<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 3, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
TEMPLE-INLAND INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<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:
<TABLE>
<S> <C>
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) 312-4141
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. [ ]
- ---------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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- ----------------------------------------------------------------------------------------------------------------------
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $1.00 per
share............................... 1,216,470 shares $56.9375 $69,262,760.63 $19,255.05
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for purposes of determining the registration fee pursuant
to Rule 457(o) of the Securities Act of 1933.
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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- --------------------------------------------------------------------------------
<PAGE> 2
HF BANCORP, INC.
445 EAST FLORIDA AVENUE
HEMET, CALIFORNIA 92543-4244
(800) 540-4363, EXT. 2101
February , 1999
Fellow Stockholders:
You are cordially invited to attend a special meeting of stockholders (the
"Special Meeting") of HF Bancorp, Inc. ("HFB"), the holding company for Hemet
Federal Savings and Loan Association ("Hemet"), Hemet, California. The Special
Meeting will be held on March 25, 1999, at 4:30 p.m., Pacific Time, at Hemet's
main branch located at 445 East Florida Avenue, Hemet, California.
At the Special Meeting, you will be asked to approve and adopt an Agreement
and Plan of Merger, dated as of November 14, 1998, by and among Temple-Inland
Inc. ("Temple-Inland"), HFB, Guaranty Federal Bank, F.S.B., an indirect
wholly-owned subsidiary of Temple-Inland ("Guaranty"), and Hemet (the "Merger
Agreement"). The Merger Agreement
- Provides for the merger of HFB with and into Temple-Inland, with
Temple-Inland being the surviving corporation, or of a subsidiary of
Temple-Inland with and into HFB, with HFB surviving as a wholly-owned
subsidiary of Temple-Inland (in either case, the "Merger"), and
- Contemplates the merger of Hemet with and into Guaranty, with Guaranty
being the surviving financial institution (the "Bank Merger").
According to the Merger Agreement, upon completion of the Merger, each
share of common stock of HFB (the "HFB Common Stock") that you own will be
converted into the right to receive $18.50, which will be paid in the form of
either
- shares of common stock of Temple-Inland (the "Temple-Inland Common
Stock"),
- cash, or
- a combination of Temple-Inland Common Stock and cash.
You will elect how you want to be paid for your shares of HFB Common Stock,
subject to certain election, allocation, and proration procedures. Under certain
circumstances described in the enclosed Proxy Statement-Prospectus, the $18.50
per share will be paid entirely in cash. The actual consideration you ultimately
receive will depend upon these election, allocation, and proration procedures
and the elections of other stockholders, all as described in the accompanying
materials. Accordingly, no guarantee can be given that your election will be
honored. Cash will be paid in lieu of issuing fractional shares of Temple-Inland
Common Stock.
AFTER CAREFUL CONSIDERATION, YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY
APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AND HAS
UNANIMOUSLY CONCLUDED THAT THE TERMS OF THE MERGER ARE ADVISABLE AND FAIR TO AND
IN THE BEST INTERESTS OF HFB AND ITS STOCKHOLDERS. ACCORDINGLY, YOUR BOARD
UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT.
The enclosed Notice of Special Meeting of Stockholders and Proxy
Statement-Prospectus describe the Merger and provide information concerning the
Special Meeting. Please read these materials carefully.
Approval and adoption of the Merger Agreement by the stockholders of HFB is
a condition to the consummation of the Merger. Consummation of the Merger is
also subject to certain other conditions, including the approval of the Merger
by the Office of Thrift Supervision, which is the primary federal bank
regulatory agency for Guaranty and Hemet.
<PAGE> 3
The affirmative vote of a majority of the issued and outstanding shares of
HFB Common Stock is required for approval and adoption of the Merger Agreement.
Accordingly, a failure to return a properly executed proxy card or to vote in
person will have the same effect as a vote against the Merger Agreement. Your
vote is very important regardless of the number of shares you own. It is
important that your shares be represented at the Special Meeting whether or not
you are present. Please be sure to sign, date and mail the enclosed Proxy Card
in the enclosed postage-paid envelope, even if you plan to attend in person. If
you attend the Special Meeting, you may vote in person even if you have already
mailed your Proxy Card.
On behalf of the Board of Directors, I urge you to vote FOR the approval
and adoption of the Merger Agreement and I thank you for your continued support.
If you have any questions, please call (800) 540-4363, Ext. 2101.
Sincerely,
/s/ RICHARD S. CUPP
------------------------------------
Richard S. Cupp
President and Chief Executive
Officer
<PAGE> 4
HF BANCORP, INC.
445 EAST FLORIDA AVENUE
HEMET, CALIFORNIA 92543
(800) 540-4363, EXT. 2101
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH 25, 1999
NOTICE IS HEREBY GIVEN that a special meeting of stockholders (the "Special
Meeting") of HF Bancorp, Inc. ("HFB") will be held on March 25, 1999, at 4:30
p.m., Pacific Time, at the main branch of Hemet Federal Savings and Loan
Association ("Hemet") located at 445 East Florida Avenue, Hemet, California. A
Proxy Statement-Prospectus 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,
dated as of November 14, 1998, by and among Temple-Inland Inc.
("Temple-Inland"), HFB, Guaranty Federal Bank, F.S.B., an indirect
wholly-owned subsidiary of Temple-Inland ("Guaranty"), and Hemet (the
"Merger Agreement"); and
2. Such other business incident to the conduct of the Special Meeting
as may properly come before the Special Meeting and any adjournment or
postponement thereof, including, without limitation, a motion to adjourn
the Special Meeting to another time or place for the purpose of soliciting
additional proxies in order to approve and adopt the Merger Agreement.
The Board of Directors of HFB has established February 5, 1999, as the
record date for the determination of stockholders entitled to receive notice of
and to vote at the Special Meeting and at any adjournment or postponement
thereof. Only record holders of HFB Common Stock as of the close of business on
that date will be entitled to vote at the Special Meeting or any adjournment or
postponement thereof. A complete list of stockholders entitled to vote at the
Special Meeting will be open for examination by any stockholder for any purpose
germane to the Special Meeting during ordinary business hours at the offices of
HFB at 445 East Florida Avenue, Hemet, California 92543-4244 for a period of ten
days prior to the Special Meeting and will also be available at the Special
Meeting.
Under the General Corporation Law of Delaware (the "DGCL"), 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, such stockholder's shares of HFB Common Stock (excluding any element
of value arising from the accomplishment or expectation of the Merger), by
complying with certain procedures specified by the DGCL. See "The
Merger -- Appraisal Rights" in the accompanying Proxy Statement-Prospectus.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING. 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
February , 1999
<PAGE> 5
THE INFORMATION IN THIS PROXY STATEMENT-PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROXY
STATEMENT-PROSPECTUS 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 FEBRUARY 3, 1999
<TABLE>
<S> <C>
HF BANCORP, INC. TEMPLE-INLAND INC.
PROXY STATEMENT PROSPECTUS
</TABLE>
THE COMPANIES
- HF Bancorp, Inc., headquartered in Hemet, California
- Hemet Federal Savings and Loan Association, a subsidiary of HF Bancorp,
Inc.
- Temple-Inland Inc., headquartered in Diboll, Texas
- Guaranty Federal Bank, F.S.B., a subsidiary of Temple-Inland Inc.
- Temple-Inland common stock trading symbol on the New York Stock Exchange:
"TIN"
- HFB common stock trading symbol on the Nasdaq National Market(R): "HEMT"
THE MERGER
- The Boards of Directors of HFB and Temple-Inland have agreed to merge HFB
with Temple-Inland.
- Hemet will be merged into Guaranty.
- HFB stockholders will receive $18.50 for each share of HFB 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.
- HFB stockholders will elect whether to receive Temple-Inland common stock
and/or cash, subject to certain election, allocation, and proration
procedures.
- Up to 1,216,470 shares of Temple-Inland common stock may be issued to HFB
stockholders upon completion of the merger.
- Under certain circumstances, a subsidiary of Temple-Inland will be merged
with HFB and all HFB 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 HFB's stockholders. The approval of
Temple-Inland stockholders is not needed to complete the merger. Therefore, we
are not asking Temple-Inland stockholders to vote on the merger.
HFB will hold a special meeting of its stockholders to consider and vote
upon this merger proposal. This document describes that special meeting and the
merger. YOUR VOTE IS VERY IMPORTANT. The HFB Board of Directors unanimously
determined that the merger is fair to HFB's stockholders and is advisable and in
the best interests of HFB's stockholders. The HFB Board of Directors, therefore,
unanimously recommends that HFB stockholders vote to adopt the merger agreement
and approve the merger.
Any HFB stockholder who does not wish to accept the consideration to be
paid in the merger has the right to demand appraisal of, and to be paid the fair
market value for, their shares of HFB Common Stock (excluding any element of
value arising from the accomplishment or expectation of the Merger), by not
voting for the merger and complying with certain procedures specified by
Delaware law. Please refer to the section entitled "The Merger -- Appraisal
Rights" on page 43 of this Proxy Statement-Prospectus for additional information
on appraisal rights.
The HFB special meeting will be held at the following place and time:
Hemet Main Branch
445 East Florida Avenue
Hemet, California
March 25, 1999, at 4:30 p.m., Pacific Time
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROXY STATEMENT-PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 6
THESE SECURITIES ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION.
NEITHER TEMPLE-INLAND NOR HFB GUARANTEE THE INVESTMENT VALUE OF THE
TRANSACTION DESCRIBED IN THIS PROXY STATEMENT-PROSPECTUS. AN INVESTMENT IN
TEMPLE-INLAND COMMON STOCK MAY LOSE VALUE BEFORE OR AFTER THE EFFECTIVE DATE OF
THE MERGER.
THESE SECURITIES ARE SUBJECT TO INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF
THE PRINCIPAL INVESTED.
THIS PROXY STATEMENT-PROSPECTUS INCORPORATES IMPORTANT BUSINESS AND
FINANCIAL INFORMATION ABOUT TEMPLE-INLAND AND HFB FROM DOCUMENTS THAT ARE NOT
INCLUDED IN OR DELIVERED WITH THIS DOCUMENT. THIS INFORMATION IS AVAILABLE TO
YOU WITHOUT CHARGE UPON YOUR WRITTEN OR ORAL REQUEST. YOU CAN OBTAIN DOCUMENTS
INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT-PROSPECTUS (OTHER THAN CERTAIN
EXHIBITS TO THOSE DOCUMENTS) 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. 2101
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 MARCH 18, 1999.
WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE ANY INFORMATION OR REPRESENTATIONS
ABOUT THE MERGER OTHER THAN AS CONTAINED IN THIS PROXY STATEMENT-PROSPECTUS. 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
NOT ASSUME THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION CONTAINED IN THIS
PROXY STATEMENT-PROSPECTUS SINCE THE DATE ON THE FRONT COVER.
2
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
<S> <C>
AVAILABLE INFORMATION...................... 4
FORWARD-LOOKING STATEMENTS................. 5
INCORPORATION OF CERTAIN INFORMATION BY
REFERENCE................................ 5
SUMMARY.................................... 6
The Companies............................ 6
The Merger............................... 6
The HFB Special Meeting of
Stockholders........................... 7
Recommendation of the HFB Board of
Directors.............................. 7
Opinion of Keefe, Bruyette & Woods....... 8
The Merger Agreement..................... 8
Termination of the Merger Agreement...... 8
The Stock Option Agreement............... 9
The Stockholder Agreements............... 9
Regulatory Approvals..................... 9
Interests of Certain Persons in the
Merger................................. 9
Certain Federal Income Tax
Consequences........................... 9
Accounting Treatment..................... 10
Appraisal Rights......................... 10
Markets and Market Prices................ 11
Summary Historical Financial Data........ 12
Summary Unaudited Pro Forma Combined
Financial Data......................... 16
Selected Historical and Pro Forma per
Share Data............................. 17
INFORMATION REGARDING TEMPLE-INLAND........ 18
Business of Temple-Inland................ 18
Incorporation of Certain Information By
Reference.............................. 20
INFORMATION REGARDING HFB.................. 21
Business of HFB.......................... 21
Incorporation of Certain Information By
Reference.............................. 23
PRO FORMA FINANCIAL INFORMATION............ 23
THE SPECIAL MEETING OF HFB STOCKHOLDERS.... 27
General.................................. 27
Matters To Be Considered at the HFB
Special Meeting........................ 27
The Record Date.......................... 27
Votes Required and Voting of Proxies..... 27
Solicitation of Proxies.................. 28
Revocability of Proxies.................. 28
Security Ownership of Certain Beneficial
Owners and Management of HFB........... 29
Appraisal Rights......................... 30
THE MERGER................................. 31
Background and Reasons for the Merger.... 31
Recommendation of the HFB Board of
Directors.............................. 33
Opinion of HFB's Financial Advisor....... 33
Certain Federal Income Tax
Consequences........................... 37
Regulatory Approvals..................... 40
Resale of Temple-Inland Common Stock..... 41
Interests of Certain Persons in the
Merger................................. 42
Appraisal Rights......................... 43
Accounting Treatment..................... 45
THE MERGER AGREEMENT....................... 46
The Merger............................... 46
Effective Time and Effective Date........ 46
Election, Allocation, and Proration
Procedures............................. 46
Conduct of the Business of HFB Prior to
the Merger............................. 49
Representations and Warranties........... 49
Certain Covenants........................ 50
Conditions............................... 51
Termination.............................. 52
Waiver and Amendment..................... 52
THE STOCK OPTION AGREEMENT................. 53
THE STOCKHOLDER AGREEMENTS................. 54
COMPARISON OF STOCKHOLDER RIGHTS........... 55
Comparison of Corporate Structure........ 55
Voting Rights............................ 55
Dividends and Dividend Policy............ 55
Number of Directors...................... 55
Liquidity of Stock....................... 55
Directors' Qualifications................ 55
Amendment of Charter and Bylaws.......... 56
Special Meetings of Stockholders......... 56
Stockholder Proposals.................... 56
VALIDITY OF TEMPLE-INLAND COMMON STOCK..... 56
EXPERTS.................................... 57
LIST OF APPENDICES.........................
Appendix A -- Agreement and Plan of
Merger, dated as of
November 14, 1998, by and
among Temple-Inland Inc.,
HFB 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>
3
<PAGE> 8
AVAILABLE INFORMATION
Each of Temple-Inland and HFB is subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Therefore, each of Temple-Inland and HFB files reports, proxy statements and
other information with the Securities and Exchange Commission (the
"Commission"). Some of this information is incorporated into this document.
These reports, proxy statements, and other information may be inspected and
copied at the public reference facilities of the Commission located at 450 Fifth
Street, N.W., Washington, D.C. 20549, or at the Commission's regional offices at
7 World Trade Center, New York, New York 10048, and Citicorp Center, 500 West
Madison Street, Chicago, Illinois 60661, at prescribed rates. Information
regarding the Commission can be obtained by calling 1-800-SEC-0330. Such
reports, proxy statements and other information may also be accessed
electronically at the Commission'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 their offices at 20 Broad
Street, New York, New York 10005 and 301 Pine Street, San Francisco, California
94104, respectively.
This Proxy Statement-Prospectus is part of a registration statement on Form
S-4 filed by Temple-Inland with the Commission pursuant to the Securities Act of
1933, as amended (the "Securities Act"), covering the shares of Temple-Inland
common stock issuable in the Merger. This Proxy Statement-Prospectus does not
contain all the information set forth in that registration statement. Such
additional information may be obtained from the Commission's web site
(http://www.sec.gov) or by calling the Commission's principal office in
Washington, D.C. at 1-800-SEC-0330. Statements about the contents of any
contract or other document referred to in this Proxy Statement-Prospectus are
not necessarily complete. You should refer to the copy of such contract or other
document filed as an exhibit to the registration statement.
This Proxy Statement-Prospectus constitutes the proxy statement of the HFB
Board of Directors to solicit proxies for its use at the HFB special meeting, as
well as the Prospectus filed as part of the registration statement. This Proxy
Statement-Prospectus and the related proxy and other materials are first being
provided to HFB stockholders on or about February , 1999.
Additional information regarding Temple-Inland may be obtained from
Temple-Inland's home page on the Internet, the address of which is
http://www.temple-inland.com. Additional information regarding HFB may be
obtained from HFB's home page on the Internet, the address of which is
http://hemetfed.com.
4
<PAGE> 9
FORWARD-LOOKING STATEMENTS
Certain statements incorporated by reference or made in this Proxy
Statement-Prospectus under the captions "Summary," "Information Regarding
Temple-Inland," "Information Regarding HFB," "The Merger," and elsewhere in this
Proxy Statement-Prospectus are "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995. These statements are
subject to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Such forward-looking statements include, without limitation,
statements about the competitiveness of the banking industry, the operations of
Temple-Inland following completion of the Merger, and other statements contained
herein that are not historical facts. When used in this Proxy
Statement-Prospectus, the words "anticipate," "believe," "estimate," and similar
expressions are generally intended to identify forward-looking statements.
Because such 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 but not
limited to general economic, market, or business conditions; the opportunities
(or lack thereof) 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 which are beyond the control of
Temple-Inland and its subsidiaries.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed with the Commission are incorporated herein
by reference:
(a) Temple-Inland's annual report on Form 10-K for the year ended
January 3, 1998;
(b) Temple-Inland's quarterly reports on Form 10-Q for the quarters
ended April 4, 1998, July 4, 1998, and October 3, 1998;
(c) Temple-Inland's current report on Form 8-K dated June 2, 1998;
(d) The description of the Temple-Inland Common Stock, which is
registered under Section 12 of the Exchange Act, contained in the
Registration Statement on Form 8-A filed with the Commission on December 7,
1983, which incorporates by reference the description of the Temple-Inland
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;
(e) HFB's annual report on Form 10-K for the year ended June 30, 1998;
(f) HFB's quarterly report on Form 10-Q for the quarter ended
September 30, 1998; and
(g) HFB's current report on Form 8-K dated November 14, 1998.
Such incorporation by reference shall not be deemed to incorporate by
reference the information referred to in Item 402(a)(8) of Regulation S-K.
All documents and reports filed by Temple-Inland and HFB pursuant to
Section 13(a), 13(c), 14, or 15(d) of the Exchange Act subsequent to the date
hereof and prior to the HFB special meeting of stockholders shall be deemed to
be incorporated herein by reference and to be a part hereof from the date of
such filing, and any statement contained herein or in a document incorporated or
deemed to be incorporated herein by reference shall be deemed to be modified or
superseded for purposes hereof to the extent that a statement contained herein
or in any other subsequently filed document that also is, or is deemed to be,
incorporated herein by reference, modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed to constitute a
part hereof, except as so modified or superseded.
5
<PAGE> 10
SUMMARY
This summary highlights more detailed information contained elsewhere in
this Proxy Statement-Prospectus. It may not contain all or any of the
information important to HFB stockholders. We urge HFB stockholders to read
carefully the entire Proxy Statement-Prospectus and the other documents to which
this document refers for more complete information about the merger. See
"Available Information" beginning on page 4. 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 18)
303 SOUTH TEMPLE DRIVE
DIBOLL, TEXAS 75941
(409) 829-5511
Temple-Inland is a holding company that was organized in Delaware in 1983
and conducts all of its operations through its subsidiaries. It holds interests
in corrugated packaging, bleached paperboard, building products, timber and
timberlands, and financial services. The business of Temple-Inland is divided
among three groups: (1) the Paper Group, which consists of the corrugated
packaging and bleached paperboard operations, (2) the Building Products Group,
and (3) the Financial Services Group. 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, 38 box plants, and nine
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, gypsum wallboard, fiberboard, and medium-density
fiberboard.
Temple-Inland's Financial Services Group consists of savings bank
activities, mortgage banking, real estate development, and insurance brokerage.
Guaranty Federal Bank, F.S.B., conducts its operations 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 (primarily FNMA, FHLMC, and GNMA). Real estate operations
include development of residential subdivisions, as well as management and sale
of income properties.
HF BANCORP, INC. (PAGE 21)
445 EAST FLORIDA AVENUE
HEMET, CALIFORNIA 92543
(800) 540-4363, EXT. 2101
HFB is a savings and loan holding company that was organized in Delaware in
1995 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.
