EXHIBIT 2
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AGREEMENT AND PLAN OF MERGER
by and among
XXXXXXX FEDERAL BANK,
HIGHLAND BANCORP, INC.
and
HIGHLAND FEDERAL BANK
__________
April 24, 2000
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of April 24, 2000 (this
"Agreement"), among HIGHLAND BANCORP, INC., a Delaware corporation ("Highland"),
HIGHLAND FEDERAL BANK, a federally chartered savings bank ("Highland Federal")
and XXXXXXX FEDERAL BANK, a federally chartered savings bank ("Xxxxxxx").
RECITALS:
A. Highland. Highland is a corporation duly organized, validly existing
and in good standing, under the laws of the State of Delaware that owns all of
the outstanding stock of Highland Federal, a federally chartered savings bank,
and is duly registered as a unitary savings and loan holding company pursuant to
Section 10 of the Home Owner's Loan Act ("HOLA"). Unless the context otherwise
requires all references to Highland in this Agreement include Highland and each
of its direct and indirect subsidiaries.
B. Highland Federal owns all of the outstanding stock of Highland
Corporation, (hereinafter "HC"), a corporation duly organized, validly existing
and in good standing under the laws of the State of California, and Highland
Insurance Agency (hereinafter "HI"), an insurance agency duly organized, validly
existing and in good standing under the laws of the State of California.
(Highland Federal, HC and HI are collectively referred to herein as the
"Subsidiaries.")
X. Xxxxxxx. Xxxxxxx is a federally chartered savings bank, which is an
indirect wholly-owned subsidiary of Xxxxxxx National Life Insurance Company, a
unitary savings and loan holding company under HOLA.
D. Board Approvals. The respective boards of directors of Highland and
its Subsidiaries, including Highland Federal, and Xxxxxxx have approved, and
deem it to be advisable and in the best interests of their respective
stockholders to complete, the business combination provided for herein, in which
a wholly-owned subsidiary of Xxxxxxx that is to be formed for the sole purpose
of completing the business combination transaction provided for herein ("Merger
Sub") is to be merged (the "Merger") with and into Highland and Highland is
thereby to become a wholly-owned subsidiary of Xxxxxxx.
I. THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions set forth
herein, at the Effective Time (as defined in Section 1.2), Merger Sub shall be
merged with and into Highland in accordance with the General Corporation Law of
the State of Delaware (the "Delaware Corporation Law"). The separate existence
of Merger Sub shall thereupon cease and Highland shall be the surviving
corporation in the Merger (the "Surviving Corporation"). The Merger shall have
the effects set forth in the Delaware Corporation Law.
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1.2 Effective Time of the Merger. The Merger shall become effective
when a properly executed certificate of merger (the "Certificate of Merger") is
duly filed with the Secretary of State of Delaware in accordance with the
Delaware Corporation Law, or at such later time as may be specified in the
Certificate of Merger. When used in this Agreement, the term "Effective Time"
shall mean the date and time at which the Certificate of Merger is so filed, or
such later date and time of the effectiveness of the Merger as may be specified
in the Certificate of Merger.
1.3 Corporate Organization.
(a) Certificate of Incorporation. The certificate of incorporation of
Merger Sub as in effect at the Effective Time shall be the certificate of
incorporation of the Surviving Corporation after the Effective Time unless and
until amended in accordance with its terms and applicable law.
(b) By-Laws. The by-laws of Merger Sub as in effect at the Effective
Time shall be the by-laws of the Surviving Corporation unless and until amended
in accordance with their terms, the certificate of incorporation of the
Surviving Corporation and applicable law.
(c) Board of Directors and Officers. The board of directors of the
Surviving Corporation shall consist of the directors of Merger Sub immediately
prior to the Effective Time and such individuals shall serve until their
respective successors are duly elected and qualified. The officers of Merger
Sub immediately prior to the Effective Time shall be the officers of the
Surviving Corporation until their respective successors are duly elected and/or
appointed and qualified in the manner provided in the certificate of
incorporation and by-laws of the Surviving Corporation, or as otherwise provided
by applicable law.
1.4 Conversion of Shares.
(a) At the Effective Time, by virtue of the Merger and without
necessity of any action on the part of Xxxxxxx, Highland or any holder of any of
the following securities:
(i) each share of common stock, par value $.01 per share, of
Highland (the "Highland Common Stock"), issued and outstanding
immediately prior to the Effective Time (other than shares of Highland
Common Stock to be canceled pursuant to Section 1.4(a)(ii) and shares
of Highland Common Stock held by any holder who shall have taken the
necessary steps under the Delaware Corporation Law to seek appraisal
of and demand payment for such shares of Highland Common Stock and who
is otherwise entitled to such payment under the Delaware Corporation
Law ("Dissenting Stock")), shall be canceled and extinguished and be
converted into the right to receive $25.45 in cash (the "Merger
Consideration"), subject to possible reduction pursuant to Section
8.9(e), without interest; provided, that in no event shall
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the aggregate amount of Merger Consideration payable pursuant to this
Agreement exceed an amount equal to the per share Merger Consideration
stated herein multiplied by the sum of (A) 4,243,474 plus (B) such
number of shares, not exceeding 475,730, as may be issued after the
date hereof pursuant to stock options issued pursuant to the Stock
Option Plan (as defined in Section 1.5) that are outstanding as of the
date hereof;
(ii) except as otherwise provided herein, each share of
Highland Common Stock which is issued and outstanding immediately
prior to the Effective Time and owned by Xxxxxxx or any direct or
indirect subsidiary (as defined in Section 8.10) of Xxxxxxx (other
than shares held by Xxxxxxx or any such subsidiary in a fiduciary or
custodial capacity on behalf of persons other than Highland and its
Subsidiaries), or which is held in the treasury of Highland or by any
of its Subsidiaries, shall be canceled and retired and no payment
shall be made with respect thereto; and
(iii) each share of common stock of Merger Sub issued and
outstanding immediately prior to the Effective Time shall remain
issued and outstanding and shall not be altered or changed by the
Merger.
(b) Notwithstanding the foregoing provisions or any other provision of
this Agreement to the contrary, Dissenting Stock shall not be converted into the
right to receive the Merger Consideration at or after the Effective Time unless
and until the holder of such Dissenting Stock withdraws such holder's demand for
appraisal, with the consent of Highland to the extent such consent may be
required, or becomes ineligible for such appraisal. If a holder of Dissenting
Stock shall withdraw in writing such holder's demand for appraisal, with the
consent of Highland to the extent such consent may be required, or shall become
ineligible for such appraisal, whether through failure to comply with the
applicable provisions of the Delaware Corporation Law or otherwise, then, as of
the later of the Effective Time or the occurrence of such event, such holder's
Dissenting Stock shall be automatically converted into and represent solely the
right to receive the Merger Consideration without interest thereon. Highland
shall give Merger Sub and Xxxxxxx prompt written notice of any demands for
appraisal, withdrawals of demands for appraisal and any other instruments served
pursuant to Section 262 of the Delaware Corporation Law received by Highland.
Highland shall not voluntarily make any payment with respect to any demands for
appraisal and shall not, except with the prior written consent of Merger Sub,
settle or offer to settle any such demands. Each holder of Dissenting Stock
shall have only such rights and remedies as are granted to such holder under
Section 262 of the Delaware Corporation Law. Dissenting Stock shall not, after
the Effective Time, be entitled to vote for any purpose or be entitled to the
payment of dividends or other distributions, other than dividends or other
distributions payable to stockholders of record prior to the Effective Time.
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1.5 Stock Option Plan.
(a) Promptly following the date of this Agreement but contingent upon
the completion of the Merger, the Board of Directors of Highland (or, if
appropriate, any committee administering the Stock Option Plan of Highland (as
defined below)) shall adopt such resolutions or take such other actions with
respect to all outstanding employee stock options to purchase Highland Common
Stock, whether or not such options would otherwise be vested and exercisable at
the Effective Time ("Options"), which heretofore have been granted under any
stock option or other stock-related compensation plan, program or arrangement of
Highland or any Subsidiary thereof, including, without limitation, the Highland
Stock Option Plan ( the "Stock Option Plan"), as are necessary to provide that
effective as of the Effective Time all Options outstanding immediately prior to
the Effective Time shall be canceled in exchange for a payment by Highland of an
amount equal to (A) the difference between (1) the per share exercise price of
the Option and (2) the amount equal to the per share Merger Consideration, as
the same may be reduced pursuant to Section 8.9(e), multiplied by (B) the number
of shares of Highland Common Stock covered by the Option. Any rights granted in
connection with an Option shall be canceled upon such Option's cancellation as
provided in this Section 1.5(a).
(b) Except as provided herein, the Stock Option Plan and any other
plan, program or arrangement providing for the issuance or grant of any interest
in respect of the capital stock of Highland or any Subsidiary (other than the
Highland Profit Sharing Plan (the "Profit Sharing Plan"), shall terminate as of
the Effective Time, and prior to the Effective Time, Highland shall take or
cause to be taken all necessary actions to ensure that following the Effective
Time no participant in any such plan, program or arrangement shall have any
right thereunder to acquire any equity securities of Highland or the Surviving
Corporation or any subsidiary thereof.
(c) Highland and Xxxxxxx shall take all such steps as may be required
or reasonably requested to cause the payments in respect of the Options provided
for in this Section 1.5 with respect to each individual who is a director or
officer of Highland required to file reports with the Securities and Exchange
Commission (the "SEC") pursuant to Section 16(a) of the Securities Exchange Act
of 1934 (the "Exchange Act") and the rules and regulations of the SEC thereunder
to be exempt under SEC Rule 16b-3, such steps to be taken in accordance with the
No-Action Letter dated January 12, 1999, issued by the staff of the SEC to
Skadden, Arps, Slate, Xxxxxxx and Xxxx LLP.
1.6 Exchange of Certificates.
(a) From and after the Effective Time, a bank, trust company or
company regularly engaged in the business of acting as securities transfer agent
to be designated by Xxxxxxx and reasonably acceptable to Highland, (the
"Exchange Agent") shall act as exchange agent in effecting the exchange for the
Merger Consideration of certificates that, prior to the Effective Time,
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represented shares of Highland Common Stock entitled to payment pursuant to
Section 1.4 or 1.5. Upon the surrender of each such certificate, the Exchange
Agent shall pay the holder of such certificate the aggregate Merger
Consideration to which such holder is entitled hereunder, and such certificate
shall forthwith be canceled. Until so surrendered and exchanged, each such
certificate (other than certificates representing Dissenting Stock or shares of
Highland Common Stock which are to be canceled pursuant to Section 1.4(a)(ii)),
shall represent solely the right to receive the Merger Consideration and the
holder thereof shall not be entitled to be paid the consideration to which such
holder would otherwise be entitled. No interest shall be paid or shall accrue
on the consideration to which a certificate holder shall be entitled pursuant to
Section 1.4. If the Merger Consideration (or any portion thereof) is to be
delivered to any person other than the person in whose name the certificate
representing shares of Highland Common Stock surrendered in exchange therefor is
registered, it shall be a condition to such exchange that the certificate so
surrendered shall be properly endorsed or otherwise be in proper form for
transfer and that the person requesting such exchange shall pay to the Exchange
Agent any transfer or other taxes required by reason of the payment of the
Merger Consideration to a person other than the registered holder of the
certificate surrendered, or shall establish to the satisfaction of the Exchange
Agent that such tax has been paid or is not applicable. Notwithstanding the
foregoing, neither the Exchange Agent nor any party hereto shall be liable to a
holder of shares of Highland Common Stock for any Merger Consideration delivered
to a public official pursuant to applicable abandoned property, escheat and
similar laws.
(b) At or prior to the Effective Time, Xxxxxxx shall deposit, or cause
to be deposited, in trust with the Exchange Agent cash in an aggregate amount
equal to the product of (i) the number of shares of Highland Common Stock
outstanding immediately prior to the Effective Time (other than those shares of
Highland Common Stock to be canceled pursuant to Section 1.4(a)(ii) and shares
known at the Effective Time to be Dissenting Stock) multiplied by (ii) the
Merger Consideration (such amount being hereinafter referred to as the "Exchange
Fund"). The Exchange Fund shall be invested by the Exchange Agent as directed by
Jackson in direct obligations of the United States of America, obligations for
which the full faith and credit of the United States of America is pledged to
provide for the payment of principal and interest, commercial paper rated of the
highest quality by Xxxxx'x Investors Services, Inc. ("Moody's") or Standard and
Poor's Corporation ("S&P") or certificates of deposit issued by a commercial
bank having at least $500,000,000 in assets and a long-term debt rating from
Moody's of P-1 or from S&P of Al, and any net earnings with respect thereto
shall be paid to Xxxxxxx as and when requested by Xxxxxxx. The Exchange Fund
may be invested in obligations of such maturities as Xxxxxxx may direct, as long
as such investments do not impair the ability of the Exchange Agent to make the
payments required by this Section 1.6 on a timely basis to holders of
certificates that prior to the Effective Time evidenced shares of Highland
Common Stock. The Exchange Fund shall not be used for any other purpose except
as provided herein.
(c) Promptly following the date which is six months after the
Effective Time, the Exchange Agent shall deliver to Xxxxxxx any cash and all
certificates and other documents in its possession relating to the transactions
described in this Agreement, and the Exchange Agent's duties shall thereupon
terminate. Thereafter, each holder of a certificate formerly representing a
share of
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Highland Common Stock may surrender such certificate to Xxxxxxx and (subject to
applicable abandoned property, escheat and similar laws) receive in exchange
therefor the Merger Consideration without interest thereon. Such holders shall
have no greater rights against the Surviving Corporation than may be accorded to
general creditors of the Surviving Corporation under applicable law.
(d) Promptly after the Effective Time, the Exchange Agent shall mail
to each record holder of certificates that immediately prior to the Effective
Time represented shares of Highland Common Stock a form of letter of transmittal
and instructions for use in surrendering such certificates and receiving the
Merger Consideration.
