released, emitted
or discharged from, such properties, any Hazardous Material, or that any prior
or present owners, occupants or operators of any properties in which any of
Highland or Highland's Subsidiaries hold a security interest, mortgage or other
lien or interest, deposited or disposed of in, on or under, or handled or
processed on, or released, emitted or discharged from, such properties, any
Hazardous Material. "Hazardous Material" shall mean any substance, chemical,
waste or other material which is listed, defined or otherwise identified as
hazardous, toxic or dangerous under any applicable law, regulation or order of
any Governmental Authority, as well as any petroleum, petroleum product or by-
product, crude oil, natural gas, natural gas liquids, liquefied natural gas, or
synthetic gas useable for fuel, and "source," "special nuclear," and "by-
product" material as defined in the Atomic Energy Act of 1985, 42 U.S.C. (S)
3011 et seq.
(b) Except as set forth on Section 3.20(b) of the Highland Schedule, neither
Highland nor any of its Subsidiaries nor, to the best knowledge of Highland,
any of its or their borrowers is in violation (either directly, including as a
successor-in-interest in connection with the realization upon properties
serving as collateral, or indirectly, as a collateral interest holder) of any
judgment, decree, order, law, license, rule or regulation pertaining to
environmental laws, nor has Highland or any of its Subsidiaries or, to the best
knowledge of Highland , any of its or their borrowers, received notice from any
Governmental Authority of any such violation or of any remedial investigation
or action.
3.21 Damage to Mortgaged Properties. The Highland Federal mortgage loan
files accurately reflect the Highland Federal loans made and the underlying
collateral in all material respects. Except as set forth in Section 3.21 of the
Highland Schedule, none of the properties securing outstanding loans held or
serviced by Highland or any of its Subsidiaries has suffered material damage or
casualty loss not covered in full by an insurance policy written by a reputable
insurer whose claims paying capacity has not been impaired, nor has Highland or
any of its Subsidiaries funded any loan commitments or granted any forbearances
with respect to loans secured by properties that are not fully insured against
casualty losses on customary terms by reputable insurers whose claims paying
capacity has not been impaired. Except as set forth in Section 3.21 of the
Highland Schedule, none of the mortgagors for Highland's loans has advised
Highland Federal in writing that the hazard or casualty insurance policy on
such mortgaged property has not been or will not be renewed and that such
mortgagor is unable to obtain a substitute or replacement policy in accordance
with the terms of such mortgage. Except as set forth in Section 3.21 of the
Highland Schedule, all outstanding single family residential mortgage loans
originated or serviced by Highland are insured in amounts and by insurers that
meet the
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requirements of the Federal Home Loan Mortgage Corporation or the Federal
National Mortgage Association for resale in secondary market transactions.
3.22 Corporate Approval.
(a) The affirmative vote of the holders of a majority of the outstanding
shares of Highland Common Stock is required to adopt this Agreement and approve
the Merger and the other transactions contemplated hereby. No other vote of the
stockholders of Highland is required by law, the certificate of incorporation
or by-laws of Highland or otherwise to adopt this Agreement and approve the
Merger and the other transactions contemplated hereby.
(b) Highland has taken all action required in order to exempt this Agreement
and the transactions contemplated hereby from, and this Agreement and the
transactions contemplated hereby are exempt from, the requirements of any and
all "moratorium," "control share," "fair price," "affiliate transaction,"
"business combination" and other anti-takeover laws and regulations of any
state (collectively, "Takeover Laws") that might otherwise be applicable
thereto, including, without limitation, Section 203 of the Delaware Corporation
Law.
3.23 Deposit Accounts. The deposits of Highland Federal are insured by the
Savings Association Insurance Fund of the Federal Deposit Insurance Corporation
in accordance with the provisions of the Federal Deposit Insurance Act, as
amended (the "FDI Act"). Highland Federal has paid all regular premiums,
special assessments and other amounts, and has filed all reports, required to
be filed by it pursuant to the FDI Act and its predecessor statutes.
3.24 Intellectual Property. Each of Highland and its Subsidiaries owns or
possesses the right, free of the claims of any third party, to use all
trademarks, service marks, trade names, copyrights, patents, licenses and other
intellectual property currently used by it in the conduct of its business. To
the knowledge of Highland, no product or service offered by Highland or its
Subsidiaries infringes any rights of any other person, and neither Highland nor
any Subsidiary has received written or oral notice of any claim of such
infringement.
3.25 Certain Legal and Regulatory Matters.
(a) Highland Federal is a "qualified thrift lender" under Section 10(m) of
HOLA and is a member in good standing of the Federal Home Loan Bank System and
the FHLB.
(b) The liquidation account of Highland Federal, as of December 31, 1999,
was not greater than $123,476.00 Highland Federal has maintained its
liquidation account, since the inception thereof, in accordance with practices
prescribed by the OTS.
(c) Highland Federal has not paid any dividends to Highland or any affiliate
thereof that (i) caused the regulatory net worth of Highland Federal to be less
than the amount then required by applicable law or (ii) exceeded any other
limitation on the payment of dividends imposed by law, agreement or regulatory
policy. Other than as reflected in Section 3.25 of the Highland Schedule and as
required by applicable law, there are no restrictions on the payment of
dividends by Highland or Highland Federal.
3.26 Material Interests of Certain Persons. No officer or director of
Highland or its Subsidiaries or any "associate" (as such term is defined in SEC
Rule 12b-2 under the Exchange Act) of any such officer or director, has any
material interest in any material contract or property (real or personal,
tangible or intangible) used in or pertaining to the business of Highland and
its Subsidiaries, including Highland Federal.
3.27 Derivative Contracts; Structured Notes; etc. Neither Highland nor any
of its Subsidiaries, including Highland Federal, is a party to or has agreed to
enter into after the date hereof, any exchange traded or over-the-counter
equity, interest rate, foreign exchange or other swap, forward, future, option,
cap, floor, collar or other contract of the types commonly referred to as
"derivative contracts" including any combinations
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thereof (each a "Derivatives Contract") and neither Highland nor any of its
Subsidiaries owns securities that are referred to generically as "structured
notes," "high risk mortgage derivatives" (as defined for federal banking
regulatory purposes), "capped floating rate notes" or "capped floating rate
mortgage derivatives", except for those Derivative Contracts and such other
instruments listed in Section 3.27 of the Highland Schedule. All Derivative
Contracts, whether entered into for Highland's own account, or for the account
of one or more of its Subsidiaries or their customers, were entered into (i) in
accordance with applicable laws, rules and regulations and (ii) with
counterparties believed at the time to be financially responsible. Neither
Highland nor any of its Subsidiaries, including Highland Federal, nor to its
knowledge any other party thereto, is in breach of any of its obligations under
any Derivatives Contract.
3.28 Disclosure. No written statement, certificate, schedule, list or other
written information furnished by or on behalf of Highland or any Subsidiary to
Jackson prior to the date hereof contains any untrue statement of a material
fact or omits to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
3.29 Insurance Agency Activity. A complete list of all HI commission payout
schedules and exceptions thereto, and a complete list of HI's employees or
agents engaged in activities related to the insurance, annuity or securities
business and the licenses, designations, and company/firm appointments held by
each individual as of the date hereof is included in Schedule 3.29 of the
Highland Schedule.
3.30 Standard. No representation or warranty of Highland and Highland
Federal contained in this Article III shall be deemed untrue and neither
Highland nor Highland Federal shall be deemed to have breached a representation
or warranty as a consequence of the existence of any fact, event or
circumstance unless such fact, circumstance or event, individually or taken
together with all other facts, events or circumstances inconsistent with any
representation or warranty contained in this Article III has had or is
reasonably likely to have a Material Adverse Effect.
IV. REPRESENTATIONS AND WARRANTIES OF JACKSON
Except as otherwise disclosed to Highland in a schedule dated as of the date
hereof and delivered concurrently with the execution of this Agreement (the
"Jackson Schedule"), Jackson represents and warrants to Highland as follows:
4.1 Organization. Jackson is duly organized, validly existing and in good
standing under the jurisdiction of its incorporation or organization. Jackson
has all requisite power and authority to carry on its businesses as now
conducted and is qualified to do business as a foreign corporation and in good
standing in each jurisdiction in which such qualification is necessary under
applicable law.
