EXHIBIT 10.7
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
HAWTHORNE FINANCIAL CORPORATION
FIRST FIDELITY BANCORP, INC.
HAWTHORNE SAVINGS, F.S.B.
FIRST FIDELITY INVESTMENT & LOAN ASSOCIATION
AND
HF MERGER CORP.
MARCH __, 2002
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ARTICLE I DEFINITIONS.............................................................2
ARTICLE II THE MERGERS AND RELATED MATTERS.........................................9
2.1 The Holding Company Merger -- HFC...................................................9
2.2 The Holding Company Merger-Merger Sub..............................................10
2.3 Conversion of Fidelity Stock.......................................................10
2.4 Fractional Shares..................................................................11
2.5 Treatment of Fidelity Options......................................................11
2.6 Election and Proration Procedures..................................................11
2.7 Exchange Procedures................................................................14
2.8 Dissenting Shares..................................................................16
2.9 Adjustments for Dilution and Other Matters.........................................16
2.10 Name of Corporation Surviving the Holding Company Merger...........................17
2.11 Certificate of Incorporation and Bylaws of Corporation Surviving the
Holding Company Merger.............................................................17
2.12 Directors and Officers of Corporation Surviving the Holding Company Merger.........17
2.13 Determination of Structure of Holding Company Merger...............................18
ARTICLE III THE CLOSING............................................................18
3.1 Closing Date.......................................................................18
3.2 Execution of Merger Documents......................................................18
3.3 Documents to be Delivered..........................................................18
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF FIDELITY AND THRIFT..................18
4.1 Incorporation, Standing and Power..................................................18
4.2 Liquidation of and Reservation for the Fidelity Subsidiary.........................19
4.3 Capitalization.....................................................................19
4.4 Subsidiaries.......................................................................20
4.5 Financial Statements...............................................................20
4.6 Reports and Filings................................................................20
4.7 Authority of Fidelity and Thrift...................................................20
4.8 Insurance..........................................................................21
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4.9 Title to Assets..................................................................22
4.10 Real Estate......................................................................22
4.11 Litigation.......................................................................22
4.12 Taxes............................................................................22
4.13 Compliance with Laws and Regulations.............................................24
4.14 Performance of Obligations.......................................................26
4.15 Employees........................................................................26
4.16 Registration Obligation..........................................................26
4.17 Brokers and Finders..............................................................26
4.18 Material Contracts...............................................................26
4.19 Certain Material Changes.........................................................28
4.20 Licenses and Permits.............................................................29
4.21 Undisclosed Liabilities..........................................................29
4.22 Employee Benefit Plans...........................................................29
4.23 Corporate Records................................................................32
4.24 Community Reinvestment Act.......................................................32
4.25 Regulatory Actions...............................................................32
4.26 Insider Loans; Other Transactions................................................33
4.27 Accounting Records...............................................................33
4.28 Indemnification..................................................................33
4.29 Offices and ATMs.................................................................33
4.30 Loan Portfolio...................................................................33
4.31 Investment Securities............................................................34
4.32 Derivatives Contracts; Structured Notes; Etc.....................................34
4.33 Power of Attorney................................................................34
4.34 Material Interests of Certain Persons............................................34
4.35 Tax Matters......................................................................34
4.36 Facts Affecting Regulatory Approvals.............................................34
4.37 Disclosure Documents and Applications............................................35
4.38 Corporate and Stockholder Approvals and Takeover Statutes........................35
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4.39 Intellectual Property.......................................................35
4.40 Accuracy and Currentness of Information Furnished...........................36
ARTICLE V REPRESENTATIONS AND WARRANTIES OF HFC AND BANK..................36
5.1 Incorporation, Standing and Power...........................................36
5.2 Authority...................................................................36
5.3 Reports and Filings.........................................................37
5.4 Corporate and Stockholder Approvals.........................................38
5.5 Absence of Certain Changes or Events........................................38
5.6 Facts Affecting Regulatory Approvals........................................38
5.7 Community Reinvestment Act..................................................39
5.8 Litigation..................................................................39
5.9 Taxes.......................................................................39
5.10 Compliance with Laws and Regulations; Licenses and Permits..................39
5.11 Brokers and Finders.........................................................40
5.12 Undisclosed Liabilities.....................................................40
5.13 Regulatory Actions..........................................................40
5.14 Loan Portfolio..............................................................41
5.15 Financial Ability...........................................................41
5.16 Accuracy and Currentness of Information Furnished...........................41
ARTICLE VI COVENANTS OF FIDELITY AND THRIFT PENDING
EFFECTIVE TIME OF THE MERGERS...................................41
6.1 Limitation on Fidelity's and Thrift's Conduct Prior to Effective Time.......41
6.2 Affirmative Conduct of Fidelity and Thrift Prior to Effective Time..........46
6.3 Filings.....................................................................48
6.4 Notices; Reports............................................................48
6.5 Fidelity Stockholders' Meeting..............................................48
6.6 Bank Merger.................................................................48
6.7 Affiliates..................................................................49
6.8 Director Resignations.......................................................49
6.9 Accountants' Letters........................................................49
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6.10 Accounting Accommodations.................................................49
ARTICLE VII COVENANTS OF HFC AND BANK PENDING EFFECTIVE
TIME OF THE MERGERS...........................................49
7.1 Limitation on HFC's and Bank's Conduct Prior to Effective Time............49
7.2 Affirmative Conduct of HFC and Bank Prior to Effective Time...............51
7.3 Applications..............................................................50
7.4 Filings...................................................................51
7.5 Blue Sky..................................................................51
7.6 Notices; Reports..........................................................51
7.7 Removal of Conditions.....................................................51
7.8 HFC Stockholders' Meeting.................................................51
7.9 Nasdaq NMS Listing........................................................52
ARTICLE VIII ADDITIONAL COVENANTS..........................................52
8.1 Commercially Reasonable Efforts...........................................52
8.2 Public Announcements......................................................52
8.3 Access; Information.......................................................52
8.4 Applications..............................................................53
8.5 Employees and Employee Benefits...........................................53
8.6 Environmental Assessment..................................................54
8.7 Indemnification...........................................................55
ARTICLE IX CONDITIONS PRECEDENT TO THE HOLDING
COMPANY MERGER................................................56
9.1 Stockholder Approvals.....................................................56
9.2 No Judgments or Orders....................................................56
9.3 Regulatory Approvals......................................................56
9.4 Securities Laws...........................................................56
9.5 Listing...................................................................56
ARTICLE X CONDITIONS PRECEDENT TO THE OBLIGATIONS OF
FIDELITY AND THRIFT...........................................56
10.1 Representations and Warranties; Performance of Covenants..................56
10.2 Officers' Certificate.....................................................57
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10.3 Absence of Certain Changes................................................57
10.4 Tax Opinion...............................................................57
ARTICLE XI CONDITIONS PRECEDENT TO OBLIGATIONS OF HFC AND BANK...........57
11.1 Representations and Warranties; Performance of Covenants..................57
11.2 Regulatory Approvals and Related Conditions...............................58
11.3 Absence of Certain Changes................................................58
11.4 Officers' Certificate.....................................................58
11.5 Fidelity Senior Notes.....................................................58
11.6 Opinion of HFC's Counsel..................................................58
11.7 Third Party Consents......................................................58
11.8 Fidelity Options and Option Plan..........................................59
11.9 Financial Statements......................................................59
11.10 Earnings..................................................................59
11.11 Gross Loans...............................................................59
11.12 Loan Loss Reserve.........................................................59
ARTICLE XII TERMINATION...................................................60
12.1 Termination...............................................................60
12.2 Effect of Termination.....................................................63
12.3 Force Majeure.............................................................64
ARTICLE XIII MISCELLANEOUS.................................................64
13.1 Expenses and Fees.........................................................64
13.2 Notices...................................................................66
13.3 Material Adverse Effect; Standard.........................................67
13.4 Successors and Assigns....................................................68
13.5 Counterparts..............................................................68
13.6 Effect of Representations and Warranties..................................68
13.7 Third Parties.............................................................68
13.8 Lists; Exhibits; Integration..............................................68
13.9 Knowledge.................................................................68
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13.10 Governing Law.............................................................69
13.11 Captions..................................................................69
13.12 Severability..............................................................69
13.13 Waiver and Modification; Amendment........................................69
13.14 Attorneys' Fees...........................................................69
13.15 Alternative Structure.....................................................69
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AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION ("Agreement") is made and
entered into as of the ___ day of March 2002 by and among Hawthorne Financial
Corporation, a Delaware corporation ("HFC"), First Fidelity Bancorp, Inc., a
Delaware corporation ("Fidelity"), Hawthorne Savings, F.S.B., a federally
chartered savings bank ("Bank") and direct wholly owned subsidiary of HFC, First
Fidelity Investment & Loan Association, a California chartered industrial loan
company ("Thrift") and wholly owned subsidiary of Fidelity, and HF Merger Corp.,
a Delaware corporation ("Merger Sub") and direct wholly owned subsidiary of HFC.
RECITALS
WHEREAS, the parties desire to effect the acquisition of Fidelity by
HFC by means of a merger of Fidelity with and into HFC or alternatively by means
of a merger of Merger Sub with and into Fidelity in accordance with the terms of
this Agreement, and immediately thereafter, the acquisition of Thrift by Bank by
means of a merger of Thrift with and into Bank in accordance with the terms of
this Agreement and the Agreement of Bank Merger (as defined herein);
WHEREAS, the parties intend that the Mergers (as defined herein)
will be treated for federal income tax purposes as tax-deferred reorganizations
within the meaning of Section 368 of the Code (as defined herein), except as
otherwise specified herein;
WHEREAS, the respective Boards of Directors of each of the parties
have determined that it is in the best interests of their respective companies
and stockholders to consummate the Holding Company Merger (as defined herein)
and the Bank Merger (as defined herein) provided for herein;
WHEREAS, the parties desire to make certain representations,
warranties, covenants and agreements in connection with the transactions
contemplated by this Agreement; and
WHEREAS, as a material inducement to HFC and Bank to enter into this
Agreement, each director of Fidelity and Thrift is simultaneously entering into
a Stockholder Agreement, substantially in the form of Exhibit B hereto, pursuant
to which they have agreed to vote their shares of voting stock of Fidelity in
favor of approval of this Agreement;
NOW, THEREFORE, on the basis of the foregoing recitals and in
consideration of the mutual representations, warranties, covenants and
agreements contained herein, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Except as otherwise expressly provided for in this Agreement, or unless
the context otherwise requires, as used throughout this Agreement the following
terms shall have the respective meanings specified below:
"Acquisition" shall have the meaning set forth in Section 13.1(j).
"Adjusted Net Earnings of Fidelity" shall have the meaning set forth
in Section 11.10.
"Affiliate" of, or a Person "Affiliated" with, a specific Person is
a Person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, the Person
specified.
"Affiliated Group" means, with respect to any entity, a group of
entities required or permitted to file consolidated, combined, or unitary Tax
Returns.
"Agreement of Bank Merger" means the Agreement of Bank Merger to be
entered into between Bank and Thrift substantially in the form of Exhibit A
hereto, but subject to any changes that may be necessary to conform to the
manner of effecting the Holding Company Merger or to any requirements of any
Governmental Entity having authority over the Bank Merger.
"Bank Merger" means the merger of Thrift with and into Bank.
"Bank Stock" means the common stock, par value $10.00 per share, of
Bank.
"Business Day" means any day other than Saturday, Sunday or any
other day which is not a day on which banking institutions in California are
authorized or obligated by law or executive order to close.
"Cash Proration Factor" has the meaning set forth in Section
2.6(c)(iii)(C).
"Certificate" has the meaning set forth in Section 2.7(b).
"Certificate of Merger" means that certificate filed with the
Delaware Secretary pursuant to Section 252 of the Delaware General Corporation
Law to effect the Holding Company Merger.
"Closing" means the consummation of the Holding Company Merger
followed by consummation of the Bank Merger on the Closing Date at the offices
of Manatt, Phelps & Phillips, LLP, 11355 West Olympic Boulevard, Los Angeles,
California, or at such other place as the parties may agree upon.
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"Closing Date" means the fifth Business Day following the last of
the following events to occur: (i) the approval of this Agreement and the
transactions contemplated hereby by the stockholders of Fidelity and HFC, (ii)
the receipt of all approvals, consents or non-objections specified in Section
9.3 hereof, (iii) the expiration of all applicable waiting periods under all
laws, or such other date as the parties may agree upon and (iv) the completion
of the allocation required under Section 2.6(c); provided, however, if such
fifth Business Day occurs earlier than the fifteenth day of a month, then the
Closing Date shall be the fifteenth day of the month, or, if not a Business Day,
then the first Business Day thereafter, or such other date as the parties may
agree upon.
"Closing Financial Statements of Fidelity" shall have the meaning
set forth in Section 11.9.
"Code" means the Internal Revenue Code of 1986, as amended.
"Combination Cash Election" has the meaning set forth in Section
2.6(a).
"Combination Stock Election" has the meaning set forth in Section
2.6(a).
"Competing Transaction" has the meaning set forth in Section 6.1(n).
"Confidentiality Agreement" means the Confidentiality Agreement,
dated June 22, 2002, between HFC and Fidelity.
"Covered Person" has the meaning set forth in Section 4.28.
"Delaware Secretary" means the Secretary of State of Delaware.
"Deloitte & Touche" means Deloitte & Touche LLP, independent
accountants for HFC and Fidelity.
"Derivatives Contract" has the meaning set forth in Section 4.32.
"DFI" means the Department of Financial Institutions of the State of
California.
"Dissenting Shares" means any shares of Fidelity Stock that are (a)
issued and outstanding immediately prior to the Effective Time of the Holding
Company Merger and (b) with respect to which the holder thereof perfects such
holder's rights to dissent under Section 262 of the Delaware General Corporation
Law.
"Effective Time of the Bank Merger" means the date and time the OTS
specifies for the Bank Merger pursuant to the OTS Regulations.
"Effective Time of the Holding Company Merger" means the date and
time specified in the Certificate of Merger as filed with the Delaware
Secretary.
"Election" has the meaning set forth in Section 2.6(a).
"Election Deadline" has the meaning set forth in Section 2.6(b).
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"Election Form" has the meaning set forth in Section 2.6(a).
"Election Form Record Date" has the meaning set forth in Section
2.6(a).
"Encumbrance" means any option, pledge, security interest, lien,
charge, encumbrance or restriction (whether on voting or disposition or
otherwise), whether imposed by agreement, law or otherwise.
"Environmental Regulations" has the meaning set forth in Section
4.13(b).
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exchange Agent" means such entity selected by HFC to effect the
exchange of Fidelity Stock for HFC Stock and/or cash.
"Exchange Fund" has the meaning set forth in Section 2.7(a).
"Exchange Ratio" means 1.5151, subject to adjustment pursuant to
Sections 2.9 and/or 12.1(j).
"Expenses" has the meaning set forth in Section 13.1(k).
"FDIC" means the Federal Deposit Insurance Corporation.
"FHLBSF" means the Federal Home Loan Bank of San Francisco.
"Fidelity Award" means any award issued pursuant to the Fidelity
Stock Option Plan.
"Fidelity Conflicts and Consents List" has the meaning set forth in
Section 4.7.
"Fidelity Contract List" has the meaning set forth in Section 4.18.
"Fidelity Derivatives List" has the meaning set forth in Section
4.32.
"Fidelity Director Compensation List" has the meaning set forth in
Section 6.1(g).
"Fidelity Employee Plan List" has the meaning set forth in Section
4.22.
"Fidelity Environmental Compliance List" has the meaning set forth
in Section 4.13.
"Fidelity Equity List" has the meaning set forth in Section 4.4.
"Fidelity Filings" has the meaning set forth in Section 4.6.
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"Fidelity Indemnification List" has the meaning set forth in Section
4.28.
"Fidelity Insurance List" has the meaning set forth in Section 4.8.
"Fidelity Intellectual Property List" has the meaning set forth in
Section 4.39.
"Fidelity Investment Securities List" has the meaning set forth in
Section 4.31.
"Fidelity List" means any list required to be furnished or other
information otherwise required to be provided by Fidelity and/or Thrift to HFC
and Bank under this Agreement.
"Fidelity Litigation List" has the meaning set forth in Section
4.11.
"Fidelity Material Adverse Effect List" has the meaning set forth in
Section 4.19.
"Fidelity Nonperforming Assets List" has the meaning set forth in
Section 4.30(a).
"Fidelity Offices List" has the meaning set forth in Section 4.29.
"Fidelity Option" means any option issued pursuant to the Fidelity
Stock Option Plan.
"Fidelity Option List" has the meaning set forth in Section 4.3(a).
"Fidelity Permitted Change in Recommendation" shall mean a change in
the recommendation of the Board of Directors of Fidelity to the Fidelity
stockholders in favor of the adoption and approval of the Agreement or the
approval of Holding Company Merger in circumstances where (a) the Board of
Directors of Fidelity determines in good faith that a Material Adverse Effect
has occurred with respect to HFC and Bank and (b) the Board of Directors of
Fidelity has determined in good faith that by reason of its determination in
clause (a) the failure to effect such a change in such recommendation would
create a substantial probability of violating the fiduciary duties of the Board
of Directors of Fidelity.
"Fidelity Personal Property List" has the meaning set forth in
Section 4.9.
"Fidelity Property" has the meaning set forth in Section 4.13(b).
"Fidelity Real Property List" has the meaning set forth in Section
4.10.
"Fidelity Senior Notes" means the 7% Convertible Senior Notes due
2003 and the 10% Convertible Senior Notes due 2003 of Fidelity.
"Fidelity Senior Notes List" has the meaning set forth in Section
4.3(a).
"Fidelity Series A Common Stock" means the Series A common stock,
par value $0.01 per share, of Fidelity.
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"Fidelity Series B Common Stock" means the Series B nonvoting common
stock, par value $0.01 per share, of Fidelity.
"Fidelity Stockholders' Meeting" means the meeting of Fidelity's
stockholders referred to in Section 6.5 hereof.
"Fidelity Stock" means the Fidelity Series A Common Stock and
Fidelity Series B Common Stock.
"Fidelity Stock Option Plan" means the Amended and Restated 2000
Stock Option Plan of Fidelity.
"Fidelity Subsidiary" means PSP Direct, a California corporation.
"Fidelity Subsidiary Reserve Amount" has the meaning set forth in
Section 4.2.
"Fidelity Tax List" has the meaning set forth in Section 4.12.
"Fidelity Termination Fee" has the meaning set forth in Section
13.1(d)
"Fidelity Undisclosed Liabilities List" has the meaning set forth in
Section 4.21.
"Final HFC Stock Price" means the average of the daily closing
prices of a share of HFC Stock on the Nasdaq NMS as reported in The Wall Street
Journal for the fifteen (15) consecutive trading days ending on the second
trading day prior to the Closing Date.
"Financial Statements of Fidelity" means the audited consolidated
financial statements of Fidelity consisting of the consolidated balance sheets
as of December 31, 1999, 2000 and 2001, the related consolidated statements of
income, shareholders' equity and cash flow for the years then ended and related
notes thereto and related opinions thereon for the years then ended.
"Financial Statements of HFC" means the audited consolidated
financial statements of HFC consisting of the consolidated balance sheets as of
December 31, 1999, 2000 and 2001, the related consolidated statements of income,
shareholders' equity and cash flows for the years then ended and related notes
thereto and related opinions thereon for the years then ended.
"Governmental Entity" means any court or tribunal in any
jurisdiction or any United States federal, state, municipal, foreign or other
administrative agency, authority or instrumentality.
"Hazardous Materials" has the meaning set forth in Section 4.13(b).
"HFC Filings" has the meaning set forth in Section 5.3.
"HFC List" means any list required to be furnished or other
information otherwise required to be provided by HFC to Fidelity and Thrift
under this Agreement.
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"HFC Litigation List" has the meaning set forth in Section 5.8.
"HFC Nonperforming Assets List" has the meaning set forth in section
5.14(a).
"HFC Permitted Change in Recommendation" shall mean a change in the
recommendation of the Board of Directors of HFC to the HFC stockholders in favor
of the adoption and approval of the Agreement or the approval of Holding Company
Merger in circumstances where (a) the Board of Directors of HFC determines in
good faith that a Material Adverse Effect has occurred with respect to Fidelity
and Thrift and (b) the Board of Directors of HFC has determined in good faith
that by reason of its determination in clause (a) the failure to effect such a
change in such recommendation would create a substantial probability of
violating the fiduciary duties of the Board of Directors of HFC
"HFC Stock" means the common stock, par value $0.01 per share, of
HFC.
"HFC Stockholders' Meeting" means the meeting of the HFC
stockholders referred to in Section 7.8.
"HFC Termination Fee" has the meaning set forth in Section 13.1(f).
"HFC Undisclosed Liabilities List" has the meaning set forth in
Section 5.12.
"HOLA" means the Home Owners' Loan Act of 1933, as amended.
"Holding Company Merger" means the merger of Fidelity with and into
HFC pursuant to this Agreement if Section 2.1 is applicable or the merger of
Merger Sub with and into Fidelity pursuant to this Agreement if Section 2.2 is
applicable.
"Immediate Family" has the meaning set forth in Rule 16a-l(e)
promulgated under the Exchange Act.
"Indemnified Parties" has the meaning set forth in Section 8.7(a).
"Investment Security" means any equity security or debt security as
defined in Statement of Financial Accounting Standards No. 115.
"IRS" means the Internal Revenue Service.
"List" means any one of the Fidelity Lists or the HFC Lists, and
"Lists" means both of such Lists.
"Mailing Date" has the meaning set forth in Section 2.6(a).
"Material Adverse Effect" has the meaning set forth in Section
13.3(a).
"Mergers" means the Holding Company Merger and Bank Merger.
"Nasdaq NMS" means the Nasdaq National Market.
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"OREO" means other real estate owned.
"OTS" means the Office of Thrift Supervision.
"OTS Regulations" means the rules and regulations of the OTS under
HOLA.
"Person" means any natural person, corporation, trust, association,
unincorporated body, partnership, limited liability company, joint venture,
other entity or Governmental Entity.
"Plans" has the meaning set forth in Section 4.22.
"Price Per Share" means $36.6049.
"Proxy Statement and Prospectus" means the joint proxy statement and
prospectus that is included as part of the S-4 Registration Statement (as
defined herein) and used to solicit proxies for the Fidelity Stockholders'
Meeting and HFC Stockholders' Meeting, as necessary, and to offer and sell the
shares of HFC Stock to be issued in connection with the Holding Company Merger.
"Related Group of Persons" means Affiliates, members of an Immediate
Family or Persons the obligations of whom would be attributed to another Person
pursuant to the regulations promulgated by the SEC.
"S-4 Registration Statement" means the Registration Statement on
Form S-4 including the Proxy Statement and Prospectus to be mailed to
stockholders of Fidelity and HFC, to vote upon the Holding Company Merger and to
register the issuance of the shares of HFC Stock to be issued in the Holding
Company Merger with the SEC.
"Scheduled Contracts" has the meaning set forth in Section 4.18.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Stock Amount" means 1,266,555 shares of HFC Stock, subject to
adjustment pursuant to Section 2.9.
"Stock Election" has the meaning set forth in Section 2.6(a).
"Stock Proration Factor" has the meaning set forth in Section
2.6(c).
"Superior Proposal" has the meaning set forth in Section 6.1(n).
"Surviving Bank" means the federally chartered savings association
surviving the Bank Merger.
"Tank" has the meaning set forth in Section 4.13(b).
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"Taxes" means (i) all federal, state, local or foreign taxes,
charges, fees, imposts, levies or other assessments, including, without
limitation, all net income, gross receipts, capital, sales, use, ad valorem,
value added, transfer, franchise, profits, inventory, capital stock, license,
withholding, payroll, employment, social security, unemployment, excise,
severance, stamp, occupation, property, corporation and estimated taxes, custom
duties, fees, assessments and charges of any kind whatsoever; (ii) all interest,
penalties, fines, additions to tax or additional amounts imposed by any taxing
authority in connection with any item described in clause (i); and (iii) any
transferred liability in respect of any items described in clauses (i) and/or
(ii).
"Tax Return" means all returns, declarations, reports, estimates,
information returns and statements required to be filed in respect of any Taxes.
"Tax Sharing Agreement" means an agreement (whether or not in
writing) pursuant to which tax losses of one entity are made available to
another entity of the Affiliated Group or Affiliates for purpose of Taxes.
"Thrift Stock" means the common stock, par value $100.00 per share,
of Thrift.
"Treasury Shares" means shares of Fidelity Stock held by (i)
Fidelity or any of its subsidiaries or (ii) HFC or any of its subsidiaries, in
each case other than in a fiduciary capacity or as a result of debts previously
contracted in good faith.
"Triggering Event" has the meaning set forth in Section 12.1.
"Undesignated Shares" has the meaning set forth in Section 2.6(a).
ARTICLE II
THE MERGERS AND RELATED MATTERS
2.1 The Holding Company Merger -- HFC. If Section 2.13 is not
applicable, the Holding Company Merger shall be effected in accordance with this
Section 2.1. The Holding Company Merger shall become effective upon the date
specified in the Certificate of Merger as filed with the Delaware Secretary in
accordance with the provisions of the Delaware General Corporation Law. At the
Effective Time of the Holding Company Merger, the following transactions will be
deemed to have occurred simultaneously without any additional action on the part
of the holders of shares of stock of Fidelity and HFC:
(a) Fidelity shall be merged with and into HFC and the separate
corporate existence of Fidelity shall cease. The Holding Company Merger shall
have the effects set forth in Section 259 of the Delaware General Corporation
Law.
(b) Each share of HFC Stock issued and outstanding immediately prior
to the Effective Time of the Holding Company Merger shall remain an issued and
outstanding share of common stock of the surviving institution, and shall not be
affected by the Holding Company Merger.
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(c) Each share of Fidelity Stock issued and outstanding immediately
prior to the Effective Time of the Holding Company Merger (other than Dissenting
Shares and Treasury Shares) shall be converted into the right to receive HFC
Stock and/or cash as provided in Section 2.3(a).
(d) Any Treasury Shares outstanding shall be canceled and retired at
the Effective Time of the Holding Company Merger and no consideration shall be
issued in exchange therefor.
2.2 The Holding Company Merger -- Merger Sub. If Section 2.13 is
applicable, the Holding Company Merger shall be effected in accordance with this
Section 2.2. The Holding Company Merger shall become effective upon the date
specified in the Certificate of Merger as filed with the Delaware Secretary in
accordance with the provisions of the Delaware General Corporation Law. At the
Effective Time of the Holding Company Merger, the following transactions will be
deemed to have occurred simultaneously without any additional action on the part
of the holders of shares of stock of Fidelity or Merger Sub.
(a) Merger Sub shall be merged with and into Fidelity and the
separate corporate existence of Merger Sub shall cease. The Holding Company
Merger shall have the effects set forth in Section 259 of the Delaware General
Corporation Law.
(b) Each share of stock of Merger Sub issued and outstanding
immediately prior to the Effective Time of the Holding Company Merger shall
become and be converted into one share of Fidelity Series A Common Stock as of
the Effective Time of the Holding Company Merger.
(c) Each share of Fidelity Stock issued and outstanding immediately
prior to the Effective Time of the Holding Company Merger shall be converted
into the right to receive HFC Stock and/or cash as provided in Section 2.3(a).
(d) Any Treasury Shares outstanding shall be cancelled and retired
at the Effective Time of the Holding Company Merger and no consideration shall
be issued in exchange therefor.
2.3 Conversion of Fidelity Stock.
(a) Subject to the other provisions of this Article II, each share
of Fidelity Stock issued and outstanding immediately prior to the Effective Time
of the Holding Company Merger (other than Dissenting Shares and Treasury Shares)
shall, by virtue of the Holding Company Merger, be converted into the right to
receive, at the election of the holder thereof as provided in Section 2.6, any
of the following:
(i) HFC Stock equal to the Exchange Ratio;
(ii) cash in the amount of the Price Per Share; or
(iii) a combination of HFC Stock and cash in the amounts as set
forth in subsections 2.3(a)(i) and (a)(ii) above.