(e) After the Effective Time, there shall be no transfers on the stock
transfer books of the Surviving Corporation of any shares of Highland Common
Stock. If, after the Effective Time, certificates formerly representing shares
of Highland Common Stock are presented to the Surviving Corporation or the
Exchange Agent, they shall be canceled and exchanged for the Merger
Consideration, subject to applicable law in the case of Dissenting Stock and to
applicable abandoned property, escheat and similar laws.
1.7 Additional Rights; Taking of Necessary Action; Further Action.
(a) Xxxxxxx reserves the right prior to the Effective Time from time
to time to make, or to cause any of its subsidiaries or affiliates to make, open
market or privately negotiated purchases of shares of Highland Common Stock in
accordance with applicable law and the certificate of incorporation of Highland,
at such price or prices as they may determine in their sole discretion.
(b) Xxxxxxx and Highland, respectively, shall each use its best
efforts to take or cause to be taken all such action as may be necessary or
appropriate in order to effectuate the Merger under the Delaware Corporation Law
as promptly as possible. Highland and its Subsidiaries, including Highland
Federal, shall, prior to the Closing, take all such action as may reasonably be
requested by Xxxxxxx to facilitate changes in the corporate structure of the
Surviving Corporation and Highland Federal, promptly after the Effective Time.
If at any time after the Effective Time, any further action is necessary or
desirable to carry out the purposes of this Agreement and to vest the Surviving
Corporation with full right, title and possession to all assets, property,
rights, privileges, powers and franchises of either Xxxxxxx or Highland or their
respective subsidiaries, the officers of the Surviving Corporation are fully
authorized in the name of Highland or the Surviving Corporation or otherwise to
take all such lawful and necessary action.
1.8 Alternative Structure. Notwithstanding any other provision of this
Agreement, Xxxxxxx may at any time change the method of effecting the
acquisition of Highland, and its Subsidiaries by Xxxxxxx, including by providing
for a merger of Highland with and into an affiliate of Xxxxxxx other than Merger
Sub or for mergers among certain of the subsidiaries or other affiliates of
Xxxxxxx and Highland to occur substantially simultaneously with, or promptly
following, the Effective Time. Highland and its Subsidiaries shall comply with
any such alternative structure
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presented by Xxxxxxx and shall cooperate fully with Xxxxxxx to achieve such
alternative structure as promptly as practicable; provided, however, that
Highland shall not be obligated to comply with any such alternative structure
that would (a) change the amount or kind of consideration to be issued to
holders of the Highland Common Stock or the Options, (b) in the reasonable
judgment of Highland (i) materially increase the possibility that the amount of
time required to complete the acquisition of Highland and its Subsidiaries
pursuant to this Agreement will extend beyond the Termination Date (as defined
in Section 7.1), or (ii) affect the likelihood of any Regulatory Approval (as
such term is defined in Section 5.1(a)) being obtained or any other condition to
Closing set forth in Article VI being satisfied, or (c) eliminate or materially
reduce the obligations of Xxxxxxx or the rights of Highland under this
Agreement.
II. THE CLOSING
2.1 Closing Date. Subject to Article VII, the closing (the "Closing")
of the transactions contemplated by this Agreement shall take place on such date
as Highland and Xxxxxxx agree (the "Closing Date"); provided, that in the
absence of an agreement by the parties to the contrary such Closing Date shall
be the first Friday which follows the last of satisfaction or waiver of each of
the conditions to Closing set forth in Article VI occurs.
2.2 Procedure. The Closing shall be held at the offices of Xxxxx, Xxxxx
& Xxxxx, 000 Xxxxx Xxxxx Xxxxxx, 00xx Xxxxx, Xxx Xxxxxxx, Xxxxxxxxxx 00000-0000,
or at such other place as to which the parties hereto shall agree. On the
Closing Date and subject to the terms and conditions provided herein, the
Certificate of Merger with respect to the Merger shall be filed with the
Secretary of State of Delaware.
III. REPRESENTATIONS AND WARRANTIES OF HIGHLAND
Except as otherwise disclosed to Xxxxxxx in a schedule dated as of the date
hereof and delivered concurrently with the execution of this Agreement, and made
a part of this Agreement (the "Highland Schedule"), Highland and Highland
Federal each represent and warrant to Xxxxxxx as follows:
3.1 Organization.
(a) Each of Highland and its Subsidiaries is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization. Each of Highland and its Subsidiaries has all
requisite power and authority to carry on its businesses as now conducted and is
qualified to do business as a foreign corporation and in good standing in each
jurisdiction in which such qualification is necessary under applicable law.
(b) Highland is a Delaware corporation and is duly registered as a
savings and loan holding company under Section 10 of the HOLA and the rules and
regulations of the Office of Thrift Supervision ("OTS") thereunder. Highland is
not a "diversified" or "multiple" savings and
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loan holding company under Section 10 of the HOLA and the rules and regulations
of the OTS thereunder. Highland Federal is a federally chartered stock savings
bank and is a direct wholly-owned subsidiary of Highland. HC is a California
corporation, acts as the trustee for deeds of trust on behalf of Highland
Federal, and is a direct wholly-owned subsidiary of Highland Federal. HI is a
California corporation, engages in insurance agency activities, including the
sale of fixed and variable insurance products and mutual funds, and is a direct
wholly-owned subsidiary of Highland Federal.
3.2 Non-Contravention; Binding Effect. Each of Highland and its
Subsidiaries has all requisite corporate power and authority to enter into this
Agreement and, subject to the approval of this Agreement by the stockholders of
Highland, to consummate the transactions contemplated hereby and thereby and to
perform its obligations hereunder. This Agreement has been duly and validly
authorized, executed and delivered by Highland and its Subsidiaries, as
applicable, and constitute the valid and legally binding obligations of Highland
and its Subsidiaries, as applicable, enforceable against Highland and its
Subsidiaries, as applicable, in accordance with their terms, except as may be
limited by bankruptcy, insolvency, moratorium, reorganization or similar laws
affecting the rights of creditors generally. Neither the execution and delivery
of this Agreement nor the consummation of it or the transactions contemplated
hereby and thereby, nor compliance with any of the provisions hereof and thereof
will (i) conflict with or result in a breach of any provision of Highland's
certificate of incorporation or by-laws or the charter or other organizational
documents or of those of any of its Subsidiaries; or (ii) except as set forth in
Section 3.2 of the Highland Schedule, constitute or result in the breach of any
term, condition or provision of, or constitute a default under, or give rise to
any right of termination, cancellation or acceleration with respect to, or
result in the creation of any lien, charge or encumbrance upon any property or
assets of Highland or any of its Subsidiaries pursuant to, any note, bond,
mortgage, indenture, license, agreement, lease or other instrument, contract or
obligation to which Highland or any of its Subsidiaries is a party or by which
any of their properties or assets may be bound; or (iii) subject to obtaining
the requisite Regulatory Approvals violate any order, writ, injunction, decree,
statute, rule or regulation applicable to Highland or any of its Subsidiaries or
any of their respective properties or assets.
3.3 No Consent. Except as set forth in Section 3.3 of the Highland
Schedule, no consents, approvals, orders, resolutions or forebearances, by or
from any state or federal governmental agency or self-regulatory organization,
authority, corporation, board, commission, department or other state or federal
governmental, instrumentality (each a "Governmental Authority") or any other
third party, are required for Highland or its Subsidiaries to enter into this
Agreement and to consummate the transactions contemplated hereby or to perform
their obligations hereunder or thereunder.
3.4 Compliance with Laws.
(a) Each of Highland and its Subsidiaries has conducted its business
in compliance with all laws, regulations, ordinances, permits, reporting and
licensing requirements and orders applicable to its business or properties or
any of its employees, including the Equal Credit
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Opportunity Act, the Fair Housing Act, the Community Reinvestment Act, the Home
Mortgage Disclosure Act, all other fair lending laws and laws relating to
discriminatory business practices or for the protection of consumers. Each of
Highland and its Subsidiaries hold all required permits, licenses, certificates
of authority, variances, exemptions, orders and approvals of all Governmental
Authorities.
(b) Neither Highland nor any Subsidiary thereof has received any
notification from any Governmental Authority asserting that Highland or such
Subsidiary is not in compliance with any of the statutes, regulations or
ordinances that such Governmental Authority enforces. Neither Highland nor any
Subsidiary thereof is party to or the subject of any supervisory agreement,
memorandum of understanding, cease-and-desist order, consent decree, assistance
agreement or any similar agreement or arrangement with any Governmental
Authority with respect to its assets, capital, operations or business (nor has
Highland or any of its Subsidiaries adopted any board resolutions or made any
written commitments with respect to any of the foregoing at the request of any
Governmental Authority), and neither Highland nor any of its Subsidiaries has
been advised by any Governmental Authority that it contemplates issuing or
requesting (or is considering the appropriateness of issuing or requesting) any
such supervisory agreement, memorandum of understanding, cease-and-desist order,
consent decree, assistance agreement or similar agreement or arrangement or any
such board resolutions or written commitments. Except for routine examinations
by federal Governmental Authorities charged with the supervision or regulation
of savings and loan holding companies and savings associations, or insurance
agencies, to the best knowledge of Highland, and, except as set forth in Section
3.4(b) of the Highland Schedule, no investigation by any Governmental Authority
is pending or threatened against Highland or any Subsidiary or, in the
reasonable judgment of Highland, probable of assertion after the date hereof.
3.5 Capitalization.
(a) As of the date hereof, Highland is authorized to issue 1,000,000
shares of serial preferred stock, $.01 par value, and 8,000,000 shares of
Highland Common Stock, $.01 par value. As of the date hereof, no shares of
preferred stock of Highland are issued and outstanding, and 4,243,474 shares of
Highland Common Stock are issued and outstanding, 496,730 shares of Highland
Common Stock are reserved for issuance pursuant to currently outstanding Options
issued under the Stock Option Plan (of which 21,000 shares relate to Options
that will expire without having vested upon completion of the Merger), no
"performance shares" are outstanding as such pursuant to the Stock Option Plan
or any other plan of Highland. As of the date hereof, 419,513 shares of
Highland Common Stock are owned beneficially or of record by Highland or by its
Subsidiaries as treasury stock.
(b) As of the date hereof, no bonds, debentures, notes or other
indebtedness having the right to vote on any matters on which stockholders of
Highland may vote ("Voting Debt") are issued or outstanding.
(c) All of the issued and outstanding shares of Highland Common Stock
have been validly authorized and issued, are fully paid and nonassessable and
were not issued in violation
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of any preemptive rights of stockholders of Highland. The Highland Common Stock
has been duly and validly registered pursuant to Section 12(g) of the Exchange
Act and such registration is in full force and effect. Except as set forth in
Section 3.5(a) hereof or in the Highland Schedule, there are no outstanding
subscriptions, options, rights, warrants, convertible securities or other
agreements or commitments obligating Highland to issue, transfer from the
treasury, deliver or sell any additional shares of Highland's capital stock or
Voting Debt and no unissued shares of the Highland Common Stock are subject to
any preemptive rights of stockholders of Highland. There are no outstanding
contractual obligations of Highland to repurchase, redeem or otherwise acquire
any outstanding shares of capital stock of or other ownership interest in
Highland. Except as set forth in Section 3.5(c) of the Highland Schedule, which
shall incorporate and reflect the information contained in Schedule 13D and
Schedule 13G filings made with the SEC prior to the date hereof, as of the date
of this Agreement, no person to the best knowledge of Highland, beneficially
owns, 5% or more of the outstanding shares of Highland Common Stock.
3.6 Subsidiaries. Section 3.6 of the Highland Schedule lists each
Subsidiary, direct or indirect, of Highland. Section 3.6 of the Highland
Schedule shows as to each such Subsidiary the correct name thereof, the
jurisdiction of its incorporation or organization, licenses, (including all
states in which each entity is licensed in, type of license, date of last
renewal, or status of license), appointments and authorizations held by such
entity, the number of shares of each class of its stock or other equity
interests and any Voting Debt outstanding, the number or percent of the shares
of stock or other equity interests or Voting Debt held by Highland or any of
its Subsidiaries, and the number or percent of the shares of stock or other
equity interests or Voting Debt held by third parties. Except as shown in
Section 3.6 of the Highland Schedule, Highland owns directly or indirectly all
of the outstanding capital stock of, and all other ownership interests in, each
of its direct and indirect Subsidiaries, free and clear of all liens, claims,
charges and encumbrances. There are no outstanding options, warrants or other
rights to subscribe for or purchase from Highland or any of its Subsidiaries, or
any plans, contracts or commitments providing for the issuance of, or the
granting of rights to acquire, (i) any capital stock of or other ownership
interest in or Voting Debt of any Subsidiary of Highland, or (ii) any securities
convertible into or exchangeable for any capital stock of or other ownership
interest in or Voting Debt of any Subsidiary of Highland. There are no
outstanding contractual obligations of Highland or any Subsidiary of Highland to
repurchase, redeem or otherwise acquire any outstanding shares of capital stock
of or other ownership interest in any Subsidiary of Highland. All of the
outstanding shares of the capital stock of each Subsidiary of Highland have been
validly issued, are fully paid and nonassessable and were not issued in
violation of any preemptive rights. Highland has no direct or indirect equity
interest in any other firm, corporation, savings association, partnership, joint
venture or business enterprise other than as listed in Section 3.6 of the
Highland Schedule
3.7 Charter Documents; Management.
(a) The copies of the certificate of incorporation and by-laws of
Highland, and the charter and by-laws or other organizational documents of all
Subsidiaries of Highland (and any
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amendments thereto), delivered to Xxxxxxx prior to the date of this Agreement,
complete copies of each of which are attached as Exhibit 3.7(a) of the Highland
Schedule, are true and complete copies thereof, and such certificate of
incorporation, by-laws, charter and other organizational documents are in full
force and effect.