HFB'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 31)
General
We propose a merger between Temple-Inland and HFB, 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, HFB will cease to
exist. Under certain circumstances, the Merger will be accomplished through an
alternate structure. In this alternate structure, a subsidiary of Temple-Inland
would be merged
6
<PAGE> 11
with and into HFB and HFB would be the surviving corporation and become a
wholly-owned subsidiary of Temple-Inland.
Similarly, 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 Bank Merger, Hemet will cease
to exist. Temple-Inland and Guaranty may change the method of effecting the
combination of Hemet with Guaranty, subject to certain limitations.
What HFB Stockholders Will Receive
As a result of the Merger, HFB stockholders will receive $18.50 for each
share of HFB common stock they own immediately prior to the completion of the
Merger, for a total consideration of approximately $120 million. 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
HFB stockholders will elect whether to receive Temple-Inland common stock
and/or cash, subject to certain election, allocation, and proration procedures.
If enough HFB stockholders do not elect to receive Temple-Inland common stock,
all HFB stockholders will receive only cash in the merger.
HFB stockholders should not send in their stock certificates until
instructed to do so after the special meeting of HFB stockholders.
THE HFB SPECIAL MEETING
OF STOCKHOLDERS (PAGE 27)
The HFB special meeting of stockholders (the "Special Meeting") will be
held on March 25, 1999, at 4:30 p.m., Pacific Time, at Hemet's main branch
located at 445 East Florida Avenue, Hemet, California. At the Special Meeting,
the HFB stockholders will be asked:
- To adopt the merger agreement and approve the merger (we refer to this
proposal as the "Merger Proposal"); and
- To act on any other items that may be properly submitted to a vote at the
Special Meeting.
Votes Required
A HFB stockholder can vote at the Special Meeting if he or she owned HFB
common stock at the close of business on February 5, 1999. Each HFB stockholder
will be able to cast one vote for each share of HFB common stock he or she owned
at that time. In order to approve the Merger Proposal, the holders of a majority
of the outstanding shares of HFB common stock must vote in favor of the Merger
Proposal. As of the record date for the Special Meeting, the directors and
executive officers of HFB owned shares of HFB common stock representing 4.95% of
the outstanding shares, and none of Temple-Inland, its directors, and its
executive officers owned any shares of HFB common stock. A HFB 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 return envelope. A HFB 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.
All the directors of HFB have entered into stockholder agreements in which
they have agreed, as stockholders of HFB, to vote "FOR" the adoption and
approval of the Merger Proposal. See "The Stockholder Agreements" beginning on
page 54.
The approval of Temple-Inland stockholders is not needed to complete the
Merger.
RECOMMENDATION OF THE HFB
BOARD OF DIRECTORS (PAGE 33)
The HFB Board of Directors believes that the Merger is fair to HFB
stockholders and is advisable and in the best interests of HFB stockholders.
Accordingly, the HFB Board of Directors unanimously recommends that HFB
stockholders vote "FOR" the Merger Proposal.
7
<PAGE> 12
OPINION OF KEEFE, BRUYETTE
& WOODS, INC. (PAGE 33)
Keefe, Bruyette & Woods, Inc. ("KBW") has acted as a financial advisor to
the HFB Board of Directors in connection with the Merger and has delivered to
the HFB Board of Directors its written opinion that, as of February , 1999,
based upon and subject to various qualifications and assumptions described in
such opinion, the $18.50 to be paid to HFB stockholders for each share of HFB
common stock is fair to HFB stockholders from a financial point of view. We have
attached the full text of the opinion to this document as Appendix B. HFB
stockholders should read it completely to understand the assumptions made,
matters considered, and the limitations of the review made by KBW in providing
its opinion.
THE MERGER AGREEMENT (PAGE 46)
The merger agreement ("Merger Agreement") relating to the Merger 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 July 31,
1999.
Conditions To Completion Of The Merger
The completion of the Merger requires the satisfaction of several
conditions, including the following:
- approval of the Merger Proposal by HFB's stockholders;
- approval of the Merger and the Bank Merger by the Office of Thrift
Supervision ("OTS");
- the absence of any legal restraint blocking the Merger, or of any
proceeding by a government authority trying to block the Merger; and
- no stop order suspending the effectiveness of the registration statement
of which the Proxy Statement-Prospectus is a part and no proceedings for
that purpose initiated or threatened by the Commission.
If the law permits, either Temple-Inland or HFB 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 52)
We may mutually agree to terminate the Merger Agreement at any time without
completing the Merger, even after the stockholders of HFB 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;
- HFB stockholders fail to approve the Merger;
- either HFB or Temple-Inland breaches its representations, warranties, or
covenants contained in the Merger Agreement, provided that such breach
would be reasonably likely, individually or in the aggregate 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 HFB Board of Directors receives an acquisition proposal that it
determines to be superior to the Merger (a "Superior Proposal") and
continues discussions concerning that Superior Proposal for more than ten
days or fails to reject a publicly announced Superior Proposal within ten
days.
8
<PAGE> 13
In addition, HFB may terminate the Merger Agreement if:
- the HFB Board of Directors authorizes HFB to enter into a binding
agreement with respect to a Superior Proposal and Temple-Inland does not
make an offer that the HFB Board of Directors determines, in good faith
and after consultation with its financial advisors, to be at least as
favorable as the Merger. HFB would then be required to pay a termination
fee to Temple-Inland.
THE STOCK OPTION AGREEMENT (PAGE 53)
On November 14, 1998, HFB 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 HFB prior to the Merger.
Pursuant to the stock option agreement, HFB granted to Temple-Inland an option
to purchase up to 1,272,665 shares of HFB common stock for a purchase price per
share of $16.0625. The option is exercisable only under certain limited and
specifically defined circumstances. The number of shares and the purchase price
are adjustable under certain circumstances, but Temple-Inland may not acquire
more than 19.9 percent of the shares of HFB common stock pursuant to this
option.
THE STOCKHOLDER AGREEMENTS (PAGE 54)
Temple-Inland has entered into agreements with all the directors of HFB.
These individuals represent approximately 4.95 percent of the total voting power
of HFB common stock and have agreed, as stockholders of HFB, to vote their
shares in favor of the Merger Proposal.
REGULATORY APPROVALS (PAGE 40)
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 Bank Merger, 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 42)
Several HFB directors and officers have interests in the Merger that are
different from, or in addition to, their interests as stockholders in HFB. These
interests exist because of agreements with HFB, including change-of-control
employment agreements and rights that the officers have under retention,
incentive, or benefit and compensation plans maintained by HFB. 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 HFB Common Stock held by the executive
officers and directors of HFB 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, 84,912 restricted shares of HFB common stock awarded to directors and
executive officers of HFB will become vested 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 HFB and will provide
indemnification for officers and directors of HFB 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.
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES (PAGE 37)
We have provided the HFB stockholders with the option to receive
Temple-Inland common stock in exchange for their shares of HFB common stock in
an attempt to qualify the Merger for treatment as a "reorganization" for federal
income tax purposes. If this treatment is obtained, HFB stockholders will not
recognize any gain or loss for tax purposes upon receipt of Temple-Inland common
stock in exchange for their shares of HFB common stock in the Merger. HFB
stockholders, however, may be subject to tax with respect to any cash that an
HFB stockholder elects to receive in exchange for HFB 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
9
<PAGE> 14
conditioned upon receipt by Temple-Inland of the
opinion of Sullivan & Cromwell and receipt by HFB of the opinion of Manatt,
Phelps & Phillips, LLP that the Merger qualifies as a "reorganization."
If such opinions are not rendered (which may be the case if there is an
insufficient number of HFB stockholders who elect to receive Temple-Inland
common stock in the Merger or the market price of Temple-Inland common stock
falls below a certain level), then the entire Merger consideration will be paid
in cash only.
Because of the complexity of the tax laws and the individual nature of
certain tax consequences of the Merger to each HFB stockholder, each HFB
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 45)
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.
APPRAISAL RIGHTS (PAGE 43)
In connection with the Merger, the HFB stockholders may be entitled to
appraisal rights under Section 262 of the General Corporation Law of Delaware,
the text of which is attached hereto as Appendix C. In order for any HFB
stockholder to exercise his or her right to an appraisal, before the Special
Meeting, the stockholder must deliver to HFB a written demand for an appraisal
of his or her shares of HFB common stock as provided in the General Corporation
Law of Delaware. Simply voting against the Merger Proposal will not be
considered such a demand. Failure to send such demand to Corporate Secretary, HF
Bancorp, Inc., 445 East Florida Avenue, Hemet, California 92543-4244, or voting
for the Merger Proposal will result in a waiver of such stockholder's right to
an appraisal.
10
<PAGE> 15
MARKETS AND MARKET PRICES
As of February , 1999, there were approximately 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 ("NYSE") 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 NYSE for Temple-Inland
common stock was $49 11/16. On February , 1999, the closing price on the NYSE
for Temple-Inland common stock was $ .
As of February , 1999, there were approximately holders of
record of HFB common stock. No shares of HFB preferred stock have been issued or
are outstanding. HFB 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 HFB common stock was $17. On February , 1999,
the closing price on the Nasdaq National Market(R) for HFB 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 HFB common stock for the
periods indicated.
<TABLE>
<CAPTION>
TEMPLE-INLAND HFB
------------------------ --------------------
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
1999
First Quarter (through February , 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 N/A N/A
Second Quarter............................................ 51 7/8 45 1/2 N/A N/A
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>
11
<PAGE> 16
SUMMARY HISTORICAL FINANCIAL DATA
Selected financial information for Temple-Inland and HFB is set forth
below. Temple-Inland's financial data is shown in millions while HFB'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 Commission. 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 certain 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 3, 1998, and its Quarterly
Reports on Form 10-Q for the periods ended October 3, 1998, and September 27,
1997. See "Available Information" beginning on page 4. The interim financial
information has been derived from unaudited financial statements of
Temple-Inland. Temple-Inland 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.
TEMPLE-INLAND INC.
SELECTED FINANCIAL INFORMATION
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FIRST NINE MONTHS FISCAL YEARS
----------------- -----------------------------------------------
1998 1997* 1997* 1996 1995 1994 1993
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenues................ $ 2,829 $ 2,697 $ 3,625 $ 3,460 $ 3,495 $ 2,967 $ 2,762
Manufacturing net sales....... 2,021 2,014 2,680 2,645 2,731 2,335 2,127
Net income.................... 85 41 51 133 281 131 117**
Capital expenditures
Manufacturing............... 124 171 233 275 386 463 340
Financial services.......... 24 11 18 15 34 20 14
Depreciation and depletion
Manufacturing............... 194 190 255 244 208 200 191
Financial services.......... 10 10 13 10 8 8 6
Earnings per share
Basic....................... 1.53 0.74 0.91 2.39 5.02 2.35 2.12**
Diluted..................... 1.53 0.74 0.90 2.39 5.01 2.35 2.11**
Dividends per common share.... 0.96 0.96 1.28 1.24 1.14 1.02 1.00
Weighted average shares
outstanding
Basic....................... 55.8 55.8 56.0 55.5 56.0 55.8 55.3
Diluted..................... 55.9 56.1 56.2 55.6 56.1 55.9 55.5
Common shares outstanding at
end of period............... 55.6 56.6 56.3 55.4 55.7 56.0 55.5
</TABLE>
<TABLE>
<CAPTION>
AT END OF PERIOD
----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total assets.................. $14,938 $14,976 $14,364 $12,947 $12,764 $12,251 $11,959
Long-term debt
Parent company.............. 1,595 1,498 1,438 1,522 1,489 1,316 1,045
Financial services.......... 209 155 167 133 113 82 76
Preferred stock issued by
subsidiary.................. 225 150 150 -- -- -- --
Ratio of total debt to total
capitalization -- parent
company..................... 44% 42% 41% 43% 43% 43% 38%
Stockholders' equity.......... $ 2,039 $ 2,068 $ 2,045 $ 2,015 $ 1,975 $ 1,783 $ 1,700
</TABLE>
- ---------------
* Includes effects of acquiring Stockton Savings Bank and Knutson Mortgage
Company.
** Includes a credit of $50 million or $0.90 per share from cumulative effect of
accounting changes.
12
<PAGE> 17
The following table sets forth certain consolidated financial information
for HFB. The historical information is based on the historical financial
statements and related notes of HFB 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 1997. See "Available Information"
beginning on page 4. The interim financial information has been derived from
unaudited financial statements of HFB. HFB 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.
HF BANCORP, INC.
SELECTED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT JUNE 30,
----------------------- ----------------------------------------------------------
1998 1997 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL CONDITION DATA:
Total assets........................... $1,059,600 $1,050,377 $1,045,837 $ 984,749 $ 826,916 $666,062 $597,452
Loans held for sale.................... 6,622 2,921 3,763 335 0 0 0
Loans receivable, net.................. 603,979 524,085 581,153 484,334 225,161 202,397 206,370
CMOs available for sale, net........... 104,992 25,810 92,786 27,512 33,257 39,989 55,246
CMOs held to maturity, net............. -- 5,530 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(1)........... 25,354 132,231 26,675 143,005 270,130 101,074 15,215
Mortgage-backed securities available
for sale, net........................ 263,052 155,683 165,004 109,493 100,259 70,603 78,243
Mortgage-backed securities held to
maturity, net........................ -- 144,472 123,596 151,369 159,262 208,090 199,696
Real estate acquired through
foreclosure, net..................... 972 5,573 1,674 5,287 1,079 1,361 2,877
Real estate acquired for sale or
investment, net...................... -- 149 -- 418 996 2,539 2,411
Deposits............................... 881,797 857,029 866,724 839,655 669,725 472,337 480,959
Advances from the FHLB................. 85,000 95,000 85,000 50,000 70,000 70,000 70,000
Total stockholders' equity............. 83,927 83,294 83,778 81,027 81,071 87,146 39,640
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
SEPTEMBER 30, AT JUNE 30,
----------------------- ----------------------------------------------------------
1998 1997 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Interest income........................ $ 18,224 $ 18,235 $ 74,291 $ 66,522 $ 50,355 $ 40,424 $ 38,084
Interest expense(2).................... 12,304 12,115 49,285 44,084 34,059 28,795 26,451
---------- ---------- ---------- ---------- ---------- -------- --------
Net interest income before provision
for estimated loan losses............ 5,920 6,120 25,006 22,438 16,296 11,629 11,633
Provision for estimated loan losses.... 600 100 3,750 384 1,054 1,202 877
Net interest income after provision for
estimated loan losses................ 5,320 6,020 21,256 22,054 15,242 10,427 10,756
Other income (expense)(3).............. 740 (340) (932) 718 743 176 (5,778)
General & administrative expenses(4)... 5,774 4,823 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............ 286 857 203 (4,278) 3,036 (1,046) (7,277)
Income tax expense (benefit)........... 105 355 92 (1,762) 1,089 (353) (2,704)
Net earnings (loss) before cumulative
effect of change in method of
accounting for securities............ 181 502 111 (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)...... -- -- -- -- -- -- 3,435
---------- ---------- ---------- ---------- ---------- -------- --------
Net earnings (loss).................... $ 181 $ 502 $ 111 $ (2,516) $ 1,947 $ (693) $ (1,138)
========== ========== ========== ========== ========== ======== ========
Shares applicable to basic earnings per
share.................................. 6,385,090 6,281,875 6,301,358 6,281,875 6,583,434 N/A N/A
Basic earnings per share................. $ 0.03 $ 0.08 $ 0.02 $ (0.40) $ 0.30 N/A N/A
========== ========== ========== ========== ========== ======== ========
Shares applicable to diluted earnings per
share.................................. 6,501,665 6,453,841 6,490,881 6,281,875 6,583,434 N/A N/A
Diluted earnings per share............... $ 0.03 $ 0.08 $ 0.02 $ (0.40) $ 0.30 N/A N/A
========== ========== ========== ========== ========== ======== ========
Cash dividends per share................. $ -- $ -- $ -- $ -- $ -- $ -- $ --
========== ========== ========== ========== ========== ======== ========
</TABLE>
13
<PAGE> 18
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 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(5):
PERFORMANCE RATIOS:
Return on average assets(6)(13)............. 0.07% 0.19% 0.01% (0.26)% 0.27% (0.12)% (0.19)%
Return on average equity(7)(13)............. 0.86 2.46 0.13 (3.11) 2.24 (1.63) (2.83)
Average equity to average assets............ 7.70 7.93 7.82 8.47 12.14 7.14 6.77
Equity to total assets at end of period..... 7.92 7.93 8.01 8.23 9.80 13.08 6.63
Interest rate spread during the period(8)... 1.77 2.13 1.94 2.14 1.74 1.75 1.86
Net interest margin(9)...................... 2.26 2.51 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(13)................................ 2.11% 1.87% 1.89% 2.83% 1.81% 1.95% 2.07%
Efficiency ratio(10)(13).................... 87.47 85.94 85.54 115.30 76.68 98.76 117.86
REGULATORY CAPITAL RATIOS:
Tangible capital............................ 6.28% 6.07% 6.29 6.36 6.66 9.02 6.39
Core capital................................ 6.28 6.07 6.29 6.36 6.66 9.02 6.39
Risk-based capital.......................... 15.09 15.48 15.80 16.55 24.27 29.24 19.27
ASSET QUALITY RATIOS:
Nonperforming loans/gross loans
receivable(11)............................ 1.34% 0.65% 0.72 1.06 0.56 1.10 1.25
Nonperforming assets/total assets(12)....... 0.88 0.99 0.59 1.17 0.33 0.63 1.04
Net loan charge-offs/average loans(13)...... 0.34 0.46 0.52 0.40 0.31 0.58 0.61
Allowance for estimated loan losses/gross
loans receivable(11)...................... 1.03 0.81 1.06 0.97 1.33 1.30 1.27
Allowances for total estimated losses/
nonperforming assets...................... 69.32 54.78 105.23 50.90 94.18 110.71 73.07
Allowance for estimated loan losses/
nonperforming loans....................... 76.99 123.43 146.64% 91.63 235.75 118.11 101.75
OTHER DATA:
Number of deposit accounts.................. 61,279 59,902 60,744 59,994 45,822 38,572 39,311
Full service offices........................ 19 19 19 19 15 12 12
</TABLE>
- ---------------
(1) Includes U.S. Government and agency notes, federal funds sold, repurchase
agreements and interest-earning accounts at the Federal Home Loan Bank,
which are included in cash and cash equivalents.
(2) Includes net hedging expense of $4.7 million, $4.5 million, $3.2 million,
$2.9 million, and $1.8 million for the fiscal years ended June 30, 1994,
1995, 1996, 1997, and 1998, respectively.
(3) 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 SFAS 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.
(4) 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.
(5) 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.
(6) Return on average assets is net earnings (loss) divided by average total
assets.
(7) Return on average equity is net earnings (loss) divided by average equity.
(8) The interest rate spread represents the difference between the average rate
on interest-earning assets and the average rate on interest-bearing
liabilities.
(9) Represents net interest income before provision for estimated loan losses
as a percentage of average interest-earning assets.
(10) The efficiency ratio is calculated by dividing the sum of general &
administrative expense, core deposit intangible amortization, and net real
estate operations by the sum of net interest income and
14
<PAGE> 19
net non-interest income (including restructuring charges). The efficiency
ratio measures how much in expense HFB invests in order to generate each
dollar of net revenue.
(11) Includes all non-accrual loans, and loans delinquent 90 days or more.
Figures are net of undisbursed loan funds.
(12) Nonperforming assets consist of nonperforming loans and foreclosed real
estate before specific reserves and valuation allowances. Excludes real
estate held for investment.
(13) Ratios for the periods ended September 30, 1998 and 1997, are annualized.
15
<PAGE> 20
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 with
HFB. The pro forma information, which reflects the Merger using the purchase
method of accounting, is presented for informational purposes only and should
not be construed as indicative of the actual operations that would have occurred
had the Merger been consummated at the beginning of the period indicated or that
may be obtained in the future. See "Pro Forma Financial Information" beginning
on page 23.
