UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
Commission file number 0-28080
-------
UNITED FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
MINNESOTA 81-0507591
- --------- ----------
(State or other jurisdiction of (I.R.S. Employer ID No.)
incorporation or organization)
P.O. Box 2509; 601 1st Ave. North, Great Falls, Montana 59403
- ---------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (406) 761-2200
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [ ]
The number of shares of registrant's no par value common stock outstanding
on September 30 1997, was 1,223,312. No preferred shares were outstanding.
Registrant's common stock is traded Over-The-Counter on the NASDAQ National
Market System, symbol UBMT.
UNITED FINANCIAL CORP.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
Consolidated Statements of Financial Condition at September
30, 1997, September 30, 1996 and December 31, 1996 . . . . . . . . 1
Consolidated Statements of Income - Three Months Ended
September 30, 1997 and September 30, 1996 . . . . . . . . . . . . .2
Consolidated Statements of Income - Nine Months Ended
September 30, 1997 and September 30, 1996 . . . . . . . . . . . . .2
Consolidated Statements of Cash Flows - Nine Months Ended
September 30, 1997 and September 30, 1996 . . . . . . . . . . . . .3
Consolidated Statement of Changes in Stockholders'
Equity - Nine Months Ended September 30, 1997 . . . . . . . . . . .4
Notes to Consolidated Financial Statements . . . . . . . . . . . . 5
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . 15
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . 21
ITEM 2 CHANGE IN SECURITIES. . . . . . . . . . . . . . . . . . . . . 21
ITEM 3 DEFAULTS ON SENIOR SECURITIES . . . . . . . . . . . . . . . . 21
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS . . . . 21
ITEM 5 OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . 21
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K. . . . . . . . . . . . . . . 21
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
i
PART I - FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
UNITED FINANCIAL CORP. - CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except equity/assets, share and per share data)
(Unaudited, except December 31) September 30, December 31,
1997 1996 1996
ASSETS -------- -------- ------------
Cash and cash equivalents:
Cash and amounts due from banks $ 715 $ 673 $ 921
Interest-earning deposits with banks 5,028 485 2,013
-------- -------- --------
5,743 1,158 2,934
Investments:
Securities held-to-maturity 32,300 36,764 35,828
Securities available-for-sale 26,349 31,655 25,185
-------- -------- --------
58,649 68,419 61,013
Loans receivable, net 34,160 33,585 35,176
Premises and equipment, net 1,363 1,432 1,407
Real estate owned 357 666 425
Accrued interest receivable 1,052 956 817
FHLB stock, at cost 524 379 379
Other assets 1,234 1,350 1,686
-------- -------- --------
$103,082 $107,945 $103,837
LIABILITIES AND STOCKHOLDERS' EQUITY ======== ======== ========
Deposits:
NOW and money market accounts $ 7,753 $ 8,407 $ 8,669
Savings deposits 26,477 30,317 29,918
Time deposits 37,881 39,568 40,110
-------- -------- --------
72,111 78,292 78,697
FHLB advances 5,000 3,650
Accrued interest payable 297 276 66
Advance payments by borrowers for
taxes and insurance 466 522 211
Income taxes payable 281 83 259
Other liabilities 170 802 188
-------- -------- --------
78,325 83,625 79,421
Stockholders' equity:
Preferred stock, no par value
(2,000,000 shares authorized;
none outstanding)
Common stock, no par value
(8,000,000 shares authorized;
1,223,312 outstanding) 8,849 1,223 1,223
Paid-in capital 7,626 7,626
Retained earnings-partially restricted 16,319 15,991 16,060
Unrealized loss on securities
available-for-sale (411) (520) (493)
-------- -------- --------
24,757 24,320 24,416
-------- -------- --------
$103,082 $107,945 $103,837
======== ======== ========
Equity/Assets 24.0% 22.5% 23.5%
Book Value/Share $20.24 $19.88 $19.96
UNITED FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
1997 1996 1997 1996
-------- -------- -------- -------
Interest Income:
Loans $ 797 $ 756 $2,419 $2,150
Mortgage-backed securities 363 507 1,177 1,550
Investment securities 610 544 1,821 1,578
Interest-earning deposits 75 14 143 124
------ ------ ------ ------
1,845 1,821 5,560 5,402
Interest Expense:
Deposits 817 867 2,497 2,603
FHLB advances 75 12 155 71
------ ------ ------ ------
892 879 2,652 2,674
Net interest income 953 942 2,908 2,728
Provision for losses on loans
------ ------ ------ ------