(b) The name and title or position of each executive officer or
director as of the date hereof of Highland and its Subsidiaries are set forth in
Section 3.7(b) of the Highland Schedule.
3.8 Financial Statements and Reports; Books and Records.
(a) Highland has furnished to Xxxxxxx or will furnish promptly upon
filing thereof, true and complete copies of each of the following with respect
to each of Highland and Highland Federal (i) annual reports on Form 10-K in
respect of the fiscal years ended December 31, 1997, 1998, and 1999, each as
filed with the SEC or the OTS; (ii) quarterly reports on Form 10-Q for each of
the first three calendar quarters of 1999, as filed with the SEC; (iii) proxy
statements relating to all meetings of its stockholders (whether annual or
special) after December 31, 1996; and (iv) all other reports and registration
statements filed by Highland or any Subsidiary with the SEC or the OTS after
December 31, 1996, and prior to the Effective Time pursuant to the Securities
Act of 1933, as amended (the "Securities Act") or the Exchange Act, as the case
may be (such reports and registration statements, together with any amendments
or supplements thereto, collectively, the "SEC/OTS Filings").
(b) As of their respective dates, the Filings complied and, in the
case of SEC/OTS Filings made after the date hereof, will comply, as to form and
substance in all material respects with the requirements of the Securities Act
and the Exchange Act, as the case may be. The audited consolidated financial
statements and any unaudited interim consolidated financial statements of
Highland included in the SEC/OTS Filings complied and, in the case of SEC/OTS
Filings made after the date hereof, will comply, as to form and substance in all
material respects with the applicable rules and regulations of the SEC and the
OTS, were or will be, as the case may be, prepared in accordance with generally
accepted accounting principles applied on a consistent basis (except as may be
indicated therein or in the notes thereto or, with respect to interim financial
statements, as permitted by Form 10-Q) and fairly present or will fairly
present, as the case may be, the financial condition of Highland and its
Subsidiaries or of Highland Federal and its Subsidiaries, as applicable, as at
the dates thereof and the consolidated results of their operations and cash
flows for the periods then ended. All agreements, contracts and other documents
required to be filed as exhibits to any of the SEC/OTS Filings have been or will
be, as the case may be, so filed as required.
(c) No registration statement, offering circular, proxy statement,
schedule or report (including, without limitation, the SEC/OTS Filings) filed by
Highland or any Subsidiary with the SEC, the OTS, the Federal Deposit Insurance
Corporation (the "FDIC") or any other Governmental Authority under the
Securities Act, the Exchange Act, or any other applicable federal or state laws
or regulations, as of the date thereof, contained or, in the case of filings
12
made after the date hereof, will contain any untrue statement of a material fact
or omitted, or in the case of filings made after the date hereof will omit, to
state a material fact required to be stated therein, or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Each of Highland and its Subsidiaries has filed and will file
in a timely manner all required filings with the SEC, the OTS, the FDIC and all
other appropriate Governmental Authorities, and all such filings complied and
will comply as to required form and substance in all material aspects with the
regulatory requirements applicable thereto.
(d) The books and records of Highland and its Subsidiaries, including
Highland Federal, have been fully, properly and accurately maintained in all
material respects, and there are no material inaccuracies or discrepancies of
any kind contained or reflected therein. Such books and records fairly present
the financial position, assets, liabilities and transactions of Highland and
each of such Subsidiaries in accordance with generally accepted accounting
principles.
3.9 Properties.
(a) Highland or a Subsidiary thereof has good and marketable title to
all properties and assets owned and used in the business of Highland and its
Subsidiaries, including the real properties reflected in the financial
statements as of December 31, 1999 and for the year then ended included in
Highland's annual report on Form 10-K for the year ended December 31, 1999 (the
"Form 10-K")(the "1999 Financial Statements") (except to the extent that any
such owned properties or assets have been disposed of since such date in the
ordinary course of business), free and clear of all liens, claims, charges,
security interests or other encumbrances, other than liens, claims, charges,
security interests and encumbrances disclosed in the notes to the 1999 Financial
Statements, or which do not, individually or in the aggregate, adversely affect
the use and enjoyment of the properties or assets subject thereto or Highland's
business and liens for taxes not yet due and payable.
(b) Section 3.9 (b) of the Highland Schedule lists all of the offices
and branches maintained and operated by Highland and its Subsidiaries, including
the address or description thereof and whether it is held in fee or leasehold.
Except as shown on the Highland Schedule Section 3.9(b), neither Highland nor
any of its Subsidiaries maintains any office or conducts business at any other
location.
(c) Section 3.9(c) of the Highland Schedule lists all properties and
assets held by Highland or its Subsidiaries under lease. All such properties
are held under valid lease instruments, enforceable in accordance with their
terms, except as may be limited by bankruptcy, insolvency, moratorium,
reorganization or similar laws affecting the rights of creditors generally. To
the knowledge of Highland, as of the date hereof, there is no default or basis
for termination (or event or circumstance which, with the giving of notice or
lapse of time, would constitute such a default or basis for termination) by the
lessee or the lessor under any such lease.
(d) Highland and its Subsidiaries are insured with reputable insurers,
in such amounts as have been disclosed to Xxxxxxx and against all risks normally
insured against by
13
corporations in similar lines of business, and all insurance policies and bonds
maintained by Highland and each of its Subsidiaries as of the date hereof are
listed in Section 3.9(d) of the Highland Schedule and are in full force and
effect. As of the date hereof, neither Highland nor any of its Subsidiaries has
received any notice of cancellation or material amendment of any insurance
policy or bond or is in default under any such policy or bond, no coverage
thereunder is being disputed, and all claims thereunder have been filed in
timely fashion.
(e) Except as disclosed in Section 3.9(e) of the Highland Schedule,
neither Highland nor any Subsidiary has outstanding, as of the date hereof, any
commitment for capital expenditures.
3.10 Absence of Certain Changes. Except as set forth in Section 3.10 of
the Highland Schedule and as expressly required or permitted under this
Agreement, since December 31, 1999, Highland and its Subsidiaries have conducted
their businesses in the ordinary course, consistent with past practice (except
as expressly required to perform their obligations under this Agreement), and
from December 31, 1999 until the date hereof, there has not been:
(a) Any change in the business, assets, financial condition, results
of operations or properties of Highland or any Subsidiary thereof; or
(b) Any amendment to the certificate of incorporation or by-laws of
Highland or the charter, by-laws or other organizational documents of any of its
Subsidiaries; or
(c) Except for the $0.075 per share dividend paid in February, 2000,
and the $0.075 per share dividend declared on April 17, 2000, any declaration,
setting aside or payment of any dividend (whether in cash, stock or other
property) or any other distribution in respect of the capital stock of Highland
or its Subsidiaries (other than dividends paid on the capital stock of wholly-
owned Subsidiaries of Highland); or
(d) Except for capital stock issued or to be issued upon the exercise
of options under the Stock Option Plan, any issuance, reissuance, sale or
acquisition of (or agreement to issue, reissue, sell or acquire) shares of
capital stock, other equity securities or rights, options or warrants to acquire
any such shares of stock or other equity securities of Highland or any of its
Subsidiaries; or
(e) Any subdivision, combination, aggregation or reclassification of
any shares of capital stock or redemption or repurchase of any shares of such
capital stock of Highland or any of its Subsidiaries; or
(f) Any merger or consolidation (or agreement to merge or consolidate)
with any other corporation, or conveyance to any other person, firm or
corporation, or encumbrance of (or agreement to convey or encumber) a material
part of Highland's assets or the assets of any of its
14
Subsidiaries, or the acquisition (or agreement to acquire) of all or
substantially all of the assets of another person, firm or corporation; or
(g) Entry into any material contract, arrangement or commitment except
in the ordinary course of the respective businesses of Highland and its
Subsidiaries consistent with their past practices; or
(h) Implementation of any pension, retirement, profit sharing, bonus,
welfare benefit or similar plan or arrangement or the material amendment of any
existing plan or arrangement, other than as required by law, or
(i) Incurrence of any indebtedness for borrowed money other than as
permitted by Section 5.3 of this Agreement ; or
(j) Any change by Highland or its Subsidiaries in accounting
principles or methods, except as required by the Financial Accounting Standards
Board ("FASB"), SEC regulations or regulations promulgated by the OTS with
respect to financial statements required to be filed with it; or
(k) Any increase in compensation payable by Highland or any of its
Subsidiaries to any of their respective directors, officers, employees or
agents, other than pursuant to the terms of the employment agreements delivered
to Xxxxxxx prior to the date hereof and listed in Section 3.10(k) of the
Highland Schedule, and normal cost-of-living and regularly scheduled increases
to non-executive employees of Highland and its Subsidiaries; or
(l) Entry into any agreement to (i) do any of the foregoing other than
as expressly provided herein or (ii) take or omit to take any action which, if
taken or omitted to be taken prior to the date hereof would have made any
representation or warranty contained in this Article III untrue or incorrect.
3.11 Material Contracts.
(a) Except as disclosed in Section 3.11(a) of the Highland Schedule
(including any disclosure made therein in respect of Sections 3.15 and 3.17),
neither Highland nor any of its Subsidiaries is a party to any oral or written
(i) agreement not terminable on 30 days or less notice or involving the payment
of more than $100,000 per annum, (ii) joint venture agreement, or (iii)
noncompetition or other agreement that restricts Highland or its Subsidiaries
from engaging in a line of business.
(b) Neither Highland nor any Subsidiary of Highland is in default
under any contract, agreement, indenture, mortgage, deed of trust, loan
instrument, commitment, arrangement, lease, insurance policy or other instrument
to which it is a party or by which its respective properties or assets may be
bound or subject or under which it or its respective business, properties or
assets
15
receive benefits, and, to the best knowledge of Highland, there has not occurred
any event that with the lapse of time or the giving of notice or both would
constitute such a default.
3.12 Litigation.
(a) Except as disclosed in Section 3.12(a) of the Highland Schedule,
there are no suits, claims, actions or proceedings against or affecting Highland
or any of its Subsidiaries pending or, to the best of knowledge of Highland,
threatened, or that could reasonably be asserted, nor is there any judgment,
decree, injunction, rule or order of any Governmental Authority or arbitrator
outstanding against Highland or any Subsidiary.
(b) Section 3.12(b) of the Highland Schedule sets forth all closed
litigation matters in which Highland or any of its Subsidiaries was a party and
was required to make a payment in settlement or judgment in excess of $10,000
during the two years preceding the date hereof, the date such litigation was
commenced and concluded, and the nature of the resolution thereof (including
amounts paid in settlement or judgment).
3.13 Contingent Liabilities. Highland and its Subsidiaries have no
contingent liabilities or obligations that are material to Highland and its
Subsidiaries on a consolidated basis and that have not been (i) reflected in the
1999 Financial Statements, (ii) incurred in the ordinary course of business
consistent with past practices, or (iii) disclosed to Xxxxxxx in Section 3.13 of
the Highland Schedule. Highland and its Subsidiaries have no knowledge of any
reasonable basis for the assertion against any of them of any liability,
obligation or claim that is not reflected in the 1999 Financial Statements or
otherwise disclosed in this Agreement or in the Highland Schedule.
3.14 Taxes.
(a) Definitions. For purposes of this Section 3.14, and Section 5.8
the following definitions shall apply:
(i) The term "Group" shall encompass, collectively, Highland
and each other corporation that is a member of the affiliated group of
corporations (each such corporation, including Highland, a "Member")
within the meaning of Section 1504 of the Internal Revenue Code of
1986, as amended (the "Code"), of which Highland is the common parent.
(ii) The term "Taxes" shall mean all taxes, however
denominated, including any interest, penalties or other additions that
may become payable in respect thereof, imposed by any federal,
territorial, state, local or foreign government or any agency or
political subdivision of any such government, which taxes shall
include, without limiting the generality of the foregoing, all income
or profits taxes (including, but not limited to, federal income taxes
and state franchise and income taxes), payroll and employee
withholding taxes, unemployment insurance taxes and
16
social security taxes, sales and use taxes, ad valorem taxes, excise
taxes, franchise taxes, gross receipts taxes, business license taxes,
occupation taxes, real and personal property taxes, stamp taxes,
environmental taxes, transfer taxes, workers' compensation, Pension
Benefit Guaranty Corporation premiums and other governmental charges,
backup withholding taxes, and other obligations of the same or of a
similar nature to any of the foregoing, which the Group, Highland or
any Member is required to pay, withhold or collect.
(iii) The term "Returns" shall mean all reports, estimates,
declarations of estimated tax, information statements and returns
relating to, or required to be filed in connection with, any Taxes.
(b) Highland and each of its Subsidiaries is, has been and will be a
Member of the Group for all taxable periods ending on or before the Closing
Date. The Group and each Member have timely filed all Returns required to be
filed, and the information contained in each such Return is complete and
accurate. No Member is subject to any state or local taxes in any jurisdiction
other than California.
(c) Each Member has paid all Taxes required to be paid in respect of
the periods covered by such Returns, and no Member has liability for such Taxes
(and, to the best knowledge of Highland, there is no potential liability in
respect of deductions, costs or other allowances taken for federal income tax
purposes likely to be disallowed in any audit by the Internal Revenue Service)
in excess of the amounts so paid or reserves (excluding deferred taxes) so
established.
(d) No Member is delinquent in the payment of any Taxes, and no
Member has requested any extension of time within which to file any Returns that
have not since been filed, and no deficiencies for any Taxes have been claimed,
proposed or assessed. There are no liens for Taxes upon the assets of any
Member, except for statutory liens for current Taxes not yet due. There are no
outstanding extensions of time for the assessment or collection of any Taxes
payable by any Member nor has any such extension been requested.