4.2 Non-Contravention; Binding Effect. Jackson has all requisite power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby and thereby and to perform its obligations hereunder and
thereunder. This Agreement has been duly and validly authorized, executed and
delivered by Jackson and constitute the valid and legally binding obligations
of Jackson, enforceable against Jackson in accordance with their terms, except
as may be limited by bankruptcy, insolvency, moratorium, reorganization or
similar laws affecting the rights of creditors generally, or general equitable
principles. Neither the execution and delivery of this Agreement by Jackson,
nor the consummation by Jackson of the transactions contemplated hereby, nor
the compliance by Jackson with any of the provisions hereof will (i) conflict
with or result in a breach of any provision of Jackson's certificate of
incorporation, by-laws, charter or organizational documents, or (ii) constitute
or result in the breach of any term, condition or provision of, or 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 assets of Jackson pursuant to, any note, bond,
mortgage or indenture, or license, agreement, lease or other instrument or
obligation to which Jackson is a party or by which any of its properties or
assets may be bound, except for such breaches, defaults, rights of termination,
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cancellation or acceleration and such liens, charges and encumbrances, or (iii)
subject to obtaining the Regulatory Approvals, violate any order, writ,
injunction, decree, statute, rule or regulation applicable to Jackson or any of
its respective properties or assets.
4.3 No Consent. Except as set forth in Section 4.3 of the Jackson Schedule,
no consents, approvals, orders, resolutions or forebearances by or from any
Governmental Authority or any other third party are required in order for
Jackson to enter into this Agreement to consummate the transactions
contemplated hereby and to perform its obligations hereunder and thereunder.
4.4 Regulatory Applications. The information relating to Jackson and its
affiliates provided by Jackson for inclusion in any applications filed for
Regulatory Approvals and in the Proxy Statement will comply in all material
respects with relevant laws and regulations and will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading.
4.5 Regulatory Approvals. Jackson knows of no reason why (a) the
transactions contemplated by this Agreement should not receive all Regulatory
Approvals required by Jackson and its affiliates to consummate the transactions
contemplated hereby or (b) there should be delay in receipt by Jackson and its
affiliates of such Regulatory Approvals. Listed on Section 4.5 of the Jackson
Schedule are all Regulatory Approvals required by Jackson or any of its
Affiliates to consummate the transactions contemplated hereby.
4.6 Access to Funds. As of the date hereof, Jackson has available from its
affiliates, and as of the Closing Date, Jackson will have available all funds
necessary to consummate the Merger.
4.7 Standard. No representation nor warranty of Jackson contained in this
Article IV shall be deemed untrue and Jackson shall not be deemed to have
breached a representation or warranty, as a consequence of the existence of any
fact, event or circumstance unless such fact, circumstance or event,
individually or taken together with all other facts, events or circumstances
inconsistent with any representation or warranty contained in this Article IV,
has had or is reasonably likely to have, a Material Adverse Effect.
V. COVENANTS OF HIGHLAND AND JACKSON
5.1 Covenants of Jackson and Highland. Jackson, Highland and Highland
Federal shall each, and shall cause each of its affiliates to:
(a) Filings and Approvals. Cooperate with the other in promptly preparing
and filing (i) all applications necessary to obtain all consents, approvals,
orders, resolutions or forebearances by or from any Governmental Authorities
necessary for the consummation of the Merger and the other transactions
contemplated by this Agreement (collectively, the "Regulatory Approvals"), and
(ii) all other documents necessary to obtain any other approvals and consents
required to consummate the Merger. Without limiting the generality of the
foregoing, (i) Highland shall provide draft copies of the Proxy Statement, and
any amendments or supplements thereto, to Jackson for its review and approval
within a reasonable time prior to the filing thereof, (ii) Jackson shall
provide to Highland drafts of applications, and any supplements and amendments
thereto, to be submitted by Jackson and its affiliates for any regulatory
approvals for Highland's review and approval within a reasonable time prior to
the filing thereof, and (iii) Jackson and Highland shall promptly inform each
other of all communications with Governmental Authorities regarding the
transactions provided for herein and related applications and proceedings.
(b) Reasonable Best Efforts. Subject to the terms and conditions hereof, use
its reasonable best efforts to take, or cause to be taken, all appropriate
action, and do, or cause to be done, all things necessary, proper or advisable
under applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement. Such reasonable best efforts shall
include, without limitation, (i) each of
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Jackson and Highland, and their respective affiliates, using reasonable best
efforts to obtain all necessary consents, approvals or waivers from third
parties and Governmental Authorities necessary for the consummation of the
transactions contemplated by this Agreement and (ii) Jackson causing the
organization of Merger Sub and taking and causing Merger Sub to take all
reasonable actions necessary to consummate the transactions contemplated by
this Agreement.
(c) Confidentiality and Non-Disclosure Agreement. Continue to abide by the
terms of that certain Confidentiality and Non-Disclosure Agreement executed by
Jackson (on December 1, 1999) and Highland (on November 24, 1999) attached
hereto as Exhibit (the "Confidentiality Agreement").
5.2 Affirmative Covenants of Highland. Highland shall and shall cause each
of its Subsidiaries to:
(a) Access. Afford to Jackson and its counsel, accountants or any other
persons selected by Jackson reasonable access during normal business hours and
upon reasonable prior notice to all its properties, permit Jackson and such
other persons to inspect and make copies of all stock records, minute books,
books of account, contracts, commitments and other records, and furnish to
Jackson such counterpart originals or certified or other copies of such
documents or such information with respect to its businesses and affairs as
Jackson may from time to time reasonably request.
(b) Conduct of Business. From and after the date of this Agreement and
subject to the express terms and conditions hereof, (i) conduct its affairs
only in the ordinary course of business consistent with past practice, and use
all reasonable efforts to preserve intact its business organization, keep
available the services of its present officers and employees and preserve its
relationships and goodwill with all persons having business dealings with it,
and (ii) maintain its and its Subsidiaries' books of account and records in
accordance with generally accepted accounting principles applied on a basis
consistent with those principles used in preparing the financial statements
heretofore delivered to Jackson, except to the extent any such change is
required by changes in applicable accounting rules and is agreed to by
Highland's independent public accountants.
(c) Delivery of Financial Statements. Deliver to Jackson as soon as they
become available true and complete copies of any report or statement mailed by
it to stockholders or filed by it with the SEC or, to the extent permitted by
law, any other Governmental Authorities subsequent to the date hereof and prior
to the Effective Time. In addition, Highland shall furnish to Jackson the
regularly prepared monthly financial statements of Highland and its
Subsidiaries, including any quarterly thrift financial reports, and, to the
extent permitted by law, any and all material presented to the Highland Board
of Directors.
(d) Meeting of Stockholders. Duly call a meeting of its stockholders for the
purpose of obtaining the approval of the stockholders to the Merger, this
Agreement, and all other matters necessary to consummate the transactions
contemplated by this Agreement, which meeting shall be held as soon as
practicable after the date hereof. In connection with such meeting, the Board
of Directors of Highland, subject to the requirements of the fiduciary duties
of the directors (determined after consultation with outside counsel to
Highland), (i) shall recommend approval of the transactions contemplated by
this Agreement and indicate the determination by the Board of Directors that
the Merger is in the best interests of the stockholders, (ii) shall not
withdraw such recommendation and, (iii) shall not recommend approval of any
tender offer, exchange offer, merger, consolidation, purchase of substantial
assets, recapitalization or similar transaction proposed by any other party.
Regardless of whether the Board of Directors of Highland has withdrawn,
modified or changed in any manner its recommendation to the stockholders of
Highland regarding the adoption of this Agreement and the approval of the
Merger, and subject to the provisions of 7.1(h), Highland shall remain
obligated under this Agreement, as promptly as practicable, to call and duly
convene a meeting of its stockholders to vote upon this Agreement and Merger
and cause a vote of the stockholders to be taken at such meeting to determine
whether the stockholders of Highland do adopt this Agreement and approve the
Merger.
