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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 26, 1999
REGISTRATION NO. 333-71699
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NUMBER 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
TEMPLE-INLAND INC.
(Exact Name of Registrant as Specified in its Charter)
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<S> <C> <C>
DELAWARE 2631 75-1903917
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
303 SOUTH TEMPLE DRIVE
DIBOLL, TEXAS 75941
(409) 829-2211
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
M. RICHARD WARNER, ESQ.
TEMPLE-INLAND INC.
303 SOUTH TEMPLE DRIVE
DIBOLL, TEXAS 75941
(409) 829-2211
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
With Copies To:
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STANLEY F. FARRAR, ESQ. WILLIAM T. QUICKSILVER, ESQ.
SULLIVAN & CROMWELL MANATT, PHELPS & PHILLIPS, LLP
1888 CENTURY PARK EAST, SUITE 2100 11355 WEST OLYMPIC BOULEVARD
LOS ANGELES, CALIFORNIA 90067 LOS ANGELES, CALIFORNIA 90064
TEL: (310) 712-6600 TEL: (310) 312-4210
FAX: (310) 712-8800 FAX: (310) 312-4224
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ______________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _______________
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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HF BANCORP, INC.
445 EAST FLORIDA AVENUE
HEMET, CALIFORNIA 92543
(800) 540-4363, EXT. 2190
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 10, 1999
NOTICE IS HEREBY GIVEN that a special meeting of stockholders of HF
Bancorp, Inc. will be held on June 10, 1999, at 10:30 a.m., Pacific Time, at the
Simpson Center located at 305 East Devonshire Avenue, Hemet, California. A proxy
statement and proxy card for the special meeting are enclosed.
The special meeting will be held for the purpose of considering and voting
upon the following matters:
1. The approval and adoption of the agreement and plan of merger by
and among Temple-Inland Inc., HF Bancorp, Guaranty Federal Bank, F.S.B., an
indirect wholly-owned subsidiary of Temple-Inland, and Hemet Federal
Savings and Loan Association; and
2. Any other business that may properly come before the special
meeting and any adjournment or postponement of the meeting.
Only holders of record as of April 19, 1999, are entitled to receive notice
of and to vote at the special meeting and at any adjournment or postponement of
the meeting. A complete list of stockholders entitled to vote at the special
meeting may be examined by any stockholder for any purpose germane to the
special meeting. The list will be available during ordinary business hours at
the offices of HF Bancorp at 445 East Florida Avenue, Hemet, California
92543-4244 for a period of ten days prior to the special meeting and also at the
meeting.
Under Delaware law, appraisal rights will be available to record holders of
HF Bancorp common stock. In order for stockholders to exercise their appraisal
rights, they must follow the procedures prescribed under Delaware law that are
summarized in "The Merger -- Appraisal Rights" in the accompanying proxy
statement.
YOUR VOTE IS VERY IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING,
PLEASE COMPLETE, SIGN, AND PROMPTLY RETURN THE ENCLOSED PROXY CARD IN THE
ENCLOSED POSTAGE-PAID ENVELOPE AS SOON AS POSSIBLE.
By Order of the Board of Directors
Janet E. Riley
Corporate Secretary
Hemet, California
April , 1999
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THE INFORMATION IN THIS PROXY STATEMENT IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SEC IS EFFECTIVE. THIS PROXY STATEMENT IS NOT AN OFFER TO SELL THESE SECURITIES
AND IS NOT SOLICITING AN OFFER OR SALE TO BUY THESE SECURITIES IN ANY STATE
WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION; DATED APRIL 26, 1999
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HF BANCORP, INC. TEMPLE-INLAND INC.
PROXY STATEMENT PROSPECTUS
</TABLE>
THE COMPANIES
- HF Bancorp, Inc., headquartered in Hemet, California, common stock
trading symbol on the Nasdaq National Market(R): "HEMT"
- Hemet Federal Savings and Loan Association, a subsidiary of HF Bancorp
- Temple-Inland Inc., headquartered in Diboll, Texas, common stock trading
symbol on the New York Stock Exchange and the Pacific Exchange: "TIN"
- Guaranty Federal Bank, F.S.B., a subsidiary of Temple-Inland
THE MERGER
- The boards of directors of HF Bancorp and Temple-Inland have agreed to
merge HF Bancorp with Temple-Inland.
- Hemet will merge into Guaranty.
- HF Bancorp stockholders will receive $18.50 for each share of HF Bancorp
common stock they own immediately prior to the completion of the merger.
The $18.50 will be paid in either
- a fraction of a share of Temple-Inland common stock,
- cash, or
- a combination of Temple-Inland common stock and cash.
- HF Bancorp stockholders will elect whether to receive Temple-Inland
common stock and/or cash, subject to election, allocation, and proration
procedures described in this proxy statement.
- Up to 1,216,470 shares of Temple-Inland common stock may be issued to HF
Bancorp stockholders upon completion of the merger.
- If the merger will not qualify for favorable tax treatment, a subsidiary
of Temple-Inland will merge with HF Bancorp and all HF Bancorp
stockholders will receive only cash in the merger.
The merger cannot be completed unless we obtain (1) the necessary
government approvals and (2) the approval of HF Bancorp's stockholders.
Temple-Inland stockholders are not required to approve the merger.
THESE SECURITIES ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT INSURED
OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION.
WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE ANY INFORMATION OR REPRESENTATIONS
ABOUT THE MERGER OTHER THAN AS CONTAINED IN THIS PROXY STATEMENT. YOU SHOULD NOT
RELY ON ANY OTHER INFORMATION AS HAVING BEEN AUTHORIZED BY US. WE ARE NOT
OFFERING THESE SECURITIES OR SOLICITING PROXIES IN ANY STATE WHERE THE OFFER OF
THESE SECURITIES OR THE SOLICITATION OF PROXIES IS NOT PERMITTED. YOU SHOULD
ASSUME THAT THERE MAY HAVE BEEN CHANGES IN THE INFORMATION CONTAINED IN THIS
PROXY STATEMENT SINCE THE DATE ON THE FRONT COVER.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR
DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS
PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 4
TABLE OF CONTENTS
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SUMMARY..................................... 3
The Companies............................. 3
The Merger................................ 3
The HF Bancorp Special Meeting of
Stockholders............................ 5
Recommendation of the HF Bancorp Board of
Directors............................... 5
Opinion of Keefe, Bruyette & Woods........ 5
The Merger Agreement...................... 5
Termination of the Merger Agreement....... 6
The Stock Option Agreement................ 6
The Stockholder Agreements................ 6
Regulatory Approvals...................... 7
Interests of Certain Persons in the
Merger.................................. 7
Material Federal Income Tax
Consequences............................ 7
Accounting Treatment...................... 7
Appraisal Rights.......................... 8
Markets and Market Prices................. 9
Summary Historical Financial Data......... 10
Recent Results............................ 13
Summary Unaudited Pro Forma Combined
Financial Data.......................... 16
Selected Historical and Pro Forma per
Share Data.............................. 17
WHERE YOU CAN FIND MORE INFORMATION......... 18
FORWARD-LOOKING STATEMENTS.................. 19
INCORPORATION OF INFORMATION BY REFERENCE... 19
INFORMATION REGARDING TEMPLE-INLAND INC..... 21
Business of Temple-Inland................. 22
Incorporation of Information By
Reference............................... 25
INFORMATION REGARDING HF BANCORP............ 25
Business of HF Bancorp.................... 25
Incorporation of Information By
Reference............................... 27
PRO FORMA FINANCIAL INFORMATION............. 27
THE SPECIAL MEETING......................... 32
General................................... 32
Matters To Be Considered at the Special
Meeting................................. 32
The Record Date........................... 32
Votes Required and Voting of Proxies...... 32
Solicitation of Proxies................... 34
Revocability of Proxies................... 34
Security Ownership of Certain Beneficial
Owners and Management of HF Bancorp..... 34
THE MERGER.................................. 35
Background and Reasons for the Merger..... 35
Recommendation of the HF Bancorp Board of
Directors............................... 39
Opinion of HF Bancorp's Financial
Advisor................................. 39
Material Federal Income Tax
Consequences............................ 46
Regulatory Approvals...................... 49
Resale of Temple-Inland Common Stock...... 51
Interests of Certain Persons in the
Merger.................................. 51
Appraisal Rights.......................... 54
Accounting Treatment...................... 56
THE MERGER AGREEMENT........................ 56
The Merger................................ 56
Effective Time and Effective Date......... 57
Election, Allocation, and Proration
Procedures.............................. 57
Conduct of the Business of HF Bancorp and
Temple-Inland Prior to the Merger....... 59
Representations and Warranties............ 61
Covenants................................. 61
Conditions................................ 63
Termination............................... 64
Waiver and Amendment...................... 65
THE STOCK OPTION AGREEMENT.................. 65
THE STOCKHOLDER AGREEMENTS.................. 67
COMPARISON OF STOCKHOLDER RIGHTS............ 68
VALIDITY OF TEMPLE-INLAND COMMON STOCK...... 70
EXPERTS..................................... 71
LIST OF APPENDICES
Appendix A -- Agreement and Plan of
Merger, dated as of November
14, 1998, by and among
Temple-Inland Inc., HF
Bancorp Bancorp, Inc.,
Guaranty Federal Bank,
F.S.B., and Hemet Federal
Savings and Loan
Association................. A-1
Appendix B -- Fairness Opinion of Keefe,
Bruyette & Woods, Inc....... B-1
Appendix C -- Section 262 of the General
Corporation Law of
Delaware.................... C-1
Appendix D -- Opinion of Manatt, Phelps &
Phillips, LLP Regarding
Certain Tax Matters......... D-1
Appendix E -- Stock Option Agreement...... E-1
</TABLE>
2
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SUMMARY
This summary highlights more detailed information contained elsewhere in
this proxy statement. It may not contain all or any of the information important
to you. We urge you to read carefully the entire proxy statement and the other
documents to which this document refers for more complete information about the
merger. See "Where You Can Find More Information" on page 18 for a list of other
documents filed with the SEC that may contain important information about
Temple-Inland and HF Bancorp. Each item in this summary includes a page
reference directing the reader to a more complete description of the information
in that item.
THE COMPANIES
TEMPLE-INLAND INC. (PAGE 21)
303 SOUTH TEMPLE DRIVE
DIBOLL, TEXAS 75941
(409) 829-5511
Temple-Inland is a holding company that conducts all of its operations
through its subsidiaries. The business of Temple-Inland is divided among three
groups:
- the Paper Group, which manufactures corrugated packaging products and
bleached paperboard,
- the Building Products Group, which manufactures a wide range of building
products, and
- the Financial Services Group, which consists of savings bank activities,
mortgage banking, real estate development, and insurance brokerage.
HF BANCORP, INC. (PAGE 25)
445 EAST FLORIDA AVENUE
HEMET, CALIFORNIA 92543
(800) 540-4363, EXT. 2190
HF Bancorp is a savings and loan holding company that was organized in
Delaware in 1995. It was created to acquire all the capital stock of Hemet upon
Hemet's conversion from a federally chartered mutual savings association to a
federally chartered stock savings association.
HF Bancorp's principal business is to serve as a holding company for Hemet.
Hemet conducts business from 18 branch offices, one stand-alone loan production
office, and one centralized loan servicing center.
Hemet emphasizes personalized service focused upon two primary markets:
households and small businesses. Hemet also provides mortgage life insurance,
fire insurance, and a wide selection of mutual funds and fixed and variable
annuities through its subsidiary, First Hemet Corporation.
THE MERGER (PAGE 35)
General
We propose a merger between Temple-Inland and HF Bancorp, with
Temple-Inland remaining as the surviving corporation. Temple-Inland will
continue as a Delaware corporation and will retain its certificate of
incorporation and bylaws as well as its officers and directors. After the
merger, HF Bancorp will cease to exist. If the merger will not qualify for
favorable tax treatment, the merger will be accomplished through an alternate
structure. In this alternate structure, a subsidiary of Temple-Inland would be
merged into HF Bancorp. HF Bancorp would then be the surviving corporation and
become a wholly-owned subsidiary of Temple-Inland.
At the financial institution level, Hemet will be merged into Guaranty with
Guaranty remaining as the surviving corporation. Guaranty will retain its
federal charter and bylaws as well as its officers and directors. After the
merger of Hemet into Guaranty, Hemet will cease to exist.
What HF Bancorp Stockholders Will Receive
As a result of the merger, HF Bancorp stockholders will receive $18.50 for
each share of HF Bancorp common stock they own immediately prior to the
completion of the merger. The total consideration will be approximately $120
million. The $18.50 per share will be paid in
- a fraction of a share of Temple-Inland common stock,
- cash, or
- a combination of Temple-Inland common stock and cash.
HF Bancorp stockholders will elect whether to receive Temple-Inland common
stock and/or cash, subject to the election, allocation, and proration procedures
described later in this proxy
3
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statement. If enough HF Bancorp stockholders do
not elect to receive Temple-Inland common stock for the merger to receive
favorable tax treatment, all HF Bancorp stockholders will receive only cash in
the merger.
Temple-Inland will issue no more than 1,216,470 shares of its common stock
in the merger. If elections to receive stock would result in Temple-Inland
issuing more than 1,216,470 shares, then HF Bancorp stockholders who did not
make elections will receive cash. If you elect to receive stock under these
circumstances, you will receive only a percentage of the stock you elected and
the balance of your payment will be in cash. The percentage of Temple-Inland
common stock you receive will be determined by a proration factor calculated by
dividing 1,216,470 by the number of shares of Temple-Inland common stock that
would have been issued had there been no limit. If elections to receive stock
would result in Temple-Inland issuing less than 1,216,470 shares, then the
exchange agent will select shares for which no election was made to receive
Temple-Inland common stock until the 1,216,470 shares will be issued. The result
of these procedures is that there are circumstances when you may elect stock,
but receive cash. The procedures will not result in your electing cash but
receiving stock.
The total number of shares of Temple-Inland common stock issued and the
total amount of cash paid will be determined by the exchange ratio. The exchange
ratio will be calculated by dividing the $18.50 price per share by the price of
Temple-Inland common stock. For purposes of calculating the exchange ratio, the
price of Temple-Inland common stock will be the average of the daily closing
prices of a share of Temple-Inland common stock for the ten consecutive trading
days ending on the fourth trading day prior to the effective date of the merger.
For example, if April 19, 1999, had been the effective date of the merger,
the price of Temple-Inland common stock would have been $63.25 per share. The
exchange ratio would have been 0.2925. In this example, each HF Bancorp
stockholder could elect to receive 0.2925 of a share of Temple-Inland common
stock or $18.50 in cash for each share of HF Bancorp common stock. The following
table shows what a HF Bancorp stockholder that owns 100 shares of HF Bancorp
common stock could elect to receive.
<TABLE>
<CAPTION>
COMBINATION ELECTIONS
STOCK CASH ---------------------------------
ELECTION ELECTION 25% STOCK 50% STOCK 75% STOCK
--------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Temple-Inland common
stock............... 29 shares 0 shares 7 shares 14 shares 21 shares
Cash................. $ 0.00 $ 1,850.00 $1,387.50 $ 925.00 $ 462.50
Cash for fractional
share............... $ 15.81 $ 0.00 $ 19.77 $ 39.53 $ 59.30
</TABLE>
The percentages for combination elections presented above are illustrative
only. In making a combination election, you may divide your aggregate number of
shares at any percentage you choose.
How to Make the Election
A blue election form and letter of transmittal was either sent to you with
this proxy statement or will be sent to you soon. If you wish to make an
election, you should complete this form and send it in the tan envelope to the
exchange agent, First Chicago Trust Company of New York. For you to make an
effective election, your properly executed election form must be received by the
exchange agent by June 10, 1999. Please note that you must include your HF
Bancorp stock certificates with your election form. Please read the instructions
to the election form for information on completing the form. These instructions
will also inform you what to do if your HF Bancorp stock certificates have been
lost, stolen, or destroyed.
If you are a participant in the Hemet Federal Savings and Loan Association
Employee Stock Ownership Plan and Trust, you will receive a special election
form from the plan's trustee. This form must be returned to the trustee by June
3, 1999, in order for the trustee to make the election on your behalf.
DO NOT SEND YOUR HF BANCORP STOCK CERTIFICATES IN THE WHITE ENVELOPE
PROVIDED FOR USE IN RETURNING YOUR PROXY CARD. THE STOCK CERTIFICATES SHOULD
ONLY BE FORWARDED TO THE EXCHANGE AGENT WITH THE LETTER OF TRANSMITTAL AND
ELECTION FORM.
Copies of this proxy statement and the election form will be provided to
all persons who become HF Bancorp stockholders after the record date and prior
to the election deadline to permit them to make an election.
4
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THE HF BANCORP SPECIAL MEETING
OF STOCKHOLDERS (PAGE 32)
The HF Bancorp special meeting of stockholders will be held on June 10,
1999, at 10:30 a.m., Pacific Time, at the Simpson Center located at 305 East
Devonshire Avenue, Hemet, California. At the special meeting, the HF Bancorp
stockholders will be asked:
- To approve the merger; and
- To act on any other business that may properly come before the special
meeting.
Votes Required
A HF Bancorp stockholder can vote at the special meeting if he or she owned
HF Bancorp common stock at the close of business on the record date, April 19,
1999. Each HF Bancorp stockholder will be able to cast one vote for each share
of HF Bancorp common stock he or she owned at that time, subject to a special
rule for ten percent stockholders. In order to approve the merger with
Temple-Inland, the holders of a majority of the outstanding shares of HF Bancorp
common stock must vote in favor of the merger.
As of the record date, the directors and executive officers of HF Bancorp
owned shares of HF Bancorp common stock representing 5.87 percent of the
outstanding shares. None of Temple-Inland, its directors, and its executive
officers owned any shares of HF Bancorp common stock.
A HF Bancorp stockholder can vote his or her shares by attending the
special meeting and voting in person, or by marking the enclosed proxy card with
his or her vote, signing it, and mailing it in the enclosed white return
envelope. A HF Bancorp stockholder can revoke his or her proxy as late as the
date of the special meeting either by sending in a new proxy, which must be
received prior to the special meeting, or by attending the special meeting and
voting in person.
Temple-Inland stockholders are not required to approve the merger.
If you are a participant in the Hemet Federal Savings and Loan Employee
Stock Ownership Plan and Trust, you will receive a voting directive for shares
allocated to your account under the plan. The plan's trustee will vote those
shares as instructed by you in your voting directive. If you do not return the
voting directive, the trustee will vote your allocated plan shares, along with
all unallocated shares in the plan, in the same proportion that all allocated
shares in the plan are voted.
RECOMMENDATION OF THE HF BANCORP
BOARD OF DIRECTORS (PAGE 39)
The board of directors of HF Bancorp believes that the merger is fair to HF
Bancorp stockholders and is advisable and in the best interests of HF Bancorp
stockholders. The board of directors of HF Bancorp unanimously recommends that
HF Bancorp stockholders vote "FOR" the merger.
OPINION OF KEEFE, BRUYETTE
& WOODS, INC. (PAGE 39)
Keefe, Bruyette & Woods, Inc. has acted as a financial advisor to the board
of directors of HF Bancorp in connection with the merger. Keefe delivered to the
board of directors its written opinion that, as of , 1999, based
upon and subject to various qualifications and assumptions described in the
opinion, the $18.50 to be paid to HF Bancorp stockholders for each share of HF
Bancorp common stock is fair to HF Bancorp stockholders from a financial point
of view. We have attached the full text of the opinion to this document as
Appendix B. HF Bancorp stockholders should read it completely to understand the
assumptions made, matters considered, and the limitations of the review made by
Keefe in providing its opinion.
THE MERGER AGREEMENT (PAGE 56)
The merger agreement is attached to this document as Appendix A. Please
read the merger agreement in its entirety because it is the legal document that
governs the merger.
Effective Time
Assuming all conditions to completion of the merger are satisfied, the
merger will become effective when a certificate of merger is filed with the
Secretary of State of Delaware. We expect to complete the merger by no later
than July 31, 1999.
5
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Conditions To Completion Of The Merger
The completion of the merger requires the satisfaction of several
conditions, including the following:
- approval of the merger by HF Bancorp's stockholders;
- approval of the merger and the merger of Hemet into Guaranty by the OTS;
- the absence of any legal restraint blocking the merger, or of any
proceeding by a government authority trying to block the merger; and
- that the SEC has not issued, initiated, or threatened to issue a stop
order suspending the effectiveness of the registration statement of which
the proxy statement is a part.
If the law permits, either Temple-Inland or HF Bancorp could choose to
waive a condition to its obligation to complete the merger even though that
condition has not been satisfied. We cannot be certain when, or if, the
conditions to the merger will be satisfied or waived or that the merger will be
completed.
TERMINATION OF
THE MERGER AGREEMENT (PAGE 64)
We may mutually agree to terminate the merger agreement at any time without
completing the merger, even after the stockholders of HF Bancorp have approved
it. In addition, either of us may decide, without the consent of the other, to
terminate the merger agreement if:
- the merger is not completed by July 31, 1999;
- HF Bancorp stockholders fail to approve the merger;
- either HF Bancorp or Temple-Inland breaches its representations,
warranties, or covenants contained in the merger agreement. The breach
must be reasonably likely, individually or together with other breaches,
to reduce the benefits of the transaction to the extent that the other
party would not have entered into the merger agreement; or
- a required government approval is denied or refused.
Temple-Inland may terminate the merger agreement if:
- the board of directors of HF Bancorp receives an acquisition proposal
that it determines to be superior to the merger and continues discussions
concerning that superior proposal for more than ten days or fails to
reject a publicly announced superior proposal within ten days.
HF Bancorp may terminate the merger agreement if:
- the board of directors of HF Bancorp authorizes HF Bancorp to enter into
a binding agreement with respect to a proposal superior to
Temple-Inland's, and Temple-Inland does not make an offer that the board
of directors of HF Bancorp determines, in good faith and after
consultation with its financial advisors, to be at least as favorable as
the merger. HF Bancorp would then be required to pay a termination fee to
Temple-Inland.
THE STOCK OPTION AGREEMENT (PAGE 65)
On November 14, 1998, HF Bancorp entered into a stock option agreement with
Temple-Inland to increase the likelihood that the merger will be completed and
to discourage offers by third parties to acquire HF Bancorp prior to the merger.
Under the terms of the stock option agreement, HF Bancorp granted to
Temple-Inland an option to purchase up to 1,272,665 shares of HF Bancorp common
stock for a purchase price per share of $16.0625. The option is exercisable only
under limited and specifically defined circumstances. The number of shares and
the purchase price may be adjusted to reflect changes in the capital structure
of HF Bancorp, but Temple-Inland may not acquire more than 19.9 percent of the
shares of HF Bancorp common stock through this option.
THE STOCKHOLDER AGREEMENTS (PAGE 67)
Temple-Inland has entered into agreements with all the directors of HF
Bancorp. These individuals represent approximately 4.97 percent of the total
voting power of HF Bancorp common stock and have agreed, as stockholders of HF
6
<PAGE> 9
Bancorp, to vote their shares in favor of the merger. HF Bancorp is not aware of
any other stockholders that have made commitments to vote in favor of the
merger.
REGULATORY APPROVALS (PAGE 49)
Completion of the merger requires the approval of the OTS. Temple-Inland
has submitted to the OTS the required applications seeking approval of the
merger, the merger of Hemet into Guaranty, and related matters. We, however,
cannot predict whether we will obtain the required approvals in the time frame
contemplated by the merger agreement.
INTERESTS OF CERTAIN PERSONS
IN THE MERGER (PAGE 51)
Several HF Bancorp directors and executive officers have interests in the
merger that are different from, or in addition to, their interests as
stockholders in HF Bancorp. These interests exist because of agreements with HF
Bancorp, including change-of-control employment agreements and rights that the
officers have under retention, incentive, or benefit and compensation plans
maintained by HF Bancorp. Some of these agreements and plans will provide the
officers with severance benefits upon completion of the merger. In addition, as
a result of the merger agreement, options to acquire 408,695 shares of HF
Bancorp common stock held by the executive officers and directors of HF Bancorp
will be cashed out for an amount per share equal to the difference between
$18.50 and the exercise price for these options. In addition, 80,712 restricted
shares of HF Bancorp common stock awarded to directors and executive officers of
HF Bancorp will vest as a result of the merger.
In addition, following the merger, Temple-Inland will purchase directors'
and officers' insurance for the officers and directors of HF Bancorp.
Temple-Inland will also provide indemnification for officers and directors of HF
Bancorp for events occurring before the merger, including events that are
related to the merger agreement. The members of our boards of directors knew
about these additional interests, and considered them, when they approved the
merger.
MATERIAL FEDERAL INCOME TAX
CONSEQUENCES (PAGE 46)
We have provided the HF Bancorp stockholders with the option to receive
Temple-Inland common stock in exchange for their shares of HF Bancorp common
stock in an attempt to qualify the merger for treatment as a reorganization for
federal income tax purposes. If this treatment is obtained, HF Bancorp
stockholders will not recognize any gain or loss for tax purposes with respect
to Temple-Inland common stock exchanged for their shares of HF Bancorp common
stock in the merger. HF Bancorp stockholders, however, may be subject to tax
with respect to any cash that an HF Bancorp stockholder elects to receive in
exchange for HF Bancorp common stock, any cash received for appraisal rights,
and any cash received in lieu of fractional shares. Completion of the merger as
a reorganization is conditioned upon receipt by Temple-Inland of the opinion of
Sullivan & Cromwell and receipt by HF Bancorp of the opinion of Manatt, Phelps &
Phillips, LLP that the merger qualifies as a reorganization.
If our law firms cannot render opinions that the merger qualifies as a
reorganization, then the entire merger consideration will be paid in cash only.
The law firms may not be able to render these opinions if there is an
insufficient number of HF Bancorp stockholders who elect to receive
Temple-Inland common stock in the merger or the market price of Temple-Inland
common stock is significantly lower than $49 11/16, which was the closing price
on the last trading day before the merger agreement was signed.
Because of the complexity of the tax laws and the individual nature of some
of the tax consequences of the merger to each HF Bancorp stockholder, each HF
Bancorp stockholder should consult his or her own tax advisor concerning all
federal, state, local, and foreign tax consequences of the merger that may be
applicable.
ACCOUNTING TREATMENT (PAGE 56)
For accounting and financial reporting purposes, the merger is expected to
be accounted for as a purchase business combination in accordance with generally
accepted accounting principles.
7
<PAGE> 10
APPRAISAL RIGHTS (PAGE 54)
Under Delaware law, any stockholder who does not wish to accept the
consideration provided for in the merger agreement has the right to demand
appraisal of, and to be paid the fair market value for, his or her shares of HF
Bancorp common stock. The value of the HF Bancorp common stock for this purpose
will exclude any element of value arising from the accomplishment or expectation
of the merger.
In order for any HF Bancorp stockholder to exercise his or her right to an
appraisal, before the special meeting, the stockholder must deliver to HF
Bancorp a written demand for an appraisal of his or her shares of HF Bancorp
common stock as provided by Delaware law. We have included as Appendix C the
pertinent provisions of Delaware law addressing appraisal rights.
Simply voting against the merger will not be considered a demand for
appraisal rights. A stockholder who fails to send a demand to the corporate
secretary of HF Bancorp, Inc. at 445 East Florida Avenue, Hemet, California
92543-4244, will lose his or her right to an appraisal. In addition, any
stockholder who votes for the merger will lose his or her right to an appraisal.
8
<PAGE> 11
MARKETS AND MARKET PRICES
As of April 19, 1999, there were approximately 6,650 holders of record of
Temple-Inland common stock. No shares of Temple-Inland preferred stock have been
issued or are outstanding. Temple-Inland common stock is listed for trading on
the New York Stock Exchange and the Pacific Exchange under the symbol "TIN." On
November 13, 1998, the last trading day prior to the announcement of the merger,
the closing price on the New York Stock Exchange for Temple-Inland common stock
was $49 11/16. On April , 1999, the closing price on the New York Stock
Exchange for Temple-Inland common stock was $ .
As of April 19, 1999, there were approximately 617 holders of record of HF
Bancorp common stock. No shares of HF Bancorp preferred stock have been issued
or are outstanding. HF Bancorp common stock is designated for quotation on the
Nasdaq National Market(R) under the symbol "HEMT." On November 13, 1998, the
last trading day prior to the announcement of the merger, the closing price on
the Nasdaq National Market(R) for HF Bancorp common stock was $17. On April ,
1999, the closing price on the Nasdaq National Market(R) for HF Bancorp common
stock was $ .
The following table summarizes the approximate high and low sales prices on
a per share basis for Temple-Inland common stock and HF Bancorp common stock for
the periods indicated.
<TABLE>
<CAPTION>
TEMPLE-INLAND HF BANCORP
------------- -------------
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
1999
First Quarter........................................ 67 3/4 56 7/16 18 3/16 16 3/8
Second Quarter (through April , 1999)..............
1998
First Quarter........................................ 65 7/16 50 18 1/4 16 1/2
Second Quarter....................................... 67 1/4 52 1/8 17 7/8 15 1/2
Third Quarter........................................ 55 15/16 42 11/16 18 3/8 12 1/8
Fourth Quarter....................................... 59 5/8 45 1/16 17 1/2 11 1/4
1997
First Quarter........................................ 57 52 14 11
Second Quarter....................................... 62 1/8 49 5/8 14 3/4 12 1/4
Third Quarter........................................ 69 7/16 56 1/8 17 13 7/8
Fourth Quarter....................................... 65 7/8 49 11/16 17 7/8 15 1/2
1996
First Quarter........................................ 48 1/4 39 3/4 10 1/4 9 1/2
Second Quarter....................................... 51 7/8 45 1/2 10 1/4 9 1/4
Third Quarter........................................ 53 1/8 47 10 9 1/4
Fourth Quarter....................................... 55 3/8 48 3/8 11 3/8 9 3/4
</TABLE>
9
<PAGE> 12
SUMMARY HISTORICAL FINANCIAL DATA
Selected financial information for Temple-Inland and HF Bancorp is set
forth below. Temple-Inland's financial data is shown in millions while HF
Bancorp's financial data is shown in thousands. We base the information in the
following tables on the historical financial information of our companies that
we have presented in our prior filings with the SEC. When you read the summary
financial information we provide in the following tables, you should also read
the historical financial information in the other documents to which we refer
below.
The following table sets forth selected consolidated financial information
for Temple-Inland. The historical information is based on the historical
financial statements and related notes of Temple-Inland contained in its Annual
Report on Form 10-K for the year ended January 2, 1999. See "Where You Can Find
More Information" on page 18 for information on how you can get a copy of this
report.
TEMPLE-INLAND INC.
SELECTED FINANCIAL INFORMATION
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEARS
------------------------------------------------
1998 1997* 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Total revenues.............................. $ 3,740 $ 3,625 $ 3,460 $ 3,495 $ 2,967
Manufacturing net sales..................... 2,631 2,680 2,645 2,731 2,335
Net income.................................. 64(a) 51 133 281 131
Capital expenditures
Manufacturing............................. 175 233 275 386 463
Financial services........................ 39 18 15 34 20
Depreciation and depletion
Manufacturing............................. 261 255 244 208 200
Financial services........................ 14 13 12 8 8
Earnings per share
Basic..................................... 1.16(a) 0.91 2.39 5.02 2.35
Diluted................................... 1.15(a) 0.90 2.39 5.01 2.35
Dividends per common share.................. 1.28 1.28 1.24 1.14 1.02
Weighted average shares outstanding
Basic..................................... 55.8 56.0 55.5 56.0 55.8
Diluted................................... 55.9 56.2 55.6 56.1 55.9
Common shares outstanding at end of
period.................................... 55.6 56.3 55.4 55.7 56.0
</TABLE>
<TABLE>
<CAPTION>
AT END OF PERIOD
----------------
<S> <C> <C> <C> <C> <C>
Total assets................................ $15,990 $14,364 $12,947 $12,764 $12,251
Long-term debt
Parent company............................ 1,583 1,438 1,522 1,489 1,316
Financial services........................ 210 167 133 113 82
Preferred stock issued by subsidiary........ 225 150 -- -- --
Ratio of total debt to total
capitalization -- parent company.......... 44% 41% 43% 43% 43%
Stockholders' equity........................ $ 1,998 $ 2,045 $ 2,015 $ 1,975 $ 1,783
</TABLE>
- ---------------
* Includes effects of acquiring Stockton Savings Bank and Knutson Mortgage
Company.
(a) Includes a special after-tax charge of $28.9 million, or $0.52 per share,
and a $3.2 million after-tax charge, or $0.06 per share, from cumulative
effect of accounting change.
10
<PAGE> 13
The following table sets forth selected consolidated financial information
for HF Bancorp. The historical information is based on the historical financial
statements and related notes of HF Bancorp contained in its Annual Report on
Form 10-K for the year ended June 30, 1998, and its Quarterly Reports on Form
10-Q for the periods ended December 31, 1998, and 1997. See "Where You Can Find
More Information" on page 18 for information on how you can get a copy of these
reports. The interim financial information has been derived from unaudited
financial statements of HF Bancorp. HF Bancorp believes that these financial
statements include all adjustments of a normal recurring nature and disclosures
that are necessary for a fair statement of the results for the unaudited interim
periods. Results for the interim periods do not necessarily indicate results
that may be expected for any other interim or annual period.
Asset quality ratios and regulatory capital ratios are end of period
ratios. With the exception of end of period ratios, all ratios are based on
average monthly balances during the indicated periods. Ratios for the periods
ended December 31, 1998 and 1997, are annualized.
Other expense of $5.8 million reported for the fiscal year ended 1994 was
primarily due to a net loss from real estate operations of $1.6 million and the
lower of cost or market adjustment for securities available for sale of $5.9
million. Upon the adoption of Statement of Financial Accounting Standards No.
115, Hemet reclassified certain mortgage-backed securities previously classified
as available for sale to a held to maturity classification. As a result, the
cumulative effect of the accounting change as of June 30, 1994, was to reverse
the previously recorded unrealized holding gains and losses on these securities,
net of a tax effect of $2.4 million, of $3.4 million.
Fiscal 1997 includes non-recurring costs of $4.8 million for the Savings
Association Insurance Fund recapitalization and $3.0 million associated with the
termination of the defined benefit pension plan.
HF BANCORP, INC.
SELECTED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AT DECEMBER 31, AT JUNE 30,
----------------------- ----------------------------------------------------------
1998 1997 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL CONDITION DATA:
Total assets........................... $1,021,599 $1,063,267 $1,045,837 $ 984,749 $ 826,916 $666,062 $597,452
Loans held for sale.................... 5,294 3,861 3,763 335 0 0 0
Loans receivable, net.................. 611,327 590,114 581,153 484,334 225,161 202,397 206,370
CMOs available for sale, net........... 99,426 21,641 92,786 27,512 33,257 39,989 55,246
CMOs held to maturity, net............. -- 5,325 4,647 5,794 6,666 432 607
Mutual funds available for sale........ -- -- -- -- 15,283 15,408 15,097
Other investment securities and
interest-earning assets.............. 41,286 77,448 26,675 143,005 270,130 101,074 15,215
Mortgage-backed securities available
for sale, net........................ 211,165 165,097 165,004 109,493 100,259 70,603 78,243
Mortgage-backed securities held to
maturity, net........................ -- 138,096 123,596 151,369 159,262 208,090 199,696
Real estate acquired through
foreclosure, net..................... 991 5,167 1,674 5,287 1,079 1,361 2,877
Real estate acquired for sale or
investment, net...................... -- -- -- 418 996 2,539 2,411
Deposits............................... 884,191 855,564 866,724 839,655 669,725 472,337 480,959
Advances from the FHLB................. 45,000 110,000 85,000 50,000 70,000 70,000 70,000
Total stockholders' equity............. 84,382 83,635 83,778 81,027 81,071 87,146 39,640
</TABLE>
11
<PAGE> 14
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31, AT JUNE 30,
----------------------- ---------------------------------------------------------
1998 1997 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Interest income......................... $ 35,602 $ 36,995 $ 74,291 $ 66,522 $ 50,355 $ 40,424 $38,084
Interest expense........................ 23,551 24,777 49,285 44,084 34,059 28,795 26,451
---------- ---------- ---------- ---------- ---------- -------- -------
Net interest income before provision for
estimated loan losses................. 12,051 12,218 25,006 22,438 16,296 11,629 11,633
Provision for estimated loan losses..... 1,200 400 3,750 384 1,054 1,202 877
Net interest income after provision for
estimated loan losses................. 10,851 11,818 21,256 22,054 15,242 10,427 10,756
Other income (expense).................. 1,572 (327) (932) 718 743 176 (5,778)
General & administrative expenses....... 11,970 9,391 20,121 27,050 12,949 11,649 12,255
---------- ---------- ---------- ---------- ---------- -------- -------
Earnings (loss) before income tax
expense (benefit) and cumulative
effect of change in method of
accounting for securities............. 453 2,100 203 (4,278) 3,036 (1,046) (7,277)
Income tax expense (benefit)............ 154 871 92 (1,762) 1,089 (353) (2,704)
Net earnings (loss) before cumulative
effect of change in method of
accounting for securities............. 299 1,229 111 (2,516) 1,947 (693) (4,573)
Cumulative effect of change in method of
accounting for securities (net of
income tax effect of $2,432).......... -- -- -- -- -- -- 3,435
---------- ---------- ---------- ---------- ---------- -------- -------
Net earnings (loss)..................... $ 299 $ 1,229 $ 111 $ (2,516) $ 1,947 $ (693) $(1,138)
========== ========== ========== ========== ========== ======== =======
Shares applicable to basic earnings per
share................................... 6,390,506 6,284,016 6,301,358 6,281,875 6,583,434 N/A N/A
Basic earnings per share.................. $ 0.05 $ 0.20 $ 0.02 $ (0.40) $ 0.30 N/A N/A
========== ========== ========== ========== ========== ======== =======
Shares applicable to diluted earnings per
share................................... 6,504,647 6,477,856 6,490,881 6,281,875 6,583,434 N/A N/A
Diluted earnings per share................ $ 0.05 $ 0.19 $ 0.02 $ (0.40) $ 0.30 N/A N/A
========== ========== ========== ========== ========== ======== =======
Cash dividends per share.................. $ -- $ -- $ -- $ -- $ -- $ -- $ --
========== ========== ========== ========== ========== ======== =======
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, AT OR FOR THE FISCAL YEAR ENDED JUNE 30,
--------------- ------------------------------------------
1998 1997 1998 1997 1996 1995 1994
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL RATIOS AND OTHER DATA:
PERFORMANCE RATIOS:
Return on average assets.................................. 0.06% 0.23% 0.01% (0.26)% 0.27% (0.12)% (0.19)%
Return on average equity.................................. 0.71 2.98 0.13 (3.11) 2.24 (1.63) (2.83)
Average equity to average assets.......................... 7.90 7.82 7.82 8.47 12.14 7.14 6.77
Equity to total assets at end of period................... 8.26 7.87 8.01 8.23 9.80 13.08 6.63
Interest rate spread during the period.................... 1.91 2.03 1.94 2.14 1.74 1.75 1.86
Net interest margin....................................... 2.37 2.44 2.44 2.50 2.37 2.02 2.05
Average interest-earning assets/average interest-bearing
liabilities............................................. 1.10x 1.08x 1.10x 1.07x 1.13x 1.06x 1.04x
General & administrative expenses to average assets....... 2.24% 1.78% 1.89% 2.83% 1.81% 1.95% 2.07%
Efficiency ratio.......................................... 88.68 81.77 85.54 115.30 76.68 98.76 117.86
REGULATORY CAPITAL RATIOS:
Tangible capital.......................................... 6.59 6.17 6.29 6.36 6.66 9.02 6.39
Core capital.............................................. 6.59 6.17 6.29 6.36 6.66 9.02 6.39
Risk-based capital........................................ 15.74 15.58 15.80 16.55 24.27 29.24 19.27
ASSET QUALITY RATIOS:
Nonperforming loans/gross loans receivable................ 1.12% 0.37% 0.72 1.06 0.56 1.10 1.25
Nonperforming assets/total assets......................... 0.79 0.77 0.59 1.17 0.33 0.63 1.04
Net loan charge-offs/average loans........................ 0.32 0.45 0.52 0.40 0.31 0.58 0.61
Allowance for estimated loan losses/gross loans
receivable.............................................. 1.04 0.67 1.06 0.97 1.33 1.30 1.27
Allowances for total estimated losses/nonperforming
assets.................................................. 81.98 58.48 105.23 50.90 94.18 110.71 73.07
Allowance for estimated loan losses/nonperforming loans... 93.33 179.01 146.64% 91.63 235.75 118.11 101.75
OTHER DATA:
Number of deposit accounts................................ 60,717 60,166 60,744 59,994 45,822 38,572 39,311
Full service offices...................................... 18 19 19 19 15 12 12
</TABLE>
12
<PAGE> 15
RECENT RESULTS
TEMPLE-INLAND
Temple-Inland recently reported results for the first quarter of 1999.
First quarter net income was $18.7 million, or $0.33 per diluted share, compared
with first quarter 1998 net income of $26.4 million, or $0.47 per diluted share,
before effect of accounting change. In the fourth quarter 1998, Temple-Inland
had net income of $11.2 million, or $0.20 per diluted share, before
non-recurring items.
The Paper Group recorded operating income of $4.7 million in the quarter
compared with operating income of $9.9 million in the first quarter of 1998 and
an operating loss of $4.8 million in the fourth quarter of 1998. The decline
from last year's first quarter was due to lower prices for corrugated containers
and bleached paperboard. Despite lower prices compared with the fourth quarter
of 1998, the Paper Group reported improved results due to increased sales
volume, margin enhancement initiatives, and initial efforts of the productivity
improvement program.
Corrugated box shipments during the quarter for the Paper Group's
corrugated packaging operation increased approximately five percent versus the
same period last year. Prices for corrugated containers declined approximately
four percent from last year's first quarter and two percent from the fourth
quarter 1998. However, prices for containerboard began to increase late in the
quarter. Corresponding increases in corrugated box prices began early in the
second quarter and should be fully implemented in the next two quarters.
The average price for bleached paperboard in the quarter was six percent
below year-ago levels and down two percent from the prior quarter. Prices,
however, stabilized late in the quarter, and price increases for some grades of
bleached paperboard have been announced for the second quarter.
Operating income for the Building Products Group was $33.8 million in the
quarter, compared with operating income of $29.9 million in last year's first
quarter and $20.5 million in fourth quarter 1998. Lumber prices were up almost
10 percent in the quarter versus the prior quarter but remained below year-ago
levels. Gypsum markets remained very strong, and average prices again rose in
the quarter, resulting in prices approximately 20 percent above year-ago levels.
Particleboard demand also improved in the quarter.
Operating losses for the Building Products Group's three new medium density
fiberboard facilities and from the start-up of its fiber cement operation had a
negative effect on earnings in the quarter. The modernization of the Diboll
sawmill was completed late in the quarter, which also had a negative effect on
earnings in the quarter.
The Financial Services Group recorded first quarter operating income of
$26.6 million. This compares with operating income of $36.7 million in the first
quarter of 1998, and $40.3 million, including a $10 million gain from the sale
of an investment property, in the fourth quarter of 1998. The decline in
earnings from last year is primarily attributable to additional reserves
required due to the loan growth and change in asset mix of the bank.
HF BANCORP
HF Bancorp recently announced financial results for the three months and
nine months ended March 31, 1999. For the fiscal 1999 third quarter ended March
31, 1999, HF Bancorp reported net income of $971 thousand, equivalent to $0.15
basic and diluted earnings per share. This compares to a loss of $464 thousand,
or $0.07 basic and diluted loss per share, during the same period during the
prior fiscal year. For the nine months ended March 31, 1999, HF Bancorp
generated net income of $1.27 million, equivalent to $0.20 basic and $0.19
diluted earnings per share. This compares to earnings of $765 thousand, or $0.12
basic and diluted earnings per share during the first nine months of the prior
fiscal year.
The improvement in profitability realized by HF Bancorp in the current
fiscal year primarily stemmed from significantly lower provisions for estimated
loan losses, improved net interest income, much better
13
<PAGE> 16
results from real estate operations, stronger mortgage banking performance, and
an expanded alternative investment (non-FDIC insured product) sales program.
These factors were, however, somewhat offset by higher general and
administrative costs, including $328 thousand in expenses associated with the
pending acquisition incurred during the past two quarters.
Net interest income increased from $6.50 million during the quarter ended
March 31, 1998 to $7.08 million during the most recent three months. Net
interest income during the most recent three months was bolstered by the
maturity of HF Bancorp's final interest rate swap agreements and a 10 basis
point decline in the weighted average cost of deposits.
Net interest income for the nine months ended March 31, 1999 totaled $19.13
million, up 2.2 percent from $18.72 million during the same period the prior
fiscal year. While net interest income during fiscal 1999 has benefited from
significantly reduced hedging expense, it has been constrained by the
unfavorable impacts stemming from the historically low and flat shape of the
Treasury yield curve, particularly during the first six months of fiscal 1999.
HF Bancorp's net interest margin on total assets increased from 2.41
percent during the third quarter of fiscal 1998 to 2.77 percent during the most
recent three months. HF Bancorp's net interest margin on total assets during the
nine months ended March 31, 1999, was 2.42 percent, up from 2.35 percent for the
similar period the prior fiscal year. During fiscal 1999, HF Bancorp attained a
30 basis point decrease in the weighted average cost of deposits, concluded its
hedging transactions, and achieved a reduced loan portfolio concentration in
lower yielding residential mortgages.
Provision for estimated loan losses totaled $400 thousand and $1.60 million
for the three and nine months ended March 31, 1999, respectively, down
significantly from $2.30 million and $2.70 million during the similar periods
during the prior fiscal year. During the third quarter of fiscal 1998, HF
Bancorp recorded substantial credit related costs following an extensive review
of Hemet's credit portfolio, which included input stemming from a periodic
examination by the OTS. Fiscal 1999 net charge-offs totaled $943 thousand. As a
result, HF Bancorp's total allowance for estimated loan losses rose by $657
thousand fiscal 1999 year to date, while the ratio of allowances for total
estimated loan losses to gross loans receivable net of loans in process rose
from 1.06 percent at June 30, 1998, to 1.11 percent at March 31, 1999.
Total other income (expense) for the three and nine months ended March 31,
1999, was $547 thousand and $2.12 million in income, improving significantly
from $123 thousand in income and $204 thousand in expense during the like
periods for the prior fiscal year, bolstered by better results for real estate
operations, mortgage banking, alternative investment product sales, certain fee
and service charge revenues, and gains on sales of securities and fixed assets.
Results from real estate operations improved significantly, with $217
thousand in income realized during fiscal 1999, versus $953 thousand in expense
for the nine months ended March 31, 1998. Improved real estate market conditions
have supported more rapid sales of foreclosures combined with relatively better
sales prices. At March 31, 1999, HF Bancorp maintained a historically small
inventory of twelve foreclosed homes and one foreclosed apartment building.
Although non-performing loans increased from $4.28 million at June 30, 1998
to $7.11 million at March 31, 1999, other measures of credit quality showed
improvement. Criticized plus classified assets declined from $37.58 million at
June 30, 1998, to $27.94 million at March 31, 1999. In addition, net real estate
acquired by foreclosure declined from $1.67 million at June 30, 1998, to $825
thousand at March 31, 1999, while HF Bancorp has generated a net pre-tax gain on
sale of foreclosed real estate totaling $243 thousand during fiscal 1999.
Moreover, specific reserve requirements for impaired loans declined from $2.54
million at June 30, 1998 to $1.45 million at March 31, 1999. A portion of the
1999 fiscal year to date increase in non-performing loans stemmed from the
placement of a $975 thousand loan secured by residential lots onto non-accrual
status during the first fiscal quarter.
Deposit related fees of $571 thousand in the quarter ended March 31, 1999,
were down $69 thousand from the $640 thousand generated for the like period
during the prior fiscal year. This reduction was
14
<PAGE> 17
caused by $140 thousand in less merchant bankcard gross income in the most
recent quarter following the sale of that portfolio in March 1998. Excluding
this effect, deposit related fees in the three months ending March 31, 1999,
improved 14.2 percent versus the similar quarter during the prior fiscal year.
This rise resulted from an expanded roster of fee based services, the imposition
of new fee schedules, and a continued expansion in the number of transaction
accounts. For the nine months ended March 31, 1999, deposit related fees totaled
$1.82 million, up 6.5 percent versus the same period during the prior fiscal
year despite the sale of the merchant bankcard portfolio.
Revenue from HF Bancorp's alternative investment program expanded from $111
thousand during the first nine months of fiscal 1998 to $801 thousand fiscal
1999 year to date. In addition, HF Bancorp realized $145 thousand in aggregate
pre-tax gains on the sales of two former branch sites during the current fiscal
year.
Net gains on loans held for sale rose to $134 thousand and $385 thousand
for the three and nine months ended March 31, 1999, from $56 thousand and $127
thousand for the same periods during the prior fiscal year. HF Bancorp has
continued expanding its mortgage banking program and has benefited from the
strength of the mortgage loan refinance market in fiscal 1999, fueled by the
continued availability of fixed rate residential loans with rates below 7.00
percent.
General and administrative expenses rose 12.4 percent from $5.11 million
during the three months ended March 31, 1998, to $5.75 million during the most
recent quarter. For the first nine months of fiscal 1999, general and
administrative expenses totaled $17.72 million, up $3.22 million, or 22.2
percent, from the same period the prior fiscal year. In addition to the costs
associated with the proposed acquisition by Temple-Inland, factors contributing
to the rise in general and administrative expenses included:
- the nine months ended March 31, 1998, included a $533 thousand
non-recurring reduction in general and administrative expense associated
with a restructuring of HF Bancorp's loan to the employee stock ownership
plan
- $505 thousand in general and administrative expenses were realized
during fiscal 1999 for the establishment of a commercial lending unit and a
stand alone loan production office in Orange County
- the conversion of HF Bancorp's alternative investment (non-FDIC
insured) product sales program to a gross, as opposed to a net, basis as
part of that program's redesign, leading to the recognition of $312
thousand in sales commission expense in fiscal 1999.
Total assets at March 31, 1999, were $1.02 billion, down $22.70 million
from the end of the prior fiscal year and almost flat from the end of the
preceding quarter. Net loans receivable increased $30.46 million fiscal year to
date in conjunction with $206.03 million in credit commitments, including $66.21
million in new loans secured by apartments.
Securities declined $62.30 million fiscal 1999 year to date, as cash flows
from prepayments and sales were in part redirected towards lending and reducing
borrowings, versus new security purchases. HF Bancorp's security portfolio has
shifted toward an increased concentration in relatively low duration, AAA rated
collateralized mortgage obligations during fiscal 1999 in response to limited
market production of the adjustable rate and balloon mortgage backed securities
purchased by HF Bancorp during prior periods.
Total deposits at March 31, 1999, were $885.41 million, up from $866.72
million at the conclusion of the prior fiscal year. HF Bancorp experienced a
notable shift in deposit mix during the past nine months, with inflows into
checking and money market portfolios more than offsetting outflows from savings
and CD portfolios. This change in mix has been a strategic objective of HF
Bancorp, as it works to reduce its cost of funds, generate additional fee
income, and migrate away from passbook based products.
At March 31, 1999, Hemet's regulatory capital ratios were 6.74 percent
(tangible and core), 14.97 percent (tier one risk based), and 16.17 percent
(total risk based). Hemet's level of capital qualifies it for designation as a
well capitalized financial institution under OTS regulations.
15
<PAGE> 18
SUMMARY UNAUDITED PRO FORMA
COMBINED FINANCIAL DATA
The following table sets forth unaudited pro forma combined selected
financial information for Temple-Inland after giving effect to the merger. The
pro forma information, which reflects the merger using the purchase method of
accounting, is presented for informational purposes only. The pro forma
financial information should not be construed as indicative of the actual
operations that would have occurred had the merger occurred at the beginning of
the period indicated or that may be obtained in the future. See "Pro Forma
Financial Information" beginning on page 27 for additional pro forma financial
data.
UNAUDITED PRO FORMA COMBINED SELECTED FINANCIAL INFORMATION
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JANUARY 2,
1999
----------
<S> <C>
FOR PERIOD ENDED
Total revenues.............................................. $ 3,810.6
Manufacturing net sales..................................... $ 2,631.0
Net income.................................................. $ 64.6
Income from continuing operations per share
Basic..................................................... $ 1.13
Diluted................................................... $ 1.13
Weighted average shares outstanding
Basic..................................................... 57.0
Diluted................................................... 57.1
Dividends per common share.................................. $ 1.25
AT PERIOD END
Total assets................................................ $17,046.2
Long-term debt:
Parent company............................................ $ 1,582.9
Financial services........................................ $ 301.8
Ratio of total debt to total capitalization -- parent
company................................................... 43%
Stockholders' equity........................................ $ 2,069.8
</TABLE>
16
<PAGE> 19
SELECTED HISTORICAL AND PRO FORMA
PER SHARE DATA
The following table sets forth selected historical and pro forma per share
financial information for Temple-Inland and HF Bancorp for the year ended
January 2, 1999. The historical information presented for Temple-Inland is
derived from the historical financial statements of Temple-Inland contained in
its Annual Report on Form 10-K for the year ended January 2, 1999. The
historical information presented for HF Bancorp is derived from the historical
financial statements of HF Bancorp contained in its Annual Report on Form 10-K
for the year ended June 30, 1998, and its Quarterly Reports on Form 10-Q for the
periods ended September 30, 1998 and December 31, 1998.
Information under the column entitled Pro Forma is based upon the pro forma
financial statements and related notes beginning on page 27. Such pro forma
combined information, which gives effect to the merger under the purchase method
of accounting, is presented for informational purposes only. The pro forma
information should not be construed as indicative of the actual operations that
would have occurred had the merger occurred at the beginning of the periods
indicated or that may be obtained in the future. The pro forma per share data is
based upon the weighted average number of shares assuming that 1,216,470 shares
of Temple-Inland common stock are issued in the merger. The equivalent pro forma
data for HF Bancorp was calculated using an assumed exchange ratio of 0.3 for a
transaction in which the maximum of 1,216,470 shares of Temple-Inland common
stock are issued and for a transaction in which the entire purchase price is
paid in cash. For a description of how the exchange ratio will actually be
determined, see "The Merger Agreement -- Election, Allocation, and Proration
Procedures" beginning on page 57.
You should read the information set forth below in conjunction with the
audited and unaudited consolidated financial statements of our companies
incorporated by reference in this proxy statement. See "Where You Can Find More
Information" on page 18 for information on how you can get a copy of these
reports. You should also read the information set forth below in conjunction
with the pro forma financial statements and related notes beginning on page 27.