(e) Except as disclosed in Section 3.14(e) of the Highland Schedule,
there are no pending or, to the best of Highland's knowledge, threatened, tax
audits, investigations, proposed deficiencies, or claims for or relating to any
liability of the Group or any Member in respect of Taxes, and neither the Group
nor any Member has any matters under discussion with any taxing authorities with
respect to Taxes that are likely to result in a tax liability. No power of
attorney which is currently in force has been granted by or with respect to the
Group or any Member with respect to any matter relating to Taxes. No closing
agreement pursuant to Section 7121 of the Code (or any predecessor provision) or
any similar provision of any state, local or foreign law has been entered into
by or with respect to the Group or any Member.
17
(f) As of the date hereof, the federal income tax Returns of the Group
and each Member have been audited and closed by the Internal Revenue Service, or
the applicable statute of limitations has expired, for all taxable periods
through the year ended December 31, 1990, and the State of California franchise
and income tax Returns have been audited and closed by the California Franchise
Tax Board, or the applicable statute of limitations has expired, for all taxable
periods through the period ended December 31, 1994.
(g) No Member is a "consenting corporation" under Section 341(f) of
the Code. No Member has ever been a member of an affiliated group of
corporations (within the meaning of Section 1504 of the Code) other than the
Group.
(h) No Member maintains any compensation plans, programs or
arrangements, payments under which would not be deductible as a result of the
limitations under Section 162(m) of the Code.
(i) Neither the Group nor any Member will be obligated, as a result,
directly or indirectly, of the transactions contemplated by this Agreement, to
make a payment that could be characterized as an "excess parachute payment"
(within the meaning of Section 280G of the Code), without regard to whether such
payment is reasonable compensation for personal services performed or to be
performed in the future.
(j) Neither the Group nor any Member has received any memorandum or
opinion from legal counsel for any other tax advisor that was sought in order to
satisfy the "reasonable cause" exception (set forth in Section 6664(c) of the
Code) applicable to penalties for certain underpayments of Taxes under Sections
6662 through 6664 of the Code.
(k) Neither the Group nor any Member has made any material elections
as to Taxes during the period from January 1, 1999 through the Effective Time,
other than elections made on tax returns filed for the year ended on December
31, 1998. Neither the Group nor any Member has any outstanding rulings or
requests for rulings with any Tax authority.
(l) Each Member has timely withheld and paid over to the relevant
Governmental Authority or other appropriate payee, all Taxes required to have
been withheld and paid in connection with amounts paid or owing to all persons.
(m) No Member is or has been a "United States real property holding
corporation" within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(1)(A) (ii) of the Code.
(n) Highland has made available to Xxxxxxx true and correct copies of
the United States Federal income tax Returns and California corporate franchise
and income tax Returns for each of the Group's three most recent fiscal years
ended on or before December 31, 1998.
18
(o) There are no deferred gains or losses arising from deferred
intercompany transactions within the Group (within the meaning of Section
1.1502-13 of the Regulations), the Group has no deferred gain or loss with
respect to stock or obligations (within the meaning of Section 1.5502-14 of the
Regulations), and the Group has no excess loss accounts (within the meaning of
Section 1.1502-19 of the Regulations).
(p) Highland Federal is, and for all taxable years prior to the date
hereof has been, a "domestic building and loan association" as defined in
Section 7701(a)(19) of the Code. No event has occurred that has required or
will require any Member to recapture any portion of its pre-1988 reserves
pursuant to Section 593(g)(3) of the Code.
(q) No event has occurred that will require the Group or any Member to
make any adjustments under Code Section 481 for any period extending beyond the
Effective Time.
(r) Except as set forth in Section 3.14(r) of the Highland Schedule,
neither the Group nor any Member is a party to or bound by any tax indemnity,
tax sharing or tax allocation agreement or arrangement. No Member is a party to
any joint venture, partnership, or other arrangement which could be treated as a
partnership for Federal income tax purposes.
3.15 Employee Benefit Plans; ERISA.
(a) Except as set forth in Section 3.15(a) of the Highland Schedule
and as of the date hereof, neither Highland nor any Subsidiary is a party to or
has or could have any liability, contingent liability or obligation with respect
to (i) any "employee benefit plan" within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), (ii) any
profit sharing, pension, deferred compensation, bonus, stock option, stock
purchase, severance, retainer, consulting, health, welfare or incentive plan or
agreement, including any post-employment benefits, whether pursuant to contract,
arrangement, custom or informal understanding, which does not constitute an
employee benefit plan, (iii) any material plan or policy providing for "fringe
benefits" to its employees, including but not limited to vacation, paid
holidays, personal leave, employee discount, educational benefit or similar
programs, or (iv) any employment agreement (individually a"Benefit Plan", and
collectively the "Benefit Plans").
(b) Highland has included correct and complete copies of (A) the
Benefit Plans and all contracts relating thereto or to the funding thereof, (B)
any employment, consulting or termination agreements with respect to current, or
former employees or directors of Highland or any Subsidiary to the extent any
liability or obligation remains thereunder, (C) the most recent Internal Revenue
Service determination letter relating to each Benefit Plan that is an employee
pension benefit plan, as defined in Section 3(2) of ERISA (the "Employee Pension
Benefit Plans") and that is intended to be qualified under Section 401(a) of
the Code, (D) to the extent required to be filed, the two most recent Annual
Reports (Form 5500 Series) and accompanying schedules of each Benefit Plan, as
filed with the Internal Revenue Service, (E) any summary plan descriptions
relating
19
to any Benefit Plan, (F) if applicable, the most recent audited financial
statements of each Employee Pension Benefit Plan and (G) the two most recent
actuarial valuation reports for each Employee Pension Benefit Plan for which
such reports were prepared in Section 3.15 (b) of the Highland Schedule.
Highland has also included an accurate description of any Benefit Plan that is
not in written form in Section 3.15(b) of the Highland Schedule.
(c) Highland and each Subsidiary has received, with respect to each of
the Employee Pension Benefit Plans which is intended to qualify under Section
401(a) of the Code, a favorable determination letter issued by the Internal
Revenue Service that covers all amendments to the plan for which the remedial
amendment period (within the meaning of Section 401(b) of the Code and
applicable regulations) has expired, and no events, actions or failures to act,
have occurred which would adversely affect the qualification of any such
Employee Pension Benefit Plan or result in a tax under Section 511 of the Code.
Neither Highland, any Subsidiary nor any entity which is part of a group which
includes Highland or any Subsidiary and which is treated as a single employer
under Section 414 of the Code (a "Controlled Group Member") contributes to a
"multiemployer plan", as defined in Section 4001(a)(3) of ERISA, or has had a
complete or partial withdrawal from any such multiemployer plan, the liability
for which remains unsatisfied. Each of the Benefit Plans has been administered
in all material respects in accordance with its terms, the requirements of ERISA
and any other applicable law.
(d) All reports and information required to be filed with the United
States Department of Labor, Internal Revenue Service or Pension Benefit Guaranty
Corporation ("PBGC"), or distributed to plan participants and their
beneficiaries, which if not timely filed or distributed would result in any
liability to Highland or any Subsidiary with respect to any Benefit Plan, have
been timely filed or distributed. With respect to each Benefit Plan for which
an Annual Report had been filed, no change has occurred with respect to the
matters covered by the most recent Annual Report since the date thereof which
would result in any liability to Highland or any Subsidiary.
(e) None of the Employee Pension Benefit Plans (or any pension plan
maintained by a Controlled Group Member) which is subject to Title IV of ERISA
have (A) completely or partially terminated or (B) been the subject of a
"reportable event" as defined in Section 4043 of ERISA, if any such event would
result in any liability to Highland or any Subsidiary.
(f) No proceedings by the PBGC to terminate pursuant to Subtitle C of
Title IV of ERISA any Employee Pension Benefit Plan of Highland (or any pension
plan maintained by a Controlled Group Member) have been instituted or threatened
and no event has occurred or condition exists which might constitute grounds
under Section 4042 of ERISA for the termination of or the appointment of a
trustee to administer any such plan. No material liability under Title IV of
ERISA has been incurred by Highland or any Subsidiary with respect to an
Employee Pension Benefit Plan (or any pension plan maintained by a Controlled
Group Member) and none of Highland, any Subsidiary or any Controlled Group
Member has engaged in (or is a successor to an entity that has engaged in) a
transaction for which Highland or any Subsidiary would have liability under
Section 4069 or 4212(c) of ERISA. Except as set forth in Section 3.15(f) of the
Highland Schedule,
20
none of the Employee Pension Benefit Plans (or any pension plan of a Controlled
Group Member) which is a defined benefit pension plan has incurred any
"accumulated funding deficiency" (whether or not waived), as that term is
defined in Section 412 of the Code, and the fair market value of the assets held
to fund each such plan equals or exceeds the actuarial present value (based on
the actuarial assumptions used by the actuary of the plan for purposes of
determining the contributions for such plan) of all accrued benefits, both
vested and nonvested, under such plan.
(g) Except as set forth in Section 3.15(g) of the Highland Schedule,
all contributions for all periods ending prior to the Closing Date (including
periods from the first day of the current plan year to the Closing Date) will be
made prior to the Closing Date by Highland or its Subsidiary, as applicable, in
accordance with past practice.
(h) There have been no "prohibited transactions" (as such term is
defined in Section 4975 of the Code or in Part 4 of Subtitle B of Title I of
ERISA) with respect to any Benefit Plan as to which Highland or any Subsidiary
may have any liability. No penalty or tax for which Highland or any of its
Subsidiaries may be liable has been imposed under Section 502(i) of ERISA or
Section 4975 of the Code.
(i) There are no pending, or to the best knowledge of Highland
threatened, claims by or on behalf of any Benefit Plan, or by any employee or
beneficiary covered under any such Benefit Plan, which allege a breach of
fiduciary duties or violations of other applicable state or federal law which
may result in liability on the part of Highland or any Subsidiary or result in
any decrease in the assets of any Benefit Plan under ERISA or any other law,
nor, to Highland's best knowledge, is there any basis for any such claim.
Highland will notify Xxxxxxx in writing of any such threatened or pending claims
arising after the date hereof but before the Effective Time.
(j) Except as set forth in Section 3.15(j) of the Highland Schedule,
neither Highland nor any Subsidiary has any obligation to provide, or liability
or contingent liability with respect to, any post- employment benefits for any
current or former employee under any "welfare benefit plan" as defined in
Section 3(l) of ERISA, other than for group health plan continuation coverage
required under Part 6 of Title I of ERISA
(k) All expenses and liabilities relating to all of the Benefit Plans
described in Section 3.15(k) of the Highland Schedule have been, and will on the
Closing Date, be fully and properly accrued on Highland's books and records, to
the extent required by generally accepted accounting principles.
(l) Except as set forth in Section 3.15(l) of the Highland Schedule,
none of the assets of any Benefit Plan are invested in employer securities or
employer real property.
(m) There has been no act or omission that would impair the ability of
Highland or any Subsidiary (or any successor thereto) to amend or terminate
unilaterally any Benefit Plan.
21
(n) There have been no acts or omissions by Highland or any Subsidiary
which have given rise to or may give rise to fines, penalties, taxes or related
charges under Section 502 of ERISA or Chapters 43, 47, 68 and 100 of the Code
for which Highland or any Subsidiary may be liable.
3.16 Labor Relations. Neither Highland nor any of its Subsidiaries is a
party to any collective bargaining agreement. No material labor dispute, strike
or other work stoppage has ever occurred, is continuing or, to the knowledge of
Highland, has ever been threatened with respect to Highland or any of its
Subsidiaries, and, to the knowledge of Highland, no union organizing,
certification or election activities have taken place with respect to Highland
or any of its Subsidiaries. Highland and its Subsidiaries are in compliance with
all currently applicable laws respecting employment and employment practices,
terms and conditions of employment and wages and hours relating to their
business, and is not engaged in any unfair labor practice. There is no unfair
labor practice complaint pending or, to the knowledge of Highland, or its
Subsidiaries, threatened against Highland or its Subsidiaries before the
National Labor Relations Board or any similar national, state or local
governmental agency.
3.17 Employment and Similar Agreements; Obligations Upon Change in
Control. Except as disclosed in Section 3.17 of the Highland Schedule, there
are no employment, consulting, severance or indemnification agreements or
understandings of legal effect ("Employee Agreements") between Highland or any
of its Subsidiaries, on the one hand, and any director, officer (including
"executive officers" as defined under the Exchange Act) or employee of Highland
or of any of its Subsidiaries or any other party, on the other hand. Except as
set forth in Section 3.17 of the Highland Schedule, there are no such Employee
Agreements (i) under which any of the transactions contemplated by this
Agreement will require any payment by Highland or any of its Subsidiaries, or
Xxxxxxx, to any director, officer (including executive officers) or employee of
Highland or of any of its Subsidiaries, or any other party, or (ii) under which
there will occur any acceleration or change in the award, grant, vesting or
determination of options, warrants, rights, severance payments, or other
contingent obligations of any nature whatsoever of Highland or any of its
Subsidiaries in favor of any such parties, or under which the value of any
benefits will be calculated on the basis of any of the transactions contemplated
by this Agreement.
3.18 Broker's and Finder's Fees. Except for payments to Sandler X'Xxxxx &
Partners, LP, which has been engaged by Highland as its financial advisor and
investment banker (pursuant to an agreement, a copy of which has been delivered
to Xxxxxxx), neither Highland nor any of its Subsidiaries has any liability to
any broker, finder, or similar agent, nor have any of them agreed to pay any
brokerage fee, finder's fee or commission, with respect hereto or to the
transactions contemplated hereby.
3.19 Regulatory Applications. None of the information provided or to be
provided by Highland for inclusion in any applications for Regulatory Approvals
or in the proxy statement to be distributed by Highland to its stockholders in
connection with obtaining stockholder approval of the Merger (the "Proxy
Statement") will contain any untrue statement of a material fact or omit to
state
22
a material fact required to be stated therein or necessary to make the
statements therein not misleading.