(e) Proxy Statement. Promptly file with the SEC the Proxy Statement on the
form prescribed by the SEC and, after consultation with Jackson, use its best
efforts to respond promptly to any comments made by the
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SEC or any other governmental official with respect to the Proxy Statement and
any preliminary version thereof. Highland shall furnish Jackson with copies of
any correspondence received by Highland from the SEC in connection with the
Proxy Statement promptly after the receipt thereof, and shall furnish Jackson
with copies of any proposed responses that Highland intends to submit to the
SEC within a reasonable time prior to the submission thereof to the SEC. The
Proxy Statement shall not (i) on the date it is first mailed to Highland's
stockholders, (ii) on the date it is filed with the SEC and (iii) on the date
of the meeting of stockholders referred to above, contain any statement which,
at the time and in light of the circumstances under which it is made, is false
or misleading with respect to any material fact, or omits to state any material
fact required to be stated therein or necessary in order to make the statements
therein not false or misleading or necessary to correct any statement in any
earlier communication which has become false or misleading. Highland agrees
that the Proxy Statement shall comply as to form and substance in all material
respects with all applicable requirements of federal and state securities laws.
5.3 Negative Covenants of Highland. From the date hereof until the Effective
Time, except with the prior written consent of Jackson or as otherwise
expressly permitted by this Agreement, neither Highland nor any of its
Subsidiaries shall:
(a) Organizational Documents. Amend or propose to amend its certificate of
incorporation, charter, by-laws or other organizational documents.
(b) Dividends. Except for the payment of cash dividends consistent with past
practice and not to exceed $0.075 per share, provided the earnings of Highland
in the quarters in respect of which such dividends are paid are in excess of
$0.075 per share (excluding any costs or expenses incurred in conjunction with
the transactions contemplated by this Agreement), declare or pay any dividend
(whether in cash, stock or other property) or make any other distribution in
respect of its capital stock, except that any wholly-owned Subsidiary of
Highland may declare and pay cash dividends, without restriction, to Highland
or any of its wholly-owned Subsidiaries.
(c) Issuance of Securities. Issue, reissue, sell or acquire (or agree to
issue, reissue, sell or acquire) shares of its capital stock, other equity
securities or Voting Debt or rights, options, performance shares or warrants to
acquire any such shares of stock or other equity securities or Voting Debt,
except that (i) Highland and its Subsidiaries may issue shares pursuant to the
terms of any Options that were issued and outstanding on the date of this
Agreement and may, as and to the extent required by Section 1.5 hereof or the
terms of the Stock Option Plan or any agreement entered into pursuant to the
Stock Option Plan, repurchase or otherwise reacquire any such Options, or (ii)
wholly-owned Subsidiaries of Highland may issue shares of capital stock to
Highland or any of its wholly-owned Subsidiaries.
(d) Reclassifications or Repurchases. Subdivide, combine, aggregate in any
way or reclassify any shares of its capital stock or redeem or repurchase any
shares of such capital stock, except pursuant to the terms of any option
agreement entered into pursuant to the Stock Option Plan prior to the date
hereof and included in the options disclosed herein.
(e) Business Combinations. Merge or consolidate (or agree to merge or
consolidate) with any other corporation, or convey to another person, firm or
corporation or encumber (or agree to convey or encumber), in one transaction or
a series of transactions, a material part of its assets or capital stock of its
Subsidiaries, or acquire (or agree to acquire) all or substantially all the
assets of another person, firm or corporation, except pursuant to the Merger.
(f) Contracts, Employee Matters. (i) Enter into, amend or terminate any
material contract, arrangement, or commitment, except in the ordinary course of
business or as expressly permitted by the terms of this Agreement; enter into,
adopt, amend (except as required by law or expressly permitted by this
Agreement) or terminate any pension, retirement, profit sharing, bonus, welfare
benefit or any other employee Benefit Plan or any agreement, arrangement, plan
or policy between Highland or any of its Subsidiaries and one or more
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of their respective directors, officers or employees; (ii) except as set forth
in Section 5.3(f)(ii) of the Highland Schedule, or as may be agreed upon by the
parties to this Agreement, increase in any manner the compensation or fringe
benefits of any director, officer or employee or pay any benefit not required
by any plan or arrangement in effect on the date of this Agreement, or enter
into any contract, commitment, retention bonus, severance or separation
arrangement to do any of the foregoing, provided that compensation increases
and bonuses may be paid in the ordinary course of business and consistent with
past practices to employees who do not have a title of Vice President or above;
or (iii) enter into or renew any contract, agreement, commitment or arrangement
providing for the payment to any director, officer or employee of Highland or
any of its Subsidiaries of compensation or benefits contingent, or the terms of
which are materially altered, upon the occurrence of any of the transactions
contemplated by this Agreement.
(g) Indebtedness. (i) Incur any indebtedness for borrowed money other than
indebtedness incurred in respect of loans or advances from the FHLB having
maturities not greater than 12 months, which indebtedness shall be limited to
(A) amounts necessary to replace existing borrowings that mature after the date
hereof and prior to the Closing Date, plus (B) amounts necessary to fund
additional loan production or used in the normal course of Highland Federal's
business and consistent with past practices, not to exceed $20,000,000 from the
date hereof through and including the Closing Date, or (ii) assume, guarantee,
endorse or otherwise become responsible for, the obligations of any other
individual or entity, other than deposit liabilities, repurchase agreements and
assumptions, endorsements and guarantees incurred or assumed in the ordinary
course of Highland Federal's banking business consistent with past practice.
(h) Investments. Make any investment in the capital stock or securities
(excluding notes issued by borrowers in respect of loans made by Highland and
its Subsidiaries in the ordinary course of business) of any other person;
except for (i) capital stock of the FHLB; (ii) interest-bearing accounts or
certificates of deposits in the FHLB with maturities of six months or less;
(iii) direct obligations of the United States of America with maturities of one
year or less; (iv) obligations for which the full faith and credit of the
United States of America is pledged to provide for the payment of principal and
interest with maturities of one year or less; (v) pass-through mortgage backed
securities issued by GNMA, FNMA or FHLMC with final maturities not to exceed
seven years; and (vi) the Monarch Government Cash Fund.
(i) Business Practices. (i) Enter into any new line of business; (ii) change
in any material respect its lending, investment, liability management and other
material management policies; or (iii) incur or commit to incur any capital
expenditures in excess of $100,000 in the aggregate for all such expenditures
from the date hereof through and including the Closing Date, or any obligations
or liabilities in connection therewith, other than capital expenditures
disclosed in Section 5.3(i) of the Highland Schedule.
5.4 Notification. Each party to this Agreement shall notify the other party
promptly after becoming aware of the occurrence of, or the impending or
threatened occurrence of, (i) any event that would constitute a breach on its
part of any obligation under this Agreement, or (ii) any event that would cause
any representation or warranty made by it herein to be false or misleading, or
if it becomes a party or is threatened with becoming a party to any legal or
equitable proceeding or governmental investigation or upon the occurrence of
any event that would result in a change in the circumstances of either party
described in the representations and warranties contained herein.
5.5 No Shopping. Neither Highland nor any Subsidiary thereof shall, directly
or indirectly, through any officer, director, employee or agent or otherwise,
solicit, initiate, endorse, encourage, facilitate or participate in any
negotiation in respect of or cooperate with (including by way of furnishing any
non-public information concerning the business, properties or assets of
Highland, or any Subsidiary thereof) any Acquisition Proposal (as hereinafter
defined). Highland shall immediately cease and cause to be terminated any
activities, negotiations or discussions begun or conducted prior to the date
hereof, and shall enforce any confidentiality agreement or similar agreement,
relating to any actual or possible Acquisition Proposal. Highland shall notify
Jackson promptly, and in any event within 24 hours, by telephone, and
thereafter promptly confirm such notification in writing, if any such
information is requested from, or any Acquisition Proposal or inquiry with
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respect to any Acquisition Proposal is received by, Highland, any Subsidiary or
any of their respective officers, directors, employees, advisors or
representatives, and shall furnish Jackson with a copy of any written
Acquisition Proposal received by Highland and a summary of the material terms
of any oral Acquisition Proposal so received, including any subsequent changes
thereto. Notwithstanding any other provision in this Section 5.5 or elsewhere
in this Agreement, nothing in this Agreement (a) shall prevent the Board of
Directors of Highland from disclosing to the stockholders of Highland a
position with respect to a tender offer pursuant to Rule 14d-9 and 14e-2
promulgated under the Exchange Act or (b) shall prevent or restrict Highland
from taking any action with respect to an Acquisition Proposal if the Board of
Directors of Highland concludes in good faith after consultation with its
outside legal counsel that such action is necessary for it to act in a manner
consistent with its fiduciary duties under applicable law. The term
"Acquisition Proposal" means any proposal for, or any communication which may
reasonably be expected to lead to a proposal for, a merger or other business
combination involving Highland or for the acquisition of a substantial equity
interest in Highland or Highland Federal, or a substantial portion of the
assets of, Highland and its Subsidiaries on a consolidated basis.