Per share data as of and for the year ended January 2, 1999
<TABLE>
<CAPTION>
HISTORICAL EQUIVALENT PRO FORMA
-------------------------- ---------------------
STOCK
TEMPLE-INLAND HF BANCORP PRO FORMA AND CASH ALL CASH
------------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Income from continuing
operations -- basic and diluted........ $ 1.21 $(0.13) $ 1.13 $ 0.34 $ 0.33
Dividends................................ $ 1.28 -- $ 1.25 $ 0.38 $ 0.38
Book value............................... $35.94 $13.19 $36.43 $10.93 $10.78
</TABLE>
17
<PAGE> 20
WHERE YOU CAN FIND MORE INFORMATION
Each of Temple-Inland and HF Bancorp files reports, proxy statements, and
other information with the SEC. These filings may be read and copied at the
public reference rooms of the SEC in Washington, D.C., New York, New York, and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for additional
information on the public reference rooms. These filings are also available at
the SEC's home page on the Internet at http://www.sec.gov. Shares of
Temple-Inland common stock are listed for trading on the New York Stock Exchange
and the Pacific Exchange. Material filed by Temple-Inland with these exchanges
can be inspected at the offices of the New York Stock Exchange at 20 Broad
Street, New York, New York 10005 or the Pacific Exchange at 301 Pine Street, San
Francisco, California 94104.
This proxy statement is part of a registration statement on Form S-4 filed
by Temple-Inland with the SEC, covering the shares of Temple-Inland common stock
issuable in the merger. This proxy statement does not contain all the
information set forth in that registration statement. Statements about the
contents of any contract or other document referred to in this proxy statement
are not necessarily complete. You should refer to the copy of the contract or
other document filed as an exhibit to the registration statement.
This proxy statement is the proxy statement of the board of directors of HF
Bancorp to solicit proxies for its use at the HF Bancorp special meeting. It is
also the prospectus filed as part of the registration statement. This proxy
statement and the related proxy and other materials are first being provided to
HF Bancorp stockholders on or about April , 1999.
Additional information regarding Temple-Inland may be obtained from
Temple-Inland's home page on the Internet at http://www.temple-inland.com.
Additional information regarding HF Bancorp may be obtained from HF Bancorp's
home page on the Internet at http://hemetfed.com.
18
<PAGE> 21
FORWARD-LOOKING STATEMENTS
This proxy statement contains statements that may be considered
forward-looking statements within the meaning of the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Temple-Inland and HF
Bancorp believe that these statements are within the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. The forward-looking
statements include statements about the competitiveness of the banking industry,
the operations of Temple-Inland following completion of the merger, and other
statements contained in the proxy statement that are not historical facts.
When used in this proxy statement, the words anticipate, believe, estimate,
and similar expressions are generally intended to identify forward-looking
statements. Because forward-looking statements involve risks and uncertainties,
there are important factors that could cause actual results to differ materially
from those expressed or implied by such forward-looking statements, including
general economic, market, or business conditions; the opportunities, or lack of
opportunities, that may be presented to and pursued by Temple-Inland and its
subsidiaries; the availability and price of raw materials used by Temple-Inland
and its subsidiaries; competitive actions by other companies; changes in laws or
regulations; and other factors. Many of these factors are beyond the control of
Temple-Inland and its subsidiaries.
INCORPORATION OF INFORMATION BY REFERENCE
The SEC allows Temple-Inland and HF Bancorp to incorporate by reference the
information they file with the SEC. That allows Temple-Inland and HF Bancorp to
disclose important information to you by referring you to the information they
have filed with the SEC. The information incorporated by reference is an
important part of this proxy statement, and information Temple-Inland and HF
Bancorp file with the SEC after the date of this proxy statement will
automatically update and supercede this information. The following documents
filed with the SEC are incorporated by reference, as well as any future filings
made with the SEC under Sections 13(a), 13(c) or 15(d) of the Securities
Exchange Act of 1934 prior to the special meeting:
Temple-Inland's documents
- Annual Report on Form 10-K for the year ended January 2, 1999;
- Current Report on Form 8-K dated February 19, 1999;
- The description of Temple-Inland's common stock, which is registered
under Section 12 of the Exchange Act, contained in the Registration
Statement on Form 8-A filed with the SEC on December 7, 1983, which
incorporates by reference the description of Temple-Inland's common stock
contained in the Registration Statement on Form S-1 (No. 33-7091) under
the heading "Description of Common Stock," including any amendment or
report filed for the purpose of updating such description;
HF Bancorp's documents
- Annual Report on Form 10-K for the year ended June 30, 1998;
- Quarterly Report on Form 10-Q for the quarter ended September 30, 1998,
and Quarterly Report on Form 10-Q as amended by Form 10-QA for the
quarter ended December 31, 1998; and
- Current Report on Form 8-K dated November 14, 1998.
19
<PAGE> 22
You can obtain copies of the documents incorporated by reference in this
proxy statement by requesting them in writing or by telephone from the
appropriate company at the following addresses:
<TABLE>
<S> <C>
Temple-Inland Inc. HF Bancorp, Inc.
303 South Temple Drive 445 East Florida Avenue
Diboll, Texas 75941 Hemet, California 92543
(409) 829-5511 (800) 540-4363, Ext. 2190
Attn: M. Richard Warner, Esq., Attn: Richard S. Cupp,
Vice President, General Counsel, President and Chief
and Secretary Executive Officer
</TABLE>
In order to obtain timely delivery of requested documents, you must request
the information no later than June 3, 1999.
20
<PAGE> 23
INFORMATION REGARDING TEMPLE-INLAND INC.
Temple-Inland is a holding company that conducts all of its operations
through its subsidiaries. The business of Temple-Inland is divided among three
groups:
- the Paper Group, which provided 53.9 percent of Temple-Inland's
consolidated net revenues for 1998;
- the Building Products Group, which provided 16.4 percent of
Temple-Inland's consolidated net revenues for 1998; and
- the Financial Services Group, which provided 29.7 percent of
Temple-Inland's consolidated net revenues for 1998.
Forest resources include approximately 2.2 million acres of timberland in
Texas, Louisiana, Georgia, and Alabama.
Temple-Inland's Paper Group, operated by Inland Paperboard and Packaging,
Inc., consists of the corrugated packaging and bleached paperboard operations.
The corrugated packaging operation is vertically integrated and consists of four
linerboard mills, two corrugating medium mills, 41 box plants, and eight
specialty converting plants. The bleached paperboard operation consists of one
large mill located in Evadale, Texas.
Temple-Inland's Building Products Group, operated by Temple-Inland Forest
Products Corporation, manufactures a wide range of building products including
lumber, plywood, particleboard, medium density fiberboard, gypsum wallboard,
fiber-cement siding, and fiberboard.
Temple-Inland's Financial Services Group, operated by subsidiaries of
Temple-Inland Financial Services Inc., consists of
- savings bank activities,
- mortgage banking,
- real estate development, and
- insurance brokerage.
Guaranty conducts its business through 135 banking centers in Texas and
California. Mortgage banking is conducted through Temple-Inland Mortgage
Corporation, a subsidiary of Guaranty that arranges financing of single-family
mortgage loans, then sells the loans into the secondary market. Real estate
operations include development of residential subdivisions, as well as the
management and sale of income properties.
Temple-Inland is a Delaware corporation that was organized in 1983. Its
principal subsidiaries include
- Inland Paperboard and Packaging, Inc.,
- Temple-Inland Forest Products Corporation,
- Temple-Inland Financial Services Inc.,
- Guaranty Federal Bank, F.S.B., and
- Temple-Inland Mortgage Corporation.
Temple-Inland's principal executive offices are located at 303 South Temple
Drive, Diboll, Texas 75941. Its telephone number is (409) 829-5511.
21
<PAGE> 24
The following chart presents the ownership structure for the significant
subsidiaries of Temple-Inland. It does not contain all the subsidiaries of
Temple-Inland, many of which are dormant or immaterial special-purpose entities.
Temple-Inland files with the SEC a complete list of its subsidiaries as an
exhibit to its annual report on From 10-K. Unless otherwise noted in the chart,
all subsidiaries shown are 100 percent owned.
TEMPLE-INLAND INC.
SELECTED SUBSIDIARY CHART
[SELECTED SUBSIDIARY CHART]
BUSINESS OF TEMPLE-INLAND
PAPER GROUP. This group is composed of two operations: corrugated packaging
and bleached paperboard.
Corrugated Packaging. The corrugated packaging operation manufactures
containerboard that it converts into a complete line of corrugated packaging and
point-of-purchase displays. Approximately 86 percent of the containerboard
produced by the Paper Group in 1998 was converted into corrugated containers at
its box plants. The Paper Group's nationwide network of box plants produces a
wide range of products from commodity brown boxes to intricate die cut
containers that can be printed with multi-color graphics. Even though the
corrugated box business is characterized by commodity pricing, each order for
each customer is a custom order. The Paper Group's corrugated boxes are sold to
a variety of customers in the food, paper, glass containers, chemical,
appliance, and plastics industries, among others.
The Paper Group's corrugated packaging operation also manufactures
litho-laminate corrugated packaging, high graphics folding cartons, and bulk
containers constructed of multi-wall corrugated board for extra strength, which
are used for bulk shipments of various materials.
22
<PAGE> 25
In the corrugated packaging operation, the Paper Group services about 7,000
customers with approximately 11,000 shipping destinations. The largest single
customer accounted for approximately four percent and the 10 largest customers
accounted for approximately 26 percent of the 1998 corrugated packaging
revenues. Costs of freight and customer service requirements necessitate the
location of box plants relatively close to customers. Each plant tends to
service a market within a 150-mile radius of the plant.
Sales of corrugated shipping containers closely track changing population
patterns and other demographics. Historically, there has been a correlation
between the demand for containers and containerboard and real growth in the
United States gross domestic product, particularly the non-durable goods
segment.
Bleached Paperboard. The bleached paperboard operation produces various
grades and weights of coated and uncoated paperboard for use in high-quality
printing and publishing applications, greeting cards, office supplies, and
foodware.
Bleached paperboard products are sold to a large number of customers. Sales
to the largest customer of this operation accounted for approximately 13 percent
of bleached paperboard sales in 1998. This level of sales is consistent with
sales to this customer over the past several years. Although the loss of this
customer could have a material adverse effect on this operation, it would not
have a material adverse effect on the Paper Group or Temple-Inland taken as a
whole. This customer is also a customer of the corrugated packaging operation,
but sales to this customer represent less than four percent of the total sales
of the Paper Group. The 10 largest customers accounted for approximately 54
percent of bleached paperboard sales in 1998. During 1998, sales were made to
customers in 37 states, Mexico, and Puerto Rico, as well as to independent
distributors through which this operation's products were exported to Asia,
Japan, Central America, and South America. Contracts specifying annual tonnage
quantities are maintained with several major customers.
Demand for bleached paperboard products generally correlates with real
growth in retail sales of non-durable packaged products in the United States, as
well as the level of fast food restaurant activity for food service grades,
including cup and plate. Demand is also affected by inventory levels maintained
by paperboard converters as well as a number of other factors, including changes
in industry production capacity and the strength of international markets.
BUILDING PRODUCTS GROUP. The Building Products Group produces a wide
variety of building products, such as lumber, plywood, particleboard, medium
density fiberboard, gypsum wallboard, fiber-cement siding, and fiberboard.
Sales of building products are concentrated in the southern United States.
No significant sales are generated under long-term contracts. Sales of most of
these products are made by account managers and representatives to distributors,
retailers, and original equipment manufacturer accounts. Approximately 84
percent of particleboard sales are to commercial fabricators, such as
manufacturers of cabinets and furniture. The 10 largest customers accounted for
approximately 22 percent of the Building Products Group's 1998 sales. The
building products business is heavily dependent upon the level of residential
housing expenditures, including the repair and remodeling market.
In September 1998, the Building Products Group acquired two medium density
fiberboard plants from MacMillan Bloedel Limited for approximately $106 million.
The plants, each of which is capable of producing 130 million square feet
annually, are located in Clarion, Pennsylvania, and Pembroke, Ontario, Canada.
The Building Products Group is a 50 percent owner in three joint ventures.
One of these joint ventures recently began producing medium density fiberboard
at a facility in Arkansas. Another of these joint ventures began producing
fiber-cement products in the first quarter of 1999 at a plant in Texas. The
third joint venture was the acquisition of an existing facility for the
production of gypsum wallboard and a related quarry. This joint venture also
began construction in the first quarter of 1998 of a wallboard plant to be
located in Tennessee, completion of which is anticipated during the second half
of 1999.
23
<PAGE> 26
The Building Products Group intends during 1999 to cease operations at its
plywood plant and add a state-of-the-art sawmill at that site. This will permit
the Building Products Group to optimize the use of available sawtimber and
produce a higher value product.
FINANCIAL SERVICES GROUP. The Financial Services Group operates a savings
bank and engages in mortgage banking, real estate development, and insurance
activities.
Savings Bank. Guaranty is a federally-chartered stock savings bank that
conducts its business in Texas through 110 banking centers located primarily in
the eastern third of Texas, including Houston, Dallas, San Antonio, and Austin.
Following its acquisition of California Financial Holding Company, the parent
company of Stockton Savings Bank, F.S.B., in the second quarter of 1997,
Guaranty operates an additional 25 branches in the Central Valley of California.
The primary activities of Guaranty include attracting savings deposits from the
general public, investing in loans secured by mortgages on residential real
estate, lending for the construction of real estate projects, and providing a
variety of loan products to consumers and businesses.
Guaranty derives its income primarily from interest earned on real estate
mortgages, commercial and business loans, consumer loans, and investment
securities, as well as fees received in connection with loans and deposit
services. Its major expense is the interest it pays on consumer deposits and
other borrowings. The operations of Guaranty, like those of other savings
institutions, are significantly influenced by general economic conditions, by
the monetary, fiscal, and regulatory policies of the federal government, and by
the policies of financial institution regulatory authorities. Deposit flows and
costs of funds are influenced by interest rates on competing investments and
general market rates of interest. Lending activities are affected by the demand
for mortgage financing and for other types of loans as well as market
conditions. Guaranty primarily seeks assets with interest rates that adjust
periodically rather than assets with long-term fixed rates.
In addition to other minimum capital standards, regulations of the OTS
established to ensure capital adequacy of savings institutions currently require
savings institutions to maintain minimum amounts and ratios of total and Tier I
capital to risk-weighted assets and of Tier I capital to adjusted tangible
assets. Management of Guaranty believes that as of year end, Guaranty met all of
its capital adequacy requirements. In order to obtain the lowest level of FDIC
insurance premiums, Guaranty must meet a leverage capital ratio of at least 5
percent of adjusted total assets. At year end 1998, Guaranty had a leverage
capital ratio of 6.31 percent of adjusted total assets. Because of loan growth
experienced by Guaranty in 1998, changes in asset mix in Guaranty's balance
sheet, and prospective changes in Guaranty's risk-based capital calculation,
Guaranty expects an increase in its capital requirements. As a result,
Temple-Inland expects to increase capital in Guaranty by up to $160 million in
the first quarter of 1999 in order for Guaranty to maintain its classification
of well capitalized under OTS regulations.
Mortgage Banking. The mortgage banking operation of the Financial Services
Group is headquartered in Austin, Texas, and originates, warehouses, and
services FHA, VA, and conventional mortgage loans primarily on single family
residential property through 78 offices located throughout the United States.
The mortgage banking operation originates mortgage loans for sale into the
secondary market. It typically retains the servicing rights on these loans, but
periodically sells some portion of its servicing to third parties. At the end of
1998, the mortgage banking operation was servicing $22.9 billion in mortgage
loans, including loans serviced for affiliates and approximately $1.0 billion in
mortgages subject to a call option. The mortgage banking operation produced $6.0
billion in mortgage loans during 1998.
Real Estate Development And Income Properties. Through other of its
subsidiaries, the Financial Services Group is involved in the development of 38
residential subdivisions in Texas, Arizona, California, Colorado, Florida,
Georgia, Missouri, Tennessee, and Utah. The real estate group also owns 18
commercial properties, including properties owned by subsidiaries through joint
venture interests.
Insurance. Subsidiaries of the Financial Services Group are engaged in the
brokerage of property, casualty, life, and group health insurance products. One
of these subsidiaries is an insurance agency that administers the marketing and
distribution of several mortgage-related personal life, accident, and health
24
<PAGE> 27
insurance programs. This agency also acts as the risk management department of
Temple-Inland. An affiliate of the insurance agency sells annuities through
banks and savings banks, including Guaranty.
INCORPORATION OF INFORMATION BY REFERENCE
Additional information relating to Temple-Inland, including information
relating to the business, management, properties, financial condition, and
results of operations of Temple-Inland, is included in documents incorporated by
reference into this proxy statement. See "Where You Can Find More Information"
on page 18 and "Incorporation of Information by Reference" on page 19 for a
description of the documents incorporated by reference and information on
obtaining copies of these documents.
INFORMATION REGARDING HF BANCORP
BUSINESS OF HF BANCORP
HF Bancorp is a Delaware savings and loan holding company that was
organized in 1995 in connection with Hemet's conversion from a federally
chartered mutual savings association to a federally chartered stock savings
association. On June 30, 1995, HF Bancorp completed its sale of 6,612,500 shares
of common stock, and used approximately 50 percent of the $51.1 million in net
proceeds to purchase all of Hemet's common stock issued in Hemet's conversion to
stock form. This business combination was accounted for at historical cost in a
manner similar to a pooling of interests.
HF Bancorp's principal business is to serve as a holding company for Hemet
and Hemet's wholly owned subsidiary, First Hemet Corporation. As a legal entity
separate and distinct from its subsidiaries, HF Bancorp's principal sources of
funds are its existing capital and assets and future dividends paid by and other
funds advanced from its subsidiaries. Legal limitations are imposed on the
amount of dividends that may be paid and loans that may be made by Hemet to HF
Bancorp. HF Bancorp's common stock is listed on the Nasdaq National Market(R)
under the symbol "HEMT."
At December 31, 1998, HF Bancorp had $1.02 billion in total assets, $611.3
million in total net loans receivable, and $884.2 million in total deposits. HF
Bancorp is subject to regulation by the OTS, the FDIC, and the SEC. The
principal executive offices of HF Bancorp and Hemet are located at 445 East
Florida Avenue, Hemet, California, 92543, telephone number (909) 658-4411, toll
free (800) 540-4363, facsimile number (909) 925-5398. HF Bancorp may also be
contacted via electronic mail at: [email protected]. Hemet is a member of
the Federal Home Loan Bank of San Francisco and its deposit accounts are insured
by the FDIC through the Savings Association Insurance Fund to the maximum extent
permitted by law.
Hemet conducts business from 18 branch offices, one stand-alone loan
production office, and one centralized loan servicing center, in the Greater
Hemet/San Jacinto Valley area, Northern San Diego County, Coachella Valley,
Riverside County, and Orange County, California.
In addition, Hemet supports its customers through 24 hour telephone banking
and ATM access through an array of networks including STAR, CIRRUS, PLUS, NOVUS,
and internet account access.
Through its network of banking offices, Hemet emphasizes personalized
service focused upon two primary markets: households and small businesses. Hemet
offers a variety of lending products, including:
- a broad array of residential mortgage products, both fixed and adjustable
rate
- consumer loans, including home equity lines of credit, auto loans, and
personal lines of credit
- specialized financing programs to support community development
- mortgages for multifamily real estate
- commercial real estate loans
- construction lending
25
<PAGE> 28
- commercial loans to businesses, including both revolving lines of credit
and term loans
Hemet also provides an extensive selection of deposit instruments. These
include:
- multiple checking products for both personal and business accounts
- various savings accounts, including those for minors
- tiered money market accounts
- tax qualified deposit accounts (e.g., IRA's)
- a broad array of certificate of deposit products, with terms from 7 days
to 7 years
First Hemet engages in trustee services for Hemet, and receives commissions
from the sale of insurance related and other non-FDIC insured products. Through
First Hemet, Hemet also provides mortgage life insurance, fire insurance, and a
wide selection of mutual funds and fixed and variable annuities.
Hemet also supports its customers by functioning as a federal tax
depository, providing access to merchant bankcard services, selling and
purchasing foreign banknotes, providing debit cards, and supplying various forms
of electronic funds transfer.
HF Bancorp participates in the wholesale capital markets through the
management of its security portfolio and its use of various forms of wholesale
funding. HF Bancorp's security portfolio contains a variety of instruments,
including callable debentures, fixed and adjustable rate mortgage backed
securities, and collateralized mortgage obligations. HF Bancorp also
participates in the secondary market for loans as both a purchaser and a seller
of various types of mortgage products.
HF Bancorp's revenues are primarily derived from interest on its loan and
mortgage backed securities portfolios, interest and dividends on its investment
securities, and fee income associated with the provision of various customer
services. Interest paid on deposits and borrowings constitutes HF Bancorp's
largest type of expense. HF Bancorp's primary sources of funds are deposits,
principal and interest payments on its asset portfolios, and various sources of
wholesale borrowings, including FHLB advances and reverse repurchase agreements.
HF Bancorp's most significant operating expenditures are its staffing expenses
and the costs associated with maintaining its branch network.
Market Area and Competition. The banking and financial services business in
California generally, and in Hemet's market areas specifically, is highly
competitive. The increasingly competitive environment is a result of:
- changes in regulation, technology, and product delivery systems, whereby
Hemet must compete with both in-market entities and remote entities
soliciting customers via electronic means
- the accelerating pace of consolidation among financial institutions and
the continuing mergers among commercial and investment banks
- the growth of non bank financial services providers
Hemet competes for loans, deposits, and customers for financial services
with commercial banks, savings & loans, credit unions, thrift & loans,
securities and brokerage companies, mortgage companies, insurance firms, finance
companies, mutual funds, and other non bank service providers. Many of these
competitors are much larger than Hemet in total assets, market reach, and
capitalization. They also enjoy greater access to capital markets and can offer
a broader array of products and services than Hemet can currently legally
furnish.
In order to compete with other financial services providers, Hemet relies
upon local community involvement, personal service and the resulting personal
relationships of its staff and customers, and the development and sale of
specialized products and services tailored to meet its customers' needs.
26
<PAGE> 29
INCORPORATION OF INFORMATION BY REFERENCE
Additional information relating to HF Bancorp, including information
relating to the business, management, properties, financial condition, and
results of operations of HF Bancorp, is included in documents incorporated by
reference into this proxy statement. See "Where You Can Find More Information"
on page 18 and "Incorporation of Information by Reference" on page 19 for a
description of the documents incorporated by reference and information on
obtaining copies of these documents.
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma combined financial statements give effect
to the merger, assuming it is accounted for using the purchase method of
accounting. The unaudited pro forma combined balance sheet as of January 2,
1999, gives effect to the merger as if it occurred on January 2, 1999. The
unaudited pro forma combined income statements for the year ended January 2,
1999, give effect to the merger as if it occurred as of the beginning of the
year ended January 2, 1999.
The information for the year ended January 2, 1999, in the column titled
Temple-Inland is summarized from the consolidated financial statements of
Temple-Inland filed in Temple-Inland's Annual Report on Form 10-K for the year
ended January 2, 1999.
The information for the year ended January 2, 1999, in the column titled HF
Bancorp is derived from the consolidated financial statements of HF Bancorp
filed in HF Bancorp's Annual Report on Form 10-K for the year ended June 30,
1998, and its Quarterly Reports on Form 10-Q for the quarterly periods ended
September 30, 1998 and December 31, 1998.
The unaudited pro forma combined balance sheets and income statements are
presented for informational purposes only. The pro forma financial statements
are not necessarily indicative of the combined financial position or results of
operations that would actually have occurred if the merger had occurred in the
past or that may be obtained in the future. The pro forma adjustments are based
on available information and assumptions Temple-Inland's management believes are
reasonable. These adjustments are directly attributable to the merger and are
expected to have a continuing impact on the financial position and results of
operations of Temple-Inland.
The unaudited pro forma combined financial statements should be read with
the historical financial statements and related notes of Temple-Inland and HF
Bancorp contained in their Annual Reports on Form 10-K for the years ended
January 2, 1999, in the case of Temple-Inland, and June 30, 1998, in the case of
HF Bancorp, and HF Bancorp's Quarterly Reports on Form 10-Q for the periods
ended September 30, 1998 and December 31, 1998.
27
<PAGE> 30
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF JANUARY 2, 1999
(IN MILLIONS)
<TABLE>
<CAPTION>
TEMPLE-INLAND HF BANCORP ADJUSTMENTS PRO FORMA
------------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Assets
Loans receivable, net..................... $ 8,101.0 $ 617.0 $ 2.0(1) $ 8,720.0
Mortgage-backed and investment
securities............................. 2,485.0 321.0 -- 2,806.0
Property and equipment, net............... 2,928.0 6.0 -- 2,934.0
Other assets.............................. 2,476.0 78.0 32.2(2) 2,586.2
--------- -------- ------ ---------
Total assets...................... $15,990.0 $1,022.0 $ 34.2 $17,046.2
========= ======== ====== =========
Liabilities
Deposits.................................. $ 7,338.0 $ 884.0 $ 4.6(3) $ 8,226.6
Short-term debt........................... 3,221.0 0.0 -- 3,221.0
Long-term debt............................ 1,793.0 45.0 46.7(4) 1,884.7
Accrued expenses and other liabilities.... 1,640.0 8.0 (3.9)(5) 1,644.1
--------- -------- ------ ---------
Total Liabilities................. $13,992.0 $ 937.0 $ 47.4 $14,976.4
========= ======== ====== =========
Stockholder's Equity
Common stock.............................. $ 61.0 $ -- $ 1.2(6) $ 62.2
Additional paid-in-capital................ 357.0 52.0 18.6(6) 427.6
Retained earnings and other............... 1,793.0 35.0 (35.0)(6) 1,793.0
Cost of shares held in treasury........... (213.0) (2.0) 2.0 (213.0)
--------- -------- ------ ---------
Total stockholders' equity........ 1,998.0 85.0 (13.2) 2,069.8
--------- -------- ------ ---------
Total liabilities and
stockholders' equity............ $15,990.0 $1,022.0 $ 34.2 $17,046.2
========= ======== ====== =========
</TABLE>
28
<PAGE> 31
UNAUDITED PRO FORMA COMBINED INCOME STATEMENTS
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JANUARY 2, 1999
----------------------------------------------------
TEMPLE-INLAND HF BANCORP ADJUSTMENTS PRO FORMA
------------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Revenue
Financial services................................... $1,109.0 $ 72.9 $ (2.3)(7) $1,179.6
Manufacturing net sales.............................. 2,631.0 0.0 0.0 2,631.0
-------- ------ ------ --------
Total revenue................................. 3,740.0 72.9 (2.3) 3,810.6
-------- ------ ------ --------
Costs and expenses Financial services.................. 955.0 74.3 (0.7)(8) 1,028.6
Manufacturing costs and expenses..................... 2,561.0 0.0 0.0 2,561.0
-------- ------ ------ --------
Total costs and expense....................... 3,516.0 74.3 (0.7) 3,589.6
-------- ------ ------ --------
Operating income....................................... 224.0 (1.4) (1.6) 221.0
Parent company interest, net and other................. (100.0) 0.0 0.0 (100.0)
Income before taxes.................................... 124.0 (1.4) (1.6) 121.0
Taxes on income........................................ 57.0 (0.6) 0.0(9) 56.4
-------- ------ ------ --------
Income from continuing operations................ $ 67.0 $ (0.8) $(1.6) $ 64.6
======== ====== ====== ========
Per share data(10)
Basic
Income from continuing operations.................... $ 1.21 $(0.13) $ 1.13
Weighted average shares outstanding.................. 55.8 6.4 57.0
Diluted
Income from continuing operations.................... $ 1.21 $(0.13) $ 1.13
Weighted average shares outstanding.................. 55.9 6.4 57.1
Dividends.............................................. $ 1.28 -- $ 1.25
Book value............................................. $ 35.94 $13.19 $ 36.43
Equivalent pro forma per share data(11)
Assumed exchange ratio of 0.3
Income from continuing operations.................... $ 0.34
Dividends............................................ $ 0.38
Book value........................................... $ 10.93
</TABLE>
29
<PAGE> 32
NOTES TO PRO FORMA FINANCIAL INFORMATION
The following pro forma adjustments give effect to the merger using the
purchase method of accounting. The aggregate purchase price of approximately
$120 million will consist of cash, no more than 1,216,470 shares of
Temple-Inland common stock, and transactional costs of approximately $2.0
million. For purposes of pro forma financial statements, the maximum number of
shares were assumed issued with the remainder of the purchase price paid in
cash. Accordingly, the purchase price in the accompanying pro forma financial
statements is comprised of shares with an assumed value of approximately $71.8
million and $46.7 million in cash.
1. Represents the net difference between book value and the estimated fair
value of loans receivable. Fair value estimates are based upon a limited
review of loans by Guaranty.
2. Represents (dollars in millions):
<TABLE>
<S> <C>
Goodwill.................................................... $ 41.4
Anticipated cash portion of purchase price paid to HF
Bancorp stockholders...................................... (46.7)
Cash received through anticipated debt issuance............. 46.7
Reclassification of HF Bancorp's deferred tax liability..... (2.2)
Deferred tax effect of taxable pro forma adjustments........ 1.4
Cash reduced for anticipated cash out of stock options...... (3.3)
Cash reduced for anticipated employee contractual
benefits.................................................. (2.2)
Cash reduced for payment of brokerage fees and merger
related costs............................................. (2.0)
Difference between book value and estimated fair value of
core deposit intangible................................... (0.9)
------
$ 32.2
======
</TABLE>
3. Represents the difference between book value and the estimate fair value of
deposits.
4. Represents anticipated debt issuance to finance assumed cash portion of
purchase price to HF Bancorp stockholders.
5. Represents the current income tax benefit of $1.7 million related to the
option cash out and employee contractual benefit expenses above, and the
$2.2 million reclassification of HF Bancorp deferred tax liabilities to
deferred tax assets.
6. Represents the reversal of HF Bancorp stockholders' equity and issuance of
the estimated stock portion of the purchase price, 1,216,470 shares of
Temple-Inland common stock at $59 per share.
7. Represents adjustments of amortization of premiums on loans resulting from
fair value adjustments. Premium on the loan portfolio is amortized over the
estimated remaining life of the portfolio using the interest method.
8. Represents (a) amortization of premium on deposits resulting from fair value
adjustments, and (b) adjustments to amortization resulting from the adjusted
carrying values of goodwill and core deposit intangible (dollars in
millions):
<TABLE>
<S> <C>
Amortization of premium on deposits (10 month amortization
period)................................................... $(4.6)
Amortization of goodwill recorded (25 year amortization
period)................................................... 1.6
Interest expense on anticipated borrowing to finance
purchase price at 6.75 percent anticipated interest
rate...................................................... 3.2
Reversal of HF Bancorp's amortization of core deposit
intangible (4.6 year average remaining amortization
period)................................................... (2.4)
Amortization of core deposit intangible ($10 million over a
7 year amortization period)............................... 1.4
-----
$(0.7)
=====
</TABLE>
30
<PAGE> 33
9. Represents the income tax effect of the taxable pro forma adjustments
computed using an effective income tax rate of 39 percent.
10. Historical basic and diluted earnings per share is based upon the weighted
average number of outstanding shares of Temple-Inland common stock and HF
Bancorp common stock before the merger. Pro forma basic and diluted earnings
per share is based upon the weighted average number of shares assuming the
shares to be issued pursuant to the merger (1,216,470) are issued as of the
beginning of the fiscal year.
11. The equivalent pro forma per share data was calculated by multiplying pro
forma per share information by the assumed exchange ratio of 0.3. For a
description of how the exchange ratio will actually be determined, see "The
Merger Agreement -- Election, Allocation, and Proration Procedures"
beginning on page 57.
ADDITIONAL INFORMATION
The effects on pro forma financial information if the purchase price were
to consist entirely of cash would be:
- reduced stockholder's equity and increased long-term debt of $71.8
million,
- increased interest expense of $4.9 million on $71.8 million assumed
additional anticipated borrowing at 6.75 percent anticipated interest
rate and related reduction in taxes on income of $1.9 million,
- pro forma basic income from continuing operations per share and weighted
average shares outstanding of $1.10 and 55.8 million, respectively, and
- equivalent pro forma per share income from continuing operations,
dividends, and book value of $0.33, $0.38, and $10.78, respectively.
Management expects annual reductions of approximately $10.9 million in
employment compensation and benefits from consolidation of redundant functions.
These anticipated reductions are not reflected in the pro forma financial
information.
31
<PAGE> 34
THE SPECIAL MEETING
GENERAL
We are furnishing this proxy statement to you in connection with the
solicitation by the board of directors of HF Bancorp of proxies representing HF
Bancorp common stock for use at the special meeting to be held on June 10, 1999,
and at any postponement or adjournment of the meeting. This proxy statement will
also be provided to all persons who become HF Bancorp stockholders after the
record date and before the deadline for HF Bancorp stockholders to elect whether
to receive Temple-Inland common stock or cash in the merger.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
The purpose of the special meeting is to consider and vote upon the merger.
You may also be asked to vote whether to adjourn or postpone the special meeting
in order to allow additional time to solicit proxies in favor of the merger, or
to conduct other business that may properly be brought before the special
meeting or any adjournments or postponements of the meeting.
THE RECORD DATE
Only holders of record of shares of HF Bancorp common stock at the close of
business on April 19, 1999, will be entitled to notice of, and to vote at, the
special meeting. On the record date, 6,412,073 shares of HF Bancorp common stock
were issued and outstanding.
VOTES REQUIRED AND VOTING OF PROXIES
General; Quorum
At the special meeting, a majority of all shares of HF Bancorp common stock
entitled to vote, represented in person or by proxy, will constitute a quorum.
Each share of HF Bancorp common stock will generally be entitled to one vote
upon each matter properly submitted to the HF Bancorp stockholders at the
special meeting, subject to a special rule for ten percent stockholders
described below.
Special Rule for Ten Percent Stockholders
HF Bancorp's certificate of incorporation provides that record holders of
HF Bancorp common stock who beneficially own in excess of ten percent of the
outstanding shares of HF Bancorp common stock are not entitled to any vote with
respect to the shares that exceed ten percent. A person or entity is deemed to
own beneficially shares owned by its affiliates and persons with whom it is
acting in concert. HF Bancorp's board of directors is authorized to implement
and apply this limitation, including determining whether persons or entities are
acting in concert. The board of directors of HF Bancorp may demand information
from any person who is reasonably believed to own beneficially more than ten
percent of the HF Bancorp common stock.
Abstentions and Broker Non-votes
Abstentions will each be included in the determination of the number of
shares present. They will not, however, be counted as votes in favor of the
merger.
Brokerage firms have authority under the rules of the New York Stock
Exchange to vote customers' unvoted shares on certain routine matters, including
the election of directors. A brokerage firm, however, cannot vote customers'
shares on non-routine matters, such as the merger.
32
<PAGE> 35
Vote Required to Approve Merger
At least a majority of the outstanding shares of HF Bancorp common stock
entitled to vote at the special meeting must vote to approve the merger.
Consequently, the failure to vote, an abstention, or a broker non-vote would
each have the same effect as a vote against the merger.
Voting of Proxies
Subject to the limitation on ten percent stockholders described above, each
share of HF Bancorp common stock represented by a proxy that has not been
effectively revoked and is properly executed and received by HF Bancorp in time
to be voted at the special meeting will be voted in accordance with the
instructions indicated on such proxy. If no instructions are indicated, the
proxy will be voted FOR the merger. All proxies voted FOR the merger, including
proxies on which no instructions are indicated, may at the discretion of the
proxy-holder, be voted FOR a motion to adjourn or postpone the special meeting
to another time and/or place for the purpose of soliciting additional proxies or
otherwise. The proxies being solicited will be returned to HF Bancorp's transfer
agent and will be tabulated by inspectors of election designated by the board of
directors.
Discretionary Voting Authority
The board of directors is not currently aware of any business to be acted
upon at the special meeting other than as described in this proxy statement. If,
however, other matters are properly brought before the special meeting, the
proxyholders will have discretion to vote or act on those matters in their best
judgment.
Stockholder Agreements
All the directors of HF Bancorp have agreed to vote FOR approval of the
merger. The directors can direct the voting of approximately 4.95 percent of HF
Bancorp common stock outstanding on the record date. However, the directors are
bound by their stockholder agreements to vote FOR approval of the merger only in
their capacity as stockholders. As directors, they are bound by their fiduciary
duties to act in the best interest of HF Bancorp. See "The Stockholder
Agreements" beginning on page 67 for a description of the agreements entered
into by the directors of HF Bancorp.
Postponement of Meeting
If we do not have a quorum, or if insufficient shares are voted in favor of
the merger, the board of directors intends to postpone or adjourn the special
meeting so that additional proxies or votes may be solicited. When the special
meeting is reconvened, all proxies will be voted in the same manner as they
would have been voted at the original convening of the special meeting, except
for any proxies that have effectively been revoked or withdrawn before the
special meeting reconvenes.
Voting of Shares Held in the ESOP
If you are a participant in the Hemet Federal Savings and Loan Association
Employee Stock Ownership Plan and Trust (the "ESOP"), you will receive an ESOP
voting directive for shares allocated to your account under the ESOP. The ESOP
trustee will vote those shares as instructed by you in your ESOP voting
directive. If you do not return an ESOP voting directive, the trustee will vote
your allocated ESOP shares, along with all unallocated shares held in the ESOP,
in the same proportion that all allocated shares in the ESOP are voted.
In order to allow the trustee sufficient time to submit a proxy on your
behalf, the trustee requests that you return your ESOP voting directive by June
3, 1999. The address for the ESOP trustee is:
CNA Trust
P.O. Box 5007
Costa Mesa, California 92628-5007
33
<PAGE> 36
Do not return your ESOP voting directive to the transfer agent.
SOLICITATION OF PROXIES
HF Bancorp is paying all costs of soliciting proxies relating to the
special meeting. Proxies will be solicited by mail. Directors, officers and
employees of HF Bancorp and its subsidiaries may also solicit proxies personally
or by telephone or telegram. HF Bancorp will not pay them additional
compensation for those efforts.
HF Bancorp 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, HF Bancorp has retained
D.F. King & Co., Inc. to assist it in soliciting proxies from banks, brokers,
and nominees. HF Bancorp has agreed to pay $ plus expenses to D.F. King for
these services.
REVOCABILITY OF PROXIES
Your proxy is revocable. Your presence at the special meeting, including a
reconvening of the meeting, will not automatically revoke your proxy. However,
you may revoke your proxy at any time prior to its exercise by:
- filing a written revocation with the corporate secretary of HF Bancorp
prior to the meeting,
- submitting a duly executed proxy bearing a later date, or
- attending the special meeting and voting in person.
The corporate secretary of HF Bancorp is Janet E. Riley. Revocations should
be sent to Ms. Riley at 445 E. Florida Avenue, Hemet, CA 92543-4244.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF HF BANCORP
The following table sets forth information as of April 19, 1999, with
respect to the securities holdings of all persons who may be deemed to
beneficially own more than five percent of the outstanding HF Bancorp common
stock. This information is based on the most recent Schedule 13D or Schedule 13G
filed by the person or information provided by the person directly to HF
Bancorp.
Also set forth in the table is the beneficial ownership of all shares of
outstanding HF Bancorp common stock, as of such date, of all directors and named
executive officers, individually, and all directors and executive officers as a
group.
An asterisk (*) indicates that the person owns less than one percent of the
outstanding HF Bancorp common stock. The percent of class shown is calculated by
adding to the numerator and the denominator the shares that individual or the
group of directors and executive officers could acquire now or any time within
60 days after the record date through the exercise of stock options, as if those
shares were outstanding. However, the calculation does not assume that the total
number of shares outstanding is increased for shares that any other person could
acquire through the exercise of stock options. In addition, although options
will become fully vested immediately prior to the merger, the calculation only
includes shares that are or will become vested within 60 days under normal
circumstances.
<TABLE>
<CAPTION>
AMOUNT OF OPTIONS
BENEFICIAL PERCENT OF INCLUDED
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP CLASS IN PERCENT
- ------------------------------------ ---------- ---------- ----------
<S> <C> <C> <C>
LaSalle Financial Partners, LP.............................. 535,760 8.36% --
350 E. Michigan, Suite 405
Kalamazoo, Michigan 49007
Kahn Brothers & Co., Inc.................................... 517,135 8.07% --
555 Madison Avenue
New York, New York 10022
</TABLE>
34
<PAGE> 37
<TABLE>
<CAPTION>
AMOUNT OF OPTIONS
BENEFICIAL PERCENT OF INCLUDED
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP CLASS IN PERCENT
- ------------------------------------ ---------- ---------- ----------
<S> <C> <C> <C>
Tontine Partners, L.P....................................... 410,000 6.39% --
31 West 52nd Street, 17th Floor
New York, New York
Carlson Capital, L.P. ...................................... 329,900 5.15% --
301 Commerce Street
Suite 3300
Fort Worth, Texas 76102
Hemet Federal Savings and Loan Association.................. 419,027 6.53% --
Employee Stock Ownership Plan ("ESOP")
445 East Florida Avenue
Hemet, California 92543-4244
Endeavour Capital Partners, L.P............................. 333,000 5.19% --
555 Madison Avenue
New York, New York 10022
Dr. Robert K. Jabs, Director................................ 18,328 * 10,554
William D. King, Director................................... 3,800 * --
Patricia A. "Corky" Larson, Director........................ 11,149 * 7,101
Richard S. Cupp, Director, President and CEO................ 62,000 * 32,000
J. Robert Eichinger, Chairman of the Board.................. 156,053 2.41% 61,475
Harold L. Fuller, Director.................................. 17,100 * 8,252
Norman M. Coulson, Director................................. 7,800 * 4,000
George P. Rutland, Director................................. 6,300 * 2,000
Leonard E. Searl, Director.................................. 43,060 * 19,758
Mark R. Andino, Senior Vice President and CFO............... 12,800 * 5,800
All Directors and Executive Officers as a Group (17
persons).................................................. 386,637 5.87% 172,320
</TABLE>
The ESOP acquired shares of HF Bancorp common stock in the conversion of
Hemet from a mutual to stock form of savings association in 1995. The ESOP
Committee administers the ESOP. The ESOP trustee must vote all allocated shares
held in the ESOP in accordance with the instructions of the participants. As of
the record date, 109,119 shares are allocated to participant's accounts. See
"The Special Meeting -- Voting of Shares Held in the ESOP" on page 33 for
information on providing the ESOP trustee with your directive regarding voting
your ESOP shares.
THE MERGER
THIS SECTION OF THE PROXY STATEMENT DESCRIBES MATERIAL ASPECTS OF THE
PROPOSED MERGER. THIS INFORMATION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE OTHER INFORMATION CONTAINED ELSEWHERE IN THIS PROXY STATEMENT, INCLUDING THE
APPENDICES AND THE DOCUMENTS INCORPORATED BY REFERENCE. A COPY OF THE MERGER
AGREEMENT IS INCLUDED AS APPENDIX A. REFERENCE IS MADE TO APPENDIX A FOR A
COMPLETE DESCRIPTION OF THE TERMS OF THE MERGER. STOCKHOLDERS ARE URGED TO READ
CAREFULLY THE MERGER AGREEMENT AND EACH OF THE OTHER APPENDICES IN THEIR
ENTIRETY.
BACKGROUND AND REASONS FOR THE MERGER
HF Bancorp was formed in June 1995 in connection with Hemet's conversion
from a mutual savings association to a stock savings bank. During fiscal 1997,
HF Bancorp began shifting its operations and marketing strategy to position
Hemet as a community bank in order to improve performance and enhance
stockholder value.
35
<PAGE> 38
Implementation of the strategy included the following measures:
- enhancing HF Bancorp's management team and board of directors, through
the appointment of individuals with years of successful commercial and
community banking experience,
- continuing to focus on improving HF Bancorp's efficiency ratio,
- aggressively managing Hemet's portfolio of troubled assets,
- adopting alternative delivery channels, such as internet banking,
- increasing sales of residential mortgages into the secondary markets,
- using its capital resources more effectively,
- repricing some of its consumer and business products,
- implementing new services, and
- modifying its compensation and benefit programs to provide employee
incentives for improving stockholder value.
These measures continued to be implemented during the first nine months of
fiscal 1998. On April 22, 1998, HF Bancorp issued a press release in which it
reported earnings for the third quarter of fiscal 1998.
During March and April 1998, the OTS conducted its periodic safety and
soundness regulatory exam of Hemet. After the examination, the OTS recommended
additional provisions for estimated loan losses and the establishment of greater
valuation reserves for foreclosed real estate. As a result, HF Bancorp issued
another press release on May 7, 1998, announcing a restatement of the earnings
announced in the April 22 press release. In the May 7 press release, HF Bancorp
also stated that it was completing its analysis of a variety of options to
augment profitability by implementing fundamental changes to HF Bancorp's cost
structure, operating platform, and distribution network. The May 7 press release
stated that these changes would require restructuring charges that could
materially impact HF Bancorp's financial results for the quarter and fiscal year
ending June 30, 1998.
On May 18, 1998, LaSalle Financial Partners, a Delaware limited
partnership, filed a Schedule 13D with the SEC. In that Schedule 13D, LaSalle
Financial Partners and its affiliates reported beneficial ownership of 358,160
shares or 5.7 percent of HF Bancorp's common stock. In its Schedule 13D, LaSalle
reported that its goal was to "profit in the market price of Common Stock." In
that regard, LaSalle stated that it expected to assert stockholder rights with
the purpose of influencing HF Bancorp policies and, in particular, with the
intent of influencing a business combination involving HF Bancorp. LaSalle
further reported an interest in obtaining representation on HF Bancorp's board
of directors. Subsequently, LaSalle reported that it had increased its
beneficial ownership of HF Bancorp common stock to approximately 8.9 percent.
From May 1998 through July 1998, HF Bancorp's board of directors and
executive officers met at various times to consider the strategic alternatives
available to HF Bancorp to serve the best interests of HF Bancorp's
stockholders. The board identified the following alternatives:
- continuing to implement the strategic plan of converting Hemet to a
profitable community bank,
- seeking a buyer who would be willing to pay a premium, and
- seeking a merger of equals.
In order to further evaluate its alternatives, the board invited several
investment banking firms to make presentations to the board to provide financial
advisory services and to help the board evaluate HF Bancorp's strategic
alternatives. These presentations were made on June 18, 1998. On July 1, 1998,
36
<PAGE> 39
HF Bancorp retained Keefe, Bruyette & Woods, Inc. to render financial advisory
and investment banking services to HF Bancorp. The services to be provided
included:
- studying and reviewing HF Bancorp's business, operations, financial
performance and prospects,
- assisting in formulating a strategy to respond to the recent 13D filing
by LaSalle, and
- providing general advice on corporate financial issues, including a
possible merger, sale, or business combination of HF Bancorp.
During July and August 1998, Keefe also provided the board with information
regarding its preliminary analysis of HF Bancorp's intrinsic value, market
value, franchise value, HF Bancorp's strategic plan and the time frame necessary
for fully implementing it, the current economic environment, shareholder
concerns, and strategic alternatives, including scenarios involving a sale of
the company. Keefe and HF Bancorp's management and board of directors identified
a number of institutions that Keefe would approach regarding a potential
business combination with HF Bancorp. The selection of institutions was based on
a number of factors, including:
- a perception that the institutions would have an interest in considering
a business combination with HF Bancorp,
- the institutions' financial ability to consummate a transaction on terms
that the board of directors believed appropriate, including whether there
were any possible financing contingencies,
- the value of the institutions' stock as a possible currency in a business
combination,
- the institutions' perceived ability to obtain regulatory approvals,
- a perception that the institutions would be interested in acquiring HF
Bancorp in a strategic merger, rather than a purely financial
transaction.
At the board's request, Keefe solicited indications of interest from
approximately seven financial institutions. Each of the prospective institutions
was asked to sign a confidentiality agreement and was provided additional
information regarding HF Bancorp.
In early August 1998, Ronald D. Murff, the chief financial officer of
Guaranty, contacted Richard S. Cupp, HF Bancorp's president and chief executive
officer, to request a meeting regarding a possible merger. On August 13, 1998,
Mr. Cupp met with Temple-Inland's president and chief operating officer, Kenneth
M. Jastrow, II, and Mr. Murff regarding a possible merger. Before the meeting,
the parties exchanged public information about each other. At the meeting,
Temple-Inland agreed to send a letter to HF Bancorp, through Keefe, in which
Temple-Inland would request additional information Temple-Inland deemed
necessary to determine a price range for the acquisition of HF Bancorp. Pursuant
to a confidentiality agreement executed August 14, 1998, HF Bancorp supplied the
additional information to Temple-Inland to allow it to formulate a proposal.
On October 2, 1998, HF Bancorp received a letter from Guaranty expressing
Guaranty's interest in acquiring HF Bancorp for consideration in the range of
$17-$20 per share, and requesting HF Bancorp's response to this nonbinding
expression of interest by October 9, 1998. On October 14, 1998, Mr. Cupp, Carl
Raggio, HF Bancorp's executive vice president and chief credit officer, and Mark
Andino, HF Bancorp's senior vice president and chief financial officer, traveled
to Texas to meet with officers of Temple-Inland and Guaranty to provide further
information about HF Bancorp and to gather information about Temple-Inland and
Guaranty. At the conclusion of the October 14, 1998 meeting, Mr. Cupp met
separately with Messrs. Jastrow and Murff, and Guaranty's chief executive
officer, Kenneth R. Dubuque. At this meeting, Temple-Inland agreed to outline by
October 23, 1998, its proposal for the acquisition of HF Bancorp.
On October 22, 1998, Keefe representatives met with HF Bancorp's board of
directors to discuss the results of Keefe's solicitations of interest in a
possible merger, sale, or business combination with
37
<PAGE> 40
HF Bancorp. Of the seven institutions originally solicited, Keefe received five
indications of interest of varying degrees. The board of directors authorized
Keefe to continue to pursue negotiations with interested parties to determine
whether there was any interest in acquiring HF Bancorp on terms or conditions
that were equivalent or superior to those proposed by Temple-Inland. The board
of directors also established a special committee, comprised of three
nonemployee directors of HF Bancorp, to monitor Keefe's progress and to
negotiate possible mergers, sales, or business combinations.
On October 23, 1998, Temple-Inland presented a proposal setting forth
general terms and structure of a potential acquisition of HF Bancorp and
requested an exclusive opportunity to negotiate toward a definitive agreement.
In its proposal, Temple-Inland offered $18.00 per share.
On October 26, 1998, the HF Bancorp special committee met to consider
Temple-Inland's proposal. The HF Bancorp special committee authorized Keefe to
seek a higher price. In addition, Keefe was instructed to keep open any other
discussions that could result in a different, but more favorable transaction
without jeopardizing the potential Temple-Inland transaction. Subsequently,
Keefe contacted other institutions to determine their level of interest in a
transaction with HF Bancorp on terms more favorable than those proposed by
Temple-Inland.
On October 28, 1998, representatives of Keefe and Mr. Cupp reported back to
the HF Bancorp special committee the results of these conversations, indicating
that Temple-Inland had improved its earlier proposal to $18.50 per share. Keefe
also reported that it had not received other, superior offers from the other
financial institutions that had expressed an interest in HF Bancorp. Based upon
the revised proposal, the HF Bancorp special committee authorized the execution
of an agreement to negotiate exclusively with Temple-Inland until November 15,
1998.
Between October 28, 1998 and November 13, 1998, discussions between HF
Bancorp and Temple-Inland continued and a preliminary agreement was reached
regarding the basic terms. During that same time period, HF Bancorp and
Temple-Inland conducted due diligence reviews of each other. From November 4,
1998 to November 13, 1998, representatives of HF Bancorp and Temple-Inland met
and had numerous telephone conversations to negotiate the final terms of the
merger agreement, the stock option agreement and the stockholder agreements. See
the sections of this proxy statement titled "The Merger Agreement," "The Stock
Option Agreement" and "The Stockholder Agreements" for a summary of the terms of
these agreements.
At a special meeting of the HF Bancorp board of directors on November 14,
1998, senior management of HF Bancorp, together with representatives of Keefe
and Manatt, Phelps and Phillips, LLP, counsel to HF Bancorp, reviewed for the
board of directors the discussions and contacts with Temple-Inland to date, the
financial terms of the proposed transaction, including the consideration and
proposed terms of the merger agreement, the stock option agreement, and the
stockholder agreements. Keefe delivered a detailed financial review of the
proposed transaction, including the material financial analyses employed by
Keefe in connection with rendering its opinion. See "The Merger -- Opinion of HF
Bancorp's Financial Advisor." Keefe also delivered a detailed review of
Temple-Inland's business and operations, financial performance, and stock market
performance. Following such presentation, Keefe delivered its oral opinion with
respect to the fairness from a financial point of view of the consideration to
be received in the merger to the stockholders of HF Bancorp.
Following such discussions and questions by the HF Bancorp board of
directors to HF Bancorp senior management and its financial and legal advisors,
the board considered the proposal from Temple-Inland and concluded that the
merger is advisable and in the best interests of HF Bancorp and its
stockholders. The board unanimously approved the terms of Temple-Inland's
proposal and the merger pursuant to the merger agreement. Then, the merger
agreement, the stock option agreement, and the stockholder agreements were
executed on November 14, 1998.
In evaluating the proposed merger with Temple-Inland, the board of
directors of HF Bancorp considered a variety of factors, reviewed information
relating to Temple-Inland, and received reports and
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<PAGE> 41
presentations from its officers, financial advisers, and legal counsel. The
following factors were considered by the board of directors, none of which was
weighted more significantly than the others:
- the fact that the $18.50 to be paid in the merger represented an 8.8
percent premium over the $17.00 closing price of the HF Bancorp common
stock on November 13, 1998, the last trading day prior to execution of
the merger agreement;
- the value and form of the consideration offered by Temple-Inland,
compared with prices paid in comparable acquisitions of other banks and
bank holding companies, and compared with the prices offered to HF
Bancorp by other interested financial institutions;
- the book value and earnings per share of HF Bancorp, and the fact that
the price offered by Temple-Inland represented a multiple of book value
and earnings per share that was comparable to other recent acquisitions;
- the results of operations and prospects of HF Bancorp and Temple-Inland,
and in particular, the compatibility of Hemet's and Guaranty's customer
bases and the additional services Guaranty could offer to Hemet's
customers;
- the alternatives to an acquisition of HF Bancorp, including the
advisability of continuing to operate HF Bancorp as an independent
entity, the costs of implementing the strategic plan to convert Hemet to
a community bank, and the likelihood of success of the plan;
- the opinion of Keefe, confirmed in a letter to the board of directors,
that the consideration to be received in the merger is fair from a
financial point of view to the stockholders of HF Bancorp. See "The
Merger -- Opinion of HF Bancorp's Financial Advisor" for a discussion of
the opinion of Keefe and the bases for the opinion;
- the possible tax consequences of the transaction to the stockholders of
HF Bancorp, particularly those who received Temple-Inland stock in the
merger; and
- the value of Temple-Inland stock as an investment, including the fact
that it may offer HF Bancorp stockholders the opportunity to participate
in the future performance of a larger financial institution than HF
Bancorp.
RECOMMENDATION OF THE HF BANCORP BOARD OF DIRECTORS
The HF Bancorp board of directors concluded, in light of these factors and
other factors it considered appropriate, that the merger is advisable and in the
best interests of HF Bancorp and its stockholders. ACCORDINGLY, THE HF BANCORP
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS APPROVE THE
PRINCIPAL TERMS OF THE MERGER AGREEMENT.