3.20 Hazardous Materials.
(a) Except as shown in Section 3.20 of the Highland Schedule, to the
best of Highland's knowledge, Hazardous Materials have not been deposited or
disposed of in, on or under, or handled or processed on, or released, emitted or
discharged from, any of Highland's or any of its Subsidiary's properties during
the time when Highland or such Subsidiary owned the property. Except as shown
on the Highland Schedule, neither Highland nor any of its Subsidiaries has any
knowledge or information that any prior owners, occupants or operators of any
such properties ever deposited, disposed of, or allowed to be deposited or
disposed of in, on, or under, or handled or processed on, or released, emitted
or discharged from, such properties, any Hazardous Material, or that any prior
or present owners, occupants or operators of any properties in which any of
Highland or Highland's Subsidiaries hold a security interest, mortgage or other
lien or interest, deposited or disposed of in, on or under, or handled or
processed on, or released, emitted or discharged from, such properties, any
Hazardous Material. "Hazardous Material" shall mean any substance, chemical,
waste or other material which is listed, defined or otherwise identified as
hazardous, toxic or dangerous under any applicable law, regulation or order of
any Governmental Authority, as well as any petroleum, petroleum product or by-
product, crude oil, natural gas, natural gas liquids, liquefied natural gas, or
synthetic gas useable for fuel, and "source," "special nuclear," and "by-
product" material as defined in the Atomic Energy Act of 1985, 42 U.S.C. 3011
et seq.
(b) Except as set forth on Section 3.20(b) of the Highland Schedule,
neither Highland nor any of its Subsidiaries nor, to the best knowledge of
Highland, any of its or their borrowers is in violation (either directly,
including as a successor-in-interest in connection with the realization upon
properties serving as collateral, or indirectly, as a collateral interest
holder) of any judgment, decree, order, law, license, rule or regulation
pertaining to environmental laws, nor has Highland or any of its Subsidiaries
or, to the best knowledge of Highland , any of its or their borrowers, received
notice from any Governmental Authority of any such violation or of any remedial
investigation or action.
3.21 Damage to Mortgaged Properties. The Highland Federal mortgage loan
files accurately reflect the Highland Federal loans made and the underlying
collateral in all material respects. Except as set forth in Section 3.21 of the
Highland Schedule, none of the properties securing outstanding loans held or
serviced by Highland or any of its Subsidiaries has suffered material damage or
casualty loss not covered in full by an insurance policy written by a reputable
insurer whose claims paying capacity has not been impaired, nor has Highland or
any of its Subsidiaries funded any loan commitments or granted any forebearances
with respect to loans secured by properties that are not fully insured against
casualty losses on customary terms by reputable insurers whose claims paying
capacity has not been impaired. Except as set forth in Section 3.21 of the
Highland Schedule, none of the mortgagors for Highland's loans has advised
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Highland Federal in writing that the hazard or casualty insurance policy on such
mortgaged property has not been or will not be renewed and that such mortgagor
is unable to obtain a substitute or replacement policy in accordance with the
terms of such mortgage. Except as set forth in Section 3.21 of the Highland
Schedule, all outstanding single family residential mortgage loans originated or
serviced by Highland are insured in amounts and by insurers that meet the
requirements of the Federal Home Loan Mortgage Corporation or the Federal
National Mortgage Association for resale in secondary market transactions.
3.22 Corporate Approval.
(a) The affirmative vote of the holders of a majority of the
outstanding shares of Highland Common Stock is required to adopt this Agreement
and approve the Merger and the other transactions contemplated hereby. No other
vote of the stockholders of Highland is required by law, the certificate of
incorporation or by-laws of Highland or otherwise to adopt this Agreement and
approve the Merger and the other transactions contemplated hereby.
(b) Highland has taken all action required in order to exempt this
Agreement and the transactions contemplated hereby from, and this Agreement and
the transactions contemplated hereby are exempt from, the requirements of any
and all "moratorium," "control share," "fair price," "affiliate transaction,"
"business combination" and other anti-takeover laws and regulations of any state
(collectively, "Takeover Laws") that might otherwise be applicable thereto,
including, without limitation, Section 203 of the Delaware Corporation Law.
3.23 Deposit Accounts. The deposits of Highland Federal are insured by
the Savings Association Insurance Fund of the Federal Deposit Insurance
Corporation in accordance with the provisions of the Federal Deposit Insurance
Act, as amended (the "FDI Act"). Highland Federal has paid all regular
premiums, special assessments and other amounts, and has filed all reports,
required to be filed by it pursuant to the FDI Act and its predecessor statutes.
3.24 Intellectual Property. Each of Highland and its Subsidiaries owns
or possesses the right, free of the claims of any third party, to use all
trademarks, service marks, trade names, copyrights, patents, licenses and other
intellectual property currently used by it in the conduct of its business. To
the knowledge of Highland, no product or service offered by Highland or its
Subsidiaries infringes any rights of any other person, and neither Highland nor
any Subsidiary has received written or oral notice of any claim of such
infringement.
3.25 Certain Legal and Regulatory Matters.
(a) Highland Federal is a "qualified thrift lender" under Section
10(m) of HOLA and is a member in good standing of the Federal Home Loan Bank
System and the FHLB.
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(b) The liquidation account of Highland Federal, as of December 31,
1999, was not greater than $123,476.00 Highland Federal has maintained its
liquidation account, since the inception thereof, in accordance with practices
prescribed by the OTS.
(c) Highland Federal has not paid any dividends to Highland or any
affiliate thereof that (i) caused the regulatory net worth of Highland Federal
to be less than the amount then required by applicable law or (ii) exceeded any
other limitation on the payment of dividends imposed by law, agreement or
regulatory policy. Other than as reflected in Section 3.25 of the Highland
Schedule and as required by applicable law, there are no restrictions on the
payment of dividends by Highland or Highland Federal.
3.26 Material Interests of Certain Persons. No officer or director of
Highland or its Subsidiaries or any "associate" (as such term is defined in SEC
Rule 12b-2 under the Exchange Act) of any such officer or director, has any
material interest in any material contract or property (real or personal,
tangible or intangible) used in or pertaining to the business of Highland and
its Subsidiaries, including Highland Federal.
3.27 Derivative Contracts; Structured Notes; etc. Neither Highland nor
any of its Subsidiaries, including Highland Federal, is a party to or has agreed
to enter into after the date hereof, any exchange traded or over-the-counter
equity, interest rate, foreign exchange or other swap, forward, future, option,
cap, floor, collar or other contract of the types commonly referred to as
"derivative contracts" including any combinations thereof (each a "Derivatives
Contract") and neither Highland nor any of its Subsidiaries owns securities that
are referred to generically as "structured notes," "high risk mortgage
derivatives" (as defined for federal banking regulatory purposes), "capped
floating rate notes" or "capped floating rate mortgage derivatives", except for
those Derivative Contracts and such other instruments listed in Section 3.27 of
the Highland Schedule. All Derivative Contracts, whether entered into for
Highland's own account, or for the account of one or more of its Subsidiaries or
their customers, were entered into (i) in accordance with applicable laws, rules
and regulations and (ii) with counterparties believed at the time to be
financially responsible. Neither Highland nor any of its Subsidiaries,
including Highland Federal, nor to its knowledge any other party thereto, is in
breach of any of its obligations under any Derivatives Contract.
3.28 Disclosure. No written statement, certificate, schedule, list or
other written information furnished by or on behalf of Highland or any
Subsidiary to Xxxxxxx prior to the date hereof contains any untrue statement of
a material fact or omits to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
3.29 Insurance Agency Activity. A complete list of all HI commission
payout schedules and exceptions thereto, and a complete list of HI's employees
or agents engaged in activities related to the insurance, annuity or securities
business and the licenses, designations,
25
and company/firm appointments held by each individual as of the date hereof is
included in Schedule 3.29 of the Highland Schedule.
3.30 Standard. No representation or warranty of Highland and
Highland Federal contained in this Article III shall be deemed untrue and
neither Highland nor Highland Federal shall be deemed to have breached a
representation or warranty as a consequence of the existence of any fact, event
or circumstance unless such fact, circumstance or event, individually or taken
together with all other facts, events or circumstances inconsistent with any
representation or warranty contained in this Article III has had or is
reasonably likely to have a Material Adverse Effect.
IV. REPRESENTATIONS AND WARRANTIES OF XXXXXXX
Except as otherwise disclosed to Highland in a schedule dated as of the
date hereof and delivered concurrently with the execution of this Agreement (the
"Xxxxxxx Schedule"), Xxxxxxx represents and warrants to Highland as follows:
4.1 Organization. Xxxxxxx is duly organized, validly existing and in
good standing under the jurisdiction of its incorporation or organization.
Xxxxxxx has all requisite power and authority to carry on its businesses as now
conducted and is qualified to do business as a foreign corporation and in good
standing in each jurisdiction in which such qualification is necessary under
applicable law.
4.2 Non-Contravention; Binding Effect. Xxxxxxx has all requisite
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby and thereby and to perform its obligations
hereunder and thereunder. This Agreement has been duly and validly authorized,
executed and delivered by Xxxxxxx and constitute the valid and legally binding
obligations of Xxxxxxx, enforceable against Xxxxxxx in accordance with their
terms, except as may be limited by bankruptcy, insolvency, moratorium,
reorganization or similar laws affecting the rights of creditors generally, or
general equitable principles. Neither the execution and delivery of this
Agreement by Xxxxxxx, nor the consummation by Xxxxxxx of the transactions
contemplated hereby, nor the compliance by Xxxxxxx with any of the provisions
hereof will (i) conflict with or result in a breach of any provision of
Xxxxxxx'x certificate of incorporation, by-laws, charter or organizational
documents, or (ii) constitute or result in the breach of any term, condition or
provision of, or constitute a default under, or give rise to any right of
termination, cancellation or acceleration with respect to, or result in the
creation of any lien, charge or encumbrance upon any property or assets of
Xxxxxxx pursuant to, any note, bond, mortgage or indenture, or license,
agreement, lease or other instrument or obligation to which Xxxxxxx is a party
or by which any of its properties or assets may be bound, except for such
breaches, defaults, rights of termination, cancellation or acceleration and such
liens, charges and encumbrances, or (iii) subject to obtaining the Regulatory
Approvals, violate any order, writ, injunction, decree, statute, rule or
regulation applicable to Xxxxxxx or any of its respective properties or assets.
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4.3 No Consent. Except as set forth in Section 4.3 of the Xxxxxxx
Schedule, no consents, approvals, orders, resolutions or forebearances by or
from any Governmental Authority or any other third party are required in order
for Xxxxxxx to enter into this Agreement to consummate the transactions
contemplated hereby and to perform its obligations hereunder and thereunder.
4.4 Regulatory Applications. The information relating to Xxxxxxx and
its affiliates provided by Xxxxxxx for inclusion in any applications filed for
Regulatory Approvals and in the Proxy Statement will comply in all material
respects with relevant laws and regulations and will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading.
4.5 Regulatory Approvals. Xxxxxxx knows of no reason why (a) the
transactions contemplated by this Agreement should not receive all Regulatory
Approvals required by Xxxxxxx and its affiliates to consummate the transactions
contemplated hereby or (b) there should be delay in receipt by Xxxxxxx and its
affiliates of such Regulatory Approvals. Listed on Section 4.5 of the Xxxxxxx
Schedule are all Regulatory Approvals required by Xxxxxxx or any of its
Affiliates to consummate the transactions contemplated hereby.
4.6 Access to Funds. As of the date hereof, Xxxxxxx has available from
its affiliates, and as of the Closing Date, Xxxxxxx will have available all
funds necessary to consummate the Merger.
4.7 Standard. No representation nor warranty of Xxxxxxx contained in
this Article IV shall be deemed untrue and Xxxxxxx shall not be deemed to have
breached a representation or warranty, as a consequence of the existence of any
fact, event or circumstance unless such fact, circumstance or event,
individually or taken together with all other facts, events or circumstances
inconsistent with any representation or warranty contained in this Article IV,
has had or is reasonably likely to have, a Material Adverse Effect.
V. COVENANTS OF HIGHLAND AND XXXXXXX
5.1 Covenants of Xxxxxxx and Highland. Xxxxxxx, Highland and Highland
Federal shall each, and shall cause each of its affiliates to:
(a) Filings and Approvals. Cooperate with the other in promptly
preparing and filing (i) all applications necessary to obtain all consents,
approvals, orders, resolutions or forebearances by or from any Governmental
Authorities necessary for the consummation of the Merger and the other
transactions contemplated by this Agreement (collectively, the "Regulatory
Approvals"), and (ii) all other documents necessary to obtain any other
approvals and consents required to consummate the Merger. Without limiting the
generality of the foregoing, (i) Highland shall provide draft copies of the
Proxy Statement, and any amendments or supplements thereto, to Xxxxxxx for its
review and approval within a reasonable time prior to the filing thereof, (ii)
Xxxxxxx shall provide to Highland drafts of applications, and any supplements
and amendments thereto, to
27
be submitted by Xxxxxxx and its affiliates for any regulatory approvals for
Highland's review and approval within a reasonable time prior to the filing
thereof, and (iii) Xxxxxxx and Highland shall promptly inform each other of all
communications with Governmental Authorities regarding the transactions provided
for herein and related applications and proceedings.
(b) Reasonable Best Efforts. Subject to the terms and conditions
hereof, use its reasonable best efforts to take, or cause to be taken, all
appropriate action, and do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement. Such reasonable best efforts
shall include, without limitation, (i) each of Xxxxxxx and Highland, and their
respective affiliates, using reasonable best efforts to obtain all necessary
consents, approvals or waivers from third parties and Governmental Authorities
necessary for the consummation of the transactions contemplated by this
Agreement and (ii) Xxxxxxx causing the organization of Merger Sub and taking and
causing Merger Sub to take all reasonable actions necessary to consummate the
transactions contemplated by this Agreement.
(c) Confidentiality and Non-Disclosure Agreement. Continue to abide
by the terms of that certain Confidentiality and Non-Disclosure Agreement
executed by Xxxxxxx (on December 1, 1999) and Highland (on November 24, 1999)
attached hereto as Exhibit ___ (the "Confidentiality Agreement").