5.6 Indemnification.
(a) Jackson shall indemnify and hold harmless each present and former
director, officer, or employee of Highland or any of its Subsidiaries (each, an
"Indemnified Party" and, collectively, the "Indemnified Parties"), to the
extent that Highland would have been permitted under its certificate of
incorporation or charter and by-laws as in effect on the date hereof, against
any costs or expenses (including reasonable attorneys' fees), judgments, fines,
losses, claims, damages, and liabilities and amounts paid in settlement (to the
extent Jackson consents to such settlement) not covered by insurance other than
that referred to herein in connection with any threatened, pending or completed
claim, action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, whether formal or informal, arising out of or
pertaining to any action or omission occurring prior to or as of the Effective
Time, including, without limitation, any which arise out of or relate to the
transactions contemplated by this Agreement and shall pay the expenses,
including reasonable attorneys' fees, of such individuals in advance of the
final resolution of any such claim, action, suit, proceeding or investigation,
provided the Indemnified Parties shall first execute an undertaking acceptable
to Jackson to return such advances in the event it is finally concluded such
indemnification is not allowed under applicable law. In the event of any such
claim, action, suit, proceeding or investigation, the Indemnified Party or
Indemnified Parties, as applicable, shall provide prompt written notice thereof
to Jackson. Jackson shall have the right to assume or participate in the
defense of any such claim, action, suit, proceeding or investigation at its own
expense; provided, that Jackson shall not be liable for any settlement effected
without its written consent. In the event that Jackson fails to timely assume
the defense of such claim, action, suit, proceeding or investigation, the
Indemnified Parties or an Indemnified Party, as applicable, shall have the
right to appoint counsel of their own choosing; provided, that Jackson shall
not be obligated pursuant to this Section 5.6 to pay the fees and disbursements
of more than one counsel for all Indemnified Parties in any single action,
except to the extent that, in the reasonable opinion of counsel for the
Indemnified Parties, two or more of such Indemnified Parties have conflicting
interests in the defense of such action which would make joint representation
of such Indemnified Parties inappropriate under applicable rules of
professional responsibility. Any failure by an Indemnified Party to notify
Jackson shall not relieve Jackson of its obligations under any other section of
this Agreement.
(b) This Section shall survive the consummation of the Merger and is
intended to benefit each of the Indemnified Parties and shall be binding upon
all successors and assigns of Jackson. Anything in this Section to the contrary
notwithstanding, Jackson shall not have any obligation under this Section to
indemnify any Indemnified Party against any losses, claims, damages or
liabilities that are finally judicially determined to have resulted from such
Indemnified Party's own willful misconduct or gross negligence.
(c) Jackson shall use all reasonable efforts to provide directors' and
officers liability insurance covering each person who was an officer or
director of Highland or any Subsidiary prior to the Effective Time for a period
of three years after the Effective Time, providing coverage not materially less
favorable to such persons
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than that provided to such persons under Highland's existing liability
insurance policies as in effect on the date of this Agreement; provided that
Jackson shall not be obligated to make annual premium payments for such
insurance in excess of 125% of the annual amount of premiums paid as of the
date hereof by Highland for such insurance and, if the premiums for such
insurance would exceed such 125% annual amount Jackson shall use its reasonable
best efforts to obtain as much insurance coverage as is available for such 125%
annual amount.
(d) The indemnification and advancement of expenses provided by, or granted
pursuant to, this Section 5.6 shall not be deemed exclusive of any other rights
to which those seeking indemnification or advancement of expenses may be
entitled under any by-law, agreement, vote of stockholders or disinterested
directors or otherwise.
5.7 Employment and Severance Agreements.
(a) Jackson agrees that the employees of Highland and its Subsidiaries who
are retained by Jackson after the consummation of the Merger ("Employees")
will, on and as of the Closing Date, be immediately eligible to participate in
employee benefit plans and other fringe benefits and rights, including health
plans, severance plans and vacation pay, enjoyed by employees of Jackson in
comparable positions, including any pension plans. For all employee benefit
plans, except any pension plans, the Employees will be given immediate credit
for their length of service with Highland and its Subsidiaries for all
purposes.
(b) Each of the individuals listed in Section 5.7(b) of the Highland
Schedule and Jackson has concurrently with the execution of this Agreement
entered into employment agreements substantially similar to those attached as
Exhibit A or such other agreements relating to compensation in such form and
substance as shall be reasonably satisfactory to Jackson and such persons.
5.8 Tax Matters.
(a) Preparation and Filing of Tax Returns. Between the date hereof and the
Effective Time, the Group and each Member shall prepare and file, on or before
the due date (including extensions) therefor, all Returns required to be filed
by the Group or such Member on or before the Effective Time, and shall pay all
Taxes (including estimated Taxes) due on such Returns (or due with respect to
Returns for which an extension has been granted) or which are otherwise
required to be paid at any time prior to or during such period. Highland shall
provide Jackson with drafts for any such Returns no later than 60 days before
its due date (including extensions). Except with the consent of Jackson, such
Returns shall be prepared in accordance with the most recent Tax practices as
to elections and accounting methods. Highland shall keep Jackson apprised of
its progress in the preparation of its Returns, and shall provide to Jackson
copies of draft returns prior to filing. Highland shall consult with Jackson
prior to making any significant decisions with respect to Tax reporting or
other Tax matters, in order to assure to the extent possible that such
decisions are consistent with the consummation of the transactions contemplated
hereby.
(b) Notification of Tax Proceedings. Between the date hereof and the
Effective Time, in the event of the commencement or scheduling of any Tax
audit, the assessment of any Tax, the issuance of any notice of Tax due or any
bill for collection of any Tax due, or the commencement or scheduling of any
other administrative or judicial proceeding with respect to the determination,
assessment or collection of any Tax of the Group or any Member, Highland shall
provide prompt notice to Jackson of such matter, setting forth information (to
the extent known) describing any asserted Tax liability in reasonable detail
and including copies of any notice or other documentation received from the
applicable Tax authority with respect to such matter.
(c) Tax Elections, Waivers and Settlements. Between the date hereof and the
Effective Time, neither the Group nor any Member shall, except with the prior
consent or Jackson, (i) make, revoke or amend any Tax election; (ii) execute
any waiver of restrictions on assessment or collection of any Tax; or (iii)
enter into or amend any agreement or settlement with any Tax authority.
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(d) Correspondence and Documents. Highland shall make available to Jackson
true and complete copies of all material correspondence and documents in its
possession relating directly or indirectly to Taxes of the Group or any Member
in respect of the five most recently completed Tax years. For this purpose
"correspondence and documents" include but are not limited to Returns, amended
Returns, claims for Tax refunds, notification from taxing authorities of
proposed changes to Taxes or Returns, acceptances of proposed Tax deficiencies,
closing agreements entered into with taxing authorities, waivers of the statute
of limitations for Tax purposes and all other written communications to or from
taxing authorities relating to the material Tax liabilities of the Group or any
Member.
VI. CONDITIONS TO CLOSING
6.1 Conditions to Highland's Obligation to Close. The obligation of Highland
to complete the transactions contemplated by this Agreement and to effect the
Merger is subject to the satisfaction or waiver on or before the Closing Date
of all of the following conditions:
(a) Continued Accuracy of Warranties and Representations. All
representations and warranties of Jackson contained in this Agreement shall be
true and correct within the standard set forth in Section 4.7 on and as of the
Closing Date with the same effect as though such representations and warranties
had been made on and as of the Closing Date (except as to those given as of a
specified date, which shall be true and correct within the standard set forth
in Section 4.7 as of such date ); Jackson shall have performed all covenants
required by this Agreement to be performed by it at or prior to the Closing
Date except to the extent as would not reasonably be expected to have a
Material Adverse Effect; and there shall have been delivered to Highland on the
Closing Date a certificate executed by a duly authorized officer of Jackson
certifying compliance with the provisions of this Section 6.1(a).