OPINION OF HF BANCORP'S FINANCIAL ADVISOR
Keefe has delivered to the board of directors of HF Bancorp its written
opinion dated the date of this proxy statement to the effect that as of such
date the consideration to be paid in the merger is fair, from a financial point
of view, to the HF Bancorp stockholders. Keefe's opinion is addressed to the
board of directors of HF Bancorp and does not constitute a recommendation as to
how you should vote with respect to the merger. The opinion was rendered to the
board of directors of HF Bancorp for its consideration in determining whether to
approve the merger. In connection with its opinion dated the date of this proxy
statement, Keefe updated certain analyses performed in connection with its
opinion delivered on November 14, 1998, and reviewed the assumptions on which
its analyses were based and the factors considered in connection with its
analyses.
THE FULL TEXT OF THE OPINION OF KEEFE DATED THE DATE OF THIS PROXY
STATEMENT, WHICH SETS FORTH A DESCRIPTION OF THE PROCEDURES FOLLOWED,
ASSUMPTIONS MADE, MATTERS CONSIDERED, AND LIMITS ON THE REVIEW UNDERTAKEN, IS
ATTACHED TO THIS PROXY STATEMENT AS APPENDIX B. YOU ARE URGED TO READ THE
OPINION IN ITS
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<PAGE> 42
ENTIRETY. THE FOLLOWING SUMMARY OF THE OPINION IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF THE OPINION.
In rendering its opinion, Keefe
- reviewed, among other things, the merger agreement, Annual Reports to
stockholders, and Annual Reports on Form 10-K of HF Bancorp and
Temple-Inland for the three fiscal years ended June 30, 1998, for HF
Bancorp, and January 3, 1998, for Temple-Inland, certain interim reports
to stockholders and Quarterly Reports on Form 10-Q for HF Bancorp and
Temple-Inland and certain internal financial analyses and forecasts for
HF Bancorp prepared by management;
- held discussions with members of senior management of HF Bancorp and
Temple-Inland regarding past and current business operations, regulatory
relationships, financial condition, and future prospects of the
respective companies;
- compared financial and stock market information for HF Bancorp and
Temple-Inland with similar information for other companies the securities
of which are publicly traded;
- reviewed the financial terms of recent business combinations in the
banking industry; and
- performed such other studies and analyses as it considered appropriate.
In conducting its review and arriving at its opinion, Keefe relied upon and
assumed the accuracy and completeness of all of the financial and other
information provided to it or publicly available. Keefe did not attempt to
verify such information independently. Keefe relied upon the management of HF
Bancorp as to the reasonableness and achievability of the financial and
operating forecasts and projections, and assumptions and bases for them,
provided to Keefe. Keefe assumed that these forecasts and projections reflected
the best available estimates and judgments of management and that these
forecasts and projections will be realized in the amounts and in the time
periods estimated by management. Keefe also assumed, without independent
verification, that the aggregate allowances for loan losses for Hemet and
Guaranty are adequate to cover such losses. Keefe did not make or obtain any
evaluations or appraisals of the property on HF Bancorp or Temple-Inland, nor
did Keefe examine any individual credit files.
The following is a summary of the material financial analyses employed by
Keefe in connection with providing its opinion and does not purport to be a
complete description of all analyses employed by Keefe.
Valuation Summary
Keefe calculated multiples that are based on a per share purchase price of
$18.50, when compared with
- HF Bancorp's September 30, 1998, stated book value per share of $13.13,
- its tangible book value per share of $11.76,
- its trailing 12 month (September 30, 1997 to September 30, 1998) earnings
per share of ($0.03),
- its budgeted fiscal 1999 earnings per share, and
- its core deposit base, deposits less certificate accounts greater than
$100,000.
Based on this data, the price to stated book value per share multiple was
1.41 times and the price to stated tangible book value per share multiple was
1.57 times. Keefe noted that since HF Bancorp had reported a loss for the
trailing twelve month period that the price to trailing twelve month earnings
was not a meaningful ratio, the price to budgeted fiscal 1999 earnings per share
was 28.5 times, and the core deposit premium was 6.5 percent. Keefe also
reviewed the transaction structure and the conditions under which the number of
shares of Temple-Inland common stock that may be issued in the transaction would
change and the effect that would have on the per share consideration received by
the HF Bancorp
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stockholders. In addition, Keefe reviewed the election and allocation procedures
as set forth in the merger agreement.
Selected Peer Group Analysis
Keefe compared the financial performance and market performance of HF
Bancorp based on various financial measures of earnings performance, operating
efficiency, capital adequacy and asset quality, and various measures of market
performance, including market/book values, price to earnings, and dividend
yields to those of a group of comparable holding companies. For the purposes of
such analysis, the financial information used by Keefe was as of and for the
quarter ended September 30, 1998, except for selected credit quality data for HF
Bancorp which was as of the quarter ended June 30, 1998, and the market price
information was as of November 12, 1998. The companies in the peer group were
California based thrifts that had total assets ranging from approximately $600
million to $4.3 billion.
Keefe's analysis showed the following concerning HF Bancorp's financial
performance:
- that its return on assets for the quarter ended September 30, 1998, was
0.07 percent compared with an average of 0.80 percent for the peer group,
which was substantially worse than the peer group;
- that its return on equity for the quarter ended September 30, 1998, was
0.86 percent compared with an average of 10.92 percent for the peer
group, which was substantially worse than the peer group;
- that its net interest margin for the quarter ended September 30, 1998,
was 2.29 percent compared with an average of 3.29 percent for the peer
group, which was substantially worse than the peer group;
- that its efficiency ratio for the quarter ended September 30, 1998, was
82.75 percent compared with an average of 58.51 percent, which was
substantially worse than the peer group;
- that its tangible equity to assets ratio was 6.91 percent compared to an
average of 7.19, which was worse than the peer group;
- that its ratio of loan loss reserves to loans for the quarter ended June
30, 1998, was 1.07 percent compared with an average of 1.70 percent for
the peer group, which was substantially worse than the peer group; and
- that its ratio of non-performing assets to total loans and other real
estate owned for the quarter ended June 30, 1998, was 1.47 percent
compared with an average of 1.79 percent for the peer group, which was
better than the peer group.
This part of the selected peer group analysis was used to compare standard
measures of HF Bancorp's profitability, fundamental performance and capital
ratios, and trading market valuations to a group of its peers. The peer group
included California based thrifts with asset sizes between $600 million and $4.3
billion that were also publicly traded stocks. The analysis showed that HF
Bancorp's profitability, performance, and capital ratios ranked at or near the
bottom of each measure when compared with companies in the peer group. The
market valuation summary, however, showed that HF Bancorp was trading on a
multiple to book basis above the peer group. This indicated to Keefe that HF
Bancorp's stock was trading in the market anticipating a sale of HF Bancorp.
Keefe's analysis further showed the following concerning HF Bancorp's
market performance:
- that HF Bancorp's price to book value per share multiple was 1.29 times
compared with an average of 1.08 times for the peer group;
- that its price to tangible book value multiple per share was 1.50 times
compared with an average of 1.14 times for the peer group;
- that the average price to earnings multiple based on 1999 earnings per
share was 9.96 times for the peer group, but since there were no
published earnings estimates for HF Bancorp that this comparison was not
meaningful;
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- that its dividend yield was 0 percent since HF Bancorp did not pay a
dividend, compared with an average dividend yield of 0.65 percent for the
peer group.
Based on the results of the selected peer group analysis, Keefe opined that
HF Bancorp's market price already anticipated a sale of the company because of
HF Bancorp's superior market valuation compared with the peer group versus
altogether inferior operating results and ratios compared with the peer group.
Keefe also compared the financial performance and market performance of
Temple-Inland based on various financial measures of earnings performance and
various measures of market performance, including market/book values, price to
earnings, and dividend yields to those of a group of comparable holding
companies. For the purposes of such analysis, the financial information used by
Keefe was as of and for the quarter ended June 30, 1998, except for peer group
companies where September 30, 1998, data was available, and the market price
information was as of November 12, 1998. The companies in the peer group
consisted of eight paper and building products companies; namely Bowater, Inc.,
Champion International Corp., Georgia -- Pacific Group, International Paper
Company, Mead Corp, Union Camp Corporation, Westvaco Corporation, and
Weyerhaeuser Company.
Keefe's analysis showed the following concerning Temple-Inland's financial
performance:
- that its return on assets for the quarter ended June 30, 1998, was 0.94
percent compared with an average of 2.07 percent for the peer group;
- that its return on equity for the quarter ended June 30, 1998, was 6.82
percent compared with an average of 5.29 percent for the peer group;
- that its operating margin for the quarter ended June 30, 1998, was 8.92
percent compared with an average of 7.91 percent for the peer group.
Keefe's analysis also showed the following concerning Temple-Inland's
market performance:
- that Temple-Inland's price to book value per share multiple was 1.37
times compared with an average of 1.44 times for the peer group;
- that the average price to earnings multiple based on 1998 and 1999
earnings per share were 26.7 times and 23.8 times respectively, compared
with an average of 34.8 times and 26.7 times respectively for the peer
group;
- that its dividend yield was 2.56 percent, compared with an average
dividend yield of 2.45 percent for the eight companies in the peer group.
For the purposes of the above calculations, all earnings estimates are
based upon IBES consensus estimates.
This part of the selected peer group analysis looked at relevant measures
of Temple-Inland's fundamental and market performance. Keefe's conclusions were
that while Temple-Inland's performance was relatively lower than its peer group,
its stock price was also relatively lower based on market to book multiples and
forward price to earnings multiples. Furthermore, Keefe's analysis showed that
Temple-Inland was relatively well-capitalized versus its peer group with an
above average debt rating. Keefe concluded that Temple-Inland would be able to
raise the cash necessary to complete the transaction for HF Bancorp stockholders
electing cash.
Discounted Cash Flow Analysis
Keefe estimated the present value of the future cash flows that could
accrue to a holder of a share of HF Bancorp common stock through the year 2001.
The analysis was based on several assumptions, including the achievability of
earnings projections outlined in the HF Bancorp budget and no payment of
dividends. A terminal value was calculated for 2001 by multiplying HF Bancorp's
projected 2001 earnings by a price to earnings multiple of 16.0 times trailing
earnings. The terminal valuation was discounted at a rate of 20 percent,
producing a present value of $16.30. Keefe also presented tables showing the
foregoing analysis with a range of discount rates from 20 percent to 24 percent,
and a range of price-to-earnings
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multiples of 10x to 17x, resulting in a range of present values for a share of
HF Bancorp common stock of $9.23 to $17.31.
Keefe noted that the HF Bancorp budget appeared aggressive in light of HF
Bancorp's previous earnings history, in that it indicated that HF Bancorp would
achieve levels of profitability comparable to the thrifts in the selected peer
group. Keefe repeated this analysis assuming HF Bancorp achieved 80 percent of
their earnings budget. The result of this analysis was a present value of $13.04
at a 16.0 times trailing earnings terminal multiple and a 20 percent discount
rate. Keefe also presented a table showing the foregoing analysis with a range
of discount rates from 20 percent to 24 percent and a range of price-to-earnings
multiples of 14x to 17x, resulting in a range of present values for a share of
HF Bancorp common stock of $10.34 to $13.85.
The range of discount rates used in the calculation to discount to present
value the projected future cash flows largely correlates to the riskiness and
uncertainty of achieving those cash flows. For highly liquid stocks, a market
discount rate derived from the volatility of a particular stock or industry
group versus the volatility of the market can be appropriate. Such discount
rates for the thrift industry would be in the 12 percent to 15 percent range.
For those stocks that are less liquid, such as HF Bancorp's stock, or for those
companies that are projecting an uncertain and dramatic change in the level of
their earnings, such as HF Bancorp, a more subjective analysis incorporating a
higher range of discount rates is appropriate. Keefe has had experience in
evaluating a range of bank and thrift stocks that involved assessing the risk of
projected income streams with dramatic departures from previous performance.
These are referred to as turnaround thrifts. As HF Bancorp was projecting such a
departure, Keefe deemed it appropriate to apply a higher discount rate than
might be applied to a more stable and predictable highly liquid thrift stock. In
addition, due to Keefe's experience with turnaround bank and thrift stocks,
Keefe knew that investors wanted to see minimum rates of return in the 20
percent range, which is where Keefe placed the range of discount rates in its
present value analysis.
Keefe stated that the discounted cash flow analysis is a widely-used
valuation methodology but noted that it relies on numerous assumptions,
including earnings and earnings growth rates, terminal values, and discount
rates. The analysis did not purport to be indicative of the actual values or
expected values of HF Bancorp common stock.
The discounted cash flow analysis was used to estimate the present value of
HF Bancorp's potential future cash flows on a stand alone basis assuming HF
Bancorp was to be sold at a future date. The analysis is used to compare the
offer of the transaction being considered to the potential range of values in an
independence or independence and future sale scenario. The discounted cash flow
analysis supported the fairness opinion because it showed that the proposed sale
price of $18.50 per HF Bancorp share was superior to all but those few scenarios
that used the most optimistic assumptions about HF Bancorp's future performance,
future sales price in a transaction, low discount rates, or required rates of
return of investors.
Analysis of Selected Merger Transactions
Keefe reviewed certain financial data related to recent thrift and thrift
holding company acquisitions in California. Keefe prepared this analysis in
order to compare the proposed price to be received by HF Bancorp stockholders to
other comparable transactions in the market. Keefe looked at recent transactions
involving California based thrifts as sellers where the transaction value was
greater than $100 million. Keefe divided the group of transactions into trophy
transactions, which generally involved larger transactions of publicly held
companies by other publicly held companies, involving stock and other smaller
transactions or transactions involving cash.
Keefe reviewed four trophy transactions involving California thrifts:
- Washington Mutual's acquisition of HF Ahmanson & Co. in March 1998
- HF Ahmanson & Co.'s acquisition of Coast Saving Financial in October 1997
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- Washington Mutual's acquisition of Great Western Financial in March 1997
- Washington Mutual's acquisition of Keystone Holdings in July 1996
In addition, Keefe reviewed seven other acquisitions involving California
thrifts with assets sizes between $600 million and $4.3 billion that were also
publicly traded stocks:
- PBOC Holdings, Inc.'s acquisition of So Cal Savings in May 1998
- UCBH Holdings Inc.'s acquisition of USB Holdings in April 1998
- Golden State Bancorp's acquisition of RedFed Bancorp in December 1997
- Golden State Bancorp's acquisition of CENFED Financial Corp. in August
1997
- Bay View Capital's acquisition of America First Financial in May 1997
- Temple-Inland's acquisition of California Financial in December 1996
- MacAndrews & Forbes' acquisition of Cal Fed Bancorp in July 1996
For transactions where stock was the consideration paid, acquisition
multiples were presented as of the announcement date and subsequently adjusted
for changes in the market price of the acquiror's stock price to adjust historic
multiples for the current market environment.
The following table sets forth the results of Keefe's analysis of selected
merger transactions involving California thrifts compared with the merger:
<TABLE>
<CAPTION>
CALIFORNIA THRIFT ACQUISITIONS
-------------------------------
AT
ANNOUNCEMENT AS HF BANCORP
DATE ADJUSTED MERGER
---------------- ------------ ----------
<S> <C> <C> <C>
Average premium to stated book value per share........... 167% 130% 141%
Average premium to tangible book value per share......... 168% 131% 157%
Average multiple of trailing twelve month earnings....... 19.3x 17.4x n/a
Average multiple of forward earnings..................... 11.4x 8.8x 28.5x
Average premium to core deposits, net of tangible
equity................................................. 7.8% 6.4% 6.5%
</TABLE>
Keefe noted that the price to last twelve months earnings was not a meaningful
ratio for HF Bancorp because HF Bancorp had recorded a loss over that operating
period.
Keefe noted that no company or transaction used as a comparison in the
above analysis is identical to HF Bancorp, Temple-Inland, or the merger.
Accordingly, an analysis of the results of the foregoing is not mathematical;
rather, it involves complex considerations and judgments concerning differences
in financial and operating characteristics of the companies and other factors
that could affect the public trading value of the companies to which they are
being compared.
A second analysis of the comparable transactions adjusted the consideration
received by the sellers for movements in the price of the buyer's stock. Keefe
believes this to be a relevant analysis as it adjusts for the large volatility,
and general recent upward bias, to stock prices over the last three years and
allows a fairer comparability when looking at transaction price premiums to
earnings, book value, and deposits across time periods. The above analysis
supported the opinion of fairness because it showed HF Bancorp's premiums to be
at or above the multiples received by the non-trophy peer group on both an
announced and adjusted basis. While the trophy peer group sales multiples were
generally higher than those to be received for HF Bancorp, Keefe commented that
a fair analysis of HF Bancorp would show the company to be closer to the
non-trophy peers than the trophy peers.
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Other Analysis
Keefe also analyzed the liquidity and volatility for Temple-Inland and
reviewed selected investment research reports, earnings estimates, historical
stock price performance relative to the S&P 500 and to an index of forest and
paper products companies, and other financial data for HF Bancorp and
Temple-Inland.
The other analysis was largely a review of Temple-Inland's operating
performance and market valuation and is described more fully in the second part
of the "Selected Peer Group Valuation Analysis," above. In addition, the
analysis supported the conclusion that for those stockholders receiving cash,
Temple-Inland had sufficient resources to raise the cash. For those electing
stock, in case any stock was actually exchanged, the stock received would be
liquid and HF Bancorp stockholders would be able to trade out of it in less than
ten business days using recent average Temple-Inland trading volumes. Keefe
focused its analysis of Temple-Inland on the liquidity and volatility of the
stock and the ability of Temple-Inland to raise funds to satisfy the cash
portion of any HF Bancorp stockholder elections. Because the transaction is
structured as a fixed price as opposed to a fixed exchange ratio of
Temple-Inland stock, Keefe deemed liquidity and volatility measures of the
Temple-Inland stock to be more important than valuation measures. In addition,
because the majority of the consideration is likely to be in cash and possibly
all in cash, Keefe deemed it important to assess the probability of
Temple-Inland to be able to raise the cash necessary to close the transaction.
The summary contained in this proxy statement provides a description of the
material analyses prepared by Keefe in connection with rendering its opinion.
The summary set forth above is a materially complete description of the analyses
performed by Keefe in connection with rendering its opinion. The preparation of
a fairness opinion is not necessarily susceptible to partial analysis or summary
description. Keefe believes that its analyses and the summary set forth above
must be considered as a whole and that selecting portions of its analyses
without considering all analyses, or selecting part of the above summary,
without considering all factors and analyses, would create an incomplete view of
the processes underlying the analyses set forth in Keefe's presentations and
opinion. The range of valuations resulting from any particular analysis
described above should not be taken to be Keefe's view of the actual value of HF
Bancorp or Temple-Inland. The fact that any specific analysis has been referred
to in the summary above is not meant to indicate that such analysis was given
greater weight than any other analyses.
In performing its analyses, Keefe made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond the control of HF Bancorp and Temple-Inland.
The analyses performed by Keefe are not necessarily indicative of actual values
or actual future results, which may be significantly more or less favorable than
suggested by such analyses. Such analyses were prepared solely as part of
Keefe's analysis of the fairness, from a financial point of view, of the
consideration paid in the merger. This was provided to the HF Bancorp board in
connection with the delivery of Keefe's opinion. The analyses do not purport to
be appraisals or to reflect the prices at which a company actually might be sold
or the prices at which any securities may trade at the present time or at any
time in the future. In addition, as described above, Keefe's opinion, along with
its presentation to the board of directors of HF Bancorp, was just one of many
factors taken into consideration by the board of directors of HF Bancorp in
unanimously approving the merger.
Keefe, as part of its investment banking business, is continually engaged
in the valuation of banking businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive bidding,
secondary distributions of listed and unlisted securities, private placements,
and evaluations for estate, corporate, and other purposes. As specialists in the
securities of banking companies, Keefe has experience in, and knowledge of, the
valuation of banking enterprises. In the ordinary course of its business as a
broker-dealer, Keefe may, from time to time, purchase securities from, and sell
securities to, HF Bancorp and Temple-Inland and as a market maker in securities
Keefe may from time to time have a long or short position in, and buy or sell,
debt or equity securities of HF Bancorp or Temple-Inland for Keefe's own account
and for the accounts of its customers.
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Pursuant to the executed engagement letter between HF Bancorp and Keefe, HF
Bancorp has agreed to pay Keefe a cash fee equal to 1.25 percent of the market
value of the total consideration paid to HF Bancorp stockholders upon closing of
the transaction. If January 14, 1999, had been the date of consummation of the
Merger, such fee would have been approximately $1.52 million. At the signing of
the engagement letter, a cash fee of $25,000 was paid, an additional cash fee of
$100,000 was paid upon the signing of the definitive agreement, and an
additional cash fee of $100,000 will be paid at the mailing of this proxy
statement. The balance of the 1.25 percent less the fees previously remunerated
will be paid at the closing of the merger. Pursuant to the Keefe engagement
letter, HF Bancorp also agreed to reimburse Keefe for reasonable out-of-pocket
expenses and disbursements incurred in connection with its retention and to
indemnify Keefe against certain liabilities, including liabilities under federal
securities laws. HF Bancorp and Keefe have been advised that, in the opinion of
the SEC, indemnification for liabilities arising under the federal securities
laws is against public policy and may not be enforceable.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
Consummation of the merger as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code, which we refer to as the code, is
conditioned upon
- receipt by Temple-Inland of an opinion of its counsel, Sullivan &
Cromwell, that the merger will constitute a reorganization under Section
368 of the code and
- receipt by HF Bancorp of an opinion of its counsel, Manatt, Phelps &
Phillips, LLP that
- the merger will constitute a reorganization within the meaning of
Section 368 of the code and
- no gain or loss will be recognized by HF Bancorp stockholders to the
extent they receive Temple-Inland common stock in exchange for shares of
HF Bancorp common stock.
In rendering the tax opinions, counsel may require and rely upon
representations contained in letters from HF Bancorp, Temple-Inland, and others.
Neither of the tax opinions is binding on the IRS. Neither HF Bancorp nor
Temple-Inland intend to request any ruling from the IRS as to the U.S. federal
income tax consequences of the merger. If Sullivan & Cromwell and Manatt, Phelps
& Phillips do not render the tax opinions prior to the time the merger becomes
effective, HF Bancorp stockholders will not have the option to receive
Temple-Inland common stock in exchange for their HF Bancorp common stock.
Instead, they will receive solely cash.
In the opinion of Manatt, Phelps & Phillips, LLP, the following accurately
summarizes the material U.S. federal income tax consequences of the merger to
holders of HF Bancorp common stock who hold such stock as a "capital asset"
within the meaning of Section 1221 of the code. Special tax consequences that
are not described in this proxy statement may be applicable to particular
classes of taxpayers, including
- financial institutions,
- insurance companies,
- tax-exempt organizations,
- broker-dealers,
- traders in securities that elect to mark to market,
- persons that hold HF Bancorp common stock as part of a straddle or
conversion transaction,
- persons who are not citizens or residents of the United States, and
- stockholders who acquired their shares of HF Bancorp common stock through
the exercise of an employee stock option or otherwise as compensation.
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The following disclosure is based upon the code, its legislative history,
existing and proposed regulations under the code, published rulings, and
decisions. The disclosure is based on the effect of these sources as of the date
of this proxy statement. All of these sources are subject to change, possibly
with retroactive effect. Tax consequences under state, local, and foreign laws
are not addressed. ALL STOCKHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS
AS TO THE PARTICULAR TAX CONSEQUENCES OF THE MERGER, INCLUDING THE APPLICABILITY
AND EFFECT OF THE ALTERNATIVE MINIMUM TAX AND ANY STATE, LOCAL, OR FOREIGN
INCOME AND OTHER TAX LAWS AND OF CHANGES IN SUCH TAX LAWS.
Tax Consequences of the Merger Generally
Based on the above qualifications, for U.S. federal income tax purposes
- neither Temple-Inland nor HF Bancorp will recognize a gain or loss
pursuant to the merger,
- a stockholder of HF Bancorp who exchanges all of his or her HF Bancorp
common stock solely for cash in the merger, or upon the exercise of
appraisal rights in connection with the merger, will recognize gain or
loss in an amount equal to the difference between the cash received and
the stockholder's adjusted tax basis in the shares surrendered,
- a stockholder of HF Bancorp who receives solely Temple-Inland common
stock in exchange for shares in the merger will not recognize any gain or
loss, except to the extent the stockholder receives cash in exchange for
fractional shares, and
- a stockholder of HF Bancorp who receives a combination of cash and
Temple-Inland common stock in the merger will not recognize loss but will
recognize gain, if any, on the exchanged shares to the extent of any cash
received.
Tax Consequences of the Cash/Stock Merger
Exchange of HF Bancorp Common Stock Solely for Temple-Inland Common Stock.
No gain or loss will be recognized by a HF Bancorp stockholder who only receives
Temple-Inland common stock for shares of HF Bancorp common stock, except to the
extent the stockholder receives cash in payment of a fractional share interest
in Temple-Inland common stock. The aggregate tax basis in the Temple-Inland
common stock received pursuant to the merger will equal the stockholder's
aggregate tax basis in the shares of HF Bancorp common stock exchanged, reduced
by any amount allocable to a fractional share interest of Temple-Inland common
stock for which cash is received. The holding period of Temple-Inland common
stock received pursuant to the merger will include the holding period of the
shares of HF Bancorp common stock exchanged.
Exchange of HF Bancorp Common Stock for Temple-Inland Common Stock and
Cash. A HF Bancorp stockholder who receives both Temple-Inland common stock and
cash, other than cash received in payment of a fractional share interest in
Temple-Inland common stock, will not recognize loss. However, the stockholder
will recognize gain, if any, to the extent of the lesser of:
- the excess of
- the sum of the fair market value of the Temple-Inland common stock
received, including the fair market value of any fractional share
interest in Temple-Inland common stock for which cash is received, and
the amount of cash received, other than cash received in lieu of such
fractional share interest, over
- the HF Bancorp stockholder's adjusted federal income tax basis for the
shares of HF Bancorp common stock exchanged; and
- the amount of cash received by the HF Bancorp stockholder, other than
cash received in lieu of such fractional share interest.
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Any such gain will be treated as capital gain, which will be long-term
capital gain if the shares of HF Bancorp common stock exchanged were held for
more than one year, unless the receipt of cash has the effect of a distribution
of a dividend within the meaning of Section 356(a)(2) of the code. In such a
case, the gain will be treated as a dividend to the extent of the stockholder's
ratable share of the undistributed accumulated earnings and profits of HF
Bancorp. Following is a brief discussion of such potential tax treatment. HF
Bancorp stockholders, however, should consult their own tax advisors as to the
possibility that all or a portion of any cash received in exchange for their HF
Bancorp common stock will be treated as a dividend.
The stock redemption provisions of Section 302 of the code apply in
determining whether cash received by a HF Bancorp stockholder pursuant to the
merger has the effect of as distribution of a dividend under Section 356(a)(2)
of the code. This is referred to as hypothetical redemption analysis. Under the
hypothetical redemption analysis, an HF Bancorp stockholder will be treated as
if the portion of the shares of HF Bancorp common stock exchanged for cash in
the merger had been instead exchanged for shares of Temple-Inland common stock.
This is referred to as hypothetical shares. This exchange will be followed
immediately by a redemption of the hypothetical shares by Temple-Inland for
cash. Under the principles of Section 302 of the code, a HF Bancorp stockholder
will recognize capital gain rather than dividend income with respect to the cash
received if the hypothetical redemption is not essentially equivalent to a
dividend or is substantially disproportionate with respect to the HF Bancorp
stockholder. In applying the principles of Section 302, the constructive
ownership rules of Section 318 of the code will apply in comparing a HF Bancorp
stockholder's ownership interest in Temple-Inland both immediately after the
merger, but before the hypothetical redemption, and after the hypothetical
redemption.
Whether the hypothetical redemption by Temple-Inland of the hypothetical
shares for cash is not essentially equivalent to a dividend with respect to a HF
Bancorp stockholder will depend upon the stockholder's particular circumstances.
However, the hypothetical redemption must, in any event, result in meaningful
reduction in such HF Bancorp stockholder's percentage ownership of Temple-Inland
common stock. In determining whether the hypothetical redemption by
Temple-Inland results in a meaningful reduction in a HF Bancorp stockholder's
percentage ownership of Temple-Inland common stock, and therefore does not have
the effect of a distribution of a dividend, a HF Bancorp stockholder should
compare his or her share interest in Temple-Inland, including interests owned
actually, hypothetically, and constructively, immediately after the merger, but
before the hypothetical redemption, to his or her share interest after the
hypothetical redemption.
The IRS has indicated, in Revenue Ruling 76-385, that a stockholder in a
publicly-held corporation whose relative stock interest in the corporation is
minimal and who exercises no control over corporate affairs is generally treated
as having had a meaningful reduction in his or her stock after a redemption
transaction if his or her percentage stock ownership in the corporation has been
reduced to any extent, taking into account the stockholder's actual and
constructive ownership before and after the redemption. In Revenue Ruling
76-385, a reduction from .0001118% to .0001081% was found to be a meaningful
reduction in stockholdings.
The hypothetical redemption transaction would be substantially
disproportionate if the percentage of Temple-Inland common stock actually and
constructively owned by the stockholder immediately after the hypothetical
redemption is less than 80 percent of the percentage of Temple-Inland common
stock actually, hypothetically, and constructively owned by the HF Bancorp
stockholder immediately before the hypothetical redemption. Such a substantially
disproportionate hypothetical redemption transaction would not have the effect
of a distribution of a dividend with respect to a HF Bancorp stockholder who
owns less than 50 percent of the voting power of the outstanding Temple-Inland
common stock.
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A HF Bancorp stockholder's aggregate tax basis in the Temple-Inland common
stock received pursuant to the merger will equal
- the stockholder's aggregate tax basis in the shares of HF Bancorp common
stock exchanged, reduced by
- any amount allocable to a fractional share interest of Temple-Inland
common stock for which cash is received and by the amount of any cash
received, and increased by
- the amount of gain, if any, recognized by such stockholder in the merger,
including any portion of such gain that is treated as a dividend.
The holding period of Temple-Inland common stock received will include the
holding period of the shares of HF Bancorp common stock exchanged.
Exchange of HF Bancorp Common Stock Solely for Cash. A HF Bancorp
stockholder who exchanges all of his or her HF Bancorp common stock for cash in
the merger, or upon the exercise of appraisal rights in connection with the
merger, will generally recognize capital gain or loss equal to the difference
between the amount of cash received and the stockholder's adjusted tax basis in
the HF Bancorp common stock surrendered. The gain or loss will be long-term
capital gain or loss if, as of the date of the exchange, the holding period for
such shares is greater than one year. However, if the HF Bancorp stockholder is
attributed ownership of other HF Bancorp common stock under Section 318 of the
code and the other stock is exchanged for Temple-Inland common stock in the
merger, the HF Bancorp stockholder's tax consequences from the exchange must
take into account the hypothetical redemption analysis discussed above.
Fractional Shares of Temple-Inland Common Stock. No fractional shares of
Temple-Inland common stock will be issued in the merger. A HF Bancorp
stockholder who received cash in payment of such a fractional share will be
treated as having received such fractional share pursuant to the merger and then
as having exchanged such fractional share for cash in a redemption by
Temple-Inland subject to Section 302 of the code. Such a deemed redemption will
be treated as a sale of the fractional share, provided that it is not
essentially equivalent to a dividend or is substantially disproportionate with
respect to the HF Bancorp stockholder. See "-- Exchange of HF Bancorp Common
Stock for Temple-Inland Common Stock and Cash" for a description of the relevant
analysis. If the deemed redemption is treated as a sale of the fractional share,
a HF Bancorp stockholder will generally recognize capital gain or loss in an
amount determined by the difference between the amount of cash received for the
fractional share and the stockholder's tax basis in the fractional share. Any
such capital gain or loss will be long-term if the HF Bancorp common stock
exchanged was held for more than one year.
Tax Consequences of the All-Cash Merger
In the event the merger is effected as an all-cash merger, a HF Bancorp
stockholder will recognize gain or loss in an amount equal to the difference
between the amount of cash received and the stockholder's aggregate adjusted
basis in the HF Bancorp common stock. Such gain or loss will be long-term
capital gain or loss if the stockholder held the shares of HF Bancorp common
stock for more than one year.
Backup Withholding and Information Reporting
Payments of cash to a holder surrendering shares of HF Bancorp common stock
will generally be subject to information reporting and backup withholding,
whether or not the holder also receives Temple-Inland common stock, at a rate of
31 percent of the cash payable to the holder. A holder may avoid withholding if
it furnishes its taxpayer identification number in the manner prescribed in
applicable IRS regulations, certifies that such number is correct, certifies as
to no loss of exemption from backup withholding, and meets certain other
conditions. Any amounts withheld from payments to a holder under
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the backup withholding rules will be allowed as a refund or credit against the
holder's U.S. federal income tax liability, provided the required information is
furnished to the IRS.
REGULATORY APPROVALS
The merger and the merger of Hemet into Guaranty are subject to the
approval of the OTS as required by the Home Owners' Loan Act, Section 1467a(e)
and (s) of Title 12 of the United States Code, the Bank Merger Act, Section
1828(c) of Title 12 of the United States Code, and Sections 552.13, 563.22, and
574.3 of Title 12 of the Code of Federal Regulations. Temple-Inland filed an
application for approval of these mergers with the OTS on February 8, 1999. The
OTS is currently reviewing the application.
The OTS is required under these statutes to evaluate the applications by
taking into consideration, among other things,
- the capital level of the resulting institution,
- the financial and managerial resources and future prospects of the
institutions involved,
- the convenience and needs of the communities to be served, and
- the conformity of the transaction to applicable law, regulation, and
supervisory policies.
In addition, the OTS may not approve any proposed acquisition that would result
in a monopoly or that would be in furtherance of any combination or conspiracy
to monopolize or to attempt to monopolize the savings and loan business in any
part of the United States, or that in any section of the country may have the
effect of substantially lessening competition or tending to create a monopoly or
that in any other manner would be in restraint of trade. Despite a finding of
this nature, the OTS may still approve an acquisition if it finds that the
anti-competitive effects of the proposed acquisition are clearly outweighed in
the public interest by the probable effect of the acquisition in meeting the
convenience and needs of the community to be served. The OTS also considers,
among other things,
- the fairness and disclosure of the merger documents, including
compensation to officers, directors, and controlling persons of the
disappearing association by the surviving association,
- the justification, need for, and compensation to be paid to any advisory
board,
- fees paid to each person or firm rendering legal or other professional
services in connection with a merger, and
- the accounting and tax treatment of the merger.
The OTS will also consider an assessment of each party's Year 2000
compliance efforts and the impact of the merger on such efforts.
Under the Community Reinvestment Act of 1977, the OTS must take into
account Guaranty's and Hemet's respective records of performance in meeting the
credit needs of the entire communities, including low- and moderate-income
neighborhoods, served by Guaranty and Hemet. The regulations of the OTS also
require the publication of notice and the opportunity for public comments
relating to the application for approval. The OTS may hold formal or informal
meetings, if deemed appropriate to consider these comments. Any such comments or
meetings could prolong the period during which the applications are subject to
review by the OTS.
In addition, under federal law, a period of 30 days must expire following
approval by the OTS within which period the Department of Justice may file
objections to the merger under the federal antitrust laws. The post-approval
waiting period may be reduced by the OTS to 15 days, with the concurrence of the
Department of Justice. The Department of Justice could take such action under
the antitrust laws as it deems necessary or desirable in the public interest,
including seeking to enjoin the mergers unless divestiture of an acceptable
number of branches to a competitively suitable purchaser could be made.
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While Temple-Inland believes that the likelihood of such action by the
Department of Justice is remote in this case, there can be no assurance that the
Department of Justice will not initiate such proceeding, or if such proceeding
is instituted, as to the result of the proceeding.
The merger cannot proceed without the required regulatory approvals. See
"The Merger Agreement -- Conditions" and "-- Termination" for a discussion of
other conditions to consummation of the merger and grounds for termination of
the merger. There can be no assurance that such regulatory approvals will be
obtained. If the approvals are obtained, there can be no assurance as to the
date of the approval. There can also be no assurance that any such approvals
will not contain a condition or requirement that causes such approvals to fail
to satisfy the conditions set forth in the merger agreement and described below
under "The Merger Agreement -- Conditions."
RESALE OF TEMPLE-INLAND COMMON STOCK
The issuance of the shares of Temple-Inland common stock to stockholders of
HF Bancorp upon completion of the merger has been registered under the
Securities Act. The merger agreement also requires that all shares of
Temple-Inland common stock issued in connection with the merger be approved for
listing, upon official notice of issuance, on the New York Stock Exchange. The
shares received in the merger may be traded freely by those stockholders not
deemed to be affiliates of HF Bancorp, as that term is defined under the
Securities Act. The term affiliate generally means each person who controls, or
is a member of a group that controls, or who is under common control with, HF
Bancorp. For these purposes all executive officers, directors, and ten percent
stockholders of HF Bancorp could be considered affiliates.
Rule 145 under the Securities Act is available to stockholders who are
deemed to be affiliates of HF Bancorp. Provided they are not also affiliates of
Temple-Inland, the affiliates of HF Bancorp may publicly resell Temple-Inland
common stock received by them in the merger if they register the resale of those
shares or they comply with the restrictions of Rule 145. Anyone who is or may be
an affiliate of HF Bancorp should carefully consider the resale restrictions
imposed by Rule 145, prior to attempting to transfer any shares of Temple-Inland
common stock after the merger.
The merger agreement requires HF Bancorp to identify its affiliates. HF
Bancorp must use reasonable efforts to cause its affiliates to agree not to
dispose of Temple-Inland common stock received in the merger except in
compliance with the Securities Act and the rules and regulations of the SEC. In
addition, Temple-Inland intends to place stop transfer instructions with its
transfer agent regarding Temple-Inland common stock issued to affiliates of HF
Bancorp.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the board of directors of HF Bancorp,
HF Bancorp stockholders should be aware that directors and executive officers of
HF Bancorp have interests in the merger that are in addition to the interests of
stockholders generally and that may create potential conflicts of interest.
These interests include, among others, provisions in the merger agreement
relating to the indemnification of HF Bancorp officers and directors, directors'
and officers' liability insurance, and the treatment of stock options and
restricted stock awards discussed below and payments due under agreements as a
result of a change in control.
Hemet has entered into an employment agreement with Richard S. Cupp that
provides that, in the event of Mr. Cupp's resignation within two years following
a change in control of Hemet or HF Bancorp, Mr. Cupp would be entitled to a
severance payment equal to the greater of the payments due for the remaining
term of the agreement or two times his average annual compensation over the last
three years. In addition, Hemet and HF Bancorp would continue Mr. Cupp's life,
health, and disability coverage for two years.
In addition, HF Bancorp has entered into change in control agreements with
seven other officers that provide for payments equal to one or two times the
officer's annual salary, including bonuses and any other cash compensation upon
the termination of such officer's employment, other than for cause, following a
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change of control with respect to HF Bancorp or Hemet. HF Bancorp would also
continue the officer's life, health, and disability coverage for 12 months
following such termination of employment. HF Bancorp and Hemet have also agreed
to pay a retention incentive to another officer to assure that they will
continue to have the benefit of the officer's services through the closing of
the merger.
The merger agreement provides that Temple-Inland will indemnify each
present HF Bancorp director and officer against liabilities arising out of
matters existing or occurring at or prior to the completion of the merger to the
extent to which such indemnified parties were entitled under Delaware law and HF
Bancorp's certificate of incorporation or bylaws in effect on November 14, 1998.
Temple-Inland also will advance expenses as incurred to the extent permitted
under Delaware law and HF Bancorp's certificate of incorporation and bylaws. In
addition, for a period of four years after the completion of the merger,
Temple-Inland will provide directors' and officers' liability insurance covering
such individuals providing comparable coverage to that maintained by HF Bancorp
with respect to claims arising from facts or events that occurred before the
completion of the merger.
Directors and executive officers of HF Bancorp have been granted stock
options to purchase HF Bancorp common stock that expire at various times through
2008. As required by the merger agreement, HF Bancorp has entered into option
cancellation agreements with the holders of HF Bancorp options, which require
that all outstanding options, including currently unvested amounts, will be
canceled, unless exercised prior to the time the merger becomes effective, and
the holders will receive the positive difference, if any, between $18.50 per
share and the exercise price of the options.
Directors and executive officers of HF Bancorp currently hold options to
purchase an aggregate of 408,695 shares of HF Bancorp common stock, of which
239,375 shares were not vested as of the record date. These options have
exercise prices ranging from $9.50 per share to $17.56 per share. If the merger
is completed, directors and executive officers of HF Bancorp will receive, in
the aggregate, $2,437,099 for the cancellation of their stock options, including
$1,221,809 attributable to stock options that were unvested as of the record
date.
In addition, directors and executive officers of HF Bancorp have been
granted awards of restricted stock that become vested at various times through
2003. Unvested shares of restricted stock are held by a trustee until such
restrictions lapse, at which time they are distributed to the award recipient.
As a result of the merger, restricted stock awards granted to directors and
executive officers of HF Bancorp will accelerate and become fully vested. As of
the record date, directors and executive officers had been awarded 80,712 shares
of HF Bancorp common stock that were subject to restrictions. All of these
shares will become fully vested as a result of the merger. The shares of HF
Bancorp common stock subject to such awards will remain outstanding and be
converted as a result of the merger into Temple-Inland common stock, cash, or a
combination of the two, on the same terms and conditions as other outstanding
share of HF Bancorp common stock, in accordance with the directions of the
recipients.
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The following table presents information regarding the severance or
retention benefits to be paid to executive officers and directors, the number of
unvested options held by each person at the record date, the value of the
consideration to be paid upon the cancellation of those unvested stock options
as a result of the merger and the number of shares of restricted stock that will
accelerate and vest as a result of the merger.
<TABLE>
<CAPTION>
SEVERANCE OR NUMBER OF CONSIDERATION RESTRICTED
RETENTION UNVESTED TO BE PAID FOR SHARES TO VEST
PAYMENT OPTIONS UNVESTED OPTIONS DUE TO MERGER
------------ --------- ---------------- --------------
<S> <C> <C> <C> <C>
Dr. Robert K. Jabs........................ n/a 7,036 $ 59,454 2,110
Director
William D. King........................... n/a 10,000 $ 9,400 3,300
Director
Patricia A. "Corky" Larson................ n/a 4,735 $ 40,011 1,420
Director
Richard S. Cupp........................... $ 501,600 48,000 $ 199,680 24,000
Director, President and CEO
J. Robert Eichinger....................... n/a 47,610 $ 402,305 17,458
Chairman of the Board
Harold L. Fuller.......................... n/a 5,502 $ 46,492 1,650
Director
Norman M. Coulson......................... n/a 6,000 $ 54,000 1,980
Director
George P. Rutland......................... n/a 8,000 $ 33,280 2,640
Director
Leonard E. Searl.......................... n/a 13,172 $ 111,303 3,954
Director
Mark R. Andino............................ $ 254,400 14,200 $ 64,182 4,000
Senior Vice President and CFO
Carl Raggio............................... $ 316,800 20,000 $ 36,800 4,800
Executive Vice President and Chief
Lending Officer
Jeffrey Watson............................ $ 149,000 10,000 $ 11,200 --
Senior Vice President/Commercial Lending
Thomas Strait............................. $ 255,600 16,000 $ 48,240 4,000
Senior Vice President/Retail Banking
Maureen Clark............................. $ 92,200 10,000 $ 27,150 3,000
Senior Vice President and Chief
Information Officer
Pamala S. Trotter......................... $ 85,200 12,000 $ 37,440 4,000
Senior Vice President/Human Resources
Greg Chantler............................. $ 75,107 3,720 $ 17,654 1,000
Senior Vice President/Loan
Administration
Janet E. Riley............................ $ 45,060 3,400 $ 23,218 1,400
Corporate Secretary
---------- ------- ---------- ------
$1,774,967 239,375 $1,221,809 80,712
========== ======= ========== ======
</TABLE>
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APPRAISAL RIGHTS
If the merger is consummated, a holder of record of shares of HF Bancorp
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. We are not claiming that it
is a complete description. A copy of the pertinent provisions of Delaware law is
attached to this proxy statement as Appendix 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 HF Bancorp common stock
must (a) deliver a written demand for appraisal to HF Bancorp before the HF
Bancorp stockholders vote on the merger, and (b) not vote in favor of the
merger.
A proxy or vote against the merger does not constitute a demand. A
stockholder demanding appraisal rights must do so by a separate written demand.
This demand must reasonably inform HF Bancorp of the identity of the holder of
record and that the stockholder demands appraisal of his or her shares of HF
Bancorp 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 HF Bancorp, 445 E. Florida Avenue, Hemet,
California 92543, Attention: Janet E. Riley, corporate secretary.
Record Holders Must Demand Appraisal Rights
Only the record holder of the HF Bancorp 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 the HF Bancorp 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 the HF Bancorp 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 of the merger, the continuing
corporation in the merger will send notice of the effectiveness of the merger to
each person who satisfied the foregoing conditions. Temple-Inland or one of its
subsidiaries will be the continuing corporation.
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Court Petition must be Filed
Within 120 days after the effective time of the merger, the continuing
corporation in the merger or any stockholder who has satisfied the foregoing
conditions may file a petition in the Delaware Court of Chancery demanding a
determination of the fair value of the HF Bancorp common stock. Temple-Inland
does not intend to file a petition with the court. Stockholders seeking to
exercise appraisal rights should initiate all necessary action to perfect their
appraisal rights within the time periods prescribed by Delaware law.
Notification Regarding Shares Not Voted For Merger
Within 120 days after the effective time of the merger, 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 it receives the written request.
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 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 HF Bancorp 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 of the merger, 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 of the merger. A
stockholder will also lose the right to an appraisal by delivering to the
continuing corporation 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 the continuing 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.
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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.
ACCOUNTING TREATMENT
The merger will be accounted for as a purchase business combination for
financial accounting purposes. Under this method of accounting, the purchase
price will be allocated to assets acquired and liabilities assumed based upon
their estimated fair values as of the consummation of the merger. Deferred tax
assets and liabilities will be adjusted for the difference between the tax basis
of the assets and liabilities and their estimated values. The excess, if any, of
the total acquisition cost over the sum of the assigned fair values of the
tangible and identifiable intangible assets acquired less liabilities assumed
will be recorded as goodwill.
THE MERGER AGREEMENT
A DESCRIPTION OF THE MATERIAL TERMS AND CONDITIONS OF THE MERGER AGREEMENT
AND RELATED MATTERS IS SET FORTH BELOW. THIS SUMMARY OF THE TERMS AND CONDITIONS
OF THE MERGER AGREEMENT DOES NOT PURPORT TO BE EXHAUSTIVE AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE MERGER AGREEMENT AS SET FORTH
IN APPENDIX A OF THIS PROXY STATEMENT.
THE MERGER
The merger agreement was entered into among Temple-Inland, HF Bancorp,
Guaranty, and Hemet on November 14, 1998. Except in the circumstances described
below, HF Bancorp will merge with and into Temple-Inland, with Temple-Inland
being the surviving corporation. The separate corporate existence of HF Bancorp
will then cease. The merger agreement also contemplates that Hemet will merge
with and into Guaranty, with Guaranty being the surviving financial institution.
The separate existence of Hemet will then cease.
Upon completion of the merger, each share of HF Bancorp common stock issued
and outstanding will be converted automatically into the right to receive
$18.50, for a total consideration of approximately $120 million. This automatic
conversion will not apply to:
- shares with respect to which appraisal rights shall have been perfected
in accordance with the Delaware law and
- shares held directly or indirectly by Temple-Inland or HF Bancorp, or any
of their respective subsidiaries, other than in a fiduciary capacity or
as a result of debts previously contracted in good faith.
Subject to the proration procedures described below, at the election of
each HF Bancorp stockholder, the $18.50 per share will be paid in either a
fraction of a share of Temple-Inland common stock, cash, or a combination of
Temple-Inland common stock and cash. Under the terms of the merger agreement,
cash will be paid in lieu of the issuance of fractional shares of Temple-Inland
common stock.
If Temple-Inland and HF Bancorp do not receive the opinion of their
respective counsel that the merger constitutes a "reorganization" within the
meaning of federal tax law, then no shares of Temple-Inland common stock will be
issued in the merger. In that event, the merger will be structured as a merger
of a newly-formed indirect subsidiary of Temple-Inland with and into HF Bancorp
with HF Bancorp surviving as a subsidiary of Temple-Inland. In addition, upon
completion of the merger, each share of HF Bancorp common stock issued and
outstanding will be converted automatically into the right to receive $18.50 to
be paid in cash. Once again, this automatic conversion will not apply to:
- shares with respect to which appraisal rights shall have been perfected
in accordance with the Delaware law and
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- shares held directly or indirectly by Temple-Inland or HF Bancorp, or any
of their respective subsidiaries, other than in a fiduciary capacity or
as a result of debts previously contracted in good faith.
EFFECTIVE TIME AND EFFECTIVE DATE
The merger will become effective at the date and time set forth in the
certificate of merger that will be filed with the Secretary of State of Delaware
in accordance with applicable law. The certificate of merger will be filed as
soon as possible following:
- the approval of the merger agreement by the stockholders of HF Bancorp,
- the receipt of all permits, authorizations, approvals, and consents
required by the merger agreement,
- the expiration of all applicable waiting periods under all laws, and
- the completion of the election, allocation, and proration procedures
described below.
ELECTION, ALLOCATION, AND PRORATION PROCEDURES
The number of shares of Temple-Inland common stock to be issued and the
amount of cash to be paid will be determined by the exchange ratio set forth in
the merger agreement. The agreement provides that the exchange ratio shall be
the number, rounded to the nearest ten-thousandth, obtained by dividing the
$18.50 price per share by the price for Temple-Inland common stock. The price
for Temple-Inland common stock for this purpose will be the average of the daily
closing prices of a share of Temple-Inland common stock for the ten consecutive
trading days ending on the fourth trading day prior to the effective date of the
merger. For example, if April 19, 1999, had been the effective date of the
merger, the price for Temple-Inland common stock used to calculate the exchange
ratio would have been $63.25 per share. Using this price, the exchange ratio
would have been 0.2925. In this example, each HF Bancorp stockholder could elect
to receive 0.2925 of a share of Temple-Inland common stock or $18.50 in cash for
each share of HF Bancorp common stock they own. By way of illustration, a HF
Bancorp stockholder that owns 100 shares of HF Bancorp common stock could elect
to receive any of the following:
<TABLE>
<CAPTION>
COMBINATION ELECTIONS
STOCK CASH ---------------------------------
ELECTION ELECTION 25% STOCK 50% STOCK 75% STOCK
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Temple-Inland common stock............ 29 shares 0 shares 7 shares 14 shares 21 shares
Cash.................................. $ 0.00 $1,850.00 $1,387.50 $ 925.00 $ 462.50
Cash for fractional share............. $ 15.81 $ 0.00 $ 19.77 $ 39.53 $ 59.30
</TABLE>
The percentages for combination elections presented above are illustrative only.
In making a combination election, you may divide your aggregate number of shares
at any percentage you choose.
Making the Election
Temple-Inland has selected First Chicago Trust Company of New York, which
is the current transfer agent for Temple-Inland, to serve as the exchange agent
for purposes of effecting the election, allocation, and proration procedures. An
election form is either included with this proxy statement or will be sent soon.
The election form is used to make the election to receive stock, cash, or a
combination of stock and cash with respect to their shares of HF Bancorp common
stock. Shares of HF Bancorp will be undesignated shares if a stockholder either
- does not submit a properly completed election form in a timely fashion or
- revokes such stockholder's election form prior to the deadline for
submitting the election form.
The deadline for stockholders to submit their election forms to the
exchange agent is June 10, 1999.
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All elections will be required to be made on an election form. To make an
effective election with respect to shares of HF Bancorp common stock, the
stockholder must deliver the following items to the exchange agent prior to the
election deadline:
- a properly completed election form and accompanying letter of
transmittal,
- either (a) his or her certificates for shares of HF Bancorp Common Stock
or an appropriate guarantee of delivery, or (b) information regarding
delivery by book entry transfer of the shares on a timely basis, and
- any other required documents described in the election form.
Any stockholder may change his or her election by submitting to the
exchange agent a properly completed and signed revised election form and letter
of transmittal and all required additional documents. To be effective, however,
the exchange agent must receive these revised documents prior to the election
deadline. If some but not all the revised documents are received by the election
deadline, the shares will be considered undesignated shares.
Any stockholder may revoke his or her prior valid election by written
notice received by the exchange agent prior to the election deadline. A
stockholder may also revoke a prior valid election by submitting a written
withdrawal of his or her share certificates or of the notice of guaranteed
delivery of his or her share certificates previously deposited with the exchange
agent. Again, this written withdrawal must be received by the exchange agent
before the election deadline.
HF BANCORP STOCKHOLDERS SHOULD NOT RETURN THEIR CERTIFICATES REPRESENTING
SHARES OF HF BANCORP COMMON STOCK WITH THE ENCLOSED PROXY. THE STOCK
CERTIFICATES SHOULD ONLY BE FORWARDED TO THE EXCHANGE AGENT WITH THE LETTER OF
TRANSMITTAL AND ELECTION FORM.
A holder of shares of HF Bancorp common stock having a preference as to the
form of consideration to be received for his or her shares of HF Bancorp common
stock should make an election. Shares as to which an election has been made will
be given priority in allocating the merger consideration over shares as to which
an election is not received. None of Temple-Inland, the board of directors of
Temple-Inland, HF Bancorp, or the board of directors of HF Bancorp makes any
recommendation as to whether stockholders should elect to receive cash, stock,
or a combination of stock and cash. Each holder of HF Bancorp common stock must
make his or her own decision with respect to that election.
Allocation and Proration Procedures
Temple-Inland will issue no more than 1,216,470 shares of its common stock
in the merger. If elections to receive stock would result in Temple-Inland
issuing more than 1,216,470 shares, then all shares of HF Bancorp common stock
for which effective elections have not been made shall be deemed to have elected
to receive cash. A stock proration factor shall be determined by dividing
1,216,470 by the product obtained by multiplying the total number of shares of
HF Bancorp common stock electing to receive Temple-Inland common stock by the
exchange ratio. Each holder of HF Bancorp common stock who elected to receive
Temple-Inland common stock will be entitled to:
1) the number of shares of Temple-Inland common stock equal to the
product of the exchange ratio, multiplied by the number of shares of HF
Bancorp common stock covered by the election multiplied by the stock
proration factor; and
2) cash in an amount equal to the product of $18.50 multiplied by the
number of shares of HF Bancorp common stock covered by the election,
multiplied by one minus the stock proration factor.
If the aggregate number of shares of HF Bancorp common stock electing to
receive Temple-Inland common stock multiplied by the exchange ratio is less than
1,216,470, then the exchange agent shall select by random such number of
undesignated shares to receive Temple-Inland common stock as shall be
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necessary so that the number of such shares when added to the number of shares
electing to receive stock, or deemed to have elected to receive stock, when
multiplied by the exchange ratio shall equal 1,216,470. All undesignated shares
not selected by the exchange agent to receive stock shall be deemed to have
elected to receive cash. If the aggregate number of shares of HF Bancorp common
stock electing to receive stock, together with all undesignated shares,
multiplied by the exchange ratio shall be less than 1,216,470, then all
undesignated shares shall be deemed to have elected to receive stock.