5.2 Affirmative Covenants of Highland. Highland shall and shall cause
each of its Subsidiaries to:
(a) Access. Afford to Xxxxxxx and its counsel, accountants or any
other persons selected by Xxxxxxx reasonable access during normal business hours
and upon reasonable prior notice to all its properties, permit Xxxxxxx and such
other persons to inspect and make copies of all stock records, minute books,
books of account, contracts, commitments and other records, and furnish to
Xxxxxxx such counterpart originals or certified or other copies of such
documents or such information with respect to its businesses and affairs as
Xxxxxxx may from time to time reasonably request.
(b) Conduct of Business. From and after the date of this Agreement
and subject to the express terms and conditions hereof, (i) conduct its affairs
only in the ordinary course of business consistent with past practice, and use
all reasonable efforts to preserve intact its business organization, keep
available the services of its present officers and employees and preserve its
relationships and goodwill with all persons having business dealings with it,
and (ii) maintain its and its Subsidiaries' books of account and records in
accordance with generally accepted accounting principles applied on a basis
consistent with those principles used in preparing the financial statements
heretofore delivered to Xxxxxxx, except to the extent any such change is
required by changes in applicable accounting rules and is agreed to by
Highland's independent public accountants.
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(c) Delivery of Financial Statements. Deliver to Xxxxxxx as soon as
they become available true and complete copies of any report or statement mailed
by it to stockholders or filed by it with the SEC or, to the extent permitted by
law, any other Governmental Authorities subsequent to the date hereof and prior
to the Effective Time. In addition, Highland shall furnish to Xxxxxxx the
regularly prepared monthly financial statements of Highland and its
Subsidiaries, including any quarterly thrift financial reports, and, to the
extent permitted by law, any and all material presented to the Highland Board of
Directors.
(d) Meeting of Stockholders. Duly call a meeting of its stockholders
for the purpose of obtaining the approval of the stockholders to the Merger,
this Agreement, and all other matters necessary to consummate the transactions
contemplated by this Agreement, which meeting shall be held as soon as
practicable after the date hereof. In connection with such meeting, the Board
of Directors of Highland, subject to the requirements of the fiduciary duties of
the directors (determined after consultation with outside counsel to Highland),
(i) shall recommend approval of the transactions contemplated by this Agreement
and indicate the determination by the Board of Directors that the Merger is in
the best interests of the stockholders, (ii) shall not withdraw such
recommendation and, (iii) shall not recommend approval of any tender offer,
exchange offer, merger, consolidation, purchase of substantial assets,
recapitalization or similar transaction proposed by any other party. Regardless
of whether the Board of Directors of Highland has withdrawn, modified or changed
in any manner its recommendation to the stockholders of Highland regarding the
adoption of this Agreement and the approval of the Merger, and subject to the
provisions of 7.1(h), Highland shall remain obligated under this Agreement, as
promptly as practicable, to call and duly convene a meeting of its stockholders
to vote upon this Agreement and Merger and cause a vote of the stockholders to
be taken at such meeting to determine whether the stockholders of Highland do
adopt this Agreement and approve the Merger.
(e) Proxy Statement. Promptly file with the SEC the Proxy Statement
on the form prescribed by the SEC and, after consultation with Xxxxxxx, use its
best efforts to respond promptly to any comments made by the SEC or any other
governmental official with respect to the Proxy Statement and any preliminary
version thereof. Highland shall furnish Xxxxxxx with copies of any
correspondence received by Highland from the SEC in connection with the Proxy
Statement promptly after the receipt thereof, and shall furnish Xxxxxxx with
copies of any proposed responses that Highland intends to submit to the SEC
within a reasonable time prior to the submission thereof to the SEC. The Proxy
Statement shall not (i) on the date it is first mailed to Highland's
stockholders, (ii) on the date it is filed with the SEC and (iii) on the date of
the meeting of stockholders referred to above, contain any statement which, at
the time and in light of the circumstances under which it is made, is false or
misleading with respect to any material fact, or omits to state any material
fact required to be stated therein or necessary in order to make the statements
therein not false or misleading or necessary to correct any statement in any
earlier communication which has become false or misleading. Highland agrees
that the Proxy Statement shall comply as to form and substance in all material
respects with all applicable requirements of federal and state securities laws.
29
5.3 Negative Covenants of Highland. From the date hereof until the
Effective Time, except with the prior written consent of Xxxxxxx or as otherwise
expressly permitted by this Agreement, neither Highland nor any of its
Subsidiaries shall:
(a) Organizational Documents. Amend or propose to amend its
certificate of incorporation, charter, by-laws or other organizational
documents.
(b) Dividends. Except for the payment of cash dividends consistent
with past practice and not to exceed $0.075 per share, provided the earnings of
Highland in the quarters in respect of which such dividends are paid are in
excess of $0.075 per share (excluding any costs or expenses incurred in
conjunction with the transactions contemplated by this Agreement), declare or
pay any dividend (whether in cash, stock or other property) or make any other
distribution in respect of its capital stock, except that any wholly-owned
Subsidiary of Highland may declare and pay cash dividends, without restriction,
to Highland or any of its wholly-owned Subsidiaries.
(c) Issuance of Securities. Issue, reissue, sell or acquire (or agree
to issue, reissue, sell or acquire) shares of its capital stock, other equity
securities or Voting Debt or rights, options, performance shares or warrants to
acquire any such shares of stock or other equity securities or Voting Debt,
except that (i) Highland and its Subsidiaries may issue shares pursuant to the
terms of any Options that were issued and outstanding on the date of this
Agreement and may, as and to the extent required by Section 1.5 hereof or the
terms of the Stock Option Plan or any agreement entered into pursuant to the
Stock Option Plan, repurchase or otherwise reacquire any such Options, or (ii)
wholly-owned Subsidiaries of Highland may issue shares of capital stock to
Highland or any of its wholly-owned Subsidiaries.
(d) Reclassifications or Repurchases. Subdivide, combine, aggregate
in any way or reclassify any shares of its capital stock or redeem or repurchase
any shares of such capital stock, except pursuant to the terms of any option
agreement entered into pursuant to the Stock Option Plan prior to the date
hereof and included in the options disclosed herein.
(e) Business Combinations. Merge or consolidate (or agree to merge or
consolidate) with any other corporation, or convey to another person, firm or
corporation or encumber (or agree to convey or encumber), in one transaction or
a series of transactions, a material part of its assets or capital stock of its
Subsidiaries, or acquire (or agree to acquire) all or substantially all the
assets of another person, firm or corporation, except pursuant to the Merger.
(f) Contracts, Employee Matters. (i) Enter into, amend or terminate
any material contract, arrangement, or commitment, except in the ordinary course
of business or as expressly permitted by the terms of this Agreement; enter
into, adopt, amend (except as required by law or expressly permitted by this
Agreement) or terminate any pension, retirement, profit sharing, bonus, welfare
benefit or any other employee Benefit Plan or any agreement, arrangement, plan
or policy between Highland or any of its Subsidiaries and one or more of their
respective directors, officers or employees; (ii) except as set forth in Section
5.3(f)(ii) of the Highland Schedule, or as may be
30
agreed upon by the parties to this Agreement, increase in any manner the
compensation or fringe benefits of any director, officer or employee or pay any
benefit not required by any plan or arrangement in effect on the date of this
Agreement, or enter into any contract, commitment, retention bonus, severance or
separation arrangement to do any of the foregoing, provided that compensation
increases and bonuses may be paid in the ordinary course of business and
consistent with past practices to employees who do not have a title of Vice
President or above; or (iii) enter into or renew any contract, agreement,
commitment or arrangement providing for the payment to any director, officer or
employee of Highland or any of its Subsidiaries of compensation or benefits
contingent, or the terms of which are materially altered, upon the occurrence of
any of the transactions contemplated by this Agreement.
(g) Indebtedness. (i) Incur any indebtedness for borrowed money other
than indebtedness incurred in respect of loans or advances from the FHLB having
maturities not greater than 12 months, which indebtedness shall be limited to
(A) amounts necessary to replace existing borrowings that mature after the date
hereof and prior to the Closing Date, plus (B) amounts necessary to fund
additional loan production or used in the normal course of Highland Federal's
business and consistent with past practices, not to exceed $20,000,000 from the
date hereof through and including the Closing Date, or (ii) assume, guarantee,
endorse or otherwise become responsible for, the obligations of any other
individual or entity, other than deposit liabilities, repurchase agreements and
assumptions, endorsements and guarantees incurred or assumed in the ordinary
course of Highland Federal's banking business consistent with past practice.
(h) Investments. Make any investment in the capital stock or
securities (excluding notes issued by borrowers in respect of loans made by
Highland and its Subsidiaries in the ordinary course of business) of any other
person; except for (i) capital stock of the FHLB; (ii) interest-bearing accounts
or certificates of deposits in the FHLB with maturities of six months or less;
(iii) direct obligations of the United States of America with maturities of one
year or less; (iv) obligations for which the full faith and credit of the
United States of America is pledged to provide for the payment of principal and
interest with maturities of one year or less; (v) pass-through mortgage backed
securities issued by GNMA, FNMA or FHLMC with final maturities not to exceed
seven years; and (vi) the Monarch Government Cash Fund.
(i) Business Practices. (i) Enter into any new line of business; (ii)
change in any material respect its lending, investment, liability management and
other material management policies; or (iii) incur or commit to incur any
capital expenditures in excess of $100,000 in the aggregate for all such
expenditures from the date hereof through and including the Closing Date, or any
obligations or liabilities in connection therewith, other than capital
expenditures disclosed in Section 5.3(i) of the Highland Schedule.
5.4 Notification. Each party to this Agreement shall notify the other
party promptly after becoming aware of the occurrence of, or the impending or
threatened occurrence of, (i) any event that would constitute a breach on its
part of any obligation under this Agreement, or (ii) any event that would cause
any representation or warranty made by it herein to be false or misleading, or
if it
31
becomes a party or is threatened with becoming a party to any legal or equitable
proceeding or governmental investigation or upon the occurrence of any event
that would result in a change in the circumstances of either party described in
the representations and warranties contained herein.
5.5 No Shopping. Neither Highland nor any Subsidiary thereof shall,
directly or indirectly, through any officer, director, employee or agent or
otherwise, solicit, initiate, endorse, encourage, facilitate or participate in
any negotiation in respect of or cooperate with (including by way of furnishing
any non-public information concerning the business, properties or assets of
Highland, or any Subsidiary thereof) any Acquisition Proposal (as hereinafter
defined). Highland shall immediately cease and cause to be terminated any
activities, negotiations or discussions begun or conducted prior to the date
hereof, and shall enforce any confidentiality agreement or similar agreement,
relating to any actual or possible Acquisition Proposal. Highland shall notify
Xxxxxxx promptly, and in any event within 24 hours, by telephone, and thereafter
promptly confirm such notification in writing, if any such information is
requested from, or any Acquisition Proposal or inquiry with respect to any
Acquisition Proposal is received by, Highland, any Subsidiary or any of their
respective officers, directors, employees, advisors or representatives, and
shall furnish Xxxxxxx with a copy of any written Acquisition Proposal received
by Highland and a summary of the material terms of any oral Acquisition Proposal
so received, including any subsequent changes thereto. Notwithstanding any
other provision in this Section 5.5 or elsewhere in this Agreement, nothing in
this Agreement (a) shall prevent the Board of Directors of Highland from
disclosing to the stockholders of Highland a position with respect to a tender
offer pursuant to Rule 14d-9 and 14e-2 promulgated under the Exchange Act or (b)
shall prevent or restrict Highland from taking any action with respect to an
Acquisition Proposal if the Board of Directors of Highland concludes in good
faith after consultation with its outside legal counsel that such action is
necessary for it to act in a manner consistent with its fiduciary duties under
applicable law. The term "Acquisition Proposal" means any proposal for, or any
communication which may reasonably be expected to lead to a proposal for, a
merger or other business combination involving Highland or for the acquisition
of a substantial equity interest in Highland or Highland Federal, or a
substantial portion of the assets of, Highland and its Subsidiaries on a
consolidated basis.
5.6 Indemnification.
(a) Xxxxxxx shall indemnify and hold harmless each present and former
director, officer, or employee of Highland or any of its Subsidiaries (each, an
"Indemnified Party" and, collectively, the "Indemnified Parties"), to the extent
that Highland would have been permitted under its certificate of incorporation
or charter and by-laws as in effect on the date hereof, against any costs or
expenses (including reasonable attorneys' fees), judgments, fines, losses,
claims, damages, and liabilities and amounts paid in settlement (to the extent
Xxxxxxx consents to such settlement) not covered by insurance other than that
referred to herein in connection with any threatened, pending or completed
claim, action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, whether formal or informal, arising out of or
pertaining to any action or omission occurring prior to or as of the Effective
Time, including, without limitation, any which arise out of or relate to the
transactions contemplated by this Agreement and shall pay the expenses,
including
32
reasonable attorneys' fees, of such individuals in advance of the final
resolution of any such claim, action, suit, proceeding or investigation,
provided the Indemnified Parties shall first execute an undertaking acceptable
to Xxxxxxx to return such advances in the event it is finally concluded such
indemnification is not allowed under applicable law. In the event of any such
claim, action, suit, proceeding or investigation, the Indemnified Party or
Indemnified Parties, as applicable, shall provide prompt written notice thereof
to Xxxxxxx. Xxxxxxx shall have the right to assume or participate in the defense
of any such claim, action, suit, proceeding or investigation at its own expense;
provided, that Xxxxxxx shall not be liable for any settlement effected without
its written consent. In the event that Xxxxxxx fails to timely assume the
defense of such claim, action, suit, proceeding or investigation, the
Indemnified Parties or an Indemnified Party, as applicable, shall have the right
to appoint counsel of their own choosing; provided, that Xxxxxxx shall not be
obligated pursuant to this Section 5.6 to pay the fees and disbursements of more
than one counsel for all Indemnified Parties in any single action, except to the
extent that, in the reasonable opinion of counsel for the Indemnified Parties,
two or more of such Indemnified Parties have conflicting interests in the
defense of such action which would make joint representation of such Indemnified
Parties inappropriate under applicable rules of professional responsibility. Any
failure by an Indemnified Party to notify Xxxxxxx shall not relieve Xxxxxxx of
its obligations under any other section of this Agreement.