10
(b) At the Effective Time of the Holding Company Merger, the stock
transfer books of Fidelity shall be closed as to holders of Fidelity Stock
immediately prior to the Effective Time of the Holding Company Merger and no
transfer of Fidelity Stock by any such holder shall thereafter be made or
recognized. If, after the Effective Time of the Holding Company Merger,
certificates are properly presented in accordance with Section 2.7 of this
Agreement to the Exchange Agent, such certificates shall be canceled and
exchanged for certificates representing the number of whole shares of HFC Stock,
if any, and/or a check representing the amount of cash, if any, into which the
Fidelity Stock represented thereby was converted in the Holding Company Merger,
plus any payment for a fractional share of HFC Stock.
2.4 Fractional Shares. Notwithstanding any other provisions of this
Agreement, no fractional shares of HFC Stock shall be issued in the Holding
Company Merger. In lieu thereof, each holder of Fidelity Stock who would
otherwise be entitled to receive a fractional share of HFC Stock (after taking
into account all Certificates delivered by such holder) shall receive an amount
in cash (without interest), rounded to the nearest cent, equal to the product
obtained by multiplying (a) the Final HFC Stock Price by (b) the fraction
(calculated to the nearest ten-thousandth) of the share of HFC Stock to which
such holder would otherwise be entitled. No such holder shall be entitled to
dividends or other rights in respect of any such fractional shares.
2.5 Treatment of Fidelity Options. Unless exercised prior to the
Effective Time of the Holding Company Merger, each Fidelity Option which is
outstanding and unexercised immediately prior to the Effective Time of the
Holding Company Merger, whether or not then vested and exercisable, shall be
terminated immediately prior to the Effective Time of the Holding Company Merger
and each grantee thereof shall be entitled to receive, in lieu of each share of
Fidelity Stock that would otherwise have been issuable upon exercise thereof, an
amount in cash computed by multiplying (a) the excess, if any, between (i) the
Price Per Share and (ii) the exercise price of such Fidelity Option by (b) the
number of shares of Fidelity Stock subject to the Fidelity Option. Fidelity
agrees to take or cause to be taken all action necessary to enter into a written
agreement with each holder of a Fidelity Option to provide for such termination
and payment effective at or before the Effective Time of the Holding Company
Merger. Any payments pursuant to this Section 2.5 shall take place only after
the satisfaction or fulfillment or waiver of the conditions to Closing contained
in Articles IX, X and XI of this Agreement.
2.6 Election and Proration Procedures.
(a) An election form and other appropriate and customary
transmittal materials (which shall specify that delivery shall be effected, and
risk of loss and title to the certificates theretofore representing shares of
Fidelity Stock shall pass, only upon proper delivery of such certificates to the
Exchange Agent in such form as HFC and Fidelity shall mutually agree) ("Election
Form") shall be mailed by or on behalf of HFC no less than thirty-five (35) days
prior to the anticipated Effective Time of the Holding Company Merger, as
jointly determined by HFC and Fidelity, or on such other date as HFC and
Fidelity shall mutually agree ("Mailing Date") to each holder of record of
Fidelity Stock and holder of record of the Fidelity Senior Notes who has
submitted to Fidelity and the Exchange Agent a written irrevocable election to
convert in full the Fidelity Senior Note held by such person into shares of
Fidelity
11
Stock prior to the Effective Time of the Holding Company Merger as of five
Business Days prior to the Mailing Date ("Election Form Record Date"). HFC shall
make available one or more Election Forms as may be reasonably requested by all
persons who become holders (or beneficial owners) (the term "beneficial owner"
and "beneficial ownership" for purposes of this Agreement shall have the meaning
set forth in Section 13(d) of the Exchange Act) of Fidelity Stock after the
Election Form Record Date and prior to the Election Deadline, and Fidelity shall
provide to the Exchange Agent all information reasonably necessary for it to
perform its obligations as specified herein. Each Election Form shall permit the
holder (or the beneficial owner through appropriate and customary documentation
and instructions) to elect (an "Election") to receive (i) HFC Stock (a "Stock
Election") with respect to all of such holder's Fidelity Stock, or (ii) cash (a
"Cash Election") with respect to all of such holder's Fidelity Stock, or (iii)
HFC Stock for a specified number of shares of Fidelity Stock (a "Combination
Stock Election") and cash for the remaining number of shares of Fidelity Stock
held by such holder (a "Combination Cash Election"). Any Fidelity Stock and
Fidelity Stock into which the Fidelity Notes will be converted, other than
Dissenting Shares and Treasury Shares, with respect to which the Exchange Agent
has not received an effective, properly completed Election Form prior to the
Election Deadline shall be deemed to be "Undesignated Shares" hereunder.
(b) Any Election shall have been properly made and effective only
if the Exchange Agent shall have actually received a properly completed Election
Form which has not been revoked by 5:00 p.m., Pacific Time, by the 30th day
following the Mailing Date (or such other time and date as HFC and Fidelity may
mutually agree) (the "Election Deadline"). An Election Form shall be deemed
properly completed only if an Election is indicated for each share of Fidelity
Stock covered by such Election Form and if accompanied by one or more
certificates (or customary affidavits and indemnification regarding the loss or
destruction of such certificates or the guaranteed delivery of such
certificates) representing all shares of Fidelity Stock covered by such Election
Form, together with duly executed transmittal materials included in or required
by the Election Form. Any Election Form may be revoked by the person submitting
such Election Form at or prior to the Election Deadline, provided that the
Exchange Agent shall have actually received prior to the Election Deadline a
written notice revoking such Election Form and specifying the shares of Fidelity
Stock covered by such revoked Election Form. In the event an Election Form is
revoked prior to the Election Deadline, the shares of Fidelity Stock
representing such Election Form shall automatically become Undesignated Shares
unless and until a new Election is properly made with respect to such shares on
or before the Election Deadline, and Fidelity shall cause the certificates
representing such shares of Fidelity Stock to be promptly returned without
charge to the person submitting the revoked Election Form upon written request
to that effect from the holder who submitted such Election Form. Subject to the
terms of this Agreement and of the Election Form, the Exchange Agent shall have
reasonable discretion to determine whether any Election or revocation has been
properly or timely made and to disregard immaterial defects in the Election
Forms, and any decisions of Fidelity and HFC required by the Exchange Agent and
made in good faith in determining such matters shall be binding and conclusive.
Neither HFC nor the Exchange Agent shall be under any obligation to notify any
person of any defect in an Election Form.
(c) As promptly as practicable but not later than five Business
Days prior to the Effective Time of the Holding Company Merger, HFC shall cause
the Exchange Agent to
12
effect the allocation among the holders of Fidelity Stock of rights to receive
HFC Stock or cash in the Holding Company Merger in accordance with the Election
Forms as follows:
(i) if the aggregate number of shares of Fidelity Stock as to
which Stock Elections and Combination Stock Elections shall have effectively
been made times the Exchange Ratio is approximately equal to the Stock Amount,
then:
(A) Each holder of Fidelity Stock who made an effective
Stock Election or Combination Stock Election shall receive the number of shares
of HFC Stock which is equal to the product of the Exchange Ratio multiplied by
the number of shares of Fidelity Stock covered by such Stock Election or
Combination Stock Election; and
(B) Each holder of Fidelity Stock who made an effective
Cash Election or Combination Cash Election, and each holder of Undesignated
Shares shall receive the Price Per Share in cash for each such share of Fidelity
Stock or Undesignated Share.
(ii) if the aggregate number of shares of Fidelity Stock as
to which Stock Elections and Combination Stock Elections shall have effectively
been made times the Exchange Ratio exceeds, and is not approximately equal to,
the Stock Amount, then:
(A) Each holder of Fidelity Stock who made an effective
Cash Election or Combination Cash Election shall receive the Price Per Share in
cash for each such share of Fidelity Stock;
(B) Each holder of Undesignated Shares shall be deemed
to have made Cash Elections and shall receive the Price Per Share in cash for
each such Undesignated Share; and
(C) A stock proration factor (the "Stock Proration
Factor") shall be determined by dividing (1) the Stock Amount by (2) the product
of the Exchange Ratio and the number of shares of Fidelity Stock with respect to
which effective Stock Elections and Combination Stock Elections were made. Each
holder of Fidelity Stock who made an effective Stock Election or Combination
Stock Election shall be entitled to:
(I) the number of shares of HFC Stock equal to the
product of (x) the Exchange Ratio, multiplied by (y) the number of shares of
Fidelity Stock covered by such Stock Election or Combination Stock Election,
multiplied by (z) the Stock Proration Factor, and
(II) cash in an amount equal to the product of (x)
the Price Per Share, multiplied by (y) the number of shares of Fidelity Stock
covered by such Stock Election or Combination Stock Election, multiplied by (z)
one minus the Stock Proration Factor.
(iii) if the aggregate number of shares of Fidelity Stock as
to which Stock Elections and Combination Stock Elections shall have effectively
been made times the Exchange Ratio is less than, and is not approximately equal
to, the Stock Amount, then:
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(A) Each holder of Fidelity Stock who made an
effective Stock Election or Combination Stock Election shall receive the number
of shares of HFC Stock equal to the product of the Exchange Ratio multiplied by
the number of shares of Fidelity Stock covered by such Stock Election or
Combination Stock Election;
(B) The Exchange Agent shall select by random such
number of holders of Undesignated Shares (other than holders of Undesignated
Shares who delivered a written demand for appraisal to Fidelity before the
Fidelity Stockholders' Meeting and who did not vote in favor of the Holding
Company Merger as required by Section 262 of the Delaware General Corporation
Law prior to the meeting of shareholders to be held pursuant to Section 6.5) to
receive HFC Stock as shall be necessary so that the shares of HFC Stock to be
received by those holders, when combined with the number of shares for which a
Stock Election or Combination Stock Election has been made, multiplied by the
Exchange Ratio shall be approximately equal to the Stock Amount. If all of said
Undesignated Shares plus all shares as to which Stock Elections and Combination
Stock Elections have been made together multiplied by the Exchange Ratio are
less than, and not approximately equal to, the Stock Amount, then:
(C) A cash proration factor (the "Cash Proration
Factor") shall be determined by dividing (1) the amount which is the difference
between (x) the number obtained by dividing the Stock Amount by the Exchange
Ratio and (y) the sum of the number of shares of Fidelity Stock with respect to
which effective Stock Elections and Combination Stock Elections were made and
the number of Undesignated Shares selected pursuant to subparagraph (iii)(B)
above by (2) the number of shares of Fidelity Stock with respect to which
effective Cash Elections and Combination Cash Elections were made. Each holder
of Fidelity Stock who made an effective Cash Election or Combination Cash
Election shall be entitled to:
(I) cash equal to the product of (x) the Price
Per Share, multiplied by (y) the number of shares of Fidelity Stock covered by
such Cash Election or Combination Cash Election, multiplied by (z) one minus the
Cash Proration Factor, and
(II) the number of shares of HFC Stock equal to
the product of (x) the Exchange Ratio, multiplied by (y) the number of shares of
Fidelity Stock covered by such Cash Election or Combination Cash Election,
multiplied by (z) the Cash Proration Factor.
(iv) The prorata allocation process or the random selection
process to be used by the Exchange Agent shall consist of such procedures as HFC
and Fidelity shall mutually determine.
(d) For purposes of this Section 2.6, the shares of which HFC Stock
is to be issued as consideration in the Merger shall be deemed to be
"approximately equal" to the Stock Amount if such number is within 10,000 shares
of HFC Stock of such amount.
2.7 Exchange Procedures.
(a) At the Effective Time of the Holding Company Merger, HFC shall
deposit with the Exchange Agent for the benefit of the holders of shares of
Fidelity Stock, for exchange in accordance with this Section 2.7, certificates
representing the shares of HFC Stock and cash
14
issuable pursuant to Section 2.3 in exchange for shares of Fidelity Stock
outstanding immediately prior to the Effective Time of the Holding Company
Merger and funds in an amount not less than the amount of cash payable in lieu
of fractional shares of HFC Stock which would otherwise be issuable in
connection with Section 2.3, but for the operation of Section 2.4 of this
Agreement (collectively, the "Exchange Fund").
(b) After the Effective Time of the Holding Company Merger, each holder
of a certificate ("Certificate") formerly representing Fidelity Stock (other
than Dissenting Shares and Treasury Shares) who surrenders or has surrendered
such Certificate (or customary affidavits and indemnification regarding the loss
or destruction of such Certificate), together with duly executed transmittal
materials included in or required by the Election Form, to the Exchange Agent,
shall, upon acceptance thereof, be entitled to (i) a certificate representing
HFC Stock and/or (ii) cash into which the shares of Fidelity Stock shall have
been converted pursuant to Section 2.3 and Section 2.6, as well as cash in lieu
of fractional shares of Fidelity Stock to which such holder would otherwise be
entitled, if applicable. The Exchange Agent shall accept such Certificate upon
compliance with such reasonable and customary terms and conditions as the
Exchange Agent may impose to effect an orderly exchange thereof in accordance
with normal practices. Until surrendered as contemplated by this Section 2.7,
each Certificate representing Fidelity Stock shall be deemed from and after the
Effective Time of the Holding Company Merger to evidence only the right to
receive the consideration to which it is entitled hereunder upon such surrender.
HFC shall not be obligated to deliver the consideration to which any former
holder of Fidelity Stock is entitled as a result of the Holding Company Merger
until such holder surrenders his Certificate or Certificates for exchange as
provided in this Section 2.7. If any certificate for shares of HFC Stock, or any
check representing cash and/or declared but unpaid dividends, is to be issued in
a name other than that in which a Certificate surrendered for exchange is
issued, the Certificate so surrendered shall be properly endorsed and otherwise
in proper form for transfer and the person requesting such exchange shall affix
any requisite stock transfer tax stamps to the Certificate surrendered or
provide funds for their purchase or establish to the satisfaction of the
Exchange Agent that such taxes are not payable.
(c) No dividends or other distributions declared or made after the
Effective Time of the Holding Company Merger with respect to HFC Stock with a
record date after the Effective Time of the Holding Company Merger shall be paid
to the holder of any unsurrendered Certificate with respect to the shares of HFC
Stock represented thereby, and no cash payment in lieu of fractional shares
shall be paid to any such holder pursuant to Section 2.4, until the holder of
record of such Certificate shall surrender such Certificate. Subject to the
effect of applicable laws, following surrender of any such Certificate, there
shall be paid to the record holder of the certificates representing whole shares
of HFC Stock issued in exchange thereof, without interest, (i) at the time of
such surrender, the amount of any cash payable in lieu of a fractional share of
HFC Stock to which such holder is entitled pursuant to Section 2.4 and the
amount of dividends or other distributions with a record date after the
Effective Time of the Holding Company Merger theretofore paid with respect to
such whole shares of HFC Stock, and (ii) at the appropriate payment date, the
amount of dividends or other distributions with a record date after the
Effective Time of the Holding Company Merger but prior to surrender and a
payment date subsequent to surrender payable with respect to such whole shares
of HFC Stock.
15
(d) All cash and shares of HFC Stock issued upon the surrender for
exchange of shares of Fidelity Stock in accordance with the terms hereof
(including any cash paid pursuant to Section 2.4) shall be deemed to have been
issued in full satisfaction of all rights pertaining to such shares of Fidelity
Stock, and there shall be no further registration of transfers on the stock
transfer books of HFC, after the Holding Company Merger, of the shares of
Fidelity Stock which were outstanding immediately prior to the Effective Time of
the Holding Company Merger. If, after the Effective Time of the Holding Company
Merger, Certificates are presented to HFC for any reason, they shall be canceled
and exchanged as provided in this Agreement.
(e) Any portion of the Exchange Fund, including any interest
thereon, which remains undistributed to the stockholders of Fidelity following
the passage of nine (9) months after the Effective Time of the Holding Company
Merger shall be delivered to HFC, upon demand, and any stockholders of Fidelity
who have not theretofore complied with this Section 2.7 shall thereafter look
only to HFC for payment of their claim for cash and HFC Stock, any cash in lieu
of fractional shares of HFC Stock and any dividends or distributions with
respect to HFC Stock.
(f) Neither Fidelity nor HFC shall be liable to any holder of shares
of Fidelity Stock or HFC Stock, as the case may be, for such shares (or
dividends or distributions with respect thereto) or cash from the Exchange Fund
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
(g) The Exchange Agent shall not be entitled to vote or exercise any
rights of ownership with respect to the shares of HFC Stock held by it from time
to time hereunder, except that it shall receive and hold all dividends or other
distributions paid or distributed with respect to such shares of HFC Stock for
the account of the Persons entitled thereto.
(h) Certificates surrendered for exchange by any Person constituting
an "Affiliate" of Fidelity for purposes of Rule 144(a) under the Securities Act
shall not be exchanged for certificates representing whole shares of HFC Stock
until HFC has received a written agreement from such person as provided in
Section 6.7.
2.8 Dissenting Shares. Notwithstanding anything to the contrary
contained in this Agreement, any holder of Fidelity Stock who shall be entitled
to be paid the "fair value" of such holder's Dissenting Shares of Fidelity
Stock, as provided in Section 262 of the Delaware General Corporation Law, shall
not be entitled to the consideration to which such holder would otherwise have
been entitled pursuant to Section 2.2, unless and until such holder shall have
failed to perfect or withdrawn or lost such holder's rights under Section 262 of
the Delaware General Corporation Law, and shall be entitled to receive only such
payment provided for by Section 262 of the Delaware General Corporation Law.
2.9 Adjustments for Dilution and Other Matters. If prior to the
Effective Time of the Holding Company Merger, (a) HFC shall declare a stock
dividend or distribution on HFC Stock with a record date prior to the Effective
Time of the Holding Company Merger, or subdivide, split up, reclassify or
combine HFC Stock, or declare a dividend, or make a distribution, on the HFC
Stock in any security convertible into HFC Stock, in each case with a record
date prior to the Effective Time of the Holding Company Merger, or (b) the
outstanding shares of HFC Stock
16
shall have been increased, decreased, changed into or exchanged for a different
number or kind of shares or securities, in each case as a result of a
reorganization, recapitalization, reclassification, stock dividend, stock split,
reverse stock split or other similar change in HFC's capitalization, then a
proportionate adjustment or adjustments will be made to the Exchange Ratio, the
Stock Amount, the Starting Price, and the Average Closing Price, which
adjustment or adjustments may include, as appropriate, the issuance of
securities, property or cash on the same basis as that on which any of the
foregoing shall have been issued, distributed or paid to holders of HFC Stock
generally.
2.10 Name of Corporation Surviving the Holding Company Merger.
(a) If the Holding Company Merger is effected in accordance with
Section 2.1, the name of the corporation surviving the Holding Company Merger
shall be "Hawthorne Financial Corporation."
(b) If the Holding Company Merger is effected in accordance with
Section 2.2, the name of the corporation surviving the Holding Company Merger
shall be "First Fidelity Bancorp, Inc."
2.11 Certificate of Incorporation and Bylaws of Corporation Surviving
the Holding Company Merger.
(a) If the Holding Company Merger is effected in accordance with
Section 2.1, the certificate of incorporation and bylaws of HFC, as in effect
immediately prior to the Effective Time of the Holding Company Merger, shall be
the certificate of incorporation and bylaws of HFC after the Holding Company
Merger.
(b) If the Holding Company Merger is effected in accordance with
Section 2.2, the certificate of incorporation and bylaws of Fidelity, as in
effect immediately prior to the Effective Time of the Holding Company Merger,
shall be the certificate of incorporation and bylaws of Fidelity after the
Holding Company Merger.
2.12 Directors and Officers of Corporation Surviving the Holding Company
Merger.
(a) If the Holding Company Merger is effected in accordance with
Section 2.1, the directors and officers of the corporation surviving the Holding
Company Merger shall be as provided in this paragraph (a). At the Effective Time
of the Holding Company Merger, the then directors of HFC shall be the directors
of HFC, until their successors have been duly elected or appointed and
qualified. The officers of HFC immediately prior to the Effective Time of the
Holding Company Merger shall be the officers of HFC, until their respective
successors are duly appointed.
(b) If the Holding Company Merger is effected in accordance with
Section 2.2, the directors and officers of the corporation surviving the Holding
Company Merger shall be as provided in this paragraph (b). At the Effective Time
of the Holding Company Merger, the then directors of the Merger Sub shall be the
directors of Fidelity, until their successors have been duly elected or
appointed and qualified. The officers of Merger Sub
17
immediately prior to the Effective Time of the Holding Company Merger shall be
the officers of Fidelity, until their respective successors are duly appointed.
2.13 Determination of Structure of Holding Company Merger. If on the
second day immediately preceding the Effective Time of the Holding Company
Merger the opinions contemplated by Sections 10.4 or 11.6(a) cannot be given
then (a) the Holding Company Merger shall be effected as set forth in Section
2.2, (b) the conditions set forth in Sections 10.4 and 11.6(a) shall be deemed
waived with respect to the Holding Company Merger and (c) the Certificate of
Merger shall reflect the foregoing.
ARTICLE III
THE CLOSING
3.1 Closing Date. The Closing shall take place on the Closing Date.
3.2 Execution of Merger Documents. Prior to the Closing, the Certificate
of Merger shall be executed by HFC, if Section 2.1 is applicable, or by
Fidelity, if Section 2.2 is applicable, and the Agreement of Bank Merger shall
be executed by Bank and Thrift. On or before the Closing Date, the Certificate
of Merger shall be duly filed with the Delaware Secretary as required by
applicable laws and regulations to render the Holding Company Merger effective
as of the Closing Date.
3.3 Documents to be Delivered. At the Closing, the parties hereto shall
deliver, or cause to be delivered, such documents or certificates as may be
necessary, in the reasonable opinion of counsel for any of the parties, to
effect the transactions contemplated by this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF FIDELITY AND THRIFT
Fidelity and Thrift, jointly and severally, represent and warrant to HFC
and Bank as follows; provided that to the extent any representation or warranty
relates to Fidelity, Thrift does not make any representations or warranties to
such extent:
4.1 Incorporation, Standing and Power. Fidelity is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Thrift is a California chartered industrial loan company duly
organized, validly existing and in good standing under the laws of California
and is authorized by the DFI to conduct an industrial loan business. The
certificate of incorporation and bylaws of Fidelity, and the articles of
incorporation and bylaws of Thrift, all as amended to date, are in full force
and effect. Thrift's deposits are insured by the FDIC in the manner and to the
fullest extent provided by law. Fidelity and Thrift have all requisite corporate
power and authority to own, lease and operate their respective properties and
assets and to carry on their respective businesses as presently
18
conducted and Fidelity and Thrift have the corporate power and authority to
execute and deliver this Agreement and the Agreement of Bank Merger, as the case
may be, and to perform their respective obligations hereunder and thereunder, as
the case may be, and to consummate the transactions contemplated hereby and
thereby, as the case may be. Neither the scope of the business of Fidelity or
Thrift nor the location of any of their respective properties requires that
Fidelity or Thrift be licensed to do business in any jurisdiction other than the
State of California where the failure to be so licensed would, individually or
in the aggregate, have a Material Adverse Effect.
4.2 Liquidation of and Reservation for the Fidelity Subsidiary. As of
February 8, 2002, the Fidelity Subsidiary was liquidated and dissolved under the
laws of California. Fidelity has recorded a reserve in the amount of $289,000
for purposes of winding up the Fidelity Subsidiary (the "Fidelity Subsidiary
Reserve Amount") and the Fidelity Subsidiary Reserve Amount is adequate to cover
all liabilities and obligations, either accrued or contingent, of the Fidelity
Subsidiary.
4.3 Capitalization.
(a) As of the date of this Agreement, the authorized capital stock
of Fidelity consists of 2,000,000 shares of Fidelity Series A Common Stock, of
which 425,000 shares are outstanding; 2,000,000 shares of Fidelity Series B
Common Stock, of which 985,935 shares are outstanding; and 2,000,000 shares of
serial preferred stock, of which no shares are outstanding. All of the
outstanding shares of Fidelity Stock have been duly authorized and validly
issued and are fully paid and nonassessable, and subject to no preemptive rights
(and were not issued in violation of any preemptive rights). As of the date of
this Agreement, except for Fidelity Options covering 88,000 shares of Fidelity
Stock granted pursuant to the Fidelity Stock Option Plan and the Fidelity Senior
Notes convertible into 404,180 shares of Fidelity Stock, there are no
outstanding options, warrants or other rights in or with respect to the unissued
shares of Fidelity Stock nor any securities convertible into such stock, and
Fidelity is not obligated to issue any additional shares of its common stock or
any additional options, warrants or other rights in or with respect to the
unissued shares of such stock or any other securities convertible into such
stock. Fidelity has furnished HFC a list (the "Fidelity Option List") setting
forth the name of each holder of a Fidelity Option or Fidelity Award, the number
of shares of Fidelity Stock covered by each such Fidelity Option or Fidelity
Award, the vesting schedule of such Fidelity Option or Fidelity Award, and the
exercise price per share and the expiration date of each such Fidelity Option or
Fidelity Award, as applicable. Fidelity has furnished HFC a list (the "Fidelity
Senior Notes List") setting forth the name of each holder of Fidelity Senior
Notes, the principal amount outstanding on the Fidelity Senior Notes of each
holder, the conversion price per share and the number of shares of Fidelity
Stock issuable upon conversion of such Fidelity Senior Notes, and the expiration
of each Fidelity Senior Note.
(b) As of the date of this Agreement, the authorized capital stock
of Thrift consists of 200,000 shares of Thrift Stock, of which 20,000 shares are
outstanding and owned of record and beneficially by Fidelity free and clear of
any Encumbrance. The outstanding shares of Thrift Stock have been duly
authorized and validly issued and are fully paid and nonassessable, and subject
to no preemptive rights (and were not issued in violation of any preemptive
rights). There are no contracts, commitments, understandings or arrangements
19
relating to Fidelity's rights to vote or to dispose of such securities. There
are no outstanding options, warrants or other rights in or with respect to the
unissued shares of Thrift Stock or any other securities convertible into such
stock, and Thrift is not obligated to issue any additional shares of its common
stock or any options, warrants or other rights in or with respect to the
unissued shares of its common stock or any other securities convertible into
such stock.
4.4 Subsidiaries. Except for Thrift and as set forth on a list furnished
by Fidelity and Thrift to HFC (the "Fidelity Equity List"), (i) Fidelity does
not own, directly or indirectly, the outstanding stock or equity or other voting
interest in any corporation, partnership, joint venture or other entity and (ii)
Thrift does not own, directly or indirectly, the outstanding stock or equity or
other voting interest in any corporation, partnership, joint venture or other
entity.
4.5 Financial Statements. Fidelity has previously furnished to HFC a
copy of the Financial Statements of Fidelity. The Financial Statements of
Fidelity present fairly the consolidated financial condition of Fidelity as of
the respective dates indicated and its consolidated results of operations and
changes in cash flows, for the respective periods then ended and have been
prepared in accordance with generally accepted accounting principles and/or
applicable regulatory accounting principles or banking regulations consistently
applied, except as stated therein.
4.6 Reports and Filings. Fidelity, Thrift and the Fidelity Subsidiary
have filed all reports, returns, registrations and statements (such reports and
filings referred to as "Fidelity Filings"), together with any amendments
required to be made with respect thereto, that were required to be filed with
(a) the DFI, (b) the FDIC and (c) any other applicable Governmental Entity,
including taxing authorities, except where the failure to file such reports,
returns, registrations or statements has not had and is not reasonably expected
to have a Material Adverse Effect. No material adverse administrative actions
have been taken or orders issued in connection with such Fidelity Filings. As of
their respective dates, each of such Fidelity Filings complied in all material
respects with all applicable laws and regulations (or was amended so as to be in
compliance promptly following discovery of any such noncompliance). Any
financial statements contained in any of such Fidelity Filings fairly presented,
as of their respective dates or for their respective periods, the financial
position, results of operations and changes in cash flows, as the case may be,
of Fidelity, Thrift or the Fidelity Subsidiary and were prepared in accordance
with generally accepted accounting principles and/or applicable regulatory
accounting principles or banking regulations consistently applied, except as
stated therein, during the periods involved. Fidelity has furnished to HFC true
and correct copies of all Fidelity Filings filed by Fidelity, Thrift or the
Fidelity Subsidiary with the DFI, FDIC and any other Governmental Entity since
January 1, 1999.