UNAUDITED PRO FORMA COMBINED SELECTED FINANCIAL INFORMATION
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
OCTOBER 3, JANUARY 3,
1998 1998
---------- ----------
<S> <C> <C>
FOR PERIOD ENDED
Total revenues.............................................. $ 2,883.4 $3,694.7
Manufacturing net sales..................................... $ 2,020.8 $2,680.0
Net income.................................................. $ 88.0 $ 58.3
Earnings per share
Basic..................................................... $ 1.54 $ 1.02
Diluted................................................... $ 1.54 $ 1.02
Weighted average shares outstanding
Basic..................................................... 57.0 57.2
Diluted................................................... 57.1 57.4
AT PERIOD END
Total assets................................................ $15,982.5
Long-term debt:
Parent company............................................ $ 1,595.0
Financial services........................................ $ 229.0
Ratio of total debt to total capitalization -- parent
company................................................... 43%
Stockholders' equity........................................ $ 2,107.1
</TABLE>
16
<PAGE> 21
SELECTED HISTORICAL AND PRO FORMA
PER SHARE DATA
The following table sets forth certain historical and pro forma per share
financial information for Temple-Inland and HFB for the year ended January 3,
1998, and for the nine-month period ended October 3, 1998. 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 3, 1998, and its Quarterly Report on Form 10-Q for the
nine-month period ended October 3, 1998. The historical information presented
for HFB is derived from the historical financial statements of HFB 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, 1997, and
September 30, 1998.
Information under the column entitled "Pro Forma" is based upon the pro
forma financial statements and related notes beginning on page 23. Such pro
forma combined information, which gives effect to the Merger under the purchase
method of accounting, is presented for informational purposes only and should
not be construed as indicative of the actual operations that would have occurred
had the Merger been consummated 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 HFB was calculated by multiplying the Temple-Inland pro forma per
common share data by assumed exchange ratios of , , and
. For a description of how the exchange ratio will actually be
determined, see "The Merger Agreement -- Election, Allocation, and Proration
Procedures" beginning on page 46.
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-Prospectus. See "Available
Information" on page 4. You should also read the information set forth below in
conjunction with the pro forma financial statements and related notes beginning
on page 23.
TEMPLE-INLAND
<TABLE>
<CAPTION>
OCTOBER 3, JANUARY 3,
1998 1998
---------- ----------
<S> <C> <C>
Historical Per Common Share
Income from continuing operations......................... $ 1.53 $ 0.90
Dividends................................................. 0.96 1.28
Book value................................................ 36.54 36.32
Pro Forma Per Common Share Data:
Income from continuing operations......................... $ 1.54 $ 1.02
Dividends................................................. 0.96 1.28
Book value................................................ 36.74 N/A
HFB
Historical Per Common Stock Data:
Income from continuing operations......................... $(0.14) $ 0.06
Dividends................................................. -- --
Book Value................................................ 13.14 13.29
Equivalent Pro Forma Per Common Share Data:
Assumed exchange ratio of
Income from continuing operations......................
Dividends..............................................
Book value.............................................
Assumed exchange ratio of
Income from continuing operations......................
Dividends..............................................
Book value.............................................
Assumed exchange ratio of
Income from continuing operations......................
Dividends..............................................
Book value.............................................
</TABLE>
17
<PAGE> 22
INFORMATION REGARDING TEMPLE-INLAND INC.
Temple-Inland is a holding company that conducts all of its operations
through its subsidiaries. It holds interests in corrugated packaging, bleached
paperboard, building products, timber and timberlands, and financial services.
The business of Temple-Inland is divided among three groups: (1) the Paper
Group, which consists of the corrugated packaging and bleached paperboard
operations, (2) the Building Products Group, and (3) the Financial Services
Group. 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. ("Inland"), 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, 38 box plants,
and nine 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 ("Temple-Inland FPC"), manufactures a wide range of
building products including lumber, plywood, particleboard, gypsum wallboard,
fiberboard, and medium-density fiberboard.
Temple-Inland's Financial Services Group, operated by subsidiaries of
Temple-Inland Financial Services Inc. ("Financial Services"), 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 ("Temple-Inland Mortgage"), a subsidiary of Guaranty that
arranges financing of single-family mortgage loans, then sells the loans into
the secondary market (primarily FNMA, FHLMC, and GNMA). 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, Temple-Inland FPC, Financial Services,
Guaranty, and Temple-Inland Mortgage. Temple-Inland's principal executive
offices are located at 303 South Temple Drive, Diboll, Texas 75941. Its
telephone number is (409) 829-5511.
BUSINESS OF TEMPLE-INLAND
Paper Group. This group is composed of two operations: corrugated packaging
and bleached paperboard.
(i) CORRUGATED PACKAGING. The corrugated packaging operation of Inland
manufactures containerboard that it converts into a complete line of corrugated
packaging and point-of-purchase displays. Approximately 84 percent of the
containerboard produced by Inland in 1997 was converted into corrugated
containers at its box plants. Inland'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. Inland's corrugated boxes are sold to a variety
of customers in the food, paper, glass containers, chemical, appliance, and
plastics industries, among others.
Inland also manufactures litho-laminate corrugated packaging and high
graphics folding cartons. Other products manufactured by Inland include bulk
containers constructed of multi-wall corrugated board for extra strength, which
are used for bulk shipments of various materials, paper sealing tape, and other
tape specialties.
In the corrugated packaging operation, Inland services about 6,800
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 1997 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.
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<PAGE> 23
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.
(ii) BLEACHED PAPERBOARD. The bleached paperboard operation produces
various grades and weights of coated and uncoated bleached paperboard, bleached
linerboard, and bleached bristols. These materials are used by other paper
companies and by manufacturers that buy paper in roll lots and convert it into
such items as paper cups, plates, file folders, folding cartons, paperback book
covers, and various other packaging and convenience products.
Bleached paperboard products are sold to a large number of customers. Sales
to the largest customer of this operation accounted for approximately 12 percent
of bleached paperboard sales in 1997. 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 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 corrugated
packaging operation. The 10 largest customers accounted for approximately 57
percent of bleached paperboard sales in 1997. During 1997, sales were made to
customers in 43 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, gypsum
wallboard, hardboard siding, medium-density fiberboard, and fiberboard
sheathing.
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 O.E.M. (original equipment manufacturer) accounts. Almost 78
percent of particleboard sales are to commercial fabricators, such as
manufacturers of cabinets and furniture. The 10 largest customers accounted for
approximately 23 percent of the Building Products Group's 1997 sales. The
building products business is heavily dependent upon the level of residential
housing expenditures, including the repair and remodeling market.
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 recently began
producing cement fiberboard at a newly constructed 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 by 2000.
Financial Services Group. The Financial Services Group operates a savings
bank and engages in mortgage banking, real estate development, and insurance
activities.
(i) 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
19
<PAGE> 24
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.
Because of the loan growth experienced by Guaranty in 1998 and the changes
in asset mix in Guaranty's portfolio, Temple-Inland will contribute up to $160
million of additional capital to Guaranty in the first quarter of 1999 in order
for Guaranty to maintain its classification of "well capitalized" under OTS
regulations. This additional capital and the cash to be paid to the HFB
stockholders in the Merger will be financed by Temple-Inland through additional
borrowings.
(ii) MORTGAGE BANKING. Temple-Inland Mortgage, a wholly-owned subsidiary of
Guaranty, headquartered in Austin, Texas, originates, warehouses, and services
FHA, VA, and conventional mortgage loans primarily on single family residential
property. Temple-Inland Mortgage 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. During 1997,
Temple-Inland Mortgage expanded its operations in the Midwest by acquiring
Knutson Mortgage Corporation of Minneapolis, a full-service mortgage bank with a
loan servicing portfolio of approximately $6 billion. At the end of 1997,
Temple-Inland Mortgage was servicing $26.1 billion in mortgage loans, including
loans serviced for affiliates and approximately $1.6 billion in mortgages
serviced for a third party. Temple-Inland Mortgage produced $3.2 billion in
mortgage loans during 1997.
(iii) REAL ESTATE DEVELOPMENT AND INCOME PROPERTIES. Subsidiaries of
Financial Services are involved in the development of 34 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.
(iv) INSURANCE. Subsidiaries of Financial Services 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
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 CERTAIN 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-Prospectus. See "Available Information"
beginning on page 4 and "Incorporation of Certain Information by Reference"
beginning on page 5.
20
<PAGE> 25
INFORMATION REGARDING HFB
BUSINESS OF HFB
HFB is a savings and loan holding company that was incorporated in the
State of Delaware that was organized in 1995 for the purpose of acquiring all of
the capital stock of Hemet upon its conversion from a federally chartered mutual
savings association to a federally chartered stock savings association (the
"Conversion"). On June 30, 1995, HFB 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.
HFB's principal business is to serve as a holding company for Hemet and
Hemet's wholly owned subsidiary, First Hemet Corporation ("First Hemet"). As a
legal entity separate and distinct from its subsidiaries, HFB'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 HFB. HFB's common stock (the "HFB Common Stock") is listed on the Nasdaq
National Market(R) under the symbol "HEMT."
At September 30, 1998, HFB had $1.06 billion in total assets, $604.0
million in total net loans receivable, and $881.8 million in total deposits. HFB
is subject to regulation by the OTS, the Federal Deposit Insurance Corporation
("FDIC"), and the Commission. The principal executive offices of HFB 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. HFB 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.
On September 27, 1996, Hemet acquired Palm Springs Savings Bank ("PSSB")
for $16.3 million. The acquisition was accounted for under purchase accounting
guidelines and therefore generated intangible assets.
On June 21, 1996, Hemet entered the Northern San Diego County market
through the purchase of three branch offices and the assumption of deposit
liabilities totaling $185.2 million from Hawthorne Savings Bank. In conjunction
with the purchase, Hemet generated a core deposit intangible of $6.6 million, or
3.6 percent of the deposits assumed.
The consolidated financial statements include the accounts of HFB, Hemet,
and First Hemet. First Hemet engages in trustee services for Hemet, and receives
commissions from the sale of insurance related and other non-FDIC insured
products.
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
21
<PAGE> 26
- construction lending
- 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
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.
HFB participates in the wholesale capital markets through the management of
its security portfolio and its use of various forms of wholesale funding. HFB's
security portfolio contains a variety of instruments, including callable
debentures, fixed and adjustable rate mortgage backed securities, and
collateralized mortgage obligations. HFB also participates in the secondary
market for loans as both a purchaser and a seller of various types of mortgage
products.
HFB'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 HFB's largest
type of expense. HFB'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. HFB'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 (i) in-market entities and (ii) 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; and 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.
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<PAGE> 27
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
Additional information relating to HFB, including information relating to
the business, management, properties, financial condition, and results of
operations of HFB, is included in documents incorporated by reference into this
Proxy Statement-Prospectus. See "Available Information" beginning on page 4 and
"Incorporation of Certain Information by Reference" beginning on page 5.
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 October 3,
1998, gives effect to the Merger as if it had been consummated on October 3,
1998. The unaudited pro forma combined income statements for the year ended
January 3, 1998, and for the nine months ended October 3, 1998, give effect to
the Merger as if it had been consummated as of the beginning of the fiscal
period presented.
The information for the year ended January 3, 1998, 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 3, 1998. The information at October 3, 1998, and for the
nine-month period ended October 3, 1998, in the column titled "Temple-Inland" is
summarized from the consolidated financial statements of Temple-Inland filed in
Temple-Inland's Quarterly Report on Form 10-Q for the nine-month period ended
October 3, 1998.
The information in the column titled "HF Bancorp" as of October 3, 1998, is
derived from the consolidated financial statements of HF Bancorp filed in HF
Bancorp's Quarterly Report on Form 10-Q for the period ended September 30, 1998.
The information for the year ended January 3, 1998, contained in the column
titled "HF Bancorp" is derived from the consolidated financial statements of HF
Bancorp filed in HF Bancorp's Quarterly Reports on Form 10-Q for the three
quarterly periods ended March 31, 1997, September 30, 1997, and December 31,
1997, and 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, 1997. The
information for the nine-month period ended September 30, 1998, in the column
titled "HF Bancorp" is derived from the consolidated financial statements of HF
Bancorp filed in HF Bancorp's Quarterly Reports on Form 10-Q for the two
quarterly periods ended March 31, 1998, and September 30, 1998, and 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.
The unaudited pro forma combined balance sheet and income statements are
presented for informational purposes only and are not necessarily indicative of
the combined financial position or results of operations that would actually
have occurred if the Merger had been consummated 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 in
conjunction 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 3, 1998 and June 30, 1998, respectively, and their
respective Quarterly Reports on Form 10-Q for the period ended October 3, 1998
and September 30, 1998, respectively.
23
<PAGE> 28
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF OCTOBER 3, 1998
(IN MILLIONS)
<TABLE>
<CAPTION>
TEMPLE-INLAND HF BANCORP ADJUSTMENTS PRO FORMA
------------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Assets
Loans receivable, net..................... $ 7,220.0 $ 604.0 $ 2.6(1) $ 7,826.6
Mortgage-backed and investment
securities............................. 2,383.0 376.0 -- 2,759.0
Property and equipment, net............... 2,961.0 6.0 -- 2,967.0
Other assets.............................. 2,374.0 74.0 (18.1)(2) 2,429.9
--------- -------- ------ ---------
Total assets...................... $14,938.0 $1,060.0 $(15.5) $15,982.5
========= ======== ====== =========
Liabilities
Deposits.................................. $ 7,323.0 $ 882.0 $ 3.6(3) $ 8,208.6
Short-term debt........................... 2,207.0 65.0 -- 2,272.0
Long-term debt............................ 1,804.0 20.0 -- 1,824.0
Accrued expenses and other liabilities.... 1,565.0 9.0 (3.2)(4) 1,570.8
--------- -------- ------ ---------
Total Liabilities................. $12,899.0 $ 976.0 $ 0.4 $13,875.4
========= ======== ====== =========
Stockholder's Equity
Common stock.............................. $ 61.0 $ -- $ 1.2(5) $ 62.2
Additional paid-in-capital................ 356.0 52.0 14.9(5) 422.9
Retained earnings and other............... 1,836.0 34.4 (34.4)(5) 1,836.0
Cost of shares held in treasury........... (214.0) (2.4) 2.4 (214.0)
--------- -------- ------ ---------
Total stockholders' equity........ 2,039.0 84.0 (15.9) 2,107.1
--------- -------- ------ ---------
Total liabilities and
stockholders' equity............ $14,938.0 $1,060.0 $(15.5) $15,982.5
========= ======== ====== =========
</TABLE>
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<PAGE> 29
UNAUDITED PRO FORMA COMBINED INCOME STATEMENTS
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE NINE-MONTHS ENDED OCTOBER 3, 1998
-----------------------------------------------------
TEMPLE-INLAND HF BANCORP ADJUSTMENTS PRO FORMA
------------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Revenue
Financial services.... $ 808.2 $ 55.5 $ (1.1)(6) $ 862.6
Manufacturing net
sales............... 2,020.8 0.0 0.0 2,020.8
-------- ------ ------ --------
Total
revenue...... 2,829.0 55.5 (1.1) 2,883.4
-------- ------ ------ --------
Costs and expenses
Financial services.... 694.4 57.1 (7.6)(7) 743.9
Manufacturing costs
and expenses........ 1,912.2 0.0 0.0 1,912.2
-------- ------ ------ --------
Total costs and
expense...... 2,606.6 57.1 (7.6) 2,656.1
-------- ------ ------ --------
Operating income........ 222.4 (1.6) 6.5 227.3
Parent company interest,
net and other......... (75.1) 0.0 0.0 (75.1)
Income before taxes..... 147.3 (1.6) 6.5 152.2
Taxes on income......... 61.9 (0.7) 3.0(8) 64.2
-------- ------ ------ --------
Net Income..... $ 85.4 $ (0.9) $ 3.5 $ 88.0
======== ====== ====== ========
Earnings per share(9)
Basic
Earnings per share.... $ 1.53 $(0.14) $ 1.54
Weighted average
shares
outstanding......... 55.8 6.3 57.0
Diluted
Earnings per share.... $ 1.53 $(0.14) $ 1.54
Weighted average
shares
outstanding......... 55.9 6.4 57.1
<CAPTION>
FOR THE YEAR ENDED JANUARY 3, 1998
------------------------------------------------------
TEMPLE-INLAND HF BANCORP ADJUSTMENTS PRO FORMA
------------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Revenue
Financial services.... $ 945.0 $ 71.2 $ (1.5)(6) $1,014.7
Manufacturing net
sales............... 2,680.0 0.0 0.0 2,680.0
-------- ------ ------ --------
Total
revenue...... 3,625.0 71.2 (1.5) 3,694.7
-------- ------ ------ --------
Costs and expenses
Financial services.... 813.0 70.6 (13.8)(7) 869.8
Manufacturing costs
and expenses........ 2,613.0 0.0 0.0 2,613.0
-------- ------ ------ --------
Total costs and
expense...... 3,426.0 70.6 (13.9) 3,482.7
-------- ------ ------ --------
Operating income........ 199.0 0.6 12.3 211.9
Parent company interest,
net and other......... (104.0) 0.0 0.0 (104.0)
Income before taxes..... 95.0 0.6 12.3 107.9
Taxes on income......... 44.0 0.2 5.4(8) 49.6
-------- ------ ------ --------
Net Income..... $ 51.0 $ 0.4 $ 6.9 $ 58.3
======== ====== ====== ========
Earnings per share(9)
Basic
Earnings per share.... $ 0.91 $ 0.06 $ 1.02
Weighted average
shares
outstanding......... 56.0 6.3 57.2
Diluted
Earnings per share.... $ 0.90 $ 0.06 $ 1.02
Weighted average
shares
outstanding......... 56.2 6.4 57.4
</TABLE>
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<PAGE> 30
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 $1.1
million.
(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. Guaranty's current strategy regarding the
ultimate recovery of certain portions of the loan portfolio may differ from
that of Hemet.
(2) Represents:
(a)the difference between book value and estimated fair value of core
deposit intangible ($1.5 million),
(b)reductions of cash for expected payments aggregating $6.0 million
relating to brokerage fees, cash-out of certain stock options and
contractual benefits concurrent with the Merger consummation,
(c)reduction of cash reflecting the estimated cash portion of purchase
price ($50.4 million),
(d)goodwill of $39.7 million representing the excess of purchase price
over net tangible and identifiable intangible assets acquired, and
(e)an increase in net deferred tax assets of $0.1 million for the
effect of taxable pro forma adjustments at a 39% effective income
tax rate, offset by a reclassification of Hemet deferred tax
liabilities to deferred tax assets.
(3) Represents the difference between book value and the estimated fair value of
deposits.
(4) Represents the current income tax benefit from tax deductions related to
certain expenses in (3)(b) above, offset by a reclassification of Hemet
deferred tax liabilities to deferred tax assets.
(5) Represents the reversal of HF Bancorp, Inc. stockholders' equity and
issuance of the estimated stock portion of the purchase price (1,216,470
shares of Temple-Inland Common Stock).
(6) 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.
(7) Represents (a) expected reductions in employment compensation and benefits
from consolidation of redundant functions of $8.2 million for the period
ended October 3, 1998, and $10.9 million for the period ended January 3,
1998, (b) amortization of premium on deposits resulting from fair value
adjustments of $3.6 million for the period ended January 3, 1998, and (c)
adjustments to amortization resulting from the adjusted carrying values of
goodwill and core deposit intangible of $0.5 million for the period ended
October 3, 1998, and $0.7 million for the period ended January 3, 1998.
Premium on the deposit portfolio is amortized over the estimated remaining
life of the portfolio using the interest method. Goodwill and the core
deposit intangible are amortized using the straight-line method over 25 and
7 years, respectively.
(8) Represents the resultant income tax effect of the pro forma adjustments. The
income tax effect of taxable pro forma adjustments is computed using an
effective income tax rate of 39%.
(9) 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 presented.
26
<PAGE> 31
THE SPECIAL MEETING OF HFB STOCKHOLDERS
GENERAL
This Proxy Statement-Prospectus is furnished in connection with the
solicitation by the HFB Board of Directors of proxies representing HFB Common
Stock to be voted at the Special Meeting to be held on March 25, 1999, and at
any postponement or adjournment thereof.
MATTERS TO BE CONSIDERED AT THE HFB SPECIAL MEETING
The purpose of the Special Meeting is to (a) consider and vote upon the
principal terms of the Merger and (b) transact such other business as may
properly come before the Special Meeting or any adjournments or postponements
thereof.
THE RECORD DATE
The HFB Board of Directors has fixed the close of business on February 5,
1999, as the record date (the "Record Date") for the determination of HFB
stockholders entitled to receive notice of, and to vote at, the Special Meeting.
Only holders of record of shares of HFB Common Stock at the close of business on
the Record Date will be entitled to notice of, and to vote at, the Special
Meeting. On the Record Date, [6,395,303] shares of HFB Common Stock were issued
and outstanding.