Net interest income after
provision for losses on loans 953 942 2,908 2,728
Noninterest Income:
Fees and discounts 131 137 307 325
FHLB stock dividends 10 7 28 24
Investment securities sales,
net gain 132
Other income 51 48 147 162
------ ------ ------ ------
192 192 482 643
Noninterest Expense:
Salaries and employee benefits 303 280 908 850
Net occupancy and equipment expense 63 63 195 184
Data processing expense 21 22 66 67
FDIC/SAIF deposit insurance premium 12 45 38 135
FDIC/SAIF deposit insurance special
assessment 550 550
Other expenses 103 123 358 393
------ ------ ------ ------
502 1,083 1,565 2,179
------ ------ ------ ------
Income before income taxes 643 51 1,825 1,192
Provision for income taxes 241 14 685 440
------ ------ ------ ------
Net income $ 402 $ 37 $1,140 $ 752
====== ====== ====== ======
Net income per share $.33 $.03 $.93 $.62
2
UNITED FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended
(Dollars in thousands) September 30,
(Unaudited) ------------------
1997 1996
Operating Activities: -------- --------
Net income $ 1,140 $ 752
Adjustments to reconcile net cash
provided by operating activities:
Depreciation and amortization of Bank
premises and equipment 87 86
Depreciation of real estate held for investment 27 27
Investment securities net accretion (59) (174)
Sales of available-for-sale securities, net gain (132)
Loans originated for the secondary market (7,989) (9,078)
Proceeds from secondary market loan sales 8,443 8,978
FHLB stock dividends (27) (23)
Net change in income taxes payable 22 (177)
Net change in accrued interest receivable (235) (41)
Net change in accrued interest payable 231 208
Net change in other assets (86) 79
Net change in other liabilities (18) 393
------- -------
Net cash provided by operating activities 1,536 898
Investing Activities:
Purchases of held-to-maturity securities (17,350) (17,047)
Proceeds from matured and called held-to-maturity securities 14,950 2,000
Mortgage-backed securities principal collections 5,987 21,590
Purchases of available-for-sale securities (3,998) (6,908)
Proceeds from matured and called available-for-sale
securities 3,000 7,000
Proceeds from sales of available-for-sale securities 3,139
Loans originated for portfolio (12,007) (14,311)
Loan principal collections 10,864 7,868
Proceeds from sales of portfolio loans 1,896 2,239
All other changes in loans, net 263 904
Purchases of premises and equipment (43) (24)
Net change in real estate owned 41 (136)
Proceeds from redemption of FHLB stock 120
FHLB stock purchase (118)
------- -------
Net cash provided by investing activities 3,485 6,434
Financing Activities: ------- -------
Net (decrease) increase in deposits (6,586) 1
Net increase (decrease) in FHLB advances 5,000 (6,850)
Net increase in advance escrow payments by borrowers 255 298
Capitalized holding company formation costs (37)
Cash dividends paid (881) (807)
------- -------
Net cash (used) by financing activities (2,212) (7,395)
------- -------
Increase (decrease) in cash and cash equivalents 2,809 (63)
Cash and cash equivalents at beginning of year 2,934 1,221
------- -------
Cash and cash equivalents at end of period $ 5,743 $ 1,158
Supplemental Cash Flow Disclosure: ======= =======
Cash payments for interest $ 2,421 $ 2,466
Cash payments for income taxes $ 663 $ 481
UNITED FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in thousands, except per share data)
(Unaudited, except December 31)
Nine Months Ended September 30, 1997
----------------------------------------------
Unrealized
holding
gains
Common Paid-In Retained (losses)
Stock Capital Earnings net Total
------- ------- -------- -------- -------
Balance-December 31, 1996 $1,223 $7,626 $16,060 $(493) $24,416
Net income 1,140 1,140
Cash dividends paid
($.72 per share) (881) (881)
Decrease in unrealized loss
on investment securities
available-for-sale 82 82
Elimination of par value 7,626 (7,626)
------ ------- ------- ----- -------
Balance-September 30, 1997 $8,849 $16,319 $(411) $24,757
====== ======= ======= ===== =======
4
UNITED FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
General -- United Financial Corp. (United) a Minnesota corporation formed in
1996, is a unitary savings bank holding company headquartered in Great Falls,
Montana. United Financial Corp.'s wholly owned subsidiary, United Savings
Bank, F.A. (United Bank) is a federally chartered stock savings bank. United
Bank's wholly owned subsidiary, Community Service Corporation, a Montana
corporation formed in 1974, owns and manages real estate held for investment.