4.7 Authority of Fidelity and Thrift. The execution and delivery by
Fidelity and Thrift of this Agreement and by Thrift of the Agreement of Bank
Merger and, subject to the requisite approval of the stockholders of Fidelity,
the consummation of the transactions contemplated hereby and thereby, have been
duly and validly authorized by all necessary corporate action on the part of
Fidelity and Thrift and by Fidelity in its capacity as the sole stockholder of
Thrift, and this Agreement is and the Agreement of Bank Merger will be, upon due
execution and delivery by the respective parties thereto, a valid and binding
obligation of Fidelity or Thrift or both of them, as the case may be,
enforceable in accordance with their
20
respective terms, except as the enforceability thereof may be limited by
bankruptcy, liquidation, receivership, conservatorship, insolvency, moratorium
or other similar laws affecting the rights of creditors generally and by general
equitable principles and by Section 8(b)(6)(D) of the Federal Deposit Insurance
Act, 12 U.S.C. Section 1818(b)(6)(D). Except as set forth in a list furnished by
Fidelity and Thrift to HFC (the "Fidelity Conflicts and Consents List"), neither
the execution and delivery by Fidelity and Thrift of this Agreement or by Thrift
of the Agreement of Bank Merger, the consummation of the Holding Company Merger
or Bank Merger or the transactions contemplated herein or therein, nor
compliance by Fidelity and Thrift with any of the provisions hereof or thereof,
will: (a) conflict with or result in a breach of any provision of the
Certificate of Incorporation or Bylaws of Fidelity or the Articles of
Incorporation or Bylaws of Thrift; (b) constitute a breach of or result in a
default (or give rise to any rights of termination, cancellation or
acceleration, or any right to acquire any securities or assets) under any of the
terms, conditions or provisions of any note, bond, mortgage, indenture,
franchise, license, permit, agreement or other instrument or obligation to which
Fidelity or Thrift is a party, or by which Fidelity or Thrift or any of their
respective properties or assets is bound, except as would not, individually or
in the aggregate, have a Material Adverse Effect; (c) result in the creation or
imposition of any Encumbrance on any of the properties or assets of Fidelity or
Thrift, except for Encumbrances that do not materially detract from the value,
or interfere with the present use, of the property subject thereto or affected
thereby; (d) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to Fidelity or Thrift or any of their respective
properties or assets. Except as set forth in the Fidelity Conflicts and Consents
List, no consent of, approval of, notice to or filing with any Governmental
Entity, and no consent of, approval of or notice to any other Person, is
required in connection with the execution and delivery by Fidelity and Thrift of
this Agreement or by Thrift of the Agreement of Bank Merger, the consummation by
Fidelity and Thrift of the Holding Company Merger or Bank Merger or the
transactions contemplated hereby or thereby, except (i) the approval of this
Agreement by the stockholders of Fidelity and the approval of the Agreement of
Bank Merger and the Bank Merger by Fidelity in its capacity as the sole
stockholder of Thrift; (ii) such approvals or nonobjections as may be required
by the DFI, OTS and the FDIC; (iii) the filing and declaration of effectiveness
of the S-4 Registration Statement with the SEC; (iv) the filing of the
Certificate of Merger with the Delaware Secretary pursuant to the Delaware
General Corporation Law; (v) such filings with California authorities and the
OTS as may be required to effect the Bank Merger; and (vi) any required approval
of the Federal Trade Commission pursuant to the Hart-Scott-Rodino Antitrust
Improvements Act of 1976.
4.8 Insurance. Except as set forth in a list furnished by Fidelity and
Thrift to HFC (the "Fidelity Insurance List"): (a) Fidelity and Thrift have and
have had since July 1, 1999, and the Fidelity Subsidiary had since July 1, 1999,
policies of insurance and bonds with respect to their respective assets and
businesses against such casualties and contingencies and in such amounts, types
and forms as are customary for their respective businesses, operations,
properties and assets; (b) no insurer under any policy or bond maintained by
Fidelity, Thrift or the Fidelity Subsidiary has canceled or indicated an
intention to cancel or not to renew any such policy or bond or generally
disclaimed liability thereunder and all such policies and bonds are in full
force and effect; and (c) neither Fidelity nor Thrift is in default under any
such policy or bond and all material claims thereunder have been filed in a
timely fashion. Set forth in the Fidelity Insurance List is a list of all
policies of insurance carried and owned by Fidelity and Thrift showing, as of
December 31, 2001, the name of the insurance company, the nature of the
coverage, the policy
21
limit, the annual premiums and the expiration dates. There has been delivered to
HFC a copy of each such policy of insurance.
4.9 Title to Assets. Fidelity and Thrift have good and marketable title
to all their respective material, non-real estate, properties and assets, owned
or stated to be owned by Fidelity or Thrift, free and clear of all Encumbrances
except: (a) as set forth in the Financial Statements of Fidelity; (b) for
Encumbrances for current Taxes not yet due; (c) for Encumbrances incurred in the
ordinary course of business; (d) for Encumbrances that are not substantial in
character, amount or extent and that do not materially detract from the value,
or interfere with present use, of the property subject thereto or affected
thereby, or otherwise materially impair the conduct of business of Fidelity on a
consolidated basis; or (e) as set forth in a list furnished by Fidelity and
Thrift to HFC (the "Fidelity Personal Property List").
4.10 Real Estate. Fidelity and Thrift have furnished HFC a list (the
"Fidelity Real Property List") of real property, including leaseholds and all
other interests in real property (other than security interests), owned by
Fidelity or Thrift. Fidelity has duly recorded or caused to be recorded, in the
appropriate county, all recordable interests in such real property. Fidelity or
Thrift have good and marketable title to the real property, and valid leasehold
interests in the leaseholds, described in the Fidelity Real Property List, free
and clear of all Encumbrances, except: (a) for rights of lessors, co-lessees or
sublessees in such matters that are reflected in the lease; (b) for Taxes not
yet due; (c) for such Encumbrances, if any, as do not materially detract from
the value of or materially interfere with the present use of such property; and
(d) as described in the Fidelity Real Property List. Fidelity has furnished HFC
with true and correct copies of all leases included in the Fidelity Real
Property List, all title insurance policies and all documents evidencing
Fidelity's or Thrift's interest in real property included in the Fidelity Real
Property List.
4.11 Litigation. Except as set forth in a list furnished by Fidelity and
Thrift to HFC (the "Fidelity Litigation List"), there is no private or
governmental suit, claim, action or proceeding pending, nor to Fidelity's or
Thrift's knowledge, threatened, against Fidelity or Thrift or against any of
their respective directors, officers or employees relating to the performance of
their duties in such capacities or against or affecting any properties of
Fidelity or Thrift. Also, except as disclosed in the Fidelity Filings or in the
Fidelity Litigation List, there are no material judgments, decrees, stipulations
or orders against Fidelity or Thrift or enjoining either of them or any of their
respective directors, officers or employees in respect of, or the effect of
which is to prohibit, any business practice or the acquisition of any property
or the conduct of business in any area.
4.12 Taxes.
(a) Except as set forth in a list furnished by Fidelity and Thrift
to HFC (the "Fidelity Tax List"), (A) all material Tax Returns required to be
filed by or on behalf of Fidelity, Thrift or the Fidelity Subsidiary or the
Affiliated Group(s) of which any of them is or was a member, have been duly and
timely filed with the appropriate taxing authorities in all jurisdictions in
which such Tax Returns are required to be filed (after giving effect to any
valid extensions of time in which to make such filings), and all such Tax
Returns were true, complete and correct in all material respects; (B) all Taxes
payable by or on behalf of Fidelity, Thrift or
22
the Fidelity Subsidiary, either directly, as part of an Affiliated Group Tax
Return, or otherwise, have been fully and timely paid, except to the extent
adequately reserved therefor in accordance with accounting principles generally
accepted in the United States of America and/or applicable regulatory accounting
principles or banking regulations consistently applied on the Fidelity balance
sheet, and adequate reserves or accruals for Taxes have been provided in the
Fidelity balance sheet with respect to any period through the date thereof for
which Tax Returns have not yet been filed or for which Taxes are not yet due and
owing; and (C) no agreement, waiver or other document or arrangement extending
or having the effect of extending the period for assessment or collection of
Taxes (including, but not limited to, any applicable statute of limitation) has
been executed or filed with any taxing authority by or on behalf of Fidelity,
Thrift or the Fidelity Subsidiary, or any Affiliated Group(s) of which any of
them is or was a member.
(b) Fidelity, Thrift and the Fidelity Subsidiary have complied in
all material respects with all applicable laws, rules and regulations relating
to the payment and withholding of Taxes and have duly and timely withheld from
employee salaries, wages and other compensation and have paid over to the
appropriate taxing authorities all amounts required to be so withheld and paid
over for all periods under all applicable laws.
(c) Fidelity has delivered to HFC complete copies of (i) all
material income or franchise Tax Returns of Fidelity, Thrift and the Fidelity
Subsidiary relating to the taxable periods since July l, 1999 and (ii) any audit
report issued within the last three years relating to any material Taxes due
from or with respect to Fidelity, Thrift or the Fidelity Subsidiary, with
respect to their respective income, assets or operations.
(d) Except as set forth in the Fidelity Tax List, no claim has been
made by a taxing authority in a jurisdiction where Fidelity, Thrift or the
Fidelity Subsidiary do not file an income or franchise Tax Return such that
Fidelity, Thrift or the Fidelity Subsidiary are or may be subject to taxation by
that jurisdiction.
(e) Except as set forth in the Fidelity Tax List: (i) all
deficiencies asserted or assessments made as a result of any examinations by any
taxing authority of the Tax Returns of or covering or including Fidelity, Thrift
and/or the Fidelity Subsidiary have been fully paid, and there are no other
audits or investigations by any taxing authority in progress, nor have Fidelity,
Thrift or the Fidelity Subsidiary received any notice from any taxing authority
that it intends to conduct such an audit or investigation; (ii) no requests for
a ruling or a determination letter are pending with any taxing authority; and
(iii) no issue has been raised in writing by any taxing authority in any current
or prior examination which, by application of the same or similar principles,
could reasonably be expected to result in a proposed deficiency against
Fidelity, Thrift or the Fidelity Subsidiary for any subsequent taxable period
that could be material.
(f) Except as set forth in the Fidelity Tax List, none of Fidelity,
Thrift or the Fidelity Subsidiary nor any other Person on behalf of Fidelity,
Thrift or the Fidelity Subsidiary has (i) filed a consent pursuant to Section
341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply to any
disposition of a subsection (f) asset (as such term is defined in Section
341(f)(4) of the Code) owned by Fidelity, Thrift or the Fidelity Subsidiary,
(ii) agreed to or is required to make any adjustments pursuant to Section 481(a)
of the Code or any similar provision of state, local or foreign law by reason of
a change in accounting method initiated by
23
Fidelity, Thrift or the Fidelity Subsidiary or has any knowledge that the
Internal Revenue Service has proposed any such adjustment or change in
accounting method, or has any application pending with any taxing authority
requesting permission for any changes in accounting methods that relate to the
business or operations of Fidelity, Thrift or the Fidelity Subsidiary, or (iii)
executed or entered into a closing agreement pursuant to Section 7121 of the
Code or any predecessor provision thereof or any similar provision of state,
local or foreign law with respect to Fidelity, Thrift or the Fidelity
Subsidiary.
(g) Except as set forth in the Fidelity Tax List, no property owned
by Fidelity, Thrift or the Fidelity Subsidiary is (i) property required to be
treated as being owned by another Person pursuant to provisions of Section
168(f)(8) of the Internal Revenue Code of 1954, as amended and in effect
immediately prior to the enactment of the Tax Reform Act of 1986, (ii)
constitutes "tax exempt use property" within the meaning of Section 168(h)(1) of
the Code or (iii) is "tax-exempt bond financed property" within the meaning of
Section 168(g) of the Code.
(h) Neither Fidelity (except with Fidelity Subsidiary or Thrift)
nor the Fidelity Subsidiary nor Thrift (except with Fidelity or one another) is
a party to any Tax Sharing Agreement or similar agreement or arrangement
(whether written or not written) pursuant to which it will have any obligation
to make any payments after the Closing.
(i) Except as set forth in the Fidelity Tax List, there is no
contract, agreement, plan or arrangement covering any Person that, individually
or collectively, could give rise to the payment of any amount that would not be
deductible by Fidelity, Thrift or the Fidelity Subsidiary, their respective
affiliates or any of their successors by reason of Section 280G of the Code, or
would constitute compensation in excess of the limitation set forth in Section
162(m) of the Code.
(j) There are no liens as a result of any unpaid Taxes upon any of
the assets of Fidelity, Thrift or the Fidelity Subsidiary.
(k) Except as set forth in the Fidelity Tax List, Fidelity, Thrift
and the Fidelity Subsidiary have no elections in effect for federal income tax
purposes under Sections 108, 168, 338, 441, 472, 1017, 1033, or 4977 of the
Code.
(l) Except as set forth in the Fidelity Tax List, none of the
members of Fidelity's Affiliated Group has any net operating loss carryovers.
4.13 Compliance with Laws and Regulations.
(a) Neither Fidelity nor Thrift is in default under or in breach or
violation of (i) any provision of their respective certificate of incorporation,
articles of incorporation or bylaws, or (ii) any law, ordinance, rule or
regulation promulgated by any Governmental Entity, except, with respect to this
clause (ii), for such violations as would not have, individually or in the
aggregate, a Material Adverse Effect. The properties and operations of Fidelity
and Thrift are and have been maintained and conducted, and the properties and
operations of the Fidelity Subsidiary were maintained and conducted, in all
material respects, in compliance with all applicable laws and regulations.
24
(b) Except as set forth on a list furnished by Fidelity and Thrift
to HFC (the "Fidelity Environmental Compliance List"), to the best of Fidelity's
and Thrift's knowledge: (i) Fidelity and Thrift are in compliance with all
Environmental Regulations in all material respects; (ii) there are no Tanks on,
under or above Fidelity Property; (iii) there are no Hazardous Materials on,
below or above the surface of, or migrating from Fidelity Property above de
minimus levels that would require remedial action; (iv) to the best of
Fidelity's and Thrift's knowledge, neither Fidelity nor Thrift has any loans
outstanding secured by real property of which the real property is not in
compliance with Environmental Regulations or which has a Tank or upon which
there are Hazardous Materials or from which Hazardous Materials are migrating
above de minimus levels that would require remedial action; and (v) without
limiting Section 4.10 or the foregoing representations and warranties contained
in clauses (i) through (iv), as of the date of this Agreement, there is no
claim, action, suit, or proceeding or notice thereof before any Governmental
Entity pending against Fidelity or Thrift or, to the best of Fidelity's and
Thrift's knowledge, concerning property securing Fidelity or Thrift loans and
there is no outstanding judgment, order, writ, injunction, decree, or award
against or affecting Fidelity Property or, to the best of Fidelity's and
Thrift's knowledge, property securing Fidelity or Thrift loans, relating to the
foregoing representations (i) - (iv). For purposes of this Section 4.12(b), the
term "Environmental Regulations" shall mean all applicable statutes,
regulations, rules, ordinances, codes, licenses, permits, orders, approvals,
plans, authorizations, concessions, franchises, and similar items, of all
Governmental Entities and all applicable judicial, administrative, and
regulatory decrees, judgments, and orders relating to the protection of human
health or the environment, including, without limitation: all requirements,
including, but not limited to those pertaining to reporting, licensing,
permitting, investigation, and remediation of emissions, discharges, releases,
or threatened releases of Hazardous Materials, chemical substances, pollutants,
contaminants, or hazardous or toxic substances, materials or wastes whether
solid, liquid, or gaseous in nature, into the air, surface water, groundwater,
or land, or relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of chemical substances,
pollutants, contaminants, or hazardous or toxic substances, materials, or
wastes, whether solid, liquid, or gaseous in nature and all requirements
pertaining to the protection of the health and safety of employees or the
public. "Fidelity Property" shall mean real estate owned, leased, or otherwise
used by Fidelity or Thrift, or in which Fidelity or Thrift has an investment (by
sale and leaseback or otherwise) in each case, which real estate is owned,
leased, or otherwise used on the date of this Agreement, including, without
limitation, properties under foreclosure and properties held by Fidelity or
Thrift in its respective capacity as a trustee or otherwise. "Tank" shall mean
treatment or storage tanks, sumps, gas or oil wells and associated piping
transportation devices. "Hazardous Materials" shall mean any substance the
presence of which requires investigation or remediation under any federal, state
or local statute, regulation, ordinance, order, action, policy or common law; or
which is defined as a hazardous waste, hazardous substance, hazardous material,
used oil, pollutant or contaminant under any federal, state or local statute,
regulation, rule or ordinance or amendments thereto including, without
limitation, the Comprehensive Environmental Response, Compensation and Liability
Act (42 U.S.C. Section 9601, et seq.); the Resource Conservation and Recovery
Act (42 U.S.C. Section 6901, et seq.); the Clean Air Act, as amended (42 U.S.C.
Section 7401, et seq.); the Federal Water Pollution Control Act, as amended (33
U.S.C. Section 1251, et seq.); the Toxic Substances Control Act, as amended (15
U.S.C. Section 9601, et seq.); the Occupational Safety and Health Act, as
amended (29 U.S.C. Section 651 et seq.); the Emergency Planning and
25
Community Right-to-Know Act of 1986 (42 U.S.C. Section 11001, et seq.); the Mine
Safety and Health Act of 1977, as amended (30 U.S.C. Section 801, et seq.); the
Safe Drinking Water Act (42 U.S.C. Section 300f, et seq.); and all comparable
state and local laws, including without limitation, the Carpenter-Presley-Tanner
Hazardous Substance Account Act (State Superfund), the Porter-Cologne Water
Quality Control Act, Section 25140, 25501(j) and (k), 25501.1, 25281 and 25250.1
of the California Health and Safety Code and/or Article I of Title 22 of the
California Code of Regulations, Division 4, Chapter 30; or which contains
gasoline, diesel fuel or other petroleum hydrocarbons, polychlorinated biphenyls
(PCBs), asbestos or ureaformaldehyde foam insulation.
(c) Fidelity and Thrift have provided to HFC phase I environmental
assessments with respect to each interest in real property set forth on the
Fidelity Real Property List as to which such a phase I environmental
investigation has been prepared by or on behalf of Fidelity or Thrift. The
Fidelity Real Property list discloses each such property as to which such an
assessment has not been prepared on behalf of Fidelity or Thrift.
4.14 Performance of Obligations. Fidelity, Thrift and the Fidelity
Subsidiary have (or had) performed in all material respects all of the
obligations required to be performed by them to date of any covenant, contract,
lease, indenture or any other covenant to which any of them is a party, or to
which any of them or any of their respective properties is subject or by which
any of them or any of their respective properties are otherwise bound, and none
of them are in default under or in breach of any term or provision of any such
covenant, contract, lease, indenture or any other such covenant, and no event
has occurred that, with the giving of notice or the passage of time or both,
would constitute such default or breach, where such defaults and breaches would,
individually or in the aggregate, have a Material Adverse Effect. Except for
loans made by Thrift in the ordinary course of business, to Fidelity's and
Thrift's knowledge, no other party to any such covenant, contract, lease or
indenture or any other covenant is in material default or breach thereunder.
4.15 Employees. Except as set forth in the Fidelity Litigation List,
there are no material controversies pending or threatened between Fidelity or
Thrift and any of their respective employees. Neither Fidelity nor Thrift is a
party to any collective bargaining agreement with respect to any of their
respective employees or any labor organization to which their respective
employees or either of them belong.
4.16 Registration Obligation. Neither Fidelity nor Thrift is under any
obligation, contingent or otherwise, to register any of their respective
securities under the Securities Act.
4.17 Brokers and Finders. Neither Fidelity nor Thrift is a party to or
obligated under any agreement with any broker or finder relating to the
transactions contemplated hereby, and neither the execution of this Agreement
nor the consummation of the transactions provided for herein or therein will
result in any liability to any broker or finder.
4.18 Material Contracts. Except as set forth in a list furnished by
Fidelity and Thrift to HFC (the "Fidelity Contract List") (all items listed or
required to be listed in such Fidelity Contract List being referred to herein as
"Scheduled Contracts"), neither Fidelity nor Thrift is
26
party to, nor are either of Fidelity or Thrift or any of their respective
properties subject to, nor are any of them or any of their respective properties
bound by, any of the following:
(a) any employment, deferred compensation, bonus or consulting
contract that (i) has a remaining term, as of the date of this Agreement, of
more than one year in length of obligation on the part of Fidelity or Thrift and
is not terminable by Fidelity or Thrift within one year without penalty or (ii)
requires payment by Fidelity or Thrift of $25,000 or more per annum;
(b) any advertising, brokerage, licensing, dealership,
representative or agency relationship or contract requiring payment by Fidelity
or Thrift of $25,000 or more per annum;
(c) any contract or agreement that restricts Fidelity or Thrift (or
would restrict any Affiliate of either of them (including HFC and its
subsidiaries) after the Effective Time of the Holding Company Merger) from
competing in any line of business with any Person or using or employing the
services of any Person;
(d) any lease of real or personal property providing for annual
lease payments by or to Fidelity or Thrift in excess of $25,000 per annum other
than (A) financing leases entered into in the ordinary course of business in
which Fidelity or Thrift is lessor and (B) leases of real property presently
used by Thrift as banking or loan production offices;
(e) any mortgage, pledge, conditional sales contract, security
agreement, option, or any other similar agreement with respect to any interest
of Fidelity or Thrift (other than as mortgagor or pledgor in the ordinary course
of their banking business or as mortgagee, secured party or deed of trust
beneficiary in the ordinary course of their business) in personal property
having a value of $25,000 or more;
(f) other than as described in the Fidelity Filings or as set forth
in the Fidelity Employee Plan list, any stock purchase, stock option, stock
bonus, stock ownership, profit sharing, group insurance, bonus deferred
compensation, severance pay, pension, retirement, savings or other incentive,
welfare or employment plan or material agreement providing benefits to any
present or former employees, officers or directors of Fidelity or Thrift;
(g) any agreement to acquire equipment or any commitment to make
capital expenditures of $50,000 or more;
(h) other than agreements entered into in the ordinary course of
business, including sales of other real estate owned, any agreement for the sale
of any property or assets in which Fidelity or Thrift has an ownership interest
or for the grant of any preferential right to purchase any such property or
asset;
(i) any agreement for the borrowing of any money (other than
liabilities or interbank borrowings made in the ordinary course of their banking
business and reflected in the financial records of Fidelity or Thrift);
(j) any restrictive covenant contained in any deed to or lease of
real property owned or leased by Fidelity or Thrift (as lessee) that materially
restricts the use, transferability or value of such property;
27
(k) any guarantee or indemnification which involves the sum of
$25,000 or more, other than letters of credit or loan commitments issued in the
normal course of business;
(l) any supply, maintenance or landscape contracts not terminable
by Fidelity or Thrift without penalty on thirty (30) days or less notice and
which provides for payments in excess of $25,000 per annum;
(m) any material agreement which would be terminable other than by
Fidelity or Thrift as a result of the consummation of the transactions
contemplated by this Agreement;
(n) any contract of participation with any other financial
institution in any loan in excess of $25,000 or any sales of assets of Fidelity
or Thrift with recourse of any kind to Fidelity or Thrift except the sale of
mortgage loans, servicing rights, repurchase or reverse repurchase agreements,
securities or other financial transactions in the ordinary course of business;
(o) any agreement providing for the sale or servicing of any loan
or other asset which constitutes a "recourse arrangement" under applicable
regulation or policy promulgated by a Governmental Entity (except for agreements
for the sale of guaranteed portions of loans guaranteed in part by the U.S.
Small Business Administration and related servicing agreements);
(p) any contract relating to the provision of data processing
services to Fidelity or Thrift; and
(q) any other agreement of any other kind which involves future
payments or receipts or performances of services or delivery of items requiring
payment of $50,000 or more to or by Fidelity or Thrift other than payments made
under or pursuant to loan agreements, participation agreements and other
agreements for the extension of credit in the ordinary course of their business.
True copies of all Scheduled Contracts, including all amendments and
supplements thereto, have been delivered to HFC.
4.19 Certain Material Changes. Except as set forth in a list delivered
by Fidelity and Thrift to HFC (the "Fidelity Material Adverse Effect List"),
since December 31, 2001, there has not been, occurred or arisen:
(a) any change in any of the assets, liabilities, permits, methods
of accounting or accounting practices, business, or manner of conducting
business, of Fidelity, Thrift or the Fidelity Subsidiary, or any other event or
development that individually or taken together with all other events and
circumstances has had or may reasonably be expected to have a Material Adverse
Effect;
(b) any direct or indirect redemption, purchase or other
acquisition by Fidelity, Thrift or the Fidelity Subsidiary of any equity
securities or any declaration, setting aside or payment of any dividend or other
distribution on or in respect of Fidelity Stock whether consisting of money,
other personal property, real property or other things of value; or
28
(c) any redemption or repurchase by Fidelity, Thrift or the
Fidelity Subsidiary of the Fidelity Senior Notes or any other notes or similar
obligations, whether through payment of cash, securities, property or otherwise.
4.20 Licenses and Permits. Fidelity and Thrift have all material
licenses and permits that are necessary for the conduct of their respective
businesses, and such licenses are in full force and effect. The respective
properties, assets, operations and businesses of Fidelity and Thrift are and
have been maintained and conducted, in all material respects, in compliance with
all applicable licenses and permits.
4.21 Undisclosed Liabilities. Neither Fidelity nor Thrift has any
liabilities or obligations, either accrued or contingent, that are material to
Fidelity on a consolidated basis and that have not been: (a) reflected or
disclosed in the Financial Statements of Fidelity; (b) disclosed in a list
furnished by Fidelity and Thrift to HFC (the "Fidelity Undisclosed Liabilities
List") or on any other Fidelity List; or (c) incurred in the ordinary course of
business consistent with past practices. Neither Fidelity nor Thrift knows of
any reasonable basis for the assertion against either of them of any liability,
obligation or claim (including, without limitation, that of any regulatory
authority) that is likely to result in or cause a Material Adverse Effect that
is not accurately reflected in the Financial Statements of Fidelity or otherwise
disclosed in this Agreement.
4.22 Employee Benefit Plans.
(a) For purposes of this Agreement, the term "Plans" shall mean (i)
all "employee benefit plans" (as such term is defined in Section 3(3) of ERISA)
of which Fidelity or any member of the same controlled group of corporations,
trades or businesses as Fidelity within the meaning of Section 4001(a)(14) of
ERISA, including, but not limited to, Thrift and Fidelity Subsidiary (for
purposes of this Section, an "ERISA Affiliate") is a sponsor or participating
employer or as to which Fidelity or any of its ERISA Affiliates makes
contributions or is required to make contributions and (ii) any employment,
severance or other agreement, plan, arrangement or policy of Fidelity or of any
of its ERISA Affiliates (whether written or oral) providing for insurance
coverage (including self-insured arrangements), workers' compensation,
disability benefits, supplemental unemployment benefits, vacation benefits,
retirement benefits, or for profit sharing, deferred compensation, bonuses,
stock options, stock appreciation, stock awards, stock based compensation or
other forms of incentive compensation or post-termination insurance,
compensation or benefits. Except as set forth in the list delivered by Fidelity
and Thrift to HFC (the "Fidelity Employee Plan List"), (i) neither Fidelity nor
any of its ERISA Affiliates maintains or sponsors, or makes or is required to
make contributions to, any Plans, (ii) none of the Plans is a "multiemployer
plan," as defined in Section 3(37) of ERISA, (iii) none of the Plans is a
"defined benefit pension plan" within the meaning of Section 3(35) of ERISA, and
(iv) each of the Plans has been administered and maintained, and is, in material
compliance with, all provisions of ERISA, the Code, the Consolidated Omnibus
Budget Reconciliation Act of 1985 ("COBRA") and all other applicable laws.
Notwithstanding any statement or indication in this Agreement to the contrary,
and except as disclosed in the Fidelity Employee Plan List, there are no Plans
as to which Fidelity or any of its ERISA Affiliates will be required to make any
contributions, whether on behalf of any of the current employees of Fidelity or
any of its ERISA Affiliates or on behalf of any other person, after the Closing.