VOTES REQUIRED AND VOTING OF PROXIES
At the Special Meeting, a majority of all shares of HFB Common Stock
entitled to vote, represented in person or by proxy, will constitute a quorum.
Abstentions will each be included in the determination of the number of shares
present; however, they will not be counted as votes in favor of the Merger
Proposal. Each share of HFB Common Stock held of record will be entitled to one
vote upon each matter properly submitted to the HFB stockholders at the Special
Meeting.
The affirmative vote of the holders of at least a majority of the total
number of outstanding shares of HFB Common Stock entitled to vote at the Special
Meeting is required to approve the Merger Proposal. Consequently, the failure to
vote, an abstention, or a broker non-vote would each have the same effect as a
vote against the Merger Proposal.
In accordance with the provisions of HFB's Certificate of Incorporation,
record holders of HFB common stock who beneficially own in excess of ten percent
of the outstanding shares of HFB Common Stock (the "Limit") are not entitled to
any vote with respect to the shares held in excess of the Limit. A person or
entity is deemed to beneficially own shares owned by an affiliate of, as well as
by persons acting in concert with, such person or entity. HFB's Certificate of
Incorporation authorizes the HFB Board of Directors (i) to make all
determinations necessary to implement and apply the Limit, including the
determination of whether persons or entities are acting in concert, and (ii) to
demand that any person who is reasonably believed to beneficially own HFB Common
Stock in excess of the Limit supply information to HFB to enable the HFB Board
of Directors to implement and apply the Limit.
Subject to the Limit, each share of HFB Common Stock represented by a proxy
properly executed and received by HFB in time to be voted at the Special Meeting
and not revoked will be voted in accordance with the instructions indicated on
such proxy and, if no instructions are indicated, will be voted "FOR" the Merger
Proposal. All proxies voted "FOR" such matters, 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. Proxies
solicited hereby will be returned to HFB's transfer agent and will be tabulated
by inspectors of election designated by the HFB Board of Directors.
The HFB Board of Directors is not currently aware of any business to be
acted upon at the Special Meeting other than as described herein. If, however,
other matters are properly brought before the Special Meeting, persons appointed
as proxies will have discretion to vote or act thereon in their best judgment.
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<PAGE> 32
All the directors of HFB, who possess the ability to direct the voting of
approximately 4.95 percent of HFB Common Stock outstanding on the Record Date,
have agreed, among other things, to vote "FOR" approval of the Merger Proposal.
However, the stockholders/directors are bound by the Stockholder Agreements to
vote "FOR" approval of the Merger Proposal only in their capacity as
stockholders. As directors, they are bound by their fiduciary duties to act in
the best interest of HFB. See "The Stockholder Agreements" beginning on page 54.
If a quorum is not obtained, or fewer shares of HFB Common Stock are voted
in favor of the Merger Proposal than the number required for approval of the
Merger Proposal, in accordance with the Bylaws of HFB and the General
Corporation Law of Delaware, the Special Meeting will be postponed or adjourned
for the purpose of allowing additional time to obtain additional proxies or
votes, and at any subsequent reconvening of the Special Meeting, all proxies
will be voted in the same manner as such proxies would have been voted at the
original convening of the Special Meeting (except for any proxies that have
theretofore effectively been revoked or withdrawn).
SOLICITATION OF PROXIES
The cost of soliciting proxies relating to the Special Meeting will be paid
by HFB. In addition to solicitation of proxies by the use of mail, directors,
officers and employees of HFB and its subsidiaries may solicit proxies from HFB
stockholders personally or by telephone or telegram without additional
remuneration therefor. HFB also will provide persons, firms, banks, and
corporations holding shares in their names or in the names of nominees, which in
any case are beneficially owned by others, with proxy materials for transmittal
to such beneficial owners and will reimburse such record owners for their
expenses of doing so.
REVOCABILITY OF PROXIES
The presence of a HFB stockholder at the Special Meeting (or at any
postponement or adjournment thereof) will not automatically revoke such HFB
stockholder's proxy. However, a HFB stockholder may revoke a proxy at any time
prior to its exercise by (a) delivery to the Corporate Secretary of HFB of a
written notice of revocation prior to the vote with respect thereto; (b)
delivery to the Corporate Secretary of HFB prior to the vote with respect
thereto of a duly executed proxy bearing a later date; or (c) attending the
Special Meeting (or, if the Special Meeting is adjourned or postponed, by
attending the adjourned or postponed meeting) and voting in person thereat. Any
written revocation of a proxy or other related communications should be
addressed to Janet E. Riley, Corporate Secretary of HFB, 445 East Florida
Avenue, Hemet, California 92543-4244.
28
<PAGE> 33
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF HFB
The following table sets forth, as of February 5, 1999, information with
respect to the securities holdings of all persons which HFB has reason to
believe may be deemed the beneficial owners of more than five percent of
outstanding HFB Common Stock. Also set forth in the table is the beneficial
ownership of all shares of outstanding HFB Common Stock, as of such date, of all
directors and named executive officers, individually, and all directors and
executive officers as a group.
<TABLE>
<CAPTION>
AMOUNT OF BENEFICIAL
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP PERCENT OF CLASS(2)
- ------------------------------------ -------------------- -------------------
<S> <C> <C>
LaSalle Financial Partners, LP............................ 535,760 8.37%
259 E. Michigan, Suite 405
Kalamazoo, Michigan 49007
Kahn Brothers & Co., Inc.................................. 520,635 8.13%
555 Madison Avenue
New York, N.Y. 10022
Tontine Partners, L.P..................................... 463,000 7.23%
31 West 52nd Street, 17th Floor
New York, NY
Hemet Federal Savings and Loan Association................ 422,635(1) 6.60%
Employee Stock Ownership Plan ("ESOP")
445 East Florida Avenue
Hemet, California 92543-4244
Endeavour Capital Partners, L.P........................... 333,000 4.20%
555 Madison Avenue
New York, N.Y. 10022
Dr. Robert K. Jabs, Director.............................. 18,328(3) *
William D. King, Director................................. 3,300(4) *
Patricia A. "Corky" Larson, Director...................... 11,149(5) *
Richard S. Cupp, Director, President and CEO.............. 62,000(6) *
J. Robert Eichinger, Chairman of the Board................ 156,053(7) 2.42%
Harold L. Fuller, Director................................ 17,526(8) *
Norman M. Coulson, Director............................... 7,800(9) *
George P. Rutland, Director............................... 6,300(10) *
Leonard E. Searl, Director................................ 43,030(11) *
Mark R. Andino, Senior Vice President and CFO............. 12,800(12) *
All Directors and Executive Officers as a Group (16
persons)................................................ 381,466(13) 5.81%
</TABLE>
- ---------------
(1) Shares of HFB Common Stock were acquired by the ESOP in the Conversion. 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, 121,910 shares have been allocated
to participant's accounts and are held in ESOP Trust except for 17,864
issued shares. Under the ESOP, allocated shares for which no written
instructions have been received and unallocated shares will be voted by the
ESOP Trustee in a manner calculated to most accurately reflect the
instructions received from participants regarding the allocated stock so
long as such vote is in accordance with the provisions of the Employee
Retirement Income Security Action of 1974, as amended.
(2) Shares which the individual has the right to acquire currently or within
sixty (60) days after February 5, 1999, by the exercise of options are
deemed to be outstanding in calculating the
29
<PAGE> 34
percentage of shares beneficially owned, but are not deemed to be
outstanding as to any other individual.
(3) Includes 5,274 shares awarded to Dr. Jabs pursuant to the HF Bancorp
Stock-Based Incentive Plan and 10,554 unissued shares as to which Dr. Jabs
holds options that are vested or will become vested within sixty (60) days
from the Record Date.
(4) Includes 3,300 shares awarded to Mr. King pursuant to the HF Bancorp
Stock-based Incentive Plan.
(5) Includes 3,548 shares awarded to Ms. Larson pursuant to the HF Bancorp
Stock-Based Incentive Plan and 7,101 shares as to which Ms. Larson holds
options that are vested or will become vested within sixty (60) days from
the Record Date.
(6) Includes 30,000 shares awarded to Mr. Cupp pursuant to the HF Bancorp
Stock-Based Incentive Plan and 32,000 shares as to which Mr. Cupp holds
options that are vested or will become vested within sixty (60) days from
the Record Date.
(7) Includes 43,642 shares awarded to Mr. Eichinger pursuant to the HF Bancorp
Stock-Based Incentive Plan and 61,475 shares as to which Mr. Eichinger
holds options that are vested or will become vested within sixty (60) days
from the Record Date.
(8) Includes 4,122 shares awarded to Mr. Fuller pursuant to the HF Bancorp
Stock-Based Incentive Plan and 8,252 shares as to which Mr. Fuller holds
options that are vested or will become vested within sixty (60) days from
the Record Date. Includes 2,226 shares that Mr. Fuller holds in connection
with the Directors' Deferred Fee Stock Unit Plan.
(9) Includes 3,300 shares awarded to Mr. Coulson pursuant to the HF Bancorp
Stock-Based Incentive Plan and 4,000 shares as to which Mr. Coulson holds
options that are vested or will become vested within sixty (60) days from
the Record Date.
(10) Includes 3,300 shares awarded to Mr. Rutland pursuant to the HF Bancorp
Stock-Based Incentive Plan and 2,000 shares as to which Mr. Rutland holds
options that are vested or will become vested within sixty (60) days from
the Record Date.
(11) Includes 9,882 shares awarded to Mr. Searl pursuant to the HF Bancorp
Stock-Based Incentive Plan and 19,758 shares as to which Mr. Searl holds
options that are vested or will become vested within sixty (60) days from
the Record Date.
(12) Includes 5,000 shares awarded to Mr. Andino pursuant to the HF Bancorp
Stock-Based Incentive Plan and 5,800 shares as to which Mr. Andino holds
options that are vested or will become vested within sixty (60) days from
the Record Date.
(13) Includes 115,713 shares subject to options granted to directors and
executive officers under the HF Bancorp Stock-Based Incentive Plan that are
currently exercisable.
APPRAISAL RIGHTS
If the Merger Proposal is approved by the HFB stockholders, holders of HFB
Common Stock who do not vote in favor of the Merger Proposal may be entitled to
appraisal rights under Section 262 of the General Corporation Law of Delaware,
the text of which is attached hereto as Appendix C. See "The Merger -- Appraisal
Rights" beginning on page 43 for a discussion of appraisal rights and a
description of the procedures that must be followed to perfect such rights.
30
<PAGE> 35
THE MERGER
THIS SECTION OF THE PROXY STATEMENT-PROSPECTUS DESCRIBES CERTAIN ASPECTS OF
THE PROPOSED MERGER, AND SUCH INFORMATION IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE OTHER INFORMATION CONTAINED ELSEWHERE IN THIS PROXY
STATEMENT-PROSPECTUS, INCLUDING THE APPENDICES HERETO, AND THE DOCUMENTS
INCORPORATED HEREIN BY REFERENCE. A COPY OF THE MERGER AGREEMENT IS SET FORTH AS
APPENDIX A TO THIS PROXY STATEMENT-PROSPECTUS AND THE TEXT THEREOF IS
INCORPORATED HEREIN BY REFERENCE, AND REFERENCE IS MADE THERETO 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 HERETO IN THEIR ENTIRETY.
BACKGROUND AND REASONS FOR THE MERGER
HFB was formed in June 1995 in connection with Hemet's conversion from a
mutual savings association to a stock savings bank. During fiscal 1997, HFB
began to shift its operations and marketing strategy to position Hemet as a
community bank in order to improve performance and enhance stockholder value.
The strategy included enhancing HFB'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 HFB's efficiency
ratio, being aggressive in managing Hemet's portfolio of troubled assets,
adopting alternative delivery channels, increasing secondary market activity,
enhancing capital utilization, implementing product repricing programs,
implementing new services, and further modifying HFB's compensation and benefit
programs. During the nine months ended March 31, 1998, HFB continued the
implementation of its strategy to evolve Hemet into a community bank offering a
more comprehensive array of products and services while at the same time
augmenting earnings.
On April 22, 1998, HFB issued a press release (the "April 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. This exam was a factor in HFB's issuance of
a further press release on May 7, 1998, in which it announced a restatement of
the earnings announced in the April Release (the "May Release"). The restatement
resulted from additional provisions for estimated loan losses and the
establishment of greater valuation reserves for foreclosed real estate. In the
May Release, HFB also indicated that HFB was nearing completion of analyses of a
variety of options to augment profitability by implementing fundamental changes
to HFB's cost structure, operating platform, and distribution network, which
would require restructuring charges that could materially impact HFB's financial
results for the quarter and fiscal year ending June 30, 1998.
On May 18, 1998, LaSalle Financial Partners, a Delaware limited partnership
("LaSalle"), filed a Schedule 13D with the Commission. In that Schedule 13D,
LaSalle (and/or its affiliates) reported beneficial ownership of 358,160 shares
or 5.7 percent of HFB 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 HFB policies and, in particular, with the intent of influencing a
business combination involving HFB. LaSalle further reported an interest in
obtaining representation on HFB's Board of Directors. Subsequently, LaSalle
reported that it had increased its beneficial ownership of HFB Common Stock to
approximately 8.9 percent.
From May 1998 through July 1998, HFB's Board of Directors and executive
officers met at various times to consider strategic alternatives available to
HFB to serve the best interests of HFB's stockholders. As a result of the
foregoing events, the HFB Board of Directors directed that HFB retain financial
advisors to assist HFB in evaluating its alternatives. On July 1, 1998, HFB
retained KBW to render financial advisory and investment banking services to HFB
including studying and reviewing HFB'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
HFB.
31
<PAGE> 36
Thereafter, during July and August 1998, KBW and HFB's management and Board
of Directors identified a number of institutions that KBW would approach
regarding a potential transaction involving HFB. On HFB's behalf, KBW solicited
indications of interest from a number of financial institutions, and received
preliminary indications of interest and requests for additional information from
several institutions. Each of the prospective institutions was asked to sign a
confidentiality agreement and was provided certain additional information
regarding HFB.
In early August 1998, Ronald D. Murff, the Chief Financial Officer of
Guaranty, contacted Richard S. Cupp, HFB'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 available public information about each other. At the
meeting, it was agreed that Temple-Inland would send a letter to HFB, through
KBW, in which Temple-Inland would request certain information Temple-Inland
deemed necessary to determine a price range for the acquisition of HFB. Pursuant
to a confidentiality agreement executed August 14, 1998, HFB supplied additional
information to Temple-Inland to allow it to formulate such a proposal.
On October 2, 1998, HFB received a letter from Guaranty expressing
Guaranty's interest in acquiring HFB for consideration in the range of $17-$20
per share, and requesting HFB's response to this nonbinding expression of
interest by October 9, 1998. On October 14, 1998, Mr. Cupp, Carl Raggio, HFB's
Executive Vice President and Chief Credit Officer, and Mark Andino, HFB'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 HFB
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 President and Chief Executive Officer, Kenneth R. Dubuque,
at which time Temple-Inland agreed to supply, on or before October 23, 1998, a
letter outlining a proposal for the acquisition of HFB by Temple-Inland.
On October 22, 1998, KBW representatives met with HFB's Board of Directors
to discuss the results of KBW's solicitations of interest in a possible merger,
sale, or business combination with HFB. The HFB Board authorized KBW to continue
to pursue negotiations with interested parties, and established a special
committee comprised of three nonemployee directors of HFB (the "HFB Special
Committee") to monitor KBW'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 HFB and requested an
exclusive opportunity to negotiate toward a definitive agreement.
On October 26, 1998, the HFB Special Committee met to consider
Temple-Inland's proposal, and the HFB Special Committee authorized KBW to convey
to Temple-Inland HFB's suggested modifications to that proposal. However, KBW
was also 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, KBW contacted such institutions to
determine their level of interest in a transaction with HFB on terms more
favorable than those proposed by Temple-Inland.
On October 28, 1998, representatives of KBW and Mr. Cupp reported back to
the HFB Special Committee the results of such conversations, indicating that
Temple-Inland had improved its earlier proposal. Based upon the revised
proposal, the HFB 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 HFB
and Temple-Inland continued and a preliminary agreement was reached regarding
the basic terms. During that same time period, HFB and Temple-Inland conducted
due diligence reviews of each other. From November 4, 1998, to November 13,
1998, representatives of HFB and Temple-Inland met and had numerous telephone
conversations to negotiate the final terms of the Merger Agreement, the Stock
Option Agreement, and the
32
<PAGE> 37
Stockholder Agreements. See "Merger Agreement," "Stock Option Agreement," and
"Stockholder Agreements" below.
On November 14, 1998, HFB's Board of Directors met and concluded that the
Merger was advisable and in the best interests of HFB and its stockholders. The
Board unanimously approved the terms of Temple-Inland's proposal and the Merger
pursuant to the Merger Agreement. 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 HFB considered a variety of factors, reviewed information relating
to Temple-Inland, and received reports and presentations from its officers,
financial advisers, and legal counsel. Among the factors considered by the Board
of Directors were the following:
- the fact that the value of the consideration to be paid in the Merger
represented a premium over the current market price of the HFB Common
Stock;
- the value and form of the consideration to be paid in the Merger compared
with prices paid in acquisitions of other banks and bank holding
companies;
- the book value and earnings per share of HFB;
- the results of operations and prospects of HFB 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;
- alternatives to an acquisition of HFB, including the advisability of
continuing to operate HFB as an independent entity;
- the opinion of KBW 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 HFB (see "The Merger -- Opinion of
HFB's Financial Advisor" below);
- the possible tax consequences of the transaction to the stockholders of
HFB; and
- the value of Temple-Inland stock as an investment, including the fact
that it may offer HFB stockholders the opportunity to participate in the
future performance of a larger financial institution than HFB.
RECOMMENDATION OF THE HFB BOARD OF DIRECTORS
FOR THE REASONS SET FORTH ABOVE AND OTHER FACTORS IT CONSIDERED
APPROPRIATE, THE HFB BOARD OF DIRECTORS HAS CONCLUDED THAT THE MERGER IS
ADVISABLE AND IN THE BEST INTERESTS OF HFB AND ITS STOCKHOLDERS AND UNANIMOUSLY
RECOMMENDS THAT HFB STOCKHOLDERS APPROVE THE MERGER PROPOSAL.
OPINION OF HFB'S FINANCIAL ADVISOR
KBW has delivered to the HFB Board of Directors its written opinion dated
the date of this Proxy Statement-Prospectus 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 HFB stockholders. KBW's opinion is addressed to the HFB Board of
Directors and does not constitute a recommendation as to how any HFB stockholder
should vote with respect to the Merger Proposal. The opinion was rendered to the
HFB Board of Directors for its consideration in determining whether to approve
the Merger Agreement. In connection with its opinion dated the date of this
Proxy Statement-Prospectus, KBW updated certain analyses performed in connection
with its opinion delivered on November 14, 1998, and reviewed the assumptions on
which such analyses were based and the factors considered in connection
therewith.
THE FULL TEXT OF THE OPINION OF KBW DATED THE DATE OF THIS PROXY
STATEMENT-PROSPECTUS, 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-PROSPECTUS AS APPENDIX B AND IS INCORPORATED
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HEREIN BY REFERENCE. STOCKHOLDERS ARE URGED TO READ THE OPINION IN ITS 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, KBW (i) reviewed, among other things, the Merger
Agreement, Annual Reports to stockholders, and Annual Reports on Form 10-K of
HFB and Temple-Inland for the three fiscal years ended June 30, 1998, for HFB,
and January 3, 1998, for Temple-Inland, certain interim reports to stockholders
and Quarterly Reports on Form 10-Q for HFB and Temple-Inland and certain
internal financial analyses and forecasts for HFB prepared by management; (ii)
held discussions with members of senior management of HFB and Temple-Inland
regarding past and current business operations, regulatory relationships,
financial condition, and future prospects of the respective companies; (iii)
compared certain financial and stock market information for HFB and
Temple-Inland with similar information for certain other companies the
securities of which are publicly traded; (iv) reviewed the financial terms of
certain recent business combinations in the banking industry; and (v) performed
such other studies and analyses as it considered appropriate.
In conducting its review and arriving at its opinion, KBW relied upon and
assumed the accuracy and completeness of all of the financial and other
information provided to it or publicly available, and KBW did not attempt to
verify such information independently. KBW relied upon the management of HFB as
to the reasonableness and achievability of the financial and operating forecasts
and projections (and assumptions and bases therefor) provided to KBW and assumed
that such forecasts and projections reflected the best available estimates and
judgments of such management and that such forecasts and projections will be
realized in the amounts and in the time periods estimated by such management.