The pro rata allocation process or the random selection process to be used
by the exchange agent shall consist of procedures mutually determined by
Temple-Inland and HF Bancorp.
The option for HF Bancorp stockholders to receive their merger
consideration in shares of Temple-Inland common stock is provided in an attempt
to qualify the merger for treatment as a reorganization for federal income tax
purposes. To qualify for treatment as a reorganization, a significant portion of
the total merger consideration must be paid in Temple-Inland common stock. If
this treatment is obtained, HF Bancorp stockholders will not recognize any gain
or loss for federal income tax purposes upon receipt of Temple-Inland common
stock in exchange for their shares of HF Bancorp common stock. HF Bancorp
stockholders, however, will have to pay taxes on any cash received in
consideration for their shares of HF Bancorp common stock, for appraisal rights,
and in lieu of fractional shares. See "The Merger -- Material Federal Income Tax
Consequences" for a more thorough discussion of these federal income tax
consequences. Completion of the merger as a reorganization is conditioned upon
receipt by Temple-Inland of the opinion of Sullivan & Cromwell and receipt by HF
Bancorp of the opinion of Manatt, Phelps & Phillips, LLP. If those opinions
cannot be given, then no shares of Temple-Inland common stock will be issued and
all shares of HF Bancorp common stock will be deemed to have elected to receive
cash.
If no shares of Temple-Inland common stock will be issued in the merger,
Temple-Inland will then effect the merger through a newly formed subsidiary.
This subsidiary would be formed as a subsidiary of Guaranty Holdings Inc. I,
which is a subsidiary of Temple-Inland and the immediate parent company to
Guaranty. This new subsidiary would be merged into HF Bancorp with HF Bancorp
being the surviving company. HF Bancorp would then become a wholly-owned
subsidiary of Guaranty Holdings. Guaranty Holdings would then make a
contribution to the capital of Guaranty, consisting of the stock of HF Bancorp.
This contribution would cause HF Bancorp to be a subsidiary of Guaranty.
Guaranty would then liquidate HF Bancorp and merge Hemet with and into Guaranty
with Guaranty being the surviving financial institution. The result of this
alternate transaction structure would be substantially the same as in the
merger.
THE FORM OF THE CONSIDERATION ULTIMATELY RECEIVED BY A STOCKHOLDER OF HF
BANCORP WILL DEPEND UPON THE ELECTION, ALLOCATION, AND PRORATION PROCEDURES AND
THE ELECTIONS OF OTHER STOCKHOLDERS. ACCORDINGLY, NO GUARANTEE CAN BE GIVEN THAT
THE ELECTION OF ANY GIVEN STOCKHOLDER OF HF BANCORP TO RECEIVE TEMPLE-INLAND
COMMON STOCK WILL BE HONORED. In addition, because the tax consequences of
receiving cash will differ from the tax consequences of receiving Temple-Inland
common stock, HF Bancorp stockholders are urged to read carefully the
information set forth under "The Merger -- Certain Federal Income Tax
Considerations."
HF BANCORP STOCKHOLDERS SHOULD NOT RETURN THEIR CERTIFICATES REPRESENTING
SHARES OF HF BANCORP COMMON STOCK WITH THE ENCLOSED PROXY. THE STOCK
CERTIFICATES SHOULD ONLY BE FORWARDED TO THE EXCHANGE AGENT WITH THE LETTER OF
TRANSMITTAL AND ELECTION FORM.
CONDUCT OF THE BUSINESS OF HF BANCORP AND TEMPLE-INLAND PRIOR TO THE MERGER
In the merger agreement, each of Temple-Inland and HF Bancorp has agreed
that, until completion of the merger, except as permitted by the merger
agreement, it will not, and will cause its subsidiaries not to, among other
things, take any action that would or is reasonably likely to
- adversely affect the ability of Temple-Inland or Guaranty, on the one
hand, or HF Bancorp or Hemet on the other hand, to obtain any approvals
of governmental entities necessary for the merger,
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- adversely affect the ability of HF Bancorp or Hemet on the one hand, or
Temple-Inland or Guaranty, on the other hand, to perform its covenants
and agreements under the merger agreement, or
- result in any of the conditions to the performance of the obligations of
HF Bancorp or Hemet, on the one hand, or Temple-Inland or Guaranty, on
the other hand, under the merger agreement not being satisfied.
HF Bancorp has also agreed that, during the same period it will not,
without the prior consent of Temple-Inland,
- conduct the business of HF Bancorp other than in the ordinary and usual
course;
- issue, sell, or otherwise permit to become outstanding, or authorize the
creation of, any additional shares of HF Bancorp common stock, any rights
to acquire HF Bancorp common stock, or enter into any agreement with
respect to the foregoing;
- make, declare, pay, or set aside for payment any dividend or declare or
make any distribution on any shares of HF Bancorp common stock
- directly or indirectly adjust, split, combine, redeem, reclassify,
purchase, or otherwise acquire, any shares of its capital stock;
- amend its certificate of incorporation, the federal stock charter of
Hemet, or the bylaws of HF Bancorp or Hemet;
- grant any general or uniform increase in the rate of pay of employees or
employee benefits, except under circumstances set forth in the merger
agreement;
- grant any bonus, incentive compensation, or related employee benefits,
except for those of a nondiscretionary nature granted in the ordinary
course of business, consistent with past practices, or as required by
contractual obligation;
- make any capital expenditure or commitments with respect thereto in
excess of $50,000 in the aggregate for any specific project or purpose,
except for ordinary repairs, renewals, and replacements or identified
planned expenditures;
- change any method or period of accounting unless and until required by
generally accepted accounting principles;
- adopt or enter into any new employment agreement or other employee
benefit plan or arrangement or amend or modify any employment agreement
or employee benefit plan or arrangement of any such type except for such
amendments as are required by law;
- other than in the ordinary course of business, consistent with past
practice, incur any indebtedness for borrowed money or assume, guarantee,
endorse, or otherwise as an accommodation become responsible for the
obligations of any other person;
- make any investment by purchase of stock or securities, contributions to
capital, property transfers, or otherwise in any other entity, except
under conditions specified in the merger agreement;
- settle any material claim, action, or proceeding involving any liability
of HF Bancorp or any of its subsidiaries;
- terminate, amend, or modify any material contract or enter into any
agreement or contract that would be material;
- sell, transfer, mortgage, encumber, or otherwise dispose of any assets or
release or waive any claim, except in the ordinary course of business and
consistent with past practices;
- extend any credit in excess of agreed thresholds;
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- extend any credit or amend the terms of any outstanding credit to
officers, directors, or holders of ten percent of HF Bancorp common
stock;
- close any office except those previously identified to Temple-Inland; or
- take title to any real property without conducting an environmental
investigation.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various customary representations and
warranties relating to, among other things:
- organization and similar corporate matters;
- the capital structure of HF Bancorp and Temple-Inland;
- authorization, execution, delivery, performance and enforceability of the
merger agreement and related matters;
- conflicts under certificates of incorporation or bylaws, required
consents or approvals, and violations of any agreements or law;
- financial statements or documents filed with the SEC or other regulatory
agencies and the accuracy of information contained in those documents;
- absence of material adverse events, changes, effects or undisclosed
liabilities;
- retirement and other employee plans and matters relating to the Employee
Retirement Income Security Act of 1974;
- litigation;
- compliance with law, including environmental compliance;
- tax returns and audits;
- absence of regulatory actions;
- labor matters;
- risk management instruments;
- books and records;
- trust business; and
- Year 2000 matters.
COVENANTS
Acquisition proposals
In the Merger Agreement, HF Bancorp has agreed that it will not initiate,
solicit, or encourage, including by way of furnishing information or assistance,
or take any other action to facilitate, any inquiries or the making of any
proposal that constitutes, or may reasonably be expected to lead to, any merger,
consolidation, share exchange, or other business combination. HF Bancorp has
further agreed not to negotiate with any person in furtherance of such inquiries
or to obtain a merger, consolidation, share exchange, or other business
combination, or agree to or endorse any merger, consolidation, share exchange,
or other business combination. These restrictions also apply to HF Bancorp's
subsidiaries, officers, directors, employees, agents, advisors, and other
representatives of it, it subsidiaries, or its affiliates. HF Bancorp and Hemet
will immediately advise Temple-Inland following the receipt by HF Bancorp of any
such acquisition proposal, requests for information, or negotiations or
discussions. However, HF Bancorp may engage in discussions or negotiations with,
or provide any information to, any person in
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response to an unsolicited bona fide written proposal concerning an acquisition
transaction if the following conditions are met:
- the board of directors of HF Bancorp concludes in good faith that the
acquisition proposal is superior to Temple-Inland's proposal;
- the board of directors of HF Bancorp determines in good faith based upon
advice of counsel that participating in any such action is necessary for
it to act in a manner consistent with it fiduciary duties; and
- the board of directors of HF Bancorp notifies Temple-Inland and Guaranty
of such inquiries or proposals at least 48 hours before taking any such
action.
Accounting policies of HF Bancorp
On or prior to completion of the merger, HF Bancorp will, consistent with
generally accepted accounting principles and on a basis mutually satisfactory to
it and Temple-Inland, take any charge-offs or additions to the allowance for
loan losses or other financial adjustments made at the reasonable request of
Temple-Inland and for the convenience of Temple-Inland to permit treatment on a
basis that is consistent with that of Temple-Inland.
Employee benefits
Following completion of the merger, Guaranty will
- provide former employees of HF Bancorp or Hemet who remain as employees
of Guaranty with employee benefit plans substantially comparable in the
aggregate to those provided to current employees of Guaranty, and
- with respect to former employees of HF Bancorp or Hemet who remain as
employees of Guaranty, cause each employee benefit plan of Guaranty in
which such employees are eligible to participate to take into account for
purposes of eligibility and vesting under the plan the service of such
employees with HF Bancorp or Hemet as if such service were with Guaranty.
Board attendance
HF Bancorp and Hemet have agreed to allow a representative of Temple-Inland
to attend all regular and special meetings of the board of directors of HF
Bancorp and Hemet and the committees of such boards, until the completion of the
merger.
Indemnification; directors' and officers' insurance
Temple-Inland has agreed to indemnify, defend, and hold harmless each of
the present directors and officers of HF Bancorp or Hemet against any claim or
loss arising out of their actions while they were directors or officers of HF
Bancorp or Hemet. This indemnification includes claims asserted, claimed, or
arising prior to, at, or after completion of the merger. The indemnification
extends to the greatest extent permitted under Delaware law, applicable banking
laws and regulations, and HF Bancorp's and Hemet's organizational documents or
bylaws in effect on November 14, 1998. Temple-Inland also will pay the expenses
related to these claims, including reasonable attorneys' fees, as incurred to
the extent permitted under Delaware law and HF Bancorp's and Hemet's
organization documents and bylaws.
Temple-Inland also has agreed that for a period of four years after
completion of the merger, it will ensure that the present directors and officers
of HF Bancorp and Hemet are covered by policies of directors' and officers'
liability insurance. These policies will provide coverage that is no less
protective in terms of coverage or limitations than similar coverage maintained
by HF Bancorp or Hemet as of November 14, 1998. Temple-Inland, however, will not
be obligated to pay, in order to maintain or provide the required insurance
coverage, annual premiums in excess of 150 percent of the annual premiums paid
as of the date of the merger agreement by HF Bancorp or Hemet for this
insurance. If the amount of the
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annual premiums for such insurance coverage exceeds this 150 percent limitation,
Temple-Inland will use its best efforts to maintain the most advantageous
policies of directors' and officers' insurance obtainable for an annual premium
equal to the 150 percent limit.
HF Bancorp affiliates
HF Bancorp has agreed to use its commercially reasonable efforts to cause
each person who may be deemed to be an affiliate of HF Bancorp to execute and
deliver to Temple-Inland, at least 30 days prior to the effective time of the
merger, an agreement providing that each such person will agree not to dispose
of the shares of Temple-Inland common stock received in the merger except in
compliance with the applicable law.
CONDITIONS
The respective obligations of Temple-Inland and HF Bancorp to consummate
the merger are subject to the following conditions:
- the approval by the HF Bancorp stockholders of the merger;
- the receipt of approvals required by law in connection with the merger
and the other transactions contemplated by the merger agreement;
- the absence of any statute, rule, regulation, order, injunction, or
decree being in effect and prohibiting the consummation of the merger or
any other transaction contemplated by the merger agreement or that would
have a material adverse effect on the parties or the merger;
- the expiration of all applicable waiting periods;
- the absence of any judgment, decree, injunction, order, or proceeding
prohibiting or threatening to invalidate or set aside the merger or the
merger of Hemet into Guaranty or that would have a material adverse
effect on the parties or the merger; and
- the registration statement filed in connection with the merger having
become effective and there being issued no stop order suspending the
effectiveness of the registration statement and no proceedings for that
purpose initiated by the SEC.
The obligations of Temple-Inland to consummate the merger also are subject
to the fulfillment or waiver by Temple-Inland prior to the completion of the
merger of the following conditions:
- the representations and warranties of HF Bancorp and Hemet being true and
correct unless the failure so to be true and correct does not have a
material adverse effect on HF Bancorp and Hemet;
- the performance by HF Bancorp and Hemet in all material respects of all
obligations contained in the merger agreement required to be performed by
HF Bancorp before the completion of the merger;
- if any shares of Temple-Inland common stock are to be issued in the
merger, the receipt by Temple-Inland of an opinion of Sullivan & Cromwell
that the merger will be treated as a tax-deferred reorganization for
federal income tax purposes;
- the receipt by Temple-Inland of the written resignation of each director
of HF Bancorp and Hemet;
- the receipt by Hemet and HF Bancorp of all necessary third-party consents
with respect to material agreements;
- the occurrence of no event that has had or could reasonably be expected
to have a material adverse effect on HF Bancorp, Hemet, or the merger;
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- HF Bancorp having in effect on the effective date of the merger an
allowance for loan and lease losses in an amount not less than the amount
determined by the method customarily utilized by HF Bancorp; and
- the governmental and regulatory approvals required to complete the merger
and the merger of Hemet into Guaranty having been granted without the
imposition of conditions that are or would become applicable to
Temple-Inland and that Temple-Inland, in its reasonable opinion,
concludes would have a material adverse effect.
In addition, the obligation of HF Bancorp to consummate the Merger also is
subject to the fulfillment or waiver by HF Bancorp prior to the completion of
the merger of the following conditions:
- the representations and warranties of Temple-Inland being true and
correct unless the failure so to be true and correct is not likely to
have a material adverse effect on Temple-Inland and Guaranty;
- the performance by Temple-Inland and Guaranty in all material respects of
all obligations contained in the merger agreement required to be
performed before the completion of the merger;
- if any shares of Temple-Inland Common Stock are to be issued in the
merger, the receipt by HF Bancorp of an opinion of Manatt, Phelps &
Phillip, LLP stating that (1) the merger constitutes a tax-deferred
reorganization for federal income tax purposes and (2) no gain or loss
will be recognized by HF Bancorp stockholders who receive shares of
Temple-Inland common stock in exchange for shares of HF Bancorp common
stock, except with respect to cash received in lieu of fractional share
interests; and
- the receipt by HF Bancorp from Keefe of an opinion stating that as of a
date within five days prior to the mailing of this proxy statement to the
stockholders of HF Bancorp, the consideration to be received by the
holders of HF Bancorp common stock is fair from a financial point of
view.
TERMINATION
The merger agreement may be terminated, and the merger abandoned, prior to
the date the merger is completed, either before or after its approval by the HF
Bancorp stockholders:
- by the mutual consent of Temple-Inland and HF Bancorp;
- by either Temple-Inland or HF Bancorp in the event of
- the failure of the HF Bancorp stockholders to approve the merger at the
special meeting, provided that HF Bancorp shall not be able to terminate
the merger agreement if the board of directors of HF Bancorp withdrew or
modified in a manner adverse to Temple-Inland, its recommendation that
the HF Bancorp stockholders approve the merger,
- a material breach by the other party of any representation, warranty,
covenant, or agreement contained in the merger agreement that is not
cured or not curable within 20 days after written notice of such breach
is given to the party committing such breach,
- the material conditions to consummation of the merger not having
occurred by July 31, 1999, or the denial of any approval of a
governmental authority required to permit consummation of the merger or
any transaction necessary to consummate the merger;
- by Temple-Inland, if
- HF Bancorp or Hemet breaches any of its obligations related to the
solicitation or receipt of proposals superior to Temple-Inland's,
- HF Bancorp continues to discuss or fails to reject a competing superior
proposal for more than ten business days
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- in either of these events, HF Bancorp shall pay Temple-Inland a
termination fee of $4,866,128; or
- by HF Bancorp, if
- the board of directors of HF Bancorp authorizes HF Bancorp to enter into
a superior proposal,
- Temple-Inland does not within ten business days make an offer that the
board of directors of HF Bancorp determines is at least as favorable as
the superior proposal, and
- HF Bancorp pays to Temple-Inland a termination fee of $4,866,128.
In addition, HF Bancorp must pay to Temple-Inland all of Temple-Inland's
reasonable out-of-pocket expenses incurred in connection with the completion of
the merger, if HF Bancorp or Temple-Inland terminates the merger agreement
because the stockholders of HF Bancorp do not approve the merger at the special
meeting. HF Bancorp must also pay Temple-Inland's reasonable out-of-pocket
expenses if Temple-Inland terminates the merger agreement because of a material
breach by HF Bancorp of its representations or covenants contained in the merger
agreement or because the board of directors of HF Bancorp authorizes entering
into a superior proposal. Temple-Inland must pay to HF Bancorp all of HF
Bancorp's reasonable out-of-pocket expenses incurred in connection with the
completion of the merger if HF Bancorp terminates the merger agreement because
of a material breach by Temple-Inland of its representations or covenants
contained in the merger agreement. Payments of the other party's expenses shall
not exceed $1,500,000 in the aggregate.
WAIVER AND AMENDMENT
Prior to the completion of the merger, any provision of the merger
agreement may be (1) waived by the party benefited by the provision or (2)
amended or modified at any time, by an agreement in writing between
Temple-Inland and HF Bancorp executed in the same manner as the merger
agreement. However, after the special meeting, the merger agreement may be
amended so long as the consideration to be received by HF Bancorp stockholders
is not reduced and the amendments do not violate Delaware law.
THE STOCK OPTION AGREEMENT
As an inducement and condition to Temple-Inland's entering into the merger
agreement, HF Bancorp entered into a stock option agreement with Temple-Inland,
dated November 14, 1998. HF Bancorp granted to Temple-Inland an unconditional,
irrevocable option to purchase up to 1,272,665 authorized but unissued shares of
HF Bancorp common stock for a purchase price per share of $16.0625. The option
is exercisable only under limited and specifically defined circumstances, none
of which, to the best of HF Bancorp's and Temple-Inland's knowledge, has
occurred as of the date of this proxy statement. The number of shares subject to
the option shall not exceed 19.9 percent of the shares of HF Bancorp common
stock outstanding at the time of exercise. The purchase price under the option
is subject to adjustment if HF Bancorp changes its capital structure. The
purchase of HF Bancorp common stock through the stock option agreement is
subject to compliance with applicable law.
The option is intended to increase the likelihood that the merger will be
consummated according to the terms set forth in the merger agreement. The option
may also be expected to discourage offers by third parties to acquire HF Bancorp
prior to the merger. A copy of the stock option agreement is included as
Appendix E to this proxy statement.
Temple-Inland may exercise the option, in whole or in part, in accordance
with and to the extent permitted by applicable law at any time or from time to
time but only upon or after the occurrence of a purchase event. To the extent
the option shall not have been exercised, it shall terminate and be of no
further force and effect upon the earliest to occur of
- the termination of the merger agreement by the mutual consent of the
parties;
- the time immediately prior to the effective time of the merger,
65
<PAGE> 68
- eighteen months following the occurrence of the earliest to occur of
- the date of any termination of the merger agreement under reasons other
than the mutual agreement of the parties, or
- the date of first occurrence of a preliminary purchase event or a
purchase event, or
- the date that the aggregate total amount or termination fees received by
Temple-Inland under the merger agreement and the amounts attributable to
or received by Temple-Inland and any of its permitted assignees under the
stock option agreement equals $4,866,128.
HF Bancorp shall not be obligated to issue any shares upon exercise of the
option:
- in the absence of any required governmental or regulatory waiver,
consent, or approval necessary for HF Bancorp to issue such shares or for
Temple-Inland or any transferee to exercise the option or prior to the
expiration or termination of any waiting period required by law,
- so long as any injunction or other order, decree or ruling issued by any
federal or state court of competent jurisdiction is in effect which
prohibits the sale or delivery of the shares to be issued upon exercise
of the option, or
- if Temple-Inland or Guaranty is in material breach of its obligations
under the merger agreement.
As used in the stock option agreement, a purchase event shall have occurred
when:
- HF Bancorp or Hemet enters into an agreement with any person, other than
Temple-Inland or any of its subsidiaries, to enter into an acquisition
transaction with that person. For this purpose, an acquisition
transaction is an agreement for the other person to:
- merge or consolidate with, or enter into any similar transaction with HF
Bancorp or Hemet,
- purchase, lease, or otherwise acquire all or substantially all of the
assets of HF Bancorp or Hemet, or
- purchase or otherwise acquire securities representing 15 percent or more
of the voting shares of HF Bancorp, Hemet, or any other subsidiary of HF
Bancorp;
- any person or group of persons, other than Temple-Inland or any of its
subsidiaries, acquires the beneficial ownership or the right to acquire
beneficial ownership of securities representing 15 percent or more of the
voting shares of HF Bancorp or Hemet;
- the stockholders of HF Bancorp fail to approve the merger, the failure of
the special meeting to occur prior to termination of the merger
agreement, or the withdrawal or modification, in a manner adverse to
Temple-Inland, of the recommendation of the board of directors of HF
Bancorp that the stockholders of HF Bancorp approve the merger, in each
case after the public announcement by any person of an intention to make
a proposal to engage in an acquisition transaction, commence a tender or
exchange offer, or file a bank regulatory application for approval to
engage in an acquisition transaction;
- after a proposal to engage in an acquisition transaction is made by a
third party to HF Bancorp or any of its subsidiaries, or such third party
states its intention to make such a proposal if the merger agreement is
terminated or the option expires, HF Bancorp or Hemet willfully breaches
any covenant or obligation contained in the merger agreement in
anticipation of engaging in a purchase event, and following such breach,
Temple-Inland would be entitled to terminate the merger agreement; or
- a public announcement by HF Bancorp or Hemet of the authorization,
recommendation, or endorsement by HF Bancorp of an acquisition
transaction, exchange offer, or tender offer or a public announcement by
HF Bancorp of an intention to authorize, recommend, or announce an
acquisition transaction, exchange offer, or tender offer.
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As used in the stock option agreement, a preliminary purchase event shall
have occurred when:
- any person or group of persons, other than Temple-Inland or any of its
subsidiaries, commences or files a registration statement under the
Securities Act with respect to a tender offer or exchange offer to
purchase any shares of HF Bancorp common stock, such that the person or
group would own or control ten percent or more of the shares of HF
Bancorp common stock;
- any person, other than Temple-Inland or any of its subsidiaries, files an
application with a bank regulatory authority for approval to engage in an
acquisition transaction, exchange offer, or tender offer, or
- HF Bancorp or Hemet enters into an agreement with any person, other than
Temple-Inland or any of its subsidiaries, for the person to purchase or
otherwise acquire securities representing ten percent or more of the
voting shares of HF Bancorp or Hemet.
As of the date of this proxy statement, no preliminary purchase event or
purchase event has occurred.
THE STOCKHOLDER AGREEMENTS
Temple-Inland has entered into stockholder agreements with each of Messrs.
Richard S. Cupp, William D. King, George P. Rutland, Norman M. Coulson, Harold
Fuller, J. Robert Eichinger, Robert K. Jabs, and Leonard E. Searl and Ms.
Patricia A. Larson, each a HF Bancorp stockholder and current director of HF
Bancorp. These stockholders beneficially own, in the aggregate, shares
representing approximately 4.97 percent of the total voting power of HF Bancorp
common stock as of April 19, 1999. Each of these individuals has agreed to vote
or to cause to be voted, or to execute a written consent with respect to, all of
such stockholder's shares of HF Bancorp common stock in favor of adoption and
approval of the merger at every meeting of HF Bancorp stockholders at which the
merger is considered, including adjourned meetings, and in connection with every
proposal to take action by written consent with respect to the merger.
Each stockholder has also agreed not to sell, assign, transfer, or dispose
of their shares or take any other action that will alter or affect in any way
the right to vote their shares inconsistent with the stockholder agreement
entered into by that stockholder.
The primary terms of the stockholder agreements will terminate upon the
earlier to occur of the completion of the merger and the date on which the
merger agreement is terminated in accordance with its terms.
The stockholder agreements bind the directors only in their capacity as HF
Bancorp stockholders. Those directors of HF Bancorp who signed stockholder
agreements are not and could not be contractually bound to abrogate their
fiduciary duties as directors of HF Bancorp. Accordingly, while such
stockholders/directors have agreed to vote as a HF Bancorp stockholder in favor
of the merger and against any other acquisition proposals, their fiduciary
duties as HF Bancorp directors nevertheless require them to act in their
capacity as directors in the best interest of HF Bancorp when they decided to
approve the merger. In addition, such stockholders/directors will continue to be
bound by their fiduciary duties as HF Bancorp directors with respect to any
decisions they may make in connection with the merger or otherwise.
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COMPARISON OF STOCKHOLDER RIGHTS
Both Temple-Inland and HF Bancorp are Delaware corporations and as such are
governed by Delaware law. Listed below is a summary of the material differences
in the rights of the stockholders of Temple-Inland common stock and HF Bancorp
common stock. Except as otherwise noted below, there are no material differences
with regard to electing members of the board of directors, amending the
certificates of incorporation or bylaws, calling special meetings of
stockholders, acting by written consent of stockholders without a meeting,
indemnifying directors, and other voting rights.
<TABLE>
<CAPTION>
TEMPLE-INLAND HF BANCORP
------------- ----------
<S> <C> <C>
Voting Rights................ Temple-Inland's certificate HF Bancorp's certificate of
of incorporation does not incorporation imposes voting
contain any limitation limitations on stockholders
similar to that imposed by HF who own in excess of ten
Bancorp. percent of the outstanding HF
Bancorp common stock
Dividends and Dividend Temple-Inland increased its No cash dividends have been
Policy..................... quarterly dividend to $0.32 paid to HF Bancorp
per share beginning with the stockholders since the
dividend payable September inception of HF Bancorp, and
13, 1996, where it remained no cash dividends will be
as of the most recent paid prior to completion of
quarterly dividend paid on the merger.
March 15, 1999. The board of
directors of Temple-Inland
will review its dividend
policy periodically. The
declaration of dividends will
necessarily depend upon
earnings and financial
requirements of Temple-Inland
and other factors within the
discretion of the board of
directors of Temple-Inland.
Number of Directors.......... The number of Temple-Inland HF Bancorp's bylaws provide
directors shall be as that the board of directors
determined, from time to of HF Bancorp shall consist
time, by resolution of the of such number of directors
board of directors of as may from time to time be
Temple-Inland. In no event prescribed by the board of
shall there be fewer than directors of HF Bancorp.
three directors. There are Currently the number of
currently 11 directors. authorized directors is nine.
</TABLE>
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<PAGE> 71
<TABLE>
<CAPTION>
TEMPLE-INLAND HF BANCORP
------------- ----------
<S> <C> <C>
Liquidity of Stock........... The issuance of the shares of The shares of HF Bancorp
Temple-Inland common stock in common stock are traded on
Current quotes of the market the merger will be registered the Nasdaq National Market(R)
price of both Temple-Inland under applicable securities
common stock and HF Bancorp laws and may therefore be
common stock are available freely resold by persons who
from brokerage firms and are not affiliates of HF
other securities Bancorp or Temple-Inland. See
professionals, as well as "The Merger -- Resale of
other sources, and are Temple-Inland Common Stock"
published in major newspapers for a more thorough
on a daily basis. discussion of the resale of
Temple-Inland common stock.
In addition, Temple-Inland
common stock is listed on the
New York Stock Exchange and
the Pacific Exchange and
actively traded on those
exchanges.
Director's Qualifications.... No individual shall be HF Bancorp's bylaws provide
eligible for election as a that no person 75 or older is
director of Temple-Inland who eligible for election or
has attained the age of 72 appointment to the board of
prior to the date of such directors of HF Bancorp.
election. No individual who
is or becomes a business
competitor or who is or
becomes affiliated with,
employed by, or a
representative of any
individual, corporation,
association, partnership,
firm, business enterprise, or
other entity or organization
that the board of directors
of Temple-Inland determines
to be in competition with
Temple-Inland shall be
eligible for election as a
director of Temple-Inland.
Any financial institution
having branches or affiliates
within any state in which
Guaranty or any of its
subsidiaries operates or
having total assets or total
deposits exceeding $500
million shall be presumed to
be a business competitor of
Temple-Inland, unless the
board of directors of
Temple-Inland determines
otherwise.
</TABLE>
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<PAGE> 72
<TABLE>
<CAPTION>
TEMPLE-INLAND HF BANCORP
------------- ----------
<S> <C> <C>
Amendment of Charter and Temple-Inland's certificate The HF Bancorp certificate of
Bylaws..................... of incorporation may be incorporation may be amended
amended by a vote of a by a majority vote, except
majority of the voting power with respect to Article
present at any meeting called Twelfth (supermajority voting
for that purpose, with the rights), Section C of Article
exception of provisions Fourth (capitalization),
dealing with transactions Sections C (stockholder
with interested parties, voting procedures) or D
classes of directors, and (special meetings of
denial of the ability of the stockholders) of Article
stockholders to act by Fifth, Article Sixth
written consent, which (directors), Article Seventh
require a vote of 80 percent (amendment of bylaws),
of the voting power. Article Eighth (interested
stockholder transactions),
The bylaws of Temple-Inland and Article Tenth
may be amended or repealed by (indemnification provisions),
a vote of 80 percent of the each of which requires the
total voting power affirmative vote of the
outstanding or by a vote of holders of at least 80
the majority of the directors percent of the voting power
of Temple-Inland. of all the then outstanding
shares of the capital stock
of HF Bancorp entitled to
vote for amendment or repeal.
The HF Bancorp bylaws may be
altered, amended, or repealed
and new bylaws may be adopted
by a vote of 80 percent of
the total voting power
outstanding or by a vote of
the majority of the directors
of HF Bancorp.
Special Meetings of Except as may otherwise be A special meeting of
Stockholders............... required by law, special stockholders of HF Bancorp
meetings of the stockholders may be called by a resolution
of Temple-Inland may be adopted by a majority of the
called by the chairman of the full board of directors of HF
board or the secretary at the Bancorp, provided such a
request of a majority of the majority would also
board of directors. constitute a majority if
there were no vacancies on
the board of directors of HF
Bancorp.
</TABLE>
VALIDITY OF TEMPLE-INLAND COMMON STOCK
The validity of the shares of Temple-Inland common stock offered hereby
will be passed upon for Temple-Inland by M. Richard Warner, Esq., vice
president, general counsel, and secretary of Temple-Inland.
70
<PAGE> 73
EXPERTS
The consolidated financial statements of Temple-Inland and subsidiaries
incorporated by reference in Temple-Inland's Annual Report (Form 10-K) for the
year ended January 2, 1999, and the related financial statement schedule
included in the Form 10-K, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon incorporated by reference or
included in the Form 10-K and incorporated by reference. Such consolidated
financial statements and schedule are incorporated by reference in reliance upon
such reports given upon the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements of HF Bancorp and subsidiaries
incorporated in this proxy statement by reference from HF Bancorp's Annual
Report on Form 10-K for the year ended June 30, 1998, have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report
incorporated by reference in reliance upon the report of such firm given upon
its authority as experts in accounting and auditing.
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<PAGE> 74
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
TEMPLE-INLAND INC.,
HF BANCORP, INC.,
GUARANTY FEDERAL BANK, F.S.B.
AND
HEMET FEDERAL SAVINGS & LOAN ASSOCIATION
NOVEMBER 14, 1998
<PAGE> 75
TABLE OF CONTENTS
<TABLE>
<C> <S> <C>
ARTICLE I
DEFINITIONS
ARTICLE II
THE MERGERS AND RELATED MATTERS
</TABLE>
<TABLE>
<CAPTION>
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<C> <S> <C>
2.1 The Holding Company Merger-TI............................... 6
2.2 The Holding Company Merger-TI Subsidiary.................... 7
2.3 Fractional Shares........................................... 7
2.4 Treatment of HFB Options.................................... 7
2.5 Election and Proration Procedures........................... 7
2.6 Computation and Confirmation of Certain Items............... 9
2.7 Exchange Procedures......................................... 9
2.8 Dissenting Shares........................................... 11
2.9 Adjustments for Dilution and Other Matters.................. 11
2.10 Effect of the Holding Company Merger........................ 11
2.11 Name of Corporation Surviving the Holding Company Merger.... 12
2.12 Certificate of Incorporation and Bylaws of Corporation
Surviving the Holding Company Merger........................ 12
2.13 Directors and Officers of Corporation Surviving the Holding
Company Merger.............................................. 12
ARTICLE III
THE CLOSING
3.1 Closing Date................................................ 13
3.2 Execution of Merger Documents............................... 13
3.3 Documents to be Delivered................................... 13
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF HFB AND HEMET
4.1 Incorporation, Standing and Power........................... 13
4.2 Capitalization.............................................. 13
4.3 Subsidiaries................................................ 14
4.4 Financial Statements........................................ 14
4.5 Reports and Filings......................................... 14
4.6 Authority of HFB and Hemet.................................. 15
4.7 Insurance................................................... 15
4.8 Title to Assets............................................. 16
4.9 Real Estate................................................. 16
4.10 Litigation.................................................. 16
4.11 Taxes....................................................... 16
4.12 Compliance with Laws and Regulations........................ 18
4.13 Performance of Obligations.................................. 19
4.14 Employees................................................... 19
4.15 Registration Obligation..................................... 20
4.16 Brokers and Finders......................................... 20
4.17 Material Contracts.......................................... 20
4.18 Certain Material Changes.................................... 21
</TABLE>
(i)
<PAGE> 76
<TABLE>
<CAPTION>
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<C> <S> <C>
4.19 Licenses and Permits........................................ 22
4.20 Undisclosed Liabilities..................................... 22
4.21 Employee Benefit Plans...................................... 22
4.22 Corporate Records........................................... 24
4.23 Community Reinvestment Act.................................. 24
4.24 Regulatory Actions.......................................... 24
4.25 Insider Loans; Other Transactions........................... 25
4.26 Accounting Records.......................................... 25
4.27 Indemnification............................................. 25
4.28 Offices and ATMs............................................ 25
4.29 Loan Portfolio.............................................. 25
4.30 Investment Securities....................................... 26
4.31 Derivatives Contracts; Structured Notes; Etc................ 26
4.32 Power of Attorney........................................... 26
4.33 Material Interests of Certain Persons....................... 26
4.34 Tax Matters................................................. 26
4.35 Facts Affecting Regulatory Approvals........................ 26
4.36 Disclosure Documents and Applications....................... 26
4.37 Certain Regulatory Matters.................................. 27
4.38 Corporate Approval.......................................... 27
4.39 Intellectual Property....................................... 27
4.40 Year 2000................................................... 27
4.41 Accuracy and Currentness of Information Furnished........... 27
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF TI AND GUARANTY
5.1 Incorporation, Standing and Power........................... 28
5.2 Authority of TI and Guaranty................................ 28
5.3 Tax Representations......................................... 29
5.4 Disclosure Documents and Applications....................... 29
5.5 Reports and Filings......................................... 29
5.6 Corporate Approval.......................................... 29
5.7 Absence of Certain Changes or Events........................ 29
5.8 Access to Funds............................................. 29
5.9 Facts Affecting Regulatory Approvals........................ 30
5.10 Accuracy and Currentness of Information Furnished........... 30
5.11 CRA......................................................... 30
ARTICLE VI
COVENANTS OF HFB AND HEMET PENDING EFFECTIVE TIME OF THE MERGERS
6.1 Limitation on HFB's and Hemet's Conduct Prior to Effective
Time........................................................ 30
6.2 Affirmative Conduct of HFB and Hemet Prior to Effective
Time........................................................ 33
6.3 Access to Information....................................... 34
6.4 Filings..................................................... 35
6.5 Notices; Reports............................................ 35
6.6 HFB Stockholders' Meeting................................... 36
6.7 Bank Merger................................................. 36
6.8 Applications................................................ 36
6.9 Certain Loans and Other Extensions of Credit................ 36
</TABLE>
(ii)
<PAGE> 77
<TABLE>
<CAPTION>
PAGE
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<C> <S> <C>
6.10 Affiliates.................................................. 37
6.11 Director Resignations....................................... 37
6.12 Accountants' Letters........................................ 37
6.13 Accounting Accommodations................................... 37
ARTICLE VII
COVENANTS OF TI AND GUARANTY PENDING EFFECTIVE TIME OF THE MERGERS
7.1 Limitation on TI's and Guaranty's Conduct Prior to Effective
Time........................................................ 37
7.2 Affirmative Conduct of TI and Guaranty Prior to Effective
Time........................................................ 38
7.3 Applications................................................ 38
7.4 Blue Sky.................................................... 38
7.5 Notices; Reports............................................ 38
7.6 Indemnification............................................. 38
7.7 Removal of Conditions....................................... 39
7.8 Fairness Opinion............................................ 39
ARTICLE VIII
ADDITIONAL COVENANTS
8.1 Commercially Reasonable Efforts............................. 39
8.2 Public Announcements........................................ 39
8.3 Cancellation of Stock Options and Termination of Stock
Option Plans................................................ 39
8.4 Employees and Employee Benefits............................. 40
8.5 Environmental Assessment.................................... 40
8.6 Execution of the Stock Option Agreement..................... 40
ARTICLE IX
CONDITIONS PRECEDENT TO THE HOLDING COMPANY MERGER
9.1 Shareholder Approval........................................ 40
9.2 No Judgments or Orders...................................... 40
9.3 Regulatory Approvals........................................ 41
9.4 Securities Laws............................................. 41
9.5 Listing..................................................... 41
ARTICLE X
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF HFB AND HEMET
10.1 Representations and Warranties; Performance of Covenants.... 41
10.2 Officers' Certificate....................................... 41
10.3 Fairness Opinion............................................ 41
10.4 Absence of Certain Changes.................................. 41
10.5 Tax Opinion................................................. 42
</TABLE>
(iii)
<PAGE> 78
<TABLE>
<CAPTION>
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<C> <S> <C>
ARTICLE XI
CONDITIONS PRECEDENT TO OBLIGATIONS OF TI AND GUARANTY
11.1 Representations and Warranties: Performance of Covenants.... 42
11.2 Regulatory Approvals and Related Conditions................. 42
11.3 Third Party Consents........................................ 42
11.4 Absence of Certain Changes.................................. 42
11.5 Officers' Certificate....................................... 42
11.6 Stockholders' Agreements.................................... 42
11.7 HFB Options and Stock Option Plan........................... 43
11.8 Loan Loss Reserve........................................... 43
11.9 Resignations................................................ 43
11.10 Opinion of TI's Counsel..................................... 43
ARTICLE XII
TERMINATION
12.1 Termination................................................. 43
12.2 Effect of Termination....................................... 44
12.3 Force Majeure............................................... 45
ARTICLE XIII
MISCELLANEOUS
13.1 Expenses.................................................... 45
13.2 Notices..................................................... 45
13.3 Material Adverse Effect..................................... 46
13.4 Successors and Assigns...................................... 47
13.5 Counterparts................................................ 47
13.6 Effect of Representations and Warranties.................... 47
13.7 Third Parties............................................... 47
13.8 Lists; Exhibits; Integration................................ 47
13.9 Knowledge................................................... 47
13.10 Governing Law............................................... 47
13.11 Captions.................................................... 47
13.12 Severability................................................ 47
13.13 Waiver and Modification; Amendment.......................... 48
13.14 Attorneys' Fees............................................. 48
</TABLE>
(iv)
<PAGE> 79
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER ("Agreement") is made and entered into as
of the 14th day of November, 1998 by and among Temple-Inland Inc., a Delaware
corporation ("TI"), HF Bancorp, Inc., a Delaware corporation ("HFB"), Guaranty
Federal Bank, F.S.B., a federally chartered savings bank ("Guaranty") and
indirect wholly owned subsidiary of TI, and Hemet Federal Savings & Loan
Association, a federally chartered savings association ("Hemet") and wholly
owned subsidiary of HFB.
RECITALS
WHEREAS, TI, HFB, Guaranty and Hemet desire to effect (i) the acquisition
of HFB by TI by means of a merger of HFB with and into TI in accordance with the
terms of this Agreement, or by means of a merger of a subsidiary of TI with and
into HFB as otherwise specified herein, and (ii) immediately thereafter, the
acquisition of Hemet by Guaranty by means of a merger of Hemet with and into
Guaranty in accordance with the terms of this Agreement and the Agreement of
Bank Merger (as defined herein);
WHEREAS, the parties intend that the Mergers (as defined herein) will be
treated for federal income tax purposes as tax-deferred reorganizations within
the meaning of Section 368 of the Code (as defined herein), except as otherwise
specified herein;
WHEREAS, as an inducement to TI to enter into this Agreement, HFB desires
to, and following the execution and delivery hereof will, grant TI a stock
option to purchase up to 19.9% of the outstanding shares of HFB, under certain
circumstances, and pursuant to that certain Stock Option Agreement attached
hereto as Exhibit A;
WHEREAS, the respective Boards of Directors of each of TI, HFB, Guaranty
and Hemet have determined that it is in the best interests of their respective
companies and stockholders to consummate the Holding Company Merger (as defined
herein) and the Bank Merger (as defined herein) provided for herein; and
WHEREAS, TI, HFB, Guaranty and Hemet desire to make certain
representations, warranties, covenants and agreements in connection with the
transactions contemplated by this Agreement.
NOW, THEREFORE, on the basis of the foregoing recitals and in consideration
of the mutual representations, warranties, covenants and agreements contained
herein, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Except as otherwise expressly provided for in this Agreement, or unless the
context otherwise requires, as used throughout this Agreement the following
terms shall have the respective meanings specified below:
"Affiliate" of, or a Person "Affiliated" with, a specific Person is a
Person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, the Person
specified.
"Affiliated Group" means, with respect to any entity, a group of
entities required or permitted to file consolidated, combined, or unitary
Tax Returns.
"Agreement of Bank Merger" means the Agreement of Bank Merger to be
entered into between Guaranty and Hemet substantially in the form of
Exhibit B hereto, but subject to any changes that may be necessary to
conform to any requirements of any Governmental Entity having authority
over the Bank Merger.
A-1
<PAGE> 80
"Aggregate Deal Value" means the amount obtained by multiplying the
Price Per Share times the number of shares of HFB Stock issued and
outstanding immediately prior to the Effective Time of the Holding Company
Merger.
"Alternative Transaction Notice" shall have the meaning set forth in
Section 12.1(j).
"Bank Merger" means the merger of Hemet with and into Guaranty.
"Business Day" means any day other than Saturday, Sunday or any other
day which is not a day on which banking institutions in Texas or California
are authorized or obligated by law or executive order to close.
"Cash Amount" has the meaning set forth in Section 2.5(c).
"Cash and Stock Certificate" has the meaning set forth in Section 2.6.
"Certificate" has the meaning set forth in Section 2.7(b).
"Certificate of Merger" means that certificate filed with the Delaware
Secretary pursuant to Section 252 of the Delaware General Corporation Law
to effect the Holding Company Merger.
"Classified Credits" has the meaning set forth in Section 4.29.
"Closing" means the consummation of the Holding Company Merger
followed by consummation of the Bank Merger on the Closing Date at the
offices of Sullivan & Cromwell, 1888 Century Park East, Los Angeles,
California, or at such other place as the parties may agree upon.
"Closing Date" means the last Business Day of the month in which the
last of the following events occur: (i) the approval of this Agreement and
the transactions contemplated hereby by the stockholders of HFB, (ii) the
receipt of all permits, authorizations, approvals and consents specified in
Section 9.3 hereof, (iii) the expiration of all applicable waiting periods
under all laws, or such other date as the parties may agree upon and (iv)
the completion of the allocation required under Section 2.5(c).
"Code" means the Internal Revenue Code of 1986, as amended.
"Combination Cash Election" has the meaning set forth in Section
2.5(a).
"Combination Stock Election" has the meaning set forth in Section
2.5(a).
"Competing Transaction" has the meaning set forth in Section 6.1(n).
"Computer System" has the meaning set forth in Section 4.40.
"Costs" has the meaning set forth in Section 7.6.
"Covered Person" has the meaning set forth in Section 4.27.
"Delaware Secretary" means the Secretary of State of Delaware.
"Deloitte & Touche" means Deloitte & Touche LLP, independent
accountants for HFB, or such other nationally recognized accounting firm as
HFB shall employ.
"Derivatives Contract" has the meaning set forth in Section 4.31.
"Dissenting Shares" means any shares of HFB Stock that are (i) issued
and outstanding immediately prior to the Effective Time of the Holding
Company Merger and (ii) with respect to which the holder thereof perfects
such holder's rights to dissent under Section 262 of the Delaware General
Corporation Law.
"Effective Time of the Bank Merger" means the date and time the OTS
specifies for the Bank Merger pursuant to the OTS Regulations.
A-2
<PAGE> 81
"Effective Time of the Holding Company Merger" means the date and time
specified in the Certificate of Merger as filed with the Delaware
Secretary.
"Election" has the meaning set forth in Section 2.5(a).
"Election Deadline" has the meaning set forth in Section 2.5(b).
"Election Form" has the meaning set forth in Section 2.5(a).
"Election Form Record Date" has the meaning set forth in Section
2.5(a).
"Encumbrance" means any option, pledge, security interest, lien,
charge, encumbrance or restriction (whether on voting or disposition or
otherwise), whether imposed by agreement, law or otherwise.
"Environmental Regulations" has the meaning set forth in Section
4.12(b).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Ernst & Young" means Ernst & Young, LLP, independent accountants for
TI, or such other nationally recognized accounting firm as TI shall employ.
"ESOP" means the Employee Stock Ownership Plan and Trust of Hemet.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Agent" means such entity selected by TI to effect the
exchange of HFB Stock for TI Stock and/or cash.
"Exchange Fund" has the meaning set forth in Section 2.7(a).
"Exchange Ratio" means the number (rounded to the nearest
ten-thousandth) obtained by dividing the Price Per Share by the Final TI
Stock Price.
"Expenses" has the meaning set forth in Section 13.1.
"FDIC" means the Federal Deposit Insurance Corporation.
"FHLBSF" means the Federal Home Loan Bank of San Francisco.
"Final TI Stock Price" means the average of the daily closing prices
of a share of TI Stock on the NYSE as reported in The Wall Street Journal
for the ten (10) consecutive trading days ending on the fourth trading day
prior to the Closing Date.
"Financial Statements of HFB" means (i) the audited consolidated
financial statements and notes thereto of HFB and the related opinions
thereon included in HFB's Annual Reports on Form 10-K for the years ended
June 30, 1998 and 1997 and (ii) the unaudited consolidated interim
financial statements and notes thereto of HFB to be included in HFB's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1998.
"Financial Statements of TI" means (i) the audited consolidated
financial statements and notes thereto of TI and the related opinions
thereon included in TI's Annual Reports on Form 10-K for the years ended
January 3, 1998 and December 28, 1996 and (ii) the unaudited consolidated
interim financial statements and notes thereto of TI included in TI's
Quarterly Report on Form 10-Q for the quarter ended July 4, 1998.
"Governmental Entity" means any court or tribunal in any jurisdiction
or any United States federal, state, municipal, foreign or other
administrative agency, authority or instrumentality.
"Guaranty Stock" means the common stock, par value $1 per share, of
Guaranty.
"Hazardous Materials" has the meaning set forth in Section 4.12(b).
"Hemet Stock" means the common stock, $.01 par value per share, of
Hemet.
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"HFB Award" means any award issued pursuant to the HFB Stock Option
Plan.
"HFB Branch List" has the meaning set forth in Section 6.1(g).
"HFB Conflicts and Consents List" has the meaning set forth in Section
4.6.
"HFB Contract List" has the meaning set forth in Section 4.17.
"HFB Derivatives List" has the meaning set forth in Section 4.31.
"HFB Director Compensation List" has the meaning set forth in Section
6.1(f).
"HFB Employee Plan List" has the meaning set forth in Section 4.21.
"HFB Environmental Compliance List" has the meaning set forth in
Section 4.12.
"HFB Filings" has the meaning set forth in Section 4.5.
"HFB Financial Statements List" has the meaning set forth in Section
4.18.
"HFB Indemnification List" has the meaning set forth in Section 4.27.
"HFB Insurance List" has the meaning set forth in Section 4.7.
"HFB Intellectual Property List" has the meaning set forth in Section
4.39.
"HFB Investment Securities List" has the meaning set forth in Section
4.30.
"HFB List" means any list required to be furnished by HFB and/or Hemet
to TI and Guaranty under this Agreement including but not limited to the
HFB Branch List, the HFB Conflicts and Consents List, the HFB Contract
List, the HFB Derivatives List, the HFB Director Compensation List, the HFB
Employee Plan List, the HFB Environmental Compliance List, the HFB
Financial Statements List, the HFB Indemnification List, the HFB Insurance
List, the HFB Intellectual Property List, the HFB Investment Securities
List, the HFB Litigation List, the HFB Loan List, the HFB Material Adverse
Effect List, the HFB Offices List, the HFB Option List, the HFB Personal
Property List, the HFB Real Property List, the HFB Tax List and the HFB
Undisclosed Liabilities List.
"HFB Litigation List" has the meaning set forth in Section 4.10.
"HFB Loan List" has the meaning set forth in Section 4.29.
"HFB Material Adverse Effect List" has the meaning set forth in
Section 4.18.
"HFB Offices List" has the meaning set forth in Section 4.28.
"HFB Option" means any option issued pursuant to the HFB Stock Option
Plan.
"HFB Option List" has the meaning set forth in Section 4.2(a).
"HFB Personal Property List" has the meaning set forth in Section 4.8.
"HFB Property" has the meaning set forth in Section 4.12(b).
"HFB Real Property List" has the meaning set forth in Section 4.9.
"HFB Stockholders' Meeting" means the meeting of HFB's stockholders
referred to in Section 6.6 hereof.
"HFB Stock Option Plan" means the Amended and Restated HF Bancorp,
Inc. Stock-Based Incentive Plan.
"HFB Stock" means the common stock, par value $.01 per share, of HFB.
"HFB Subsidiary" means First Hemet Corporation, a California
corporation.
"HFB Tax List" has the meaning set forth in Section 4.11.
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"HFB Undisclosed Liabilities List" has the meaning set forth in
Section 4.20.
"HOLA" means the Home Owners' Loan Act of 1933, as amended.
"Holding Company Merger" means the merger of HFB with and into TI
pursuant to this Agreement, if Section 2.1 is applicable, or the merger of
the TI Subsidiary with and into HFB pursuant to this Agreement, if Section
2.2 is applicable.
"Immediate Family" has the meaning set forth in Rule 16a-1(e)
promulgated under the Exchange Act.
"Indemnified Parties" has the meaning set forth in Section 7.6.
"Investment Security" means any equity security or debt security as
defined in Statement of Financial Accounting Standards No. 115.
"IRS" means the Internal Revenue Service.
"List" means any one of the HFB Lists or the TI Lists.
"Mailing Date" has the meaning set forth in Section 2.5(a).
"Material Adverse Effect" has the meaning set forth in Section 13.3.
"Mergers" means the Holding Company Merger and Bank Merger.
"NYSE" means the New York Stock Exchange, Inc.
"OTS" means the Office of Thrift Supervision.
"OTS Regulations" means the rules and regulations of the OTS under
HOLA.
"Person" means any natural person, corporation, trust, association,
unincorporated body, partnership, limited liability company, joint venture,
other entity or Governmental Entity.
"Plans" has the meaning set forth in Section 4.21.
"Price Per Share" means $18.50.
"Proxy Statement" has the meaning set forth in Section 6.8.
"Related Group of Persons" means Affiliates, members of an Immediate
Family or Persons the obligations of whom would be attributed to another
Person pursuant to the regulations promulgated by the SEC.
"SAIF" means the Savings Association Insurance Fund of the FDIC.
"S-4 Registration Statement" means the Registration Statement on Form
S-4 including the Proxy Statement to be mailed to stockholders of HFB, to
vote upon the Holding Company Merger and to register the distribution of
the shares of TI Stock to be issued in the Holding Company Merger with the
SEC.
"Scheduled Contracts" has the meaning set forth in Section 4.17.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Stock Amount" means 1,216,470 shares of TI Stock.
"Stock Election" has the meaning set forth in Section 2.5(a).
"Stock Proration Factor" has the meaning set forth in Section 2.5(c).
"Superior Proposal" has the meaning set forth in Section 6.1(n).
"Surviving Bank" means the federally chartered savings association
surviving the Bank Merger.
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"Tank" has the meaning set forth in Section 4.12(b).
"Taxes" means (i) all federal, state, local or foreign taxes, charges,
fees, imposts, levies or other assessments, including, without limitation,
all net income, gross receipts, capital, sales, use, ad valorem, value
added, transfer, franchise, profits, inventory, capital stock, license,
withholding, payroll, employment, social security, unemployment, excise,
severance, stamp, occupation, property, corporation and estimated taxes,
custom duties, fees, assessments and charges of any kind whatsoever; (ii)
all interest, penalties, fines, additions to tax or additional amounts
imposed by any taxing authority in connection with any item described in
clause (i); and (iii) any transferred liability in respect of any items
described in clauses (i) and/or (ii).
"Tax Return" means all returns, declarations, reports, estimates,
information returns and statements required to be filed in respect of any
Taxes.
"Tax Sharing Agreement" means an agreement (whether or not in writing)
pursuant to which tax losses of one entity are made available to another
entity of the Affiliated Group or Affiliates for purpose of Taxes.
"TI Conflicts and Consents List" has the meaning set forth in Section
5.2.
"TI Filings" has the meaning set forth in Section 5.5.
"TI Material Adverse Effect List" has the meaning set forth in Section
5.7.
"TI List" means any list required to be furnished by TI to HFB and
Hemet under this Agreement including but not limited to the TI Conflicts
and Consents List and the TI Material Adverse Effect List.
"TI Subsidiary" means a Delaware corporation to be newly formed by TI
or one of its subsidiaries for the purpose of effecting the Holding Company
Merger if Section 2.2 is applicable.
"TI Stock" means the common stock, par value $1 per share, of TI.
"Treasury Shares" means shares of HFB Stock held by (i) HFB or any of
its subsidiaries or (ii) TI or any of its subsidiaries, in each case other
than in a fiduciary capacity or as a result of debts previously contracted
in good faith.
"Year 2000 Compliant" has the meaning set forth in Section 4.40.