With respect to each of
29
such Plans, at the Closing there will be no liabilities with respect to the
establishment, implementation, operation, administration or termination of any
such Plan, or the termination of the participation in any such Plan by the
Fidelity or any of its ERISA Affiliates, except those set forth in the Financial
Statements of Fidelity. Neither Fidelity nor any ERISA Affiliate has any formal
plan or commitment, whether legally binding or not, to create any additional
Plan, or modify or change any existing Plan that would affect any employee or
terminated employee of Fidelity or any ERISA Affiliate, except as set forth in
the Fidelity Employee Plan List. Except as set forth in the Fidelity Employee
Plan List, the consummation of the transactions contemplated by this Agreement
will not (i) entitle any employees of Fidelity, Thrift or the Fidelity
Subsidiary to severance pay, (ii) accelerate the funding, time of payment or
vesting or trigger any payment of compensation or benefits under, increase the
amount payable or trigger any other material obligation pursuant to, any of the
Plans or (iii) result in any breach or violation of, or default under, any of
the Plans. Fidelity has delivered to HFC true and complete copies of: (i) each
of the Plans and any related funding and service agreements thereto (including
insurance contracts, investment managing agreements, subscription and
participation agreements and recordkeeping contracts) including all amendments,
all of which are legally valid and binding and in full force and effect and
there are no defaults thereunder, (ii) the currently effective summary plan
description, summary of material modifications and all material employee
communications pertaining to each of the Plans, (iii) the three most recent
annual reports for each of the Plans (including all relevant schedules), (iv)
the most recently filed PBGC Form 1 (if applicable); and (v) the most recent
Internal Revenue Service determination letter for each Plan which is intended to
constitute a qualified plan under Section 401 of the Code and each amendment to
each of the foregoing documents and any requests for rulings, determinations, or
opinions pending with the Internal Revenue Service or any other governmental
agency.
(b) The present value of all "benefit liabilities," as defined in
Section 4001(a)(16) of ERISA, under any Plan subject to Title IV of ERISA (as
determined on the basis of the actuarial assumptions contained in the Plan's
most recent actuarial valuation) shall not, as of the Closing Date, exceed the
value of the assets of such Plan allocated to such benefit liabilities. With
respect to each Plan that is subject to Title IV of ERISA (i) no amount is due
or owing from Fidelity or its ERISA Affiliates to the Pension Benefit Guaranty
Corporation or to any "multiemployer plan" as defined in Section 3(37) of ERISA
on account of any withdrawal therefrom and (ii) no such Plan has been terminated
other than in accordance with ERISA or at a time when the Plan was not
sufficiently funded. The transactions contemplated hereunder, including without
limitation the termination of the Plans at or prior to the Closing, shall not
result in any such withdrawal or other liability under any applicable laws.
(c) None of the Plans, nor any trust created thereunder nor any
trustee, fiduciary or administrator thereof, has engaged in any transaction
which might subject Fidelity, Thrift or the Fidelity Subsidiary to any tax or
penalty on prohibited transactions imposed by Section 4975 of the Code or
Section 406 of ERISA or to any civil penalty imposed by Section 502 of ERISA.
None of the Plans subject to Title IV of ERISA has been completely or partially
terminated nor has there been any "reportable event," as such term is defined in
Section 4043(b) of ERISA, with respect to any of such Plans for which the 30-day
reporting requirement has not been waived, nor has any notice of intent to
terminate been filed or given with respect to any such Plan. There has been no
(i) withdrawal by Fidelity or any of its ERISA Affiliates that is a
30
substantial employer from a single-employer plan which is a Plan and which has
two or more contributing sponsors at least two of whom are not under common
control, as referred to in Section 4063(b) of ERISA, or (ii) cessation by
Fidelity or any of its ERISA affiliates of operations at a facility causing more
than 20% of Plan participants to be separated from employment, as referred to in
Section 4062(f) of ERISA.
(d) None of the Plans nor any trust created thereunder has incurred
any "accumulated funding deficiency" as such term is defined in Section 412 of
the Code, whether or not waived. Furthermore, neither Fidelity nor any of its
ERISA Affiliates has provided or is required to provide security to any Plan
pursuant to Section 401(a)(29) of the Code. Each of the Plans that is intended
to be a qualified plan under Section 401(a) of the Code has received a favorable
determination letter from the Internal Revenue Service and Fidelity does not
know of any fact which could adversely affect the qualified status of any such
Plan. All contributions required to be made to each of the Plans under the terms
of the Plan, ERISA, the Code, or any other applicable laws have been timely
made. The Financial Statements of Fidelity properly reflect all amounts required
to be accrued as liabilities to date under each of the Plans. Except as set
forth in the Fidelity Employee Plan List, there is no Plan or other contract,
agreement or benefit arrangement covering any employee of Fidelity or Thrift
which, individually or collectively, could give rise to the payment of any
amount which would constitute an "excess parachute payment" (as defined in
Section 280G of the Code).
(e) There have occurred and there exists (i) no pending litigation
or controversies against the Plans or against Fidelity or any of its ERISA
Affiliates as the "employer" or "sponsor" under the Plans or against the
trustee, fiduciaries or administrators of any of the Plans and (ii) no pending
or, to Fidelity's knowledge, threatened investigations, proceedings, lawsuits,
disputes, actions or controversies involving the Plans, the administrator or
trustee of any of the Plans with any of the Internal Revenue Service, Department
of Labor, Pension Benefit Guaranty Corporation, any participant in the Plans or
any other person whatsoever. Without limiting the generality of the foregoing,
there are no lawsuits or other claims, pending or, to Fidelity's knowledge,
threatened (other than routine claims for benefits under a Plan) against (i) any
Plan, or (ii) any "fiduciary" of such Plan (within the meaning of Section
3(21)(a) of ERISA) brought on behalf of any participant, beneficiary or
fiduciary thereunder.
(f) None of Fidelity or Thrift or any of their ERISA Affiliates has
used the services of (i) workers who have been provided by a third party
contract labor supplier for more than six months or who may otherwise be
eligible to participate in any of the Plans or to an extent that would
reasonably be expected to result in the disqualification of any of the Plans or
the imposition of penalties or excise taxes with respect to the IRS, the
Department of Labor, the Pension Benefit Guaranty Corporation or any other
Governmental Entity, (ii) temporary employees who have worked for any of
Fidelity, Thrift, the Fidelity Subsidiary or any of their ERISA Affiliates for
more than six months or who may otherwise be eligible to participate in any of
the Plans or to an extent that would reasonably be expected to result in the
disqualification of any of the Plans or the imposition of penalties or excise
taxes with respect to the IRS, the Department of Labor, the Pension Benefit
Guaranty Corporation or any other Governmental Entity, (iii) individuals who
have provided services to Fidelity, Thrift, the Fidelity Subsidiary or any of
their ERISA Affiliates as independent contractors for more than six months or
who may
31
otherwise be eligible to participate in the Plans or to an extent that would
reasonably be expected to result in the disqualification of any of the Plans or
the imposition of penalties or excise taxes with respect to the IRS, the
Department of Labor, the Pension Benefit Guaranty Corporation or any other
Governmental Entity or (iv) leased employees, as that term is defined in section
414(n) of the Code.
(g) Except as set forth in the Fidelity Employee Plan List, with
respect to each Plan that is funded wholly or partially through an insurance
policy, there will be no liability of Fidelity or Thrift or any of their ERISA
Affiliates, as of the Closing Date, under any such insurance policy or ancillary
agreement with respect to such insurance policy in the nature of a retroactive
rate adjustment, loss sharing arrangement or other actual or contingent
liability arising wholly or partially out of events occurring prior to the
Closing Date or the termination of the Plan as of the Closing Date.
4.23 Corporate Records. The minute books of Fidelity, Thrift and the
Fidelity Subsidiary accurately reflect in all material respects all actions
taken to this date by the respective stockholders, boards of directors and
committees of Fidelity, Thrift and the Fidelity Subsidiary.
4.24 Community Reinvestment Act. Thrift received a rating of
"Satisfactory" in its most recent examination or interim review with respect to
the Community Reinvestment Act. Neither Fidelity nor Thrift has been advised of
any supervisory concerns regarding any of Thrift's compliance with the Community
Reinvestment Act.
4.25 Regulatory Actions.
(a) Fidelity and Thrift are in compliance in all material respects
with all applicable material federal, state, local and foreign statutes, laws,
regulations, ordinances, rules, judgments, orders or decrees applicable thereto
or to the employees conducting such businesses, including, without limitation,
the Equal Credit Opportunity Act, the Bank Secrecy Act, the Fair Housing Act,
the Community Reinvestment Act, the Home Mortgage Disclosure Act, the Americans
with Disabilities Act, and all other applicable fair lending laws or other laws
relating to discrimination, and to Fidelity's and Thrift's knowledge, none of
Fidelity, Thrift or the Fidelity Subsidiary are the subject of a referral to
either the United States Department of Justice or the Department of Housing and
Urban Development for alleged violations of the Fair Lending Acts.
(b) Each material violation, criticism, or exception by any
Governmental Entity with respect to any examinations of Fidelity, Thrift or the
Fidelity Subsidiary, if any, has been responded to or is in the process of being
responded to, and none of Fidelity, Thrift or the Fidelity Subsidiary has been
advised by any Governmental Entity that its response is inadequate.
(c) Neither Fidelity nor Thrift is a party to any cease and desist
order, written agreement or memorandum of understanding with, or a party to any
commitment letter or similar undertaking to, or is subject to any order or
directive by, or is a recipient of any extraordinary supervisory letter from, or
has adopted any board resolutions at the request of, any Governmental Entity nor
has it been advised by any Governmental Entity that it is contemplating issuing
or
32
requesting (or is considering the appropriateness of issuing or requesting) any
such order, directive, written agreement, memorandum of understanding,
extraordinary supervisory letter, commitment letter, board resolutions or
similar undertaking.
4.26 Insider Loans; Other Transactions. Fidelity has previously provided
HFC with a listing, current as of January 31, 2002, of all extensions of credit
made by Fidelity, Thrift or the Fidelity Subsidiary to each of its executive
officers and directors and their related interests (all as defined under Federal
Reserve Board Regulation O), all of which have been made in compliance with
Regulation O, which listing is true, correct and complete in all material
respects. Neither Fidelity nor Thrift owes any amount to, or has any contract or
lease with or commitment to, any of the present executive officers or directors
of Fidelity or Thrift (other than for compensation for current services not yet
due and payable, reimbursement of expenses arising in the ordinary course of
business, options or awards available under the Fidelity Stock Option Plan, or
any amounts due pursuant to Fidelity's Plans).
4.27 Accounting Records. Fidelity, Thrift and the Fidelity Subsidiary
maintain accounting records which fairly and accurately reflect, in all material
respects, their transactions and accounting controls exist sufficient to provide
reasonable assurances that such transactions are, in all material respects, (a)
executed in accordance with their management's general or specific
authorization, and (b) recorded as necessary to permit the preparation of
financial statements in conformity with generally accepted accounting procedures
and/or applicable regulatory accounting principles or banking regulations
consistently applied. Such records, to the extent they contain important
information pertaining to Fidelity, Thrift and the Fidelity Subsidiary which is
not easily and readily available elsewhere, have been stored and maintained in
compliance with applicable regulation.
4.28 Indemnification. Other than pursuant to the provisions of its
respective certificate of incorporation, charter or bylaws, neither Fidelity nor
Thrift is a party to any indemnification agreement with any of its present
directors, officers, employees, agents or other persons who serve or served in
any other capacity with any other enterprise at the request of Fidelity (a
"Covered Person"), and to the knowledge of Fidelity, there are no claims for
which any Covered Person would be entitled to indemnification under Section 8.7
if such provisions were deemed in effect, except as set forth in a list
furnished by Fidelity and Thrift to HFC (the "Fidelity Indemnification List").
4.29 Offices and ATMs. Fidelity and Thrift have furnished to HFC a list
(the "Fidelity Offices List") setting forth the headquarters of Thrift
(identified as such) and each of the offices and automated teller machines
("ATMs") maintained and operated by Thrift (including, without limitation,
representative and loan production offices and operations centers) and the
location thereof. Except as set forth on the Fidelity Offices List, Thrift
maintains no other office or ATM and conducts business at no other location, and
Thrift has not applied for nor received permission to open any additional branch
nor operate at any other location.
4.30 Loan Portfolio.
(a) Fidelity and Thrift have furnished to HFC a list (the "Fidelity
Nonperforming Assets List") that sets forth as of December 31, 2001 (i) any loan
under the terms
33
of which the obligor is 30 or more days delinquent in payment of principal or
interest, or to the knowledge of Fidelity and Thrift, in default of any other
material provision thereof; (ii) each loan which has been classified as
"substandard," "doubtful," "loss" or "special mention" (or words of similar
import) by Fidelity or Thrift or any Governmental Entity; and (iii) a listing of
the OREO acquired by foreclosure or by deed-in-lieu of foreclosure, including
the book value thereof.
(b) Each loan, other than loans the aggregate amount of which to
any one borrower and its related interests reflected as an asset on Fidelity's
most recent balance sheet does not exceed $25,000, and each balance sheet date
subsequent thereto (i) is evidenced by notes, agreements or other evidence of
indebtedness which are true, genuine and what they purport to be, and (ii) is
the legal, valid and binding obligation of the obligor named therein,
enforceable in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent conveyance and other laws of general applicability relating to or
affecting creditors' rights and to general equity principles.
4.31 Investment Securities. Fidelity and Thrift have furnished to HFC a
list (the "Fidelity Investment Securities List") setting forth a description of
each Investment Security held by Fidelity, Thrift or the Fidelity Subsidiary on
December 31, 2001. The Fidelity Investment Securities List sets forth, with
respect to each such Investment Security: (a) the issuer thereof; (b) the
outstanding balance or number of shares; (c) the maturity, if applicable; (d)
the title of issue; and (e) the classification under Statement of Financial
Accounting Standards No. 115. Neither Fidelity nor Thrift currently holds any
Investment Security classified as trading.
4.32 Derivatives Contracts; Structured Notes; Etc. Except as set forth
in a list furnished by Fidelity and Thrift to HFC (the "Fidelity Derivatives
List"), neither Fidelity nor Thrift is a party to or has agreed to enter into an
exchange traded or over-the-counter equity, interest rate, foreign exchange or
other swap, forward, future, option, cap, floor or collar or any other contract
that is not included on the balance sheet and is a derivative contract
(including various combinations thereof) (each, a "Derivatives Contract") or
owns securities that are referred to generically as "structured notes," "high
risk mortgage derivatives," "capped floating rate notes," or "capped floating
rate mortgage derivatives."
4.33 Power of Attorney. Neither Fidelity nor Thrift has granted any
Person a power of attorney or similar authorization that is presently in effect
or outstanding.
4.34 Material Interests of Certain Persons. No officer or director of
Fidelity or Thrift, or any associate thereof (as such term is defined in Rule
12b-2 under the Exchange Act), has any material interest in any material
contract or property (real or personal) tangible or intangible, used in or
pertaining to the business of Fidelity or Thrift.
4.35 Tax Matters. None of Fidelity, Thrift or the Fidelity Subsidiary,
nor, to the knowledge of Fidelity or Thrift, any of their respective Affiliates,
has taken or agreed to take any action that would prevent the business
combinations to be effected by the Mergers from qualifying as reorganizations
under Section 368 of the Code.
4.36 Facts Affecting Regulatory Approvals. To the knowledge of Fidelity
and Thrift, there is no fact, event or condition applicable to Fidelity, Thrift
or the Fidelity Subsidiary which
34
will, or reasonably could be expected to, adversely affect the likelihood of
securing the requisite approvals or consents of any Governmental Entity to the
Mergers and other transactions contemplated by this Agreement.
4.37 Disclosure Documents and Applications. None of the information
supplied or to be supplied by or on behalf of Fidelity, Thrift or the Fidelity
Subsidiary ("Fidelity Supplied Information") for inclusion or incorporation by
reference in (a) the S-4 Registration Statement and the Proxy Statement and
Prospectus to be mailed to the stockholders of Fidelity in connection with
obtaining the approval of the stockholders of Fidelity and HFC of this
Agreement, the Holding Company Merger and the other transactions contemplated
hereby, or any amendment or supplement thereto, as required, and (b) any other
documents to be filed with the SEC, the OTS, the DFI, the FDIC or any other
Governmental Entity in connection with the transactions contemplated in this
Agreement, will, at the respective times such documents are filed or become
effective, or with respect to the Proxy Statement and Prospectus when mailed,
contain any untrue statement of a material fact, or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
4.38 Corporate and Stockholder Approvals and Takeover Statutes.
(a) The affirmative vote of the holders of a majority of the
outstanding shares of Fidelity Series A Common Stock is required to adopt this
Agreement and approve the Holding Company Merger and the other transactions
contemplated hereby. No other vote of the stockholders of Fidelity is required
by law, the Certificate of Incorporation or Bylaws of Fidelity or otherwise to
adopt this Agreement and approve the Holding Company Merger and the other
transactions contemplated hereby.
(b) The Board of Directors of Fidelity has, by resolutions duly
adopted by unanimous vote (excluding abstentions) at a meeting of all directors
duly called and held, (i) as of the date hereof, determined that the Holding
Company Merger is fair to, and in the best interests of, Fidelity and its
stockholders and declared the Holding Company Merger to be advisable, (ii)
approved this Agreement, (iii) taken all actions so that the restrictions
contained in Section 203 of the Delaware General Corporation Law applicable to
"business combinations" (as defined in Section 203) and any other similar legal
requirements will not apply to HFC during the pendency of this Agreement,
including the execution, delivery or performance of this Agreement and the
consummation of the transactions contemplated hereby, (iv) in its capacity as
sole stockholder of Thrift, approved the Agreement of Bank Merger and the Bank
Merger, and (v) as of the date hereof, recommended that the Fidelity
stockholders approve and adopt this Agreement and approve the Holding Company
Merger and directed that such matter be submitted to the Fidelity Stockholders
at the Fidelity Stockholders' Meeting.
(c) The Board of Directors of Thrift has, by resolutions duly
adopted by unanimous vote at a meeting of all directors duly called and held,
approved this Agreement and the Agreement of Bank Merger and the transactions
contemplated hereby and thereby.
4.39 Intellectual Property. Except as set forth in a list furnished by
Fidelity and Thrift to HFC (the "Fidelity Intellectual Property List"), Fidelity
and Thrift own or possess valid and
35
binding licenses and other rights to use without payment all material patents,
copyrights, trade secrets, trade names, service marks and trademarks used in
their respective businesses; and neither Fidelity nor Thrift has received any
notice with respect thereto that asserts the rights of others. Fidelity and
Thrift have in all material respects performed all the obligations required to
be performed by them, and neither Fidelity nor Thrift is not in default in any
material respect under any license, contract, agreement, arrangement or
commitment relating to any of the foregoing.
4.40 Accuracy of Information Furnished. The representations and
warranties made by Fidelity and Thrift hereby or in the Lists or schedules
hereto, when considered as a whole, do not contain any untrue statement of a
material fact or omit to state any material fact which is necessary under the
circumstances under which they were made to prevent the statements contained
herein or in such Lists or schedules from being misleading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF HFC AND BANK
HFC and Bank, jointly and severally, represent and warrant to Fidelity
and Thrift as follows, provided that to the extent any representation or
warranty relates to HFC or Merger Sub, Bank does not make any representations or
warranties to such extent:
5.1 Incorporation, Standing and Power. Each of HFC and Merger Sub is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware, has all requisite corporate power and authority
to own, lease and operate its properties and assets and to carry on its business
as presently conducted and to execute and deliver this Agreement and to perform
its obligations hereunder and to consummate the transactions contemplated
hereby. HFC is duly registered as a savings and loan holding company under HOLA.
Bank is a federal savings bank duly incorporated, validly existing and in good
standing under the laws of the United States and is authorized by the OTS to
conduct a federal savings bank business. The Certificate of Incorporation and
Bylaws of HFC and Merger Sub and the Federal Stock Charter and Bylaws of Bank,
each as amended to date, are in full force and effect. Bank's deposits are
insured by the FDIC in the manner and to the fullest extent provided by law.
Each of HFC and Bank is duly qualified and in good standing as a foreign
corporation, and authorized to do business, in all states or other jurisdictions
in which such qualification or authorization is necessary, except where the
failure to be so qualified or authorized would not, individually or in the
aggregate, have a Material Adverse Effect.
5.2 Authority. The execution and delivery by each of HFC, Bank and
Merger Sub of this Agreement and by Bank of the Agreement of Bank Merger and,
subject to the requisite approval of the stockholders of HFC, the consummation
of the transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action on the part of HFC, Bank and Merger
Sub and by HFC in its capacity as the sole stockholder of Bank and Merger Sub,
and this Agreement is and the Agreement of Bank Merger will be upon execution by
all parties, a valid and binding obligation of HFC, Bank or Merger Sub or any of
them, enforceable in accordance with their respective terms, except as the
enforceability thereof may
36
be limited by bankruptcy, liquidation, receivership, conservatorship,
insolvency, moratorium or other similar laws affecting the rights of creditors
generally and by general equitable principles and by Section 8(b)(6)(D) of the
Federal Deposit Insurance Act, 12 U.S.C. Section 1818(b)(6)(D). All of the
shares of HFC Stock to be issued pursuant to the Holding Company Merger will be
duly authorized, validly issued, fully paid and nonassessable and are not, or
will not be, subject to any preemptive rights. Neither the execution and
delivery by HFC or Bank of this Agreement or the Agreement of Bank Merger, as
the case may be, the consummation of the transactions contemplated herein or
thereby by HFC or Bank, as the case may be, nor compliance by HFC or Bank with
any of the provisions hereof or thereof, will (a) conflict with or result in a
breach of any provision of the Certificate of Incorporation or Bylaws of HFC or
the Federal Stock Charter or Bylaws of Bank; (b) constitute a breach of or
result in a default (or give rise to any rights of termination, cancellation or
acceleration, or any right to acquire any securities or assets) under any of the
terms, conditions or provisions of any note, bond, mortgage, indenture,
franchise, license, permit, agreement or other instrument or obligation to which
HFC or Bank is a party, or by which HFC or Bank or any of their respective
properties or assets is bound, except as would not, individually or in the
aggregate, have a Material Adverse Effect; (c) result in the creation or
imposition of any Encumbrance on any of the properties or assets of HFC or Bank,
except for Encumbrances that do not materially detract from the value, or
interfere with the present use, of the property subject thereto or affected
thereby; or (d) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to HFC or Bank or any of their respective properties or
assets. Except as set forth in the HFC Conflicts and Consents List, no consent
of, approval of, notice to or filing with any Governmental Entity having
jurisdiction over any aspect of the business or assets of HFC, and no consent or
approval of any other Person, is required in connection with the execution and
delivery by HFC of this Agreement, or the consummation by HFC of the
transactions contemplated hereby or thereby, except (i) the requisite approval
of the stockholders of HFC of this Agreement and the approval of this Agreement
and the Agreement of Bank Merger and the transactions contemplated hereby and
thereby by HFC in its capacity as the sole stockholder of Bank and Merger Sub;
(ii) such approvals as may be required by the DFI, OTS and the FDIC; (iii)
filing of the Certificate of Merger with the Delaware Secretary pursuant to the
Delaware General Corporation Law; (iv) the filing and declaration of
effectiveness by the SEC of the S-4 Registration Statement; (v) such approvals
as may be required by the NASDAQ NMS to approve for inclusion on the NASDAQ NMS
the HFC Stock to be issued in the Holding Company Merger; (vi) such filings with
the OTS and California authorities as may be required to effect the Bank Merger;
and (vii) any required approval of the Federal Trade Commission pursuant to the
Hart-Scott-Rodino Antitrust Improvements Act of 1976.
5.3 Reports and Filings. HFC and Bank have filed all reports, returns,
registrations and statements (such reports and filings referred to as "HFC
Filings"), together with any amendments required to be made with respect
thereto, that were required to be filed with (a) the SEC, (b) the OTS, (c) the
FDIC and (d) any other applicable Governmental Entity, including taxing
authorities, except where the failure to file such reports, returns,
registrations or statements has not had and is not reasonably expected to have a
Material Adverse Effect. No material adverse administrative actions have been
taken or orders issued in connection with such HFC Filings. As of their
respective dates, each of such HFC Filings (y) complied in all material respects
with all applicable laws and regulations (or was amended so as to be in
compliance promptly following discovery of any such noncompliance); and (z) with
respect to the HFC
37
Filings made with the SEC did not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading. Any financial statements contained in any of such HFC
Filings fairly presented, as of their respective dates or for their respective
periods, the consolidated financial position, consolidated results of operations
and consolidated changes in cash flows, as the case may be, of HFC and were
prepared in accordance with generally accepted accounting principles and/or
applicable regulatory accounting principles or banking regulations consistently
applied, except as stated therein, during the periods involved. HFC has
furnished to Fidelity true and correct copies of all HFC Filings filed by HFC
with the SEC, OTS and the FDIC since January 1, 1999.
5.4 Corporate and Stockholder Approvals.
(a) Because the structure of the Holding Company Merger will not be
known until a short period prior to the Closing Date, HFC agrees and
acknowledges that the affirmative vote of the holders of a majority of the
outstanding shares of HFC Stock is necessary to approve this Agreement and the
transactions contemplated hereby on behalf of HFC. Other than as set forth in
the preceding sentence, no other vote of the stockholders of HFC is required by
law, the certificate of incorporation or bylaws of HFC or otherwise to approve
this Agreement and the Holding Company Merger and the other transactions
contemplated hereby, including without limitation the issuance of HFC Stock in
the Holding Company Merger.
(b) The Board of Directors of HFC has, by resolutions duly adopted
by unanimous vote (excluding abstentions) at a meeting of all directors duly
called and held (i) as of the date hereof, determined that the Holding Company
Merger is fair to, and in the best interests of, HFC and its stockholders and
declared the Holding Company Merger to be advisable, (ii) approved this
Agreement and the transactions contemplated hereby, (iii) in HFC's capacity as
sole stockholder of Bank and Merger Sub, approved this Agreement and the
Agreement of Bank Merger and the transactions contemplated hereby and thereby,
and (iv) as of the date hereof, recommended that the HFC stockholders approve
and adopt this Agreement and approve the Holding Company Merger and directed
that such matter be submitted to the HFC stockholders at the HFC Stockholders'
Meeting.
(c) The Boards of Directors of Bank and Merger Sub have, by
resolutions duly adopted by the unanimous vote (excluding abstentions) at a
meeting of all directors duly called and held, approved this Agreement and the
Agreement of Bank Merger and the transactions contemplated hereby and thereby.
5.5 Absence of Certain Changes or Events. Except as otherwise
contemplated by this Agreement, since December 31, 2001, there has not been,
occurred or arisen any event or circumstance that, individually or taken
together with all other events and circumstances, has had or may reasonably be
expected to have a Material Adverse Effect.
5.6 Facts Affecting Regulatory Approvals. To the best knowledge of HFC
and Bank, there is no fact, event or condition applicable to HFC or Bank or any
of their respective subsidiaries which will, or reasonably could be expected to,
adversely affect the likelihood of securing the requisite approvals or consents
of any Governmental Entity to the Mergers and
38
transactions contemplated by this Agreement, in each case without the imposition
of any condition of the type referred to in Section 11.2.
5.7 Community Reinvestment Act. Bank received a rating of "outstanding"
in its most recent examination or interim review with respect to the Community
Reinvestment Act. To the best of HFC's and Bank's knowledge, neither HFC nor
Bank or any of their respective subsidiaries is the subject of a referral to
either the United States Department of Justice or the Department of Housing and
Urban Development for alleged violations of the federal fair lending acts.
5.8 Litigation. Except as set forth in an HFC Filing filed prior to the
date hereof, or a list furnished by HFC and Bank to Fidelity (the "HFC
Litigation List"), there is no private or governmental suit, claim, action or
proceeding pending, nor to HFC's and Bank's knowledge, threatened, against HFC
or Bank or against any of their respective directors, officers or employees
relating to the performance of their duties in such capacities or against or
affecting any properties of HFC or Bank, which, if adversely determined, would
have or could be reasonably expected to have, individually or in the aggregate,
a Material Adverse Effect. Also, except as disclosed in the HFC Filings or in
the HFC Litigation List, there are no material judgments, decrees, stipulations
or orders against HFC or Bank or enjoining either of them or any of their
respective directors, officers or employees in respect of, or the effect of
which is to prohibit, any business practice or the acquisition of any property
or the conduct of business in any area.