(b) Regulatory Approvals. Other than the filing of the Certificate of Merger
with the Secretary of State of Delaware, all Regulatory Approvals necessary for
consummation of the transactions contemplated by this Agreement shall have been
obtained; such approvals shall be in effect and no proceedings shall have been
initiated or threatened challenging or questioning such approvals by any
governmental agency with jurisdiction therein; all applicable waiting periods
with respect to such approvals shall have expired, and all conditions and
requirements prescribed by law or otherwise imposed in connection with such
Regulatory Approvals shall have been satisfied.
(c) Stockholder Approval. The holders of a majority of the outstanding
shares of Highland Common Stock shall have approved this Agreement, the Merger,
and the transactions contemplated hereby.
(d) No Injunction. There shall not be pending any temporary restraining
order or preliminary or permanent injunction, or other order or decree of a
court or other Governmental Authority of competent jurisdiction restraining or
prohibiting consummation of the transactions contemplated hereby, nor shall any
Governmental Authority have commenced or threatened any proceedings to issue or
obtain any such temporary restraining order or preliminary or permanent
injunction, other order or decree.
(e) Funds with Exchange Agent. Highland shall have received written
confirmation from the Exchange Agent that funds sufficient to pay the Merger
Consideration have been deposited by Jackson with the Exchange Agent.
6.2 Conditions to Jackson's Obligation to Close. The obligation of Jackson
to consummate the transactions contemplated by this Agreement and the Merger is
subject to the satisfaction or waiver on or before the Closing Date of all of
the following conditions:
(a) Continued Accuracy of Warranties and Representations. All warranties and
representations of Highland and its Subsidiaries contained in this Agreement
and any schedule or exhibit hereto, shall be true and
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correct within the standard set forth in Section 3.30 on and as of the Closing
Date with the same effect as though such representations and warranties had
been made on and as of the Closing Date (except as to those given as of a
specified date, which shall be true and correct within the standard set forth
in Section 3.30 as of such date); Highland shall have performed in all material
respects all covenants required by this Agreement to be performed by it at or
prior to the Closing Date except to the extent as would not reasonably be
expected to have a Material Adverse Effect; and there shall have been delivered
to Jackson on the Closing Date a certificate executed by the Chief Executive
Officer of Highland certifying compliance with all the provisions of this
Section 6.2(a).
(b) Regulatory Approvals. Except for the filing of the Certificate of Merger
with the Secretary of State of Delaware, all Regulatory Approvals for the
transactions contemplated by this Agreement shall have been obtained without
the imposition of any conditions which Jackson determines in its good faith
judgment to be materially burdensome upon the conduct of the business of
Jackson or which would adversely impact the economic and business benefits of
the Merger to Jackson so as to render it inadvisable in the good faith judgment
of Jackson to proceed with the Merger; such approvals shall be in effect and no
proceedings shall have been instituted or threatened with respect thereto; all
applicable waiting periods with respect to such approvals shall have expired,
and all conditions and requirements prescribed by law or otherwise imposed in
connection with the Regulatory Approvals shall have been satisfied.
(c) Stockholder Approval. Highland shall have furnished Jackson with a
certified copy of resolutions duly adopted by the holders of a majority of the
outstanding shares of Highland Common Stock entitled to vote thereon approving
this Agreement, the Merger, and the transactions contemplated hereby; and such
resolutions shall be in full force and effect and shall not have been modified,
rescinded or annulled.
(d) No Injunction. There shall not be pending any temporary restraining
order, preliminary or permanent injunction, or other order or decree of a court
or other Governmental Authority of competent jurisdiction restraining or
prohibiting consummation of the transactions contemplated hereby, nor shall any
Governmental Authority have commenced or threatened any proceedings to issue or
obtain any such temporary restraining order, preliminary or permanent
injunction, order or decree. No law, rule or regulation shall have been adopted
by any Governmental Authority having jurisdiction over Highland, Jackson or any
of their respective subsidiaries challenging or seeking to restrain, materially
limit or prohibit the consummation of the transactions contemplated hereby or
the ownership by Jackson of Highland and its Subsidiaries.
(e) Jackson shall have received an opinion of Manatt, Phelps & Phillips,
LLP, counsel to Highland, dated the Closing Date to the effect specified in
Schedule 1 hereto. In rendering such opinion, such counsel may rely upon
certificates of public officers, as to matters governed by the laws of
jurisdictions other than California or the federal laws of the United States of
America, upon opinions of counsel reasonably satisfactory to Jackson, and, as
to matters of fact, upon certificates of Highland and officers of Highland and
its Subsidiaries, copies of which opinions and certificates shall be
contemporaneously delivered to Jackson.
(f) No Resolution Amendments. Neither the Board of Directors of Highland nor
any committee thereof shall have amended or modified the resolutions referred
to in Section 3.22 hereof or shall have adopted any resolutions inconsistent
with such resolutions.
(g) Consents Under Agreements. Highland shall have obtained the consent or
approval (other than pursuant to the Regulatory Approvals) of each person whose
consent or approval is required in order to permit the succession of the
Surviving Corporation, or any of its Affiliates, pursuant to the Merger to any
obligation, right or interest of Highland or its Subsidiaries under any loan,
credit agreement, note, mortgage, indenture, lease, license or other agreement
or instrument, except to such extent as would not reasonably be expected to
have a Material Adverse Effect. All such consents and approvals currently known
to be required to be obtained pursuant to this Section 6.2(g) are listed in the
Highland Schedule.
(h) Good Standing and Tax Certificates. Highland shall have delivered (i) a
certificate dated not more than ten days prior to the Closing Date from the
appropriate Governmental Authorities to the effect that each of
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Highland and its Subsidiaries is in good standing under the jurisdiction of its
incorporation or organization, (ii) a certificate dated not more than ten days
prior to the Closing Date from the appropriate Governmental Authorities to the
effect that Highland is qualified to do business in the States of Delaware and
California, and (iii) a certificate dated not more than ten days prior to the
Closing Date from the department of taxation of (A) the respective states of
incorporation or organization of each of Highland and the Subsidiaries of
Highland Federal and (B) Delaware and California, as to the tax status of each
of Highland and its Subsidiaries in such state.
(i) Resignation of Certain Directors. Highland shall have delivered the
resignations of all directors of Highland and of each Subsidiary of Highland,
which resignations shall be effective as of the Effective Time.
(j) Dissenting Stock. Holders of no more than 5% of the outstanding shares
of Highland Common Stock shall have given notice requesting that their shares
of Highland Common Stock be treated as Dissenting Stock.
(k) Employment Agreement. Each of the individuals listed in Section 5.7 of
the Highland Schedule shall have entered into an employment agreement with
Jackson.
VII. TERMINATION
7.1 Termination. This Agreement and the obligations of the parties hereunder
may be terminated:
(a) By mutual written consent of the parties at any time whether or not this
Agreement has theretofore been approved by their respective stockholders of
Highland;
(b) By either party commencing one business day following the failure of the
stockholders of Highland to approve the Merger by the majority required by law
at a meeting of Highland stockholders duly called, noticed and held for the
purpose of voting upon the Merger, including any adjournment or postponement
thereof;
(c) By either party after the expiration of 30 days after the OTS or any
other Governmental Authority having jurisdiction over any of the transactions
set forth herein, in writing denies or refuses to grant any approval, consent,
qualification or ruling required to be obtained under applicable law in order
to consummate the Merger, unless prior to the expiration of such 30-day period
Jackson elects to appeal such denial or refusal or to petition for
reconsideration thereof, in which case such 30-day period shall not be deemed
to have run while such appeal or petition for reconsideration is being actively
pursued by Jackson; provided, that during the 30-day period following any such
denial or refusal, the parties shall consult in good faith as to whether any
such appeal or petition for reconsideration should be pursued;
(d) By Jackson, immediately upon the expiration of 30 days from the date
that Jackson has given notice to Highland of Highland's material
misrepresentation in respect of, or material breach of, any warranty,
representation or agreement herein, unless such misrepresentation or breach has
been fully and completely corrected or cured prior to the expiration of such
30-day period; provided that any such breach or failure would entitle Jackson
not to consummate the Merger pursuant to Section 6.2(a);
(e) By Highland immediately upon the expiration of 30 days from the date
that Highland has given notice to Jackson of Jackson's material
misrepresentation in respect of, or material breach of, any warranty,
representation or agreement contained herein, unless such misrepresentation,
breach or failure has been fully and completely corrected or cured prior to the
expiration of such 30-day period; provided that any such breach or failure
would entitle Highland not to consummate the Merger pursuant to Section 6.1(a);
(f) By a party hereto that is not in default hereunder, if the Closing has
not occurred on or before January 5, 2001, (the "Termination Date");
(g) By Jackson if the Board of Directors of Highland shall have failed to
recommend adoption of this Agreement and approval of the Merger to the
stockholders of Highland or withdraws, modifies or changes in
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any manner adverse to Jackson, its recommendation to the stockholders of
Highland to approve the Merger referred to in Section 5.2; or
(h) By Highland, and without the need to call and convene the meeting of
stockholders otherwise required pursuant to Section 5.2(d), if Highland (i) is
presented with and notifies Jackson of any fully financed competing Acquisition
Proposal made in cash by an acquiror which is financially sound, (ii) provides
Jackson, for a period of at least 5 business days from the date Jackson is so
notified, an opportunity to increase the amount of the Merger Consideration,
and (iii) immediately pays the $4 million fee payable to Jackson provided for
in Section 7.2(b), in the event Jackson does not exercise, or notifies Highland
that it will not exercise, its right to increase its offer to Highland.