(b) This Section shall survive the consummation of the Merger and is
intended to benefit each of the Indemnified Parties and shall be binding upon
all successors and assigns of Xxxxxxx. Anything in this Section to the contrary
notwithstanding, Xxxxxxx shall not have any obligation under this Section to
indemnify any Indemnified Party against any losses, claims, damages or
liabilities that are finally judicially determined to have resulted from such
Indemnified Party's own willful misconduct or gross negligence.
(c) Xxxxxxx shall use all reasonable efforts to provide directors' and
officers liability insurance covering each person who was an officer or director
of Highland or any Subsidiary prior to the Effective Time for a period of three
years after the Effective Time, providing coverage not materially less favorable
to such persons than that provided to such persons under Highland's existing
liability insurance policies as in effect on the date of this Agreement;
provided that Xxxxxxx shall not be obligated to make annual premium payments for
such insurance in excess of 125% of the annual amount of premiums paid as of the
date hereof by Highland for such insurance and, if the premiums for such
insurance would exceed such 125% annual amount Xxxxxxx shall use its reasonable
best efforts to obtain as much insurance coverage as is available for such 125%
annual amount.
(d) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Section 5.6 shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under any by-law, agreement, vote of stockholders or disinterested
directors or otherwise.
5.7 Employment and Severance Agreements.
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(a) Xxxxxxx agrees that the employees of Highland and its
Subsidiaries who are retained by Xxxxxxx after the consummation of the
Merger ("Employees") will, on and as of the Closing Date, be immediately
eligible to participate in employee benefit plans and other fringe benefits
and rights, including health plans, severance plans and vacation pay,
enjoyed by employees of Xxxxxxx in comparable positions, including any
pension plans. For all employee benefit plans, except any pension plans,
the Employees will be given immediate credit for their length of service
with Highland and its Subsidiaries for all purposes.
(b) Each of the individuals listed in Section 5.7(b) of the Highland
Schedule and Xxxxxxx has concurrently with the execution of this Agreement
entered into employment agreements substantially similar to those attached
as Exhibit A or such other agreements relating to compensation in such form
and substance as shall be reasonably satisfactory to Xxxxxxx and such
persons
5.8 Tax Matters.
(a) Preparation and Filing of Tax Returns. Between the date hereof
and the Effective Time, the Group and each Member shall prepare and file, on or
before the due date (including extensions) therefor, all Returns required to be
filed by the Group or such Member on or before the Effective Time, and shall pay
all Taxes (including estimated Taxes) due on such Returns (or due with respect
to Returns for which an extension has been granted) or which are otherwise
required to be paid at any time prior to or during such period. Highland shall
provide Xxxxxxx with drafts for any such Returns no later than 60 days before
its due date (including extensions). Except with the consent of Xxxxxxx, such
Returns shall be prepared in accordance with the most recent Tax practices as to
elections and accounting methods. Highland shall keep Xxxxxxx apprised of its
progress in the preparation of its Returns, and shall provide to Xxxxxxx copies
of draft returns prior to filing. Highland shall consult with Xxxxxxx prior to
making any significant decisions with respect to Tax reporting or other Tax
matters, in order to assure to the extent possible that such decisions are
consistent with the consummation of the transactions contemplated hereby.
(b) Notification of Tax Proceedings. Between the date hereof and the
Effective Time, in the event of the commencement or scheduling of any Tax audit,
the assessment of any Tax, the issuance of any notice of Tax due or any xxxx for
collection of any Tax due, or the commencement or scheduling of any other
administrative or judicial proceeding with respect to the determination,
assessment or collection of any Tax of the Group or any Member, Highland shall
provide prompt notice to Xxxxxxx of such matter, setting forth information (to
the extent known) describing any asserted Tax liability in reasonable detail and
including copies of any notice or other documentation received from the
applicable Tax authority with respect to such matter.
(c) Tax Elections, Waivers and Settlements. Between the date hereof
and the Effective Time, neither the Group nor any Member shall, except with the
prior consent or Xxxxxxx,
34
(i) make, revoke or amend any Tax election; (ii) execute any waiver of
restrictions on assessment or collection of any Tax; or (iii) enter into or
amend any agreement or settlement with any Tax authority.
(d) Correspondence and Documents. Highland shall make available to
Xxxxxxx true and complete copies of all material correspondence and documents in
its possession relating directly or indirectly to Taxes of the Group or any
Member in respect of the five most recently completed Tax years. For this
purpose "correspondence and documents" include but are not limited to Returns,
amended Returns, claims for Tax refunds, notification from taxing authorities of
proposed changes to Taxes or Returns, acceptances of proposed Tax deficiencies,
closing agreements entered into with taxing authorities, waivers of the statute
of limitations for Tax purposes and all other written communications to or from
taxing authorities relating to the material Tax liabilities of the Group or any
Member.
VI. CONDITIONS TO CLOSING
6.1 Conditions to Highland's Obligation to Close. The obligation of
Highland to complete the transactions contemplated by this Agreement and to
effect the Merger is subject to the satisfaction or waiver on or before the
Closing Date of all of the following conditions:
(a) Continued Accuracy of Warranties and Representations. All
representations and warranties of Xxxxxxx contained in this Agreement shall be
true and correct within the standard set forth in Section 4.7 on and as of the
Closing Date with the same effect as though such representations and warranties
had been made on and as of the Closing Date (except as to those given as of a
specified date, which shall be true and correct within the standard set forth in
Section 4.7 as of such date ); Xxxxxxx shall have performed all covenants
required by this Agreement to be performed by it at or prior to the Closing Date
except to the extent as would not reasonably be expected to have a Material
Adverse Effect; and there shall have been delivered to Highland on the Closing
Date a certificate executed by a duly authorized officer of Xxxxxxx certifying
compliance with the provisions of this Section 6.1(a).
(b) Regulatory Approvals. Other than the filing of the Certificate of
Merger with the Secretary of State of Delaware, all Regulatory Approvals
necessary for consummation of the transactions contemplated by this Agreement
shall have been obtained; such approvals shall be in effect and no proceedings
shall have been initiated or threatened challenging or questioning such
approvals by any governmental agency with jurisdiction therein; all applicable
waiting periods with respect to such approvals shall have expired, and all
conditions and requirements prescribed by law or otherwise imposed in connection
with such Regulatory Approvals shall have been satisfied.
(c) Stockholder Approval. The holders of a majority of the
outstanding shares of Highland Common Stock shall have approved this Agreement,
the Merger, and the transactions contemplated hereby.
35
(d) No Injunction. There shall not be pending any temporary
restraining order or preliminary or permanent injunction, or other order or
decree of a court or other Governmental Authority of competent jurisdiction
restraining or prohibiting consummation of the transactions contemplated hereby,
nor shall any Governmental Authority have commenced or threatened any
proceedings to issue or obtain any such temporary restraining order or
preliminary or permanent injunction, other order or decree.
(e) Funds with Exchange Agent. Highland shall have received written
confirmation from the Exchange Agent that funds sufficient to pay the Merger
Consideration have been deposited by Xxxxxxx with the Exchange Agent.
6.2 Conditions to Xxxxxxx'x Obligation to Close. The obligation of
Xxxxxxx to consummate the transactions contemplated by this Agreement and the
Merger is subject to the satisfaction or waiver on or before the Closing Date of
all of the following conditions:
(a) Continued Accuracy of Warranties and Representations. All
warranties and representations of Highland and its Subsidiaries contained in
this Agreement and any schedule or exhibit hereto, shall be true and correct
within the standard set forth in Section 3.30 on and as of the Closing Date with
the same effect as though such representations and warranties had been made on
and as of the Closing Date (except as to those given as of a specified date,
which shall be true and correct within the standard set forth in Section 3.30 as
of such date); Highland shall have performed in all material respects all
covenants required by this Agreement to be performed by it at or prior to the
Closing Date except to the extent as would not reasonably be expected to have a
Material Adverse Effect; and there shall have been delivered to Xxxxxxx on the
Closing Date a certificate executed by the Chief Executive Officer of Highland
certifying compliance with all the provisions of this Section 6.2(a).
(b) Regulatory Approvals. Except for the filing of the Certificate of
Merger with the Secretary of State of Delaware, all Regulatory Approvals for the
transactions contemplated by this Agreement shall have been obtained without the
imposition of any conditions which Xxxxxxx determines in its good faith judgment
to be materially burdensome upon the conduct of the business of Xxxxxxx or which
would adversely impact the economic and business benefits of the Merger to
Xxxxxxx so as to render it inadvisable in the good faith judgment of Xxxxxxx to
proceed with the Merger; such approvals shall be in effect and no proceedings
shall have been instituted or threatened with respect thereto; all applicable
waiting periods with respect to such approvals shall have expired, and all
conditions and requirements prescribed by law or otherwise imposed in connection
with the Regulatory Approvals shall have been satisfied.
(c) Stockholder Approval. Highland shall have furnished Xxxxxxx with
a certified copy of resolutions duly adopted by the holders of a majority of the
outstanding shares of Highland Common Stock entitled to vote thereon approving
this Agreement, the Merger, and the transactions
36
contemplated hereby; and such resolutions shall be in full force and effect and
shall not have been modified, rescinded or annulled.
(d) No Injunction. There shall not be pending any temporary
restraining order, preliminary or permanent injunction, or other order or decree
of a court or other Governmental Authority of competent jurisdiction restraining
or prohibiting consummation of the transactions contemplated hereby, nor shall
any Governmental Authority have commenced or threatened any proceedings to issue
or obtain any such temporary restraining order, preliminary or permanent
injunction, order or decree. No law, rule or regulation shall have been adopted
by any Governmental Authority having jurisdiction over Highland, Xxxxxxx or any
of their respective subsidiaries challenging or seeking to restrain, materially
limit or prohibit the consummation of the transactions contemplated hereby or
the ownership by Xxxxxxx of Highland and its Subsidiaries.
(e) Xxxxxxx shall have received an opinion of Manatt, Xxxxxx &
Xxxxxxxx, LLP, counsel to Highland, dated the Closing Date to the effect
specified in Schedule 1 hereto. In rendering such opinion, such counsel may
rely upon certificates of public officers, as to matters governed by the laws of
jurisdictions other than California or the federal laws of the United States of
America, upon opinions of counsel reasonably satisfactory to Xxxxxxx, and, as to
matters of fact, upon certificates of Highland and officers of Highland and its
Subsidiaries, copies of which opinions and certificates shall be
contemporaneously delivered to Xxxxxxx.
(f) No Resolution Amendments. Neither the Board of Directors of
Highland nor any committee thereof shall have amended or modified the
resolutions referred to in Section 3.22 hereof or shall have adopted any
resolutions inconsistent with such resolutions.
(g) Consents Under Agreements. Highland shall have obtained the
consent or approval (other than pursuant to the Regulatory Approvals) of each
person whose consent or approval is required in order to permit the succession
of the Surviving Corporation, or any of its Affiliates, pursuant to the Merger
to any obligation, right or interest of Highland or its Subsidiaries under any
loan, credit agreement, note, mortgage, indenture, lease, license or other
agreement or instrument, except to such extent as would not reasonably be
expected to have a Material Adverse Effect. All such consents and approvals
currently known to be required to be obtained pursuant to this Section 6.2(g)
are listed in the Highland Schedule.
(h) Good Standing and Tax Certificates. Highland shall have
delivered (i) a certificate dated not more than ten days prior to the Closing
Date from the appropriate Governmental Authorities to the effect that each of
Highland and its Subsidiaries is in good standing under the jurisdiction of its
incorporation or organization, (ii) a certificate dated not more than ten days
prior to the Closing Date from the appropriate Governmental Authorities to the
effect that Highland is qualified to do business in the States of Delaware and
California, and (iii) a certificate dated not more than ten days prior to the
Closing Date from the department of taxation of (A) the respective states of
incorporation or organization of each of Highland and the Subsidiaries of
Highland
37
Federal and (B) Delaware and California, as to the tax status of each of
Highland and its Subsidiaries in such state.
(i) Resignation of Certain Directors. Highland shall have delivered
the resignations of all directors of Highland and of each Subsidiary of
Highland, which resignations shall be effective as of the Effective Time.
(j) Dissenting Stock. Holders of no more than 5% of the outstanding
shares of Highland Common Stock shall have given notice requesting that their
shares of Highland Common Stock be treated as Dissenting Stock.
(k) Employment Agreement. Each of the individuals listed in Section
5.7 of the Highland Schedule shall have entered into an employment agreement
with Xxxxxxx.