5.9 Taxes. (A) All material Tax Returns required to be filed by or on
behalf of HFC and Bank or the Affiliated Group(s) of which any of them is or was
a member, have been duly and timely filed with the appropriate taxing
authorities in all jurisdictions in which such Tax Returns are required to be
filed (after giving effect to any valid extensions of time in which to make such
filings), and all such Tax Returns were true, complete and correct in all
material respects; (B) all Taxes payable by or on behalf of HFC and Bank, either
directly, as part of an Affiliated Group Tax Return, or otherwise, have been
fully and timely paid, except to the extent adequately reserved therefor in
accordance with accounting principles generally accepted in the United States of
America and/or applicable regulatory accounting principles or banking
regulations consistently applied on the HFC balance sheet, and adequate reserves
or accruals for Taxes have been provided in the HFC balance sheet with respect
to any period through the date thereof for which Tax Returns have not yet been
filed or for which Taxes are not yet due and owing; and (C) no agreement, waiver
or other document or arrangement extending the period for assessment or
collection of Taxes (including, but not limited to, any applicable statute of
limitation) has been executed or filed with any taxing authority by or on behalf
of HFC or Bank or any Affiliated Group(s) of which either of them is or was a
member (except that an oral agreement has been made with the Internal Revenue
Service which extends the period for assessment or collection of federal taxes
for the tax years 1998 and 1999).
5.10 Compliance with Laws and Regulations; Licenses and Permits.
(a) Neither HFC nor Bank is in default under or in breach or
violation of (i) any provision of their respective certificate of incorporation,
charter or bylaws or (ii) any law, ordinance, rule or regulation promulgated by
any Governmental Entity, except, with respect to
39
this clause (ii), for such violations as would not have, individually or in the
aggregate, a Material Adverse Effect. The properties and operations of HFC and
Bank are and have been maintained and conducted, in all material respects, in
compliance with all applicable laws and regulations.
(b) HFC and Bank have all material licenses and permits that are
necessary for the conduct of their respective businesses, and such licenses are
in full force and effect. The respective properties, assets, operations and
businesses of HFC and Bank are and have been maintained and conducted, in all
material respects, in compliance with all applicable licenses and permits.
5.11 Brokers and Finders. Neither HFC nor the Bank has entered into any
agreements or otherwise undertaken any obligations with any broker or finder
that would create any obligation on the part of Fidelity or Thrift.
5.12 Undisclosed Liabilities. Except as set forth in a list furnished by
HFC and Bank to Fidelity (the "HFC Undisclosed Liabilities List"), neither HFC
nor Bank has any liabilities or obligations, either accrued or contingent, that
are material to HFC on a consolidated basis and that have not been: (a)
reflected or disclosed in the Financial Statements of HFC, or (b) incurred in
the ordinary course of business consistent with past practices. Neither HFC nor
Bank knows of any reasonable basis for the assertion against either of them of
any liability, obligation or claim (including, without limitation, that of any
regulatory authority) that is likely to result in or cause a Material Adverse
Effect that is not accurately reflected in the Financial Statements of HFC or
otherwise disclosed in this Agreement.
5.13 Regulatory Actions.
(a) HFC and Bank are in compliance in all material respects with
all applicable material federal, state, local and foreign statutes, laws,
regulations, ordinances, rules, judgments, orders or decrees applicable thereto
or to the employees conducting such businesses, including, without limitation,
the Equal Credit Opportunity Act, the Bank Secrecy Act, the Fair Housing Act,
the Community Reinvestment Act, the Home Mortgage Disclosure Act, the Americans
with Disabilities Act, and all other applicable fair lending laws or other laws
relating to discrimination, and to HFC's and Bank's knowledge, neither HFC nor
Bank is the subject of a referral to either the United States Department of
Justice or the Department of Housing and Urban Development for alleged
violations of the Fair Lending Acts.
(b) Each material violation, criticism or exception by any
Governmental Entity with respect to any examinations of HFC or Bank has been
responded to or is in the process of being responded to, and neither HFC nor
Bank has been advised by any Governmental Entity that its response is
inadequate.
(c) Neither HFC nor Bank is a party to any cease and desist order,
written agreement or memorandum of understanding with, or a party to any
commitment letter or similar undertaking to, or is subject to any order or
directive by, or is a recipient of any extraordinary supervisory letter from, or
has adopted any board resolutions at the request of, any Governmental Entity,
except that the Bank has agreed to notify the OTS prior to reducing the Bank's
internal guidelines to maintain capital ratios above 6.5% core capital and 11.0%
risk-based capital, nor
40
has it been advised by any Governmental Entity that it is contemplating issuing
or requesting (or is considering the appropriateness of issuing or requesting)
any such order, directive, written agreement, memorandum of understanding,
extraordinary supervisory letter, commitment letter, board resolutions or
similar undertaking.
5.14 Loan Portfolio.
(a) HFC and Bank have furnished to Fidelity a list (the "HFC
Nonperforming Assets List") that sets forth as of December 31, 2001 (i) any loan
under the terms of which the obligor is 60 or more days delinquent in payment of
principal or interest, or to the knowledge of HFC and Bank, in default of any
other material provision thereof; (ii) each loan which has been classified as
"substandard," "doubtful," "loss" or "special mention" (or words of similar
import) by HFC or Bank or any Governmental Entity; and (iii) a listing of the
OREO acquired by foreclosure or by deed-in-lieu of foreclosure, including the
book value thereof.
(b) Each loan, other than loans the aggregate amount of which to
any one borrower and its related interests reflected as an asset on HFC's most
recent balance sheet does not exceed $25,000, and each balance sheet date
subsequent thereto (i) is evidenced by notes, agreements or other evidence of
indebtedness which are true, genuine and what they purport to be, and (ii) is
the legal, valid and binding obligation of the obligor named therein,
enforceable in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent conveyance and other laws of general applicability relating to or
affecting creditors' rights and to general equity principles.
5.15 Financial Ability. At the Effective Time of the Holding Company
Merger, HFC will have funds necessary to pay the cash (i) issuable pursuant to
Section 2.3 in exchange for shares of Fidelity Stock outstanding immediately
prior to the Effective Time of the Holding Company Merger and (ii) issuable in
lieu of fractional share interests pursuant to Section 2.4.
5.16 Accuracy of Information Furnished. The representations and
warranties made by HFC and Bank hereby or in the Lists or schedules hereto, when
considered as a whole, do not contain any untrue statement of material fact or
omit to state any material fact which is necessary under the circumstances to
prevent the statements contained herein or in such Lists or schedules from being
misleading.
ARTICLE VI
COVENANTS OF FIDELITY AND THRIFT
PENDING EFFECTIVE TIME OF THE MERGERS
Fidelity and Thrift covenant and agree with HFC and Bank as follows:
6.1 Limitation on Fidelity's and Thrift's Conduct Prior to Effective
Time. Between the date hereof and the Effective Time of the Holding Company
Merger, except as contemplated by this Agreement and subject to requirements of
law and regulation generally applicable to
41
California chartered industrial loan companies, Fidelity and Thrift agree to
conduct their respective businesses in the ordinary course in substantially the
manner heretofore conducted and in accordance with sound banking practices, and
Fidelity and Thrift shall not, without prior written consent of the President
and Chief Executive Officer of HFC or with respect to Section 6.1(j) the prior
written consent of the President and Chief Executive Officer or Chief Credit
Officer of the Bank:
(a) issue, sell or grant any Fidelity Stock (except pursuant to the
exercise of Fidelity Options or conversion of the Fidelity Senior Notes
outstanding as of the date hereof), Fidelity preferred stock, Thrift Stock, any
other securities (including long term debt, but excluding deposits in the
ordinary course of business) of Fidelity or Thrift or any rights, options or
securities to acquire any Fidelity Stock, Fidelity preferred stock, Thrift
Stock, or any other securities (including long term debt, but excluding deposits
in the ordinary course of business) of Fidelity or Thrift;
(b) declare, set aside or pay any dividend or make any other
distribution upon or adjust, split, combine or reclassify any shares of capital
stock or other securities of Fidelity or Thrift (other than dividends from
Thrift to Fidelity);
(c) purchase, redeem or otherwise acquire any capital stock or
other securities of Fidelity or Thrift or any rights, options, or securities to
acquire any capital stock or other securities of Fidelity or Thrift; provided,
however, that Fidelity may cancel outstanding Fidelity Options and pay the
holders of such Fidelity Options an amount not greater than an amount of cash
computed in accordance with Section 2.5;
(d) redeem or repurchase the Fidelity Senior Notes or any other
notes or similar obligations;
(e) amend their certificate of incorporation, articles of
incorporation or bylaws;
(f) grant any general or uniform increase in the rate of pay of
employees or employee benefits, except to provide merit increases to employees
whose regularly scheduled performance review date falls before the Closing Date
and to provide for promotional increases to employees if such promotion occurs
before the Closing Date;
(g) grant any: (i) bonus, incentive compensation or related
employee benefits to any Person except for those (A) granted in the ordinary
course of business and consistent with past practices or (B) or as required by
an existing written employment agreement or other Plan; (ii) increase in salary
except as set forth in Section 6.1(f) hereof; or (iii) compensation or other
benefits to any director in excess of the amounts previously disclosed to HFC
and Bank and as identified on a list delivered by Fidelity to HFC (the "Fidelity
Director Compensation List");
(h) make any capital expenditure or commitments with respect
thereto in excess of $25,000 in the aggregate for any specific project or
purpose, except as reflected in the budgets delivered to HFC or for ordinary
repairs, renewals and replacements;
42
(i) compromise or otherwise settle or adjust any assertion or claim
of a deficiency in Taxes of $75,000 or more (including any interest thereon or
penalties in connection therewith), extend the statute of limitations with any
tax authority or file any pleading in court in any tax litigation or any appeal
from an asserted deficiency, or file or amend any federal, foreign, state or
local tax return, or make any tax election;
(j) grant or commit to grant any extension of credit if such
extension of credit, together with all other credit then outstanding to the same
Person and all Affiliated Persons: (i) if unsecured, would exceed $25,000, or,
(ii) if secured by a lien on real estate (excluding any government insured
loans), would exceed $2 million or have a loan-to-value ratio in excess of the
percentages set forth in Fidelity's loan-to-value policy dated July 2001;
(k) change its tax or accounting policies and procedures or any
method or period of accounting unless and until required by generally accepted
accounting principles or a Governmental Entity;
(l) close any offices at which business is conducted or open any
new offices;
(m) adopt or enter into any new employment agreement or other
employee benefit plan or arrangement or amend or modify any employment agreement
or employee benefit plan or arrangement of any such type except for such
amendments as are required by law and except as otherwise permitted by this
Agreement;
(n) initiate, solicit, or encourage (including by way of furnishing
information or assistance), or take any other action to facilitate, any
inquiries or the making of any proposal which constitutes, or may reasonably be
expected to lead to, any Competing Transaction (as such term is defined below),
or negotiate with any person in furtherance of such inquiries or to obtain a
Competing Transaction, or agree to or endorse any Competing Transaction, or
authorize or permit any of its officers, directors, or employees or any
investment banker, financial advisor, attorney, accountant, or other
representative retained by Fidelity, Thrift or any of their Affiliates to take
any such action. As promptly as practicable after receipt of any proposal
involving a Competing Transaction or any request for nonpublic information or
inquiry which it reasonably believes would lead to a Competing Transaction,
Fidelity shall provide HFC with oral and written notice of the material terms
and conditions of such proposal, request or inquiry, and the identity of the
Person or group making any such proposal, request or inquiry and a copy of all
written materials provided in connection with such request or inquiry. Fidelity
shall provide HFC as promptly as practicable oral and written notice setting
forth all such information as is reasonably necessary to keep HFC informed in
all material respects of the status and details (including material amendments
or proposed material amendments) of any such proposal, request or inquiry and
shall promptly provide to HFC hereto a copy of all written materials
subsequently provided in connection with such proposal, request or inquiry. For
purposes of this Agreement, "Competing Transaction" shall mean any transaction
or series of transactions involving: any merger, consolidation, share exchange
or other business combination involving Fidelity, Thrift or any of their
subsidiaries; a sale, lease, exchange, mortgage, pledge, transfer or other
disposition of assets of Fidelity, Thrift or any of their subsidiaries
representing ten percent (10%) or more of the consolidated assets of Fidelity; a
sale of shares of capital stock (or securities convertible or exchangeable into
or otherwise
43
evidencing, or any agreement or instrument evidencing, the right to acquire
capital stock), representing ten percent (10%) or more of the total outstanding
voting securities of Fidelity, Thrift or any of their subsidiaries; a tender
offer or exchange offer for ten percent (10%) or more of the total outstanding
voting securities of Fidelity; any liquidation or dissolution of Fidelity; a
solicitation of proxies in opposition to approval of the Holding Company Merger
by Fidelity's stockholders; or a public announcement of a bona fide proposal,
plan, or intention to do any of the foregoing. Fidelity and Thrift will
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties (other than HFC and Bank) conducted
heretofore with respect to any of the foregoing. Fidelity and Thrift shall take
the necessary steps to inform promptly the appropriate individuals or entities
referred to above of the obligations undertaken in this Section. Fidelity and
Thrift agree that they shall notify HFC and Bank immediately if any such
inquiries, proposals or offers are received by, any such information is
requested from, or any such negotiations or discussion are sought to be
initiated or continued with Fidelity or Thrift. Fidelity and Thrift also agree
that they shall promptly request each other person, other than HFC and Bank,
that has heretofore executed a confidentiality agreement in connection with its
consideration of acquiring Fidelity or Thrift to return all confidential
information heretofore furnished to such person by or on behalf of Fidelity or
Thrift and enforce any such confidentiality agreements. Notwithstanding any
other provision in this Section 6.1(n), nothing in this Agreement shall prevent
Fidelity from (i) complying with its disclosure obligations under federal or
state law, (ii) engaging in any discussions or negotiations with, or providing
any information to, any Person in response to an unsolicited bona fide written
proposal concerning a Competing Transaction by any such Person or (iii)
recommending such an unsolicited bona fide written proposal concerning a
Competing Transaction to the holders of Fidelity Stock if, and only if, prior to
participating in each case referenced in clause (ii) or (iii) above, (A) the
Board of Directors of Fidelity determines in good faith after consulting with
outside legal counsel that participating in any such action is necessary for it
to act in a manner not inconsistent with its fiduciary duties under applicable
law, (B) the Board of Directors of Fidelity concludes in good faith following
receipt of advice from its financial advisor that the Competing Transaction, if
consummated, would result in a transaction more favorable to holders of Fidelity
Stock from a financial point of view than the transaction contemplated by this
Agreement (any such more favorable Competing Transaction being referred to in
this Agreement as a "Superior Proposal"); and (C) at least forty-eight (48)
hours prior to providing any information or date to any Person or entering into
discussions or negotiations with any Person, the Board of Directors of Fidelity
notifies HFC and Bank of such inquiries, proposals or offers received by, any
such information requested from, or any such discussions or negotiations sought
to be initiated or continued with Fidelity or any subsidiary thereof.
(o) other than in the ordinary course of business, consistent with
past practice, incur any indebtedness for borrowed money or assume, guarantee,
endorse or otherwise as an accommodation become responsible for the obligations
of any other person;
(p) other than as may be required by a Governmental Entity, change
any of Fidelity's or Thrift's basic policies and practices with respect to
liquidity management and cash flow planning, marketing, deposit origination,
lending, budgeting, profit and tax planning, personnel practices or any other
material aspect of Fidelity's business or operations on a consolidated basis;
44
(q) grant any Person a power of attorney or similar authority;
(r) make any investment by purchase of stock or securities
(including an Investment Security but excluding deposits in the ordinary course
of business), contributions to capital, property transfers or otherwise in any
other Person, except (i) federal funds sold, not to exceed $40 million
cumulatively at any point in time, to any one counterparty and for a term not to
exceed 30 days, (ii) obligations, as a direct issuer or explicit guarantor,
including Mortgage Backed Securities passthroughs and Real Estate Mortgage
Investment Conduits/Collateralized Mortgage Obligations of the following
entities: (A) United States Treasury (including the Government National Mortgage
Association), (B) the Federal National Mortgage Association, (C) Federal Home
Loan Mortgage Corporation or (D) Federal Home Loan Bank, (iii) repurchase
agreements with a final maturity not to exceed one year, and collateralized only
by obligations listed in (ii) above, and (iv) required equity investments in the
Federal Home Loan Bank of San Francisco; provided, however, that in each case
all transactions must be consistent with Thrift's investment policy, undertaken
in the ordinary course of business consistent with past practices and concern
assets which are not designated as trading account assets under generally
accepted accounting principles;
(s) settle any claim, action or proceeding involving any liability
of Fidelity or Thrift for money damages in excess of $75,000 exclusive of
insurance coverage, or involving restrictions upon the operations of Fidelity or
Thrift;
(t) other than as may be required by a Governmental Entity,
terminate, amend or modify any Scheduled Contract or enter into any agreement or
contract that would be a Scheduled Contract under Section 4.18;
(u) waive or release any material right or collateral or cancel or
compromise any extension of credit or other debt or claim, except for actions
taken in the resolution of extensions of credit or other debts or claims that do
not result in a reduction in excess of $50,000 of the amount Fidelity is
otherwise entitled to pursuant to such right, collateral, credit or other debt
or claim, and in a manner consistent with past practice;
(v) enter into any new activities or lines of business, or cease to
conduct any material activities or lines of business that it conducts on the
date hereof, or conduct any material business activity not consistent with past
practice;
(w) sell, transfer, mortgage, encumber or otherwise dispose of any
assets or release or waive any claim if such sale, transfer, mortgage,
encumbrance, release or waiver is below book value or in an aggregate amount in
excess of $2 million;
(x) take any action which would or is reasonably likely to (i)
adversely affect the ability of HFC or Bank to obtain any necessary approval of
any Governmental Entity required for the transactions contemplated hereby; (ii)
adversely affect Fidelity's or Thrift's ability to perform its covenants and
agreements under this Agreement; or (iii) result in any of the conditions to the
performance of Fidelity's or Thrift's obligations hereunder, as set forth in
Articles IX or X herein, not being satisfied;
45
(y) make any special or extraordinary payments to any Person,
except as otherwise permitted by this Agreement;
(z) reclassify any Investment Security from hold-to-maturity or
available for sale to trading;
(aa) sell any security other than in the ordinary course of
business;
(bb) take title to any real property without conducting prior
thereto an environmental investigation (which, at a minimum, shall consist of a
phase I environmental report), which investigation shall disclose the absence of
any suspected environmental contamination, except with respect to real property
on which there is locate a 1-4 family residence (unless Fidelity or Thrift
has reasonable cause to believe any Hazardous Materials may exist on such
property);
(cc) take or cause to be taken any action which would disqualify
the Mergers as "reorganizations" within the meaning of Section 368 of the Code
or as a qualified stock purchase within the meaning of Section 338 of the Code;
or
(dd) agree or make any commitment to take any actions prohibited by
this Section 6.1.
6.2 Affirmative Conduct of Fidelity and Thrift Prior to Effective Time.
Between the date hereof and the Effective Time of the Holding Company Merger,
except as otherwise expressly permitted by this Agreement Fidelity and Thrift
shall:
(a) use their respective commercially reasonable efforts consistent
with this Agreement to maintain and preserve intact their respective present
business organizations and to maintain and preserve their respective
relationships and goodwill with account holders, borrowers, employees and others
having business relationships with Fidelity or Thrift;
(b) use their respective commercially reasonable efforts to keep in
full force and effect all of the existing material permits and licenses of
Fidelity and Thrift;
(c) use their respective commercially reasonable efforts to
maintain insurance coverage at least equal to that now in effect on all
properties for which they are responsible and on their respective business
operations;
(d) perform their respective material contractual obligations and
not become in material default on any such obligations;
(e) duly observe and conform to all lawful requirements applicable
to their respective businesses in all material respects;
(f) maintain their respective assets and properties in good
condition and repair, normal wear and tear excepted;
46
(g) promptly advise HFC in writing of any event or any other
transaction within Fidelity's or Thrift's knowledge whereby any Person or
Related Group of Persons acquires, directly or indirectly, record or beneficial
ownership or control (as defined in Rule 13d-3 promulgated by the SEC under the
Exchange Act) of five percent (5%) or more of the outstanding Fidelity Stock
prior to the record date fixed for the Fidelity Stockholders' Meeting or any
adjourned meeting thereof to approve this Agreement and the transactions
contemplated herein;
(h) promptly notify HFC regarding receipt from any tax authority of
any notification of the commencement of an audit, any request to extend the
statute of limitations, any statutory notice of deficiency, any revenue agent's
report, any notice of proposed assessment, or any other similar notification of
potential adjustments to the tax liabilities of Fidelity, Thrift or the Fidelity
Subsidiary, or any actual or threatened collection enforcement activity by any
tax authority with respect to tax liabilities of Fidelity, Thrift or the
Fidelity Subsidiary, and make available to HFC the calculation work papers for
federal income tax estimated payments;
(i) make available to HFC (i) monthly unaudited consolidated
balance sheets and consolidated income statements of Fidelity and (ii) an update
of the information specified in Section 4.30(a) within twenty-five (25) days
after the close of each calendar month;
(j) amend or supplement the Fidelity Lists as of the Closing Date,
if necessary, to reflect any additional information that needs to be included in
the Fidelity Lists;
(k) use their respective commercially reasonable efforts to obtain
any third party consent with respect to any contract, agreement, lease, license,
amendment, permit or release that is material to the business of Fidelity on a
consolidated basis or that is contemplated in this Agreement as required in
connection with the Holding Company Merger or Bank Merger;
(l) cooperate, with tax counsel in furnishing reasonable and
customary written tax representations to tax counsel for purposes of supporting
tax counsel's opinion as contemplated in Sections 10.4 and 11.6 hereof;
(m) maintain an allowance for loan and lease losses consistent with
practices and methodology as in effect on the date of the execution of this
Agreement; and
(n) use their respective commercially reasonable efforts to take
such actions as HFC shall reasonably request with respect to the Fidelity and
Thrift Plans; provided, however, without limiting the foregoing, if so requested
by HFC, Fidelity and its ERISA Affiliates shall take any actions reasonably
necessary (to the extent permissible under the Plans and applicable laws and
regulations) to cause the termination of any or all of the Plans (as the term is
defined in Section 4.21 of the Agreement) maintained by Fidelity or any ERISA
Affiliate which cover employees and/or directors of Fidelity and/or its ERISA
Affiliates, such termination to be effective as of the Closing Date, or in the
case of Fidelity's 401(k) Plan one business day prior to the Closing Date, or
such later date as HFC may specify in its request; provided, further, that HFC
shall not take any action, nor request Fidelity or its ERISA Affiliates to take
any action, with respect to the Fidelity and Thrift Plans that would be contrary
to any other provision in this
47
Agreement, including, without limitation, the provisions set forth in Sections
8.5(b) and (d) of this Agreement.
6.3 Filings. Fidelity and Thrift agree that through the Effective Time
of the Holding Company Merger, each of the respective reports, registrations,
statements and other filings required to be filed by Fidelity, Thrift or the
Fidelity Subsidiary with any applicable Governmental Entity shall comply in all
material respects with all applicable statutes, rules and regulations and none
shall, as of their filing or effective date or, in the case of the Proxy
Statement and Prospectus (but only with respect to information supplied by
Fidelity for inclusion or incorporation by reference therein), the mailing date,
contain any untrue statement of material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. Any
financial statement contained in any such report, registration, statement or
other filing that is intended to present the financial position, results of
operations or changes in cash flows, as the case may be, of the entity or
entities to which it relates will fairly present the financial position, results
of operations or changes in cash flows, as the case may be, of such entities or
entity and will be prepared in accordance with generally accepted accounting
principles and/or applicable regulatory accounting principles or banking
regulations consistently applied during the periods involved.
6.4 Notices; Reports. Fidelity and Thrift will promptly notify HFC and
Bank of any event of which Fidelity or Thrift obtains knowledge which has had or
may have a Material Adverse Effect or in the event that Fidelity or Thrift
determines that either is unable to fulfill any of the conditions to the
performance of HFC's or Bank's obligations hereunder, as set forth in Articles
IX or XI herein, and Fidelity and Thrift will furnish HFC as soon as available
all proxy statements, information statements, financial statements, reports,
letters and communications sent by Fidelity to its stockholders or other
security holders as a class, and all reports filed by Fidelity, Thrift or the
Fidelity Subsidiary with, or received by Fidelity, Thrift or the Fidelity
Subsidiary from, the SEC, DFI, FDIC or any other Governmental Entity.
6.5 Fidelity Stockholders' Meeting. Promptly after the execution of this
Agreement, Fidelity will take action necessary in accordance with applicable law
and its Certificate of Incorporation and Bylaws to convene a meeting of its
stockholders to consider and vote upon this Agreement and the transactions
contemplated hereby. The Board of Directors of Fidelity shall, subject to its
fiduciary duties, recommend that its stockholders approve this Agreement and the
transactions contemplated hereby, and the Board of Directors of Fidelity shall,
subject to its fiduciary duties, use its best efforts to obtain the requisite
approval of the holders of the outstanding Fidelity Series A Common Stock of
this Agreement and the transactions contemplated hereby.
6.6 Bank Merger. Fidelity and Thrift shall, at the request of HFC (a)
take all necessary corporate and other action, to adopt and approve the Bank
Merger; (b) execute, deliver and, where appropriate, file any and all documents
necessary or desirable to permit the Bank Merger immediately following
consummation of the Holding Company Merger; and (c) take and cause to be taken
any other action to permit the consummation of any transactions contemplated in
connection with the Bank Merger. Neither Fidelity nor Thrift shall take any
action that would
48
prevent performance of the Agreement of Bank Merger or any other transactions
contemplated in connection with the Bank Merger.
6.7 Affiliates. Within fifteen (15) days of the date of this Agreement,
and again on the date this Agreement is submitted for approval to the
stockholders of Fidelity, Fidelity shall deliver to HFC a letter identifying all
persons who are "affiliates" of Fidelity for purposes of Rule 145 under the
Securities Act. Fidelity shall use reasonable efforts to cause each such
affiliate to deliver to HFC no less than thirty (30) days prior to the Effective
Time of the Holding Company Merger a written "Affiliates" agreement, in the form
attached hereto as Exhibit C, providing that such person shall dispose of the
HFC Stock to be received by such person in the Holding Company Merger only in
accordance with applicable law.
6.8 Director Resignations. Fidelity and Thrift shall use reasonable
efforts to deliver or cause to be delivered to HFC at the Closing, the
resignations of the members of the Board of Directors of Fidelity and Thrift
effective at the Closing.
6.9 Accountants' Letters. Fidelity shall use its commercially reasonable
efforts to cause to be delivered to HFC a letter of Deloitte & Touche dated (a)
the date on which the S-4 Registration Statement shall become effective and (b)
a date shortly prior to the Effective Time of the Holding Company Merger, in
form and substance customary for "comfort" letters delivered by independent
accountants in accordance with Statement of Financial Accounting Standards No.
72.
6.10 Accounting Accommodations. On a basis mutually satisfactory to
Fidelity and HFC, Fidelity and Thrift shall take any charge-offs or additions to
the allowance for loan loss or other financial adjustments made at the
reasonable request of HFC and for the convenience of HFC so as to permit
treatment on a basis consistent with that of HFC; provided, however, that no
such charge-offs, additions or adjustments need be made prior to the
satisfaction of the conditions set forth in Sections 9.1 and 9.3 or to the
extent that they are inconsistent with generally accepted accounting principles
or applicable regulatory requirements; and further provided that the taking of
any such charge-offs, additions or adjustments shall in no event constitute or
be deemed to be a breach, violation of or failure to satisfy any representation,
warranty, covenant, agreement condition or other provision of this Agreement or
otherwise be considered in determining whether any such breach, violation or
failure to satisfy shall have occurred.