ARTICLE II
THE MERGERS AND RELATED MATTERS
2.1 The Holding Company Merger-TI. If Section 2.5(c)(iii) is not
applicable, the Holding Company Merger shall be effected in accordance with this
Section 2.1. The Holding Company Merger shall become effective upon the date
specified in the Certificate of Merger as filed with the Delaware Secretary in
accordance with the provisions of the Delaware General Corporation Law. At the
Effective Time of the Holding Company Merger, the following transactions will be
deemed to have occurred simultaneously:
(a) HFB shall be merged with and into TI and the separate corporate
existence of HFB shall cease.
(b) Each share of TI Stock issued and outstanding immediately prior to
the Effective Time of the Holding Company Merger shall remain an issued and
outstanding share of common stock of TI as of the Effective Time of the
Holding Company Merger and shall not be converted or otherwise affected by
the Holding Company Merger.
(c) Subject to the other provisions of this Article II, each share of
HFB Stock issued and outstanding immediately prior to the Effective Time of
the Holding Company Merger, other than
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Dissenting Shares and Treasury Shares, shall, on and after the Effective
Time of the Holding Company Merger, be automatically canceled and cease to
be an issued and outstanding share of HFB Stock and shall be converted into
the right to receive, at the election of the holder thereof as of the
Effective Time of the Holding Company Merger:
(i) a fraction of a share of TI Stock equal to the Exchange Ratio;
or
(ii) cash in the amount equal to the Price Per Share.
(d) Any Treasury Shares outstanding immediately prior to the Effective
Time of the Holding Company Merger shall be cancelled and retired and no
consideration shall be issued in exchange therefor.
2.2 The Holding Company Merger-TI Subsidiary. If Section 2.5(c)(iii) is
applicable, the Holding Company Merger shall be effected in accordance with this
Section 2.2. The Holding Company Merger shall become effective upon the date
specified in the Certificate of Merger as filed with the Delaware Secretary in
accordance with the provisions of the Delaware General Corporation Law. At the
Effective Time of the Holding Company Merger, the following transactions will be
deemed to have occurred simultaneously.
(a) The TI Subsidiary shall be merged with and into HFB and the separate
corporate existence of the TI Subsidiary shall cease.
(b) Each share of stock of the TI Subsidiary issued and outstanding
immediately prior to the Effective Time of the Holding Company Merger shall
become and be converted into a share of HFB Stock as of the Effective Time of
the Holding Company Merger.
(c) Each share of HFB Stock issued and outstanding immediately prior to the
Effective Time of the Holding Company Merger, other than Dissenting Shares and
Treasury Shares, shall, on and after the Effective Time of the Holding Company
Merger, be automatically canceled and cease to be an issued and outstanding
share of HFB Stock and shall be converted into the right to receive cash in the
amount equal to the Price Per Share as of the Effective Time of the Holding
Company Merger.
(d) Any Treasury Shares outstanding immediately prior to the Effective Time
of the Holding Company Merger shall be cancelled and retired and no
consideration shall be issued in exchange therefor.
2.3 Fractional Shares. Notwithstanding any other provisions of this
Agreement, no fractional shares of TI Stock shall be issued in the Holding
Company Merger. In lieu thereof, each holder of HFB Stock who would otherwise be
entitled to receive a fractional share of TI Stock (after taking into account
all Certificates delivered by such holder) shall receive an amount in cash
(without interest), rounded to the nearest cent, equal to the product obtained
by multiplying (a) the Final TI Stock Price by (b) the fraction (calculated to
the nearest ten-thousandth) of the share of TI Stock to which such holder would
otherwise be entitled. No such holder shall be entitled to dividends or other
rights in respect of any such fractional shares.
2.4 Treatment of HFB Options. Unless exercised prior to the Effective Time
of the Holding Company Merger, each of the HFB Options shall be canceled by HFB
immediately prior to the Effective Time of the Holding Company Merger by a cash
payment to the holder of such HFB Option in an amount equal to the result of
multiplying (i) the excess, if any, between (a) the Price Per Share and (b) the
exercise price of such HFB Option by (ii) the number of shares of HFB Stock
subject to the HFB Option. Such payments shall take place only after the
satisfaction or fulfillment or waiver of the conditions to Closing contained in
Articles IX and XI of this Agreement.
2.5 Election and Proration Procedures.
(a) Election Forms and Types of Election. An election form and other
appropriate and customary transmittal materials (which shall specify that
delivery shall be effected, and risk of loss and title to the certificates
theretofore representing shares of HFB Stock shall pass, only upon proper
delivery of such certificates to the Exchange Agent in such form as TI and HFB
shall mutually agree) ("Election Form")
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shall be mailed no less than forty-five (45) days prior to the anticipated
Effective Time of the Holding Company Merger or on such other date as TI and HFB
shall mutually agree ("Mailing Date") to each holder of record of HFB Stock as
of five Business Days prior to the Mailing Date ("Election Form Record Date").
TI shall make available one or more Election Forms as may be reasonably
requested by all persons who become holders (or beneficial owners) (the term
"beneficial owner" and "beneficial ownership" for purposes of this Agreement
shall have the meaning set forth in Section 13(d) of the Exchange Act) of HFB
Stock after the Election Form Record Date and prior to the Election Deadline,
and HFB shall provide to the Exchange Agent all information reasonably necessary
for it to perform its obligations as specified herein. Each Election Form shall
permit the holder (or the beneficial owner through appropriate and customary
documentation and instructions) to elect (an "Election") to receive either (i)
TI Stock (a "Stock Election") with respect to all of such holder's HFB Stock, or
(ii) cash (a "Cash Election") with respect to all of such holder's HFB Stock, or
(iii) TI Stock for a specified number of shares of HFB Stock (a "Combination
Stock Election") and cash for the remaining number of shares of HFB Stock held
by such holder (a "Combination Cash Election"). Any HFB Stock, other than
Dissenting Shares and Treasury Shares, with respect to which the Exchange Agent
has not received an effective, properly completed Election Form prior to the
Election Deadline shall be deemed to be "Undesignated Shares" hereunder.
(b) Proper and Timely Election. Any Election shall have been properly made
and effective only if the Exchange Agent shall have actually received a properly
completed Election Form which has not been revoked by 5:00 p.m., Pacific Time,
by the 30th day following the Mailing Date (or such other time and date as TI
and HFB may mutually agree) (the "Election Deadline"). An Election Form shall be
deemed properly completed only if an Election is indicated for each share of HFB
Stock covered by such Election Form and if accompanied by one or more
certificates (or customary affidavits and indemnification regarding the loss or
destruction of such certificates or the guaranteed delivery of such
certificates) representing all shares of HFB Stock covered by such Election
Form, together with duly executed transmittal materials included in or required
by the Election Form. Any Election Form may be revoked by the person submitting
such Election Form at or prior to the Election Deadline, provided that the
Exchange Agent shall have actually received prior to the Election Deadline a
written notice revoking such Election Form and specifying the shares of HFB
Stock covered by such revoked Election Form. In the event an Election Form is
revoked prior to the Election Deadline, the shares of HFB Stock representing
such Election Form shall automatically become Undesignated Shares unless and
until a new Election is properly made with respect to such shares on or before
the Election Deadline, and HFB shall cause the certificates representing such
shares of HFB Stock to be promptly returned without charge to the person
submitting the revoked Election Form upon written request to that effect from
the holder who submitted such Election Form. Subject to the terms of this
Agreement and of the Election Form, the Exchange Agent shall have reasonable
discretion to determine whether any Election or revocation has been properly or
timely made and to disregard immaterial defects in the Election Forms, and any
decisions of HFB and TI required by the Exchange Agent and made in good faith in
determining such matters shall be binding and conclusive. Neither HFB nor the
Exchange Agent shall be under any obligation to notify any person of any defect
in an Election Form.
(c) Proration. As promptly as practicable but not later than three (3)
Business Days prior to the Closing Date, TI shall cause the Exchange Agent to
calculate the allocation among the holders of HFB Stock of rights to receive TI
Stock or cash in the Holding Company Merger in accordance with the Election
Forms as follows:
(i) if the aggregate number of shares of HFB Stock as to which Stock
Elections and Combination Stock Elections shall have effectively been made
times the Exchange Ratio exceeds the Stock Amount then:
(A) All Undesignated Shares shall be deemed to have made Cash
Elections; and
(B) A stock proration factor (the "Stock Proration Factor") shall
be determined by dividing the Stock Amount by the product obtained by
multiplying the (y) total number of
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shares of HFB Stock with respect to which effective Stock Elections and
Combination Stock Elections were made and (z) the Exchange Ratio. Each
holder of HFB Stock who made an effective Stock Election and Combination
Stock Election shall be entitled to:
(1) the number of shares of TI Stock equal to the product of the
(x) Exchange Ratio, multiplied by (y) the number of shares of HFB
Stock covered by such Stock Election or Combination Stock Election,
multiplied by (z) the Stock Proration Factor; and
(2) cash in an amount equal to the product of (x) the Price Per
Share, multiplied by (y) the number of shares of HFB Stock covered by
such Stock Election or Combination Stock Election, multiplied by (z)
one minus the Stock Proration Factor.
(ii) if the aggregate number of shares of HFB Stock as to which Stock
Elections and Combination Stock Elections have been effectively made times
the Exchange Ratio shall be less than the Stock Amount, then the Exchange
Agent shall select by random such number of Undesignated Shares to receive
TI Stock as shall be necessary so that the number of such shares when added
to the number of shares for which a Stock Election and Combination Stock
Election has been made or is deemed to be made when multiplied by the
Exchange Ratio shall equal the Stock Amount, and all Undesignated Shares
not so selected shall be deemed to have made Cash Elections; provided,
however, that if the aggregate number of shares of HFB Stock as to which
Stock Elections and Combination Stock Elections have been effectively made,
together with all Undesignated Shares, times the Exchange Ratio shall be
less than the Stock Amount, then all Undesignated Shares shall be deemed to
have made Stock Elections.
The pro rata allocation process or the random selection process to be
used by the Exchange Agent shall consist of such procedures as shall be
mutually determined by TI and HFB.
(iii) Notwithstanding anything to the contrary set forth in paragraph
(i) or paragraph (ii) above, if the opinion contemplated by Section 10.5 or
the opinion contemplated by Section 11.10 cannot be given, then (I) the
Holding Company Merger shall be effected as set forth in Section 2.2, (II)
the conditions set forth in Sections 9.4, 9.5, 10.5 and 11.10 shall be
deemed waived by all parties with respect to the Holding Company Merger and
(III) the Certificate of Merger shall reflect the foregoing.
2.6 Computation and Confirmation of Certain Items.
(a) The Exchange Ratio and the Final TI Stock Price shall be calculated by
TI prior to the Effective Time of the Holding Company Merger and shall be set
forth in a certificate (the "Cash and Stock Certificate") executed by an
authorized executive officer of TI and furnished to HFB at least three (3)
Business Days prior to the Effective Time of the Holding Company Merger showing
the manner of calculation in reasonable detail.
(b) HFB and Deloitte & Touche shall be entitled to review and approve the
Cash and Stock Certificate from the time of delivery until the day which is no
later than one (1) Business Day prior to the Effective Time of the Holding
Company Merger. In the event of disagreement as to the information contained in
the Cash and Stock Certificate, the parties shall negotiate in good faith to
resolve any such disputed matters, and upon the failure to resolve any such
matters, such dispute shall be resolved by an independent accounting firm of
national standing mutually satisfactory to both TI and HFB.
2.7 Exchange Procedures.
(a) Deposit with Exchange Agent. As of the Effective Time of the Holding
Company Merger, TI or the TI Subsidiary, as the case may be, shall have
deposited with the Exchange Agent for the benefit of the holders of shares of
HFB Stock, for exchange in accordance with this Section 2.7, certificates
representing the shares of TI Stock and cash issuable pursuant to Section 2.1 or
Section 2.2, as the case may be in exchange for shares of HFB Stock outstanding
immediately prior to the Effective Time of the Holding Company Merger and funds
in an amount not less than the amount of cash payable in lieu of fractional
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shares of TI Stock which would otherwise be issuable in connection with Section
2.1, but for the operation of Section 2.3 of this Agreement (collectively, the
"Exchange Fund").
(b) Exchange Procedures. After the Effective Time of the Holding Company
Merger, each holder of a certificate ("Certificate") formerly representing HFB
Stock (other than Dissenting Shares and Treasury Shares) who surrenders or has
surrendered such Certificate (or customary affidavits and indemnification
regarding the loss or destruction of such Certificate), together with duly
executed transmittal materials included in or required by the Election Form, to
the Exchange Agent, shall, upon acceptance thereof, be entitled to (i) a
certificate representing TI Stock and/or (ii) cash into which the shares of HFB
Stock shall have been converted pursuant to Section 2.1 or Section 2.2 and
Section 2.5, as well as cash in lieu of fractional shares of HFB Stock to which
such holder would otherwise be entitled, if applicable. Former stockholders of
record of HFB shall be entitled to vote after the Effective Time of the Holding
Company Merger at any meeting of TI stockholders the number of whole shares of
TI Stock into which their respective shares of HFB Stock are converted,
regardless of whether such holders have exchanged their Certificates
representing HFB Stock for certificates representing TI Stock in accordance with
the provisions of this Agreement. The Exchange Agent shall accept such
Certificate upon compliance with such reasonable and customary terms and
conditions as the Exchange Agent may impose to effect an orderly exchange
thereof in accordance with normal practices. Until surrendered as contemplated
by this Section 2.7, each Certificate representing HFB Stock shall be deemed
from and after the Effective Time of the Holding Company Merger to evidence only
the right to receive the consideration to which it is entitled hereunder upon
such surrender. TI shall not be obligated to deliver the consideration to which
any former holder of HFB Stock is entitled as a result of the Holding Company
Merger until such holder surrenders his Certificate or Certificates for exchange
as provided in this Section 2.7. If any certificate for shares of TI Stock, or
any check representing cash and/or declared but unpaid dividends, is to be
issued in a name other than that in which a Certificate surrendered for exchange
is issued, the Certificate so surrendered shall be properly endorsed and
otherwise in proper form for transfer and the person requesting such exchange
shall affix any requisite stock transfer tax stamps to the Certificate
surrendered or provide funds for their purchase or establish to the satisfaction
of the Exchange Agent that such taxes are not payable.
(c) Distributions with Respect to Unexchanged Shares. No dividends or other
distributions declared or made after the Effective Time of the Holding Company
Merger with respect to TI Stock with a record date after the Effective Time of
the Holding Company Merger shall be paid to the holder of any unsurrendered
Certificate with respect to the shares of TI Stock represented thereby, and no
cash payment in lieu of fractional shares shall be paid to any such holder
pursuant to Section 2.3 until the holder of record of such Certificate shall
surrender such Certificate. Subject to the effect of applicable laws, following
surrender of any such Certificate, there shall be paid to the record holder of
the certificates representing whole shares of TI Stock issued in exchange
thereof, without interest, (i) at the time of such surrender, the amount of any
cash payable in lieu of a fractional share of TI Stock to which such holder is
entitled pursuant to Section 2.3 and the amount of dividends or other
distributions with a record date after the Effective Time of the Holding Company
Merger theretofore paid with respect to such whole shares of TI Stock, and (ii)
at the appropriate payment date, the amount of dividends or other distributions
with a record date after the Effective Time of the Holding Company Merger but
prior to surrender and a payment date subsequent to surrender payable with
respect to such whole shares of TI Stock.
(d) No Further Ownership Rights in HFB Stock. All cash and shares of TI
Stock issued upon the surrender for exchange of shares of HFB Stock in
accordance with the terms hereof (including any cash paid pursuant to Section
2.3) shall be deemed to have been issued in full satisfaction of all rights
pertaining to such shares of HFB Stock, and there shall be no further
registration of transfers on the stock transfer books of TI, after the Holding
Company Merger, of the shares of HFB Stock which were outstanding immediately
prior to the Effective Time of the Holding Company Merger. If, after the
Effective Time of the Holding Company Merger, Certificates are presented to TI
for any reason, they shall be canceled and exchanged as provided in this
Agreement.
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(e) Termination of Exchange Fund. Any portion of the Exchange Fund,
including any interest thereon, which remains undistributed to the stockholders
of HFB following the passage of twenty-four (24) months after the Effective Time
of the Holding Company Merger shall be delivered to TI, upon demand, and any
stockholders of HFB who have not theretofore complied with this Section 2.7
shall thereafter look only to TI for payment of their claim for cash and TI
Stock, any cash in lieu of fractional shares of TI Stock and any dividends or
distributions with respect to TI Stock.
(f) No Liability. Neither HFB nor TI shall be liable to any holder of
shares of HFB Stock or TI Stock, as the case may be, for such shares (or
dividends or distributions with respect thereto) or cash from the Exchange Fund
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
(g) No Ownership Rights. The Exchange Agent shall not be entitled to vote
or exercise any rights of ownership with respect to the shares of TI Stock held
by it from time to time hereunder, except that it shall receive and hold all
dividends or other distributions paid or distributed with respect to such shares
of TI Stock for the account of the Persons entitled thereto.
(h) Affiliates. Certificates surrendered for exchange by any Person
constituting an "Affiliate" of HFB for purposes of Rule 144(a) under the
Securities Act shall not be exchanged for certificates representing whole shares
of TI Stock until TI has received a written agreement from such person as
provided in Section 6.10.
2.8 Dissenting Shares. Notwithstanding anything to the contrary contained
in this Agreement, any holder of HFB Stock who shall be entitled to be paid the
"fair value" of such holder's Dissenting Shares of HFB Stock, as provided in
Section 262 of the Delaware General Corporation Law, shall not be entitled to
the consideration to which such holder would otherwise have been entitled
pursuant to Section 2.1 or Section 2.2, as the case may be, unless and until
such holder shall have failed to perfect or withdrawn or lost such holder's
rights under Section 262 of the Delaware General Corporation Law, and shall be
entitled to receive only such payment provided for by Section 262 of the
Delaware General Corporation Law.
2.9 Adjustments for Dilution and Other Matters. If prior to the Effective
Time of the Holding Company Merger, (a) TI shall declare a stock dividend or
distribution on TI Stock with a record date prior to the Effective Time of the
Holding Company Merger, or subdivide, split up, reclassify or combine TI Stock,
or declare a dividend, or make a distribution, on the TI Stock in any security
convertible into TI Stock, in each case with a record date prior to the
Effective Time of the Holding Company Merger, or (b) the outstanding shares of
TI Stock shall have been increased, decreased, changed into or exchanged for a
different number or kind of shares or securities, in each case as a result of a
reorganization, recapitalization, reclassification, stock dividend, stock split,
reverse stock split or other similar change in TI's capitalization, then a
proportionate adjustment or adjustments will be made to the Exchange Ratio,
which adjustment or adjustments may include, as appropriate, the issuance of
securities, property or cash on the same basis as that on which any of the
foregoing shall have been issued, distributed or paid to holders of TI Stock
generally.
2.10 Effect of the Holding Company Merger.
(a) If the Holding Company Merger is effected in accordance with Section
2.1, the effect of the Holding Company Merger shall be as provided in this
paragraph (a). By virtue of the Holding Company Merger and at the Effective Time
of the Holding Company Merger, all of the rights, privileges, powers and
franchises and all property and assets of every kind and description of HFB and
TI shall be vested in and be held and enjoyed by TI without further act or deed,
and all the estates and interests of every kind of HFB and TI, including all
debts due to either of them, shall be as effectively the property of TI, as they
were of HFB, and the title to any real estate vested by deed or otherwise in
either HFB or TI shall not revert or be in any way impaired by reason of the
Holding Company Merger; and all rights of creditors and liens upon any property
of HFB and TI shall be preserved unimpaired and all the liabilities and duties
of HFB and TI shall be debts, liabilities and duties of TI and may be enforced
against it to the same extent as if such debts, liabilities and duties had been
incurred or contracted by it, and none of such debts,
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liabilities or duties shall be expanded, increased, broadened or enlarged by
reason of the Holding Company Merger.
(b) If the Holding Company Merger is effected in accordance with Section
2.2, the effect of the Holding Company Merger shall be as provided in this
paragraph (b). By virtue of the Holding Company Merger and at the Effective Time
of the Holding Company Merger, all of the rights, privileges, powers and
franchises and all property and assets of every kind and description of HFB and
the TI Subsidiary shall be vested in and be held and enjoyed by HFB, without
further act or deed, and all the estates and interests of every kind of HFB and
the TI Subsidiary, including all debts due to either of them, shall be as
effectively the property of HFB, as they were of the TI Subsidiary, and the
title to any real estate vested by deed or otherwise in either HFB or the TI
Subsidiary shall not revert or be in any way impaired by reason of the Holding
Company Merger; and all rights of creditors and liens upon any property of HFB
and the TI Subsidiary shall be preserved unimpaired and all the liabilities and
duties of HFB and the TI Subsidiary shall be debts, liabilities and duties of
HFB and may be enforced against it to the same extent as if such debts,
liabilities and duties had been incurred or contracted by it, and none of such
debts, liabilities or duties shall be expanded, increased, broadened or enlarged
by reason of the Holding Company Merger.
2.11 Name of Corporation Surviving the Holding Company Merger.
(a) If the Holding Company Merger is effected in accordance with Section
2.1, the name of the corporation surviving the Holding Company Merger shall be
"Temple-Inland Inc."
(b) If the Holding Company Merger is effected in accordance with Section
2.2, the name of the corporation surviving the Holding Company Merger shall be
"HF Bancorp, Inc."
2.12 Certificate of Incorporation and Bylaws of Corporation Surviving the
Holding Company Merger.
(a) If the Holding Company Merger is effected in accordance with Section
2.1, the Certificate of Incorporation and Bylaws of TI, as in effect immediately
prior to the Effective Time of the Holding Company Merger shall be the
Certificate of Incorporation and Bylaws of TI after the Holding Company Merger.
(b) If the Holding Company Merger is effected in accordance with Section
2.2, the Certificate of Incorporation and Bylaws of the TI Subsidiary, as in
effect immediately prior to the Effective Time of the Holding Company Merger
shall be the Certificate of Incorporation and Bylaws of HFB after the Holding
Company Merger.
2.13 Directors and Officers of Corporation Surviving the Holding Company
Merger.
(a) If the Holding Company Merger is effected in accordance with Section
2.1, the directors and officers of the corporation surviving the Holding Company
Merger shall be as provided in this paragraph (a). At the Effective Time of the
Holding Company Merger, the then directors of TI shall be the directors of TI,
until their successors have been chosen and qualified in accordance with the
Certificate of Incorporation and Bylaws of TI. The officers of TI, immediately
prior to the Effective Time of the Holding Company Merger shall be the officers
of TI, until they resign or are replaced or terminated by the Board of Directors
of TI, or otherwise in accordance with the Certificate of Incorporation and
Bylaws of TI.
(b) If the Holding Company Merger is effected in accordance with Section
2.2, the directors and officers of the corporation surviving the Holding Company
Merger shall be as provided in this paragraph (b). At the Effective Time of the
Holding Company Merger, the then directors of the TI Subsidiary shall be the
directors of HFB, until their successors have been chosen and qualified in
accordance with the Certificate of Incorporation and Bylaws of HFB. The officers
of the TI Subsidiary, immediately prior to the Effective Time of the Holding
Company Merger shall be the officers of HFB, until they resign or are replaced
or terminated by the Board of Directors of HFB, or otherwise in accordance with
the Certificate of Incorporation and Bylaws of HFB.
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ARTICLE III
THE CLOSING
3.1 Closing Date. The Closing shall take place on the Closing Date.
3.2 Execution of Merger Documents. Prior to the Closing, the Certificate
of Merger shall be executed by TI, if Section 2.1 is applicable, or by HFB, if
Section 2.2 is applicable, and the Agreement of Bank Merger shall be executed by
Guaranty and Hemet. On or before the Closing Date, the Certificate of Merger
shall be duly filed with the Delaware Secretary as required by applicable laws
and regulations to render the Holding Company Merger effective as of the Closing
Date.
3.3 Documents to be Delivered. At the Closing, the parties hereto shall
deliver, or cause to be delivered, such documents or certificates as may be
necessary, in the reasonable opinion of counsel for any of the parties, to
effectuate the transactions contemplated by this Agreement.
ARTICLE IV
REPRESENTATIONS AND
WARRANTIES OF HFB AND HEMET
HFB and Hemet, jointly and severally, represent and warrant to TI and
Guaranty as follows, provided that to the extent any representation or warranty
relates to HFB, Hemet does not make any representations to such extent:
4.1 Incorporation, Standing and Power. HFB is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and is duly registered as a savings and loan holding company under
HOLA. Hemet is a federal savings association duly organized, validly existing
and in good standing under the laws of the United States and is authorized by
the OTS to conduct a federal savings association business. The HFB Subsidiary is
duly organized, validly existing and in good standing under the laws of its
state of incorporation. The Certificates of Incorporation and Bylaws of each of
HFB and the HFB Subsidiary, and the Federal Stock Charter and Bylaws of Hemet,
all as amended to date, are in full force and effect. Hemet's deposits are
insured by the FDIC through the SAIF in the manner and to the fullest extent
provided by law. HFB, Hemet and the HFB Subsidiary have all requisite corporate
power and authority to own, lease and operate their respective properties and
assets and to carry on their respective businesses as presently conducted and
HFB and Hemet have the corporate power and authority to execute and deliver this
Agreement and the Agreement of Bank Merger, as the case may be, and to perform
their respective obligations hereunder and thereunder, as the case may be, and
to consummate the transactions contemplated hereby and thereby, as the case may
be. Neither the scope of the business of HFB, Hemet or the HFB Subsidiary nor
the location of any of their respective properties requires that HFB, Hemet or
the HFB Subsidiary be licensed to do business in any jurisdiction other than the
State of California where the failure to be so licensed would, individually or
in the aggregate, have a Material Adverse Effect.
4.2 Capitalization.
(a) As of the date of this Agreement, the authorized capital stock of HFB
consists of 15,000,000 shares of HFB Stock, of which 6,395,303 shares are
outstanding, and 2,000,000 shares of serial preferred stock of which no shares
are outstanding. All of the outstanding shares of HFB Stock have been duly
authorized and validly issued and are fully paid and nonassessable, and subject
to no preemptive rights (and were not issued in violation of any preemptive
rights). As of the date of this Agreement, except for HFB Options covering
587,010 shares of HFB Stock granted pursuant to the HFB Stock Option Plan and
options to be granted to TI pursuant to the Stock Option Agreement attached
hereto as Exhibit A, there are no outstanding options, warrants or other rights
in or with respect to the unissued shares of HFB Stock nor any securities
convertible into such stock, and HFB is not obligated to issue any additional
shares of its common stock or any additional options, warrants or other rights
in or with respect to the unissued shares of such stock or any other securities
convertible into such stock. HFB has furnished TI a list (the
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"HFB Option List") setting forth the name of each holder of an HFB Option or HFB
Award, the number of shares of HFB Stock covered by each such HFB Option or HFB
Award, the vesting schedule of such HFB Option or HFB Award, and the exercise
price per share and the expiration date of each such HFB Option or HFB Award, as
applicable.
(b) As of the date of this Agreement, the authorized capital stock of Hemet
consists of 15,000,000 shares of Hemet Stock, of which 1,000 shares are
outstanding and owned of record and beneficially by HFB free and clear of any
Encumbrance and 2,000,000 shares of serial preferred stock of which no shares
are outstanding . The outstanding shares of Hemet Stock have been duly
authorized and validly issued and are fully paid and nonassessable, and subject
to no preemptive rights (and were not issued in violation of any preemptive
rights). There are no contracts, commitments, understandings or arrangements
relating to HFB's rights to vote or to dispose of such securities. There are no
outstanding options, warrants or other rights in or with respect to the unissued
shares of Hemet Stock or any other securities convertible into such stock, and
Hemet is not obligated to issue any additional shares of its common stock or any
options, warrants or other rights in or with respect to the unissued shares of
its common stock or any other securities convertible into such stock.
(c) As of the date of this Agreement, the authorized capital stock of the
HFB Subsidiary consists of 25,000 shares of common stock, of which 504 shares
are outstanding and owned of record and beneficially by Hemet free and clear of
any Encumbrance. The outstanding shares of common stock of the HFB Subsidiary
have been duly authorized and validly issued and are fully paid and
nonassessable, and subject to no preemptive rights (and were not issued in
violation of any preemptive rights). There are no contracts, commitments,
understandings or arrangements relating to Hemet's rights to vote or to dispose
of such securities. There are no outstanding options, warrants or other rights
in or with respect to the unissued shares of such common stock or any other
securities convertible into such stock, and the HFB Subsidiary is not obligated
to issue any additional shares of its common stock or any options, warrants or
other rights in or with respect to the unissued shares of its common stock or
any other securities convertible into such stock.
4.3 Subsidiaries. Except for Hemet and the HFB Subsidiary, HFB does not
own, directly or indirectly, the outstanding stock or equity or other voting
interest in any corporation, partnership, joint venture or other entity except
for 100 shares of Class A Common Stock, of The Clearinghouse Community
Development Financial Institution. Except for the HFB Subsidiary, Hemet does not
own, directly or indirectly, the outstanding stock or equity or other voting
interest in any corporation, partnership, joint venture or other entity, except
for the shares of capital stock, par value $100 per share, of the FHLBSF and 100
shares of Class A Common Stock, of The Clearinghouse Community Development
Financial Institution.
4.4 Financial Statements. HFB has previously furnished to TI a copy of the
Financial Statements of HFB. The Financial Statements of HFB: (a) present fairly
the consolidated financial condition of HFB as of the respective dates indicated
and its consolidated results of operations and changes in cash flows, for the
respective periods then ended, subject, in the case of the unaudited
consolidated interim financial statements, to normal recurring adjustments; (b)
have been prepared in accordance with generally accepted accounting principles
and/or applicable regulatory accounting principles or banking regulations
consistently applied; (c) set forth as of the respective dates indicated
adequate reserves for loan and lease losses and other contingencies; and (d) are
based upon the books and records of HFB, Hemet and the HFB Subsidiary. Hemet's
allowance for loan and lease losses as of October 31, 1998 was $6,557,000.
4.5 Reports and Filings. HFB, Hemet and the HFB Subsidiary have filed all
reports, returns, registrations and statements (such reports and filings
referred to as "HFB Filings"), together with any amendments required to be made
with respect thereto, that were required to be filed with (a) the SEC, (b) the
OTS, (c) the FDIC and (d) any other applicable Governmental Entity, including
taxing authorities, except where the failure to file such reports, returns,
registrations or statements has not had and is not reasonably expected to have a
Material Adverse Effect. No material adverse administrative actions have been
taken or orders issued in connection with such HFB Filings. As of their
respective dates,
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each of such HFB Filings (y) complied in all material respects with all
applicable laws and regulations (or was amended so as to be in compliance
promptly following discovery of any such noncompliance); and (z) with respect to
the HFB Filings made with the SEC did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. Any financial statements contained in any
of such HFB Filings fairly presented, as of their respective dates or for their
respective periods, the financial position, results of operations and changes in
cash flows, as the case may be, of HFB, Hemet or the HFB Subsidiary and were
prepared in accordance with generally accepted accounting principles and/or
applicable regulatory accounting principles or banking regulations consistently
applied, except as stated therein, during the periods involved. HFB has
furnished TI with true and correct copies of all HFB Filings filed by HFB or
Hemet with the SEC, OTS, FDIC and any other federal or state securities or
banking authority since January 1, 1995.
4.6 Authority of HFB and Hemet. The execution and delivery by HFB and
Hemet of this Agreement and by Hemet of the Agreement of Bank Merger, subject to
the requisite approval of the stockholders of HFB and the sole shareholder of
Hemet, and the consummation of the transactions contemplated hereby and thereby,
have been duly and validly authorized by all necessary corporate action on the
part of HFB and Hemet, and this Agreement is and the Agreement of Bank Merger
will be, upon due execution and delivery by the respective parties thereto, a
valid and binding obligation of HFB or Hemet or both of them, as the case may
be, enforceable in accordance with their respective terms, except as the
enforceability thereof may be limited by bankruptcy, liquidation, receivership,
conservatorship, insolvency, moratorium or other similar laws affecting the
rights of creditors generally and by general equitable principles and by Section
8(b)(6)(D) of the Federal Deposit Insurance Act, 12 U.S.C. Section
1818(b)(6)(D). Except as set forth in a list furnished by HFB and Hemet to TI
(the "HFB Conflicts and Consents List"), neither the execution and delivery by
HFB and Hemet of this Agreement or by Hemet of the Agreement of Bank Merger, the
consummation of the Holding Company Merger or Bank Merger or the transactions
contemplated herein or therein, nor compliance by HFB and Hemet with any of the
provisions hereof or thereof, will: (a) conflict with or result in a breach of
any provision of the respective Certificates of Incorporation, as amended, or
Bylaws, as amended, of HFB or the HFB Subsidiary or the Federal Stock Charter or
Bylaws of Hemet; (b) constitute a breach of or result in a default (or give rise
to any rights of termination, cancellation or acceleration, or any right to
acquire any securities or assets) under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, franchise, license, permit,
agreement or other instrument or obligation to which HFB, Hemet or the HFB
Subsidiary is a party, or by which HFB, Hemet or the HFB Subsidiary or any of
their respective properties or assets is bound, except as would not,
individually or in the aggregate, have a Material Adverse Effect; (c) result in
the creation or imposition of any Encumbrance on any of the properties or assets
of HFB, Hemet or the HFB Subsidiary, except for Encumbrances that do not
materially detract from the value, or interfere with the present use, of the
property subject thereto or affected thereby; (d) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to HFB, Hemet or the
HFB Subsidiary or any of their respective properties or assets. Except as set
forth in the HFB Conflicts and Consents List, no consent of, approval of, notice
to or filing with any Governmental Entity, and no consent of, approval of or
notice to any other Person, is required in connection with the execution and
delivery by HFB and Hemet of this Agreement or by Hemet of the Agreement of Bank
Merger, the consummation by HFB and Hemet of the Holding Company Merger or Bank
Merger or the transactions contemplated hereby or thereby, except (i) the
approval of this Agreement, the Agreement of Bank Merger and the Holding Company
Merger and the transactions contemplated hereby and thereby by the stockholders
of HFB and the sole shareholder of Hemet; (ii) such approvals or nonobjections
as may be required by the OTS and the FDIC; (iii) the filing and declaration of
effectiveness of the S-4 Registration Statement with the SEC; and (iv) the
filing of the Certificate of Merger and the Agreement of Bank Merger with the
Delaware Secretary and the OTS, respectively.
4.7 Insurance. Except as set forth in a list furnished by HFB and Hemet to
TI, (the "HFB Insurance List"): (a) HFB, Hemet and the HFB Subsidiary have, and
have had since July 1, 1995, policies of insurance and bonds with respect to
their respective assets and businesses against such
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casualties and contingencies and in such amounts, types and forms as are
customary for their respective businesses, operations, properties and assets;
(b) no insurer under any policy or bond maintained by HFB, Hemet or the HFB
Subsidiary has canceled or indicated an intention to cancel or not to renew any
such policy or bond or generally disclaimed liability thereunder and all such
policies and bonds are in full force and effect; and (c) none of HFB, Hemet or
the HFB Subsidiary is in default under any such policy or bond and all material
claims thereunder have been filed in a timely fashion. Set forth in the HFB
Insurance List is a list of all policies of insurance carried and owned by HFB,
Hemet and the HFB Subsidiary, showing, as of September 30, 1998, the name of the
insurance company, the nature of the coverage, the policy limit, the annual
premiums and the expiration dates. There has been delivered to TI a copy of each
such policy of insurance.
4.8 Title to Assets. HFB, Hemet and the HFB Subsidiary have good and
marketable title to all their respective material, non-real estate, properties
and assets, owned or stated to be owned by HFB, Hemet or the HFB Subsidiary,
free and clear of all Encumbrances except: (a) as set forth in the Financial
Statements of HFB; (b) for Encumbrances for current Taxes not yet due; (c) for
Encumbrances incurred in the ordinary course of business; (d) for Encumbrances
that are not substantial in character, amount or extent and that do not
materially detract from the value, or interfere with present use, of the
property subject thereto or affected thereby, or otherwise materially impair the
conduct of business of HFB on a consolidated basis; or (e) as set forth in a
list furnished by HFB and Hemet to TI (the "HFB Personal Property List.")
4.9 Real Estate. HFB and Hemet have furnished TI a list (the "HFB Real
Property List") of real property, including leaseholds and all other interests
in real property (other than security interests), owned by HFB, Hemet or the HFB
Subsidiary. HFB has duly recorded or caused to be recorded, in the appropriate
county, all recordable interests in such real property. HFB, Hemet or the HFB
Subsidiary have good and marketable title to the real property, and valid
leasehold interests in the leaseholds, described in the HFB Real Property List,
free and clear of all Encumbrances, except: (a) for rights of lessors, co-
lessees or sublessees in such matters that are reflected in the lease; (b) for
Taxes not yet due; (c) for such Encumbrances, if any, as do not materially
detract from the value of or materially interfere with the present use of such
property; and (d) as described in the HFB Real Property List. HFB has furnished
TI with true and correct copies of all leases included in the HFB Real Property
List, all title insurance policies and all documents evidencing HFB's or Hemet's
interest in real property included in the HFB Real Property List.
4.10 Litigation. Except as set forth in the HFB Filings or in a list
furnished by HFB and Hemet to TI (the "HFB Litigation List"), there is no
private or governmental suit, claim, action or proceeding pending, nor to HFB's
or Hemet's knowledge, threatened, against HFB, Hemet or the HFB Subsidiary or
against any of their respective directors, officers or employees relating to the
performance of their duties in such capacities or against or affecting any
properties of HFB, Hemet or HFB Subsidiary. Also, except as disclosed in the HFB
Filings or in the HFB Litigation List, there are no material judgments, decrees,
stipulations or orders against HFB, Hemet or the HFB Subsidiary or enjoining any
of them or any of their respective directors, officers or employees in respect
of, or the effect of which is to prohibit, any business practice or the
acquisition of any property or the conduct of business in any area.
4.11 Taxes.
(a) Except as set forth in a list furnished by HFB and Hemet to TI (the
"HFB Tax List"), (A) all material Tax Returns required to be filed by or on
behalf of HFB, the HFB Subsidiary, Hemet or the Affiliated Group(s) of which any
of them is or was a member, have been duly and timely filed with the appropriate
taxing authorities in all jurisdictions in which such Tax Returns are required
to be filed (after giving effect to any valid extensions of time in which to
make such filings), and all such Tax Returns were true, complete and correct in
all material respects; (B) all Taxes payable by or on behalf of HFB, Hemet or
the HFB Subsidiary, either directly, as part of an Affiliated Group Tax Return,
or otherwise, have been fully and timely paid, except to the extent adequately
reserved therefor in accordance with generally accepted accounting principles
and/or applicable regulatory accounting principles or banking regulations
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consistently applied on the HFB balance sheet, and adequate reserves or accruals
for Taxes have been provided in the HFB balance sheet with respect to any period
through the date thereof for which Tax Returns have not yet been filed or for
which Taxes are not yet due and owing; and (C) no agreement, waiver or other
document or arrangement extending or having the effect of extending the period
for assessment or collection of Taxes (including, but not limited to, any
applicable statute of limitation) has been executed or filed with any taxing
authority by or on behalf of HFB, Hemet or the HFB Subsidiary. or any Affiliated
Group(s) of which any of them is or was a member.
(b) HFB, Hemet and the HFB Subsidiary have complied in all material
respects with all applicable laws, rules and regulations relating to the payment
and withholding of Taxes and have duly and timely withheld from employee
salaries, wages and other compensation and have paid over to the appropriate
taxing authorities all amounts required to be so withheld and paid over for all
periods under all applicable laws.
(c) TI has received complete copies of (i) all material income or franchise
Tax Returns of HFB, Hemet and the HFB Subsidiary relating to the taxable periods
since July 1, 1995 and (ii) any audit report issued within the last three years
relating to any material Taxes due from or with respect to HFB, Hemet or the HFB
Subsidiary, with respect to their respective income, assets or operations.
(d) Except as set forth in the HFB Tax List, no claim has been made by a
taxing authority in a jurisdiction where HFB, Hemet or the HFB Subsidiary do not
file an income or franchise Tax Return such that HFB, Hemet or the HFB
Subsidiary are or may be subject to taxation by that jurisdiction.
(e) Except as set forth in the HFB Tax List: (i) all deficiencies asserted
or assessments made as a result of any examinations by any taxing authority of
the Tax Returns of or covering or including HFB, Hemet and/or the HFB Subsidiary
have been fully paid, and there are no other audits or investigations by any
taxing authority in progress, nor have HFB, Hemet or the HFB Subsidiary received
any notice from any taxing authority that it intends to conduct such an audit or
investigation; (ii) no requests for a ruling or a determination letter are
pending with any taxing authority; and (iii) no issue has been raised in writing
by any taxing authority in any current or prior examination which, by
application of the same or similar principles, could reasonably be expected to
result in a proposed deficiency against HFB, Hemet or any HFB Subsidiary for any
subsequent taxable period that could be material.
(f) Except as set forth in the HFB Tax List, none of HFB, Hemet or the HFB
Subsidiary nor any other Person on behalf of HFB, Hemet or the HFB Subsidiary
has (i) filed a consent pursuant to Section 341(f) of the Code or agreed to have
Section 341(f)(2) of the Code apply to any disposition of a subsection (f) asset
(as such term is defined in Section 341(f)(4) of the Code) owned by HFB, Hemet
or the HFB Subsidiary, (ii) agreed to or is required to make any adjustments
pursuant to Section 481 (a) of the Code or any similar provision of state, local
or foreign law by reason of a change in accounting method initiated by HFB,
Hemet or the HFB Subsidiary or has any knowledge that the Internal Revenue
Service has proposed any such adjustment or change in accounting method, or has
any application pending with any taxing authority requesting permission for any
changes in accounting methods that relate to the business or operations of HFB,
Hemet or the HFB Subsidiary, or (iii) executed or entered into a closing
agreement pursuant to Section 7121 of the Code or any predecessor provision
thereof or any similar provision of state, local or foreign law with respect to
HFB, Hemet or the HFB Subsidiary.
(g) Except as set forth in the HFB Tax List, no property owned by HFB,
Hemet or the HFB Subsidiary is (i) property required to be treated as being
owned by another Person pursuant to provisions of Section 168(f)(8) of the
Internal Revenue Code of 1954, as amended and in effect immediately prior to the
enactment of the Tax Reform Act of 1986, (ii) constitutes "tax exempt use
property" within the meaning of Section 168(h)(1) of the Code or (iii) is
"tax-exempt bond financed property" within the meaning of Section 168(g) of the
Code.
(h) Neither HFB (except with HFB Subsidiary or Hemet) nor the HFB
Subsidiary nor Hemet (except with HFB or one another) is a party to any Tax
Sharing Agreement or similar agreement or
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arrangement (whether written or not written) pursuant to which it will have any
obligation to make any payments after the Closing.
(i) Except as set forth in the HFB Tax List, there is no contract,
agreement, plan or arrangement covering any Person that, individually or
collectively, could give rise to the payment of any amount that would not be
deductible by HFB, Hemet, the HFB Subsidiary or their respective affiliates by
reason of Section 280G of the Code, or would constitute compensation in excess
of the limitation set forth in Section 162(m) of the Code.
(j) There are no liens as a result of any unpaid Taxes upon any of the
assets of HFB, Hemet or the HFB Subsidiary.
(k) Except as set forth in the HFB Tax List, HFB, Hemet and the HFB
Subsidiary have no elections in effect for federal income tax purposes under
Sections 108, 168, 338, 441, 472, 1017, 1033, or 4977 of the Code.
(l) Except as set forth in the HFB Tax List, none of the members of HFB's
Affiliated Group has any net operating loss carryovers.
(m) HFB and Hemet agree to cooperate, and to cause the HFB Subsidiary to
cooperate, with tax counsel in furnishing reasonable and customary written tax
representations to tax counsel for purposes of supporting tax counsel's opinion
that the Holding Company Merger and the Bank Merger both qualify as
reorganizations within the meaning of Section 368(a) of the Code as contemplated
in Sections 10.5 and 11.10 hereof. Such Persons acknowledge that their inability
or unwillingness to provide such reasonable and customary written
representations could preclude tax counsel from rendering such opinion, with
consequences specified elsewhere herein.
4.12 Compliance with Laws and Regulations.
(a) None of HFB, Hemet or the HFB Subsidiary is in default under or in
breach or violation of (i) any provision of their respective Certificate of
Incorporation, as amended, Federal Stock Charter, Articles of Incorporation, as
amended, or Bylaws, as amended, or (ii) any law, ordinance, rule or regulation
promulgated by any Governmental Entity, except, with respect to this clause
(ii), for such violations as would not have, individually or in the aggregate, a
Material Adverse Effect. The properties and operations of HFB, Hemet and the HFB
Subsidiary are and have been maintained and conducted, in all material respects,
in compliance with all applicable laws and regulations.
(b) Except as set forth on a list furnished by HFB and Hemet to TI (the
"HFB Environmental Compliance List"), to HFB's and Hemet's knowledge (or actual
knowledge, as the case may be): (i) HFB, Hemet and the HFB Subsidiary are in
compliance with all Environmental Regulations in all material respects; (ii)
there are no Tanks on, under or above HFB Property; (iii) there are no Hazardous
Materials on, below or above the surface of, or migrating from HFB Property that
would reasonably expect to give rise to a Material Adverse Effect; (iv) to HFB's
and Hemet's actual knowledge, HFB and Hemet have no loans outstanding secured by
real property of which the real property is not in compliance with Environmental
Regulations or which has a Tank or upon which there are Hazardous Materials or
from which Hazardous Materials are migrating; and (v) without limiting Section
4.10 or the foregoing representations and warranties contained in clauses (i)
through (iv), as of the date of this Agreement, there is no claim, action, suit,
or proceeding or notice thereof before any Governmental Entity pending against
HFB, Hemet or the HFB Subsidiary or, to HFB's and Hemet's actual knowledge,
concerning property securing HFB or Hemet loans and there is no outstanding
judgment, order, writ, injunction, decree, or award against or affecting HFB
Property or, to HFB's and Hemet's actual knowledge, property securing HFB or
Hemet loans, relating to the foregoing representations (i)-(iv). For purposes of
this Section 4.12(b), the term "Environmental Regulations" shall mean all
applicable statutes, regulations, rules, ordinances, codes, licenses, permits,
orders, approvals, plans, authorizations, concessions, franchises, and similar
items, of all Governmental Entities and all applicable judicial, administrative,
and regulatory decrees, judgments, and orders relating to the protection of
human health or the environment, including, without limitation: all
requirements, including, but not limited to those pertaining to reporting,
licensing,
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permitting, investigation, and remediation of emissions, discharges, releases,
or threatened releases of Hazardous Materials, chemical substances, pollutants,
contaminants, or hazardous or toxic substances, materials or wastes whether
solid, liquid, or gaseous in nature, into the air, surface water, groundwater,
or land, or relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of chemical substances,
pollutants, contaminants, or hazardous or toxic substances, materials, or
wastes, whether solid, liquid, or gaseous in nature and all requirements
pertaining to the protection of the health and safety of employees or the
public. "HFB Property" shall mean real estate owned, leased, or otherwise used
by HFB, Hemet or the HFB Subsidiary, or in which HFB, Hemet or the HFB
Subsidiary has an investment (by sale and lease-back or otherwise) in each case,
which real estate is owned, leased, or otherwise used on the date of this
Agreement, including, without limitation, properties under foreclosure and
properties held by HFB, Hemet or the HFB Subsidiary in its capacity as a trustee
or otherwise. "Tank" shall mean treatment or storage tanks, sumps, gas or oil
wells and associated piping transportation devices. "Hazardous Materials" shall
mean any substance the presence of which requires investigation or remediation
under any federal, state or local statute, regulation, ordinance, order action,
policy or common law; or which is defined as a hazardous waste, hazardous
substance, hazardous material, used oil, pollutant or contaminant under any
federal, state or local statute, regulation, rule or ordinance or amendments
thereto including, without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act (42 U.S.C. Section 9601, et seq.); the Resource
Conservation and Recovery Act (42 U.S.C. Section 6901, et seq.); the Clean Air
Act, as amended (42 U.S.C. Section 7401, et seq.); the Federal Water Pollution
Control Act, as amended (33 U.S.C. Section 1251, et seq. ); the Toxic Substances
Control Act, as amended (15 U.S.C. Section 9601, et seq.); the Occupational
Safety and Health Act, as amended (29 U.S.C. Section 651 et seq.); the Emergency
Planning and Community Right-to-Know Act of 1986 (42 U.S.C. Section 11001, et
seq.); the Mine Safety and Health Act of 1977, as amended (30 U.S.C. Section
801, et seq.); the Safe Drinking Water Act (42 U.S.C. Section 300f, et seq.);
and all comparable state and local laws, including without limitation, the
Carpenter-Presley-Tanner Hazardous Substance Account Act (State Superfund), the
Porter-Cologne Water Quality Control Act, Section 25140, 25501(j) and (k),
25501.1, 25281 and 25250.1 of the California Health and Safety Code and/or
Article I of Title 22 of the California Code of Regulations, Division 4, Chapter
30; or the presence of which causes or threatens to cause a nuisance, trespass
or other common law tort upon real property or adjacent properties or poses or
threatens to pose a hazard to the health or safety of persons or which contains
gasoline, diesel fuel or other petroleum hydrocarbons, polychlorinated biphenyls
(PCBs), asbestos or ureaformaldehyde foam insulation.
(c) HFB and Hemet have provided to TI phase I environmental assessments
with respect to each interest in real property set forth on the HFB Real
Property List as to which such a phase I environmental investigation has been
prepared by or on behalf of HFB or Hemet. The HFB Real Property list discloses
each such property as to which such an assessment has not been prepared on
behalf of HFB, Hemet or the HFB Subsidiary.
4.13 Performance of Obligations. HFB, Hemet and the HFB Subsidiary have
performed in all material respects all of the obligations required to be
performed by them to date of any covenant, contract, lease, indenture or any
other covenant to which any of them is a party, or to which any of them or any
of their respective properties is subject or by which any of them or any of
their respective properties are otherwise bound, and none of them are in default
under or in breach of any term or provision of any such covenant, contract,
lease, indenture or any other such covenant, and no event has occurred that,
with the giving of notice or the passage of time or both, would constitute such
default or breach, where such defaults and breaches would, individually or in
the aggregate, have a Material Adverse Effect. Except for loans and leases made
by Hemet in the ordinary course of business, to HFB's or Hemet's knowledge, no
other party to any such covenant, contract, lease or indenture or any other
covenant is in material default or breach thereunder.
4.14 Employees. Except as set forth in the HFB Litigation List, there are
no material controversies pending or threatened between HFB, Hemet or the HFB
Subsidiary and any of their respective employees. None of HFB, Hemet or the HFB
Subsidiary is a party to any collective bargaining agreement with
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respect to any of their respective employees or any labor organization to which
their respective employees or any of them belong.
4.15 Registration Obligation. None of HFB, Hemet or the HFB Subsidiary is
under any obligation, contingent or otherwise, to register any of their
respective securities under the Securities Act.
4.16 Brokers and Finders. Except for the obligation to Keefe, Bruyette &
Woods, Inc. as set forth in a letter agreement, dated June 26, 1998, a copy of
which has been delivered to TI, none of HFB, Hemet or the HFB Subsidiary is a
party to or obligated under any agreement with any broker or finder relating to
the transactions contemplated hereby, and neither the execution of this
Agreement nor the consummation of the transactions provided for herein or
therein will result in any liability to any broker or finder.
4.17 Material Contracts. Except as set forth in a list furnished by HFB
and Hemet to TI (the "HFB Contract List") (all items listed or required to be
listed in such HFB Contract List being referred to herein as "Scheduled
Contracts"), none of HFB, Hemet or the HFB Subsidiary is party to, nor are any
of HFB, Hemet or the HFB Subsidiary or any of their respective properties
subject to, nor or any of them or any of their respective properties bound by,
any of the following:
(a) any employment, deferred compensation, bonus or consulting
contract that (i) has a remaining term, as of the date of this Agreement,
of more than one year in length of obligation on the part of HFB, Hemet or
the HFB Subsidiary and is not terminable by HFB, Hemet or the HFB
Subsidiary within one year without penalty or (ii) requires payment by HFB,
Hemet or the HFB Subsidiary of $50,000 or more per annum;
(b) any advertising, brokerage, licensing, dealership, representative
or agency relationship or contract requiring payment by HFB, Hemet or the
HFB Subsidiary of $50,000 or more per annum;
(c) any contract or agreement that restricts HFB, Hemet or the HFB
Subsidiary (or would restrict any Affiliate of any of them (including TI
and its subsidiaries) after the Effective Time of the Holding Company
Merger) from competing in any line of business with any Person or using or
employing the services of any Person;
(d) any lease of real or personal property providing for annual lease
payments by or to HFB, Hemet or the HFB Subsidiary in excess of $50,000 per
annum other than (A) financing leases entered into in the ordinary course
of business in which HFB, Hemet or the HFB Subsidiary is lessor and (B)
leases of real property presently used by Hemet as banking or loan
production offices;
(e) any mortgage, pledge, conditional sales contract, security
agreement, option, or any other similar agreement with respect to any
interest of HFB, Hemet or the HFB Subsidiary (other than as mortgagor or
pledgor in the ordinary course of their banking business or as mortgagee,
secured party or deed of trust beneficiary in the ordinary course of their
business) in personal property having a value of $50,000 or more;
(f) other than as described in the HFB Filings or as set forth in the
HFB Employee Plan List, any stock purchase, stock option, stock bonus,
stock ownership, profit sharing, group insurance, bonus, deferred
compensation, severance pay, pension, retirement, savings or other
incentive, welfare or employment plan or material agreement providing
benefits to any present or former employees, officers or directors of HFB,
Hemet or the HFB Subsidiary;
(g) any agreement to acquire equipment or any commitment to make
capital expenditures of $50,000 or more other than as indicated in the HFB
Branch List;
(h) other than agreements entered into in the ordinary course of
business, including sales of other real estate owned, any agreement for the
sale of any property or assets in which HFB, Hemet or the HFB Subsidiary
has an ownership interest or for the grant of any preferential right to
purchase any such property or asset;
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(i) any agreement for the borrowing of any money (other than
liabilities or interbank borrowings made in the ordinary course of their
banking business and reflected in the financial records of HFB, Hemet or
the HFB Subsidiary);
(j) any restrictive covenant contained in any deed to or lease of real
property owned or leased by HFB, Hemet or the HFB Subsidiary (as lessee)
that materially restricts the use, transferability or value of such
property;
(k) any guarantee or indemnification which involves the sum of $50,000
or more, other than letters of credit or loan commitments issued in the
normal course of business;
(l) any supply, maintenance or landscape contracts not terminable by
HFB, Hemet or the HFB Subsidiary without penalty on thirty (30) days or
less notice and which provides for payments in excess of $50,000 per annum;
(m) other than as disclosed with reference to subparagraph (k) of this
Section 4.17, any material agreement which would be terminable other than
by HFB, Hemet or the HFB Subsidiary as a result of the consummation of the
transactions contemplated by this Agreement;
(n) any contract of participation with any other financial institution
in any loan in excess of $50,000 or any sales of assets of HFB or Hemet
with recourse of any kind to HFB or Hemet except the sale of mortgage
loans, servicing rights, repurchase or reverse repurchase agreements,
securities or other financial transactions in the ordinary course of
business;
(o) any agreement providing for the sale or servicing of any loan or
other asset which constitutes a "recourse arrangement" under applicable
regulation or policy promulgated by a Governmental Entity (except for
agreements for the sale of guaranteed portions of loans guaranteed in part
by the U. S. Small Business Administration and related servicing
agreements);
(p) any contract relating to the provision of data processing services
to HFB, Hemet or the HFB Subsidiary;
(q) any other agreement of any other kind which involves future
payments or receipts or performances of services or delivery of items
requiring payment of $50,000 or more to or by HFB, Hemet or the HFB
Subsidiary other than payments made under or pursuant to loan agreements,
participation agreements and other agreements for the extension of credit
in the ordinary course of their business.