7.2 Effect of Termination.
(a) Except as provided in Section 7.1(h) and 7.2(b), in the event of a
termination under Section 7.1 hereof, this Agreement shall become void, and
there shall be no liability on the part of either party or any of such party's
directors, officers, employees or agents to the other party or such other
party's stockholders; provided, that the obligations of Sections 5.2(b) (as it
applies to the Confidentiality Agreement) and 8.9 hereof shall survive the
termination of this Agreement; and provided, further, that a termination under
Section 7.1 hereof shall not relieve any party of any liability for any
intentional breach of this Agreement or for any intentional misrepresentation
hereunder or be deemed to constitute a waiver of any remedy available for such
breach or misrepresentation. In such event the prevailing party shall be
entitled to reasonable attorneys' fees and expenses in addition to any other
damages to which it may otherwise be entitled under applicable law.
(b) If (i) the Board of Directors of Highland shall have failed to recommend
adoption of this Agreement and approval of the Merger to the stockholders of
Highland, shall have withdrawn such recommendation or shall have modified or
changed such recommendation in any manner adverse to Jackson, (ii) Highland
shall be in material and willful breach of any of its covenants contained in
this Agreement to such extent as would authorize Jackson to terminate this
Agreement pursuant to Section 7.1(d), or (iii) the stockholders of Highland do
not adopt this Agreement and approve the Merger, in each of the foregoing cases
after any third party has made an Acquisition Proposal or has publicly
announced its intention (whether or not conditional) to make an Acquisition
Proposal, then Jackson may, if it elects to terminate this Agreement as
provided in Section 7.1 based upon the occurrence of any of the foregoing,
request and upon such request Highland shall promptly, and in any event not
later than one day after such request, pay a fee of $4 million to Jackson in
immediately available funds.
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VIII. MISCELLANEOUS
8.1 Notices. Any notice or other communication required or permitted
hereunder shall be made in writing and shall be delivered personally or sent by
an overnight delivery or courier service, by certified or registered mail
(postage prepaid), by telegraph or by facsimile transmission as follows:
To Highland and to
Highland Federal:
Highland Bancorp, Inc.
601 Glenoaks Boulevard, Suite 200
Burbank, California 91502
Attn: Stephen N. Rippe, President
Facsimile: (818) 848-0063
With a copy to:
Manatt, Phelps & Phillips, LLP
11355 West Olympic Boulevard
Los Angeles, California 90064
Attn: William T. Quicksilver, Esq.
Facsimile: (310) 312-4224
To Jackson:
Jackson Federal Bank
599 North E Street
San Bernardino, California 92401
Attn: D. Tad Lowrey, Chairman and
Chief Executive Officer
Facsimile: (909) 889-7858
With copies to:
Jackson National Life Insurance company
5901 Executive Drive
Lansing, Michigan 48911
Attn: General Counsel
Facsimile: (517) 394-6432
Mayer, Brown & Platt
350 South Grand Avenue, Suite 2500
Los Angeles, California 90071
Attn: James R. Walther, Esq.
Facsimile: (213) 625-0248
Such notice or other communication shall be deemed given when so delivered
personally, telegraphed, telexed or sent by facsimile transmission, or, if sent
by overnight delivery or courier service, the day after sent from within the
United States, or if mailed, four days after the date of deposit in the United
States mails.
8.2 Governing Law. This Agreement and the legal relations between the
parties shall, except to the extent otherwise required by applicable federal
law, be governed by and construed in accordance with the internal laws of the
State of Delaware, without taking into account provisions regarding choice of
law.
8.3 Entire Agreement. The parties intend that the terms of this Agreement
shall be the final expression of their agreement with respect to the subject
matter hereof and may not be contradicted by evidence of any
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prior or contemporaneous agreement, except as provided below. The parties
further intend that this Agreement shall constitute the complete and exclusive
statement of its terms and that no extrinsic evidence whatsoever may be
introduced in any judicial, administrative or other legal proceeding involving
this Agreement. This Agreement, including all schedules and exhibits hereto,
and the Confidentiality Agreement constitute the entire agreement between the
parties and supersede all prior negotiations, undertakings, representations and
agreements, if any, of the parties hereto and thereto.
8.4 Amendments and Waivers. This Agreement may be amended by the parties
hereto at any time before or after approval hereof by the stockholders of
Highland and Jackson, but, after any such approval, no amendment shall be made
which by law requires approval of the stockholders of Highland, without the
further approval of such stockholders. This Agreement may not be amended except
by an instrument in writing signed on behalf of each of the parties hereto. By
an instrument in writing, any party may waive compliance by any other party
with any term or provision of this Agreement that such other party was or is
obligated to comply with or perform; provided, however, that such waiver shall
not operate as a waiver of, or estoppel with respect to, any other or
subsequent failure. No failure to exercise and no delay in exercising any
right, remedy or power hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any right, remedy or power hereunder preclude
any other or further exercise thereof or the exercise of any other right,
remedy or power provided herein or by law or in equity. The waiver by any party
of the time for performance of any act or condition hereunder does not
constitute a waiver of the act or condition itself.
8.5 Severability. If any provision of this Agreement, or the application
thereof to any person, place or circumstance, shall be held by a court of
competent jurisdiction to be invalid, unenforceable or void, the remainder of
this Agreement and such provisions as applied to other persons, places and
circumstances shall remain in full force and effect.
8.6 Counterparts. This Agreement may be executed in counterparts each of
which shall constitute one and the same instrument.
8.7 Interpretation of Agreement. The article, section and other headings
used in this Agreement are for reference purposes only and shall not constitute
a part hereof or affect the meaning or interpretation of this Agreement.
Reference is made in this Agreement to Articles or Sections, such reference
shall be to an Article or Section of this Agreement unless otherwise indicated.
The term "person" shall include any individual, partnership, joint venture,
corporation, trust or unincorporated organization, any other business entity
and any government or any department or agency thereof, whether acting in an
individual, fiduciary or other capacity. Whenever the context so requires, the
use of the singular shall be deemed to include the plural and vice versa.
Whenever the words "include," "includes" or "including" are used in this
Agreement, such word shall be deemed followed by the words "without
limitation," whether or not so stated.
8.8 Survival of Representations, Warrants and Covenants. None of the
representations, warranties and covenants of the parties contained in this
Agreement or in any instrument of transfer or other document delivered in
connection with the transactions contemplated by this Agreement shall survive
the Closing, and neither party, nor any of its directors, officers, employees
or stockholders shall be under any liability whatsoever with respect to such
representations, warranties, conditions and covenants, other than covenants
which by their terms continue after the Effective Time.
8.9 Expenses. Subject to Section 7.2 hereof, the parties hereto agree that
fees and out-of-pocket expenses incurred by the parties in connection with the
transactions contemplated by this Agreement shall be paid as follows:
(a) Fees and disbursements of counsel, consultants and accountants shall be
paid by the party employing such person.