ARTICLE VII
COVENANTS OF HFC AND BANK
PENDING EFFECTIVE TIME OF THE MERGERS
HFC and Bank covenant and agree with Fidelity and Thrift as follows:
7.1 Limitation on HFC's and Bank's Conduct Prior to Effective Time.
Between the date hereof and the Effective Time of the Holding Company Merger,
except as contemplated by this Agreement and subject to requirements of law and
regulation generally applicable to
49
federally chartered savings banks and savings and loan holding companies, HFC
and Bank shall not, without prior written consent of Fidelity:
(a) take any action which would or is reasonably likely to (i)
adversely affect the ability of HFC or Bank to obtain any necessary approval of
any Governmental Entity required for the transactions contemplated hereby; (ii)
adversely affect HFC's or Bank's ability to perform its covenants and agreements
under this Agreement; or (iii) result in any of the conditions to the
performance of HFC's or Bank's obligations hereunder, as set forth in Articles
IX or XI herein, not being satisfied;
(b) take or cause to be taken any action which would disqualify the
Mergers as "reorganizations" within the meaning of Section 368 of the Code;
(c) amend HFC's certificate of incorporation or bylaws in any
respect which would materially and adversely affect the rights and privileges
attendant to the HFC Stock; or
(d) agree or make any commitment to take any actions prohibited by
this Section 7.1.
7.2 Affirmative Conduct of HFC and Bank Prior to Effective Time. Between
the date hereof and the Effective Time of the Holding Company Merger, HFC and
Bank shall:
(a) duly observe and conform to all lawful requirements applicable
to their respective businesses in all material respects;
(b) use their respective commercially reasonable efforts to obtain
any third party consent with respect to any contract, agreement, lease, license,
arrangement, permit or release that is material to the business of HFC on a
consolidated basis or that is contemplated in this Agreement as required in
connection with the Holding Company Merger and the Bank Merger;
(c) promptly notify Fidelity regarding receipt from any tax
authority of any notification of the commencement of an audit, any request to
extend the statute of limitations, any statutory notice of deficiency, any
revenue agent's report, any notice of proposed assessment, or any other similar
notification of potential adjustments to the tax liabilities of HFC or Bank, or
any actual or threatened collection enforcement activity by any tax authority
with respect to tax liabilities of HFC or Bank;
(d) make available to Fidelity (i) monthly unaudited consolidated
balance sheets and consolidated income statements and (ii) an update of the
information specified in Section 5.14(a) within twenty-five (25) days after the
close of each calendar month;
(e) cooperate, with tax counsel in furnishing reasonable and
customary written tax representations to tax counsel for purposes of supporting
tax counsel's opinion as contemplated in Sections 10.4 and 11.6 hereof; and
(f) amend or supplement the HFC Lists as of the Closing Date if
necessary to reflect any additional information that needs to be included in the
HFC Lists.
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7.3 Applications. HFC and Bank will promptly prepare and file or cause
to be prepared and filed (a) applications for approval of the Holding Company
Merger and Bank Merger and the transactions contemplated hereby with the OTS,
(b) in conjunction with Fidelity, the S-4 Registration Statement, including the
Proxy Statement and Prospectus with the SEC, and (c) any other applications
necessary to consummate the transactions contemplated hereby. HFC shall afford
Fidelity a reasonable opportunity to review the S-4 Registration Statement and
all such applications and all amendments and supplements thereto before the
filing thereof. HFC and Bank will use their respective commercially reasonable
efforts to obtain all regulatory approvals or consents necessary to effect the
Holding Company Merger and Bank Merger.
7.4 Filings. HFC and Bank agree that through the Effective Time of the
Holding Company Merger, each of the respective reports, registrations,
statements and other filings required to be filed by HFC and Bank with any
applicable Governmental Entity shall comply in all material respects with all
applicable statutes, rules and regulations and none shall, as of their filing or
effective date or, in the case of the Proxy Statement and Prospectus (other than
with respect to information supplied by Fidelity for inclusion or incorporation
by reference therein), the mailing date, contain any untrue statement of
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. Any financial statement contained in any
such report, registration, statement or other filing that is intended to present
the financial position, results of operations or changes in cash flows, as the
case may be, of the entity or entities to which it relates will fairly present
the financial position, results of operations or changes in cash flows, as the
case may be, of such entities or entity and will be prepared in accordance with
generally accepted accounting principles and/or applicable regulatory accounting
principles or banking regulations consistently applied during the periods
involved.
7.5 Blue Sky. HFC agrees to use commercially reasonable efforts to
comply with all applicable notice provisions of the securities laws of each
jurisdiction in which stockholders of Fidelity reside in connection with the
issuance of HFC Stock in the Holding Company Merger.
7.6 Notices; Reports. HFC and Bank will promptly notify Fidelity and
Thrift of any event of which HFC or Bank obtains knowledge which has had or may
have a Material Adverse Effect or in the event that HFC or Bank determines that
it is unable to fulfill any of the conditions to the performance of Fidelity's
and Thrift's obligations hereunder, as set forth in Articles IX or X herein, and
HFC and Bank will furnish Fidelity as soon as available all proxy statements,
information statements, financial statements, reports, letters and
communications sent by HFC to its stockholders or other security holders as a
class, and all reports filed by HFC or Bank with, or received by HFC or Bank
from, the SEC, OTS, FDIC or any other Governmental Entity.
7.7 Removal of Conditions. In the event of the imposition of a condition
to any regulatory approval which HFC deems to materially adversely affect it or
to be materially burdensome as provided in Section 11.2 hereof, HFC shall use
its commercially reasonable efforts for purposes of obtaining the removal of
such condition.
7.8 HFC Stockholders' Meeting. Promptly after the execution of this
Agreement, HFC will take action necessary in accordance with applicable law and
its certificate of
51
incorporation and bylaws to convene a meeting of its stockholders to consider
and vote upon the Holding Company Merger. The Board of Directors of HFC shall
solicit the approval of the holders of a majority of the outstanding shares of
HFC Common Stock of this Agreement and the Holding Company Merger, and, subject
to its fiduciary duties, shall recommend that the stockholders of HFC adopt and
approve this Agreement and the Holding Company Merger and use its best efforts
to obtain the foregoing approval of the stockholders of HFC.
7.9 Nasdaq NMS Listing. HFC shall use its commercially reasonable
efforts to cause the shares of HFC Stock to be issued in the Holding Company
Merger to be approved for listing on the Nasdaq NMS, subject to official notice
of issuance, prior to the Effective Time of the Holding Company Merger.
ARTICLE VIII
ADDITIONAL COVENANTS
The parties hereto hereby mutually covenant and agree with each other as
follows:
8.1 Commercially Reasonable Efforts. Subject to the terms and conditions
of this Agreement, each party will use its commercially reasonable efforts to
take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate the transactions contemplated by this Agreement as promptly as
practicable. None of HFC, Bank, Fidelity or Thrift shall take, or cause, or to
the best of its ability permit to be taken, any action that would substantially
delay or impair the prospects of completing the Mergers pursuant to this
Agreement and the Agreement of Bank Merger.
8.2 Public Announcements. No press release or other public disclosure of
matters related to this Agreement or any of the transactions contemplated hereby
shall be made by HFC or Bank, on the one hand, or Fidelity or Thrift, on the
other hand, unless the other parties shall have provided their prior consent to
the form and substance thereof; provided, however, that nothing herein shall be
deemed to prohibit any party hereto from making any disclosure which its counsel
deems necessary or advisable in order to fulfill such party's disclosure
obligations imposed by law.
8.3 Access; Information.
(a) HFC and Bank, on the one hand, and Fidelity and Thrift, on the
other hand, shall keep each other advised of all material developments relating
to their respective businesses, and to consummation of the Mergers, and each
shall provide to the other, upon request, reasonable details of any such
development.
(b) During the period prior to the Effective Time of the Holding
Company Merger, Fidelity and Thrift shall afford, and Fidelity shall cause the
Fidelity Subsidiary to afford, upon reasonable notice, to HFC and its officers,
employees, counsel, accountants and other authorized representatives, reasonable
access, during normal business hours, to all of their respective businesses,
operations, books, files and records (including, without limitation tax
52
returns and work papers of independent auditors), and during such period shall
make available all information concerning the same as may be reasonably
requested.
(c) During the period prior to the Effective Time of the Holding
Company Merger, HFC and Bank shall afford, upon reasonable notice, to Fidelity
and its officers, employees, counsel, accountants and other authorized
representatives, reasonable access, during normal business hours, to the
executive officers of HFC and Bank, and during such period HFC and Bank shall
make available all information as may be reasonably requested.
(d) Each party agrees that it will not, and will cause its
representatives not to, use any information obtained pursuant to this Section
8.3 (as well as any other information obtained prior to the date hereof in
connection with the entering into of this Agreement) for any purpose unrelated
to the consummation of the transactions contemplated by this Agreement. Subject
to the requirements of law, each party shall keep confidential, and shall cause
its representatives to keep confidential, all information and documents in
accordance with the terms of the Confidentiality Agreement. In the event that
this Agreement is terminated or the transactions contemplated by this Agreement
shall otherwise fail to be consummated, each party shall promptly cause all
copies of documents or extracts thereof containing information and data as to
another party hereto to be returned to the party which furnished the same.
(e) No investigation by any party of the business and affairs of any
other party shall affect or be deemed to modify or waive any representation,
warranty, covenant or agreement in this Agreement or the conditions to any
party's obligation to consummate the transactions contemplated by this
Agreement.
8.4 Applications. The parties hereto shall cooperate with each other in
the preparation of the S-4 Registration Statement, including the Proxy Statement
and Prospectus, and all other notices or applications required to be filed to
obtain the necessary regulatory approvals to consummate the transactions
contemplated by this Agreement and the Agreement of Bank Merger. HFC and
Fidelity agree to use commercially reasonable efforts to cause the S-4
Registration Statement to be declared effective under the Securities Act as
promptly as practicable after filing thereof. After the S-4 Registration
Statement is declared effective under the Securities Act, HFC and Fidelity shall
thereafter promptly mail the Proxy Statement and Prospectus to their respective
stockholders. HFC and Fidelity covenant and agree that all information supplied
by it for inclusion or incorporation by reference in the S-4 Registration
Statement and in all applications or statements filed with the appropriate
regulatory authorities for approval of, or consent to, the Holding Company
Merger and Bank Merger will comply in all material respects with the provisions
of applicable law, and will not, as of their respective filing or effective
dates and, in the case of the Proxy Statement and Prospectus, as of its mailing
date, contain any untrue statement of material fact or omit to state material
fact required to be stated therein or necessary to make the statements contained
therein, in light of the circumstances under which they were made, not
misleading.
8.5 Employees and Employee Benefits.
(a) HFC agrees that the employees of Fidelity and Thrift who are
retained by HFC after the consummation of the Mergers will be provided with
benefits under employee
53
benefit plans which in the aggregate are substantially comparable to those
currently provided by HFC to its current employees. HFC will cause each employee
benefit plan of HFC in which employees of Fidelity or Thrift are eligible to
participate to take into account for purposes of eligibility and vesting
thereunder the service of such employees with Fidelity or Thrift as if such
service were with HFC, to the same extent that such service was credited under a
comparable plan of Fidelity or Thrift.
(b) HFC and Bank shall honor, and HFC and Bank shall continue to be
obligated to perform, in accordance with their terms, all benefit obligations
to, and contractual rights of, current and former employees of Fidelity and
Thrift existing as of the Effective Time of the Holding Company Merger, as well
as all employment, severance, deferred compensation or "change-in-control"
agreements, plans or policies of Fidelity and Thrift disclosed on the Fidelity
Lists. HFC and Bank acknowledge that the consummation of the Holding Company
Merger will constitute a "change-in-control" of Fidelity and Thrift for purposes
of all Plans (as defined in Section 4.22 hereof).
(c) If employees of Fidelity and Thrift become eligible to
participate in a medical, dental or health plan of HFC or Bank, HFC or Bank
shall take commercially reasonable actions to cause each such plan to (i) waive
any preexisting condition limitations to the extent such conditions are covered
under the applicable medical, health or dental plans of HFC and Bank, (ii)
provide full credit under such plans for any deductibles, co-payment and
out-of-pocket expenses incurred by the employees and their beneficiaries during
the portion of the calendar year prior to such participation to the extent
permitted by the insurers of such plans, and (iii) waive any waiting period
limitation or evidence of insurability requirement which would otherwise be
applicable to such employee on or after the Effective Time of the Holding
Company Merger to the extent such employee had satisfied any similar limitation
or requirement under an analogous Plan prior to the Effective Time of the
Holding Company Merger.
(d) An employee of Fidelity or Thrift (other than an employee who is
party to a severance agreement) whose employment is involuntarily terminated
other than for cause following the Effective Time of the Holding Company Merger
shall be entitled to receive severance benefits in accordance with, and to the
extent provided in, the Fidelity Merger Severance Plan, a copy of which HFC
acknowledges has been provided to it by Fidelity, and key employees of Fidelity
or Thrift who remain such through the Effective Time of the Holding Company
Merger shall be paid a retention bonus in accordance with the Fidelity Merger
Severance Plan; provided, however, that the total payments pursuant to this
Section 8.5(d) shall not exceed $250,000.
8.6 Environmental Assessment. HFC may cause to be prepared at HFC's sole
cost and expense within sixty (60) days of the date of this Agreement one or
more phase I environmental investigations with respect to any property on the
Fidelity Real Property List. In the event any such phase I environmental
investigation report, or any similar report submitted to HFC pursuant to Section
4.13(c) of this Agreement, or any information from a Governmental Entity
discloses facts which, in the sole discretion of HFC, warrant further
investigation, HFC shall provide written notice to Fidelity and Thrift, and
Fidelity and Thrift shall use commercially reasonable efforts to cause to be
completed within sixty (60) days of such written notice, at the sole cost and
expense of HFC, a phase II environmental investigation and report with respect
to
54
such property. HFC agrees to keep confidential and not to disclose any nonpublic
information obtained in the course of such environmental investigation relating
to environmental contamination or suspected contamination of any property.
8.7 Indemnification.
(a) HFC agrees that following consummation of the Holding Company
Merger, to the greatest extent permitted by the Delaware General Corporation Law
or the banking laws and regulations applicable to, and organizational documents
or bylaws of, Fidelity or Thrift as in effect on the date hereof, it shall
indemnify, defend and hold harmless each present and former director and officer
of Fidelity or Thrift, determined as of the Effective Time of the Holding
Company Merger (the "Indemnified Parties"), for any claim or loss arising out of
their actions while a director or officer, including any acts relating to the
negotiation, execution and performance of this Agreement or any of the
transactions contemplated hereby, and shall pay the expenses, including
reasonable attorneys' fees, of such individuals in advance of the final
resolution of any claim, provided such individuals shall first execute an
undertaking acceptable to HFC to return such advances in the event it is finally
concluded such indemnification is not allowed under applicable law. Without
limiting the foregoing, HFC also agrees that limitations on liability existing
in favor of the Indemnified Parties as provided in the certificate of
incorporation and bylaws of Fidelity or similar governing documents of Thrift as
in effect on the date hereof with respect to matters occurring prior to the
Effective Time of the Holding Company Merger shall survive the Holding Company
Merger and shall continue in full force and effect from and after the
consummation of such transaction.
(b) Prior to the Effective Time of the Holding Company Merger, HFC,
Fidelity and Thrift shall use commercially reasonable efforts to purchase an
extended reporting period endorsement under Fidelity's existing directors' and
officers' liability insurance coverage for Fidelity's directors and officers in
a form reasonably acceptable to Fidelity, or purchase other insurance coverage
for such period, which shall provide such directors and officers with coverage
for six (6) years following the Effective Time of the Holding Company Merger of
not less than the existing coverage under, and have other terms no materially
less favorable on the whole to, the insured persons than the directors' and
officers' liability insurance coverage presently maintained by Fidelity,
provided that in no event shall HFC, Fidelity or Thrift be required to expend in
any one year an amount in excess of 200% of the annual premiums currently paid
by Fidelity for such insurance (the "Insurance Amount"), and further provided
that if HFC, Fidelity or Thrift is unable to maintain or obtain the insurance
called for by this Section 8.7(b) as a result of the preceding provision, each
of HFC, Fidelity and Thrift shall use commercially reasonable efforts to obtain
as much comparable insurance as is available for the Insurance Amount with
respect to acts or omissions occurring prior to the Effective Time of the
Holding Company Merger by such directors and officers in their capacities as
such.
(c) If HFC or any of its successors or assigns shall consolidate
with or merge into any other entity and shall not be the continuing or surviving
entity of such consolidation or merger or shall transfer all or substantially
all of its assets to any other entity, then and in each case, proper provision
shall be made so that the successors and assigns of HFC shall assume the
obligations set forth in this Section 8.7.
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ARTICLE IX
CONDITIONS PRECEDENT TO THE HOLDING COMPANY MERGER
The obligations of each of the parties hereto to consummate the
transactions contemplated herein are subject to the satisfaction or waiver by
each of the parties, on or before the Closing Date, of the following conditions:
9.1 Stockholder Approvals. The Agreement and the transactions
contemplated hereby shall have received all requisite approvals of the
stockholders of Fidelity and HFC.
9.2 No Judgments or Orders. No judgment, decree, injunction, order or
proceeding shall be outstanding or threatened by any Governmental Entity which
prohibits the effectuation of, or threatens to invalidate or set aside, the
Holding Company Merger or Bank Merger substantially in the form contemplated by
this Agreement, or would have a Material Adverse Effect, unless counsel to the
party against whom such action or proceeding was instituted or threatened
renders to the other parties hereto a favorable opinion that such judgment,
decree, injunction, order or proceeding is without merit.
9.3 Regulatory Approvals. To the extent required by applicable law or
regulation, all approvals or consents or non-objections of any Governmental
Entity, including, without limitation, those of the OTS, DFI and FDIC, shall
have been obtained or granted for the Holding Company Merger and Bank Merger and
the transactions contemplated hereby and the applicable waiting period under all
laws shall have expired. All other statutory or regulatory requirements for the
valid completion of the transactions contemplated hereby shall have been
satisfied.
9.4 Securities Laws. The S-4 Registration Statement shall have been
declared effective by the SEC and no stop order suspending the effectiveness of
such S-4 Registration Statement shall have been issued and no proceedings for
that purpose shall have been initiated.
9.5 Listing. The HFC Stock issuable in the Holding Company Merger shall
have been included for listing on the Nasdaq NMS.
ARTICLE X
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF FIDELITY AND THRIFT
All of the obligations of Fidelity and Thrift to effect the transactions
contemplated hereby shall be subject to the satisfaction, on or before the
Closing Date, of the following conditions, any of which may be waived in writing
by Fidelity or Thrift:
10.1 Representations and Warranties; Performance of Covenants. All
covenants, terms and agreements of this Agreement to be complied with and
performed by HFC and Bank at or before the Closing Date shall have been complied
with and performed in all material respects. Each of the representations and
warranties of HFC and Bank contained in Article V hereof, without regard to any
statements of materiality that may be contained therein but subject in all cases
to the standard set forth in Section 13.3(b), shall be true and correct on and
as of the date of
56
this Agreement and on and as of the Closing Date (except to the extent such
representations and warranties speak as of an earlier date) with the same effect
as though such representations and warranties had been made on and as of the
Closing Date. It is understood and acknowledged that the representations being
made on and as of the Closing Date shall be made without giving effect to any
update with respect to the HFC Lists in accordance with Section 7.2(f).
10.2 Officers' Certificate. There shall have been delivered to Fidelity
and Thrift on the Closing Date a certificate executed by an authorized executive
officer of HFC and Bank, respectively, certifying, to their knowledge,
compliance with all of the provisions of Sections 10.1 and 10.3.
10.3 Absence of Certain Changes. Between the date of this Agreement and
the Effective Time of the Holding Company Merger, there shall not have occurred
any event, circumstance, change or effect that has had or could reasonably be
expected to have, individually or together with all other events, circumstances,
changes or effects, a Material Adverse Effect with respect to HFC, whether or
not such event, circumstance, change or effect is reflected in the HFC Lists as
amended or supplemented after the date of this Agreement.
10.4 Tax Opinion. If the Holding Company Merger is effected in
accordance with Section 2.1, Fidelity shall have received an opinion of Elias,
Matz, Tiernan & Herrick, LLP, dated the Effective Time of the Holding Company
Merger, to the effect that, on the basis of facts, representations and
assumptions set forth in such opinion, (i) the Holding Company Merger
constitutes a reorganization within the meaning of Section 368 of the Code and
(ii) no gain or loss will be recognized by stockholders of Fidelity who receive
shares of HFC Stock in exchange for shares of Fidelity Stock, except with
respect to cash received pursuant to Article II of this Agreement. In rendering
its opinion, Elias, Matz, Tiernan & Herrick, LLP, may require and rely upon
representations contained in letters from Fidelity, HFC, Thrift and Bank.
ARTICLE XI
CONDITIONS PRECEDENT TO OBLIGATIONS OF HFC AND BANK
All of the obligations of HFC and Bank to effect the transactions
contemplated hereby shall be subject to the satisfaction, on or before the
Closing Date, of the following conditions, any of which may be waived in writing
by HFC and Bank:
11.1 Representations and Warranties; Performance of Covenants. All
covenants, terms and agreements of this Agreement to be complied with and
performed by Fidelity or Thrift at or before the Closing Date shall have been
complied with and performed in all material respects. Each of the
representations and warranties of Fidelity and Thrift contained in Article IV
hereof, without regard to any statements of materiality that may be contained
therein but subject in all cases to the standard set forth in Section 13.3(b),
shall be true and correct on and as of the date of this Agreement and on and as
of the Closing Date (except to the extent such representations and warranties
speak as of an earlier date) with the same effect as though such representations
and warranties had been made on and as of the Closing Date. It is understood and
acknowledged that
57
the representations being made on and as of the Closing Date shall be made
without giving effect to any update with respect to the Fidelity Lists in
accordance with Section 6.2(j).
11.2 Regulatory Approvals and Related Conditions. Any governmental and
regulatory approvals and consents which are referred to in this Agreement and
are required to consummate the Holding Company Merger and Bank Merger shall have
been granted without the imposition of conditions that are or would have become
applicable to HFC or Bank and that HFC, in its reasonable opinion, concludes
would have a Material Adverse Effect.
11.3 Absence of Certain Changes. Between the date of this Agreement and
the Effective Time of the Holding Company Merger and the Effective Time of the
Bank Merger, there shall not have occurred any event, circumstance, change or
effect that has had or could reasonably be expected to have, individually or
together with all other events, circumstances, changes or effects, a Material
Adverse Effect with respect to Fidelity, whether or not such event, change,
circumstance or effect is reflected in the Fidelity Lists as amended or
supplemented after the date of this Agreement.
11.4 Officers' Certificate. There shall have been delivered to HFC on
the Closing Date a certificate executed by an authorized executive officer of
each of Fidelity and Thrift, respectively, certifying, to their knowledge,
compliance with all of the provisions of Sections 11.1 and 11.3.
11.5 Fidelity Senior Notes. All of the holders of outstanding Fidelity
Senior Notes shall have converted their Fidelity Senior Notes into Fidelity
Stock.
11.6 Opinion of HFC's Counsel.
(a) If the Holding Company Merger is effected in accordance with
Section 2.1, HFC shall have received an opinion of Manatt, Phelps & Phillips,
LLP, counsel to HFC, dated the Effective Time of the Holding Company Merger, to
the effect that, on the basis of facts, representations and assumptions set
forth in such opinion, the Holding Company Merger constitutes a reorganization
under Section 368 of the Code. In rendering its opinion, Manatt, Phelps &
Phillips, LLP may require and rely upon representations contained in letters
from HFC, Fidelity, Thrift and Bank.
(b) If the Holding Company Merger is effected in accordance with
Section 2.2, HFC shall have received an opinion of Manatt, Phelps & Phillips,
LLP, dated the Effective Time of the Holding Company Merger, to the effect that,
on the basis of the facts, representations and assumptions, set forth in such
opinion, the Holding Company Merger constitutes a "qualified stock purchase"
under Section 338 of the Code. In rendering its opinion, Manatt, Phelps &
Philips, LLP may require and rely upon representations contained in letters from
HFC, Fidelity, Thrift and Bank.
11.7 Third Party Consents. Fidelity and Thrift shall have obtained all
consents of other parties to their respective material mortgages, notes, leases,
franchises, agreements, licenses and permits as may be necessary to permit the
Holding Company Merger and Bank Merger and the transactions contemplated herein
to be consummated without a default, acceleration, breach or
58
loss of rights or benefits thereunder, which, individually or in the aggregate,
would or could reasonably be expected to have a Material Adverse Effect with
respect to Fidelity.
11.8 Fidelity Options and Option Plan. The Fidelity Option Plan shall
have been cancelled and each holder of a Fidelity Option shall have entered into
a written option cancellation agreement with Fidelity, in a form approved by
HFC, pursuant to which the holders of Fidelity Options shall have agreed to
cancel or cash out their Fidelity Options at the Effective Time of the Holding
Company Merger, and such option cancellation agreement shall be in full force
and effect at the Closing Date.
11.9 Financial Statements. At least four Business Days prior to the
Effective Time of the Holding Company Merger, Fidelity shall provide HFC with
financial statements of Fidelity, presenting the consolidated financial
condition of Fidelity as of the close of business on the last day of the last
month ended immediately prior to the Effective Time of the Holding Company
Merger and Fidelity's consolidated results of operations for the period from
January 1, 2002 through the close of business on the last day of the last month
ended immediately prior to the Effective Time of the Holding Company Merger (the
"Closing Financial Statements of Fidelity"). The Closing Financial Statements of
Fidelity shall have been prepared in all material respects in accordance with
accounting principles generally accepted in the United States of America and
other applicable legal and accounting requirements, and reflect all period-end
accruals and other adjustments.
11.10 Earnings. The Adjusted Net Earnings of Fidelity (as defined
below), as reflected on the Closing Financial Statements of Fidelity shall not
be less than the amount shown on Exhibit D to this Agreement. "Adjusted Net
Earnings of Fidelity" for purposes of this Section 11.10 shall mean the net
earnings as reflected on the Closing Financial Statements of Fidelity, adjusted
to add back the product of: (a) (i) all severance or retention benefits paid or
accrued prior to the date of the Closing Financial Statements of Fidelity
(subject to the limitation set forth in Section 8.5(d)); (ii) amounts paid or
accrued prior to the date of the Closing Financial Statements of Fidelity for
expenses solely related to the Mergers, including, but not limited to, legal,
accounting and financial advisory fees; (iii) amounts paid or accrued prior to
the date of the Closing Financial Statements of Fidelity with respect to the
cancellation of Fidelity Options; (iv) amounts paid or accrued prior to the date
of the Closing Financial Statements of Fidelity with respect to adjustments made
pursuant to Section 6.10 of this Agreement; (vi) amounts paid or accrued prior
to the date of the Closing Financial Statements of Fidelity with respect to any
other actions taken by Fidelity or Thrift on the written request of HFC or Bank;
and (vii) the $3.3 million loss incurred by Thrift in January 2002 in connection
with the sale of trust preferred securities; and (b) 1.00 minus the applicable
combined federal and state tax rate of Fidelity.
11.11 Gross Loans. The gross loans of Fidelity, as reflected on the
Closing Financial Statements of Fidelity, shall be not less than $475 million.
11.12 Loan Loss Reserve. Fidelity shall have an allowance for loan and
lease losses reflected on the Closing Financial Statements of Fidelity and
calculated in accordance with the methodology utilized at December 31, 2001
(including the loss factors then utilized), of not less than 1.15% of gross
loans and leases.