True copies of all Scheduled Contracts, including all amendments and
supplements thereto, have been delivered to TI.
4.18 Certain Material Changes. Except as set forth in a list delivered by
HFB and Hemet to TI (the "HFB Material Adverse Effect List") or in the financial
statements and notes thereto to be included in HFB's Quarterly Report on Form
10-Q for the quarter ended September 30, 1998 in the form delivered by HFB to TI
(the "HFB Financial Statements List"), since June 30, 1998, there has not been,
occurred or arisen any of the following (whether or not in the ordinary course
of business unless otherwise indicated):
(a) Any change in any of the assets, liabilities, permits, methods of
accounting or accounting practices, business, or manner of conducting
business, of HFB, Hemet or the HFB Subsidiary, or any other event or
development that has had or may reasonably be expected to have a Material
Adverse Effect;
(b) Any event or circumstance that, individually or taken together
with all other events and circumstances, has had or may reasonably be
expected to have a Material Adverse Effect; or
(c) Any direct or indirect redemption, purchase or other acquisition
by HFB, Hemet or the HFB Subsidiary of any equity securities or any
declaration, setting aside or payment of any dividend or
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other distribution on or in respect of HFB Stock whether consisting of
money, other personal property, real property or other things of value.
4.19 Licenses and Permits. HFB, Hemet and the HFB Subsidiary have all
material licenses and permits that are necessary for the conduct of their
respective businesses, and such licenses are in full force and effect. The
respective properties, assets, operations and businesses of HFB, Hemet and the
HFB Subsidiary are and have been maintained and conducted, in all material
respects, in compliance with all applicable licenses and permits.
4.20 Undisclosed Liabilities. None of HFB, Hemet or the HFB Subsidiary has
any liabilities or obligations, either accrued or contingent, that are material
to HFB on a consolidated basis and that have not been: (a) reflected or
disclosed in the Financial Statements of HFB; (b) disclosed in a list furnished
by HFB and Hemet to TI (the "HFB Undisclosed Liabilities List") or on any other
HFB List; or (c) incurred in the ordinary course of business consistent with
past practices, which incurrence would not give rise, individually or in the
aggregate, to a Material Adverse Effect. None of HFB, Hemet or the HFB
Subsidiary knows of any reasonable basis for the assertion against any of them
of any liability, obligation or claim (including, without limitation, that of
any regulatory authority) that is likely to result in or cause a Material
Adverse Effect that is not accurately reflected in the Financial Statements of
HFB or otherwise disclosed in this Agreement.
4.21 Employee Benefit Plans.
(a) Existence of Plans. For purposes of this Agreement, the term "Plans"
shall mean (i) all "employee benefit plans" (as such term is defined in Section
3(3) of ERISA) of which HFB or any member of the same controlled group of
corporations, trades or businesses as HFB within the meaning of Section
4001(a)(14) of ERISA, including, but not limited to, Hemet and HFB Subsidiary
(for purposes of this Section, an "ERISA Affiliate") is a sponsor or
participating employer or as to which HFB or any of its ERISA Affiliates makes
contributions or is required to make contributions and (ii) any employment,
severance or other agreement, plan, arrangement or policy of HFB or of any of
its ERISA Affiliates (whether written or oral) providing for insurance coverage
(including self-insured arrangements), workers' compensation, disability
benefits, supplemental unemployment benefits, vacation benefits, retirement
benefits, or for profit sharing, deferred compensation, bonuses, stock options,
stock appreciation, stock awards, stock based compensation or other forms of
incentive compensation or post-termination insurance, compensation or benefits.
Except as set forth in the list delivered by HFB and Hemet to TI (the "HFB
Employee Plan List"), (i) neither HFB nor any of its ERISA Affiliates maintains
or sponsors, or makes or is required to make contributions to, any Plans, (ii)
none of the Plans is a "multiemployer plan," as defined in Section 3(37) of
ERISA, (iii) none of the Plans is a "defined benefit pension plan" within the
meaning of Section 3(35) of ERISA, and (iv) each of the Plans has been
administered and maintained, and is, in material compliance with, all provisions
of ERISA, the Code, the Consolidated Omnibus Budget Reconciliation Act of 1985
("COBRA") and all other applicable laws. Notwithstanding any statement or
indication in this Agreement to the contrary, and except as disclosed in the HFB
Employee Plan List there are no Plans as to which HFB or its ERISA Affiliates
will be required to make any contributions, whether on behalf of any of the
current employees of HFB, its ERISA Affiliate or on behalf of any other person,
after the Closing. With respect to each of such Plans, at the Closing there will
be no unrecorded liabilities with respect to the establishment, implementation,
operation, administration or termination of any such Plan, or the termination of
the participation in any such Plan by the HFB or any of its ERISA Affiliates.
Neither HFB nor any ERISA Affiliate has any formal plan or commitment, whether
legally binding or not, to create any additional Plan, or modify or change any
existing Plan that would affect any employee or terminated employee of HFB or
any ERISA Affiliate, except as set forth in the HFB Employee Plan List. Except
as set forth in the HFB Employee Plan List, the consummation of the transactions
contemplated by this Agreement will not (i) entitle any employees of HFB, Hemet
or the HFB Subsidiaries to severance pay, (ii) accelerate the funding, time of
payment or vesting or trigger any payment of compensation or benefits under,
increase the amount payable or trigger any other material obligation pursuant
to, any of the Plans or (iii) result in any breach or violation of, or default
under, any of the Plans. HFB has delivered to TI true and complete copies of:
(i) each of the Plans and any related
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funding and service agreements thereto (including insurance contracts,
investment managing agreements, subscription and participation agreements and
recordkeeping contracts) including all amendments, all of which are legally
valid and binding and in full force and effect and there are no defaults
thereunder, (ii) the currently effective summary plan description, summary of
material modifications and all material employee communications pertaining to
each of the Plans, (iii) the three most recent annual reports for each of the
Plans (including all relevant schedules), (iv) the most recently filed PBGC Form
1 (if applicable); and (v) the most recent Internal Revenue Service
determination letter for each Plan which is intended to constitute a qualified
plan under Section 401 of the Code and each amendment to each of the foregoing
documents and any requests for rulings, determinations, or opinions pending with
the Internal Revenue Service or any other governmental agency.
(b) Present Value of Benefits. The present value of all "benefit
liabilities", as defined in Section 4001(a)(16) of ERISA, under any Plan subject
to Title IV of ERISA (as determined on the basis of the actuarial assumptions
contained in the Plan's most recent actuarial valuation) shall not, as of the
Closing Date, exceed the value of the assets of such Plan allocated to such
benefit liabilities. With respect to each Plan that is subject to Title IV of
ERISA (i) no amount is due or owing from HFB or its ERISA Affiliates to the
Pension Benefit Guaranty Corporation or to any "multiemployer plan" as defined
in Section 3(37) of ERISA on account of any withdrawal therefrom and (ii) no
such Plan has been terminated other than in accordance with ERISA or at a time
when the Plan was not sufficiently funded. The transactions contemplated
hereunder, including without limitation the termination of the Plans at or prior
to the Closing, shall not result in any such withdrawal or other liability under
any applicable laws.
(c) Penalties; Reportable Events. None of the Plans, nor any trust created
thereunder nor any trustee, fiduciary or administrator thereof, has engaged in
any transaction which might subject HFB, Hemet or the HFB Subsidiary to any tax
or penalty on prohibited transactions imposed by Section 4975 of the Code or
Section 406 of ERISA or to any civil penalty imposed by Section 502 of ERISA.
None of the Plans subject to Title IV of ERISA has been completely or partially
terminated nor has there been any "reportable event," as such term is defined in
Section 4043(b) of ERISA, with respect to any of such Plans within the 12 month
period ending on the date hereof for which the 30-day reporting requirement has
not been waived, nor has any notice of intent to terminate been filed or given
with respect to any such Plan. There has been no (i) withdrawal by HFB or any of
its ERISA Affiliates that is a substantial employer from a single-employer plan
which is a Plan and which has two or more contributing sponsors at least two of
whom are not under common control, as referred to in Section 4063(b) of ERISA,
or (ii) cessation by HFB or any of its ERISA Affiliates of operations at a
facility causing more than 20% of Plan participants to be separated from
employment, as referred to in Section 4062(f) of ERISA.
(d) Deficiencies; Qualification. None of the Plans nor any trust created
thereunder has incurred any "accumulated funding deficiency" as such term is
defined in Section 412 of the Code, whether or not waived. Furthermore, neither
HFB nor any of its ERISA Affiliates has any provided or is required to provide
security to any Plan pursuant to Section 401(a)(29) of the Code. Each of the
Plans which is intended to be a qualified plan under Section 401 (a) of the Code
has received a favorable determination letter from the Internal Revenue Service
and HFB does not know of any fact which could adversely affect the qualified
status of any such Plan. All contributions required to be made to each of the
Plans under the terms of the Plan, ERISA, the Code, or any other applicable laws
have been timely made. The Financial Statements properly reflect all amounts
required to be accrued as liabilities to date under each of the Plans. Except as
set forth in the HFB Employee Plan List, there is no Plan or other contract,
agreement or benefit arrangement covering any employee of HFB or Hemet which,
individually or collectively, could give rise to the payment of any amount which
would constitute an "excess parachute payment" (as defined in Section 280G of
the Code).
(e) Litigation. There have occurred and there exists (i) no pending
litigation or controversies against the Plans or against HFB or any of its ERISA
Affiliates as the "employer" or "sponsor" under the Plans or against the
trustee, fiduciaries or administrators of any of the Plans and (ii) no pending
or, to HFB's knowledge, threatened investigations, proceedings, lawsuits,
disputes, actions or controversies involving the Plans, the administrator or
trustee of any of the Plans with any of the Internal Revenue
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Service, Department of Labor, Pension Benefit Guaranty Corporation, any
participant in the Plans or any other person whatsoever. Without limiting the
generality of the foregoing, there are no lawsuits or other claims, pending or,
to HFB's knowledge, threatened (other than routine claims for benefits under a
Plan) against (i) any Plan, or (ii) any "fiduciary" of such Plan (within the
meaning of Section 3(21)(a) of ERISA) brought on behalf of any participant,
beneficiary or fiduciary thereunder.
(f) None of HFB, Hemet, the HFB Subsidiary or any of their ERISA
Affiliates has used the services of (i) workers who have been provided by a
third party contract labor supplier for more than six months or who may
otherwise be eligible to participate in any of the Plans or to an extent that
would reasonably be expected to result in the disqualification of any of the
Plans or the imposition of penalties or excise taxes with respect to the IRS,
the Department of Labor, the Pension Benefit Guaranty Corporation or any other
Governmental Entity, (ii) temporary employees who have worked for any of HFB,
Hemet, the HFB Subsidiary or any of their ERISA Affiliates for more than six
months or who may otherwise be eligible to participate in any of the Plans or to
an extent that would reasonably be expected to result in the disqualification of
any of the Plans or the imposition of penalties or excise taxes with respect to
the IRS, the Department of Labor, the Pension Benefit Guaranty Corporation or
any other Governmental Entity, (iii) individuals who have provided services to
HFB, Hemet, the HFB Subsidiary or any of their ERISA Affiliates as independent
contractors for more than six months or who may otherwise be eligible to
participate in the Plans or to an extent that would reasonably be expected to
result in the disqualification of any of the Plans or the imposition of
penalties or excise taxes with respect to the IRS, the Department of Labor, the
Pension Benefit Guaranty Corporation or any other Governmental Entity or (iv)
leased employees, as that term is defined in section 414(n) of the Code.
(g) Except as set forth in the HFB Employee Plan List, with respect to each
Plan that is funded wholly or partially through an insurance policy, there will
be no liability of HFB, Hemet, the HFB Subsidiary or any of their ERISA
Affiliates, as of the Closing Date, under any such insurance policy or ancillary
agreement with respect to such insurance policy in the nature of a retroactive
rate adjustment, loss sharing arrangement or other actual or contingent
liability arising wholly or partially out of events occurring prior to the
Closing Date.
4.22 Corporate Records. The minute books of HFB, Hemet and the HFB
Subsidiary, accurately reflect all actions taken to this date by the respective
stockholders, boards of directors and committees of HFB, Hemet and the HFB
Subsidiary. True and complete copies of HFB's, Hemet's and the HFB Subsidiary's
Certificates of Incorporation, as amended, Federal Stock Charter, Articles of
Incorporation, as amended, Bylaws, as amended, and other charter documents, and
all amendments thereto, have been delivered to TI on or before the date hereof.
4.23 Community Reinvestment Act. Hemet received a rating of "Satisfactory"
in its most recent examination or interim review with respect to the Community
Reinvestment Act. Neither HFB nor Hemet have been advised of any supervisory
concerns regarding any of Hemet's compliance with the Community Reinvestment
Act.
4.24 Regulatory Actions.
(a) As of the date hereof, and to HFB's and Hemet's knowledge, HFB and
Hemet are in compliance in all material respects with all applicable material
federal, state, local and foreign statutes, laws, regulations, ordinances,
rules, judgments, orders or decrees applicable thereto or to the employees
conducting such businesses, including, without limitation, the Equal Credit
Opportunity Act, the Bank Secrecy Act, the Fair Housing Act, the Community
Reinvestment Act, the Home Mortgage Disclosure Act, the Americans with
Disabilities Act, and all other applicable fair lending laws or other laws
relating to discrimination, and to HFB's and Hemet's actual knowledge, neither
HFB nor Hemet is the subject of a referral to either the United States
Department of Justice or the Department of Housing and Urban Development for
alleged violations of the Fair Lending Acts.
(b) Except as set forth in a list (the "HFB Regulatory Actions List"), each
material violation, criticism, or exception by any Governmental Entity with
respect to any examinations of HFB or Hemet
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has been responded to or is in the process of being responded to, and neither
HFB nor Hemet has been advised by any Governmental Entity that its response is
inadequate.
(c) Neither HFB, Hemet nor the HFB Subsidiary is a party to any cease and
desist order, written agreement or memorandum of understanding with, or a party
to any commitment letter or similar undertaking to, or is subject to any order
or directive by, or is a recipient of any extraordinary supervisory letter from,
or has adopted any board resolutions at the request of, any Governmental Entity
nor has it been advised by any Governmental Entity that it is contemplating
issuing or requesting (or is considering the appropriateness of issuing or
requesting) any such order, directive, written agreement, memorandum of
understanding, extraordinary supervisory letter, commitment letter, board
resolutions or similar undertaking.
4.25 Insider Loans; Other Transactions. HFB has previously provided TI
with a listing, current as of November 10, 1998, of all extensions of credit
made by HFB, Hemet and the HFB Subsidiary to each of its and their executive
officers and directors and their related interests (all as defined under Federal
Reserve Board Regulation O), all of which have been made in compliance with
Regulation O, which listing is true, correct and complete in all material
respects. Neither HFB, Hemet nor the HFB Subsidiary owes any amount to, or has
any contract or lease with or commitment to, any of the present executive
officers or directors of HFB, Hemet or the HFB Subsidiary (other than for
compensation for current services not yet due and payable, reimbursement of
expenses arising in the ordinary course of business, options or awards available
under the HFB Stock Option Plan, or any amounts due pursuant to HFB's Plans).
4.26 Accounting Records. HFB, Hemet and the HFB Subsidiary maintain
accounting records which fairly and accurately reflect, in all material
respects, their transactions and accounting controls exist sufficient to provide
reasonable assurances that such transactions are, in all material respects, (i)
executed in accordance with their management's general or specific
authorization, and (ii) recorded as necessary to permit the preparation of
financial statements in conformity with generally accepted accounting procedures
and/or applicable regulatory accounting principles or banking regulations
consistently applied. Such records, to the extent they contain important
information pertaining to HFB, Hemet and the HFB Subsidiary which is not easily
and readily available elsewhere, have been stored and maintained in compliance
with OTS Regulations.
4.27 Indemnification. Other than pursuant to the provisions of its charter
or bylaws, none of HFB, Hemet or the HFB Subsidiary is a party to any
indemnification agreement with any of its present directors, officers,
employees, agents or other persons who serve or served in any other capacity
with any other enterprise at the request of HFB (a "Covered Person"), and to the
knowledge of HFB, there are no claims for which any Covered Person would be
entitled to indemnification under Section 7.6 if such provisions were deemed in
effect, except as set forth in a list furnished by HFB and Hemet to TI (the "HFB
Indemnification List").
4.28 Offices and ATMs. HFB and Hemet have furnished to TI a list (the "HFB
Offices List") setting forth the headquarters of Hemet (identified as such) and
each of the offices and automated teller machines ("ATMs") maintained and
operated by Hemet (including, without limitation, representative and loan
production offices and operations centers) and the location thereof. Except as
set forth on the HFB Offices List, Hemet maintains no other office or ATM and
conducts business at no other location, and Hemet has not applied for nor
received permission to open any additional branch nor operate at any other
location.
4.29 Loan Portfolio.
(a) HFB and Hemet have furnished to TI a list (the "HFB Loan List") that
sets forth as of September 30, 1998 a description of (a) each loan, lease, other
extension of credit or commitment to extend credit by Hemet in excess of
$25,000; (b) all loans, leases, other extensions and commitments to extend
credit by Hemet of $25,000 or more, that have been classified by any bank
regulatory authority or any unit of HFB or Hemet or by any other Person as
"Criticized," "Specially Mentioned," "Watch List,"
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"Substandard," "Doubtful," "Loss" or any comparable classification ("Classified
Credits"); and (c) all consumer loans due to Hemet as to which any payment of
principal, interest or any other amount is ninety (90) days or more past due.
There is no material disagreement with any regulatory agency as to any
classification referred to herein.
(b) Each loan, other than loans the aggregate amount of which to any one
borrower and its related interests reflected as an asset on HFB's most recent
balance sheet does not exceed $25,000, and each balance sheet date subsequent
thereto (i) is evidenced by notes, agreements or other evidence of indebtedness
which are true, genuine and what they purport to be, and (ii) is the legal,
valid and binding obligation of the obligor named therein, enforceable in
accordance with its terms, subject to bankruptcy, insolvency, fraudulent
conveyance and other laws of general applicability relating to or affecting
creditors' rights and to general equity principles. All such loans and
extensions of credit that have been made by Hemet and that are subject to
Section 11 of HOLA comply therewith.
4.30 Investment Securities. HFB and Hemet have furnished to TI a list (the
"HFB Investment Securities List") setting forth a description of each Investment
Security held by HFB, Hemet or the HFB Subsidiary on October 31, 1998. The HFB
Investment Securities List sets forth, with respect to each such Investment
Security: (i) the issuer thereof; (ii) the outstanding balance or number of
shares; (iii) the maturity, if applicable; (iv) the title of issue; and (v) the
classification under SFAS No. 115. None of HFB, Hemet or the HFB Subsidiary
holds any Investment Security classified as trading.
4.31 Derivatives Contracts; Structured Notes; Etc. Except as set forth in
a list furnished by HFB and Hemet to TI, (the "HFB Derivatives List") none of
HFB, Hemet or the HFB Subsidiary is a party to or has agreed to enter into an
exchange traded or over-the-counter equity, interest rate, foreign exchange or
other swap, forward, future, option, cap, floor or collar or any other contract
that is not included on the balance sheet and is a derivative contract
(including various combinations thereof) (each, a "Derivatives Contract") or
owns securities that are referred to generically as "structured notes," "high
risk mortgage derivatives," "capped floating rate notes," or "capped floating
rate mortgage derivatives."
4.32 Power of Attorney. None of HFB, Hemet or the HFB Subsidiary has
granted any Person a power of attorney or similar authorization that is
presently in effect or outstanding.
4.33 Material Interests of Certain Persons. Except as disclosed in HFB's
proxy statement for its 1998 annual meeting of stockholders, no officer or
director of HFB, or any associate thereof (as such term is defined in Rule 12b-2
under the Exchange Act), has any material interest in any material contract or
property (real or personal) tangible or intangible, used in or pertaining to the
business of HFB, Hemet or the HFB Subsidiary.
4.34 Tax Matters. Except as expressly contemplated by Sections 2.2 and
2.5(c)(iii), none of HFB, Hemet or the HFB Subsidiary, nor, to the knowledge of
HFB or Hemet, any of their respective Affiliates, has taken or agreed to take
any action that would prevent the business combinations to be effected by the
Mergers from qualifying as reorganizations under Section 368(a) of the Code.
4.35 Facts Affecting Regulatory Approvals. To the knowledge of HFB and
Hemet, there is no fact, event or condition applicable to HFB, Hemet or the HFB
Subsidiary which will, or reasonably could be expected to, adversely affect the
likelihood of securing the requisite approvals or consents of any Governmental
Entity to the Mergers and other transactions contemplated by this Agreement.
4.36 Disclosure Documents and Applications. None of the information
supplied or to be supplied by or on behalf of HFB or Hemet ("HFB Supplied
Information") for inclusion or incorporation by reference in (a) the Proxy
Statement to be mailed to the stockholders of HFB in connection with obtaining
the approval of the stockholders of HFB of this Agreement, the Holding Company
Merger and the other transactions contemplated hereby, or any amendment or
supplement thereto, and (b) any other documents to be filed with the SEC, the
OTS, the FDIC or any other Governmental Entity in connection with the
transactions contemplated in this Agreement, will, at the respective times such
documents are filed or become effective, or with respect to the Proxy Statement
when mailed, contain any untrue statement of a
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material fact, or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
4.37 Certain Regulatory Matters.
(a) Hemet is a qualified thrift lender under Section 10(m) of the HOLA and
is a member in good standing of the FHLBSF; and
(b) Hemet has not paid any dividends to HFB that (i) caused the regulatory
capital of Hemet to be less than the amount then required by applicable law or
(ii) exceeded any other limitation on the payment of dividends imposed by law,
agreement or regulatory policy. Other than as required by applicable law or OTS
Regulations, there are no restrictions on the payment of dividends by Hemet or
HFB.
4.38 Corporate Approval.
(a) The affirmative vote of the holders of a majority of the outstanding
shares of HFB Stock is required to adopt this Agreement and approve the Holding
Company Merger and the other transactions contemplated hereby. No other vote of
the stockholders of HFB is required by law, the Certificate of Incorporation or
Bylaws of HFB or otherwise to adopt this Agreement and approve the Holding
Company Merger and the other transactions contemplated hereby; and
(b) At a duly constituted meeting of the Board of Directors of HFB and
Hemet, the respective directors unanimously authorized HFB's and Hemet's entry
into this Agreement and the transactions contemplated hereby.
4.39 Intellectual Property. Except as set forth in a list furnished by HFB
and Hemet to TI (the "HFB Intellectual Property List"), HFB, Hemet and the HFB
Subsidiary own or possess valid and binding licenses and other rights to use
without payment all material patents, copyrights, trade secrets, trade names,
service marks and trademarks used in their respective businesses; and none of
HFB, Hemet or the HFB Subsidiary have received any notice with respect thereto
that asserts the rights of others. HFB, Hemet and the HFB Subsidiary have in all
material respects performed all the obligations required to be performed by
them, and are not in default in any material respect under any license,
contract, agreement, arrangement or commitment relating to any of the foregoing.
4.40 Year 2000. To the knowledge of HFB and Hemet, the mission critical
computer software operated by HFB and Hemet is currently capable of providing,
or is being adapted to provide, uninterrupted millennium functionality to
record, store, process and present calendar dates falling on or after January 1,
2000 in substantially the same manner and with the same functionality as such
mission critical software records, stores, processes and presents such calendar
dates falling on or before December 31, 1999. To the knowledge of HFB and Hemet,
the costs of the adaptations referred to in this clause will not have a Material
Adverse Effect. Neither Hemet nor HFB has received, or reasonably expects to
receive, a "Year 2000 Deficiency Notification Letter" (as such term is employed
by the OTS). Hemet and HFB have disclosed to TI a complete and accurate copy of
their plan, including an estimate of the anticipated associated costs, for
addressing the issues set forth in all Federal Financial Institutions
Examination Council Interagency Statements as such issues affect HFB and Hemet.
Between the date of this Agreement and the Effective Time, HFB and Hemet shall
use commercially practicable efforts to implement such plan.
4.41 Accuracy and Currentness of Information Furnished. The
representations and warranties made by HFB and Hemet hereby or in the Lists or
schedules hereto do not contain any untrue statement of a material fact or omit
to state any material fact which is necessary under the circumstances under
which they were made to prevent the statements contained herein or in such Lists
or schedules from being misleading.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF TI AND GUARANTY
TI and Guaranty, jointly and severally, represent and warrant to HFB and
Hemet as follows:
5.1 Incorporation, Standing and Power. TI is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware, has all requisite corporate power and authority to own, lease and
operate its properties and assets and to carry on its business as presently
conducted and to execute and deliver this Agreement and to perform its
obligations hereunder and to consummate the transactions contemplated hereby,
and is duly registered as a savings and loan holding company under HOLA.
Guaranty is a federal savings bank duly incorporated, validly existing and in
good standing under the laws of the United States and is authorized by the OTS
to conduct a federal savings bank business. Prior to the Closing, the TI
Subsidiary will be a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware, and will have all requisite
corporate power and authority to own, lease and operate its properties and
assets and to carry on its business. The Certificate of Incorporation and Bylaws
of TI and the Federal Stock Charter and Bylaws of Guaranty, each as amended to
date, are in full force and effect, and prior to the Closing the Certificate of
Incorporation and Bylaws of TI Subsidiary will be in full force and effect.
Guaranty's deposits are insured by the FDIC through the SAIF in the manner and
to the fullest extent provided by law. Each of TI and Guaranty is, and prior to
the Closing the TI Subsidiary will be, duly qualified and in good standing as a
foreign corporation, and authorized to do business, in all states or other
jurisdictions in which such qualification or authorization is necessary, except
where the failure to be so qualified or authorized would not, individually or in
the aggregate, have a Material Adverse Effect.
5.2 Authority of TI and Guaranty. The execution and delivery by TI and
Guaranty of this Agreement and by Guaranty of the Agreement of Bank Merger, and
subject to the requisite approval of the shareholder of Guaranty of this
Agreement and the transactions contemplated hereby, the consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action on the part of TI and Guaranty, and
this Agreement is and the Agreement of Bank Merger will be upon execution by all
parties, a valid and binding obligation of TI or Guaranty or both of them,
enforceable in accordance with their respective terms, except as the
enforceability thereof may be limited by bankruptcy, liquidation, receivership,
conservatorship, insolvency, moratorium or other similar laws affecting the
rights of creditors generally and by general equitable principles and by Section
8(b)(6)(D) of the Federal Deposit Insurance Act, 12 U.S.C. Section
1818(b)(6)(D). All of the TI Shares to be issued pursuant to the Holding Company
Merger will be duly authorized, validly issued, fully paid and nonassessable and
are not, or will not be, subject to any preemptive rights. Except as set forth
in a list furnished by TI to HFB (the "TI Conflicts and Consents List"), neither
the execution and delivery by TI or Guaranty of this Agreement or the Agreement
of Bank Merger, as the case may be, the consummation of the transactions
contemplated herein or thereby by TI, Guaranty or the TI Subsidiary, as the case
may be, nor compliance by TI or Guaranty with any of the provisions hereof or
thereof, will (a) conflict with or result in a breach of any provision of the
Certificate of Incorporation or Bylaws, as amended, of TI or the TI Subsidiary
or the Federal Stock Charter or Bylaws, as amended, of Guaranty; (b) constitute
a breach of or result in a default (or give rise to any rights of termination,
cancellation or acceleration, or any right to acquire any securities or assets)
under any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, franchise, license, permit, agreement or other instrument or
obligation to which TI, Guaranty or the TI Subsidiary is a party, or by which
TI, Guaranty or the TI Subsidiary or any of their respective properties or
assets is bound, except as would not, individually or in the aggregate, have a
Material Adverse Effect; (c) result in the creation or imposition of any
Encumbrance on any of the properties or assets of TI, Guaranty or the TI
Subsidiary, except for Encumbrances that do not materially detract from the
value, or interfere with the present use, of the property subject thereto or
affected thereby; or (d) violate any order, writ, injunction, decree, statute,
rule or regulation applicable to TI, Guaranty or the TI Subsidiary or any of
their respective properties or assets. Except as set forth in the TI Conflicts
and Consents List, no consent of, approval of, notice to or filing with any
Governmental Entity having jurisdiction over any aspect of the
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business or assets of TI, and no consent or approval of any other Person, is
required in connection with the execution and delivery by TI of this Agreement,
or the consummation by TI of the transactions contemplated hereby or thereby,
except (i) the approval of this Agreement and the transactions contemplated
hereby by the shareholder of Guaranty; (ii) such approvals as may be required by
the OTS and the FDIC; (iii) filing of the Certificate of Merger with the
Delaware Secretary pursuant to the Delaware General Corporation Law; (iv) the
declaration of effectiveness by the SEC of the S-4 Registration Statement; and
(v) such approvals as may be required by the NYSE to approve for inclusion on
the NYSE any TI Stock to be issued in the Holding Company Merger.
5.3 Tax Representations. TI, Guaranty and their Affiliates agree to
cooperate with tax counsel by furnishing reasonable and customary written
representations to tax counsel for purposes of supporting tax counsel's opinion
that the Holding Company Merger and the Bank Merger both qualify as
reorganizations within the meaning of Section 368(a) of the Code as contemplated
in Sections 10.5 and 11.10 hereof.
5.4 Disclosure Documents and Applications. None of the information
supplied or to be supplied by or on behalf of TI for inclusion or incorporation
by reference in (a) the S-4 Registration Statement, and (b) any other documents
to be filed with the OTS, the FDIC or any other Governmental Entity in
connection with the transactions contemplated in this Agreement will, at the
respective times such documents are filed or become effective, or with respect
to the S-4 Registration Statement when mailed, contain any untrue statement of a
material fact, or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
5.5 Reports and Filings. TI and Guaranty have filed all reports, returns,
registrations and statements (such reports and filings referred to as "TI
Filings"), together with any amendments required to be made with respect
thereto, that were required to be filed with (a) the SEC, (b) the OTS, (c) the
FDIC and (d) any other applicable Governmental Entity, including taxing
authorities, except where the failure to file such reports, returns,
registrations or statements has not had and is not reasonably expected to have a
Material Adverse Effect. No material adverse administrative actions have been
taken or orders issued in connection with such TI Filings. As of their
respective dates, each of such TI Filings (y) complied in all material respects
with all applicable laws and regulations (or was amended so as to be in
compliance promptly following discovery of any such noncompliance); and (z) with
respect to the TI Filings made with the SEC did not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Any financial
statements contained in any of such TI Filings fairly presented, as of their
respective dates or for their respective periods, the consolidated financial
position, consolidated results of operations and consolidated changes in cash
flows, as the case may be, of TI and were prepared in accordance with generally
accepted accounting principles and/or applicable regulatory accounting
principles or banking regulations consistently applied, except as stated
therein, during the periods involved. TI has furnished HFB with true and correct
copies of all TI Filings filed by TI with the SEC, OTS, and the FDIC since
January 1, 1995.
5.6 Corporate Approval. At a duly constituted meeting of the Board of
Directors of Guaranty, directors constituting at least two-thirds of the
directors then in office authorized Guaranty's entry into this Agreement and the
transactions contemplated hereby, and, at a duly constituted meeting of the
Board of Directors of TI, directors constituting at least a majority of the
directors then in office authorized TI's entry into this Agreement and the
transactions contemplated hereby.
5.7 Absence of Certain Changes or Events. Except as may be set forth in a
list furnished by TI to HFB (the "TI Material Adverse Effect List"), or as
otherwise contemplated by this Agreement, since January 3, 1998, there has not
been, occurred or arisen any event or circumstance that, individually or taken
together with all other events and circumstances, has had or may reasonably be
expected to have a Material Adverse Effect.
5.8 Access to Funds. TI has, and on the Closing Date will have, a
sufficient number of authorized shares of TI Stock and all funds necessary to
consummate the Holding Company Merger.
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5.9 Facts Affecting Regulatory Approvals. To the knowledge of TI and
Guaranty, there is no fact, event or condition applicable to TI or Guaranty or
any of their respective subsidiaries which will, or reasonably could be expected
to, adversely affect the likelihood of securing the requisite approvals or
consents of any Governmental Entity to the Mergers and transactions contemplated
by this Agreement.
5.10 Accuracy and Currentness of Information Furnished. The
representations and warranties made by TI and Guaranty hereby or in the Lists or
schedules hereto do not contain any untrue statement of material fact or omit to
state any material fact which is necessary under the circumstances to prevent
the statements contained herein or in such Lists or schedules from being
misleading.
5.11 CRA. Guaranty received a rating of "outstanding" in its most recent
examination or interim review with respect to the Community Reinvestment Act. To
TI's and Guaranty's actual knowledge, neither TI nor Guaranty or any of their
respective subsidiaries is the subject of a referral to either the United States
Department of Justice or the Department of Housing and Urban Development for
alleged violations of the federal fair lending acts.
ARTICLE VI
COVENANTS OF HFB AND HEMET
PENDING EFFECTIVE TIME OF THE MERGERS
HFB and Hemet covenant and agree with TI and Guaranty as follows:
6.1 Limitation on HFB's and Hemet's Conduct Prior to Effective
Time. Between the date hereof and the Effective Time of the Holding Company
Merger, except as contemplated by this Agreement and subject to requirements of
law and regulation generally applicable to federally chartered savings
associations and savings and loan holding companies, HFB and Hemet agree to
conduct, and agree to cause the HFB Subsidiary to conduct, their respective
businesses in the ordinary course in substantially the manner heretofore
conducted and in accordance with sound banking practices, and HFB, Hemet and the
HFB Subsidiary shall not, without prior written consent of TI (which consent
shall not be unreasonably withheld and which consent shall be deemed granted if
within five (5) Business Days (or two (2) Business Days with respect to Section
6.1(i)) of TI's receipt of written notice of a request for prior written
consent, written notice of objection is not received by HFB):
(a) issue, sell or grant any HFB Stock (except pursuant to the
exercise of HFB Options outstanding as of the date hereof), HFB preferred
stock, Hemet Stock, any other securities (including long term debt) of HFB,
Hemet or the HFB Subsidiary or any rights, options or securities to acquire
any HFB Stock (except pursuant to the Stock Option Agreement attached
hereto as Exhibit A), HFB preferred stock, Hemet Stock, or any other
securities (including long term debt) of HFB or Hemet or the HFB
Subsidiary;
(b) declare, set aside or pay any dividend or make any other
distribution upon or adjust, split, combine or reclassify any shares of
capital stock or other securities of HFB, Hemet or the HFB Subsidiary;
provided, however, that the HFB Subsidiary may declare, set aside and pay
any dividend to Hemet and Hemet may do likewise to HFB; provided further,
that no such action would have any material negative impact on the bad debt
reserves of HFB, Hemet or the HFB Subsidiary;
(c) purchase, redeem or otherwise acquire any capital stock or other
securities of HFB, Hemet or the HFB Subsidiary or any rights, options, or
securities to acquire any capital stock or other securities of HFB, Hemet
or the HFB Subsidiary; provided, however, that HFB may cancel outstanding
HFB Options and pay the holders of such HFB Options an amount not greater
than an amount of cash computed in accordance with Section 2.4;
(d) amend their Certificate of Incorporation, Federal Stock Charter,
Articles of Incorporation or Bylaws;
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(e) grant any general or uniform increase in the rate of pay of
employees or employee benefits, except to provide merit increases to
employees whose regularly scheduled performance review date falls before
the Closing Date and to provide for promotional increases to employees if
such promotion occurs before the Closing Date; provided, however, that said
increases shall not exceed 5% for merit increases and 4% for promotional
increases;
(f) grant any: (i) bonus, incentive compensation or related employee
benefits to any Person except for those (A) of a nondiscretionary nature
granted in the ordinary course of business or (B) consistent with past
practices or (C) or as required by an existing written employment agreement
or other Plan; (ii) increase in salary except as set forth in Section
6.1(e) hereof; or (iii) compensation or other benefits to any director in
excess of the amounts previously disclosed to TI and Guaranty and as
identified on a list delivered by HFB to TI (the "HFB Director Compensation
List");
(g) make any capital expenditure or commitments with respect thereto
in excess of $50,000 in the aggregate for any specific project or purpose,
except for ordinary repairs, renewals and replacements or with respect to
the planned relocation of existing branches or establishment of new branch
offices as set forth in the HFB Branch List;
(h) compromise or otherwise settle or adjust any assertion or claim of
a deficiency in Taxes (or interest thereon or penalties in connection
therewith), extend the statute of limitations with any tax authority or
file any pleading in court in any tax litigation or any appeal from an
asserted deficiency, or file or amend any federal, foreign, state or local
tax return, or make any tax election;
(i) grant or commit to grant any extension of credit if such extension
of credit, together with all other credit then outstanding to the same
Person and all Affiliated Persons: (i) if unsecured, would exceed $50,000,
or, (ii) if secured by a lien on real estate (excluding any government
insured loans), would exceed $1,250,000 or have a loan-to-value ratio in
excess of 80% (unless insured by private mortgage insurance);
(j) change any method or period of accounting unless and until
required by generally accepted accounting principles or a Governmental
Entity;
(k) grant or commit to grant any extension of credit or amend the
terms of any such credit outstanding on the date hereof to any Executive
Officer, director or holder of ten percent (10%) or more of the outstanding
HFB Stock, or any Affiliate of such Person, if such credit would exceed
$25,000;
(l) except as provided in the HFB Branch List, close any offices at
which business is conducted or open any new offices;
(m) adopt or enter into any new employment agreement or other employee
benefit plan or arrangement or amend or modify any employment agreement or
employee benefit plan or arrangement of any such type except for such
amendments as are required by law and except as otherwise permitted by this
Agreement;
(n) initiate, solicit, or encourage (including by way of furnishing
information or assistance), or take any other action to facilitate, any
inquiries or the making of any proposal which constitutes, or may
reasonably be expected to lead to, any Competing Transaction (as such term
is defined below), or negotiate with any person in furtherance of such
inquiries or to obtain a Competing Transaction, or agree to or endorse any
Competing Transaction, or authorize or permit any of its officers,
directors, or employees or any investment banker, financial advisor,
attorney, accountant, or other representative retained by HFB, Hemet or any
of their Affiliates to take any such action, and HFB shall promptly notify
TI (orally and in writing) of all of the material facts relating to all
inquiries and proposals which it may receive relating to any of such
matters. For purposes of this Agreement, "Competing Transaction" shall mean
any of the following involving HFB or Hemet: any merger, consolidation,
share exchange or other business combination; a sale, lease, exchange,
mortgage, pledge, transfer or
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other disposition of assets of HFB or Hemet representing ten percent (10%)
or more of the consolidated assets of HFB; a sale of shares of capital
stock (or securities convertible or exchangeable into or otherwise
evidencing, or any agreement or instrument evidencing, the right to acquire
capital stock), representing ten percent (10%) or more of the voting power
of HFB; a tender offer or exchange offer for at least ten percent (10%) of
the outstanding shares of HFB; a solicitation of proxies in opposition to
approval of the Holding Company Merger by HFB's shareholders; or a public
announcement of a bona fide proposal, plan, or intention to do any of the
foregoing. HFB, Hemet and the HFB Subsidiary will immediately cease and
cause to be terminated any existing activities, discussions or negotiations
with any parties (other than TI and Guaranty) conducted heretofore with
respect to any of the foregoing. HFB and Hemet shall take the necessary
steps to inform promptly the appropriate individuals or entities referred
to above of the obligations undertaken in this Section. HFB and Hemet agree
that they shall notify TI and Guaranty immediately if any such inquiries,
proposals or offers are received by, any such information is requested
from, or any such negotiations or discussion are sought to be initiated or
continued with HFB, Hemet or the HFB Subsidiary. HFB and Hemet also agree
that they shall promptly request each other person, other than TI and
Guaranty, that has heretofore executed a confidentiality agreement in
connection with its consideration of acquiring HFB, Hemet or the HFB
Subsidiary to return all confidential information heretofore furnished to
such person by or on behalf of HFB, Hemet or any of the HFB Subsidiary and
enforce any such confidentiality agreements. Notwithstanding any other
provision in this Section 6.1(n), nothing in this Agreement shall prevent
HFB from (i) engaging in any discussions or negotiations with, or providing
any information to, any Person in response to an unsolicited bona fide
written proposal concerning a Competing Transaction by any such Person or
(ii) recommending such an unsolicited bona fide written proposal concerning
a Competing Transaction to the holders of HFB Stock if and only if, prior
to participating in any of the foregoing, (A) the Board of Directors of HFB
concludes in good faith that the Competing Transaction, if consummated,
would result in a transaction more favorable to holders of HFB Stock than
the transaction contemplated by this Agreement (any such more favorable
Competing Transaction being referred to in this Agreement as a "Superior
Proposal"); (B) the Board of Directors of HFB determines in good faith
based upon the advice of outside counsel that participating in any such
action is necessary for it to act in a manner not inconsistent with its
fiduciary duties under applicable law; and (C) at least forty-eight (48)
hours prior to providing any information or data to any person or entering
into discussions or negotiations with any Person, the Board of Directors of
HFB notifies TI and Guaranty of such inquiries, proposals or offers
received by, any such information requested from, or any such discussions
or negotiations sought to be initiated or continued with HFB or any
subsidiary thereof.
(o) other than in the ordinary course of business, consistent with
past practice, incur any indebtedness for borrowed money or assume,
guarantee, endorse or otherwise as an accommodation become responsible for
the obligations of any other person;
(p) change any of HFB's or Hemet's basic policies and practices with
respect to liquidity management and cash flow planning, marketing, deposit
origination, lending, budgeting, profit and tax planning, personnel
practices or any other material aspect of HFB's business or operations on a
consolidated basis;
(q) grant any Person a power of attorney or similar authority;
(r) make any investment by purchase of stock (except required
purchases of stock, if any, of the FHLBSF) or securities (including an
Investment Security), contributions to capital, property transfers or
otherwise in any other Person, except (i) federal funds sold, not to exceed
$10 million cumulatively at any point in time, to any one counterparty and
for a term not to exceed 30 days, (ii) obligations, as a direct issuer or
explicit guarantor, including Mortgage Backed Securities passthroughs and
Real Estate Mortgage Investment Conduits/Collateralized Mortgage
Obligations, with a legal final maturity not to exceed two years, of the
following entities: (A) United States Treasury (including the Government
National Mortgage Association), (B) the Federal National Mortgage
Association, (C) Federal Home Loan Mortgage Corporation or (D) Federal Home
Loan Bank, and
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(iii) repurchase agreement with a final maturity not to exceed one year,
and collateralized only by obligations listed in (ii) above; provided,
however, that in each case all transactions must be consistent with Hemet's
investment policy, undertaken in the ordinary course of business consistent
with past practices and concern assets which are not designated as trading
account assets under generally accepted accounting principles;
(s) settle any claim, action or proceeding involving any liability of
HFB, Hemet or the HFB Subsidiary for money damages in excess of $75,000
exclusive of insurance coverage, or involving restrictions upon the
operations of HFB or any of Hemet or the HFB Subsidiary;
(t) terminate, amend or modify any Scheduled Contract or enter into
any agreement or contract that would be a Scheduled Contract under Section
4.17, except as otherwise permitted by this Agreement;
(u) waive or release any material right or collateral or cancel or
compromise any extension of credit or other debt or claim, except for
actions taken in the resolution of extensions of credit or other debts or
claims that do not result in a reduction in excess of $50,000 of the amount
HFB is otherwise entitled to pursuant to such right, collateral, credit or
other debt or claim, and in a manner consistent with past practice;
(v) enter into any new activities or lines of business, or cease to
conduct any material activities or lines of business that it conducts on
the date hereof, or conduct any material business activity not consistent
with past practice except for (i) the issuance of debit cards and (ii) the
establishment of internet banking facilities, as previously disclosed to
TI;
(w) sell, transfer, mortgage, encumber or otherwise dispose of any
assets or release or waive any claim, except in the ordinary course of
business and consistent with past practices;
(x) take any action which would or is reasonably likely to (i)
adversely affect the ability of TI or Guaranty to obtain any necessary
approval of any Governmental Entity required for the transactions
contemplated hereby; (ii) adversely affect HFB's or Hemet's ability to
perform its covenants and agreements under this Agreement; or (iii) result
in any of the conditions to the performance of HFB's or Hemet's obligations
hereunder, as set forth in Articles IX or X herein not being satisfied;
(y) make any special or extraordinary payments to any Person, except
as otherwise permitted by this Agreement;
(z) reclassify any Investment Security from hold-to-maturity or
available for sale to trading;
(aa) sell any security other than in the ordinary course of business;
(bb) take title to any real property without conducting prior thereto
an environmental investigation (which at a minimum shall consist of a phase
I environmental report), which investigation shall disclose the absence of
any suspected environmental contamination, except with respect to real
property on which there is located a 1-4 family residence (unless HFB or
Hemet has reasonable cause to believe any Hazardous Materials may exist on
such property);
(cc) to the extent applicable, other than as expressly set forth
herein, take or cause to be taken any action which would disqualify the
Mergers as "tax-deferred reorganizations" within the meaning of Section
368(a) of the Code; or
(dd) agree or make any commitment to take any actions prohibited by
this Section 6.1.
6.2 Affirmative Conduct of HFB and Hemet Prior to Effective Time. Between
the date hereof and the Effective Time of the Holding Company Merger, HFB and
Hemet shall, and HFB shall cause Hemet and the HFB Subsidiary to:
(a) use their respective commercially reasonable efforts consistent
with this Agreement to maintain and preserve intact their respective
present business organizations and to maintain and
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preserve their respective relationships and goodwill with account holders,
borrowers, employees and others having business relationships with HFB,
Hemet or the HFB Subsidiary;
(b) except as set forth in the HFB Branch List, use their respective
commercially reasonable efforts to keep in full force and effect all of the
existing material permits and licenses of HFB, Hemet or the HFB Subsidiary;
(c) use their respective commercially reasonable efforts to maintain
insurance coverage at least equal to that now in effect on all properties
for which they are responsible and on their respective business operations;
(d) perform their respective material contractual obligations and not
become in material default on any such obligations;
(e) duly observe and conform to all lawful requirements applicable to
their respective businesses in all material respects;
(f) maintain their respective assets and properties in good condition
and repair, normal wear and tear excepted;
(g) promptly advise TI in writing of any event or any other
transaction within HFB's or Hemet's knowledge whereby any Person or Related
Group of Persons acquires, directly or indirectly, record or beneficial
ownership or control (as defined in Rule 13d-3 promulgated by the SEC under
the Exchange Act) of five percent (5%) or more of the outstanding HFB Stock
prior to the record date fixed for the HFB Stockholders' Meeting or any
adjourned meeting thereof to approve this Agreement and the transactions
contemplated herein;
(h) promptly notify TI regarding receipt from any tax authority of any
notification of the commencement of an audit, any request to extend the
statute of limitations, any statutory notice of deficiency, any revenue
agent's report, any notice of proposed assessment, or any other similar
notification of potential adjustments to the tax liabilities of HFB, or the
HFB Subsidiary or Hemet, or any actual or threatened collection enforcement
activity by any tax authority with respect to tax liabilities of HFB, Hemet
or the HFB Subsidiary, and make available to TI the calculation work papers
for federal income tax estimated payments;
(i) make available to TI monthly unaudited consolidated balance sheets
and consolidated income statements of HFB within twenty-five (25) days
after the close of each calendar month;
(j) not later than the 20th day of each calendar month, amend or
supplement the HFB Lists prepared and delivered pursuant to Article IV to
ensure that the information set forth in the HFB Lists accurately reflects
the then-current status of the information provided therein, and deliver
such amendments or supplements to TI no later than the 20th day of each
calendar month. HFB shall further amend or supplement the HFB Lists as of
the Closing Date if necessary to reflect any additional information that
needs to be included in the HFB Lists. No amendment or supplement to the
HFB Lists needs to be provided to the extent there has been no change or
update in such HFB List;
(k) use their respective commercially reasonable efforts to obtain any
third party consent with respect to any contract, agreement, lease,
license, amendment, permit or release that is material to the business of
HFB on a consolidated basis or that is contemplated in this Agreement as
required in connection with the Holding Company Merger or Bank Merger; and
(l) maintain an allowance for loan and lease losses consistent with
practices and methodology as in effect on the date of the execution of this
Agreement.
6.3 Access to Information.
(a) HFB and Hemet shall afford, and HFB shall cause the HFB Subsidiary to
afford, upon reasonable notice, to TI and its representatives, counsel,
accountants, agents and employees reasonable
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access during normal business hours to all of their respective businesses,
operations, properties, books, files and records and shall do everything
reasonably necessary to enable TI and its representatives, counsel, accountants,
agents and employees to make a complete examination of the financial statements,
businesses, assets and properties of HFB, the HFB Subsidiary and Hemet and the
condition thereof and to update such examination at such intervals as TI shall
deem appropriate. Such examination shall be conducted in cooperation with the
officers of HFB, the HFB Subsidiary and Hemet and in such a manner as to
minimize any disruption of, or interference with, the normal business operations
of HFB, the HFB Subsidiary and Hemet. Upon the request of TI, HFB will request
Deloitte & Touche to provide reasonable access by Ernst & Young to auditors'
work papers with respect to the businesses and properties of HFB, Hemet and the
HFB Subsidiary, including tax accrual work papers prepared for HFB and/or Hemet
during the preceding sixty (60) months or any future completed audits or
completed reviews of HFB or Hemet, other than (i) books, records and documents
covered by the attorney-client privilege, or that are attorneys' work product,
and (ii) books, records and documents that HFB, Hemet and the HFB Subsidiary are
legally obligated to keep confidential. No examination or review conducted under
this section shall constitute a waiver or relinquishment on the part of TI of
the right to rely upon the representations and warranties made by HFB and Hemet
herein.
(b) TI and Guaranty shall be authorized and permitted to review each loan,
lease, or other credit funded or renewed by HFB or Hemet after the date hereof,
and all information associated with such loan, lease or other credit within
three (3) Business Days of such funding or renewal, such review to take place,
if possible, on Hemet's premises.
(c) A representative of TI, selected by TI in its sole discretion, shall be
permitted by HFB and Hemet to attend all regular and special Board of Directors'
and committee meetings of HFB and Hemet from the date hereof until the Effective
Time of the Holding Company Merger; provided, however, that the attendance of
such representative shall not be permitted at any meeting, or portion thereof,
where the sole purpose of the meeting or such portion is the discussion of the
transactions contemplated by this Agreement or the obligations of HFB or Hemet
under this Agreement, or information covered by the attorney-client privilege;
6.4 Filings. HFB and Hemet agree that through the Effective Time of the
Holding Company Merger, each of their respective reports, registrations,
statements and other filings required to be filed with any applicable
Governmental Entity shall comply in all material respects with all applicable
statutes, rules and regulations and none shall, as of their filing or effective
date or, in the case of the Proxy Statement, the mailing date, contain any
untrue statement of material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Any financial
statement contained in any such report, registration, statement or other filing
that is intended to present the financial position, results of operations or
changes in cash flows, as the case may be, of the entity or entities to which it
relates will fairly present the financial position, results of operations or
changes in cash flows, as the case may be, of such entities or entity and will
be prepared in accordance with generally accepted accounting principles and/or
applicable regulatory accounting principles or banking regulations consistently
applied during the periods involved.
6.5 Notices; Reports. HFB and Hemet will promptly notify TI and Guaranty
of any event of which HFB or Hemet obtains knowledge which has had or may have a
Material Adverse Effect or in the event that HFB or Hemet determines that either
is unable to fulfill any of the conditions to the performance of TI's or
Guaranty's obligations hereunder, as set forth in Articles IX or XI herein, and
HFB and Hemet will furnish TI (i) as soon as available, and in any event within
ten (10) days after it is prepared, any report by HFB or Hemet for submission to
the Board of Directors of HFB or Hemet or committee thereof, except to the
extent such report (or, in the case of a portion of a report, the relevant
portion thereof) has been prepared for the sole purpose of discussing the
transactions contemplated by this Agreement or the obligations of HFB or Hemet
under this Agreement or information covered by the attorney-client privilege,
provided, however, that this exception shall not excuse any of HFB's or Hemet's
other obligations under this Agreement; (ii) as soon as available, all proxy
statements, information statements, financial statements, reports, letters and
communications sent by HFB to its stockholders or
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other security holders, and all reports filed by HFB or Hemet with, or received
by HFB or Hemet from, the SEC, OTS, FDIC or any other Governmental Entity; and
(iii) such other existing reports as TI may reasonably request relating to HFB
or Hemet.
6.6 HFB Stockholders' Meeting. HFB will take action necessary in
accordance with applicable law and its Certificate of Incorporation and Bylaws
to convene a meeting of its stockholders to consider and vote upon this
Agreement and the transactions contemplated hereby. The Board of Directors of
HFB shall, subject to its fiduciary duties, recommend that its stockholders
approve this Agreement and the transactions contemplated hereby, and the Board
of Directors of HFB shall, subject to its fiduciary duties, use its best efforts
to obtain the affirmative vote of the holders of the largest possible percentage
of the outstanding HFB Stock to approve this Agreement and the transactions
contemplated hereby.
6.7 Bank Merger. HFB and Hemet shall, at the request of TI (i) take all
necessary corporate and other action, to adopt and approve the Bank Merger; (ii)
execute, deliver and, where appropriate, file any and all documents necessary or
desirable to permit the Bank Merger immediately following consummation of the
Holding Company Merger; and (iii) take and cause to be taken any other action to
permit the consummation of any transactions contemplated in connection with the
Bank Merger. Neither HFB nor Hemet shall take any action that would prevent
performance of the Agreement of Bank Merger or any other transactions
contemplated in connection with the Bank Merger. TI and Guaranty may at any time
prior to the Effective Time of the Bank Merger change the method of effecting
the combination of Guaranty with Hemet (including, without limitation, this
Section 6.7) if and to the extent it deems such change to be necessary,
appropriate or desirable; provided, however, that no such change shall (i) alter
or change the amount or kind of consideration to be issued to the holders of HFB
Stock as provided for in this Agreement (the "Holding Company Merger
Consideration"), (ii) adversely affect the tax treatment of HFB's stockholders
as a result of receiving the Holding Company Merger Consideration or (iii)
materially impede or delay consummation of the transactions contemplated by this
Agreement.