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(b) Highland shall bear the expenses incurred in connection with obtaining
approval of the transactions contemplated hereby by its stockholders, including
the expense of preparing and distributing the Proxy Statement and all proxy
solicitation costs.
(c) All other fees and out-of-pocket expenses incurred in connection with
the transactions contemplated hereby shall be paid by the party incurring such
expenses.
(d) For purposes of this Section 8.9, the terms "costs, fees and expenses"
do not include damages that may otherwise be recoverable by any party as a
result of the breach of this Agreement by any other party.
(e) The broker's and finder's fees referenced in Section 3.18 and Highland's
legal counsel fees referenced in Section 8.9(a) shall be no greater than
$1,200,000. If, however, such broker's, finder's and legal fees are greater
than $1,200,000, then the per share amount of the Merger Consideration and the
per share amount paid in cancellation of each Option pursuant to Section 5.1(a)
shall each be reduced by an amount equal to the quotient derived by dividing
(A) the amount by which the aggregate of the broker's, finder's and legal fees
referred to in Section 8.9(a) exceeds $1,200,000 by (B) an amount equal to the
sum of the total number of shares of Highland Common Stock outstanding
immediately prior to the Effective Time plus the aggregate number of shares of
Highland Common Stock that are subject to Options that are to be canceled
pursuant to Section 1.5(a) (assuming for purposes of this calculation that the
payments made in cancellation of Options pursuant to Section 5(a) are made
immediately prior to the Effective Time).
8.10 Definitions.
(a) The term "affiliate" shall mean a person or entity that directly, or
indirectly, through one or more intermediaries controls, is controlled by, or
is under common control with the person specified.
(b) The term "Material Adverse Effect" shall mean a material adverse effect
on (a) the business, assets, operations, property or financial condition of
Highland and its Subsidiaries taken as a whole or Jackson and its subsidiaries
taken as a whole, or the Surviving Corporation and its subsidiaries taken as a
whole, as the case may be, or (b) the ability of Highland or any of its
Subsidiaries or Jackson or any of its subsidiaries, as the case may be, to
perform its obligations and consummate the transactions under this Agreement.
(c) The term "subsidiary" shall mean, when used in reference to an entity,
any corporation or other legal entity (including, for this purpose,
partnerships), a majority of the outstanding voting securities of or equity
interest in which are owned directly or indirectly by such entity. Ownership
solely pursuant to fiduciary trust or similar arrangements shall not constitute
ownership of stock for purposes of this definition.
(d) Reference to the "knowledge" or "best knowledge" of Highland herein
shall mean facts and other information which any of Stephen N. Rippe, Garry
Warren, Ellen Geiger, Kelly Andrews, Steve Cooper, Richard Smith, Gary
Terrazas, and Jeff Gollins, all officers of Highland or its Subsidiaries, knows
or should know as a result of the performance by any such officer of his or her
duties as an officer of Highland or its Subsidiaries and includes such diligent
inquiry as is reasonable under the circumstances.
8.11 Attorneys' Fees. If any legal action is brought for the enforcement of
this Agreement or because of an alleged dispute, breach or default in
connection with this Agreement the prevailing parties shall be entitled to
recover reasonable attorneys' fees and other costs incurred in such action or
proceeding in addition to any other relief to which it may be entitled.
8.12 Publicity. The parties hereto will consult with each other with regard
to the terms and substance of any press or news releases, announcements or
other public statements with respect to the transactions contemplated hereby.
To the extent practicable, each party shall provide the proposed text of any
such press or news release, announcement or public statement to the other party
prior to its publication and shall permit such other party a reasonable period
to provide comments thereon.
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8.13 Binding Effect. This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors and assigns;
provided, however, that this Agreement may not be assigned by any party without
the prior written consent of the other party.
8.14 Further Action. The parties hereto each agree to execute and deliver
such documents, certificates, agreements and other writings and to take such
other actions as may be necessary or desirable, and not inconsistent herewith,
in order to consummate expeditiously the transactions contemplated by this
Agreement.
8.15 Parties. Except as expressly provided in this Agreement, (including,
but not limited to, the rights set forth in Section 5.6 hereof) each party
intends that this Agreement shall not benefit or create any right or cause of
action in any person other than the parties to this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
JACKSON FEDERAL BANK
/s/ Tad Lowry
By: _________________________________
HIGHLAND BANCORP, INC.
/s/ Stephen N. Rippe
By: _________________________________
HIGHLAND FEDERAL BANK
/s/ Stephen N. Rippe
By: _________________________________
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ANNEX B
[SANDLER O'NEILL LETTERHEAD]
April 24, 2000
Board of Directors
Highland Bancorp, Inc.
601 South Glenoaks Boulevard
Suite 215
Burbank, CA 91502
Ladies and Gentlemen:
Highland Bancorp, Inc. ("Highland"), Highland Federal Bank and Jackson
Federal Bank ("Jackson") have entered into an Agreement and Plan of Merger,
dated as of April 24, 2000 (the "Agreement"), pursuant to which Highland will
become a wholly-owned subsidiary of Jackson through the merger of a wholly-
owned subsidiary of Jackson with and into Highland (the "Merger"). Upon
consummation of the Merger, each share of Highland common stock, par value $.01
per share, issued and outstanding immediately prior to the Merger (the
"Highland Shares"), other than certain shares specified in the Agreement, will
be converted into the right to receive $25.45 in cash, without interest (the
"Merger Consideration"). The Merger Consideration is subject to downward
adjustment under certain circumstances as set forth in the Agreement. The terms
and conditions of the Merger are more fully set forth in the Agreement. You
have requested our opinion as to the fairness, from a financial point of view,
of the Merger Consideration to be received by the holders of Highland Shares.
Sandler O'Neill & Partners, L.P., as part of its investment banking
business, is regularly engaged in the valuation of financial institutions and
their securities in connection with mergers and acquisitions and other
corporate transactions. In connection with this opinion, we have reviewed,
among other things: (i) the Agreement and exhibits and schedules thereto; (ii)
certain publicly available financial statements and other historical financial
information of Highland that we deemed relevant; (iii) certain publicly
available financial information of Jackson that we deemed relevant; (iv)
certain limited financial information, including published credit ratings, of
certain of Jackson's affiliates; (v) certain internal financial analyses and
forecasts of Highland prepared by and/or reviewed with management of Highland
and the views of senior management of Highland, based on certain limited
discussions with certain members of senior management, regarding Highland's
business, financial condition, results of operations and future prospects; (vi)
the views of senior management of Jackson, based on certain limited discussions
with certain members of senior management, regarding Jackson's ability to
obtain regulatory approval of the Merger and to fund the Merger Consideration;
(vii) the publicly reported historical price and trading activity for
Highland's common stock, including a comparison of certain financial and stock
market information for Highland with similar publicly available information for
certain other companies the securities of which are publicly traded; (viii) the
financial terms of recent business combinations in the savings institution
industry, to the extent publicly available; (ix) the current market environment
generally and the banking environment in particular; and (x) such other
information, financial studies, analyses and investigations and financial,
economic and market criteria as we considered relevant.
In performing our review, we have relied upon the accuracy and completeness
of all of the financial and other information that was available to us from
public sources, that was provided to us by Highland or Jackson or their
respective representatives or that was otherwise reviewed by us and have
assumed such accuracy and completeness for purposes of rendering this opinion.
We have not been asked to and have not undertaken an independent verification
of any of such information and we do not assume any responsibility or liability
for the
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accuracy or completeness thereof. We did not make an independent evaluation or
appraisal of the specific assets, the collateral securing assets or the
liabilities (contingent or otherwise) of Highland or Jackson or any of their
subsidiaries or affiliates, or the collectibility of any such assets, nor have
we been furnished with any such evaluations or appraisals. We did not make an
independent evaluation of the adequacy of the allowance for loan losses of
Highland or Jackson nor have we reviewed any individual credit files relating
to Highland or Jackson and, with your permission, we have assumed that the
respective allowances for loan losses for both Highland and Jackson are
adequate to cover such losses and will be adequate on a pro forma basis for the
combined entity. We are not accountants and have relied upon the reports of
independent accountants for the accuracy and completeness of the financial
statements made available to us. With respect to the financial projections
prepared by and reviewed with management of Highland, we have assumed that they
have been reasonably prepared on bases reflecting the best currently available
estimates and judgments of management of the future financial performance of
Highland that such performance will be achieved, and we express no opinion as
to such financial projections or the assumptions on which they are based. We
have also assumed that there has been no material change in Highland's or
Jackson's assets, financial condition, results of operations, business or
prospects since the date of the most recent financial statements made available
to us. We have assumed in all respects material to our analysis that Highland
and Jackson will remain as going concerns for all periods relevant to our
analyses, that all of the representations and warranties contained in the
Agreement and all related agreements are true and correct, that each party to
such agreements will perform all of the covenants required to be performed by
such party under such agreements, that no adjustments will be required pursuant
to Section 8.9(e) of the Agreement and that the conditions precedent in the
Agreement are not waived.