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ARTICLE XII
TERMINATION
12.1 Termination. This Agreement may be terminated at any time prior to
the Effective Time of the Holding Company Merger upon the occurrence of any of
the following:
(a) By mutual written agreement;
(b) By either Fidelity or HFC, if the required approval of the
stockholders of Fidelity contemplated by this Agreement shall not have been
obtained by reason of the failure to obtain the required vote at a meeting of
Fidelity stockholders duly convened therefor or at any adjournment thereof;
provided, however, that the right to terminate this Agreement under this Section
12.1(b) shall not be available to Fidelity where the failure to obtain Fidelity
stockholder approval shall have been caused by the action or failure to act of
Fidelity or a Triggering Event with respect to Fidelity shall have occurred;
(c) By either Fidelity or HFC, if the required approval of the
stockholders of HFC contemplated by this Agreement shall not have been obtained
by reason of the failure to obtain the required vote at a meeting of the HFC
stockholders duly convened therefore or at any adjournment thereof; provided,
however, that the right to terminate this agreement under this Section 12.1(c)
shall not be available to HFC where the failure to obtain HFC stockholder
approval shall have been caused by the action or failure to act of HFC;
(d) By HFC (at any time prior to the adoption and approval of this
Agreement and the Holding Company Merger by the required vote of the
stockholders of Fidelity) if a Triggering Event with respect to Fidelity shall
have occurred, and by Fidelity (at any time prior to the adoption and approval
of this Agreement and the Holding Company Merger by the required vote of the
stockholders of HFC) if a Triggering Event with respect to HFC shall have
occurred;
(e) By Fidelity immediately upon expiration of twenty (20) days
from delivery of written notice by Fidelity to HFC of HFC's or Bank's breach of
or failure to satisfy any covenant or agreement contained herein resulting in a
reduction in the benefits of the transactions contemplated by the Agreement in
so significant a manner that Fidelity, in its reasonable, good faith judgment,
would not have entered into the Agreement had the inability of HFC or Bank to
satisfy such covenant or agreement been known at the time hereof (provided that
such breach has not been waived by Fidelity or cured by HFC or Bank prior to
expiration of such twenty (20) day period);
(f) By HFC immediately upon expiration of twenty (20) days from
delivery of written notice by HFC to Fidelity or Thrift of Fidelity's or
Thrift's breach of or failure to satisfy any covenant or agreement contained
herein resulting in a reduction in the benefits of the transactions contemplated
by the Agreement in so significant a manner that HFC, in its reasonable, good
faith judgment, would not have entered into the Agreement had the inability of
Fidelity or Thrift to satisfy such covenant or agreement been known at the time
hereof (provided
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that such breach has not been waived by HFC or cured by Fidelity or Thrift, as
the case may be, prior to expiration of such twenty (20) day period);
(g) By Fidelity or HFC, if any Governmental Entity denies or
refuses to grant any approval, consent or authorization required to be obtained
in order to consummate the transactions contemplated by this Agreement and such
denial has become final and nonappealable; provided, however, that such right to
terminate this Agreement under this Section 12.1(g) shall not be available to
Fidelity or HFC if such party's failure to comply with Sections 7.3 or 8.4, as
applicable, was a cause of such action;
(h) By Fidelity or HFC, if any condition set forth in Article IX
shall not have been met by December 31, 2002, provided, however, that this
Agreement shall not be terminated pursuant to this Section 12.1(h) if the
relevant condition shall have failed to occur as a result of any act or omission
by the party seeking to terminate;
(i) By Fidelity, if any of the conditions set forth in Article X
shall not have been met, or by HFC if any of the conditions set forth in Article
XI shall not have been met, by December 31, 2002, provided, however, that this
Agreement shall not be terminated pursuant to this Section 12.1(i) if the
relevant condition shall have failed to occur as a result of any act or omission
by the party seeking to terminate; or
(j) by Fidelity, if its Board of Directors so determines by a vote
of a majority of the members of its entire Board, at any time during the
five-day period commencing with the Determination Date if both of the following
conditions are satisfied:
(i) the number obtained by dividing the Average Closing Price
by the Starting Price (the "HFC Ratio") shall be less than .80; and
(ii) the HFC Ratio shall be less than the number obtained by
dividing the Final Index Value by the Index Value on the Starting Date and
subtracting 0.20 from the quotient in this clause (ii) (such number being
referred to herein as the "Index Ratio"); subject, however, to the following
three sentences. If Fidelity elects to exercise its termination right pursuant
to this Section 12.1(j), it shall give written notice to HFC. During the
five-day period commencing with its receipt of such notice, HFC shall have the
option to increase the Exchange Ratio (calculated to the nearest one
one-thousandth) to equal the lesser of (x) a number (rounded to the nearest
thousandth) obtained by dividing (A) the product of the Starting Price, 0.80 and
the Exchange Ratio (as then in effect) by (B) the Average Closing Price and (y)
a number (rounded to the nearest one one-thousandth) obtained by dividing (A)
the product of the Index Ratio and the Exchange Ratio (as then in effect) by (B)
the HFC Ratio. If HFC so elects within such five-day period, it shall give
prompt written notice to Fidelity of such election and the revised Exchange
Ratio, whereupon no termination shall have occurred pursuant to this Section
12.1(j) and this Agreement shall remain in effect in accordance with its terms
(except as the Exchange Ratio shall have been so modified).
For purposes of this Section 12.1(j) the following terms shall have the meanings
indicated:
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"Average Closing Price" shall mean the average of the closing prices
of a share of HFC Common Stock on the Nasdaq Stock Market's National Market (as
reported in The Wall Street Journal, or if not reported therein, in another
authoritative source) during the period of twenty (20) consecutive trading days
ending on the trading day prior to the Determination Date, rounded to the
nearest whole cent.
"Determination Date" shall mean the date on which the last required
approval of a federal or state banking regulatory authority is obtained with
respect to the Mergers, without regard to any requisite waiting period in
respect thereof.
"Final Index Value" shall mean the average of the Index Values for
the twenty (20) consecutive trading days ending on the trading day prior to the
Determination Date.
"Index Group" shall mean the twenty (20) financial institution
holding companies listed below, the common stocks of all of which shall be
publicly traded and as to which there shall not have been, since the Starting
Date and before the Determination Date, any public announcement of a proposal
for such company to be acquired or for such company to acquire another company
or companies in transactions with a value exceeding 25% of the acquiror's market
capitalization. In the event that the common stock of any such company ceases to
be publicly traded or such announcement is made, such company shall be removed
from the Index Group and the weights (which were determined based on market
capitalization) shall be redistributed proportionately for determining the Index
Value.
Ticker Name % Weighting
------ ---- ------------
WFSL Washington Federal, Inc. 27.42%
DSL Downey Financial Corp. 22.56%
WES Westcorp 12.39%
FED FirstFed Financial Corp. 7.18%
PFB PFF Bancorp, Inc. 6.52%
STSA Sterling Financial Corporation 3.68%
QCBC Quaker City Bancorp, Inc. 2.79%
ITLA ITLA Capital Corporation 2.28%
HRZB Horizon Financial Corp. 1.87%
PROV Provident Financial Holdings, Inc. 1.72%
HFWA Heritage Financial Corporation 1.62%
KFBI Klamath First Bancorp, Inc. 1.56%
EVRT EverTrust Financial Group, Inc. 1.53%
UPFC United PanAm Financial Corp. 1.32%
TSBK Timberland Bancorp, Inc. 1.18%
FSMB First Mutual Bancshares, Inc. 1.09%
MBBC Monterey Bay Bancorp, Inc. 0.99%
RVSB Riverview Bancorp, Inc. 0.97%
OTFC Oregon Trail Financial Corp. 0.91%
FBNW FirstBank NW Corp. 0.42%
100.00%
======
62
"Index Value," on a given date, shall mean the weighted average
(weighted in accordance with the definition of Index Group) of the closing
prices on such date of the companies composing the Index Group. If any company
belonging to the Index Group effects a stock dividend, reclassification,
recapitalization, split-up, combination, exchange of share or similar
transaction between the Starting Date and the Determination Date, the prices for
the common stock of such company shall be appropriately adjusted for use in
determining the Index Value.
"Starting Date" shall mean the last trading day immediately
preceding the date of the first public announcement of entry into this
Agreement.
"Starting Price" shall be $24.16.
For the purposes of this Agreement, a "Triggering Event," with respect to
Fidelity shall be deemed to have occurred if: (i) Fidelity's Board of Directors
or any committee thereof shall for any reason have withdrawn or shall have
amended or modified in a manner adverse to HFC its recommendation in favor of
the adoption and approval of the Agreement or the approval of the Holding
Company Merger, (ii) Fidelity shall have failed to include in the Proxy
Statement and Prospectus the recommendation of its Board of Directors in favor
of the adoption and approval of the Agreement and the approval of the Holding
Company Merger, (iii) Fidelity's Board of Directors or any committee thereof
shall have approved or recommended any Competing Transaction, (iv) Fidelity's
Board of Directors fails to reaffirm (publicly, if so requested by HFC) its
recommendation in favor of the adoption and approval of the Agreement and the
approval of the Holding Company Merger within fifteen (15) Business Days after
HFC requests in writing that such recommendation be reaffirmed, (v) Fidelity
shall have exercised a right specified in the last sentence of Section 6.1(n)
with respect to a Superior Proposal and shall, directly, or through its agents
or representatives continue discussions with any third party concerning such
Superior Proposal for more than fifteen (15) Business Days after the date of
receipt of such Superior Proposal; or (vi) a tender or exchange offer relating
to Fidelity's securities shall have been commenced by a Person unaffiliated with
HFC and Fidelity shall not have sent to its securityholders within ten (10)
Business Days after such tender or exchange offer is first published, sent or
given, a statement disclosing that the Board of Directors of such party
recommends rejection of such tender or exchange offer.
For the purposes of this Agreement, a "Triggering Event," with respect to HFC
shall be deemed to have occurred if: (i) HFC's Board of Directors or any
committee thereof shall for any reason have withdrawn or shall have amended or
modified in a manner adverse to Fidelity its recommendation in favor of the
adoption and approval of the Agreement or the approval of the Holding Company
Merger or (ii) HFC shall have failed to include in the Proxy Statement and
Prospectus the recommendation of its Board of Directors in favor of the adoption
and approval of the Agreement and the approval of the Holding Company Merger.
12.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 12.1, none of the parties shall have any
further obligation or liability to any other party except (a) as provided in
Section 8.3(d), the last sentence of Section 8.6, this Section 12.2 and Article
XIII, each of which shall survive the termination of this Agreement, and the
Confidentiality Agreement; and (b) to the extent such termination results from a
party's willful
63
breach of the warranties and representations made by it, or willful failure in
performance of any of its covenants, agreements or obligations hereunder.
12.3 Force Majeure. Notwithstanding anything to the contrary in this
Agreement, in the event this Agreement is terminated as a result of a failure of
a condition, which failure is due to a natural disaster or other act of God, or
an act of war or terrorism, and provided no party has failed to observe the
material obligations of such party under this Agreement, no party shall be
obligated to pay to the other party to this Agreement any expenses or otherwise
be liable hereunder.
ARTICLE XIII
MISCELLANEOUS
13.1 Expenses and Fees.
(a) Except as set forth in Sections 13.1(b) and (c), all Expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such Expenses whether or not the
Holding Company Merger is consummated.
(b) HFC hereby agrees that if this Agreement is terminated by
Fidelity or HFC pursuant to Section 12.1(c) or by Fidelity pursuant to Section
12.1(e), HFC shall promptly and in any event within ten (10) days after such
termination pay Fidelity all Expenses, but not to exceed $500,000.
(c) Fidelity hereby agrees that if the Agreement is terminated by
HFC or Fidelity pursuant to Section 12.1(b), or by HFC pursuant to Section
12.1(f), Fidelity shall promptly and in any event within ten (10) days after
such termination pay HFC all Expenses of HFC, but not to exceed $1,000,000.
(d) In the event this Agreement is terminated by HFC pursuant to
Section 12.1(d), other than with respect to a Triggering Event which involves a
Fidelity Permitted Change in Recommendation, Fidelity shall promptly, but in no
event later than two (2) Business Days after the date of such termination, pay
to HFC a fee equal to three million three hundred thousand dollars
($3,300,000.00) in immediately available funds (the "Fidelity Termination Fee").
(e) In the event that (i) this Agreement is terminated (A) by HFC
pursuant to Section 12.1(f) or (B) by either HFC or Fidelity pursuant to Section
12.1(b), (ii) between the date hereof and prior to the termination of this
Agreement, there has been public disclosure of a proposal regarding a Competing
Transaction or a request for non-public information or inquiry which Fidelity
reasonably believes could lead to a proposal regarding a Competing Transaction
and (iii) (A) within twelve (12) months following the termination of this
Agreement an Acquisition of Fidelity is consummated or (B) within twelve (12)
months following the termination of this Agreement Fidelity enters into an
agreement providing for an Acquisition of Fidelity and an Acquisition of
Fidelity is consummated within twenty-four (24) months of the termination of
this Agreement, then Fidelity shall promptly, but in no event later than two (2)
64
Business Days after the consummation of such Acquisition of Fidelity, pay to HFC
the Fidelity Termination Fee in immediately available funds. Any payment
previously made by Fidelity to HFC pursuant to Sections 13.1(c) or (d) shall be
credited against any amount due under this Section 13.1(e).
(f) In the event this Agreement is terminated by Fidelity pursuant
to Section 12.1(d), other than with respect to a Triggering Event which involves
an HFC Permitted Change in Recommendation, HFC shall promptly, but in no event
later than two (2) Business Days after the date of such termination, pay to
Fidelity a fee equal to three million three hundred thousand dollars
($3,300,000.00) in immediately available funds (the "HFC Termination Fee").
(g) In the event that (i) this Agreement is terminated (A) by
Fidelity or HFC pursuant to Section 12.1(c) or (B) by Fidelity pursuant to
Section 12.1 (e), (ii) between the date hereof and prior to the termination of
the Agreement there has been public disclosure of a proposal for an Acquisition
of HFC which includes as a condition precedent to such transaction the
termination of this Agreement if clause (i)(A) is applicable, or the Board of
Directors of HFC shall have received such a proposal if clause (i)(B) is
applicable, and (iii) (A) within twelve (12) months following the termination of
this Agreement an Acquisition of HFC is consummated or (B) within twelve (12)
months following the termination of this Agreement HFC enters into an agreement
providing for an Acquisition of HFC and an Acquisition of HFC is consummated
within twenty-four (24) months of the termination of this Agreement, then HFC
shall promptly, but in no event later than two (2) Business Days after the
consummation of such Acquisition of HFC, pay to Fidelity the HFC Termination Fee
in immediately available funds. Any payment previously made by HFC to Fidelity
pursuant to Sections 13.1(b) or (f) shall be credited against any amount due
under this Section 13.1(g).
(h) Fidelity acknowledges that the agreements contained in this
Section 13.1 are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements, HFC would not enter into this
Agreement; accordingly, if Fidelity fails to pay in a timely manner the
amount(s) due pursuant to Sections 13.1 (c), (d) or (e), and, in order to obtain
such payment, HFC makes a claim that results in a judgment against Fidelity for
any unpaid amount(s) set forth in Sections 13.1(c), (d) or (e), Fidelity shall
pay to HFC its reasonable costs and expenses (including reasonable attorneys'
fees and expenses) in connection with such suit, together with interest on the
unpaid amount(s) pursuant to Sections 13.1(c), (d) or (e), at the prime rate of
Citibank, N.A. in effect on the date such payment was required to be made.
Payment of the Fidelity Termination Fee shall not be in lieu of damages incurred
in the event of breach of this Agreement.
(i) HFC acknowledges that the agreements contained in this Section
13.1 are an integral part of the transactions contemplated by this Agreement,
and that, without these agreements, Fidelity would not enter into this
Agreement; accordingly, if HFC fails to pay in a timely manner the amount(s) due
pursuant to Section 13.1 (b), (f) or (g), and, in order to obtain such payment,
Fidelity makes a claim that results in a judgment against HFC for any unpaid
amount(s) set forth in Section 13.1(b), (f) or (g), HFC shall pay to Fidelity
its reasonable costs and expenses (including reasonable attorneys' fees and
expenses) in connection with such suit, together with interest on the unpaid
amount(s) pursuant to Sections 13.1(b), (f) or (g), at the prime rate of
Citibank, N.A. in effect on the date such payment was required to be made.
65
Payment of the HFC Termination Fee shall not be in lieu of damages incurred in
the event of breach of this Agreement.
(j) For the purposes of this Section 13.1 only, "Acquisition" with
respect to Fidelity or HFC shall mean any of the following transactions (other
than the transactions contemplated by this Agreement): (i) a merger,
consolidation, business combination, recapitalization, liquidation, dissolution
or similar transaction involving Fidelity or HFC, as applicable, pursuant to
which the stockholders of Fidelity or HFC, as applicable, immediately preceding
such transaction hold less than fifty percent (50%) of the aggregate equity
interests in the surviving or resulting entity of such transaction or any direct
or indirect parent thereof, (ii) a sale or other disposition by Fidelity or HFC,
as applicable, or its subsidiaries of assets representing in excess of fifty
percent (50%) of the aggregate fair market value of Fidelity's or HFC's, as
applicable, business immediately prior to such sale, or (iii) the acquisition by
any Person or group (including by way of a tender offer or an exchange offer or
issuance by the party or such person or group), directly or indirectly, of
beneficial ownership or a right to acquire beneficial ownership of shares
representing in excess of fifty percent (50%) of the voting power of the then
outstanding shares of capital stock of Fidelity or HFC, as applicable.
(k) For purposes of this Section 13.1, "Expenses" shall include all
reasonable out-of-pocket expenses (including all fees and expenses of attorneys,
accountants, investment bankers, experts and consultants to the party and its
Affiliates) incurred by the party or on its behalf in connection with the
consummation of the transactions contemplated by this Agreement.
13.2 Notices. Any notice, request, instruction or other document to be
given hereunder by any party hereto to another shall be in writing and delivered
personally or by confirmed facsimile transmission or sent by overnight courier,
registered or certified mail, postage prepaid, with return receipt requested,
addressed as follows:
To Fidelity or Thrift:
First Fidelity Bancorp, Inc.
3061 Edinger Avenue
Tustin, California 92780
Attention: Charles W. Thomas
Facsimile Number: (949) 936-1888
With a copy to:
Elias, Matz, Tiernan & Herrick L.L.P.
734 15th Street, NW.
Washington, DC 20005
Attention: Timothy B. Matz, Esq.
Facsimile Number: (202) 347-2172
66
To HFC or Bank:
Hawthorne Financial Corporation
2381 Rosecrans Avenue, 2nd Floor
El Segundo, CA 90218
Attention: Simone Lagomarsino
Facsimile Number: (310) 725-5038
With a copy to:
Manatt, Phelps & Phillips, LLP
11355 West Olympic Boulevard
Los Angeles, CA 90064
Attention: William T. Quicksilver, Esq.
Facsimile Number: (310) 312-4224
Any such notice, request, instruction or other document shall be
deemed received on the date delivered personally or delivered by confirmed
facsimile transmission, or on the third Business Day after it was sent by
registered or certified mail, postage prepaid. Any of the persons shown above
may change its address for purposes of this section by giving notice in
accordance herewith.
13.3 Material Adverse Effect; Standard.
(a) For purposes of this Agreement, the term "Material Adverse
Effect" shall mean any material adverse effect on (a) the business, financial
condition or results of operations of HFC, Bank and their respective
subsidiaries taken as a whole, on the one hand, and Fidelity, Thrift and their
respective subsidiaries taken as a whole, on the other hand, as the context may
dictate; or (b) the ability of Fidelity and Thrift, on the one hand, and HFC or
Bank, on the other hand, or any of them, to perform their respective material
obligations hereunder, or otherwise materially impedes consummation of the
Mergers; provided, however, that in determining whether a Material Adverse
Effect has occurred there shall be excluded any effect the cause of which is:
(i) any change, which is made or becomes effective after the date hereof, in
banking or similar laws of general applicability or interpretations thereof by
courts or Governmental Entities; (ii) any change, which is made or becomes
effective after the date hereof, in generally accepted accounting principles
and/or applicable regulatory accounting principles or banking regulations
consistently applied, and applicable to savings associations or savings and loan
holding companies; (iii) any action or omission of HFC or Bank, on the one hand,
or Fidelity or Thrift, on the other hand, taken with the prior written consent
of the other, as applicable, or as permitted by this Agreement, in contemplation
of the Mergers; (iv) any changes in general economic conditions affecting
financial institutions generally, including, without limitation, changes in
interest rates; and (v) all expenses solely related to the Mergers, including
but not limited to, legal, accounting and financial advisory fees, and further
provided that any decline in the stock price or trading volume of the HFC Stock
shall not be deemed to be a Material Adverse Effect in and of itself.
67
(b) Notwithstanding any provision of this Agreement to the
contrary, no representation or warranty of Fidelity and Thrift contained in
Article IV (other than the representations and warranties contained in Section
4.3(a) and (b)) or HFC and Bank contained in Article V shall be deemed untrue or
incorrect, and no party hereto 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, event or circumstance, individually or taken
together with all other facts, events or circumstances inconsistent with any
representation or warranty contained in Article IV or Article V, as applicable,
has had or is reasonably likely to have a Material Adverse Effect on the party
making such representation or warranty.
13.4 Successors and Assigns. All terms and conditions of this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective transferees, successors and assigns; provided, however, that
this Agreement and all rights, privileges, duties and obligations of the parties
hereto may not be assigned or delegated by any party hereto and any such
attempted assignment or delegation shall be null and void.
13.5 Counterparts. This Agreement and any exhibit hereto may be executed
in one or more counterparts, all of which, taken together, shall constitute one
original document and shall become effective when one or more counterparts have
been signed by the appropriate parties and delivered to each party hereto.
13.6 Effect of Representations and Warranties. The representations and
warranties contained in this Agreement or in any List shall terminate at the
Effective Time of the Holding Company Merger.
13.7 Third Parties. Except for the Indemnified Parties' rights to
enforce HFC's obligations under Section 8.7, which are expressly intended to be
for the irrevocable benefit of, and shall be enforceable by, each Indemnified
Party and his or her heirs and representatives, each party hereto intends that
this Agreement shall not benefit or create any right or cause of action to any
person other than parties hereto. As used in this Agreement the term "parties"
shall refer only to Fidelity, HFC, Thrift, Bank, or Merger Sub as the context
may require.
13.8 Lists; Exhibits; Integration. Each List, exhibit and letter
delivered pursuant to this Agreement shall be in writing and shall constitute a
part of the Agreement, although Lists and letters need not be attached to each
copy of this Agreement. This Agreement, together with the Exhibits hereto, the
Lists and the Confidentiality Agreement, constitute the entire agreement between
the parties pertaining to the subject matter hereof and supersede all prior
agreements and understandings of the parties in connection therewith.
13.9 Knowledge. Whenever any statement herein or in any List,
certificate or other document delivered to any party pursuant to this Agreement
is made "to the knowledge" of any party or another Person, such knowledge shall
mean facts and other information which any director, executive officer or
controller knows as a result of the performance of his or her duties and
includes such diligent inquiry as is reasonable under the circumstances.
68
13.10 Governing Law. This Agreement shall be governed by, and
interpreted in accordance with, the laws of the State of Delaware without regard
to the conflict of law principles thereof.
13.11 Captions. The section headings contained in this Agreement are for
convenience of reference only and do not form a part of this Agreement and shall
not affect the interpretation hereof.
13.12 Severability. If any portion of this Agreement shall be deemed by
a court of competent jurisdiction to be unenforceable, the remaining portions
shall be valid and enforceable only if, after excluding the portion deemed to be
unenforceable, the remaining terms hereof shall provide for the consummation of
the transactions contemplated herein in substantially the same manner as
originally set forth at the date this Agreement was executed.
13.13 Waiver and Modification; Amendment. No waiver of any term,
provision or condition of this Agreement, whether by conduct or otherwise, in
any one or more instances, shall be deemed to be or construed as a further or
continuing waiver of any such term, provision or condition of this Agreement.
Except as otherwise required by law, this Agreement and the Agreement of Bank
Merger, when executed and delivered, may be modified or amended by action of the
Boards of Directors of Fidelity, HFC, Thrift, Bank and Merger Sub without action
by their respective stockholders. This Agreement may be modified or amended only
by an instrument of equal formality signed by the parties or their duly
authorized agents.
13.14 Attorneys' Fees. If any legal action or any arbitration upon
mutual agreement is brought for the enforcement of this Agreement or because of
an alleged dispute, controversy, breach, or default in connection with this
Agreement, the prevailing party shall be entitled to recover reasonable
attorneys' fees and other costs and expenses incurred in that action or
proceeding, in addition to any other relief to which it may be entitled.
13.15 Alternative Structure. Notwithstanding any provision of this
Agreement to the contrary, HFC and Bank may elect, subject to the filing of all
necessary applications and the receipt of all required regulatory approvals, to
modify the structure of the Holding Company Merger or the Bank Merger, as set
forth herein, subject to the prior written consent of Fidelity, which consent
shall not be unreasonably withheld, provided that any such modification may be
effected only if (a) the consideration to be paid to the holders of Fidelity
Stock is not thereby changed in kind or reduced in amount as a result of such
modification and (b) such modification will not materially delay or jeopardize
consummation of the transactions contemplated by this Agreement.
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IN WITNESS WHEREOF, the parties to this Agreement have duly executed
this Agreement as of the day and year first above written.
HAWTHORNE FINANCIAL CORPORATION
By:
-----------------------------------
President and Chief Executive Officer
HAWTHORNE SAVINGS, F.S.B.
By:
----------------------------------
President and Chief Executive Officer
FIRST FIDELITY BANCORP, INC.
By:
---------------------------------------
President and Chief Operating Officer
FIRST FIDELITY INVESTMENT & LOAN
ASSOCIATION
By:
---------------------------------------
President and Chief Executive Officer
HF MERGER SUB
By:
-----------------------------------
President
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EXHIBIT LIST
A AGREEMENT OF BANK MERGER
B FORM OF STOCKHOLDER'S AGREEMENT
C FORM OF AFFILIATE LETTER
D EARNINGS REQUIREMENTS
71
EXHIBIT A
AGREEMENT OF BANK MERGER
This AGREEMENT OF BANK MERGER is made by and between Hawthorne Savings,
F.S.B., a federally chartered savings bank (the "Bank"), and First Fidelity
Investment & Loan Association, a California chartered industrial loan company
(the "Thrift"), in connection with the transactions described in the Agreement
and Plan of Reorganization dated as of March ___, 2002 (the "Reorganization
Agreement"), entered into by and among Hawthorne Financial Corporation, a
Delaware corporation ("HFC"), First Fidelity Bancorp, Inc., a Delaware
corporation ("Fidelity"), the Bank, the Thrift, and HF Merger Corp., a Delaware
corporation ("Merger Sub"). Terms not otherwise defined herein shall have the
respective meanings given to them in the Reorganization Agreement.
As of the date hereof, Bank has authorized capital of 20,000 shares of
common stock, par value $10.00 per share ("Bank Stock"), 15,000 of which are
issued and outstanding, and all of which are directly owned by HFC. As of the
date hereof, Thrift has authorized capital of 200,000 shares of common stock,
$10.00 par value per share, ("Thrift Stock"), of which 20,000 shares are
outstanding, and all of which are directly owned by Fidelity.
Immediately prior to the Effective Date (as hereinafter defined),
Fidelity will merge with and into HFC (the "Parent Merger"), so that, as of the
Effective Date, HFC shall own directly all of the issued and outstanding Bank
Stock and all of the issued and outstanding Thrift Stock.
Bank and Thrift hereby agree as follows:
1. MERGER. Subject to the terms and conditions of this Agreement of Bank
Merger, at the Effective Date (as defined in Section 2 hereof), Thrift shall
merge with and into Bank under the laws of the United States and the State of
California (the "Bank Merger"), the separate corporate existence of Thrift shall
cease and Bank shall survive and continue to exist as a corporation incorporated
under the laws of the United States (Bank, as the surviving corporation in the
Bank Merger, sometimes being referred to herein as the "Surviving Bank").
2. EFFECTIVE DATE. The Bank Merger shall become effective on the date
and at the time articles of combination executed by Bank and Thrift are filed
with and endorsed by the Office of Thrift Supervision ("OTS") pursuant to 12
C.F.R. Section 552.13(k), unless a later date and time is specified is such
articles of combination (the "Effective Date"). [Add any other filing required
under California law.]
3. NAME. The name of the Surviving Bank shall continue to be "Hawthorne
Savings, F.S.B."
4. DIRECTORS AND OFFICERS. The directors and officers of the Bank
immediately prior to the Effective Date shall continue to serve as the directors
and officers of the Bank after the Effective Date. The Bank, as the Surviving
Bank, has seven (7) directors. At each annual
1
meeting of stockholders of Bank, directors are elected for one-year terms and
until their successors are elected and qualified. The name and residential
address of each director is set forth below:
NAME RESIDENTIAL ADDRESS
Marilyn Garton Amato 1565 Granvia Altmira
Palos Verdes, CA 90274
Gary W. Brummett 5931 Rustling Oak Drive
Agoura Hills, CA 91301
Timothy R. Chrisman Chrisman & Company, Inc.