KBW also assumed, without independent verification, that the aggregate
allowances for loan losses for Hemet and Guaranty are adequate to cover such
losses. KBW did not make or obtain any evaluations or appraisals of the property
on HFB or Temple-Inland, nor did KBW examine any individual credit files.
The following is a summary of the material financial analyses employed by
KBW in connection with providing its opinion and does not purport to be a
complete description of all analyses employed by KBW.
Valuation Summary
KBW calculated multiples which are based on a per share purchase price of
$18.50, when compared to HFB'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. KBW noted that since HFB
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%. KBW 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 HFB stockholders. In addition, KBW reviewed the
election and allocation procedures as set forth in the Merger Agreement.
Selected Peer Group Analysis
KBW compared the financial performance and market performance of HFB 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 KBW was as of and for the quarter ended September
30, 1998 (except for selected credit quality data for HFB 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
which had total assets ranging from approximately $600 million to $4.3 billion.
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KBW's analysis showed the following concerning HFB's financial performance:
that its return on assets for the quarter ended September 30, 1998, was 0.07%
compared with an average of 0.80% for the peer group; that its return on equity
for the quarter ended September 30, 1998, was 0.86% compared with an average of
10.92% for the peer group; that its net interest margin for the quarter ended
September 30, 1998, was 2.29% compared with an average of 3.29% for the peer
group; that its efficiency ratio for the quarter ended September 30, 1998, was
82.75% compared with an average of 58.51%; that its tangible equity to assets
ratio was 6.91% compared to an average of 7.19%; that its ratio of loan loss
reserves to loans for the quarter ended June 30, 1998, was 1.07% compared to an
average of 1.70% for the peer group; 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% compared to an average of 1.79% for the peer group.
KBW's analysis further showed the following concerning HFB's market
performance: that HFB's price to book value per share multiple was 1.29 times
compared to 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 to 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 HFB that this comparison was not
meaningful; that its dividend yield was 0% since HFB did not pay a dividend,
compared to an average dividend yield of 0.65% for the peer group.
KBW 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
KBW was as of and for the quarter ended June 30, 1998 (except for certain 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.
KBW'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% compared with an average of 2.07% for the peer group; that its return on
equity for the quarter ended June 30, 1998, was 6.82% compared with an average
of 5.29% for the peer group; that its operating margin for the quarter ended
June 30, 1998, was 8.92% compared with an average of 7.91% for the peer group.
KBW'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 to 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 to an average of 34.8
times and 26.7 times respectively for the peer group; that its dividend yield
was 2.56%, compared to an average dividend yield of 2.45% for the eight
companies in the peer group. For the purposes of the above calculations, all
earnings estimates are based upon IBES consensus estimates.
Discounted Cash Flow Analysis
KBW estimated the present value of the future cash flows that could accrue
to a holder of a share of HFB Common Stock through the year 2001. The analysis
was based on several assumptions, including the achievability of earnings
projections outlined in the HFB budget and no payment of dividends. A terminal
value was calculated for 2001 by multiplying HFB'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%, producing a present value of $16.30.
KBW also presented tables showing the foregoing analysis with a range of
discount rates from 20% to 24%, and a range of price-to-earnings multiples of
10x to 17x, resulting in a range of present values for a share of HFB Common
Stock of $9.23 to $17.31.
KBW noted that the HFB budget appeared aggressive in light of HFB's
previous earnings history, in that it indicated that HFB would achieve levels of
profitability comparable to the thrifts in the Selected
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Peer Group. KBW repeated this analysis assuming HFB achieved 80% 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% discount rate. KBW also
presented a table showing the foregoing analysis with a range of discount rates
from 20% to 24% and a range of price-to-earnings multiples of 14x to 17x,
resulting in a range of present values for a share of HFB Common Stock of $10.34
to $13.85.
KBW 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 HFB Common Stock.
Analysis of Selected Merger Transactions
KBW reviewed certain financial data related to recent thrift and thrift
holding company acquisitions in California. 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.
For the California thrift acquisitions, KBW calculated an average premium
to the target's stated book value per share of 167%, and an adjusted premium of
130% compared to a premium of 141% associated with the Merger Proposal; an
average premium to the target's tangible book value per share of 168%, and an
adjusted premium of 131% compared to a premium of 157% associated with the
Merger Proposal; an average multiple of the target's trailing twelve month
earnings of 19.3 times, and an adjusted multiple of 17.4 times trailing twelve
month earnings, KBW noted that the price to last twelve months earnings was not
a meaningful ratio for HFB since HFB had recorded a loss over that operating
period; an average multiple of the targets' forward earnings of 11.4 times and
an adjusted multiple of 8.8 times compared with a multiple of 28.5 times HFB's
forward budget; an average premium to the targets' core deposits (net of
tangible equity) of 7.8% and an adjusted premium of 6.4% compared to a premium
of 6.5% associated with the Merger Proposal.
KBW noted that no company or transaction used as a comparison in the above
analysis is identical to HFB, Temple-Inland, or the Merger Proposal.
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.
Other Analysis
KBW 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 HFB and Temple-Inland.
The summary contained herein provides a description of the material
analyses prepared by KBW in connection with the rendering of its opinion. The
summary set forth above does not purport to be a complete description of the
analyses performed by KBW in connection with the rendering of its opinion. The
preparation of a fairness opinion is not necessarily susceptible to partial
analysis or summary description. KBW 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 KBW's
presentations and opinion. The range of valuations resulting from any particular
analysis described above should not be taken to be KBW's view of the actual
value of HFB 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, KBW made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond the control of
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HFB and Temple-Inland. The analyses performed by KBW 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 KBW's analysis of the fairness, from a financial
point of view, of the consideration paid in the Merger. This was provided to the
HFB board in connection with the delivery of KBW'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, KBW's
opinion, along with its presentation to the HFB Board of Directors, was just one
of many factors taken into consideration by the HFB Board of Directors in
unanimously approving the Merger Agreement.
KBW, 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, KBW has experience in, and knowledge of, the
valuation of banking enterprises. In the ordinary course of its business as a
broker-dealer, KBW may, from time to time, purchase securities from, and sell
securities to, HFB and Temple-Inland and as a market maker in securities KBW may
from time to time have a long or short position in, and buy or sell, debt or
equity securities of HFB or Temple-Inland for KBW's own account and for the
accounts of its customers.
Pursuant to the executed engagement letter between HFB and KBW, HFB has
agreed to pay KBW a cash fee equal to 1.25% of the market value of the total
consideration paid to HFB 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-Prospectus. The
balance of the 1.25% less the fees previously remunerated will be paid at the
closing of the Merger. Pursuant to the KBW engagement letter, HFB also agreed to
reimburse KBW for reasonable out-of-pocket expenses and disbursements incurred
in connection with its retention and to indemnify KBW against certain
liabilities, including liabilities under federal securities laws.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material U.S. federal income tax
consequences of the Merger to holders of HFB Common Stock who hold such stock as
a "capital asset" within the meaning of Section 1221 of the Internal Revenue
Code (the "Code"). Special tax consequences not described herein may be
applicable to particular classes of taxpayers, such as financial institutions,
insurance companies, tax-exempt organizations, broker-dealers, traders in
securities that elect to mark to market, persons that hold HFB 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
HFB Common Stock through the exercise of an employee stock option or otherwise
as compensation. The following disclosure is for general information only and is
based upon the Code, its legislative history, existing and proposed regulations
thereunder, published rulings, and decisions, all as currently in effect as of
the date hereof, and all of which are subject to change, possibly with
retroactive effect. Tax consequences under state, local, and foreign laws are
not addressed herein. 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
Consummation of the Merger as a "reorganization" within the meaning of
Section 368(a) of 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 HFB of an
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opinion of its counsel, Manatt, Phelps & Phillips, LLP that (i) the Merger will
constitute a "reorganization" within the meaning of Section 368 of the Code and
(ii) no gain or loss will be recognized by HFB stockholders to the extent they
receive Temple-Inland Common Stock as consideration in exchange for shares of
HFB Common Stock (the "Tax Opinions"). In rendering such opinions, counsel may
require and rely upon representations contained in letters to be received from
HFB, Temple-Inland, and others. Neither of the Tax Opinions are binding on the
Internal Revenue Service, and neither HFB nor Temple-Inland intend to request
any ruling from the Internal Revenue Service (the "IRS") as to the U.S. federal
income tax consequences of the Merger. If the Tax Opinions are not rendered
prior to the Effective Time (as defined herein), HFB stockholders will not be
granted an option to receive Temple-Inland Common Stock in exchange for their
HFB Common Stock but rather will receive solely cash in exchange therefor.
Based on the above qualifications, for U.S. federal income tax purposes
(i) no gain or loss will be recognized by Temple-Inland or HFB
pursuant to the Merger,
(ii) a stockholder of HFB who exchanges all of its HFB 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 such stockholder's adjusted
tax basis in the shares surrendered,
(iii) a stockholder of HFB who receives solely Temple-Inland Common
Stock in exchange for shares in the Merger will not recognize any gain or
loss (except, as discussed below, to the extent the stockholder receives
cash in exchange for fractional shares), and
(iv) a stockholder of HFB 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 shares so exchanged to the extent of any
cash received.
Tax Consequences of the Cash/Stock Merger
Exchange of HFB Common Stock Solely for Temple-Inland Common Stock. No gain
or loss will be recognized by an HFB stockholder who receives solely
Temple-Inland Common Stock for such HFB stockholder's shares of HFB Common Stock
(except to the extent such stockholder receives cash in lieu of a fractional
share interest in Temple-Inland Common Stock). Such a HFB stockholder's
aggregate tax basis in the Temple-Inland Common Stock received pursuant to the
Merger will equal such stockholder's aggregate tax basis in the shares of HFB
Common Stock exchanged therefor, 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 HFB Common Stock exchanged
therefor.
Exchange of HFB Common Stock for Temple-Inland Common Stock and Cash. A HFB
stockholder who receives both Temple-Inland Common Stock and cash (other than
cash received in lieu of a fractional share interest in Temple-Inland Common
Stock) will not recognize loss, but will recognize gain, if any, to the extent
of the lesser of:
(i) the excess of (A) 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 (B) the HFB stockholder's adjusted
federal income tax basis for the shares of HFB Common Stock exchanged; and
(ii) the amount of cash received by such HFB stockholder (other than
cash received in lieu of such fractional share interest).
Any such gain will be treated as capital gain (which will be long-term
capital gain if the shares of HFB Common Stock exchanged were held for more than
one year), unless the receipt of cash has the
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effect of a distribution of a dividend within the meaning of Section 356(a)(2)
of the Code, in which case such gain will be treated as a dividend to the extent
of such stockholder's ratable share of the undistributed accumulated earnings
and profits of HFB. Following is a brief discussion of such potential tax
treatment; however, HFB stockholders should consult their own tax advisors as to
the possibility that all or a portion of any cash received in exchange for their
HFB 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 HFB stockholder pursuant to the Merger
has the effect of as distribution of a dividend under Section 356(a)(2) of the
Code (the "Hypothetical Redemption Analysis"). Under the Hypothetical Redemption
Analysis, an HFB Stockholder will be treated as if the portion of the shares of
HFB Common Stock exchanged for cash in the Merger had been instead exchanged for
shares of Temple-Inland Common Stock (the "Hypothetical Shares"), followed
immediately by a redemption of the Hypothetical Shares by Temple-Inland for
cash. Under the principles of Section 302 of the Code, a HFB 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 such HFB
stockholder. In applying the principles of Section 302, the constructive
ownership rules of Section 318 of the Code will apply in comparing a HFB
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
HFB stockholder will depend upon such stockholder's particular circumstances.
However, the hypothetical redemption must, in any event, result in "meaningful
reduction" in such HFB 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 HFB stockholder's
percentage ownership of Temple-Inland Common Stock, and therefore, does not have
the effect of a distribution of a dividend, a HFB 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," and therefore, would not have the effect of a distribution of
a dividend with respect to a HFB stockholder who owns less than 50 percent of
the voting power of the outstanding Temple-Inland Common Stock if the percentage
of Temple-Inland Common Stock actually and constructively owned by such
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 HFB stockholder immediately before the
hypothetical redemption.
Such HFB stockholder's aggregate tax basis in the Temple-Inland Common
Stock received pursuant to the Merger will equal such stockholder's aggregate
tax basis in the shares of HFB Common Stock exchanged therefor, 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 HFB Common Stock exchanged therefor.
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Exchange of HFB Common Stock Solely for Cash. A HFB stockholder who
exchanges all of its HFB 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 such stockholder's adjusted tax basis in the HFB 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 such HFB stockholder is attributed ownership of other HFB
Common Stock under Section 318 of the Code, such HFB 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 HFB stockholder who
received cash in lieu 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 HFB
stockholder. See "-- Exchange of HFB Common Stock for Temple-Inland Common Stock
and Cash." If the deemed redemption is treated as a sale of the fractional
share, a HFB 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 HFB 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 HFB
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 HFB Common Stock held by such holder, and such gain or loss will be
long-term capital gain or loss if such shares of HFB Common Stock were held for
more than one year.
Backup Withholding and Information Reporting
Payments of cash to a holder surrendering shares of HFB 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, unless the holder furnishes its
taxpayer identification number in the manner prescribed in applicable Treasury
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 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 Bank Merger are subject to the approval of the OTS pursuant
to the Home Owners' Loan Act, Section 1467a(e) and (s) of Title 12 of the United
States Code, and the Bank Merger Act, Section 1828(c) of Title 12 of the United
States Code, respectively, and Sections 552.13, 563.22, and 574.3 of Title 12 of
the Code of Federal Regulations promulgated thereunder. Temple-Inland filed an
application for approval of the Merger and the Bank Merger with the OTS on
February , 1999. This application is currently under review by the OTS. 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 (i) 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 (ii) 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, unless the OTS finds that
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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 Agreement and the
Agreement of Bank Merger, which is an exhibit to the Merger Agreement (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 ("CRA"), 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, respectively. The regulations of
the OTS also require the publication of notice and the opportunity for public
comments relating to the application for approval, and 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 Merger and Bank Merger unless divestiture of an
acceptable number of branches to a competitively suitable purchaser could be
made. 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 thereof.
The Merger cannot proceed in the absence of the requisite regulatory
approvals. See "The Merger Agreement -- Conditions" and "-- Termination." There
can be no assurance that such regulatory approvals will be obtained, and if
obtained, there can be no assurance as to the date of any such 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 -- Conditions."
RESALE OF TEMPLE-INLAND COMMON STOCK
The issuance of the shares of Temple-Inland Common Stock to stockholders of
HFB upon consummation of the Merger has been registered under the Securities
Act. It is a condition to closing of the Merger 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 ("NYSE"). Such
shares may be traded freely by those stockholders not deemed to be "affiliates"
of HFB, 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, HFB and for purposes hereof could
be deemed to include all executive officers, directors, and 10 percent
stockholders of HFB.
Temple-Inland Common Stock received and beneficially owned by those
stockholders who are deemed to be affiliates of HFB may be resold without
registration as provided by Rule 145 under the Securities Act ("Rule 145"), or
as otherwise permitted under the Securities Act. Such affiliates, provided they
are not also affiliates of Temple-Inland, 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 HFB 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.
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The Merger Agreement requires HFB to identify those persons who may be
deemed to be affiliates of HFB and to use its commercially reasonable efforts to
cause each person so identified to deliver to Temple-Inland a written agreement
providing that such person will not dispose of Temple-Inland Common Stock
received in the Merger except in compliance with the Securities Act and the
rules and regulations promulgated thereunder. In addition, Temple-Inland intends
to place stop transfer instructions with its transfer agent regarding
Temple-Inland Common Stock issued to affiliates of HFB.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the HFB Board of Directors, HFB
stockholders should be aware that certain employees and members of HFB
management and of the HFB Board of Directors have certain interests in the
transactions contemplated by the Merger Agreement 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 HFB officers and directors,
directors' and officers' liability insurance, and the treatment of certain stock
options and restricted stock awards discussed below and payments due under
certain 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 2 years following a
change in control of Hemet or HFB, Mr. Cupp would be entitled to a severance
payment equal to the greater of (i) the payments due for the remaining term of
the agreement or (ii) two times his average annual compensation over the last
three years. In addition, Hemet and HFB would continue Mr. Cupp's life, health,
and disability coverage for two years.
In addition, HFB 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
change of control with respect to HFB or Hemet. HFB would also continue the
officer's life, health, and disability coverage for 12 months following such
termination of employment. HFB 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 total amount of payments due, in the aggregate, under Mr. Cupp's
employment agreement, the change in control agreements (based solely on the base
salaries paid to Mr. Cupp and the seven officers, but excluding any benefits
under any employee benefit plan that may be payable), and the retention
agreement are estimated to be approximately $1,775,010.
The Merger Agreement provides that Temple-Inland will indemnify each
present HFB director and officer against certain 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
HFB'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 HFB'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 HFB with
respect to claims arising from facts or events that occurred before the
completion of the Merger.
Employees, officers, and directors of HFB have been granted stock options
to purchase HFB Common Stock that expire at various time through 2008. As
required by the Merger Agreement, HFB has entered into option cancellation
agreements with the holders of HFB options, pursuant to which all outstanding
options, including currently unvested amounts, will be canceled, unless
exercised prior to the Effective Time, 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 HFB currently hold options to purchase
an aggregate of 408,695 shares of HFB Common Stock, of which 243,275 shares were
not vested as of the Record Date.
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These options have exercise prices ranging from $9.50 per share to $17.38 per
share. If the Merger is consummated, directors and executive officers of HFB
will receive, in the aggregate, $2,417,098 for the cancellation of their stock
options including $1,227,893 attributable to stock options that were unvested as
of the record date.
In addition, employees, officers, and directors of HFB have been granted
awards of restricted stock that become vested at various time 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 employees,
directors, and executive officers of HFB will accelerate and become fully
vested. As of the Record Date, directors and executive officers had been awarded
84,912 shares of HFB Common Stock that were subject to restrictions, all of
which will become fully vested as a result of the Merger. The shares of HFB
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 HFB
Common Stock, in accordance with the directions of the recipients.
APPRAISAL RIGHTS
Under the General Corporation Law of Delaware (the "DGCL"), any HFB
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
value for, such stockholder's shares of HFB Common Stock (exclusive of any
element of value arising from the accomplishment or expectation of the Merger),
provided that the stockholder complies with the provisions of Section 262 of the
DGCL ("Appraisal Rights").
The following is intended as a brief summary of certain provisions of the
statutory procedures required to be followed by a stockholder in order to demand
and perfect the stockholder's Appraisal Rights. THIS SUMMARY, HOWEVER, IS NOT A
COMPLETE STATEMENT OF ALL APPLICABLE REQUIREMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SECTION 262 OF THE DGCL, THE TEXT OF WHICH IS SET FORTH
IN APPENDIX C TO THIS PROXY STATEMENT-PROSPECTUS.
If any stockholder elects to demand appraisal of such stockholder's shares
of HFB Common Stock, the stockholder must satisfy both of the following
conditions:
(i) the stockholder must deliver to HFB a written demand for appraisal
of such stockholder's shares of HFB Common Stock before the vote on the
Merger Proposal is taken (this written demand for appraisal must be in
addition to and separate from any proxy or vote abstaining from or against
the Merger Proposal; voting against or failing to vote for the Merger
Proposal by itself does not constitute a written demand for appraisal); and
(ii) the stockholder must not vote in favor of the Merger Proposal (an
abstention or failure to vote will satisfy this requirement, but a vote in
favor of the Merger Proposal, by proxy or in person, will constitute a
waiver of the stockholder's Appraisal Rights in respect of the shares of
HFB Common Stock so voted and will nullify any previously filed written
demand for appraisal).