6.8 Applications. HFB and Hemet will cooperate with TI in the preparation
of the S-4 Registration Statement, including the proxy statement to be mailed to
HFB stockholders to vote upon the Holding Company Merger (the "Proxy
Statement"), and the statements or applications to be filed to obtain the
necessary regulatory approvals to consummate the transactions contemplated by
this Agreement and HFB agrees to file the Proxy Statement in preliminary form
with the SEC as promptly as reasonably practicable. With TI, HFB agrees to use
reasonable best efforts to cause the S-4 Registration Statement to be declared
effective under the Securities Act as promptly as practicable after filing
thereof. After the S-4 Registration Statement is declared effective under the
Securities Act, HFB shall thereafter promptly mail the Proxy Statement to its
stockholders. HFB and Hemet covenant and agree that all information furnished by
HFB or Hemet for inclusion or incorporation by reference in the S-4 Registration
Statement and in all applications or statements filed with the appropriate
regulatory authorities for approval of, or consent to, the Holding Company
Merger and Bank Merger will comply in all material respects with the provisions
of applicable law, and will not, as of their respective filing or effective
dates and, in the case of the Proxy Statement, as of its mailing date, contain
any untrue statement of material fact or omit to state material fact required to
be stated therein or necessary to make the statements contained therein, in
light of the circumstances under which they were made, not misleading.
6.9 Certain Loans and Other Extensions of Credit. Hemet will promptly
inform TI of the amounts and categories of any Classified Credits. Hemet will
furnish TI, as soon as practicable, and in any event within twenty (20) days
after the end of each calendar month, schedules including the following: (a)
Classified Credits (including with respect to each credit its classification
category and the originating unit); (b) nonaccrual credits (including the
originating unit); (c) accrual exception credits that are delinquent ninety (90)
or more days and have not been placed on nonaccrual status (including its
originating unit); (d) credits delinquent as to payment of principal or interest
(including its originating unit), including an aging into current-to-29, 30-59,
60-89, and 90+ day categories; (e) participating loans and leases, stating, with
respect to each, whether it is purchased or sold and the originating unit; (f)
loans or leases (including any commitments) by HFB or Hemet to any HFB or Hemet
director, officer at or above the senior vice president level, or shareholder
holding ten percent (10%) or more of the capital
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stock of HFB, including with respect to each such loan or lease the identity
and, to the knowledge of HFB, the relation of the borrower to HFB or Hemet, and
the outstanding and undrawn amounts; (g) letters of credit (including the
originating unit); (h) loans or leases wholly or partially charged off during
the previous month (including with respect to each loan or lease, the
originating amount, the write-off amount and its originating unit); and (i)
other real estate or assets acquired in satisfaction of debt.
6.10 Affiliates. Within fifteen (15) days of the date of this Agreement,
and again on the date this Agreement is submitted for approval to the
stockholders of HFB, HFB shall deliver to TI a letter identifying all persons
who are "affiliates" of HFB for purposes of Rule 145 under the Securities Act.
HFB shall use commercially reasonable efforts to cause each such affiliate to
deliver to TI no less than thirty (30) days prior to the Effective Time of the
Holding Company Merger a written "Affiliates" agreement, in the form attached
hereto as Exhibit D, providing that such person shall dispose of the TI Stock to
be received by such person in the Holding Company Merger only in accordance with
applicable law.
6.11 Director Resignations. HFB and Hemet shall use all commercially
reasonable efforts to deliver or cause to be delivered to TI at the Closing, the
resignations of the members of the Board of Directors of HFB, Hemet and the HFB
Subsidiary effective at the Closing.
6.12 Accountants' Letters. HFB shall use its commercially reasonable
efforts to cause to be delivered to TI a letter of Deloitte & Touche dated (a)
the date on which the S-4 Registration Statement shall become effective and (b)
a date shortly prior to the Effective Time of the Holding Company Merger, in
form and substance customary for "comfort" letters delivered by independent
accountants in accordance with Statement of Accounting Standards No. 72.
6.13 Accounting Accommodations. On a basis mutually satisfactory to HFB
and TI, HFB and Hemet shall take any charge-offs or additions to the allowance
for loan loss or other financial adjustments made at the reasonable request of
TI and for the convenience of TI so as to permit treatment on a basis consistent
with that of TI; provided, however, that the taking of any such charge-offs,
additions or adjustments shall not cause any representation or warranty to
become untrue or the failure of any condition, in each case as a result of the
taking of such action.
ARTICLE VII
COVENANTS OF TI AND GUARANTY
PENDING EFFECTIVE TIME OF THE MERGERS
TI and Guaranty covenant and agree with HFB and Hemet as follows:
7.1 Limitation on TI's and Guaranty's Conduct Prior to Effective
Time. Between the date hereof and the Effective Time of the Holding Company
Merger, except as contemplated by this Agreement and subject to requirements of
law and regulation generally applicable to federally chartered savings banks and
savings and loan holding companies, TI and Guaranty shall not, without prior
written consent of HFB, (which consent shall not be unreasonably withheld, and
which consent shall be deemed granted if within five (5) Business Days of HFB's
receipt of written notice of a request for prior written consent, written notice
of objection is not received by TI):
(a) take any action which would or is reasonably likely to (i)
adversely affect the ability of TI or Guaranty to obtain any necessary
approval of any Governmental Entity required for the transactions
contemplated hereby; (ii) adversely affect TI's or Guaranty's ability to
perform its covenants and agreements under this Agreement; or (iii) result
in any of the conditions to the performance of TI's or Guaranty's
obligations hereunder, as set forth in Articles IX or XI herein not being
satisfied;
(b) other than as expressly set forth herein, take or cause to be
taken any action which would disqualify the Mergers as "tax-deferred
reorganizations" within the meaning of Section 368(a) of the Code.
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(c) amend TI's Certificate of Incorporation or Bylaws in any respect
which would materially and adversely affect the rights and privileges
attendant to the TI Stock;
(d) enter into any agreement to acquire, merge or consolidate with
another entity which transaction any Governmental Entity advises TI in
writing would result in the disapproval of the transactions contemplated in
this Agreement or the delay thereof until after July 31, 1999; or
(e) agree or make any commitment to take any actions prohibited by
this Section 7.1.
7.2 Affirmative Conduct of TI and Guaranty Prior to Effective
Time. Between the date hereof and the Effective Time of the Holding Company
Merger, TI and Guaranty shall:
(a) duly observe and conform to all lawful requirements applicable to
their respective businesses in all material respects;
(b) use their respective commercially reasonable efforts to obtain any
third party consent with respect to any contract, agreement, lease,
license, arrangement, permit or release that is material to the business of
TI on a consolidated basis or that is contemplated in this Agreement as
required in connection with the Holding Company Merger and the Bank Merger;
and
(c) not later than the 20th day of each calendar month, amend or
supplement the TI Lists prepared and delivered pursuant to Article V to
ensure that the information set forth in the TI Lists accurately reflects
the then-current status of the information provided therein, and deliver
such amendments or supplements to HFB no later than the 20th day of the
each calendar month. TI shall further amend or supplement the TI Lists as
of the Closing Date if necessary to reflect any additional information that
needs to be included in the TI Lists. No amendment or supplement to the TI
Lists needs to be provided to the extent there has been no change or update
in such TI List.
7.3 Applications. TI and Guaranty will promptly prepare and file or cause
to be prepared and filed (i) an application for approval of the Holding Company
Merger and Bank Merger with the OTS, and (ii) with HFB, after the filing of the
Proxy Statement in preliminary form and resolving any comments of the SEC with
respect thereto, the S-4 Registration Statement, including the Proxy Statement,
to be mailed to HFB Stockholders to vote upon the Holding Company Merger with
HFB, TI agrees to use reasonable best efforts to cause the S-4 Registration
Statement to be declared effective under the Securities Act as promptly as
practicable after filing thereof. TI shall afford HFB a reasonable opportunity
to review the S-4 Registration Statement and all such applications (except the
confidential portions thereof relating to TI or its subsidiaries) and all
amendments and supplements thereto before the filing thereof. TI covenants and
agrees that the S-4 Registration Statement and all applications to the
appropriate regulatory agencies for approval or consent to the Holding Company
Merger and Bank Merger will comply in all material respects with the provisions
of applicable law, and will not, as of their respective filing or effective
dates, contain any untrue statement of material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
contained therein, in light of the circumstances under which they were made, not
misleading. TI and Guaranty will use their respective commercially reasonable
efforts to obtain all regulatory approvals or consents necessary to effect the
Holding Company Merger and Bank Merger.
7.4 Blue Sky. TI agrees to use commercially reasonable efforts to comply
with all applicable notice provisions of the securities laws of each
jurisdiction in which stockholders of HFB reside in connection with the issuance
of TI Stock in the Holding Company Merger.
7.5 Notices; Reports. TI and Guaranty will promptly notify HFB and Hemet
of any event of which TI or Guaranty obtains knowledge which has had or may have
a Material Adverse Effect or in the event that TI or Guaranty determines that it
is unable to fulfill any of the conditions to the performance of HFB's and
Hemet's obligations hereunder, as set forth in Articles IX or X herein.
7.6 Indemnification. TI agrees that following consummation of the Holding
Company Merger (a) to the greatest extent permitted by Delaware law or the
banking laws and regulations applicable to, and organizational documents or
bylaws of, HFB or Hemet as in effect on the date hereof, or, to the
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extent that any amendment to such law or regulation may expand such
indemnification rights, as hereinafter in effect, it shall indemnify, defend and
hold harmless individuals who were officers and directors of HFB or Hemet as of
the date hereof or immediately prior to the Effective Time of the Holding
Company Merger for any claim or loss arising out of their actions while a
director or officer, including any acts relating to this Agreement, and shall
pay the expenses, including reasonable attorneys' fees, of such individuals in
advance of the final resolution of any claim, provided such individuals shall
first execute an undertaking acceptable to TI to return such advances in the
event it is finally concluded such indemnification is not allowed under
applicable law; and (b) TI shall ensure that such individuals shall be covered
by directors' and officers' liability insurance for a period of four (4) years
following the Holding Company Merger covering acts or omissions occurring prior
to the Effective Time of the Holding Company Merger which is no less protective
in terms of coverage or limitations than that now possessed by HFB or Hemet and
which shall include coverage for actions related to this Agreement; provided,
however, that the annual premiums for such coverage will not exceed 150% of the
annual premiums currently paid by HFB or Hemet for such coverage. To the extent
that the cost of the insurance coverage to be obtained by TI exceeds 150% of the
annual premium amount currently paid by HFB or Hemet, TI will use its best
efforts to obtain the maximum amount of coverage that may be purchased for a
price equal to 150% of the current annual premium amount. The provision of
insurance coverage described herein is not intended to alter or reduce the right
of indemnity in favor of the directors and officers, of HFB and Hemet as
provided in their respective charters, bylaws, indemnification agreements or
otherwise in effect as of the date hereof.
7.7 Removal of Conditions. In the event of the imposition of a condition
to any regulatory approval which TI deems to materially adversely affect it or
to be materially burdensome as provided in Section 11.2 hereof, TI shall use its
commercially reasonable efforts for purposes of obtaining the removal of such
condition.
7.8 Fairness Opinion. TI will provide Keefe, Bruyette & Woods, Inc. with
such information as is reasonably requested to permit Keefe, Bruyette & Woods,
Inc. to confirm its fairness opinion as of the date of mailing of the Proxy
Statement.
ARTICLE VIII
ADDITIONAL COVENANTS
The parties hereto hereby mutually covenant and agree with each other as
follows:
8.1 Commercially Reasonable Efforts. Subject to the terms and conditions
of this Agreement, each party will use its commercially reasonable efforts to
take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate the transactions contemplated by this Agreement as promptly as
practical.
8.2 Public Announcements. No press release or other public disclosure of
matters related to this Agreement or any of the transactions contemplated hereby
shall be made by TI or Guaranty, on the one hand, or HFB or Hemet, on the other
hand, unless the other parties shall have provided their prior consent to the
form and substance thereof; provided, however, that nothing herein shall be
deemed to prohibit any party hereto from making any disclosure which its counsel
deems necessary or advisable in order to fulfill such party's disclosure
obligations imposed by law.
8.3 Cancellation of Stock Options and Termination of Stock Option
Plans. HFB agrees to use its commercially reasonable efforts to cause each
holder of an HFB Option to enter into an agreement pursuant to which such holder
will agree to cancel each HFB Option held by such holder in exchange for a cash
payment to the holder of the HFB Option in an amount equal to the result of
multiplying (i) the excess, if any, between (a) the Price Per Share and (b) the
exercise price of the HFB Option by (ii) the number of shares of HFB Stock
subject to the HFB Option and HFB shall terminate the HFB Stock Option Plan,
effective at the Effective Time of the Holding Company Merger.
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8.4 Employees and Employee Benefits. Guaranty agrees that the employees of
HFB or Hemet who are retained by Guaranty after the consummation of the Bank
Merger will be provided with benefits under employee benefit plans (other than
plans involving the issuance of securities of HFB or TI) which in the aggregate
are substantially comparable to those currently provided by Guaranty to its
current employees. Guaranty will cause each employee benefit plan of Guaranty in
which employees of HFB or Hemet are eligible to participate to take into account
for purposes of eligibility and vesting thereunder the service of such employees
with HFB or Hemet as if such service were with Guaranty, to the same extent that
such service was credited under a comparable plan of HFB or Hemet. Guaranty will
honor in accordance with their terms all employee benefit obligations to current
and former employees and directors of HFB and Hemet accrued as of the Effective
Time of the Holding Company Merger. HFB and its ERISA Affiliates shall take any
actions necessary (to the extent permissible under the Plans and applicable laws
and regulations) or reasonably requested by Guaranty to cause, as of the Closing
Date, the termination of all of the Plans (as the term is defined in Section
4.21 of the Agreement) maintained by HFB or any ERISA Affiliate which cover
employees and directors of HFB and its ERISA Affiliates; provided, however, that
HFB 401(k) Plan shall not be terminated but shall be merged with the Guaranty
401(k) Plan as soon as administratively practicable after the Closing Date.
Guaranty also agrees that any pre-existing condition limitation or exclusion in
its health plans shall not apply to the employees of HFB or Hemet who are
retained by Guaranty after the consummation of the Bank Merger or their spouses
and dependents who are covered under similar health plans of HFB, Hemet and its
ERISA Affiliates on the Closing Date and who change coverage to Guaranty's
health plans at the time such employees are first given the option to enroll in
Guaranty's health plans.
8.5 Environmental Assessment. TI may cause to be prepared at TI's sole
cost and expense within sixty (60) days of the date of this Agreement one or
more phase I environmental investigations with respect to any property on the
HFB Real Property List. In the event any such phase I environmental
investigation report, or any similar report submitted to TI pursuant to Section
4.12(c) of this Agreement, or any information from a Governmental Entity
discloses facts which, in the sole discretion of TI, warrant further
investigation, TI shall provide written notice to HFB and Hemet, and HFB and
Hemet shall use commercially reasonable efforts to cause to be completed within
sixty (60) days of such written notice, at the sole cost and expense of TI, a
phase II environmental investigation and report with respect to such property.
TI agrees to keep confidential and not to disclose any nonpublic information
obtained in the course of such environmental investigation relating to
environmental contamination or suspected contamination of any property on the
HFB Real Property List, except as required by law.
8.6 Execution of the Stock Option Agreement. Promptly following the
execution of this Agreement, HFB and TI shall have executed and delivered a
stock option agreement (the "Stock Option Agreement") which grants to TI an
option to acquire up to 19.9% of the issued and outstanding shares of HFB Stock
upon the occurrence of certain circumstances, substantially in the form attached
hereto as Exhibit A.
ARTICLE IX
CONDITIONS PRECEDENT TO THE HOLDING COMPANY MERGER
The obligations of each of the parties hereto to consummate the
transactions contemplated herein are subject to the satisfaction or waiver by
each of the parties, on or before the Closing Date, of the following conditions:
9.1 Shareholder Approval. The Agreement and the transactions contemplated
hereby shall have received all requisite approvals of the stockholders of HFB.
9.2 No Judgments or Orders. No judgment, decree, injunction, order or
proceeding shall be outstanding or threatened by any Governmental Entity which
prohibits the effectuation of, or threatens to invalidate or set aside, the
Holding Company Merger or Bank Merger substantially in the form contemplated by
this Agreement, or would have a Material Adverse Effect, unless counsel to the
party
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against whom such action or proceeding was instituted or threatened renders to
the other parties hereto a favorable opinion that such judgment, decree,
injunction, order or proceeding is without merit.
9.3 Regulatory Approvals. To the extent required by applicable law or
regulation, all approvals or consents or non-objections of any Governmental
Entity, including, without limitation, those of the OTS and FDIC, shall have
been obtained or granted for the Holding Company Merger and Bank Merger and the
transactions contemplated hereby and the applicable waiting period under all
laws shall have expired. All other statutory or regulatory requirements for the
valid completion of the transactions contemplated hereby shall have been
satisfied and no statute, rule, regulation, order, injunction or decree shall
have been enacted, entered, promulgated, interpreted, applied or enforced by any
Governmental Entity which prohibits or makes illegal the consummation of the
Holding Company Merger or Bank Merger or any other transaction contemplated by
this Agreement, or would have a Material Adverse Effect.
9.4 Securities Laws. The S-4 Registration Statement shall have been
declared effective by the SEC and no stop order suspending the effectiveness of
such S-4 Registration Statement shall have been issued and no proceedings for
that purpose shall have been initiated.
9.5 Listing. The TI Stock issuable in the Holding Company Merger shall
have been included for listing on the NYSE, subject to official notice of
issuance.
ARTICLE X
CONDITIONS PRECEDENT TO THE
OBLIGATIONS OF HFB AND HEMET
All of the obligations of HFB and Hemet to effect the transactions
contemplated hereby shall be subject to the satisfaction, on or before the
Closing Date, of the following conditions, any of which may be waived in writing
by HFB or Hemet:
10.1 Representations and Warranties; Performance of Covenants. All
covenants and agreements herein to be complied with and performed by TI and
Guaranty at or before the Closing Date shall have been complied with and
performed in all material respects. Each of the representations and warranties
of TI and Guaranty contained in Article V hereof shall have been true and
correct in all respects on and as of the date of this Agreement and on and as of
the Closing Date (except to the extent such representations and warranties speak
as of an earlier date) with the same effect as though such representations and
warranties had been made on and as of the Closing Date, except where the failure
of a representation or warranty to be true and correct in all respects does not
cause a Material Adverse Effect. It is understood and acknowledged that the
representations being made on and as of the Closing Date shall be made without
giving effect to any update with respect to the TI Lists in accordance with
Section 7.2(c).
10.2 Officers' Certificate. There shall have been delivered to HFB and
Hemet on the Closing Date a certificate executed by an authorized executive
officer of TI and Guaranty, respectively, certifying, to their knowledge,
compliance with all of the provisions of Sections 10.1 and 10.4, if applicable.
10.3 Fairness Opinion. HFB shall have received a letter from Keefe,
Bruyette & Woods, Inc., dated as of a date within five (5) Business Days of the
mailing of the Proxy Statement to the stockholders of HFB, to the effect that
the proposed consideration in the Holding Company Merger is fair from a
financial point of view to the stockholders of HFB.
10.4 Absence of Certain Changes. If TI Stock is included in the
consideration to be paid to holders of HFB Stock in the Holding Company Merger,
between the date of this Agreement and the Effective Time of the Holding Company
Merger, there shall not have occurred any event that has had or could reasonably
be excepted to have a Material Adverse Effect, whether or not such event, change
or effect is reflected in the TI Lists as amended or supplemented after the date
of this Agreement.
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10.5 Tax Opinion. If TI Stock is included in the consideration to be paid
to holders of HFB Stock in the Holding Company Merger, HFB shall have received
an opinion of Manatt, Phelps & Phillips, LLP, dated the Effective Time of the
Holding Company Merger, to the effect that, on the basis of facts,
representations and assumptions set forth in such opinion, (i) the Holding
Company Merger constitutes a reorganization within the meaning of Section 368 of
the Code and (ii) no gain or loss will be recognized by stockholders of HFB who
receive shares of TI Stock in exchange for shares of HFB Stock, except with
respect to cash received pursuant to Article II of this Agreement. In rendering
its opinion, Manatt, Phelps & Phillips, LLP may require and rely upon
representations contained in letters from HFB, TI and stockholders of HFB.
ARTICLE XI
CONDITIONS PRECEDENT TO
OBLIGATIONS OF TI AND GUARANTY
All of the obligations of TI and Guaranty to effect the transactions
contemplated hereby shall be subject to the satisfaction, on or before the
Closing Date, of the following conditions, any of which may be waived in writing
by TI and Guaranty:
11.1 Representations and Warranties: Performance of Covenants. All
covenants and agreements herein to be complied with and performed by HFB or
Hemet at or before the Closing Date shall have been complied with and performed
in all material respects. Each of the representations and warranties of HFB and
Hemet contained in Article IV hereof shall have been true and correct in all
respects on and as of the date of this Agreement and on and as of the Closing
Date (except to the extent such representations and warranties speak as of an
earlier date) with the same effect as though such representations and warranties
had been made on and as of the Closing Date, except where the failure of a
representation or warranty to be true and correct in all respects does not cause
a Material Adverse Effect. It is understood and acknowledged that the
representations being made on and as of the Closing Date shall be made without
giving effect to any update with respect to the HFB Lists in accordance with
Section 6.2(j).
11.2 Regulatory Approvals and Related Conditions. Any governmental and
regulatory approvals and consents which are referred to in this Agreement and
are required to consummate the Holding Company Merger and Bank Merger shall have
been granted without the imposition of conditions that are or would have become
applicable to TI and that TI, in its reasonable opinion, concludes would have a
Material Adverse Effect.
11.3 Third Party Consents. HFB and Hemet shall have obtained all consents
of other parties to their respective material mortgages, notes, leases,
franchises, agreements, licenses and permits as may be necessary to permit the
Holding Company Merger and Bank Merger and the transactions contemplated herein
to be consummated without a material default, acceleration, breach or loss of
rights or benefits thereunder.
11.4 Absence of Certain Changes. Between the date of this Agreement and
the Effective Time of the Holding Company Merger and the Effective Time of the
Bank Merger, there shall not have occurred any event that has had or could
reasonably be expected to have a Material Adverse Effect, whether or not such
event, change or effect is reflected in the HFB Lists as amended or supplemented
after the date of this Agreement.
11.5 Officers' Certificate. There shall have been delivered to TI on the
Closing Date a certificate executed by an authorized executive officer of each
of HFB and Hemet, respectively, certifying, to their knowledge, compliance with
all of the provisions of Sections 11.1, 11.3 and 11.4.
11.6 Stockholders' Agreements. Concurrently with the execution of this
Agreement, the directors of HFB and Hemet shall have executed and delivered to
TI agreements substantially in the form of
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Exhibit C agreeing to vote their shares of HFB in favor of the Agreement and the
transactions contemplated hereby.
11.7 HFB Options and Stock Option Plan. All HFB Options shall have either
been exercised, canceled or cashed out and the HFB Stock Option Plan shall have
been terminated.
11.8 Loan Loss Reserve. HFB shall have in effect on the Closing Date an
allowance for loan and lease losses in an amount not less than the amount
determined by the method customarily utilized by HFB.
11.9 Resignations. There shall have been delivered to TI and Guaranty
resignations of the directors of HFB and Hemet effective as of the Closing.
11.10 Opinion of TI's Counsel. If TI Stock is included in the
consideration to be paid to holders of HFB Stock in the Holding Company Merger,
TI shall have received an opinion of Sullivan & Cromwell, counsel to TI, dated
the Effective Time of the Holding Company Merger, to the effect that, on the
basis of facts, representations and assumptions set forth in such opinion, the
Holding Company Merger constitutes a reorganization under Section 368 of the
Code. In rendering its opinion, Sullivan & Cromwell may require and rely upon
representations contained in letters from HFB, TI and stockholders of HFB.
ARTICLE XII
TERMINATION
12.1 Termination. This Agreement may be terminated at any time prior to
the Effective Time of the Holding Company Merger upon the occurrence of any of
the following:
(a) By mutual agreement of the parties, in writing;
(b) By HFB (unless HFB's Board of Directors shall have withdrawn or
modified (in a manner adverse to TI in any respect) its recommendation of
the Holding Company Merger and Merger Agreement to the holders of HFB
Stock) or TI immediately upon the failure of the stockholders of HFB to
give the requisite approval of this Agreement and the transactions
contemplated hereby;
(c) By HFB or Hemet immediately upon expiration of twenty (20) days
from delivery of written notice by HFB or Hemet to TI or Guaranty of TI's
or Guaranty's breach of or failure to satisfy any covenant or agreement
contained herein resulting in a reduction in the benefits of the
transactions contemplated by the Agreement in so significant a manner that
HFB and Hemet, in their reasonable, good faith judgment, would not have
entered into the Agreement had the inability of TI or Guaranty to satisfy
such covenant or agreement been known at the time hereof (provided that
such breach has not been waived by HFB and Hemet or cured by TI or Guaranty
prior to expiration of such twenty (20) day period);
(d) By TI or Guaranty immediately upon expiration of twenty (20) days
from delivery of written notice by TI or Guaranty to HFB or Hemet of HFB's
or Hemet's breach of or failure to satisfy any covenant or agreement
contained herein resulting in a reduction in the benefits of the
transactions contemplated by the Agreement in so significant a manner that
TI and Guaranty, in their reasonable, good faith judgment, would not have
entered into the Agreement had the inability of HFB or Hemet to satisfy
such covenant or agreement been known at the time hereof (provided that
such breach has not been waived by TI or Guaranty or cured by HFB or Hemet,
as the case may be, prior to expiration of such twenty (20) day period);
(e) By HFB or TI upon the expiration of thirty (30) days after any
Governmental Entity denies or refuses to grant any approval, consent or
authorization required to be obtained in order to consummate the
transactions contemplated by this Agreement unless, within said thirty (30)
day period after such denial or refusal, all parties hereto agree to
resubmit the application to the regulatory authority that has denied, or
refused to grant the approval, consent or qualification requested;
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(f) By HFB or TI if any condition set forth in Article IX shall not
have been met by July 31, 1999, provided, however, that this Agreement
shall not be terminated pursuant to this Section 12.1(f) if the relevant
condition shall have failed to occur as a result of any act or omission by
the party seeking to terminate;
(g) By HFB if any of the conditions set forth in Article X (with the
exception of those provided in Section 10.5) shall not have been met, or by
TI if any of the conditions set forth in Article XI (with the exception of
those provided in Section 11.10) shall not have been met, by July 31, 1999,
provided, however, that this Agreement shall not be terminated pursuant to
this Section 12.1(g) if the relevant condition shall have failed to occur
as a result of any act or omission by the party seeking to terminate;
(h) By TI if HFB or Hemet shall have breached any of the obligations
contained in Section 6. l(n);
(i) by TI, if (i) HFB shall have exercised a right specified in the
last sentence of Section 6.1(n) with respect to any Superior Proposal and
shall, directly or through agents or representatives, continue any
discussions with any third party concerning such Superior Proposal for more
than ten (10) Business Days after the date of receipt of such Superior
Proposal; or (ii) a Superior Proposal that is publicly disclosed shall have
been commenced, publicly proposed or communicated to HFB which contains a
proposal as to price (without regard to the specificity of such price
proposal) and HFB shall not have rejected such proposal within ten (10)
Business Days of receipt of the date its existence first becomes publicly
disclosed, if earlier;
(j) by HFB, if (i) HFB is not in material breach of the terms of this
Agreement, (ii) the Board of Directors of HFB authorizes HFB, subject to
complying with the terms of this Agreement, to enter into a binding written
agreement concerning a transaction that is a Superior Proposal and HFB
notifies TI in writing that it intends to enter into such an agreement,
attaching the most current version of such agreement to such notice, (iii)
TI does not make, prior to ten (10) Business Days after receipt of HFB's
written notification of its intention to enter into a binding written
agreement for a Superior Proposal (the "Alternative Transaction Notice"),
an offer that the Board of Directors of HFB determines, in good faith after
consultation with its financial advisors, is at least as favorable as the
Superior Proposal, taking into account the long-term prospects and
interests of HFB and its stockholders and (iv) HFB prior to such
termination pays to TI in immediately available funds the fees, if any,
required to be paid pursuant to Section 13.1(c). Without limiting the
foregoing, HFB agrees and acknowledges (y) that it cannot terminate this
Agreement pursuant to this Section 12.2(j) in order to enter into a binding
written agreement referred to in clause (ii) above until at least ten (10)
Business Days after receipt by TI of the Alternative Transaction Notice and
(z) to notify TI promptly if its intention to enter into a written
agreement referred to in its Alternative Transaction Notice shall change at
any time after giving such notification; or
(k) by TI, if at December 31, 1998, any holder of an HFB Option shall
not have entered into the agreement contemplated by Section 8.3, unless
prior to the date that TI gives notice of termination pursuant to this
Section 12.1(k) all holders of HFB Options shall have entered into the
agreement contemplated by Section 8.3 or the HFB Options not theretofore
canceled shall expire by their terms prior to the Closing Date.
12.2 Effect of Termination. In the event of termination of this Agreement
by either HFB, Hemet, Guaranty or TI as provided in Section 12.1, neither HFB,
Hemet, Guaranty nor TI shall have any further obligation or liability to the
other party except (a) with respect to the last sentence of Section 8.5 and the
Confidentiality Agreement, dated August 20, 1998; (b) with respect to Section
13.l; (c) to the extent such termination results from a party's willful and
material breach of the warranties and representations made by it, or willful and
material failure in performance of any of its covenants, agreements or
obligations hereunder; and (d) as described in the Stock Option Agreement
attached hereto as Exhibit A, which is governed by its own terms as to
termination.
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12.3 Force Majeure. HFB, TI, Guaranty and Hemet agree that,
notwithstanding anything to the contrary in this Agreement, in the event this
Agreement is terminated as a result of a failure of a condition, which failure
is due to a natural disaster or other act of God, or an act of war, and provided
neither party has failed to observe the material obligations of such party under
this Agreement, neither party shall be obligated to pay to the other party to
this Agreement any expenses or otherwise be liable hereunder.
ARTICLE XIII
MISCELLANEOUS
13.1 Expenses.
(a) HFB hereby agrees that if the Agreement is terminated (i) by TI or by
HFB pursuant to Section 12.1(b) with respect to the failure of HFB stockholders
to approve the Agreement and the transactions contemplated hereby, or (ii) by TI
pursuant to Section 12.1(d), Section 12.1(h) or Section 12.1(k), HFB shall
promptly and in any event within ten (10) days after such termination pay TI all
Expenses of TI and Guaranty, but not to exceed (x) $1,000,000 if the Agreement
is so terminated prior to December 31, 1998, (y) other than as set forth in
subclause (z) $1,500,000 if the Agreement is so terminated thereafter or (z)
$1,000,000 if the Agreement is terminated pursuant to Section 12.1(k) at any
time.
(b) TI hereby agrees that if the Agreement is terminated by HFB pursuant to
Section 12.1(c), TI shall promptly and in any event within ten (10) days after
such termination pay HFB all Expenses of HFB and Hemet, but not to exceed
$1,000,000 if the Agreement is so terminated prior to December 31, 1998 and
$1,500,000 if the Agreement is so terminated thereafter.
(c) HFB hereby agrees that: in the event that this Agreement is terminated
(i) by TI pursuant to Section 12.1(i) or (ii) by HFB pursuant to Section
12.1(j), then HFB shall, not later than immediately prior to the time of such
termination (in the case of clause (ii)) or not later than ten (10) days after
such termination but in no event later than the time immediately prior to the
entering into of an agreement concerning a Competing Transaction (in the case of
clause (i)), pay TI $4,866,128 in immediately available funds. Notwithstanding
anything to the contrary in this Agreement, any amount payable to TI under
Section 13.1(c) shall be reduced dollar-for-dollar by the Notional Total Profit
or Total Profit (each as defined in the Stock Option Agreement) attributable to
or received by, respectively, TI and any assignees in the aggregate under the
Stock Option Agreement.
(d) Except as otherwise provided herein, all Expenses incurred by TI, HFB,
Hemet and Guaranty in connection with or related to the authorization,
preparation and execution of this Agreement, the solicitation of shareholder
approvals and all other matters related to the closing of the transactions
contemplated hereby, including, without limitation of the generality of the
foregoing, all fees and expenses of agents, representatives, counsel and
accountants employed by either such party or its affiliates, shall be borne
solely and entirely by the party which has incurred the same. Notwithstanding
the foregoing, TI and HFB shall share equally the cost of filing and printing
the Proxy Statement and the S-4 Registration Statement.
(e) "Expenses" as used in this Agreement shall include all reasonable
out-of-pocket expenses (including all fees and expenses of attorneys,
accountants, investment bankers, experts and consultants to the party and its
Affiliates) incurred by the party or on its behalf in connection with the
consummation of the transactions contemplated by this Agreement.
13.2 Notices. Any notice, request, instruction or other document to be
given hereunder by any party hereto to another shall be in writing and delivered
personally or by confirmed facsimile transmission or
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sent by overnight courier, registered or certified mail, postage prepaid, with
return receipt requested, addressed as follows:
<TABLE>
<S> <C>
To TI or Guaranty: Temple-Inland Inc.
303 South Temple Drive
Diboll, Texas 75941
Attention: M. Richard Warner
Facsimile Number: (409) 829-3333
Guaranty Federal Bank, F.S.B.
8333 Douglas Avenue
Dallas, Texas 75225
Attention: Kenneth R. Dubuque
Facsimile Number: (512) 434-8289
With a copy to: Sullivan & Cromwell
1888 Century Park East
Los Angeles, California 90067
Attention: Stanley F. Farrar
Facsimile Number: (310) 712-8800
To HFB or Hemet: HF Bancorp, Inc.
445 E. Florida Avenue
Hemet, California 92543
Attention: Richard Cupp
Facsimile Number: (909) 658-8461
With a copy to: Manatt, Phelps & Phillips, LLP
11355 West Olympic Boulevard
Los Angeles, California 90067
Attention: William T. Quicksilver
Facsimile Number:
(310) 312-4224
</TABLE>
Any such notice, request, instruction or other document shall be deemed
received on the date delivered personally or delivered by confirmed facsimile
transmission, or on the third Business Day after it was sent by registered or
certified mail, postage prepaid. Any of the persons shown above may change its
address for purposes of this section by giving notice in accordance herewith.
13.3 Material Adverse Effect. For purposes of this Agreement, the term
"Material Adverse Effect" shall mean an effect which (i) is material and adverse
to the business, financial condition, results of operations or prospects of TI,
Guaranty, and their respective subsidiaries taken as a whole, on the one hand,
and HFB, Hemet and their respective subsidiaries taken as a whole, on the other
hand, as the context may dictate; (ii) significantly and adversely affects the
ability of TI, Guaranty, HFB or Hemet, or any of them, to consummate the Mergers
by July 31, 1999 or to perform their respective material obligations hereunder;
or (iii) enables any Person to prevent consummation by July 31, 1999 of the
Mergers; provided, however, that in determining whether a Material Adverse
Effect has occurred there shall be excluded any effect the cause of which is:
(A) any change, which is made or becomes effective after the date hereof, in
banking or similar laws of general applicability or interpretations thereof by
courts or Governmental Entities; (B) any change, which is made or becomes
effective after the date hereof, in generally accepted accounting principles
and/or applicable regulatory accounting principles or banking regulations
consistently applied, and applicable to savings associations or savings and loan
holding companies; (C) any action or omission of TI or Guaranty, on the one
hand, or HFB or Hemet, on the other hand, taken with the prior written consent
of the other, as applicable, in contemplation of the Mergers; (D) any changes in
general economic conditions affecting financial institutions generally,
including, without limitation, general changes in market interest rates; and (E)
any expenses or costs reasonably incurred or accrued in connection with the
transactions contemplated by this Agreement.
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13.4 Successors and Assigns. All terms and conditions of this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective transferees, successors and assigns; provided, however, that
this Agreement and all rights, privileges, duties and obligations of the parties
hereto may not be assigned or delegated by any party hereto and any such
attempted assignment or delegation shall be null and void.
13.5 Counterparts. This Agreement and any exhibit hereto may be executed
in one or more counterparts, all of which, taken together, shall constitute one
original document and shall become effective when one or more counterparts have
been signed by the appropriate parties and delivered to each party hereto.
13.6 Effect of Representations and Warranties. The representations and
warranties contained in this Agreement or in any List shall terminate
immediately after the Effective Time of the Holding Company Merger.
13.7 Third Parties. Except with respect to Section 7.6, which is intended
to benefit the directors and officers of HFB and its subsidiaries, each party
hereto intends that this Agreement shall not benefit or create any right or
cause of action to any person other than parties hereto. As used in this
Agreement the term "parties" shall refer only to TI, HFB, Guaranty or Hemet as
the context may require.
13.8 Lists; Exhibits; Integration. Each List, exhibit and letter delivered
pursuant to this Agreement shall be in writing and shall constitute a part of
the Agreement, although Lists and letters need not be attached to each copy of
this Agreement. This Agreement, together with such Lists, exhibits and letters,
and the Confidentiality Agreement dated August 20, 1998 constitute the entire
agreement between the parties pertaining to the subject matter hereof and
supersede all prior agreements and understandings of the parties in connection
therewith.
13.9 Knowledge. Whenever any statement herein or in any List, certificate
or other document delivered to any party pursuant to this Agreement is made "to
the knowledge" of any party or another Person, such knowledge shall mean facts
and other information which any director, executive officer or controller knows
as a result of the performance of his or her duties and includes such diligent
inquiry as is reasonable under the circumstances.
13.10 Governing Law. This Agreement shall be governed by, and interpreted
in accordance with, the laws of the State of Delaware without regard to the
conflict of law principles thereof. The parties hereby irrevocably submit to the
jurisdiction of the courts of the State of Delaware and the federal courts of
the United States of America located in the State of Delaware solely in respect
of the interpretation and enforcement of the provisions of this Agreement and of
the documents referred to in this Agreement, and in respect of the transactions
contemplated herein and therein, and hereby waive, and agree not to assert, as a
defense in any action, suit or proceeding for the interpretation or enforcement
hereof or of any such document, that it is not subject thereto or that such
action, suit or proceeding may not be brought or is not maintainable in said
courts or that the venue thereof may not be appropriate or that this Agreement
or any such document may not be enforced in or by such courts, and the parties
hereto irrevocably agree that all claims with respect to such action or
proceeding shall be heard and determined in such Delaware state or federal
court. The parties hereby consent to and grant any such court jurisdiction over
the person of such parties and over the subject matter of such dispute and agree
that mailing of process or other papers in connection with any such action or
proceeding in the manner provided in Section 13.2 or in such other manner as may
be permitted by law, shall be valid and sufficient service thereof.
13.11 Captions. The captions contained in this Agreement are for
convenience of reference only and do not form a part of this Agreement and shall
not affect the interpretation hereof.
13.12 Severability. If any portion of this Agreement shall be deemed by a
court of competent jurisdiction to be unenforceable, the remaining portions
shall be valid and enforceable only if, after excluding the portion deemed to be
unenforceable, the remaining terms hereof shall provide for the consummation of
the transactions contemplated herein in substantially the same manner as
originally set forth at the date this Agreement was executed.
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13.13 Waiver and Modification; Amendment. No waiver of any term, provision
or condition of this Agreement, whether by conduct or otherwise, in any one or
more instances, shall be deemed to be or construed as a further or continuing
waiver of any such term, provision or condition of this Agreement. Except as
otherwise required by law, this Agreement and the Agreement of Bank Merger, when
executed and delivered, may be modified or amended by action of the Boards of
Directors of TI, Guaranty, HFB or Hemet without action by their respective
stockholders. This Agreement may be modified or amended only by an instrument of
equal formality signed by the parties or their duly authorized agents.
13.14 Attorneys' Fees. If any legal action or any arbitration upon mutual
agreement is brought for the enforcement of this Agreement or because of an
alleged dispute, controversy, breach, or default in connection with this
Agreement, the prevailing party shall be entitled to recover reasonable
attorneys' fees and other costs and expenses incurred in that action or
proceeding, in addition to any other relief to which it may be entitled.
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IN WITNESS WHEREOF, the parties to this Agreement have duly executed this
Agreement as of the day and year first above written.
TEMPLE-INLAND INC.
By:
----------------------------------
President and Chief Operating
Officer
GUARANTY FEDERAL BANK, F.S.B.
By:
----------------------------------
President and Chief Executive
Officer
HF BANCORP, INC.
By:
----------------------------------
President and Chief Executive
Officer
HEMET FEDERAL SAVINGS & LOAN
ASSOCIATION
By:
----------------------------------
President and Chief Executive
Officer
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EXHIBIT LIST
A STOCK OPTION AGREEMENT
B AGREEMENT OF BANK MERGER
C FORM OF SHAREHOLDER'S AGREEMENT
D FORM OF AFFILIATE LETTER
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APPENDIX B
April , 1999
The Board of Directors
HF Bancorp, Inc.
445 East Florida Avenue
Hemet, California 92543
Members of the Board:
You have requested our opinion as investment bankers as to the fairness
from a financial point of view to the common shareholders of HF Bancorp, Inc.
("Hemet") of the consideration to be paid (the "Merger Consideration") to the
shareholders of Hemet in connection with the proposed acquisition of Hemet by
Temple-Inland Inc. ("TI"), pursuant to the Agreement and Plan of Merger (the
"Merger Agreement") dated as of November 14, 1998 by and among Hemet, Hemet
Federal Savings Bank, TI, and Guaranty Federal Bank, F.S.B.
As is more specifically set forth in the Merger Agreement, upon
consummation of the Merger, each outstanding share of Hemet stock, par value
$0.01 per share ("Hemet Common Stock"), except for any dissenting shares and
except for shares held by TI and its subsidiaries or by Hemet and its
subsidiaries (in both cases, other than shares held on a fiduciary capacity),
will be entitled to receive, at the election of the holder thereof as is more
fully described in the Merger Agreement, Merger Consideration of:
i. $18.50 per share payable in cash, or
ii. A fraction of a share of TI ("TI Common Stock"), $1.00 par value
per share, equal to the number obtained by dividing $18.50 by the average
closing price of TI (such number being referred to as the "Exchange
Ratio").
The issuance of TI Common Stock will depend on a sufficient number of Hemet
shareholders electing to receive TI Common Stock to allow for a tax-free opinion
on the Common Stock portion of the consideration paid. If TI Common Stock is
issued, the Exchange Ratio will be based upon the average daily closing price of
TI stock on the NYSE as reported in the Wall Street Journal for the 10
consecutive trading days ending on the fourth business day prior to the closing
of the Merger.
The Merger is expected to be considered and voted upon by the shareholders
of Hemet at a special shareholders' meeting to be held as soon as practicable.
The terms and conditions of the merger are more fully set forth in the Merger
Agreement. The reader is urged to carefully read all of the terms of the Merger
Agreement, which is reproduced in its entirety elsewhere in the Proxy Statement.
Keefe, Bruyette & Woods, Inc. ("Keefe"), as part of its investment banking
business, is continually engaged in the valuation of bank holding companies and
banks, thrift holding companies and thrifts and their securities in connection
with mergers and acquisitions, underwritings, private placements, competitive
bidding processes, market making as a NASD market maker, and valuations for
various other purposes. As specialists in the securities of banking companies we
have experience in, and knowledge of, the valuation of banking enterprises. In
the ordinary course of our business as a broker-dealer, we may, from time to
time, trade the securities of Hemet and TI, 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. To the extent we have any such positions as of the
date of this opinion it has been disclosed to Hemet. Keefe has served as
financial advisor to Hemet in the negotiation of the Merger Agreement and in
rendering this fairness opinion and will receive a fee from Hemet for those
services.
In arriving at our opinion, we have reviewed, analyzed and relied upon
material bearing upon the financial and operating condition of Hemet and TI and
the Merger, including among other things, the following:
i. Reviewed the Merger Agreement;
ii. Reviewed certain historical financial and other information
concerning Hemet and TI;
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<PAGE> 130
iii. Reviewed certain historical financial and other information
concerning Hemet and TI for the three years ended June 30, 1998 for Hemet,
and January 3, 1998 for TI and certain interim quarterly reports, including
Hemet's and TI's Annual Reports to Stockholders and Annual Reports on Forms
10-K, and certain interim quarterly reports on Form 10-Q for 1998;
iv. Reviewed the historical market prices and trading activity for the
shares of Hemet and TI and compared them with those of certain publicly
traded companies which we deemed to be relevant;
v. Held discussions with senior management of Hemet and TI with
respect to their past and current financial performance, financial
condition and future prospects;
vi. Reviewed certain internal financial data, projections and other
information of Hemet, including financial projections prepared by
management;
vii. Analyzed certain publicly available information of other
financial institutions that we deemed comparable or otherwise relevant to
our inquiry, and compared Hemet and TI from a financial point of view with
certain of these institutions;
viii. Compared the consideration to be paid by TI pursuant to the
Merger Agreement with the consideration paid by acquirors in other
acquisitions of financial institutions that we deemed comparable or
otherwise relevant to our inquiry;
ix. Conducted such other financial studies, analyses and
investigations and reviewed such other information as we deemed appropriate
to enable us to render our opinion.
In conducting our review and arriving at our opinion, we have relied upon
the accuracy and completeness of all of the financial and other information
provided to us or publicly available and we have not assumed any responsibility
for independently verifying the accuracy or completeness of any such
information. We have relied upon the management of Hemet and TI as to the
reasonableness and achievability of the financial and operating forecasts and
projections (and the assumptions and bases therefor) provided to us, and we have
assumed that such forecasts and projections reflect the best currently available
estimates and judgments of such managements and that such forecasts and
projections will be realized in the amounts and in the time periods currently
estimated by such managements. We are not experts in the independent
verification of the adequacy of allowances for loan and lease losses and we have
assumed that the current and projected aggregate reserves for loan and lease
losses for Hemet and TI are adequate to cover such losses. We did not make or
obtain any independent evaluations or appraisals of any assets or liabilities of
Hemet, TI, or any of their respective subsidiaries nor did we verify any of
Hemet's or TI's books or records or review any individual loan or credit files.
We have considered such financial and other factors as we have deemed
appropriate under the circumstances, including, among others, the following: (i)
the historical financial position and results of operations of Hemet and TI;
(ii) the assets and liabilities of Hemet and TI; and (iii) the nature and terms
of certain other merger transactions involving banks and bank holding companies.
We have also taken into account our assessment of general economic, market and
financial conditions and our experience in other transactions, as well as our
experience in securities valuation and knowledge of the banking industry
generally. Our opinion is necessarily based upon conditions as they exist and
can be evaluated on the date hereof and the information made available to us
through the date hereof.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Consideration in the Merger is fair to the shareholders of
Hemet from a financial point of view.
Very truly yours,
Keefe, Bruyette & Woods, Inc.
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APPENDIX C
DELAWARE CODE ANNOTATED
TITLE 8. CORPORATIONS
CHAPTER 1. GENERAL CORPORATION LAW
SUBCHAPTER IX. MERGER OR CONSOLIDATION
Copyright (C) 1975-1998 by The State of Delaware. All rights reserved.
Current through End of 1998 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 sec. 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec. 251 (other than a merger effected pursuant to
sec. 251(g) of this title), sec. 252, sec. 254, sec. 257, sec. 258, sec. 263 or
sec. 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of sec. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
sec.sec. 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts 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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d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to 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 sec. 228
or sec. 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such
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second notice is sent more than 20 days following the sending of the first
notice, such second notice need only be sent to each stockholder who is
entitled to appraisal rights and who has demanded appraisal of such
holder's shares in accordance with this subsection. An affidavit of the
secretary or assistant secretary 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
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money during the pendency of the proceeding. Upon application by the surviving
or resulting corporation or by any stockholder entitled to participate in the
appraisal proceeding, the Court may, in its discretion, permit discovery or
other pretrial proceedings and may proceed to trial upon the appraisal prior to
the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or 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 right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
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APPENDIX D
OPINION OF MANATT, PHELPS, & PHILLIPS, LLP
REGARDING CERTAIN TAX MATTERS
, 1999
Board of Directors
HF Bancorp, Inc.
445 E. Florida Avenue
Hemet, California 92543
Re: Material Federal Income Tax Consequences of the Merger of HF
Bancorp, Inc., with and into Temple-Inland Inc.
Ladies and Gentlemen:
In accordance with your request, we provide the following analysis and
opinions relating to the material federal income tax consequences of the
transaction (the "Holding Company Merger") whereby HF Bancorp, Inc. ("HFB"),
will merge with and into Temple-Inland Inc. ("TI"), pursuant to that certain
Agreement and Plan of Merger dated as of November 14, 1998 (the "Agreement").
Immediately after the Holding Company Merger, Hemet Federal Savings & Loan
Association ("Hemet"), a wholly-owned subsidiary of HFB, shall merge with and
into Guaranty Federal Bank, F.S.B. ("Guaranty"), an indirect wholly-owned
subsidiary of TI, pursuant to an Agreement of Bank Merger (the "Bank Merger").
Terms used herein have the same meaning as in the Agreement.
It is our understanding for purposes of our opinion that in the Holding
Company Merger, HFB shall be merged with and into TI in a statutory merger in
accordance with the Delaware General Corporation Law and the separate corporate
existence of HFB shall cease. TI shall be the surviving entity. TI shall
succeed, without other transfer, to all the rights and property of HFB and shall
be subject to all the debts and liabilities of HFB in the same manner as if TI
had itself incurred them. Each share of TI Stock issued and outstanding
immediately prior to the Effective Time of the Holding Company Merger shall
remain an issued and outstanding share of common stock of TI and shall not be
converted or otherwise affected by the Holding Company Merger.
Subject to the provisions of the Agreement, each share of HFB Stock issued
and outstanding immediately prior to the Effective Time of the Holding Company
Merger, other than Dissenting Shares and Treasury Shares shall, on and after the
Effective Time of the Holding Company Merger, be automatically canceled and
cease to be an issued and outstanding share of HFB Stock and shall be converted
into the right to receive, at the election of the holder thereof, either (a) a
fraction of a share of TI Stock equal to the applicable Exchange Ratio, or (b)
cash in the amount equal to the applicable Price Per Share.
No fractional shares of TI Stock shall be issued in the Holding Company
Merger. In lieu thereof, each holder of HFB Stock who would otherwise be
entitled to receive a fractional share shall receive an amount in cash, rounded
to the nearest cent, equal to the product obtained by multiplying (a) the Final
TI Stock Price by (b) the fraction (calculated to the nearest ten-thousandth) of
the share of TI Stock to which such holder would otherwise be entitled. No such
holder shall be entitled to dividends or other rights in respect to any such
fraction.
Dissenting Shares of HFB Stock which have not effectively withdrawn or lost
their rights under Section 262 of the Delaware General Corporation Law shall not
be converted as described in the foregoing paragraph, but shall be entitled to
receive such consideration as shall be determined pursuant to Section 262 of the
Delaware General Corporation Law.
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At and on the Effective Time of the Bank Merger, Hemet shall be merged with
and into Guaranty in accordance with the terms of the Agreement of Bank Merger
in a statutory merger under federal law and the separate corporate existence of
Hemet shall cease. Guaranty shall be the surviving entity. Guaranty shall
succeed, without other transfer, to all the rights and property of Hemet and
shall be subject to all the debts and liabilities of Hemet in the same manner as
if Guaranty had itself incurred them. Each share of Guaranty Stock issued and
outstanding immediately prior to the Effective Time of the Bank Merger shall
remain an issued and outstanding share of common stock of Guaranty and shall not
be converted or otherwise affected by the Bank Merger. Each share of Hemet Stock
issued and outstanding immediately prior to the Effective Time of the Bank
Merger shall, on and after the Effective Time of the Bank Merger, be
automatically canceled and cease to be an issued and outstanding share of Hemet
Stock and shall be converted into shares of stock of Guaranty with a value
approximately equal to the value of the Hemet Stock canceled in the Bank Merger.
Our analysis and the opinions set forth below are based upon the existence
of the facts and conclusions of law set forth above and the facts set forth in
the Agreement and that certain Agreement of Bank Merger referred to above,
including the exhibits thereto. Our analysis and opinions are also based on
certain representations in the Agreement and certain written representations to
us from TI and HFB in letters of even date herewith. Our analysis and opinions
are further based on that certain Form S-4 Registration Statement filed with the
Securities and Exchange Commission in connection with the Holding Company Merger
and the Bank Merger (the "Form S-4"). The facts contained in the
above-referenced documents are incorporated herein by reference as the operative
facts underlying the tax opinions set forth herein. One of our key assumptions
for purposes of this letter is that the facts set forth in those documents are
accurate on the date of this analysis and remain accurate to the date of the
closing of the Holding Company Merger and the Bank Merger and are otherwise
true, complete, and correct. Any change or inaccuracy in such facts may
adversely affect our opinions.
We have acted as special counsel to HFB in connection with the Holding
Company Merger and are rendering the opinions set forth below to HFB at its
request. In rendering these opinions, we have examined such documents, laws,
regulations and other legal matters as we have considered necessary or
appropriate for purposes of the opinions expressed herein. We have not made any
independent investigation in rendering these opinions other than as described
herein.
Our opinions are based upon the Code as of the date hereof and currently
applicable Treasury Regulations promulgated under the Code (including proposed
Treasury Regulations), published administrative positions of the Internal
Revenue Service in revenue rulings and revenue procedures, and judicial
decisions. Such legal authorities are all subject to change, either
prospectively or retroactively. No assurance can be provided as to the effect of
any such change upon our opinions. We have undertaken no obligation to update
our opinions expressed herein.
The opinions set forth herein have no binding effect on the Internal
Revenue Service or the courts. No assurance can be given that, if contested, a
court would agree with the opinions set forth herein. The opinions set forth
herein represent rather our best legal judgment as to the likely outcome of the
issues addressed herein if such issues were litigated and all appeals exhausted.
In the case of transactions as complex as the Holding Company Merger and
the Bank Merger, many federal, state and local income and other tax consequences
arise. We have been asked only to address the issues specifically set forth
below. No opinion is expressed regarding any other issues.
This letter is being issued solely for the benefit of HFB and for the
benefit of the HFB shareholders as of the date of the Holding Company Merger. It
may not be relied upon by any other person without our prior written consent.
Subject to the foregoing, it is our opinion that the Holding Company Merger
is a tax-deferred reorganization within the meaning of Section 368(a)(1)(A) of
the Code and shall not result in the recognition of gain or loss for federal
income tax purposes to TI or HFB, nor shall the issuance of the TI Stock in the
Holding Company Merger in exchange for shares of HFB Stock result in the
recognition of
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gain or loss by the holders of HFB Stock who receive such stock in connection
with the Holding Company Merger. Holders of HFB Stock who receive both TI Stock
and cash in the Holding Company Merger will not recognize loss. However, such
stockholders will recognize gain (if any) to the extent of the lesser of (a) the
excess of the sum of the fair market value of the TI Stock received, including
the fair market value of any fractional share interest in TI Stock for which
cash is received, and the amount of cash received, other than cash received in
lieu of a fractional share interest in TI Stock, over the HFB stockholder's
adjusted federal income tax basis for the HFB Stock exchanged or (b) the amount
of cash received by the HFB Stockholder, other than cash received in lieu of a
fractional share interest in TI Stock. In addition, the section titled "Material
Federal Income Tax Consequences" in the Form S-4 accurately summarizes the
material federal income tax consequences of the Holding Company Merger.