350 S. Figueroa Street, Ste. 550
Los Angeles, CA 90071
Simone F. Lagomarsino 1891 Pradera Road
Camarillo, CA 93012
Anthony W. Liberati 109 Grouse Lane
Sewickley, PA 15143
Harry F. Radcliffe 40 Wiggins Lane or P. O. Box 974
Uniontown, PA 15401
Howard E. Ritt 6524 Bedford Avenue
Los Angeles, CA 90056
5. OFFICES. The location of the home office of the Surviving Bank shall
continue to be El Segundo, California, and the offices of the Surviving Bank
shall be as reflected in Exhibit A to this Agreement of Bank Merger, which is
incorporated herein by reference.
6. EFFECT ON SHARES OF STOCK. On the Effective Date:
(a) Each share of Thrift Stock outstanding immediately prior to the
Effective Date shall as of the Effective Date be cancelled.
(b) Each share of Bank Stock issued and outstanding immediately prior
to the Effective Date shall remain outstanding and unchanged and shall continued
to be owned by HFC.
(c) The Bank, as the Surviving Bank, may issue additional capital
stock to HFC or any HFC subsidiary.
2
7. CHARTER AND BYLAWS. On and after the Effective Date, the Charter and
Bylaws of the Bank as in effect immediately prior to the Effective Date shall
continue to be the Charter and Bylaws of the Surviving Bank until amended in
accordance with law.
8. RIGHTS AND DUTIES OF THE SURVIVING BANK. The business of the
Surviving Bank shall be that of a federal savings bank chartered under the laws
of the United States of America and as provided for in the Charter of the Bank
now existing, and such business shall be continued at the Bank's head office and
at its legally established branches and other offices. After the Effective Date,
the Surviving Bank will continue to issue savings accounts on the same basis as
immediately prior to the Effective Date. All assets, rights, privileges, powers,
franchises and property (real, personal, mixed and intangible) shall be
automatically transferred to and vested in the Surviving Bank by virtue of the
Bank Merger without any deed or other document of transfer. The Surviving Bank,
without order or action on the part of any court or otherwise and without any
documents of assumption or assignment, shall hold and enjoy all of the
properties, franchises and interests, including appointments, powers,
designations, nominations and all other rights and interests as agent or other
fiduciary in the same manner and to the same extent as such rights, franchises,
interests and powers were held or enjoyed by Bank and Thrift immediately prior
to the Effective Date, including liabilities for all debts, savings accounts,
deposit obligations and contracts of Bank and Thrift, respectively, matured or
unmatured, whether accrued, absolute, contingent or otherwise and whether or not
reflected or reserved against on balance sheets, books, accounts or records of
either Bank or Thrift. All rights of creditors and other obligees and all liens
on property of either Bank or Thrift shall be preserved and shall not be
released or impaired by virtue of the Bank Merger.
9. GOVERNING LAW. This Agreement of Bank Merger shall be governed in all
respects, including, but not limited to, validity, interpretation, effect and
performance, by the laws of the State of California, except as otherwise
provided by the laws of the United States.
10. AMENDMENT. This Agreement of Bank Merger may be amended, modified or
supplemented only by written agreement of Bank and Thrift at any time prior to
the Effective Date.
11. WAIVER. Subject to applicable law, any of the terms or conditions of
this Agreement of Bank Merger may be waived at any time by whichever of the
parties hereto is, or the shareholders of which are, entitled to the benefit
thereof by action taken by the Board of Directors of such party.
12. SUCCESSORS AND ASSIGNS. This Agreement of Bank Merger may not be
assigned by any party hereto without the prior written consent of the other
party. Subject to the foregoing, this Agreement of Bank Merger shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
13. TERMINATION. This Agreement of Bank Merger shall terminate upon the
termination of the Reorganization Agreement in accordance with its terms. This
Agreement of Bank Merger also may be terminated at any time prior to the
Effective Date by mutual consent of Bank and Thrift in a written instrument, if
and to the extent authorized by the respective Boards of Directors of Bank and
Thrift. In the event of the termination of this Agreement of Bank
3
Merger as provided in this Section 13, this Agreement of Bank Merger shall
forthwith become null and void and of no further force or effect and there shall
be no liability or obligation under this Agreement of Bank Merger on the part of
any of the parties hereto or any of their respective directors, officers or
affiliates.
14. PROCUREMENT OF APPROVALS. Bank and Thrift shall proceed
expeditiously and cooperate fully in the procurement of any consents and
approvals and the satisfaction of all other requirements prescribed by law or
otherwise necessary for consummation of the Bank Merger on the terms provided
herein, including without limitation the preparation and submission of such
applications, notices or other filings relating to the Bank Merger to the OTS
and any other applicable regulatory authority as may be required by applicable
laws and regulations.
15. CONDITIONS PRECEDENT. The obligations of the parties under this
Agreement of Bank Merger shall be subject to: (i) the approval of this Agreement
of Bank Merger by the affirmative vote of the sole shareholder of each of Bank
and Thrift; (ii) receipt of approval of the Bank Merger from the OTS and any
other governmental and banking authority whose approval is required; (iii)
receipt of any necessary regulatory approval to operate the main office of
Thrift and the branch offices of Thrift as branch offices of the Surviving Bank;
and (iv) the consummation of the Parent Merger pursuant to the Reorganization
Agreement on or before the Effective Date.
16. EXECUTION. This Agreement of Bank Merger may be executed in any
number of counterparts, each of which shall be deemed an original, and all of
which shall constitute one and the same instrument.
Dated as of _______________ ___, 2002.
HAWTHORNE SAVINGS, F.S.B.
By:
---------------------------------------
Simone Lagomarsino
President and Chief Executive Officer
By:
---------------------------------------
Eileen Lyon
Secretary
4
FIRST FIDELITY INVESTMENT & LOAN
ASSOCIATION
By:
---------------------------------------
Name:
Title:
By:
---------------------------------------
Name:
Title:
5
EXHIBIT A
HOME OFFICE
OF SURVIVING BANK
2381 Rosecrans Avenue
El Segundo, CA 90245
OTHER OFFICES AND ATM LOCATIONS*
OF SURVIVING BANK
2041 Rosecrans Avenue* 1727 W. Artesia Boulevard
El Segundo, CA 90245 Gardena, CA 90248
740 182nd Street* 13001 Hawthorne Boulevard
Gardena, CA 90248 Hawthorne, CA 90250
14603 Ocean Gate Avenue* 4440 W. 126th Street*
Hawthorne, CA 90250 Hawthorne, CA 90250
1309 Hermosa Avenue 3721 S. La Brea*
Hermosa Beach, CA 90254 Los Angeles, CA 90016
2600 Sepulveda Boulevard 19275 W. Jefferson Boulevard*
Manhattan Beach, CA 90266 Marina Del Rey, CA 90292
1409-A West Chapman Avenue 405 N. Pacific Coast Hwy.*
Orange, CA 92868-2743 Redondo Beach, CA 90277
1765 S. Elena Avenue 3550-D Rosecrans Street
Redondo Beach, CA 90277 San Diego, CA 92110-3228
3890 Valley Center Drive, Suite 103 2115 N. Gaffey*
San Diego, CA 92130-3309 San Pedro, CA 90731
19300 Ventura Boulevard 24451 Crenshaw Boulevard*
Tarzana, CA 91356 Torrance, CA 90503
21370 S. Hawthorne Boulevard 2655 Pacific Coast Hwy.*
Torrance, CA 90503 Torrance, CA 90503
3061 Edinger Avenue 7151 W. Manchester Boulevard
Tustin, CA 92780-7204 Westchester, CA 90045
973 S. Westlake Boulevard
Westlake Village, CA 91361
* ATM Locations
6
ARTICLES OF COMBINATION
HAWTHORNE SAVINGS, F.S.B.
FIRST FIDELITY INVESTMENT & LOAN ASSOCIATION
Pursuant to and as required by 12 C.F.R. Section 552.13(j), these
Articles of Combination set forth the pertinent facts related to the merger of
HAWTHORNE SAVINGS, F.S.B. (the "Bank") of El Segundo, California, with and into
FIRST FIDELITY INVESTMENT & LOAN ASSOCIATION (the "Thrift"), of Tustin,
California.
1. PLAN OF COMBINATION. Hawthorne Financial Corporation, a Delaware
corporation ("HFC"), First Fidelity Bancorp, Inc., a Delaware corporation
("Fidelity"), HF Merger Corp., a Delaware corporation ("Merger Sub"), Bank and
Thrift entered into an Agreement and Plan of Reorganization dated as of March
___, 2002 (the "Agreement"), pursuant to which Fidelity will merge into HFC (the
"Holding Company Merger") and: (i) each share of HFC common stock (the "HFC
Stock") issued and outstanding immediately prior to the consummation of the
Holding Company Merger shall remain an issued and outstanding share of common
stock of the surviving institution, and (ii) each share of Fidelity common stock
(the "Fidelity Common Stock") issued and outstanding immediately prior to the
consummation of the Holding Company Merger (other than shares of common stock
owned by holders who dissent from the Holding Company Merger in accordance with
Delaware law and any treasury shares of Fidelity) shall be converted into the
right to receive shares of HFC Stock and/or cash as provided in the Agreement.
Immediately following the Holding Company Merger, Thrift will merge with and
into the Bank (the "Bank Merger"). The Bank Merger will be effected pursuant to
the Agreement of Bank Merger, dated as of March ___, 2002, between Bank and
Thrift (the "Merger Agreement"), a copy of which is attached hereto as Exhibit A
and is incorporated by reference herein for all purposes.
2. SHARES OUTSTANDING. Prior to the Effective Date, as that term is
defined in the Merger Agreement, (a) the Bank has 15,000 shares of common stock,
par value $10.00 per share, issued and outstanding (the "Bank Stock"), and (b)
the Thrift has 20,000 shares of common stock, no par value per share, issued and
outstanding (the "Thrift Stock").
3. APPROVALS. The consent of the shareholders owning 100% of Bank Stock
was given, viz: fifteen thousand (15,000) shares of Bank Stock voted in favor
of, and zero (0) shares of Bank Stock voted against the Bank Merger. The consent
of the shareholders owning 100% of Thrift Stock was given, viz: twenty thousand
(20,000) shares of Thrift Stock voted in favor of, and zero (0) shares of Thrift
Stock voted against the Bank Merger.
4. EXECUTION. These Articles of Combination may be executed in any
number of counterparts, each of which shall be deemed and original, and all of
which shall constitute one and the same instrument.
IN WITNESS WHEREOF, each party hereto has caused these Articles of
Combination to be executed on its behalf by its duly authorized officer as of
the ____ day of _________, 2002.
HAWTHORNE SAVINGS, F.S.B.
By:
------------------------------------------
Simone Lagomarsino
President and Chief Executive Officer
By:
------------------------------------------
Eileen Lyon
Secretary
FIRST FIDELITY INVESTMENT & LOAN ASSOCIATION
By:
------------------------------------------
Name:
Title:
By:
------------------------------------------
Name:
Title:
2
VERIFICATIONS BY AFFIDAVIT
STATE OF CALIFORNIA )
)
COUNTY OF LOS ANGELES )
Simone Lagomarsino, being duly sworn, deposes and says that she has read the
foregoing Articles of Combination, knows the contents thereof, and, as to
Hawthorne Savings, F.S.B., knows that the statements contained therein are true
and correct.
-------------------------------------
Simone Lagomarsino
President and Chief Executive Officer
SUBSCRIBED AND SWORN TO before me this ______ day of __________, 2002.
-------------------------------------
Notary Public, State of California
3
VERIFICATIONS BY AFFIDAVIT
STATE OF CALIFORNIA )
)
COUNTY ORANGE )
_____________________, being duly sworn, deposes and says that he has read the
foregoing Articles of Combination, knows the contents thereof, and, as to First
Fidelity Investment & Loan Association, knows that the statements contained
therein are true and correct.
-------------------------------------
President and Chief Executive Officer
SUBSCRIBED AND SWORN TO before me this ______ day of __________, 2002.
-------------------------------------
Notary Public, State of California
4
ENDORSEMENT
These Articles of Combination were filed with the Office of Thrift
Supervision and endorsed thereby pursuant to 12 C.F.R. Section 552.13(j),
effective as of __:__ _.m., on the _____ day of _________, 2002.
-------------------------------------
Nadine Washington
Corporate Secretary
5
EXHIBIT B
STOCKHOLDER AGREEMENT
This STOCKHOLDER AGREEMENT ("Stockholder Agreement") is made and entered
into as of March __, 2002 by and between Hawthorne Financial Corporation, a
Delaware corporation ("HFC"), and the person signatory hereto (the
"Stockholder").
WHEREAS, HFC, First Fidelity Bancorp, Inc. a Delaware corporation
("Parent"), Hawthorne Savings, F.S.B., First Fidelity Investment & Loan
Association and HF Merger Corp. have entered into an Agreement and Plan of
Reorganization, dated as of March ___, 2002 (the "Agreement"), pursuant to which
Parent will be merged with and into HFC or HF Merger Corp. will be merged with
and into Parent (the "Merger"), whereupon each share of Parent Series A common
stock ("Parent Series A Common Stock") and Parent Series B common stock, which
are voting and non-voting shares, respectively, will be converted into the right
to receive the consideration set forth in the Agreement; and
WHEREAS, as a condition to its willingness to enter into the Agreement,
HFC has required that each director of Parent, as an owner of Parent Series A
Common Stock, enter into, and the Stockholder has agreed to enter into, this
Stockholder Agreement.
NOW, THEREFORE, in consideration of the foregoing, for good and valuable
consideration, the parties hereby agree as follows:
1. Representations and Warranties of the Stockholder. The Stockholder
hereby represents and warrants to HFC as follows:
(a) Authority; No Violation. The Stockholder has all necessary power
and authority to enter into and perform all of such Stockholder's obligations
hereunder. The execution, delivery and performance of this Stockholder Agreement
by the Stockholder will not violate any other agreement to which such
Stockholder is a party, including any voting agreement, stockholders' agreement,
trust agreement or voting trust. This Stockholder Agreement has been duly and
validly executed and delivered by the Stockholder (and the Stockholder's spouse,
if the Stock (as defined below) constitute community property) and constitutes a
valid and binding agreement of the Stockholder and such spouse, enforceable
against the Stockholder and the Stockholder's spouse in accordance with its
terms.
(b) Ownership of Stock. The Stockholder is the beneficial owner or
record holder of the number of shares of Parent Series A Common Stock indicated
under the Stockholder's name on the signature page hereto (the "Existing Stock",
and together with any shares of Parent Series A Common Stock acquired by the
Stockholder after the date hereof, the "Stock") and, as of the date hereof, the
Existing Stock constitutes all the shares of Parent Series A Common Stock owned
of record or beneficially by the Stockholder. With respect to the Existing
Stock, subject to applicable community property laws, the Stockholder has sole
voting power and sole power to issue instructions with respect to the matters
set forth in Section 2 hereof, sole power of disposition, sole power to demand
appraisal rights and sole power to engage in actions set forth in Section 2
hereof, with no restrictions on the voting rights, rights of disposition or
otherwise, subject to applicable laws and the terms of this Agreement.
1
(c) No Conflicts. Neither the execution and delivery of this
Stockholder Agreement nor the consummation by the Stockholder of the
transactions contemplated hereby will conflict with or constitute a violation of
or default under any contract, commitment, agreement, arrangement or restriction
of any kind to which such Stockholder is a party or by which the Stockholder is
bound.
2. Voting Agreement, Proxy and Agreement Not to Transfer.
(a) The Stockholder hereby agrees to vote all of the Stock held by
the Stockholder (i) in favor of the Merger, the Agreement and the transactions
contemplated by the Agreement; (ii) against any action or agreement that would
result in a breach in any material respect of any covenant, representation or
warranty or any other obligation or agreement of Parent under the Agreement; and
(iii) except with the prior written consent of HFC, against the following
actions (other than the Merger and the transactions contemplated by the
Agreement): (A) any extraordinary corporate transactions, such as a merger,
consolidation or other business combination involving Parent; (B) any sale,
lease or transfer of a material amount of the assets of Parent; (C) any change
in the majority of the board of Parent; (D) any material change in the present
capitalization of Parent; (E) any amendment of Parent's Certificate of
Incorporation; (F) any other material change in Parent's corporate structure; or
(G) any other action which is intended, or could reasonably be expected to,
impede, interfere with, delay, postpone, discourage or materially adversely
affect the contemplated economic benefits to HFC of the transactions
contemplated by the Agreement. The Stockholder shall not enter into any
agreement or understanding with any person or entity prior to the Termination
Date (as defined below) to vote or give instructions after the Termination Date
in any manner inconsistent with clauses (i), (ii) or (iii) of the preceding
sentence.
(b) The Stockholder hereby agrees not to (i) sell, transfer, assign
or otherwise dispose of any of his or her Stock without the prior written
consent of HFC (which shall not be unreasonably withheld), other than Stock sold
or surrendered to pay the exercise price of any stock options or to pay taxes or
satisfy Parent's withholding obligations with respect to any taxes resulting
from such exercise or (ii) pledge, mortgage or encumber such Stock. Any
permitted transferee of Stock must become a party to this Agreement and any
purported transfer of Stock to a person or entity that has not become a party
hereto shall be null and void.
3. Cooperation. The Stockholder agrees that (s)he will not directly or
indirectly solicit any inquiries or proposals from any person relating to any
proposal or transaction for the disposition of the business or assets of Parent
or any of its subsidiaries, or the acquisition of voting securities of Parent or
any subsidiary of Parent or any business combination between Parent or any
subsidiary of Parent and any person other than HFC and Hawthorne Savings, F.S.B.
4. Stockholder Capacity. The Stockholder is entering this Stockholder
Agreement in his or her capacity as the record or beneficial owner of the
Stockholder's Stock, and not in his or her capacity as an executive officer or
director of Parent. Nothing in this Stockholder Agreement shall be deemed in any
manner to limit the discretion of any Stockholder to take any action, or fail to
take any action, in his or her capacity as an executive officer or director of
Parent, that
2
may be required of such Stockholder in the exercise of his or her duties and
responsibilities as an executive officer or director of Parent.
5. Termination. The obligations of the Stockholder shall terminate upon
the consummation of the Merger. If the Merger is not consummated, the
obligations of the Stockholder hereunder shall terminate upon the termination of
the Agreement.
6. Specific Performance. The Stockholder acknowledges that damages would
be an inadequate remedy to HFC for an actual or prospective breach of this
Agreement and that the obligations of the Stockholder hereto shall be
specifically enforceable.
8. Miscellaneous.
(a) Definitional Matters.
(i) Unless the context otherwise requires, "person" shall mean a
corporation, association, partnership, joint venture, organization, business,
individual, trust, estate or any other entity or group (within the meaning of
Section 13(d)(3) of the Exchange Act).
(ii) All capitalized terms used but not defined in this
Stockholder Agreement shall have the respective meanings that the Agreement
ascribes to such terms.
(iii) The descriptive headings herein are inserted for
convenience of reference only and are not intended to be part of or to affect
the meaning or interpretation of this Stockholder Agreement.
(b) Entire Agreement. This Stockholder Agreement constitutes the
entire agreement between the parties hereto with respect to the subject matter
hereof and supersedes all other prior agreements and understandings, both
written and oral, among the parties, or any of them, with respect to the subject
matter hereof.
(c) Parties in Interest. This Stockholder Agreement shall be binding
upon and inure solely to the benefit of each party hereto and their respective
successors, assigns, heirs, executors, administrators and other legal
representatives. Nothing in this Stockholder Agreement, express or implied, is
intended to confer upon any other person any rights or remedies of any nature
whatsoever under or by reason of this Stockholder Agreement.
(d) Assignment. This Stockholder Agreement shall not be assigned
without the prior written consent of the other party hereto.
(e) Modifications. This Stockholder Agreement shall not be amended,
altered or modified in any manner whatsoever, except by a written instrument
executed by the parties hereto.
3
(f) Governing Law. This Stockholder Agreement shall be governed in
all respects, including validity, interpretation and effect, by the laws of the
State of California without regard to the conflicts of law principles thereof.
(g) Validity. The invalidity or unenforceability of any provision of
this Stockholder Agreement shall not affect the validity or enforceability of
any other provision of this Stockholder Agreement, each of which shall remain in
full force and effect.
(h) Counterparts. This Stockholder Agreement may be executed in two
or more counterparts, each of which shall be deemed to be an original, but all
of which shall constitute one and the same agreement.
(i) Notices. Any notices or other communications required or
permitted hereunder shall be in writing and shall be deemed duly given upon (i)
transmitter's confirmation of a receipt of a facsimile transmission, (ii)
confirmed delivery by a standard overnight carrier or (iii) the expiration of
five business days after the day when mailed by certified or registered mail,
postage prepaid, addressed at the following addresses (or at such other address
as the parties hereto shall specify by like notice):
If to HFC, to:
Hawthorne Financial Corporation
2381 Rosecrans Avenue, 2nd Floor
El Segundo, California 90218
Telecopy: (310) 725-5038
Attention: Simone Lagomarsino
with a copy to:
Manatt, Phelps & Phillips, LLP
11355 W. Olympic Boulevard
Los Angeles, CA 90064
Telecopy: (310) 312-4204
Attention: William T. Quicksilver, Esq.
If to the Stockholder, to the address noted on the signature page hereto.
[SIGNATURES FOLLOW ON NEXT PAGE]
4
IN WITNESS WHEREOF, the parties hereto have executed this Stockholder Agreement
as of the date first above written.
HAWTHORNE FINANCIAL
CORPORATION
By:
Name:
Title:
STOCKHOLDER:
- --------------------------------
Name:
---------------------------
Number of shares of Stock:
- --------------------------------
Address for Notices:
- --------------------------------
- --------------------------------
5
EXHIBIT C
Hawthorne Financial Corporation
2381 Rosecrans Avenue
2nd Floor
El Segundo, California 90218
Ladies and Gentlemen:
I have been advised that as of the date hereof I may be deemed to be an
"affiliate" of First Fidelity Bancorp, Inc. a Delaware corporation ("FFB") as
the term "affiliate" is (i) defined for purposes of paragraphs (c) and (d) of
Rule 145 of the Rules and Regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Securities Act"). I have been further advised that
pursuant to the terms of the Agreement and Plan of Reorganization, dated as of
March ___, 2002 (the "Merger Agreement"), by and among Hawthorne Financial
Corporation, a Delaware corporation ("HFC"), FFB, Hawthorne Savings, F.S.B.,
First Fidelity Investment & Loan Association and HF Merger Corp, FFB will be
merged with and into HFC or a direct or indirect subsidiary of HFC will be
merged with FFB (the "Merger"), and that as a result of the Merger, I may
receive shares of HFC Stock (as defined in the Merger Agreement) in exchange for
shares of FFB Stock (as defined in the Merger Agreement), owned by me.
I hereby represent, warrant and covenant to HFC that in the event I
receive any HFC Stock pursuant to the Merger:
A. I shall not make any sale, transfer or other disposition of the HFC
Stock in violation of the Securities Act or the Rules and Regulations.
B. I have carefully read this letter and the Merger Agreement and
discussed its requirements and other applicable limitations upon my ability to
sell, transfer or otherwise dispose of HFC Stock to the extent I believed
necessary, with my counsel or with counsel for FFB.
C. I have been advised that the issuance of HFC Stock to me pursuant to
the Merger Agreement will be registered with the Commission on a registration
statement on Form S-4. However, I have also been advised that, since at the time
the Merger will be submitted to the shareholders of FFB for approval, I may be
an "affiliate" of FFB, any sale or disposition by me of any of the HFC Stock,
may, under current law, only be made in accordance with the provisions of
paragraph (d) of Rule 145 under the Securities Act, pursuant to an effective
registration statement under the Securities Act or pursuant to an exemption
thereunder. I agree that I will not sell, transfer, or otherwise dispose of HFC
Stock issued to me in the Merger unless (i) such sale, transfer or other
disposition has been registered under the Securities Act; (ii) such sale,
transfer or other disposition is made in conformity with the volume and other
limitations of Rule 145 promulgated by the Commission under the Securities Act,
or (iii) in the opinion of counsel, which counsel shall be reasonably acceptable
to HFC, such sale, transfer or other disposition is otherwise exempt from
registration under the Securities Act.
1
D. I understand that HFC is under no obligation to register the sale,
transfer or other disposition of the HFC Stock by me or in my behalf or to take
any other action necessary to make compliance with an exemption from
registration available.
E. I understand that stop-transfer instructions will be given to HFC's
transfer agents with respect to HFC Stock and that there will be placed on the
certificates for the HFC Stock issued to me, or any substitutions therefor, a
legend stating in substance:
"The securities represented by this certificate have been issued in a
transaction to which Rule 145 promulgated under the Securities Act of
1933, as amended (the "Securities Act"), applies and may be sold or
otherwise transferred only in compliance with the requirements of
Rule 145 or pursuant to a registration statement under the Securities
Act or an exemption from such registration."
F. I also understand that unless the transfer by me of my HFC Stock has
been registered under the Securities Act or is a sale made in conformity with
the provisions of Rule 145, HFC reserves the right to put the following legend
on the certificates issued to my transferee:
"The sale of the shares represented by this certificate has not been
registered under the Securities Act of 1933, as amended (the
"Securities Act"), and the shares were acquired from a person who
received such shares in a transaction to which Rule 145 promulgated
under the Securities Act applies. The shares have been acquired by
the holder not with a view to, or for resale in connection with, any
distribution thereof within the meaning of the Securities Act and may
not be sold, pledged or otherwise transferred except in accordance
with an exemption from the registration requirements of the
Securities Act."
It is understood and agreed that this letter agreement shall terminate and be of
no further force and effect and the legends set forth in E or F, as the case may
be, above shall be removed by delivery of substitute certificates without such
legend, and the related stop-transfer of restrictions shall be lifted forthwith,
if (i) any such shares of HFC Stock shall have been registered under the
Securities Act for sale, transfer or other disposition by me or on my behalf and
are sold, transferred or otherwise disposed of, or (ii) any such shares of HFC
Stock are sold in accordance with the provisions of paragraphs (c), (e), (f) and
(g) of Rule 144 promulgated under the Securities Act, or (iii) I am not at the
time an affiliate of HFC and have been the beneficial owner of the HFC Stock for
at least one year (or such other period as may be prescribed by the Securities
Act and the Rules and Regulations), and HFC has filed with the Commission all of
the reports it is required to file under the Securities Exchange Act of 1934, as
amended, during the preceding 12 months, or (iv) I am not and have not been for
at least three months an affiliate of HFC and have been the beneficial owner of
the HFC Stock for at least two years (or such other period as may be prescribed
by the Securities Act and the Rules and Regulations), or (v) HFC shall have
received a letter from the Staff of the Commission, or a
2
written opinion of counsel, which counsel shall be reasonably acceptable to HFC,
to the effect that the stock transfer restrictions and the legend are not
required.
Very truly yours,
--------------------------
Accepted this ___ day of ___________, 2002.
Hawthorne Financial Corporation
By:
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Name:
Title:
3
EXHIBIT D
EARNINGS REQUIREMENTS
For the purposes of Section 11.10 of the Agreement, the Adjusted Net
Earnings of Fidelity shall exceed the following applicable amount:
- $ 2,060,630 if the Effective Time of the Holding Company Merger
occurs in May 2002
- $ 2,643,171 if the Effective Time of the Holding Company Merger
occurs in June 2002.
- $ 3,173,713, if the Effective Time of the Holding Company Merger
occurs in July 2002.
- $ 3,689,054 if the Effective Time of the Holding Company Merger
occurs in August 2002.
- $ 4,208,396 if the Effective Time of the Holding Company Merger
occurs in September 2002.
- $ 4,709,337 if the Effective Time of the Holding Company Merger
occurs in October 2002.
- $ 5,245,478 if the Effective Time of the Holding Company Merger
occurs in November 2002.
- $ 5,755,220 if the Effective Time of the Holding Company Merger
occurs in December 2002.