IF ANY STOCKHOLDER FAILS TO COMPLY WITH EITHER OF THESE CONDITIONS AND THE
MERGER BECOMES EFFECTIVE, THE STOCKHOLDER WILL BE ENTITLED TO RECEIVE THE
CONSIDERATION PROVIDED FOR IN THE MERGER AGREEMENT, BUT WILL HAVE NO APPRAISAL
RIGHTS WITH RESPECT TO SUCH STOCKHOLDER'S SHARES OF HFB COMMON STOCK. All
written demands for appraisal should be delivered either in person to the
Corporate Secretary at the Meeting or by mail (certified mail, return receipt
requested, is recommended) to: Corporate Secretary, HF Bancorp, Inc., 445 East
Florida Avenue, Hemet, California 92543-4244, before the vote on the Merger
Agreement is taken at the Meeting, and should be executed by, or on behalf of,
the holder of record of the shares of HFB Common Stock. The demand must
reasonably inform the HFB Corporate Secretary of the identity of the stockholder
and the intention of the stockholder to demand appraisal of such stockholder's
shares of HFB Common Stock.
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In addition, a holder of shares of HFB Common Stock wishing to exercise
Appraisal Rights must hold such shares of record on the date the written demand
for appraisal is made and must hold such shares continuously through the
effective date of the Merger (the "Effective Date"). To be effective, a written
demand for appraisal must be made by or in the name of the registered
stockholder, fully and correctly, as the stockholder's name appears on such
stockholder's stock certificate(s) and cannot be made by the beneficial owner if
the beneficial owner does not also hold the shares of HFB Common Stock of
record. The beneficial holder must, in such cases, have the registered owner
submit the required demand in respect of such shares of HFB Common Stock.
If shares of HFB Common Stock are owned of record in a fiduciary capacity,
such as trustee, guardian, or custodian, execution of a demand for appraisal
should be made in such a capacity, and if the shares of HFB Common Stock are
owned of record by more than one person, as in joint tenancy or tenancy in
common, the demand should be executed by or for all joint owners. An authorized
agent, including one for two or more joint owners, may execute the demand for
appraisal for a stockholder of record; however, the agent must identify the
record owner or owners and expressly disclose the fact that, in executing the
demand, he or she is a nominee for others. A record holder, such as a broker,
who holds shares as nominee for several beneficial owners may exercise his or
her rights of appraisal with respect to the shares of HFB Common Stock held for
one or more beneficial owners, while not exercising this right for other
beneficial owners. In such case, the written demand should state the number of
shares of HFB Common Stock as to which appraisal is sought. Where no number of
shares of HFB Common Stock is expressly mentioned, the demand will be presumed
to cover all shares of HFB Common Stock held in the name of such record owner.
Within ten days after the Effective Date, the continuing corporation in the
Merger, must provide notice of the date upon which the Merger became effective
to each stockholder who so filed a written demand for appraisal and who did not
vote in favor of the Merger Proposal. Within 120 days after the Effective Date,
either the continuing corporation or any stockholder who has complied with the
requirements of Section 262 may file a petition in the Delaware Court of
Chancery (the "Court") demanding a determination of the fair value of the shares
of HFB Common Stock held by all stockholders entitled to appraisal.
Temple-Inland does not presently intend to file such a petition. Inasmuch as
Temple-Inland has no obligation to file such a petition, the failure of a
stockholder to do so within the period specified could nullify such
stockholder's previously written demand for appraisal. At any time within 60
days after the Effective Date, a stockholder has the right to withdraw the
demand and to accept the payment of the consideration provided for in the Merger
Agreement.
If a petition for appraisal is duly filed by a stockholder and a copy
thereof is delivered to Temple-Inland, Temple-Inland will then be obligated
within 20 days thereafter to provide the Court with a duly verified list
containing the names and addresses of all stockholders who have demanded an
appraisal of their shares of HFB Common Stock. After notice to such stockholders
by registered or certified mail and publication, the Court is empowered to
conduct a hearing upon the petition, to determine those stockholders who have
complied with Section 262 and who have become entitled to Appraisal Rights. The
Court may require the stockholders who have demanded payment for their shares of
HFB Common Stock to submit their stock certificates to the Register in Chancery
for notation thereon of the pendency of the appraisal proceeding; and if any
stockholder fails to comply with such direction, the Court may dismiss the
proceeding as to such stockholder.
After determination of the stockholders entitled to an appraisal, the Court
will appraise the shares of HFB Common Stock, determining their fair value
exclusive of any element of value arising from the accomplishment or expectation
of the Merger. In determining fair value, the Court is required to take into
account all relevant factors. When the value is so determined, the Court will
direct the payment by Temple-Inland of such value, with interest thereon accrued
during the pendency of the proceeding if the Court so determines, to the
stockholders entitled to receive the same, upon surrender to Temple-Inland by
such holders of the certificates representing such shares of HFB Common Stock.
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Stockholders considering seeking appraisal should be aware that, if the
Merger is consummated, the fair value of their shares of HFB Common Stock
determined under Section 262 could be more, the same, or less than the
consideration that they would be entitled to receive pursuant to the Merger
Agreement if they do not demand appraisal of their shares of HFB Common Stock.
Costs of the appraisal proceeding may be imposed upon the parties thereto
(i.e., the surviving corporation and the stockholders participating in the
appraisal proceeding) by the Court as the Court deems equitable in the
circumstances. Upon the 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 attorneys' fees
and expenses of experts, to be charged pro rata against the value of all shares
of HFB Common Stock entitled to Appraisal Rights.
Any stockholder who demands Appraisal Rights will not, after the Effective
Date, be entitled to vote shares of HFB Common Stock subject to such demand for
any purpose or to receive payments of dividends or any other distribution with
respect to such shares of HFB Common Stock (other than with respect to payment
as of a record date prior to the Effective Date) or to receive the consideration
provided for in the Agreement; however, if no petition for appraisal is filed
within 120 days after the Effective Date, or if such stockholder delivers a
written withdrawal of such stockholder's demand for appraisal and an acceptance
of the Merger, either within 60 days after the Effective Date, or thereafter
with the written approval of the surviving corporation, then the right of such
stockholder to appraisal will cease and such stockholder will be entitled to
receive the consideration provided for in the Merger Agreement without interest.
THE FOREGOING IS ONLY A SUMMARY OF THE STATUTORY APPRAISAL RIGHTS OF THE
HOLDERS OF HFB COMMON STOCK. ANY HOLDER OF HFB COMMON STOCK WHO INTENDS TO
EXERCISE APPRAISAL RIGHTS SHOULD CAREFULLY REVIEW THE TEXT OF THE APPLICABLE
PROVISIONS OF THE DGCL SET FORTH IN APPENDIX C TO THIS PROXY
STATEMENT-PROSPECTUS AND SHOULD ALSO CONSULT WITH SUCH HOLDER'S ATTORNEY. THE
FAILURE OF A HOLDER OF HFB COMMON STOCK TO FOLLOW PRECISELY THE PROCEDURES
SUMMARIZED ABOVE AND SET FORTH IN APPENDIX C MAY RESULT IN LOSS OF APPRAISAL
RIGHTS. NO FURTHER NOTICE OF THE EVENTS GIVING RISE TO APPRAISAL RIGHTS OR ANY
STEPS ASSOCIATED THEREWITH WILL BE FURNISHED TO HOLDERS OF HFB COMMON STOCK,
EXCEPT AS INDICATED ABOVE OR OTHERWISE REQUIRED BY LAW.
In general, any stockholder who demands and perfects such holder's
Appraisal Rights to be paid the fair value of such holder's HFB Common Stock in
cash will recognize taxable gain or loss for federal income tax purposes upon
receipt of such cash.
ACCOUNTING TREATMENT
It is anticipated that 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.
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THE MERGER AGREEMENT
A DESCRIPTION OF CERTAIN OF THE TERMS AND CONDITIONS OF THE MERGER
AGREEMENT AND RELATED MATTERS ARE 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-PROSPECTUS. THE TEXT OF THE
MERGER AGREEMENT IS INCORPORATED HEREIN IN ITS ENTIRETY BY THIS REFERENCE.
THE MERGER
The Merger Agreement was entered into among Temple-Inland, HFB, Guaranty,
and Hemet on November 14, 1998. Pursuant to the Merger Agreement and except in
the circumstances described in the next paragraph, HFB will merge with and into
Temple-Inland, with Temple-Inland being the surviving corporation. The separate
corporate existence of HFB 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 HFB Common Stock issued and
outstanding (other than (a) shares with respect to which appraisal rights shall
have been perfected in accordance with the DGCL and (b) shares held directly or
indirectly by Temple-Inland or HFB, or any of their respective subsidiaries, in
each case other than in a fiduciary (including custodial or agency) capacity or
as a result of debts previously contracted in good faith) will be converted
automatically into the right to receive $18.50, for a total consideration of
approximately $118.5 million. Subject to the proration procedures described
below, at the election of each HFB stockholder, the $18.50 per share will be
paid in either a fraction of a share of Temple-Inland Common Stock (a "Stock
Election"), cash (a "Cash Election"), or a combination of Temple-Inland Common
Stock and cash (a "Combination Election"). Under the terms of the Merger
Agreement, cash will be paid in lieu of the issuance of fractional shares of
Temple-Inland Common Stock.
Notwithstanding the foregoing, if Temple-Inland and HFB do not receive the
opinion of their respective counsel that, among other things, the Merger
constitutes a "reorganization" within the meaning of Section 368 of the Code,
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 HFB with HFB surviving as a subsidiary
of Temple-Inland. In addition, upon completion of the Merger, each share of HFB
Common Stock issued and outstanding (other than (a) shares with respect to which
appraisal rights shall have been perfected in accordance with the DGCL and (b)
shares held directly or indirectly by Temple-Inland or HFB, or any of their
respective subsidiaries, in each case other than in a fiduciary (including
custodial or agency) capacity or as a result of debts previously contracted in
good faith) will be converted automatically into the right to receive $18.50 to
be paid in cash.
EFFECTIVE TIME AND EFFECTIVE DATE
The Merger will become effective at the date (the "Effective 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 on the last business day of the month in
which the last of the following events occur: (i) the approval of the Merger
Agreement by the stockholders of HFB, (ii) the receipt of all permits,
authorizations, approvals, and consents required by the Merger Agreement, (iii)
the expiration of all applicable waiting periods under all laws, and (iv) the
completion of the election, allocation, and proration procedures described
below, or such other date upon which the parties may agree.
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 pursuant to the exchange ratio (the
"Exchange Ratio") set forth in the Merger Agreement, which 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 Closing Stock Price. The
Closing
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Stock Price for this purpose is 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. For example, if the
Record Date had been the Effective Date, the Closing Stock Price would have been
$ per share, and the Exchange Ratio would have been . In this
example, each HFB stockholder could elect to receive of a share of
Temple-Inland Common Stock or $18.50 in cash for each share of HFB Common Stock
they own. A HFB stockholder that owns 100 shares of HFB Common Stock could elect
to receive (1) shares of Temple-Inland Common Stock (in which case such
stockholder would be paid the cash equivalent of the left over fraction of
of a share), (2) $1,850.00, or (3) a combination of shares of
Temple-Inland Common Stock and $ .
Making the Election
Temple-Inland has selected to serve as the exchange agent (the
"Exchange Agent") for purposes of effecting the election, allocation, and
proration procedures. Following the date of the Special Meeting and at least 45
days prior to the Effective Date, each record holder of shares of HFB Common
Stock will be sent an election form (the "Election Form"), which shall permit
such stockholder to make either (i) a Stock Election, (ii) a Cash election, or
(iii) a Combination Election with respect to the shares of HFB Common Stock they
own. If a stockholder either (i) does not submit a properly completed Election
Form in a timely fashion or (ii) revokes such stockholder's Election Form prior
to the deadline for the submission of the Election Form (the "Election
Deadline"), the shares of HFB Common Stock held by such stockholder shall be
"Undesignated Shares." The Election Deadline will be 30 days after the mailing
of the Election Forms.
All elections will be required to be made on an Election Form. To make an
effective election with respect to shares of HFB Common Stock, the holder
thereof must, in accordance with the Election Form, (i) complete properly and
return the Election Form and accompanying letter of transmittal (the "Letter of
Transmittal") to the Exchange Agent, (ii) either (a) deliver therewith his or
her certificates for shares of HFB Common Stock (or an appropriate guarantee of
delivery thereof), or (b) complete the procedure for delivery by book entry
transfer of such shares on a timely basis, and (iii) deliver therewith any other
required documents, prior to the Election Deadline. It is anticipated that the
Letter of Transmittal and Election Form will be mailed to HFB stockholders
immediately following the Special Meeting, and in any event at least forty-five
(45) days prior to the anticipated Effective Date.
CERTIFICATES REPRESENTING SHARES OF HFB COMMON STOCK SHOULD NOT BE RETURNED
WITH THE ENCLOSED PROXY AND SHOULD NOT BE FORWARDED TO THE EXCHANGE AGENT UNTIL
AN HFB STOCKHOLDER HAS RECEIVED THE LETTER OF TRANSMITTAL AND ELECTION FORM.
A holder of shares of HFB Common Stock having a preference as to the form
of consideration to be received for his or her shares of HFB Common Stock should
make an Election, because shares as to which an Election has been made will be
given priority in allocating such consideration over shares as to which an
Election is not received. None of Temple-Inland, the Board of Directors of
Temple-Inland, HFB, or the Board of Directors of HFB makes any recommendation as
to whether stockholders should make a Cash Election, a Stock Election, or a
Combination Election. Each holder of HFB Common Stock must make his or her own
decision with respect to such election.
Allocation and Proration Procedures
Temple-Inland will issue no more than 1,216,470 shares of Temple-Inland
Common Stock in the Merger (the "Temple-Inland Stock Amount"). If the Stock
Elections and Combination Elections would result in Temple-Inland issuing more
shares than the Temple-Inland Stock Amount, then all shares of HFB Common Stock
for which effective elections have not been made ("Undesignated Shares") shall
be deemed to have made Cash Elections. A stock proration factor (the "Stock
Proration Factor") shall be determined by dividing the Temple-Inland Stock
Amount by the product obtained by multiplying the (y) total number of shares of
HFB Common Stock with respect to which effective Stock Elections and
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Combination Elections were made and (z) the Exchange Ratio. Each holder of HFB
Common Stock who made an effective Stock Election or Combination Election will
be entitled to:
1) the number of shares of Temple-Inland Common Stock equal to the
product of the (x) Exchange Ratio, multiplied by (y) the number of shares
of HFB Common Stock covered by such Stock Election, or or Combination
Election multiplied by (z) the Stock Proration Factor; and
2) cash in an amount equal to the product of (x) $18.50 multiplied by
(y) the number of shares of HFB Common Stock covered by such Stock Election
or Combination Election, multiplied by (z) one minus the Stock Proration
Factor.
If the aggregate number of shares of HFB Common Stock as to which Stock
Elections or Combination Elections have been effectively made times the Exchange
Ratio shall be less than the Temple-Inland Stock Amount, then the Exchange Agent
shall select by random such number of Undesignated Shares to receive
Temple-Inland Common Stock as shall be necessary so that the number of such
shares when added to the number of shares for which a Stock Election or
Combination 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 Stock Elections; provided, however,
that if the aggregate number of shares of HFB Common Stock as to which Stock
Elections have been effectively made, together with all Undesignated Shares,
times the Exchange Ratio shall be less than the Temple-Inland 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 Temple-Inland and HFB.
The option for HFB stockholders to receive payment in shares of
Temple-Inland Common Stock for their shares of HFB common stock is provided to
the HFB stockholders 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, HFB
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 HFB
Common Stock in the Merger. HFB stockholders, however, will have to pay taxes on
any cash received in consideration for their shares of HFB Common Stock, for
Appraisal Rights, and any cash received in lieu of fractional shares. See "The
Merger -- Certain 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 HFB 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 HFB Common Stock
will be deemed to have made Cash Elections.
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
("Newco"). In this event, Newco will be formed as a subsidiary of Guaranty
Holdings Inc. I ("GHI"), which is a subsidiary of Temple-Inland and the
immediate parent company to Guaranty. Newco will be merged into HFB with HFB
being the surviving company. HFB will then become a wholly-owned subsidiary of
GHI. GHI would then make a contribution to the capital of Guaranty, consisting
of the stock of HFB, which would cause HFB to be a subsidiary of Guaranty.
Guaranty would then liquidate HFB 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 HFB
WILL DEPEND UPON THE ELECTION, ALLOCATION, AND PRORATION PROCEDURES DESCRIBED
BELOW AND THE ELECTIONS OF OTHER STOCKHOLDERS. ACCORDINGLY, NO GUARANTEE CAN BE
GIVEN THAT THE ELECTION OF ANY GIVEN STOCKHOLDER OF HFB WILL BE HONORED. In
addition, because the tax consequences of receiving the cash will differ from
the tax consequences of receiving Temple-Inland Common Stock, HFB stockholders
are urged to read carefully the information set forth under "The
Merger -- Certain Federal Income Tax Considerations."
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STOCKHOLDERS OF HFB SHOULD NOT FORWARD ANY STOCK CERTIFICATES WITH THEIR
PROXY CARDS. IF THE MERGER IS APPROVED AT THE SPECIAL MEETING, STOCKHOLDERS WILL
RECEIVE INSTRUCTIONS ON HOW TO MAKE THE ELECTIONS REFERRED TO HEREIN AND ON HOW
TO EXCHANGE THEIR STOCK CERTIFICATES FOR THE PROPOSED MERGER CONSIDERATION.
CONDUCT OF THE BUSINESS OF HFB AND TEMPLE-INLAND PRIOR TO THE MERGER
Pursuant to the Merger Agreement, each of Temple-Inland and HFB has agreed
that, during the period from the date of the Merger Agreement until completion
of the Merger, except as permitted by the Merger Agreement, each will not, and
will cause its subsidiaries not to, among other things, take any action that
would or is reasonably likely to (a) adversely affect the ability of
Temple-Inland or Guaranty, on the one hand, or HFB or Hemet on the other hand,
to obtain any approvals of governmental entities necessary for the Merger, (b)
adversely affect the ability of HFB 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 (c) result in any of the conditions to the performance
of the obligations of HFB or Hemet, on the one hand, or Temple-Inland or
Guaranty, on the other hand, under the Merger Agreement not being satisfied.
HFB has also agreed that, during the same period, in addition to certain
other restrictions, it will not, subject to certain exceptions, without the
prior consent of Temple-Inland, (a) conduct the business of HFB other than in
the ordinary and usual course; (b) issue, sell, or otherwise permit to become
outstanding, or authorize the creation of, any additional shares of HFB Common
Stock, any rights to acquire HFB Common Stock, or enter into any agreement with
respect to the foregoing; (c)(1) make, declare, pay, or set aside for payment
any dividend or declare or make any distribution on any shares of HFB common
stock or (2) directly or indirectly adjust, split, combine, redeem, reclassify,
purchase, or otherwise acquire, any shares of its capital stock; (d) amend its
Certificate of Incorporation, the federal stock charter of Hemet, or the Bylaws
of HFB or Hemet; (e) grant any general or uniform increase in the rate of pay of
employees or employee benefits, except under certain circumstances set forth in
the Merger Agreement; (f) grant any bonus, incentive compensation, or related
employee benefits, 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 contractual obligation; (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 identified planned expenditures; (h) change any method or period
of accounting unless and until required by generally accepted accounting
principles; (i) 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; (j) 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; (k) make any investment by
purchase of stock or securities, contributions to capital, property transfers,
or otherwise in any other entity, except under certain conditions specified in
the Merger Agreement; (l) settle any material claim, action, or proceeding
involving any liability of HFB, Hemet, or First Hemet; (m) terminate, amend, or
modify any material contract or enter into any agreement or contract that would
be material; (n) 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; (o) extend any credit in excess of certain
thresholds; (p) extend any credit or amend the terms of any outstanding credit
to officers, directors, or holders of 10 percent of HFB Common Stock; (q) close
any office except those previously identified to Temple-Inland; or (r) 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, (a) organization and similar
corporate matters; (b) the capital structure of HFB and Temple-Inland; (c)
authorization, execution, delivery, performance and enforceability of the Merger
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Agreement and related matters; (d) conflicts under certificates of incorporation
or bylaws, required consents or approvals, and violations of any agreements or
law; (e) financial statements or documents filed with the Commission or other
regulatory agencies and the accuracy of information contained therein; (f)
absence of certain material adverse events, changes, effects or undisclosed
liabilities; (g) retirement and other employee plans and matters relating to the
Employee Retirement Income Security Act of 1974, as amended; (h) litigation; (i)
compliance with law, including environmental compliance; (j) tax returns and
audits; (k) absence of regulatory actions; (l) labor matters; (m) risk
management instruments; (n) books and records; (o) trust business; and (p) Year
2000 matters.