We hereby consent to the filing of a form of this opinion with the
Securities and Exchange Commission as an exhibit to the Form S-4 to be filed in
connection with the Holding Company Merger and the Bank Merger.
Very truly yours,
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APPENDIX E
STOCK OPTION AGREEMENT
This AGREEMENT is dated as of November 14, 1998, between Temple-Inland Inc.
("Grantee"), a Delaware corporation, and HF Bancorp, Inc., a Delaware
corporation ("Issuer").
WITNESSETH:
WHEREAS, the Boards of Directors of Grantee and Issuer have approved an
Agreement and Plan of Merger (the "Merger Agreement") dated as of the date
hereof which contemplates the acquisition of Issuer by Grantee and the
acquisition of Hemet Federal Savings & Loan Association ("Issuer Bank") by
Guaranty Federal Bank, F.S.B. ("Acquiror Bank");
WHEREAS, as a condition to Grantee's having entered into the Merger
Agreement and in consideration therefor, Issuer has agreed to grant to Grantee
the option set forth herein to purchase shares of Issuer's authorized but
unissued common stock, par value $.01 per share ("Common Stock").
NOW, THEREFORE, in consideration of the premises herein contained, the
parties agree as follows:
1. Grant of Option. Subject to the terms and conditions set forth herein,
Issuer hereby grants to Grantee an option (the "Option") to purchase up to
1,272,665 shares of fully paid and nonassessable Common Stock (the "Option
Shares"), at a price of $16.0625 per share (the "Exercise Price"); provided,
however, that in no event shall the number of shares for which this Option is
exercisable exceed 19.9% of the total number of shares of Common Stock then
issued and outstanding without giving effect to any shares subject or issued
pursuant to this Option. The number of shares of Common Stock that may be
received upon the exercise of the Option and the Exercise Price are subject to
adjustment as herein set forth.
2. Exercise of Option.
(a) Grantee may exercise the Option, in whole or in part, in accordance
with and to the extent permitted by applicable law at any time or from time to
time but only upon or after the occurrence of a Purchase Event (as that term is
defined in paragraph (b) of this section); provided, that to the extent the
Option shall not have been exercised, it shall terminate and be of no further
force and effect upon the earliest to occur (such earliest date, the "Expiration
Date") of (i) the date of termination of the Merger Agreement in accordance with
its terms (other than a termination of the Merger Agreement by Grantee pursuant
to Section 12.1(b) or Section 12.1(d) (if prior to such termination pursuant to
Section 12.1(b) or Section 12.1(d) there shall have occurred a Preliminary
Purchase Event or a Purchase Event) or Section 12.1(a) (if Grantee shall at that
time have been entitled to terminate the Merger Agreement pursuant to Section
12.1(d) and a Preliminary Purchase Event or a Purchase Event had occurred prior
to such termination), Section 12.1(h) or Section 12.1(i)); (ii) the time
immediately prior to the Effective Time of the Holding Company Merger; (iii)
eighteen months following the occurrence of the earliest to occur of (A) the
date of termination of the Merger Agreement by Grantee pursuant to Section
12.1(b) or Section 12.1(d) (if prior to such termination pursuant to Section
12.1(b) or Section 12.1(d) there shall have occurred a Preliminary Purchase
Event or a Purchase Event) or Section 12.1(a) (if Grantee shall at that time
have been entitled to terminate the Merger Agreement pursuant to Section 12.1(d)
and a Preliminary Purchase Event or a Purchase Event had occurred prior to such
termination), Section 12.1(h) or Section 12.1(i) and (B) the date of first
occurrence of a Preliminary Purchase Event or a Purchase Event; or (iv) the date
that the aggregate amount received by TI under Section 13.1(c) of the Merger
Agreement together with the Notional Total Profit or Total Profit attributable
to or received hereunder in the aggregate by all Grantees equals $4,866,128.
Notwithstanding the foregoing, Issuer shall not be obligated to issue the Option
Shares upon exercise of the Option (i) in the absence of any required
governmental or regulatory waiver, consent or approval necessary for Issuer to
issue such Option Shares or for Grantee or any transferee to exercise the Option
or prior to the expiration or termination of any waiting
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period required by law, (ii) so long as any injunction or other order, decree or
ruling issued by any federal or state court of competent jurisdiction is in
effect which prohibits the sale or delivery of the Option Shares or (iii) if at
such time Grantee or Acquiror Bank shall be in material breach of the agreements
or covenants contained in the Merger Agreement. Further, the rights set forth in
Section 6 hereof shall terminate on the Expiration Date.
(b) As used herein, a "Purchase Event" shall have occurred when:
(i) Issuer, Issuer Bank or any subsidiary of Issuer (without prior
written consent of Grantee) enters into an agreement with any Person (other
than Grantee or any of its affiliates or subsidiaries) pursuant to which
such Person would: (x) merge or consolidate with, or enter into any similar
transaction with Issuer, Issuer Bank or any other subsidiary of Issuer
(other than a merger, consolidation or similar transaction involving solely
Issuer and one or more of its wholly owned subsidiaries), (y) purchase,
lease or otherwise acquire all or substantially all of the assets of Issuer
or Issuer Bank or (z) purchase or otherwise acquire (by merger,
consolidation, share exchange or any similar transaction) securities
representing 15% or more of the voting shares of Issuer or Issuer Bank (the
transactions referred to in subparagraph (x), (y) and (z) are referred to
as an "Acquisition Transaction");
(ii) any Person or group of Persons (other than Grantee or any of its
affiliates or subsidiaries) acquires the beneficial ownership or the right
to acquire beneficial ownership of securities representing 15% or more of
the voting shares of Issuer or Issuer Bank (the term "beneficial ownership"
for purposes of this Agreement shall have the meaning set forth in Section
13(d) of the Exchange Act, and the regulations promulgated thereunder);
(iii) a public announcement by Issuer, Issuer Bank or any Person
involved with Issuer or Issuer Bank therewith of the authorization,
recommendation or endorsement by Issuer of an Acquisition Transaction,
Exchange Offer (as defined below) or Tender Offer (as defined below) or a
public announcement by Issuer, Issuer Bank or any Person involved with
Issuer or Issuer Bank therewith of an intention to authorize, recommend or
endorse an Acquisition Transaction, Exchange Offer or Tender Offer;
(iv) the shareholders of Issuer fail to approve the business
combination contemplated by the Merger Agreement at any meeting of such
shareholders which has been held for that purpose or any adjournment or
postponement thereof, the failure of such a shareholder meeting to occur
prior to termination of the Merger Agreement or the withdrawal or
modification (in a manner adverse to Grantee in any respect) of the
recommendation of Issuer's Board of Directors that the shareholders of
Issuer approve the Holding Company Merger and the Merger Agreement in each
case, after there shall have been a public announcement that any Person
(other than Grantee or any of its affiliates or subsidiaries), shall have
(a) made or publicly disclosed an intention to make a proposal to engage in
an Acquisition Transaction, (b) commenced a Tender Offer, or filed a
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to an Exchange Offer or (c) filed an
application (or given a notice to) with the Office of Thrift Supervision or
other federal or state bank regulatory authority which application or
notice has been accepted for processing, for approval to engage in an
Acquisition Transaction; or
(v) after a proposal is made by a third party to Issuer or any of its
subsidiaries or its shareholders to engage in an Acquisition Transaction,
or such third party states its intention to make such a proposal if the
Merger Agreement terminates and/or the Option expires, Issuer or Issuer
Bank shall have willfully breached any covenant or obligation contained in
the Merger Agreement and following such breach Grantee would be entitled to
terminate the Merger Agreement (whether immediately or after the giving of
notice or passage of time or both).
(c) As used herein, "Preliminary Purchase Event" shall have occurred when:
(i) any Person or group of Persons (other than Grantee or any of its
affiliates or subsidiaries) shall have commenced (as such term is defined
in Rule 14d-2 under the Securities Exchange Act of
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1934, as amended (the "Exchange Act")) or shall have filed a registration
statement under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to a tender offer or exchange offer to purchase any
shares of Common Stock such that such Person would own or control 10% or
more of the shares of Common Stock (such an offer being referred to herein
as a "Tender Offer" or an "Exchange Offer", respectively);
(ii) any Person (other than Grantee or any of its affiliates or
subsidiaries) shall have filed an application with or given a notice to the
Office of Thrift Supervision or other federal or state bank regulatory
authority for approval to engage in an Acquisition Transaction, Exchange
Offer or Tender Offer; or
(iii) The occurrence of an event described in Section 2(b)(i) hereof,
except that the percentage referred to in clause (z) thereof shall be at
least 10%.
(d) If a Purchase Event has occurred, the Option shall continue to be
exercisable until its termination in accordance with Section 2(a) hereof. Issuer
shall notify Grantee promptly in writing upon learning of the occurrence of a
Preliminary Purchase Event or Purchase Event, it being understood that the
giving of such notice by Issuer shall not be a condition to the right of Grantee
to transfer or exercise the Option.
(e) In the event a Purchase Event occurs, Grantee may elect to exercise the
Option. If Grantee wishes to exercise the Option, it shall send to Issuer a
written notice (the date of which shall be referred to herein as the "Notice
Date") which specifies (i) the total number of Option Shares to be purchased,
and (ii) a place and date not earlier than two Business Days nor later than ten
(10) Business Days from the Notice Date for the closing (the "Closing") of such
purchase (the "Closing Date"); provided, however, that if prior notification to
or approval of the Office of Thrift Supervision or any other regulatory agency
is required in connection with such purchase, Grantee shall promptly file the
required notice or application for approval, shall promptly notify Issuer of
such filing, and shall expeditiously process the same and the period of time
that otherwise would run pursuant to this sentence shall run instead from the
date on which any required notification periods have expired or been terminated
or such approvals have been obtained and any requisite waiting period or periods
shall have passed. Any exercise of the Option shall be deemed to occur on the
Notice Date relating thereto. On or prior to the Closing, Grantee shall have the
right to revoke its exercise of the Option in the event that the transaction
constituting a Purchase Event that gives rise to such right to exercise shall
not have been consummated.
3. Payment and Delivery of Certificates; Grantee Representation.
(a) If Grantee elects to exercise the Option, then at the Closing, Grantee
shall pay to Issuer the aggregate purchase price for the Option Shares purchased
pursuant to the exercise of the Option in immediately available funds by a wire
transfer to a bank designated by Issuer.
(b) At such Closing, simultaneously with the delivery of the purchase price
for the Option Shares as provided in paragraph (a) hereof, Issuer shall deliver
to Grantee a certificate or certificates, registered in the name of Grantee or
its designee, representing the number of Option Shares purchased by Grantee.
Such certificates may be endorsed with a legend which shall read as follows:
THE SALE OF THE SHARES REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND
ARE ACCORDINGLY SUBJECT TO RESALE RESTRICTIONS ARISING UNDER THE ACT.
THE TRANSFER OF SUCH SHARES IS SUBJECT TO CERTAIN PROVISIONS OF AN
AGREEMENT BETWEEN THE REGISTERED HOLDER HEREOF AND THE ISSUER, A COPY OF
WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF THE ISSUER. A COPY
OF SUCH AGREEMENT WILL BE PROVIDED TO THE HOLDER HEREOF WITHOUT CHARGE
UPON RECEIPT BY THE ISSUER OF A REQUEST THEREFOR.
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Any such legend shall be removed by delivery of a substitute certificate without
such legend if Grantee shall have delivered to Issuer an opinion of counsel, in
form and substance satisfactory to Issuer, that such legend is not required for
purposes of assuring compliance with applicable securities or other law or with
this Agreement.
(c) Except as otherwise provided herein, Grantee hereby represents and
warrants to Issuer that the Option is being, and any Option Shares issued upon
exercise of the Option will be, acquired by Grantee for its own account and not
with a view to any distribution thereof, and Grantee will not sell any Option
Shares purchased pursuant to exercise of the Option except in compliance with
applicable securities and other laws.
4. Representations; Covenants. Issuer hereby represents and warrants to and
agrees with Grantee as follows:
(a) Issuer has all requisite corporate power and authority to enter
into and perform all of its obligations under this Agreement. The
execution, delivery and performance of this Agreement and all of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Issuer. This Agreement has been duly
executed and delivered by Issuer and constitutes a valid and binding
agreement of Issuer, enforceable against Issuer in accordance with its
terms, except as the enforceability hereof may be limited by bankruptcy,
insolvency, moratorium or other similar laws affecting the rights of
creditors generally or by equitable principles, whether such enforcement is
sought in law or equity.
(b) The execution and delivery by Issuer of this Agreement and the
consummation of the transactions herein contemplated do not and will not
violate or conflict with Issuer's Certificate of Incorporation or Bylaws,
any statute, regulation, judgment, order, writ, decree or injunction
applicable to Issuer (other than as may be effected by Grantee's ownership
of Issuer Common Stock exceeding certain limits set forth by statute or
regulation) or its properties or assets and do not and will not violate,
conflict with, result in a breach of, constitute a default (or an event
which with due notice and/or lapse of time would constitute a default)
under, result in a termination of, accelerate the performance required by,
or result in the creation of any lien, pledge, security interest, charge or
other encumbrance upon any of the properties or assets of Issuer under the
terms, conditions or provisions of any note, bond, mortgage, indenture,
deed of trust, or loan agreement or other agreement, instrument or
obligation to which Issuer is a party, or by which Issuer or any of its
properties or assets may be bound or affected.
(c) Issuer has taken all necessary corporate action to authorize and
reserve and to permit it to issue, and at all times from the date hereof
through the termination of this Agreement in accordance with its terms,
will have reserved for issuance upon the exercise of the Option a number of
shares of Common Stock sufficient to satisfy the exercise of the Option in
full, all of which Common Stock, upon issuance pursuant hereto, shall be
duly authorized, validly issued, fully paid and nonassessable, and shall be
delivered free and clear of all claims, liens, encumbrances, security
interests and preemptive rights.
(d) Issuer agrees that it will not, by amendment of its Certificate of
Incorporation or through reorganization, consolidation, merger, dissolution
or sale of assets, or by any other voluntary act, avoid or seek to avoid
the observance or performance of any of the covenants, stipulations or
conditions to be observed or performed hereunder by Issuer.
(e) Issuer shall promptly take all action as may from time to time be
required (including (x) complying with all premerger notification,
reporting and waiting period requirements specified in 15 U.S.C. sec.18a
and regulations promulgated thereunder and (y) in the event, under any
federal or state banking law, prior approval of or notice to the Federal
Reserve Board, the Office of Thrift Supervision or to any state regulatory
authority is necessary before the Option may be exercised, cooperating
fully with Grantee in preparing such applications or notices and providing
such information to the Federal Reserve Board, the Office of Thrift
Supervision or such state regulatory
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authority as they may require) in order to permit Grantee to exercise the
Option and Issuer duly and effectively to issue shares of Common Stock
pursuant hereto, and to protect the rights of Grantee against dilution.
5. Adjustment Upon Changes in Capitalization.
(a) In the event of any dividend, stock split, split-up, recapitalization,
reclassification, combination, exchange of shares or similar transaction or
event with respect to Common Stock, the type and number of shares or securities
subject to the Option and the Exercise Price therefor, shall be adjusted
appropriately, and proper provision shall be made in the agreements governing
such transaction so that Grantee shall receive, upon exercise of the Option, the
number and class of shares or other securities or property that Grantee would
have received in respect of Common Stock if the Option had been exercised
immediately prior to such event, or the record date thereof, as applicable. If
any shares of Common Stock are issued after the date of this Agreement (other
than pursuant to this Agreement and other than pursuant to an event described in
the first sentence of this Section 5(a)), the number of shares of Common Stock
subject to the Option shall be adjusted so that, after such issuance, such
number, together with any shares of Common Stock previously issued pursuant
hereto, equals 19.9% of the number of shares of Common Stock then issued and
outstanding, without giving effect to any shares subject to or issued pursuant
to this Option. Nothing contained in this Section 5(a) or elsewhere in this
Agreement shall be deemed to authorize Issuer to issue shares in breach of any
provision of the Merger Agreement.
(b) In the event that Issuer, shall, prior to the Expiration Date, enter in
an agreement: (i) to consolidate with or merge into any Person, other than
Grantee or one of its affiliates or subsidiaries, and shall not be the
continuing or surviving corporation of such consolidation or merger, (ii) to
permit any Person, other than Grantee or one of its affiliates or subsidiaries,
to merge into Issuer and Issuer shall be the continuing or surviving
corporation, but, in connection with such merger, the then outstanding shares of
Common Stock shall be changed into or exchanged for stock or other securities of
Issuer or any other Person or cash or any other property or the outstanding
shares of Common Stock immediately prior to such merger shall after such merger
represent less than 50% of the outstanding shares and share equivalents of the
merged company; or (iii) to sell or otherwise transfer all or substantially all
of its assets or any of its affiliates or subsidiaries to any Person, other than
Grantee or one of its subsidiaries, then, and in each such case, the agreement
governing such transaction shall make proper provisions so that the Option
shall, upon the consummation of any such transaction and upon the terms and
conditions set forth herein, be converted into, or exchanged for, an option (the
"Substitute Option"), at the election of Grantee, of either (x) the Succeeding
Corporation (as defined below), (y) any Person that controls the Succeeding
Corporation, or (z) in the case of a merger described in clause (ii), Issuer (in
each case, such Person being referred to as the "Substitute Option Issuer.")
(c) The Substitute Option shall be exercisable for such number of shares of
the Substitute Common Stock (as hereinafter defined) as is equal to the Assigned
Value (as hereinafter defined) multiplied by the number of shares of Common
Stock for which the Option was theretofore exercisable, divided by the Average
Price (as hereinafter defined). The exercise price of the Substitute Option per
share of the Substitute Common Stock (the "Substitute Option Price") shall then
be equal to the Exercise Price multiplied by a fraction in which the numerator
is the number of shares of the Common Stock for which the Option was theretofore
exercisable and the denominator is the number of shares for which the Substitute
Option is exercisable.
(d) The Substitute Option shall otherwise have the same terms as the
Option, provided, that, if the terms of the Substitute Option cannot, for legal
reasons, be the same as the Option, such terms shall be as similar as possible
and in no event less advantageous to Grantee. The Substitute Option Issuer shall
also enter into an agreement with the then-holder or holders of the Substitute
Option in substantially the form as this Agreement, which shall be applicable to
the Substitute Option.
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(e) The following terms have the meanings indicated:
(i) "Succeeding Corporation" shall mean (x) the continuing or
surviving corporation of a consolidation or merger with Issuer (if other
than Issuer), (y) Issuer in a merger in which Issuer is the continuing or
surviving Person, and (z) the transferee of all or any substantial part of
Issuer assets (or the assets of its subsidiaries).
(ii) "Substitute Common Stock" shall mean the common stock issued by
the Substitute Option Issuer upon exercise of the Substitute Option.
(iii) "Assigned Value" shall mean the highest of (x) the price per
share of Common Stock at which a Tender Offer or Exchange Offer therefor
has been made by any Person (other than Grantee or any of its affiliates or
its subsidiaries) (y) the price per share of Common Stock to be paid by any
Person (other than Grantee or any of its affiliates or subsidiaries)
pursuant to an agreement with Issuer, and (z) the highest closing sales
price per share of Common Stock as quoted on the Nasdaq National Market (or
if Common Stock is not quoted on the Nasdaq National Market, the highest
bid price per share on any day as quoted on the principal trading market or
securities exchange on which such shares are traded as reported by a
recognized source chosen by Grantee and reasonably acceptable to Issuer)
within the six-month period immediately preceding the agreement referred to
in (y); provided, that in the event of a sale of less than all of Issuer's
assets, the Assigned Value shall be the sum of the price paid in such sale
for such assets and the current market value of the remaining assets of
Issuer as determined by a nationally-recognized investment banking firm
selected by Grantee and reasonably acceptable to Issuer, divided by the
number of shares of Common Stock outstanding at the time of such sale. In
the event that an Exchange Offer is made for Common Stock or an agreement
is entered into for a merger or consolidation involving consideration other
than cash, the value of the securities or other property issuable or
deliverable in exchange for the Common Stock shall be determined by a
nationally-recognized investment banking firm mutually selected by Grantee
and Issuer (or if applicable, the Succeeding Corporation), provided that if
a mutual selection cannot be made as to such investment banking firm, it
shall be selected by Grantee, in either case whose determination shall be
conclusive and binding on all parties.
(iv) "Average Price" shall mean the average closing price of a share
of the Substitute Common Stock for the one year immediately preceding the
consolidation, merger or sale in question, but in no event higher than the
closing price of the shares of the Substitute Common Stock on the day
preceding such consolidation, merger or sale, provided, however, that if
such closing price is not ascertainable due to an absence of a public
market for the Substitute Common Stock, "Average Price" shall mean the
higher of (i) the price per share of Substitute Common Stock paid or to be
paid by any third party pursuant to an agreement with the issuer of the
Substitute Common Stock and (ii) the book value per share, calculated in
accordance with generally accepted accounting principles, of the Substitute
Common Stock immediately prior to exercise of the Substitute Option;
provided, further, that if Issuer is the issuer of the Substitute Option,
the Average Price shall be computed with respect to a share of common stock
issued by Issuer, the Person merging into Issuer or by any company which
controls or is controlled by such merging Person, as Grantee may elect.
(f) In no event pursuant to any of foregoing paragraphs shall the
Substitute Option be exercisable for more than 19.9% of the aggregate of the
shares of the Substitute Common Stock outstanding immediately prior to exercise
of the Substitute Option. In the event that the Substitute Option would be
exercisable for more than 19.9% of the aggregate of the shares of Substitute
Common Stock but for this clause (f), the Substitute Option Issuer shall make a
cash payment to Grantee equal to the excess of (i) the value of the Substitute
Option without giving effect to the limitation in this clause (f) over (ii) the
value of the Substitute Option after giving effect to the limitation in this
clause (f). This difference in value shall be determined by a nationally
recognized investment banking firm selected by Grantee and reasonably acceptable
to the Substitute Option Issuer, whose determination shall be conclusive and
binding on the parties.
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(g) Issuer shall not enter into any transaction described in subsection (b)
of this Section 5 unless the Succeeding Corporation and any Person that controls
the Succeeding Corporation assume in writing all the obligations of Issuer
hereunder and take all other actions that may be necessary so that the
provisions of this Section 5 are given full force and effect (including, without
limitation, any action that may be necessary so that the shares of Substitute
Common Stock are in no way distinguishable from or have lesser economic value
(other than any diminution in value resulting from the fact that the Substitute
Common Stock are restricted securities, as defined in Rule 144 under the
Securities Act or any successor provision) than other shares of common stock
issued by the Substitute Option Issuer).
6. Purchase of Option Shares and Options by Issuer.
(a) From and after the first date a transaction specified in Section 5(b)
herein is consummated (the "Repurchase Event"), and subject to the last sentence
of Section 2(a), Section 9 and applicable regulatory and legal restrictions,
Grantee, after having exercised any Option in whole or in part, shall have the
right to require Issuer to purchase some or all of the Option Shares at a
purchase price per share (the "Purchase Price") equal to the highest of (i) 100%
of the Exercise Price, (ii) the highest price paid or agreed to be paid for
shares of Common Stock by an Acquiring Person (as defined in paragraph (b) of
this Section) in any tender offer, exchange offer or other transaction or series
of related transactions involving the acquisition of 10% or more of the
outstanding shares of Common Stock during the one-year period immediately
preceding the Purchase Date (as defined in paragraph (e) of this Section), (iii)
the highest closing price for shares of Common Stock as reported on the Nasdaq
National Market (or if Common Stock is not quoted on the Nasdaq National Market,
the highest bid price per share on any day as quoted on the principal trading
market or securities exchange on which such shares are traded as reported by a
recognized source chosen by Grantee and reasonably acceptable to Issuer), within
the 90-day period ending on the Purchase Date and (iv) in the event of a sale of
all or substantially all of Issuer's assets, (x) the sum of the price paid in
such sale for such assets and the current market value of the remaining assets
of Issuer as determined by a recognized investment banking firm selected by
Grantee and reasonably acceptable to Issuer, whose determination shall be
conclusive and binding on the parties hereto, divided by (y) the number of
shares of Common Stock then outstanding. In the event that any of the
consideration paid or agreed to be paid by an Acquiring Person for any shares of
Common Stock or for any of Issuer's assets consists in whole or in part of
securities, the value of such securities for purposes of determining the
Purchase Price shall be determined (i) if there is an existing public trading
market therefor, by the average of the last sales prices for such securities on
the twenty (20) trading days ending three trading days prior to the payment of
such consideration (if such consideration has been paid) or prior to the date of
determination (if such consideration has not yet been paid) and (ii) if there is
no existing public trading market for such securities, by a recognized
investment banking firm selected by Grantee and reasonably acceptable to Issuer,
whose determination shall be conclusive and binding on the parties hereto.
(b) For purposes of this Agreement, "Acquiring Person" shall mean a Person
or group (as such terms are defined in the Exchange Act and the rules and
regulations thereunder) other than Grantee or an affiliate or subsidiary of
Grantee who on or after the date of this Agreement engages in a transaction
which gives rise to a Purchase Event.
(c) Subject to applicable regulatory and legal restrictions and the last
sentence of Section 2(a), from and after a Repurchase Event and after Grantee
receives official notice that an approval of the Office of Thrift Supervision,
or any other regulatory authority, required for the exercise of the Option and
purchase of the Option Shares will not be issued or granted, Grantee shall,
subject to Section 9, have the right to require Issuer to purchase some or all
of the Options held by Grantee at a price equal to the Purchase Price minus the
Exercise Price on the Purchase Date (as defined in paragraph (e) of this
Section) multiplied by the number of shares of Common Stock that may be
purchased on the Purchase Date upon the exercise of the Options elected to be
purchased.
(d) Issuer hereby undertakes to use its best efforts to obtain all required
regulatory and legal approvals and to file any required notices as promptly as
practicable in order to accomplish any repurchase
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contemplated by this Section 6. Nonetheless, to the extent that Issuer is
prohibited under applicable law or regulation from repurchasing the Option
and/or the Option Shares in full, Issuer shall immediately so notify Grantee and
thereafter deliver or cause to be delivered, from time to time, to Grantee, the
portion of the Purchase Price that it is no longer prohibited from delivering,
within five (5) Business Days after the date on which Issuer is no longer so
prohibited; provided, however, that if Issuer at any time after delivery of a
notice of repurchase pursuant to this Section 6 is prohibited under applicable
law or regulation from delivering to Grantee the Purchase Price in full Grantee
may revoke its notice of repurchase of the Option or the Option Shares either in
whole or in part whereupon, in the case of a revocation in part, Issuer shall
promptly (i) deliver to Grantee that portion of the Purchase Price that Issuer
is not prohibited from delivering after taking into account any such revocation
and (ii) deliver, as appropriate, either a new Agreement evidencing the right to
purchase that number of shares of Common Stock equal to the number of shares of
Common Stock purchasable immediately prior to the delivery of the notice of
repurchase less the number of shares of Common Stock covered by the portion of
the Option repurchased or a certificate for the number of Option Shares covered
by the revocation. Notwithstanding anything else herein to the contrary,
Grantee's right to require Issuer to purchase some or all of the Option Shares
or some or all of the Options shall expire on the date which is the earlier to
occur of the (a) Expiration Date and (b) one year following the Repurchase Event
or, with respect to any Option Shares or Options that Issuer is prohibited under
applicable law or regulation from repurchasing, the date that is the earlier to
occur of the (a) Expiration Date and (b) one year following the date on which
Issuer is no longer prohibited from purchasing such Option Shares or Options, as
the case may be.
(e) Grantee may exercise its right to require Issuer to purchase the Option
Shares or Options (collectively, "Securities") pursuant to this Section by
surrendering for such purpose to Issuer, at its principal office or at such
other office or agency maintained by Issuer for that purpose, within the period
specified above, the certificates or other instruments representing the
Securities to be purchased accompanied by a written notice stating that it
elects to require Issuer to purchase all or a specified number of such
Securities. Within five Business Days after the surrender of such certificates
or instruments and the receipt of such notice relating thereto, to the extent it
is legally permitted to do so, Issuer shall deliver or cause to be delivered to
Grantee (i) a bank cashier's or certified check payable to Grantee in an amount
equal to the applicable purchase price therefor, and (ii) if less than the full
number of Securities evidenced by the surrendered instruments are being
purchased, a new certificate or instrument, for the number of Securities
evidenced by such surrendered certificates or other instruments less the number
of Securities purchased. Such purchases shall be deemed to have been made at the
close of business on the date (the "Purchase Date") of the receipt of such
notice and of such surrender of the certificates or other instruments
representing the Securities to be purchased and the rights of Grantee, except
for the right to receive the applicable purchase price therefor in accordance
herewith, shall cease on the Purchase Date.
7. Registration Rights. As promptly as practicable upon Grantee's request
after a Purchase Event, Issuer agrees to prepare and file a registration
statement ("Registration Event") under federal and any applicable state
securities laws to the extent permitted by applicable laws and regulations, with
respect to any proposed dispositions by Grantee of all or any part of the Option
or any or all of the Option Shares, and to use its commercially reasonable
efforts to cause any such registration statement to become effective as
expeditiously as possible and to keep such registration effective for a period
of not less than 180 days unless, in the written opinion of counsel to Issuer,
addressed to Grantee and satisfactory in form and substance to Grantee and its
counsel, registration is not required for such proposed transactions. Issuer
shall be required to file only two such registration statements during the three
year period following the date of the first Purchase Event and shall have no
obligation to file such a registration statement at any time which is three
years or later after the first Purchase Event. All reasonable fees, expenses and
charges of any kind or nature whatsoever incurred in connection with any
registration of, or the preparation of any prospectus relating to, the Option
Shares pursuant to this Section 7 shall be borne and paid by Issuer (except for
underwriting discounts or commissions and brokers' fees of Grantee related
thereto). In addition, if the Issuer proposes to register Common Stock or any
other securities on a form that would permit the registration of the Option
Shares for public sale under the Securities Act (whether proposed to
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be offered for sale by the Issuer or any other Person) it will give prompt
written notice to Grantee of its intention to do so, specifying the relevant
terms of such proposal, including the proposed maximum offering price thereof.
Upon the written notice of Grantee (whether on its own behalf or on behalf of
any subsequent holder of the Option (or part thereof) or any of the shares of
Common Stock issued pursuant hereto) delivered to the Issuer within 15 Business
Days after the giving of any such notice, which request shall specify the number
of Option Shares desired to be disposed by Grantee, the Issuer will use its
commercially reasonable efforts to effect, in connection with its proposed
registration, the registration under the Securities Act of the Option Shares set
forth in such request. Issuer shall be required to effect no more than three
such registrations (each, a "piggy-back registration"). In the event Grantee
exercises its registration rights under this Section 7, Issuer shall provide
Grantee, its affiliates, each of their respective officers and directors and any
underwriters used by Grantee, with indemnifications, representations and
warranties and shall cause its attorneys and accountants to deliver to Grantee
and any such underwriters attorneys' opinions and "comfort letters", all of a
type customarily provided or delivered in connection with public underwritten
offerings of securities. The foregoing notwithstanding, if, at the time of any
request by Grantee for piggy-back registration of Option Shares as provided
above, in the good faith judgment of the managing underwriter or managing
underwriters, or, if none, the sole underwriter or underwriters, of such
offering, the offer and sale of the Option Shares would interfere with the
successful marketing of the shares of Issuer Common Stock offered by Issuer, the
number of Option Shares otherwise to be covered in the registration statement
contemplated hereby may be reduced; provided, however, that after any such
required reduction the number of Option Shares to be included in such offering
for the account of Grantee shall constitute at least 25% of the total number of
shares to be sold by Grantee and the Issuer in aggregate; and provided further,
however, that if such reduction occurs, then the Issuer shall file a
registration statement for the balance as promptly as practicable thereafter as
to which no reduction pursuant to this Section 7 shall be permitted or occur.
Notwithstanding the foregoing, Issuer shall have the right to delay (a "Delay
Right") a Registration Event for a period of up to sixty days, in the event it
receives a request from Grantee to effect a Registration Event, if Issuer
determines, in the good faith exercise of its reasonable business judgment, that
such registration and offering could adversely effect or interfere with bona
fide material financing plans of Issuer or would require disclosure of
information, the premature disclosure of which could materially adversely affect
Issuer or any transaction under active consideration by Issuer. Issuer shall
have the right to exercise two Delay Rights in any eighteen month period.
Notwithstanding anything to the contrary stated herein, Issuer shall not be
required to register Options or Option Shares under the Securities Act pursuant
to this Section 7 (a) on more than one occasion during any calendar year or (b)
within 180 days after the effective date of any registration referred to in this
Section 7 pursuant to which Grantee was afforded the opportunity to register
such shares under the Securities Act and such shares were registered as
requested.
8. Listing.
If Common Stock or any other securities to be acquired upon exercise of the
Option are then authorized for quotation or trading or listing on the Nasdaq
National Market or any other securities exchange or automated quotation system,
Issuer, or any successor thereto, upon the request of the holder of the Option,
will promptly file an application, if required, to authorize for listing or
trading or quotation the shares of Common Stock or other securities to be
acquired upon exercise of the Option on the Nasdaq National Market or any other
securities exchange or automated quotation system and will use its best efforts
to obtain approval, if required, of such listing or quotation as soon as
possible.
9. Limitations on Total Profit and Notional Total Profit.
(a) Notwithstanding anything to the contrary contained herein, in no event
shall Grantee's Total Profit (as defined below in Section 9(c) hereof) exceed
$4,866,128 and, if such Total Profit otherwise would exceed such amount,
Grantee, at its sole election, shall either (i) reduce the number of shares of
Issuer Common Stock subject to the Option, (ii) pay cash to Issuer, or (iii) any
combination thereof, so that Grantee's actually realized Total Profit shall not
exceed $4,866,128 after taking into account the foregoing actions.
E-9
<PAGE> 147
(b) Notwithstanding anything to the contrary contained herein, the Option
may not be exercised for a number of shares as would, as of the date of
exercise, result in a Notional Total Profit (as defined below in Section 9(d)
hereof) of more than $4,866,128; provided, that nothing in this sentence
restrict any exercise of the Option permitted hereby on any subsequent date.
(c) As used herein, the term "Total Profit" shall mean the aggregate amount
(before taxes) of the following: (i) the amount received by Grantee pursuant to
Issuer's repurchase of the Option (or any portion thereof) pursuant to Section 6
hereof, (ii)(x) the amount received by Grantee pursuant to Issuer's repurchase
of Option Shares pursuant to Section 6 hereof, less (y) Grantee's purchase price
for such Option Shares, (iii)(x) the net cash amounts received by Grantee
pursuant to the sale of Option Shares (or any other securities into which such
Option Shares may be converted or exchanged) to any unaffiliated party, less (y)
Grantee's purchase price of such Option Shares, (iv) any amounts received by
Grantee on the transfer of any Option (or any portion thereof) to any
unaffiliated party, (v) any equivalent amount with respect to the Substitute
Option, and (vi) any amount paid by Issuer pursuant to Section 13.1(c) of the
Merger Agreement.
(d) As used herein, the term "Notional Total Profit" with respect to any
number of shares as to which Grantee may propose to exercise the Option shall be
the Total Profit determined as of the date of such proposed exercise assuming
that the Option were exercised on such date for such number of shares and
assuming that such shares, together with all other Option Shares held by Grantee
as of such date, were sold for cash at the closing market price for the Issuer
Common Stock as of the close of business on the preceding trading day (less
customary brokerage commissions).
(e) It is expressly agreed and understood that the calculation at any time
of Total Profit or Notional Total Profit with respect to any Grantee shall
aggregate and include the Total Profit or Notional Total Profit received or
deemed to be received at any time by all Grantees.
10. Miscellaneous.
(a) Expenses. Except as otherwise expressly provided herein, each of the
parties hereto shall bear and pay all costs and expenses incurred by it or on
its behalf in connection with the transactions contemplated hereunder, including
fees and expenses of its own financial consultants, investment bankers,
accountants and counsel.
(b) Entire Agreement. Except as otherwise expressly provided herein or in
the Merger Agreement, this Agreement contains the entire agreement between the
parties with respect to the transactions contemplated hereunder and supersedes
all prior arrangements or understandings with respect thereto, written or oral.
The terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and assigns.
Nothing in this Agreement, expressed or implied, is intended to confer upon any
party, other than the parties hereto, and their respective successors and
assigns, any rights, remedies, obligations or liabilities under or by reason of
this Agreement, except as expressly provided herein.
(c) Assignment. At any time after a Purchase Event occurs, Grantee may
sell, assign or otherwise transfer its rights and obligations hereunder, in
whole or in part, by issuing Options or otherwise, to any Person or group of
Persons, subject to applicable law, rule or regulation. In order to effectuate
the foregoing, Grantee shall be entitled to surrender this Agreement to Issuer
in exchange for two or more Agreements entitling the holders thereof to purchase
in the aggregate the same number of shares of Common Stock as may be purchasable
hereunder. The term "Grantee" as used in this Agreement shall also be deemed to
refer to any and all of Grantee's permitted assigns, with such modifications to
the context as are required to vest in such permitted assignees the full
benefits and obligations afforded by this Agreement.
(d) Notices. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered personally
or by confirmed facsimile transmission or sent by registered or certified mail
or overnight courier, postage prepaid, with return receipt requested, at the
respective
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<PAGE> 148
addresses of the parties set forth in the Merger Agreement or as otherwise
notified to the other parties in writing.
<TABLE>
<S> <C>
To Grantee: Temple-Inland Inc.
303 South Temple Drive
Diboll, Texas 75941
Attention: M. Richard Warner
Facsimile Number: (409) 829-3333
With a copy to: Sullivan & Cromwell
1888 Century Park East
Los Angeles, California 90067
Attention: Stanley F. Farrar
Facsimile Number: (310) 712-8800
To Issuer: HF Bancorp, Inc.
445 E. Florida Avenue
Hemet, California 92543
Attention: Richard Cupp
Facsimile Number: (909) 658-8461
With a copy to: Manatt, Phelps & Phillips, LLP
11355 West Olympic Boulevard
Los Angeles, California 90064
Attention: William T. Quicksilver, Esq.
Facsimile Number: (310) 312-4224
</TABLE>
A party may change its address for notice purposes by written notice to the
other party hereto.
(e) Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
(f) Specific Performance. The parties hereto agree that irreparable harm
would occur in the event that any of the provisions of this Agreement were not
performed by them in accordance with their specific terms or conditions or were
otherwise breached and that money damages are an inadequate remedy for breach of
this Agreement because of the difficulty of ascertaining the amount of damage
that will be suffered by the parties in the event that this Agreement is not
performed in accordance with its terms or conditions or otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement by the parties and to enforce
specifically the terms and provisions hereof in any court of the United States
or any state having jurisdiction, this being in addition to any other remedy to
which it is entitled at law or in equity.
(g) Governing Law. This Agreement shall be governed by, and interpreted in
accordance with, the laws of the State of Delaware without regard to the
conflict of law principles thereof. The parties hereby irrevocably submit to the
jurisdiction of the courts of the State of Delaware and the federal courts of
the United States of America located in the State of Delaware solely in respect
of the interpretation and enforcement of the provisions of this Agreement and of
the documents referred to in this Agreement, and in respect of the transactions
contemplated herein and therein, and hereby waive, and agree not to assert, as a
defense in any action, suit or proceeding for the interpretation or enforcement
hereof or of any such document, that it is not subject thereto or that such
action, suit or proceeding may not be brought or is not maintainable in said
courts or that the venue thereof may not be appropriate or that this Agreement
or any such document may not be enforced in or by such courts, and the parties
hereto irrevocably agree that all claims with respect to such action or
proceeding shall be heard and determined in such Delaware state or federal
court. The parties hereby consent to and grant any such court jurisdiction over
the person of such parties and over the subject matter of such dispute and agree
that mailing of process or other papers
E-11
<PAGE> 149
in connection with any such action or proceeding in the manner provided in
Section 10(d) or in such other manner as may be permitted by law, shall be valid
and sufficient service thereof.
(h) Best Efforts. Each of Grantee and Issuer will use its commercially
reasonable efforts to make all filings with, and to obtain consents of, all
third parties and governmental authorities necessary to the consummation of the
transactions contemplated by this Agreement, including without limitation
applying to the Office of Thrift Supervision for approval to acquire the shares
issuable hereunder.
(i) Descriptive Headings. The descriptive headings herein are inserted for
convenience of reference and are not intended to be part of or to affect the
meaning or interpretation of this Agreement.
(j) Severability. If any portion of this Agreement shall be deemed by a
court of competent jurisdiction to be unenforceable, the remaining portions
shall be valid and enforceable only if, after excluding the portion deemed to be
unenforceable, the remaining terms hereof shall provide for the consummation of
the transactions contemplated herein in substantially the same manner as
originally set forth at the date this Agreement was executed.
(k) Further Assurances. In the event of any exercise of the option by
Grantee, Issuer and such Grantee shall execute and deliver all other documents
and instruments and take all other action that may be reasonably necessary in
order to consummate the transactions provided for by such exercise.
(l) Definitions. Capitalized terms used but not defined herein shall have
the meanings ascribed to them in the Merger Agreement.
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement,
as of the day and year first written above.
TEMPLE-INLAND INC.
By:
----------------------------------
President and Chief Operating
Officer
HF BANCORP, INC.
By:
----------------------------------
President and Chief Executive
Officer
E-12
<PAGE> 150
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 102(b)(7) of the General Corporation Law of Delaware (the "DGCL")
permits a corporation to limit the personal liability of its directors in
certain cases. Article Eleventh of Temple-Inland's Certificate of Incorporation
provides that no director of Temple-Inland shall be personally liable to
Temple-Inland or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of such director's
duty of loyalty to Temple-Inland or its stockholders, (ii) for any acts or
omissions not in good faith or that involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the DGCL, or (iv) for any
transaction from which such director derived an improper personal benefit.
Section 145 of the DGCL permits indemnification in cases where a director
or officer has been successful in defending any claim or proceeding and permits
indemnification, even if a director or officer has not been successful, in cases
where the director or officer acted in good faith and in a manner that he
reasonably believed was in, or not opposed to, the best interest of the
corporation. To be indemnified with respect to criminal proceedings, the
director or officer must also have had no reasonable cause to believe that his
conduct was unlawful. In the case of a claim by a third party (that is, a party
other than the corporation), the DGCL permits indemnification for judgments,
fines and amounts paid in settlement, as well as expenses. In the case of a
claim by or in the right of the corporation (including stockholder derivative
suits), indemnification under the DGCL is limited to expenses, but does not
cover judgments or amounts paid in settlement, and no indemnification of
expenses is permitted if the director or officer is adjudged liable to the
corporation, unless a court determines that, despite such adjudication but in
view of all the circumstances, such indemnification is nonetheless proper. The
DGCL also permits the advancement of expenses to directors and officers upon
receipt by the corporation of an undertaking to repay all amounts so advanced if
it is ultimately determined that the director or officer has not met the
applicable standard of conduct and is, therefore, not entitled to be
indemnified.
Article VI of Temple-Inland's By-Laws generally provides that, subject to
certain limitations, each person who was or is made a party or is threatened to
be made a party to or is involved in any threatened, pending or completed legal
action, suit or proceeding whether civil, criminal, administrative or
investigative by reason of the fact that he is or was a director, officer or
employee of Temple-Inland or is or was a director, officer or employee of
Temple-Inland or a direct or indirect wholly owned subsidiary of Temple-Inland
(except Guaranty Federal Bank, F.S.B.) or is or was serving at the request of
the corporation as a director, officer, employee or agent of any such subsidiary
or another company, savings and loan association, partnership, joint venture,
trust, employee benefit plan or other enterprise, shall be indemnified and held
harmless by the corporation, to the full extent authorized by the DGCL, against
all expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection
therewith, provided that such person acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of
Temple-Inland (and with respect to a criminal action, had no reason to believe
his conduct was unlawful) except that with respect to actions brought by or in
the right of Temple-Inland, no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudicated to be
liable to Temple-Inland, unless and only to the extent that the applicable court
determines, upon application, that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses. Such indemnification shall continue as
to a person who has ceased to be director, officer, employee or agent and shall
inure to the benefit of his or her heirs, executors and administrators. Article
VI provides that Temple-Inland may pay the expenses incurred in defending any
such proceeding in advance of its final disposition upon delivery to
Temple-Inland of an undertaking, by or on behalf of such director, officer,
employee or agent to repay such amounts so advanced if it shall ultimately be
determined that such person is not entitled to be indemnified under Article VI.
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<PAGE> 151
Both the DGCL and Article VI of Temple-Inland's By-laws specifically state
that their indemnification provisions shall not be deemed exclusive of any other
indemnity rights a director may have. Temple-Inland has entered into
indemnification agreements with each of its directors that are intended to
assure the directors that they will be indemnified to the fullest extent
permitted by Delaware law.
Section 145 of the DGCL permits a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation against any liability asserted against him and incurred
by him in any such capacity, or arising out of his status as such. Under an
insurance policy maintained by Temple-Inland, Temple-Inland is insured for
certain amounts that it may be obligated to pay directors and officers by way of
indemnity, and each such director and officer is insured against certain losses
that he may incur by reason of his being a director or officer and for which he
is not indemnified by Temple-Inland.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers or persons controlling Temple-Inland pursuant to the foregoing
provisions, Temple-Inland has been informed that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
2.01 -- Agreement and Plan of Merger (Incorporated by reference
to Appendix A to the Proxy Statement-Prospectus included
in this Registration Statement.)
2.02 -- Stock Option Agreement (Incorporated by reference to
Appendix E to the Proxy Statement-Prospectus included in
this Registration Statement.)
3.01 -- Certificate of Incorporation of Temple-Inland(1), as
amended effective May 4, 1987(2), as amended effective
May 4, 1990(3)
3.02 -- Amended and Restated Bylaws of Temple-Inland(4)
4.01 -- Form of Specimen Common Stock Certificate of
Temple-Inland(5)
4.02 -- Indenture dated as of September 1, 1986, between the
Registrant and Chemical Bank, as Trustee (6), as amended
by First Supplemental Indenture dated as of April 15,
1988, as amended by Second Supplemental Indenture dated
as of December 27, 1990 (7), and as amended by Third
Supplemental Indenture dated as of May 9, 1991(8)
4.03 -- Form of Specimen Medium-Term Note of the Company(6)
4.04 -- Form of Fixed-rate Medium Term Note, Series B, of the
Company(7)
4.05 -- Form of Floating-rate Medium Term Note, Series B, of the
Company(7)
4.06 -- Form of 9% Note due May 1, 2001, of the Company(9)
4.07 -- Form of Fixed-rate Medium Term Note, Series D, of the
Company(10)
4.08 -- Form of Floating-rate Medium Term Note, Series D, of the
Company(10)
4.09 -- Certificate of Designation, Preferences and Rights of
Series A Junior Participating Preferred Stock, dated
February 16, 1989(11)
4.10 -- Rights Agreement, dated February 20, 1999, between the
Company and First Chicago Trust Company of New York, as
Rights Agent(12)
4.11 -- Form of 7.25% Note due September 15, 2004, of the
Company(13)
4.12 -- Form of 8.25% Debenture due September 15, 2022, of the
Company(13)
4.13 -- Form of Fixed-rate Medium Term Note, Series F, of the
Company(14)
4.14 -- Form of Floating-rate Medium Term Note, Series F, of the
Company(14)
</TABLE>
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<PAGE> 152
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
5.01 -- Opinion of M. Richard Warner, Esq.(15)
8.01 -- Tax opinion of Manatt, Phelps & Phillips, LLP
(Incorporated by reference to Appendix D to the Proxy
Statement-Prospectus included in the Registration
Statement.)
23.01 -- Consent of Ernst & Young LLP(16)
23.02 -- Consent of Deloitte & Touche LLP(16)
23.03 -- Consent of Manatt, Phelps & Phillips, LLP (contained in
Exhibit 8.01)(16)
23.04 -- Consent of M. Richard Warner, Esq. (contained in Exhibit
5.01)(15)
23.05 -- Consent of Keefe, Bruyette & Woods, Inc.(15)
24.01 -- Power of Attorney(15)
99.01 -- Form of proxy for holders of common stock of HF Bancorp,
Inc.(15)
99.02 -- Form of Voting Directive for participants in the HF
Bancorp, Inc. ESOP (15)
</TABLE>
- ---------------
(1) Incorporated by reference to Registration Statement No. 2-87570 on Form S-1
filed by the Company with the Commission.
(2) Incorporated by reference to Post-effective Amendment No. 2 to Registration
Statement No. 2-88202 on Form S-1 filed by the Company with the Commission.
(3) Incorporated by reference to Post-Effective Amendment No. 1 to Registration
Statement No. 33-25650 on Form S-8 filed by the Company with the
Commission.
(4) Incorporated by reference to the Company's Form 10-K for the year ended
January 2, 1993.
(5) Incorporated by reference to Registration Statement No. 33-27286 on Form
S-8 filed by the Company with the Commission.
(6) Incorporated by reference to Registration Statement No. 33-8362 on Form S-1
filed by the Company with the Commission.
(7) Incorporated by reference to the Company's Form 8-K filed with the
Commission on December 27, 1990.
(8) Incorporated by reference to Registration Statement No. 33-40003 on Form
S-3 filed by the Company with the Commission.
(9) Incorporated by reference to the Company's Form 8-K filed with the
Commission on May 2, 1991.
(10) Incorporated by reference to Registration Statement No. 33-43978 on Form
S-3 filed by the Company with the Commission.
(11) Incorporated by reference to the Company's Form 10-K for the year ended
December 31, 1988.
(12) Incorporated by reference to the Company's Registration Statement on Form
8A filed with the Commission on February 19, 1999.
(13) Incorporated by reference to Registration Statement No. 33-50880 on Form
S-3 filed by the Company with the Commission.
(14) Incorporated by reference to the Company's Form 8-K filed with the
Commission on June 2, 1998.
(15) Previously filed.
(16) Filed herewith.
ITEM 22. UNDERTAKINGS
(a)(1) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933 (as amended and the
rules and regulations thereunder, the "Securities Act"), each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (as amended and the rules and regulations
thereunder, the "Exchange
II-3
<PAGE> 153
Act") (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(2) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c)
promulgated pursuant to the Securities Act, the issuer undertakes that such
reoffering prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items of
the applicable form.
(3) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (2) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415 promulgated
pursuant to the Securities Act, will be filed as a part of an amendment to the
registration statement and will not be used until such amendment is effective,
and that, for purposes of determining any liability under the Securities Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(4) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions of this Item 22, or otherwise
(other than insurance), the registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act, and is therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(b) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(d) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement; (i) To
include any prospectus required by Section 10(a)(3) of the Securities Act;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the
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<PAGE> 154
aggregate, the changes in volume and price represent no more than a 20
percent change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement; and (iii) To include any material information with respect to
the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-5
<PAGE> 155
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned thereunto authorized, in the city of Diboll, Texas, on
April 23, 1999.
TEMPLE-INLAND INC.
(Registrant)
By: /s/ CLIFFORD J. GRUM
----------------------------------
Clifford J. Grum,
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<C> <S> <C>
/s/ CLIFFORD J. GRUM Director, Chairman of the Board, April 23, 1999
- ----------------------------------------------------- and Chief Executive Officer
Clifford J. Grum
/s/ KENNETH M. JASTROW, II* Director, President, Chief April 23, 1999
- ----------------------------------------------------- Operating Officer, and Chief
Kenneth M. Jastrow, II Financial Officer
/s/ DAVID H. DOLBEN Vice President and Chief April 23, 1999
- ----------------------------------------------------- Accounting Officer
David H. Dolben
/s/ ROBERT CIZIK* Director April 23, 1999
- -----------------------------------------------------
Robert Cizik
/s/ ANTHONY M. FRANK* Director April 23, 1999
- -----------------------------------------------------
Anthony M. Frank
/s/ WILLIAM B. HOWES* Director April 23, 1999
- -----------------------------------------------------
William B. Howes
/s/ BOBBY R. INMAN* Director April 23, 1999
- -----------------------------------------------------
Bobby R. Inman
/s/ HERBERT A. SKLENAR* Director April 23, 1999
- -----------------------------------------------------
Herbert A. Sklenar
/s/ WALTER P. STERN* Director April 23, 1999
- -----------------------------------------------------
Walter P. Stern
/s/ ARTHUR TEMPLE III* Director April 23, 1999
- -----------------------------------------------------
Arthur Temple III
/s/ CHARLOTTE TEMPLE* Director April 23, 1999
- -----------------------------------------------------
Charlotte Temple
/s/ LARRY E. TEMPLE* Director April 23, 1999
- -----------------------------------------------------
Larry E. Temple
</TABLE>
*By: /s/ M. RICHARD WARNER
-------------------------------
M. Richard Warner,
Attorney-in-fact
II-6
<PAGE> 156
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
2.01 -- Agreement and Plan of Merger (Incorporated by reference
to Appendix A to the Proxy Statement-Prospectus included
in this Registration Statement.)
2.02 -- Stock Option Agreement (Incorporated by reference to
Appendix E to the Proxy Statement-Prospectus included in
this Registration Statement.)
5.01 -- Opinion of M. Richard Warner, Esq.*
8.01 -- Tax opinion of Manatt, Phelps & Phillips, LLP
(Incorporated by reference to Appendix D to the Proxy
Statement-Prospectus included in this Registration
Statement.)
23.01 -- Consent of Ernst & Young LLP
23.02 -- Consent of Deloitte & Touche LLP
23.03 -- Consent of Manatt, Phelps & Phillips, LLP (contained in
Exhibit 8.01)
23.04 -- Consent of M. Richard Warner, Esq. (contained in Exhibit
5.01)*
23.05 -- Consent of Keefe, Bruyette & Woods, Inc.*
24.01 -- Power of Attorney*
99.01 -- Form of proxy for holders of common stock of HF Bancorp,
Inc.*
99.02 -- Form of Voting Directive for participants in the HF
Bancorp, Inc. ESOP*
</TABLE>
- ---------------
* Previously filed.
II-7
<PAGE> 1
EXHIBIT 23.01
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) and related Prospectus of Temple-Inland Inc.
for the registration of 1,216,470 shares of its common stock and to the
incorporation by reference therein of our reports dated January 29, 1999, with
respect to the consolidated financial statements of Temple-Inland Inc.,
incorporated by reference in its Annual Report (Form 10-K) for the year ended
January 2, 1999, and the related financial statement schedule included therein,
filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Houston, Texas
April 23, 1999
<PAGE> 1
EXHIBIT 23.02
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Temple-Inland Inc. on Form S-4 Amendment No. 2, of our report, dated August 25,
1998, on the consolidated statements of financial condition of HF Bancorp, Inc.
and subsidiary as of June 30, 1998 and 1997, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended June 30, 1998, appearing in the Annual Report on
Form 10-K of HF Bancorp, Inc., for the year ended June 30, 1998, and to the
reference to us under the heading "Experts" in the Prospectus, which is a part
of this Registration Statement.
/s/ DELOITTE & TOUCHE LLP
April 22, 1999
Los Angeles, California