Our opinion is necessarily based on financial, economic, market and other
conditions as in effect on, and the information made available to us as of, the
date hereof. Events occurring after the date hereof could materially affect
this opinion. We have not undertaken to update, revise, reaffirm or withdraw
this opinion or otherwise comment upon events occurring after the date hereof.
We are expressing no opinion herein as to the prices at which Highland's common
stock will trade at any time.
We have acted as Highland's financial advisor in connection with the Merger
and will receive a fee for our services, a significant portion of which is
contingent upon consummation of the Merger. We will also receive a fee for
rendering this opinion. In the past, we have also provided certain other
investment banking services for Highland and have received compensation for
such services. In the ordinary course of our business as a broker-dealer, we
may also purchase securities from and sell securities to Highland and Jackson
and their affiliates. We may also actively trade the debt and equity securities
of Highland and certain affiliates of Jackson for our own account and for the
accounts of our customers and, accordingly, may at any time hold a long or
short position in such securities.
Our opinion is directed to the Board of Directors of Highland in connection
with its consideration of the Merger and does not constitute a recommendation
to any shareholder of Highland as to how such shareholder should vote at any
meeting of shareholders called to consider and vote upon the Merger. Our
opinion is not to be quoted or referred to, in whole or in part, in a
registration statement, prospectus, proxy statement or in any other document,
nor shall this opinion be used for any other purposes, without Sandler
O'Neill's prior written consent.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Merger Consideration to be received by the holders of Highland
Shares is fair to such shareholders from a financial point of view.
Very truly yours,
Sandler O'Neill & Partners, L.P.
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ANNEX C
DELAWARE CODE ANNOTATED
TITLE 8. CORPORATIONS
CHAPTER 1. GENERAL CORPORATION LAW
SUBCHAPTER IX. MERGER OR CONSOLIDATION
Copyright(C) 1975-2000 by The State of Delaware. All rights reserved.
Current through End of 2000 Reg. Sess.
SECTION 262 Appraisal rights.
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to (S) 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and
the words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions
thereof, solely of stock of a corporation, which stock is deposited with the
depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to (S) 251 (other than a merger effected pursuant to (S) 251
(g) of this title), (S) 252, (S) 254, (S) 257, (S) 258, (S) 263 or (S) 264 of
this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of (S) 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to (S)(S)
251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof,
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository,
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
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Any combination of the shares of stock, depository receipts and cash
in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S) 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(b) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(c) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to subsections (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of such stockholder's shares shall deliver
to the corporation, before the taking of the vote on the merger or
consolidation, a written demand for appraisal of such stockholder's shares.
Such demand will be sufficient if it reasonably informs the corporation of
the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of such stockholder's shares. A proxy or vote against
the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written
demand as herein provided. Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting corporation shall
notify each stockholder of each constituent corporation who has complied
with this subsection and has not voted in favor of or consented to the
merger or consolidation of the date that the merger or consolidation has
become effective; or
(2) If the merger or consolidation was approved pursuant to (S) 228 or
(S) 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or, series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of
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such holder's shares in accordance with this subsection. An affidavit of
the secretary or assistant secretary or of the transfer agent of the
corporation that is required to give either notice that such notice has
been given shall, in the absence of fraud, be prima facie evidence of the
facts stated therein. For purposes of determining the stockholders entitled
to receive either notice, each constituent corporation may fix, in advance,
a record date that shall be not more than 10 days prior to the date the
notice is given, provided, that if the notice is given on or after the
effective date of the merger or consolidation, the record date shall be
such effective date. If no record date is fixed and the notice is given
prior to the effective date, the record date shall be the close of business
on the day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw such
stockholder's demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10
days after such stockholder's written request for such a statement is received
by the surviving or resulting corporation or within 10 days after expiration of
the period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court may,
in its discretion, permit discovery or other
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pretrial proceedings and may proceed to trial upon the appraisal prior to the
final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such
is required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the merger or consolidation
as provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the fight of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the
Court of Chancery shall be dismissed as to any stockholder without the approval
of the Court, and such approval may be conditioned upon such terms as the Court
deems just.
(1) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
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HIGHLAND BANCORP, INC.
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 8, 2000
THE BOARD OF DIRECTORS OF HIGHLAND BANCORP IS SOLICITING THIS PROXY
I/we hereby nominate, constitute and appoint Stephen N. Rippe and
Richard Cross and each of them, their attorneys, agents and
proxies, with full powers of substitution to each, to attend and
act as proxy or proxies at the 2000 Annual Meeting of Stockholders
of HIGHLAND BANCORP, INC. which will be held at the Hilton
Glendale, on August 8, 2000 at 10:00 a.m., and at any and all
adjournments thereof, and to vote as I/we have indicated the number
of shares which I/we, if personally present, would be entitled to
vote.
PURPOSES:
1. MERGER WITH JACKSON FEDERAL BANK. To approve the Agreement
and Plan of Merger between Highland Bancorp, Inc., Highland
Federal Bank and Jackson Federal Bank and the transactions
evidenced thereby.
FOR [_] AGAINST [_] ABSTAIN [_]
2. ELECTION OF DIRECTORS
[_] FOR all nominees listed [_] WITHHOLD AUTHORITY to vote
below (except as indicated for all nominees listedbelow
to the contrary below).
Discretionary authority to
cumulate votes is granted to
the Board.
Nominees: Woodrow W. Dewitt, Richard O. Oxford and Shirley E. Simmons.
INSTRUCTION: TO WITHHOLD AUTHORITY to vote for any individual
nominee(s) write that nominee's(s') name in the space
below.
------------------------------------------------------
3. RATIFICATION OF KPMG LLP Ratify the selection of KPMG LLP as
Highland Bancorp, Inc.'s independent auditors.
FOR [_] AGAINST [_] ABSTAIN [_]
4. OTHER BUSINESS. In their discretion, the Proxies are
authorized to vote upon such other business as may properly
come before the Annual Meeting and at any and all
adjournments thereof. If any other matter is presented, your
proxy will vote in accordance with the recommendation of the
Board of Directors, or, if the Board of Directors gives no
recommendation, in their own discretion. The Board of
Directors at present knows of no other business to be
presented at the Annual Meeting.
PLEASE SIGN AND DATE ON REVERSE SIDE
PLEASE SIGN AND DATE BELOW
I/we hereby ratify and confirm all that said attorneys and proxies, or any of
them, or their substitutes, shall lawfully do or cause to be done because of
this proxy, and hereby revoke any and all proxies I/we have given before to
vote at the meeting. I/we acknowledge receipt of the notice of Annual Meeting
and the Proxy Statement that accompanies the notice.
Date: _________, 2000
Signed: _____________
Date: _________, 2000
Signed: _____________
Please date this
Proxy and sign above
as your name(s)
appear(s) on this
card. Joint owners
should each sign
personally.
Corporate proxies
should be signed by
an authorized
officer. Executors,
administrators,
trustees, etc.,
should give their
full titles.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE MERGER
AGREEMENT WITH JACKSON FEDERAL BANK, "FOR" THE ELECTION OF THE NOMINATED
DIRECTORS AND "FOR" THE RATIFICATION OF KPMG LLP AS INDEPENDENT AUDITORS. THE
PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED. IF NO DIRECTION IS
MADE, IT WILL BE VOTED "FOR" THE APPROVAL OF THE MERGER AGREEMENT WITH JACKSON
FEDERAL BANK, "FOR" THE ELECTION OF THE NOMINATED DIRECTORS AND "FOR" THE
RATIFICATION OF KPMG LLP AS INDEPENDENT AUDITORS.