CERTAIN COVENANTS
Acquisition proposals
Pursuant to the Merger Agreement, HFB has agreed that it will not, and will
cause its subsidiaries, officers, directors, employees, agents, advisors, and
other representatives of it, it subsidiaries, or its affiliates not to,
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
merger, consolidation, share exchange, or other business combination, or
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. HFB and Hemet will immediately advise Temple-Inland following the
receipt by HFB of any such acquisition proposal, requests for information, or
negotiations or discussions. However, HFB may engage in discussions or
negotiations with, or provide any information to, any person in response to an
unsolicited bona fide written proposal concerning an acquisition transaction if
the following conditions are met: (a) the HFB Board of Directors concludes in
good faith that the acquisition proposal is superior; (b) the HFB Board of
Directors 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 (c) the HFB Board of Directors notifies
Temple-Inland and Guaranty of such inquiries or proposals at least 48 hours
before taking any such action.
Certain policies of HFB
On or prior to completion of the Merger, HFB 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 so as to permit treatment
on a basis that is consistent with that of Temple-Inland.
Employee benefits
From and after the date the Merger is completed, Guaranty will (1) provide
former employees of HFB 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 (2) with respect to former
employees of HFB 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
thereunder the service of such employees with HFB or Hemet as if such service
were with Guaranty.
Board attendance
HFB and Hemet have agreed, subject to certain exceptions, to allow a
representative of Temple-Inland to attend all regular and special meetings of
the Board of Directors of HFB and Hemet and the committees of such boards, until
the completion of the Merger.
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Indemnification; directors' and officers' insurance
Subject to certain exceptions, Temple-Inland has agreed to indemnify,
defend, and hold harmless each of the present directors and officers of HFB or
Hemet against any claim or loss arising out of their actions while a director or
officer whether asserted, claimed or arising prior to, at or after the
completion of the Merger, to the greatest extent permitted under Delaware law,
applicable banking laws and regulations, and HFB's and Hemet's organizational
documents or bylaws in effect on November 14, 1998, and Temple-Inland also will
pay the expenses (including reasonable attorneys' fees) as incurred to the
extent permitted under Delaware law and HFB's and Hemet's organization documents
and bylaws.
Temple-Inland also has agreed that for a period of four years after the
completion of the Merger, it will ensure that the present directors and officers
of HFB and Hemet are covered by policies of directors' and officers' liability
insurance that is no less protective in terms of coverage or limitations than
similar coverage maintained by HFB or Hemet as of November 14, 1998; provided,
however, that in no event will Temple-Inland be obligated to expend, in order to
maintain or provide insurance coverage pursuant to the Merger Agreement, any
amount per annum in excess of 150 percent of the amount of the annual premiums
paid as of the date of the Merger Agreement by HFB or Hemet for such insurance
(the "Maximum Amount"). If the amount of the annual premiums necessary to
maintain or procure such insurance coverage exceeds the Maximum Amount,
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 Maximum Amount.
HFB affiliates
HFB has agreed to use its commercially reasonable efforts to cause each
person who may be deemed to be an affiliate of HFB 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 to be received by such person in the Merger
except in compliance with the applicable law.
CONDITIONS
The respective obligations of Temple-Inland and HFB to consummate the
Merger are subject to certain conditions, including (a) the approval by the HFB
stockholders of the Merger Proposal; (b) the receipt of approvals required by
law in connection with the Merger and the other transactions contemplated by the
Merger Agreement; (c) 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 which
would have a material adverse effect; (d) the expiration of all applicable
waiting periods; (e) the absence of any judgment, decree, injunction, order, or
proceeding prohibiting or threatening to invalidate or set aside the Merger or
the Bank Merger or which would have a material adverse effect; and (f) the
Registration Statement 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 Commission.
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 certain conditions, including the following: (a) the representations
and warranties of HFB and Hemet being true and correct unless the failure so to
be true and correct does not have a material adverse effect on HFB and Hemet;
(b) the performance by HFB and Hemet in all material respects of all obligations
contained in the Merger Agreement required to be performed by HFB before the
completion of the Merger; (c) 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; (d)
the receipt by Temple-Inland of the written resignation of each director of HFB
and Hemet; (e) the receipt by Hemet and HFB of all necessary third-party
consents with respect to material agreements; (f) the occurrence of no event
that has had or could reasonably be expected to have a material adverse effect;
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(g) HFB having in effect on the Effective Date an allowance for loan and lease
losses in an amount not less than the amount determined by the method
customarily utilized by HFB; and (h) the governmental and regulatory approvals
required to complete the Merger and the Bank Merger 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 HFB to consummate the Merger also is subject
to the fulfillment or waiver by HFB prior to the completion of the Merger of
certain conditions, including the following: (a) 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; (b) 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; (c) if any shares
of Temple-Inland Common Stock are to be issued in the Merger, the receipt by HFB
of an opinion of Manatt, Phelps & Phillip, LLP stating that (1) the Merger
constitutes a tax-deferred reorganization and (2) no gain or loss will be
recognized by HFB stockholders who receive shares of Temple-Inland Common Stock
in exchange for shares of HFB Common Stock, except with respect to cash received
in lieu of fractional share interests; and (d) the receipt by HFB from KBW of an
opinion stating that as of a date within five days prior to the mailing of this
Proxy Statement-Prospectus to the stockholders of HFB, the consideration to be
received by the holders of HFB Common Stock is fair from a financial point of
view.
TERMINATION
The Merger Agreement may be terminated, subject to certain limitations, and
the Merger abandoned, prior to the date the Merger is completed, either before
or after its approval by the HFB stockholders: (a) by the mutual consent of
Temple-Inland and HFB; (b) by either Temple-Inland or HFB in the event of (1)
the failure of the HFB stockholders to approve the Merger Proposal at the
Special Meeting, provided that HFB shall not be able to terminate the Merger
Agreement if the HFB Board of Directors withdrew or modified in a manner adverse
to Temple-Inland, its recommendation that the HFB stockholders approve the
Merger, (2) 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, (3) certain conditions to the Merger not
having occurred by July 31, 1999, or (4) the denial of any approval of a
governmental authority required to permit consummation of the Merger or any
transaction necessary to consummate the Merger; (c) by Temple-Inland, if (1) HFB
or Hemet breaches any of its obligations related to Superior Proposals, (2) HFB
continues to discuss or fails to reject a competing Superior Proposal for more
than ten business days (in either such case, HFB shall pay Temple-Inland a
termination fee of $4,866,128); or (d) by HFB, provided (1) the HFB Board of
Directors authorizes HFB to enter into a Superior Proposal, (2) Temple-Inland
does not within ten business days make an offer that the HFB Board of Directors
determines is at least as favorable as the Superior Proposal, and (3) HFB pays
to Temple-Inland a termination fee of $4,866,128.
In addition, HFB must pay to Temple-Inland all of Temple-Inland's
reasonable out-of-pocket expenses incurred in connection with the completion of
the Merger, but not to exceed $1,500,000 in the aggregate, if HFB or
Temple-Inland terminates the Merger Agreement pursuant to clause (b)(1) of the
immediately preceding paragraph or Temple-Inland terminates the Merger Agreement
pursuant to clause (b)(2) or clause (d) of the immediately preceding paragraph.
Temple-Inland must pay to HFB all of HFB's reasonable out-of-pocket expenses
incurred in connection with the completion of the Merger, but not to exceed
$1,500,000 in the aggregate, if HFB terminates the Merger Agreement pursuant to
clause (b)(2) of the immediately preceding paragraph.
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 HFB executed in the same manner as the Merger Agreement.
However, after
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the Special Meeting, the Merger Agreement may be amended so long as the
consideration to be received by HFB stockholders is not reduced and the
amendments do not violate the DGCL.
THE STOCK OPTION AGREEMENT
As an inducement and condition to Temple-Inland's entering into the Merger
Agreement, HFB entered into the Stock Option Agreement with Temple-Inland, dated
November 14, 1998. Pursuant to the Stock Option Agreement, HFB granted to
Temple-Inland an unconditional, irrevocable option (the "Option"), exercisable
only under certain limited and specifically defined circumstances, none of
which, to the best of HFB's and Temple-Inland's knowledge, has occurred as of
the date hereof, to purchase up to 1,272,665 authorized but theretofore unissued
shares of HFB Common Stock (but in no event more than 19.9 percent of the shares
of HFB Common Stock outstanding at the time of exercise), for a purchase price
per share of $16.0625, subject to adjustment in certain circumstances. The
purchase of HFB Common Stock pursuant to the Stock Option Agreement is subject
to compliance with applicable law.
The Stock Option Agreement and the Option are intended to increase the
likelihood that the Merger will be consummated according to the terms set forth
in the Merger Agreement, and may be expected to discourage offers by third
parties to acquire HFB prior to the Merger. A copy of the Stock Option Agreement
is included as Appendix E to this Proxy Statement-Prospectus.
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 (as that term is
defined below); 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
termination of the Merger Agreement under certain circumstances; (ii) the time
immediately prior to the Effective Time of the Merger, (iii) eighteen months
following the occurrence of the earliest to occur of (A) the date of any
termination of the Merger Agreement under reasons other than those described in
(i) above or (B) the date of first occurrence of a Preliminary Purchase Event or
a Purchase Event, as defined below, or (iv) 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.
Notwithstanding the foregoing, HFB shall not be obligated to issue any shares
upon exercise of the Option (i) in the absence of any required governmental or
regulatory waiver, consent, or approval necessary for HFB 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, (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 shares to be issued upon exercise of the Option, or (iii) 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: (i) HFB or Hemet enters into an agreement with any person (other
than Temple-Inland or any of its subsidiaries) pursuant to which such person
would: (x) merge or consolidate with, or enter into any similar transaction with
HFB or Hemet (y) purchase, lease, or otherwise acquire all or substantially all
of the assets of HFB or Hemet or (z) purchase or otherwise acquire securities
representing 15 percent or more of the voting shares of HFB, Hemet, or any other
subsidiary of HFB (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 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 HFB or Hemet; (iii) the
stockholders of HFB fail to approve the Merger Proposal, 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 HFB Board of Directors that the stockholders of HFB
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
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bank regulatory application for approval to engage in an Acquisition
Transaction; (iv) after a proposal to engage in an Acquisition Transaction is
made by a third party to HFB 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, HFB 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 Agreement; or (v) a public announcement by HFB or Hemet of the
authorization, recommendation, or endorsement by HFB of an Acquisition
Transaction, exchange offer, or tender offer or a public announcement by HFB of
an intention to authorize, recommend, or announce an Acquisition Transaction,
exchange offer, or tender offer. As used in the Stock Option Agreement, a
"Preliminary Purchase Event" shall have occurred when: (i) 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 HFB Common Stock, such that
the person or group would own or control ten percent or more of the shares of
HFB Common Stock (such an offer, a "Tender Offer" or an "Exchange Offer"), (ii)
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 (iii) HFB or Hemet
enters into an agreement with any person (other than Temple-Inland or any of its
subsidiaries) pursuant to which the person would purchase or otherwise acquire
securities representing ten percent or more of the voting shares of HFB or
Hemet. As of the date hereof, 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 HFB stockholder and current director of HFB. These
stockholders, holding in the aggregate shares representing approximately 4.95
percent of the total voting power of HFB Common Stock as of the Record Date,
each have agreed, in consideration of the substantial expenses incurred by
Temple-Inland and HFB in connection with the Merger Agreement and as a condition
to Temple-Inland and HFB entering into the Merger Agreement, to vote or to cause
to be voted, or to execute a written consent with respect to, all of such
stockholder's shares of HFB Common Stock then held of record or beneficially
owned, directly or indirectly, in favor of adoption and approval of the Merger
Agreement and the Merger at every meeting of HFB stockholders at which such
matters are considered and at every adjournment thereof and in connection with
every proposal to take action by written consent with respect thereto.
Each Stockholder Agreement also provides that the stockholder will not, and
will not permit any entity under its control to, sell, assign, transfer, or
dispose of any such shares or take any other action that will alter or affect in
any way the right to vote such shares inconsistent with the Stockholder
Agreement entered into by that stockholder.
The Stockholder Agreements will terminate upon the earlier to occur of the
completion of the Merger (except for certain provisions which will survive 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 actions of the signatories thereto only
in their capacity as HFB stockholders. Those directors of HFB who signed
Stockholder Agreements are not and could not be contractually bound to abrogate
their fiduciary duties as directors of HFB. Accordingly, while such
stockholders/directors are, under the Stockholder Agreements executed by them,
contractually bound to vote as a HFB stockholder in favor of the Merger and
against other acquisition proposals (should any be presented), their fiduciary
duties as HFB directors nevertheless require them to act in their capacity as
directors in the best interest of HFB when they decided to approve the Merger.
In addition, such stockholders/directors will continue to be bound by their
fiduciary duties as HFB directors with respect to any decisions they may take in
connection with the Merger or otherwise.
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COMPARISON OF STOCKHOLDER RIGHTS
COMPARISON OF CORPORATE STRUCTURE
Both Temple-Inland and HFB are Delaware corporations and as such are
governed by the DGCL. Listed below is a summary of the material differences in
the rights of the stockholders of Temple-Inland Common Stock and HFB 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.
VOTING RIGHTS
HFB's Certificate of Incorporation imposes certain voting limitations on
stockholders who own in excess of ten percent of the outstanding HFB Common
Stock. Temple-Inland's certificate of incorporation does not contain any such
limitation.
DIVIDENDS AND DIVIDEND POLICY
Holders of HFB Common Stock are entitled to receive dividends declared by
the HFB Board of Directors out of funds legally available therefor under the
laws of the State of Delaware. No cash dividends have been paid to HFB
stockholders since the inception of HFB, and no cash dividends will be paid
prior to completion of the Merger. Holders of Temple-Inland Common Stock are
entitled to receive dividends declared by the Temple-Inland Board of Directors
out of funds legally available therefor under the laws of the State of Delaware,
subject to the rights of holders of any preferred stock of Temple-Inland that
may be issued after the date hereof. Temple-Inland increased its quarterly
dividend to $0.32 per share beginning with the dividend payable September 13,
1996, where it remains as of the most recent quarterly dividend paid on December
15, 1998. The Board of Directors of Temple-Inland will review its dividend
policy periodically, and 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 directors shall be as determined, from time to
time, by resolution of the Board of Directors of Temple-Inland, but in no event
shall there be fewer than three directors. HFB's Bylaws provide that the HFB
Board of Directors shall consist of such number of directors as may from time to
time be prescribed by the HFB Board of Directors. Currently the number of
authorized directors is nine.
LIQUIDITY OF STOCK
The shares of HFB Common Stock are traded on the Nasdaq National Market(R).
The issuance of the shares of Temple-Inland Common Stock in the Merger will be
registered under applicable securities laws and may therefore be freely resold
by persons who are not "affiliates" of HFB or Temple-Inland. See "The
Merger -- Resale of Temple-Inland Common Stock." In addition, the Temple-Inland
Common Stock is listed on the NYSE and the Pacific Exchange and actively traded
on those exchanges. Current quotes of the market price of both Temple-Inland
Common Stock and HFB Common Stock are available from brokerage firms and other
securities professionals, as well as other sources, and are published in major
newspapers on a daily basis.
DIRECTORS' QUALIFICATIONS
No individual shall be eligible for election as a director of Temple-Inland
who has attained the age of 72 prior to the date of such 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,
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partnership, firm, business enterprise, or other entity or organization that the
Temple-Inland Board of Directors 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 (together with its
affiliates) total assets or total deposits exceeding $500 million shall be
presumed to be a business competitor of Temple-Inland, unless the Temple-Inland
Board of Directors determines otherwise. HFB's Bylaws provide that no person 75
or older is eligible for election or appointment to the HFB Board of Directors.
AMENDMENT OF CHARTER AND BYLAWS
Temple-Inland's Certificate of Incorporation may be amended by a vote of a
majority of the voting power present at any meeting called for that purpose,
with the exception of certain provisions dealing with transactions with
interested parties, classes of directors, and denial of the ability of the
stockholders to act by written consent, which require a vote of 80 percent of
the voting power. The HFB Certificate of Incorporation may be amended by a
majority vote, except with respect to Article TWELFTH (supermajority voting
rights), Section C of Article FOURTH (capitalization), Sections C (stockholder
voting procedures) or D (special meetings of stockholders) of Article FIFTH,
Article SIXTH (directors), Article SEVENTH (amendment of Bylaws), Article EIGHTH
("interested stockholder" transactions), and Article TENTH (indemnification
provisions), each of which requires the affirmative vote of the holders of at
least 80 percent of the voting power of all the then outstanding shares of the
capital stock of HFB entitled to vote for amendment or repeal.
The Bylaws of Temple-Inland may be amended or repealed by a vote of 80
percent of the total voting power outstanding or by a vote of the majority of
the directors of Temple-Inland. The HFB 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 HFB.
SPECIAL MEETINGS OF STOCKHOLDERS
Except as may otherwise be required by law, special meetings of the
stockholders of Temple-Inland may be called by the Chairman of the Board or the
Secretary at the request of a majority of the Board of Directors. A special
meeting of stockholders of HFB may be called pursuant to a resolution adopted by
a majority of the full HFB Board of Directors, provided such a majority would
also constitute a majority if there were no vacancies on the HFB Board of
Directors.
STOCKHOLDER PROPOSALS
Temple-Inland's Bylaws contain certain provisions expressly allowing
stockholders to submit stockholder proposals and to nominate individuals for
election as directors, under certain circumstances and provided the stockholder
complies with all of the conditions set forth in those provisions. HFB's Bylaws
contain certain provisions expressly allowing stockholders to submit stockholder
proposals and to nominate individuals for election as directors, under certain
circumstances and provided the stockholder complies with all of the conditions
set forth in those provisions.
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.
56
<PAGE> 61
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 3, 1998, and the related financial statement schedule
included therein, have been audited by Ernst & Young LLP, independent auditors,
as set forth in their reports thereon incorporated by reference or included
therein and incorporated herein by reference. Such consolidated financial
statements and schedule are incorporated herein 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 HFB and subsidiaries incorporated
in this Proxy Statement-Prospectus by reference from HFB'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 herein by
reference in reliance upon the report of such firm given upon its authority as
experts in accounting and auditing.
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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> 63
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> 64
<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> 65
<TABLE>
<CAPTION>
PAGE
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<C> <S> <C>
6.10 Affiliates.................................................. 37
6.11 Director Resignations....................................... 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
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
</TABLE>
(iii)
<PAGE> 66
<TABLE>
<CAPTION>
PAGE
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<C> <S> <C>
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> 67
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.
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"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.
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"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-l(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
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debts, 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 com-pensation 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
January 29, 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. ("KBW"), 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. KBW 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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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
To be filed by amendment
<PAGE> 124
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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<PAGE> 131
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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<PAGE> 132
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.
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<PAGE> 133
(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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\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
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<PAGE> 135
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
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<PAGE> 136
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> 137
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 3, 1989, between the
Company and NCNB Texas National Bank, Dallas, Texas, 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> 138
<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(15)
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)(15)
23.04 -- Consent of M. Richard Warner, Esq. (contained in Exhibit
5.01)(15)
24.01 -- Power of Attorney(16)
99.01 -- Form of proxy for holders of common stock of HF Bancorp,
Inc.(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 Form 8-K filed with the
Commission on February 16, 1989.
(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) To be filed by amendment.
(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 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.
II-3
<PAGE> 139
(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 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.
II-4
<PAGE> 140
(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> 141
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
January 29, 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, and Chief Executive
Clifford J. Grum Officer
/s/ KENNETH M. JASTROW, II Director, President, Chief January 29, 1999
- ----------------------------------------------------- Operating Officer, and Chief
Kenneth M. Jastrow, II Financial Officer
/s/ DAVID H. DOLBEN Vice President and Chief January 29, 1999
- ----------------------------------------------------- Accounting Officer
David H. Dolben
/s/ ROBERT CIZIK Director January 29, 1999
- -----------------------------------------------------
Robert Cizik
/s/ ANTHONY M. FRANK Director January 29, 1999
- -----------------------------------------------------
Anthony M. Frank
/s/ WILLIAM B. HOWES Director January 29, 1999
- -----------------------------------------------------
William B. Howes
/s/ BOBBY R. INMAN Director January 29, 1999
- -----------------------------------------------------
Bobby R. Inman
/s/ HERBERT A. SKLENAR Director January 29, 1999
- -----------------------------------------------------
Herbert A. Sklenar
/s/ WALTER P. STERN Director January 29, 1999
- -----------------------------------------------------
Walter P. Stern
/s/ ARTHUR TEMPLE III Director January 29, 1999
- -----------------------------------------------------
Arthur Temple III
/s/ CHARLOTTE TEMPLE Director January 29, 1999
- -----------------------------------------------------
Charlotte Temple
/s/ LARRY E. TEMPLE Director January 29, 1999
- -----------------------------------------------------
Larry E. Temple
</TABLE>
II-6
<PAGE> 142
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*
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)*
24.01 -- Power of Attorney
99.01 -- Form of proxy for holders of common stock of HF Bancorp,
Inc.*
</TABLE>
- ---------------
* To be filed by amendment.