VII. TERMINATION
7.1 Termination. This Agreement and the obligations of the parties
hereunder may be terminated:
(a) By mutual written consent of the parties at any time whether or
not this Agreement has theretofore been approved by their respective
stockholders of Highland;
(b) By either party commencing one business day following the failure
of the stockholders of Highland to approve the Merger by the majority required
by law at a meeting of Highland stockholders duly called, noticed and held for
the purpose of voting upon the Merger, including any adjournment or postponement
thereof;
(c) By either party after the expiration of 30 days after the OTS or
any other Governmental Authority having jurisdiction over any of the
transactions set forth herein, in writing denies or refuses to grant any
approval, consent, qualification or ruling required to be obtained under
applicable law in order to consummate the Merger, unless prior to the expiration
of such 30-day period Xxxxxxx elects to appeal such denial or refusal or to
petition for reconsideration thereof, in which case such 30-day period shall not
be deemed to have run while such appeal or petition for reconsideration is being
actively pursued by Xxxxxxx; provided, that during the 30-day period following
any such denial or refusal, the parties shall consult in good faith as to
whether any such appeal or petition for reconsideration should be pursued;
(d) By Xxxxxxx, immediately upon the expiration of 30 days from the
date that Xxxxxxx has given notice to Highland of Highland's material
misrepresentation in respect of, or material breach of, any warranty,
representation or agreement herein, unless such misrepresentation or breach has
been fully and completely corrected or cured prior to the expiration of such 30-
day
38
period; provided that any such breach or failure would entitle Xxxxxxx not
to consummate the Merger pursuant to Section 6.2(a);
(e) By Highland immediately upon the expiration of 30 days from the
date that Highland has given notice to Xxxxxxx of Xxxxxxx'x material
misrepresentation in respect of, or material breach of, any warranty,
representation or agreement contained herein, unless such misrepresentation,
breach or failure has been fully and completely corrected or cured prior to the
expiration of such 30-day period; provided that any such breach or failure would
entitle Highland not to consummate the Merger pursuant to Section 6.1(a);
(f) By a party hereto that is not in default hereunder, if the Closing
has not occurred on or before January 5, 2001, (the "Termination Date");
(g) By Xxxxxxx if the Board of Directors of Highland shall have failed
to recommend adoption of this Agreement and approval of the Merger to the
stockholders of Highland or withdraws, modifies or changes in any manner adverse
to Xxxxxxx, its recommendation to the stockholders of Highland to approve the
Merger referred to in Section 5.2; or
(h) By Highland, and without the need to call and convene the meeting
of stockholders otherwise required pursuant to Section 5.2(d), if Highland (i)
is presented with and notifies Xxxxxxx of any fully financed competing
Acquisition Proposal made in cash by an acquiror which is financially sound,
(ii) provides Xxxxxxx, for a period of at least 5 business days from the date
Xxxxxxx is so notified, an opportunity to increase the amount of the Merger
Consideration, and (iii) immediately pays the $4 million fee payable to Xxxxxxx
provided for in Section 7.2(b), in the event Xxxxxxx does not exercise, or
notifies Highland that it will not exercise, its right to increase its offer to
Highland.
7.2 Effect of Termination.
(a) Except as provided in Section 7.1(h) and 7.2(b), in the event of a
termination under Section 7.1 hereof, this Agreement shall become void, and
there shall be no liability on the part of either party or any of such party's
directors, officers, employees or agents to the other party or such other
party's stockholders; provided, that the obligations of Sections 5.2(b) (as it
applies to the Confidentiality Agreement) and 8.9 hereof shall survive the
termination of this Agreement; and provided, further, that a termination under
Section 7.1 hereof shall not relieve any party of any liability for any
intentional breach of this Agreement or for any intentional misrepresentation
hereunder or be deemed to constitute a waiver of any remedy available for such
breach or misrepresentation. In such event the prevailing party shall be
entitled to reasonable attorneys' fees and expenses in addition to any other
damages to which it may otherwise be entitled under applicable law.
(b) If (i) the Board of Directors of Highland shall have failed to
recommend adoption of this Agreement and approval of the Merger to the
stockholders of Highland, shall have
39
withdrawn such recommendation or shall have modified or changed such
recommendation in any manner adverse to Xxxxxxx, (ii) Highland shall be in
material and willful breach of any of its covenants contained in this Agreement
to such extent as would authorize Xxxxxxx to terminate this Agreement pursuant
to Section 7.1(d), or (iii) the stockholders of Highland do not adopt this
Agreement and approve the Merger, in each of the foregoing cases after any third
party has made an Acquisition Proposal or has publicly announced its intention
(whether or not conditional) to make an Acquisition Proposal, then Xxxxxxx may,
if it elects to terminate this Agreement as provided in Section 7.1 based upon
the occurrence of any of the foregoing, request and upon such request Highland
shall promptly, and in any event not later than one day after such request, pay
a fee of $4 million to Xxxxxxx in immediately available funds.
VIII. MISCELLANEOUS
8.1 Notices. Any notice or other communication required or permitted
hereunder shall be made in writing and shall be delivered personally or sent by
an overnight delivery or courier service, by certified or registered mail
(postage prepaid), by telegraph or by facsimile transmission as follows:
40
To Highland and to
Highland Federal: Highland Bancorp, Inc.
000 Xxxxxxxx Xxxxxxxxx, Xxxxx 000
Xxxxxxx, Xxxxxxxxxx 00000
Attn: Xxxxxxx X. Xxxxx, President
Facsimile: (000) 000-0000
With a copy to: Manatt, Xxxxxx & Xxxxxxxx, LLP
00000 Xxxx Xxxxxxx Xxxxxxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attn: Xxxxxxx X. Quicksilver, Esq.
Facsimile: (000) 000-0000
To Xxxxxxx: Xxxxxxx Federal Bank
000 Xxxxx X Xxxxxx
Xxx Xxxxxxxxxx, Xxxxxxxxxx 00000
Attn: D. Xxx Xxxxxx, Chairman and
Chief Executive Officer
Facsimile: (000) 000-0000
With copies to: Xxxxxxx National Life Insurance company
0000 Xxxxxxxxx Xxxxx
Xxxxxxx, Xxxxxxxx 00000
Attn: General Counsel
Facsimile: (000) 000-0000
Xxxxx, Xxxxx & Xxxxx
000 Xxxxx Xxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attn: Xxxxx X. Xxxxxxx, Esq.
Facsimile: (000) 000-0000
Such notice or other communication shall be deemed given when so delivered
personally, telegraphed, telexed or sent by facsimile transmission, or, if sent
by overnight delivery or courier service, the day after sent from within the
United States, or if mailed, four days after the date of deposit in the United
States mails.
8.2 Governing Law. This Agreement and the legal relations between the
parties shall, except to the extent otherwise required by applicable federal
law, be governed by and construed in accordance with the internal laws of the
State of Delaware, without taking into account provisions regarding choice of
law.
41
8.3 Entire Agreement. The parties intend that the terms of this
Agreement shall be the final expression of their agreement with respect to the
subject matter hereof and may not be contradicted by evidence of any prior or
contemporaneous agreement, except as provided below. The parties further intend
that this Agreement shall constitute the complete and exclusive statement of its
terms and that no extrinsic evidence whatsoever may be introduced in any
judicial, administrative or other legal proceeding involving this Agreement.
This Agreement, including all schedules and exhibits hereto, and the
Confidentiality Agreement constitute the entire agreement between the parties
and supersede all prior negotiations, undertakings, representations and
agreements, if any, of the parties hereto and thereto.
8.4 Amendments and Waivers. This Agreement may be amended by the parties
hereto at any time before or after approval hereof by the stockholders of
Highland and Xxxxxxx, but, after any such approval, no amendment shall be made
which by law requires approval of the stockholders of Highland, without the
further approval of such stockholders. This Agreement may not be amended except
by an instrument in writing signed on behalf of each of the parties hereto. By
an instrument in writing, any party may waive compliance by any other party with
any term or provision of this Agreement that such other party was or is
obligated to comply with or perform; provided, however, that such waiver shall
not operate as a waiver of, or estoppel with respect to, any other or subsequent
failure. No failure to exercise and no delay in exercising any right, remedy or
power hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, remedy or power hereunder preclude any other or
further exercise thereof or the exercise of any other right, remedy or power
provided herein or by law or in equity. The waiver by any party of the time for
performance of any act or condition hereunder does not constitute a waiver of
the act or condition itself.
8.5 Severability. If any provision of this Agreement, or the
application thereof to any person, place or circumstance, shall be held by a
court of competent jurisdiction to be invalid, unenforceable or void, the
remainder of this Agreement and such provisions as applied to other persons,
places and circumstances shall remain in full force and effect.
8.6 Counterparts. This Agreement may be executed in counterparts each
of which shall constitute one and the same instrument.
8.7 Interpretation of Agreement. The article, section and other headings
used in this Agreement are for reference purposes only and shall not constitute
a part hereof or affect the meaning or interpretation of this Agreement.
Reference is made in this Agreement to Articles or Sections, such reference
shall be to an Article or Section of this Agreement unless otherwise indicated.
The term "person" shall include any individual, partnership, joint venture,
corporation, trust or unincorporated organization, any other business entity and
any government or any department or agency thereof, whether acting in an
individual, fiduciary or other capacity. Whenever the context so requires, the
use of the singular shall be deemed to include the plural and
42
vice versa. Whenever the words "include," "includes" or "including" are used in
this Agreement, such word shall be deemed followed by the words "without
limitation," whether or not so stated.
8.8 Survival of Representations, Warrants and Covenants. None of the
representations, warranties and covenants of the parties contained in this
Agreement or in any instrument of transfer or other document delivered in
connection with the transactions contemplated by this Agreement shall survive
the Closing, and neither party, nor any of its directors, officers, employees or
stockholders shall be under any liability whatsoever with respect to such
representations, warranties, conditions and covenants, other than covenants
which by their terms continue after the Effective Time.
8.9 Expenses. Subject to Section 7.2 hereof, the parties hereto agree
that fees and out-of-pocket expenses incurred by the parties in connection with
the transactions contemplated by this Agreement shall be paid as follows:
(a) Fees and disbursements of counsel, consultants and accountants
shall be paid by the party employing such person.
(b) Highland shall bear the expenses incurred in connection with
obtaining approval of the transactions contemplated hereby by its stockholders,
including the expense of preparing and distributing the Proxy Statement and all
proxy solicitation costs.
(c) All other fees and out-of-pocket expenses incurred in connection
with the transactions contemplated hereby shall be paid by the party incurring
such expenses.
(d) For purposes of this Section 8.9, the terms "costs, fees and
expenses" do not include damages that may otherwise be recoverable by any party
as a result of the breach of this Agreement by any other party.
(e) The broker's and finder's fees referenced in Section 3.18 and
Highland's legal counsel fees referenced in Section 8.9(a) shall be no greater
than $1,200,000. If, however, such broker's, finder's and legal fees are
greater than $1,200,000, then the per share amount of the Merger Consideration
and the per share amount paid in cancellation of each Option pursuant to Section
5.1(a) shall each be reduced by an amount equal to the quotient derived by
dividing (A) the amount by which the aggregate of the broker's, finder's and
legal fees referred to in Section 8.9(a) exceeds $1,200,000 by (B) an amount
equal to the sum of the total number of shares of Highland Common Stock
outstanding immediately prior to the Effective Time plus the aggregate number of
shares of Highland Common Stock that are subject to Options that are to be
canceled pursuant to Section 1.5(a) (assuming for purposes of this calculation
that the payments made in cancellation of Options pursuant to Section 5(a) are
made immediately prior to the Effective Time).
8.10 Definitions.
43
(a) The term "affiliate" shall mean a person or entity that directly,
or indirectly, through one or more intermediaries controls, is controlled by, or
is under common control with the person specified.
(b) The term "Material Adverse Effect" shall mean a material adverse
effect on (a) the business, assets, operations, property or financial condition
of Highland and its Subsidiaries taken as a whole or Xxxxxxx and its
subsidiaries taken as a whole, or the Surviving Corporation and its subsidiaries
taken as a whole, as the case may be, or (b) the ability of Highland or any of
its Subsidiaries or Xxxxxxx or any of its subsidiaries, as the case may be, to
perform its obligations and consummate the transactions under this Agreement.
(c) The term "subsidiary" shall mean, when used in reference to an
entity, any corporation or other legal entity (including, for this purpose,
partnerships), a majority of the outstanding voting securities of or equity
interest in which are owned directly or indirectly by such entity. Ownership
solely pursuant to fiduciary trust or similar arrangements shall not constitute
ownership of stock for purposes of this definition.
(d) Reference to the "knowledge" or "best knowledge" of Highland
herein shall mean facts and other information which any of Xxxxxxx X. Xxxxx,
Xxxxx Xxxxxx, Xxxxx Xxxxxx, Xxxxx Xxxxxxx, Xxxxx Xxxxxx, Xxxxxxx Xxxxx, Xxxx
Xxxxxxxx, and Xxxx Xxxxxxx, all officers of Highland or its Subsidiaries, knows
or should know as a result of the performance by any such officer of his or her
duties as an officer of Highland or its Subsidiaries and includes such diligent
inquiry as is reasonable under the circumstances.
8.11 Attorneys' Fees. If any legal action is brought for the
enforcement of this Agreement or because of an alleged dispute, breach or
default in connection with this Agreement the prevailing parties shall be
entitled to recover reasonable attorneys' fees and other costs incurred in such
action or proceeding in addition to any other relief to which it may be
entitled.
8.12 Publicity. The parties hereto will consult with each other with
regard to the terms and substance of any press or news releases, announcements
or other public statements with respect to the transactions contemplated hereby.
To the extent practicable, each party shall provide the proposed text of any
such press or news release, announcement or public statement to the other party
prior to its publication and shall permit such other party a reasonable period
to provide comments thereon.
8.13 Binding Effect. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors and
assigns; provided, however, that this Agreement may not be assigned by any party
without the prior written consent of the other party.
8.14 Further Action. The parties hereto each agree to execute and
deliver such documents, certificates, agreements and other writings and to take
such other actions as may be necessary or
44
desirable, and not inconsistent herewith, in order to consummate expeditiously
the transactions contemplated by this Agreement.
8.15 Third Parties. Except as expressly provided in this Agreement,
(including, but not limited to, the rights set forth in Section 5.6 hereof) each
party intends that this Agreement shall not benefit or create any right or cause
of action in any person other than the parties to this Agreement.
45
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
XXXXXXX FEDERAL BANK
By: /s/ D. XXX XXXXXX
---------------------
HIGHLAND BANCORP, INC.
By: /s/ XXXXXXX X. XXXXX
------------------------
HIGHLAND FEDERAL BANK
By: /s/ XXXXXXX X. XXXXX
------------------------
46