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 30, 1998, 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 3, 1998, and the related financial statement schedule included therein,
filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Houston, Texas
January 29, 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 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
January 29, 1999
Los Angeles, California
<PAGE> 1
EXHIBIT 24.01
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned, in his or her capacity
as an officer or director of TEMPLE-INLAND INC., a Delaware corporation (the
"Corporation"), hereby constitutes and appoints, Clifford J. Grum, David H.
Dolben, and M. Richard Warner, and each of them severally, as his true and
lawful attorneys-in-fact and agents, with full power to act with or without the
others and with full power of substitution and resubstitution for and on behalf
of him and in his name, place, and stead, in any and all capacities, to perform
any and all acts and do all things and to execute any and all instruments that
said attorneys-in-fact and agents and each of them may deem necessary or
desirable to enable the Corporation to comply with the Securities Act of 1933,
as amended (the "Act"), and any rules, regulations, and requirements of the
Securities and Exchange Commission (the "SEC") thereunder in connection with the
filing of the accompanying registration statement under the Act for the
registration of shares of the common stock, par value $1.00 per share (the
"Common Stock"), of the Corporation on Form S-4 or such other Form or Forms as
are then appropriate for the registration of the Common Stock of the Corporation
including without limiting the generality of the foregoing, power and authority
to sign such registration statement, and any and all amendments, including
post-effective amendments, supplements and exhibits thereto (collectively, the
"Registration Statement") to be filed with the SEC, and to sign any and all
instruments or documents to be filed as a part of or in connection with such
Registration Statement, whether such instruments or documents are filed before
or after the effective date of such Registration Statement, to file such
Registration Statement so signed, together with any and all instruments or
documents to be filed as a part of or in connection with such Registration
Statement, with the SEC, and to appear before the SEC in connection with any
matter relating thereto, hereby granting to such attorneys-in-fact and agents,
and each of them, full power to do and perform any and all acts and things
requisite and necessary to be done in connection therewith as the undersigned
might or could do in person, and hereby ratifying and confirming all that said
attorneys-in-fact and agents and each of them may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of January 29, 1999.
/s/ ROBERT CIZIK
------------------------------------
Robert Cizik
<PAGE> 2
EXHIBIT 24.01
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned, in his or her capacity
as an officer or director of TEMPLE-INLAND INC., a Delaware corporation (the
"Corporation"), hereby constitutes and appoints, Clifford J. Grum, David H.
Dolben, and M. Richard Warner, and each of them severally, as his true and
lawful attorneys-in-fact and agents, with full power to act with or without the
others and with full power of substitution and resubstitution for and on behalf
of him and in his name, place, and stead, in any and all capacities, to perform
any and all acts and do all things and to execute any and all instruments that
said attorneys-in-fact and agents and each of them may deem necessary or
desirable to enable the Corporation to comply with the Securities Act of 1933,
as amended (the "Act"), and any rules, regulations, and requirements of the
Securities and Exchange Commission (the "SEC") thereunder in connection with the
filing of the accompanying registration statement under the Act for the
registration of shares of the common stock, par value $1.00 per share (the
"Common Stock"), of the Corporation on Form S-4 or such other Form or Forms as
are then appropriate for the registration of the Common Stock of the Corporation
including without limiting the generality of the foregoing, power and authority
to sign such registration statement, and any and all amendments, including
post-effective amendments, supplements and exhibits thereto (collectively, the
"Registration Statement") to be filed with the SEC, and to sign any and all
instruments or documents to be filed as a part of or in connection with such
Registration Statement, whether such instruments or documents are filed before
or after the effective date of such Registration Statement, to file such
Registration Statement so signed, together with any and all instruments or
documents to be filed as a part of or in connection with such Registration
Statement, with the SEC, and to appear before the SEC in connection with any
matter relating thereto, hereby granting to such attorneys-in-fact and agents,
and each of them, full power to do and perform any and all acts and things
requisite and necessary to be done in connection therewith as the undersigned
might or could do in person, and hereby ratifying and confirming all that said
attorneys-in-fact and agents and each of them may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of January 29, 1999.
/s/ KENNETH M. JASTROW, II
------------------------------------
Kenneth M. Jastrow, II
<PAGE> 3
EXHIBIT 24.01
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned, in his or her capacity
as an officer or director of TEMPLE-INLAND INC., a Delaware corporation (the
"Corporation"), hereby constitutes and appoints, Clifford J. Grum, David H.
Dolben, and M. Richard Warner, and each of them severally, as his true and
lawful attorneys-in-fact and agents, with full power to act with or without the
others and with full power of substitution and resubstitution for and on behalf
of him and in his name, place, and stead, in any and all capacities, to perform
any and all acts and do all things and to execute any and all instruments that
said attorneys-in-fact and agents and each of them may deem necessary or
desirable to enable the Corporation to comply with the Securities Act of 1933,
as amended (the "Act"), and any rules, regulations, and requirements of the
Securities and Exchange Commission (the "SEC") thereunder in connection with the
filing of the accompanying registration statement under the Act for the
registration of shares of the common stock, par value $1.00 per share (the
"Common Stock"), of the Corporation on Form S-4 or such other Form or Forms as
are then appropriate for the registration of the Common Stock of the Corporation
including without limiting the generality of the foregoing, power and authority
to sign such registration statement, and any and all amendments, including
post-effective amendments, supplements and exhibits thereto (collectively, the
"Registration Statement") to be filed with the SEC, and to sign any and all
instruments or documents to be filed as a part of or in connection with such
Registration Statement, whether such instruments or documents are filed before
or after the effective date of such Registration Statement, to file such
Registration Statement so signed, together with any and all instruments or
documents to be filed as a part of or in connection with such Registration
Statement, with the SEC, and to appear before the SEC in connection with any
matter relating thereto, hereby granting to such attorneys-in-fact and agents,
and each of them, full power to do and perform any and all acts and things
requisite and necessary to be done in connection therewith as the undersigned
might or could do in person, and hereby ratifying and confirming all that said
attorneys-in-fact and agents and each of them may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of January 29, 1999.
/s/ ANTHONY M. FRANK
------------------------------------
Anthony M. Frank
<PAGE> 4
EXHIBIT 24.01
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned, in his or her capacity
as an officer or director of TEMPLE-INLAND INC., a Delaware corporation (the
"Corporation"), hereby constitutes and appoints, Clifford J. Grum, David H.
Dolben, and M. Richard Warner, and each of them severally, as his true and
lawful attorneys-in-fact and agents, with full power to act with or without the
others and with full power of substitution and resubstitution for and on behalf
of him and in his name, place, and stead, in any and all capacities, to perform
any and all acts and do all things and to execute any and all instruments that
said attorneys-in-fact and agents and each of them may deem necessary or
desirable to enable the Corporation to comply with the Securities Act of 1933,
as amended (the "Act"), and any rules, regulations, and requirements of the
Securities and Exchange Commission (the "SEC") thereunder in connection with the
filing of the accompanying registration statement under the Act for the
registration of shares of the common stock, par value $1.00 per share (the
"Common Stock"), of the Corporation on Form S-4 or such other Form or Forms as
are then appropriate for the registration of the Common Stock of the Corporation
including without limiting the generality of the foregoing, power and authority
to sign such registration statement, and any and all amendments, including
post-effective amendments, supplements and exhibits thereto (collectively, the
"Registration Statement") to be filed with the SEC, and to sign any and all
instruments or documents to be filed as a part of or in connection with such
Registration Statement, whether such instruments or documents are filed before
or after the effective date of such Registration Statement, to file such
Registration Statement so signed, together with any and all instruments or
documents to be filed as a part of or in connection with such Registration
Statement, with the SEC, and to appear before the SEC in connection with any
matter relating thereto, hereby granting to such attorneys-in-fact and agents,
and each of them, full power to do and perform any and all acts and things
requisite and necessary to be done in connection therewith as the undersigned
might or could do in person, and hereby ratifying and confirming all that said
attorneys-in-fact and agents and each of them may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of January 29, 1999.
/s/ WILLIAM B. HOWES
------------------------------------
William B. Howes
<PAGE> 5
EXHIBIT 24.01
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned, in his or her capacity
as an officer or director of TEMPLE-INLAND INC., a Delaware corporation (the
"Corporation"), hereby constitutes and appoints, Clifford J. Grum, David H.
Dolben, and M. Richard Warner, and each of them severally, as his true and
lawful attorneys-in-fact and agents, with full power to act with or without the
others and with full power of substitution and resubstitution for and on behalf
of him and in his name, place, and stead, in any and all capacities, to perform
any and all acts and do all things and to execute any and all instruments that
said attorneys-in-fact and agents and each of them may deem necessary or
desirable to enable the Corporation to comply with the Securities Act of 1933,
as amended (the "Act"), and any rules, regulations, and requirements of the
Securities and Exchange Commission (the "SEC") thereunder in connection with the
filing of the accompanying registration statement under the Act for the
registration of shares of the common stock, par value $1.00 per share (the
"Common Stock"), of the Corporation on Form S-4 or such other Form or Forms as
are then appropriate for the registration of the Common Stock of the Corporation
including without limiting the generality of the foregoing, power and authority
to sign such registration statement, and any and all amendments, including
post-effective amendments, supplements and exhibits thereto (collectively, the
"Registration Statement") to be filed with the SEC, and to sign any and all
instruments or documents to be filed as a part of or in connection with such
Registration Statement, whether such instruments or documents are filed before
or after the effective date of such Registration Statement, to file such
Registration Statement so signed, together with any and all instruments or
documents to be filed as a part of or in connection with such Registration
Statement, with the SEC, and to appear before the SEC in connection with any
matter relating thereto, hereby granting to such attorneys-in-fact and agents,
and each of them, full power to do and perform any and all acts and things
requisite and necessary to be done in connection therewith as the undersigned
might or could do in person, and hereby ratifying and confirming all that said
attorneys-in-fact and agents and each of them may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of January 29, 1999.
/s/ BOBBY R. INMAN
------------------------------------
Bobby R. Inman
<PAGE> 6
EXHIBIT 24.01
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned, in his or her capacity
as an officer or director of TEMPLE-INLAND INC., a Delaware corporation (the
"Corporation"), hereby constitutes and appoints, Clifford J. Grum, David H.
Dolben, and M. Richard Warner, and each of them severally, as his true and
lawful attorneys-in-fact and agents, with full power to act with or without the
others and with full power of substitution and resubstitution for and on behalf
of him and in his name, place, and stead, in any and all capacities, to perform
any and all acts and do all things and to execute any and all instruments that
said attorneys-in-fact and agents and each of them may deem necessary or
desirable to enable the Corporation to comply with the Securities Act of 1933,
as amended (the "Act"), and any rules, regulations, and requirements of the
Securities and Exchange Commission (the "SEC") thereunder in connection with the
filing of the accompanying registration statement under the Act for the
registration of shares of the common stock, par value $1.00 per share (the
"Common Stock"), of the Corporation on Form S-4 or such other Form or Forms as
are then appropriate for the registration of the Common Stock of the Corporation
including without limiting the generality of the foregoing, power and authority
to sign such registration statement, and any and all amendments, including
post-effective amendments, supplements and exhibits thereto (collectively, the
"Registration Statement") to be filed with the SEC, and to sign any and all
instruments or documents to be filed as a part of or in connection with such
Registration Statement, whether such instruments or documents are filed before
or after the effective date of such Registration Statement, to file such
Registration Statement so signed, together with any and all instruments or
documents to be filed as a part of or in connection with such Registration
Statement, with the SEC, and to appear before the SEC in connection with any
matter relating thereto, hereby granting to such attorneys-in-fact and agents,
and each of them, full power to do and perform any and all acts and things
requisite and necessary to be done in connection therewith as the undersigned
might or could do in person, and hereby ratifying and confirming all that said
attorneys-in-fact and agents and each of them may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of January 29, 1999.
/s/ HERBERT A. SKLENAR
------------------------------------
Herbert A. Sklenar
<PAGE> 7
EXHIBIT 24.01
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned, in his or her capacity
as an officer or director of TEMPLE-INLAND INC., a Delaware corporation (the
"Corporation"), hereby constitutes and appoints, Clifford J. Grum, David H.
Dolben, and M. Richard Warner, and each of them severally, as his true and
lawful attorneys-in-fact and agents, with full power to act with or without the
others and with full power of substitution and resubstitution for and on behalf
of him and in his name, place, and stead, in any and all capacities, to perform
any and all acts and do all things and to execute any and all instruments that
said attorneys-in-fact and agents and each of them may deem necessary or
desirable to enable the Corporation to comply with the Securities Act of 1933,
as amended (the "Act"), and any rules, regulations, and requirements of the
Securities and Exchange Commission (the "SEC") thereunder in connection with the
filing of the accompanying registration statement under the Act for the
registration of shares of the common stock, par value $1.00 per share (the
"Common Stock"), of the Corporation on Form S-4 or such other Form or Forms as
are then appropriate for the registration of the Common Stock of the Corporation
including without limiting the generality of the foregoing, power and authority
to sign such registration statement, and any and all amendments, including
post-effective amendments, supplements and exhibits thereto (collectively, the
"Registration Statement") to be filed with the SEC, and to sign any and all
instruments or documents to be filed as a part of or in connection with such
Registration Statement, whether such instruments or documents are filed before
or after the effective date of such Registration Statement, to file such
Registration Statement so signed, together with any and all instruments or
documents to be filed as a part of or in connection with such Registration
Statement, with the SEC, and to appear before the SEC in connection with any
matter relating thereto, hereby granting to such attorneys-in-fact and agents,
and each of them, full power to do and perform any and all acts and things
requisite and necessary to be done in connection therewith as the undersigned
might or could do in person, and hereby ratifying and confirming all that said
attorneys-in-fact and agents and each of them may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of January 29, 1999.
/s/ WALTER P. STERN
------------------------------------
Walter P. Stern
<PAGE> 8
EXHIBIT 24.01
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned, in his or her capacity
as an officer or director of TEMPLE-INLAND INC., a Delaware corporation (the
"Corporation"), hereby constitutes and appoints, Clifford J. Grum, David H.
Dolben, and M. Richard Warner, and each of them severally, as his true and
lawful attorneys-in-fact and agents, with full power to act with or without the
others and with full power of substitution and resubstitution for and on behalf
of him and in his name, place, and stead, in any and all capacities, to perform
any and all acts and do all things and to execute any and all instruments that
said attorneys-in-fact and agents and each of them may deem necessary or
desirable to enable the Corporation to comply with the Securities Act of 1933,
as amended (the "Act"), and any rules, regulations, and requirements of the
Securities and Exchange Commission (the "SEC") thereunder in connection with the
filing of the accompanying registration statement under the Act for the
registration of shares of the common stock, par value $1.00 per share (the
"Common Stock"), of the Corporation on Form S-4 or such other Form or Forms as
are then appropriate for the registration of the Common Stock of the Corporation
including without limiting the generality of the foregoing, power and authority
to sign such registration statement, and any and all amendments, including
post-effective amendments, supplements and exhibits thereto (collectively, the
"Registration Statement") to be filed with the SEC, and to sign any and all
instruments or documents to be filed as a part of or in connection with such
Registration Statement, whether such instruments or documents are filed before
or after the effective date of such Registration Statement, to file such
Registration Statement so signed, together with any and all instruments or
documents to be filed as a part of or in connection with such Registration
Statement, with the SEC, and to appear before the SEC in connection with any
matter relating thereto, hereby granting to such attorneys-in-fact and agents,
and each of them, full power to do and perform any and all acts and things
requisite and necessary to be done in connection therewith as the undersigned
might or could do in person, and hereby ratifying and confirming all that said
attorneys-in-fact and agents and each of them may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of January 29, 1999.
/s/ ARTHUR TEMPLE III
------------------------------------
Arthur Temple III
<PAGE> 9
EXHIBIT 24.01
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned, in his or her capacity
as an officer or director of TEMPLE-INLAND INC., a Delaware corporation (the
"Corporation"), hereby constitutes and appoints, Clifford J. Grum, David H.
Dolben, and M. Richard Warner, and each of them severally, as his true and
lawful attorneys-in-fact and agents, with full power to act with or without the
others and with full power of substitution and resubstitution for and on behalf
of him and in his name, place, and stead, in any and all capacities, to perform
any and all acts and do all things and to execute any and all instruments that
said attorneys-in-fact and agents and each of them may deem necessary or
desirable to enable the Corporation to comply with the Securities Act of 1933,
as amended (the "Act"), and any rules, regulations, and requirements of the
Securities and Exchange Commission (the "SEC") thereunder in connection with the
filing of the accompanying registration statement under the Act for the
registration of shares of the common stock, par value $1.00 per share (the
"Common Stock"), of the Corporation on Form S-4 or such other Form or Forms as
are then appropriate for the registration of the Common Stock of the Corporation
including without limiting the generality of the foregoing, power and authority
to sign such registration statement, and any and all amendments, including
post-effective amendments, supplements and exhibits thereto (collectively, the
"Registration Statement") to be filed with the SEC, and to sign any and all
instruments or documents to be filed as a part of or in connection with such
Registration Statement, whether such instruments or documents are filed before
or after the effective date of such Registration Statement, to file such
Registration Statement so signed, together with any and all instruments or
documents to be filed as a part of or in connection with such Registration
Statement, with the SEC, and to appear before the SEC in connection with any
matter relating thereto, hereby granting to such attorneys-in-fact and agents,
and each of them, full power to do and perform any and all acts and things
requisite and necessary to be done in connection therewith as the undersigned
might or could do in person, and hereby ratifying and confirming all that said
attorneys-in-fact and agents and each of them may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of January 29, 1999.
/s/ CHARLOTTE TEMPLE
------------------------------------
Charlotte Temple
<PAGE> 10
EXHIBIT 24.01
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned, in his or her capacity
as an officer or director of TEMPLE-INLAND INC., a Delaware corporation (the
"Corporation"), hereby constitutes and appoints, Clifford J. Grum, David H.
Dolben, and M. Richard Warner, and each of them severally, as his true and
lawful attorneys-in-fact and agents, with full power to act with or without the
others and with full power of substitution and resubstitution for and on behalf
of him and in his name, place, and stead, in any and all capacities, to perform
any and all acts and do all things and to execute any and all instruments that
said attorneys-in-fact and agents and each of them may deem necessary or
desirable to enable the Corporation to comply with the Securities Act of 1933,
as amended (the "Act"), and any rules, regulations, and requirements of the
Securities and Exchange Commission (the "SEC") thereunder in connection with the
filing of the accompanying registration statement under the Act for the
registration of shares of the common stock, par value $1.00 per share (the
"Common Stock"), of the Corporation on Form S-4 or such other Form or Forms as
are then appropriate for the registration of the Common Stock of the Corporation
including without limiting the generality of the foregoing, power and authority
to sign such registration statement, and any and all amendments, including
post-effective amendments, supplements and exhibits thereto (collectively, the
"Registration Statement") to be filed with the SEC, and to sign any and all
instruments or documents to be filed as a part of or in connection with such
Registration Statement, whether such instruments or documents are filed before
or after the effective date of such Registration Statement, to file such
Registration Statement so signed, together with any and all instruments or
documents to be filed as a part of or in connection with such Registration
Statement, with the SEC, and to appear before the SEC in connection with any
matter relating thereto, hereby granting to such attorneys-in-fact and agents,
and each of them, full power to do and perform any and all acts and things
requisite and necessary to be done in connection therewith as the undersigned
might or could do in person, and hereby ratifying and confirming all that said
attorneys-in-fact and agents and each of them may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of January 29, 1999.
/s/ LARRY E. TEMPLE
------------------------------------
Larry E. Temple