United, United Bank, and United Bank's subsidiary are collectively referred to
as the Company. United Bank's Great Falls Montana headquarters serves its
primary market, the Great Falls metropolitan area. Full service branches are
located in Shelby, Glendive and Havre, Montana. United Bank's deposits are
insured by the Federal Deposit Insurance Corporation (FDIC) - Savings
Association Insurance Fund (SAIF). United Bank is a member of the Federal
Home Loan Bank (FHLB) of Seattle, Washington, and is subject to comprehensive
supervision, regulation and examination by the Office of Thrift Supervision
(OTS) and the FDIC.
Basis of Presentation -- The Company's consolidated financial statements
included herein have been prepared in accordance with generally accepted
accounting principles for interim financial information and with instructions
to Form 10-Q and Rule 10-01 of Securities and Exchange Commission Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, the information contained herein
reflects all postings and disclosures (consisting only of normal recurring
adjustments) necessary for a fair presentation of the consolidated financial
condition, results of operations, changes in stockholders' equity, and changes
in cash flows for the periods disclosed. Operating results for the nine
months ended September 30, 1997, are not necessarily indicative of the results
anticipated for the year ended December 31, 1997. For additional information,
refer to the consolidated audited financial statements and footnotes thereto
included in the Company's annual report and Form 10-K for the year ending
December 31, 1996.
Merger Announcement -- On June 24, 1997, a joint press release announced that
United Financial Corp. and Heritage Bancorporation had signed a letter of
intent to merge. Heritage Bancorporation is the parent company of Heritage
Bank, FSB, a Great Falls, Montana federally chartered savings bank with $80
million in assets. A combination of United Financial Corp. and Heritage would
create a banking institution with approximately $187 million in assets, $87
million in loans, $140 million in deposits and $30 million in stockholders'
equity.
Under the terms of the letter of intent, United Financial Corp. and Heritage
will merge in a tax-free reorganization pursuant to which United Financial
Corp. shareholders will own approximately 70% of the combined entity and
Heritage shareholders will own approximately 30% of the combined entity. The
parties have agreed that the bank holding company which results from the
merger will be called United Financial Corp. and that the resulting bank will
be called Heritage Bank. On August 25, 1997, an Agreement and Plan of Merger
(attached as an exhibit) was approved and signed by both companies. The
merger's effective date is expected to be in the first quarter of 1998,
pending regulatory approval and a favorable vote by shareholders.
5
Stockholders' Equity -- On April 23, 1997, the shareholders of the Company
approved a resolution which amended the Company's Articles of Incorporation
and changed the par value of the Company's common stock and preferred stock
from $1.00 par value to no par value. As a result, the Company's additional
paid-in capital account has been combined with common stock as presented in
the Consolidated Statement of Changes in Stockholders' Equity. In addition,
the Stockholders' Equity section of the Company's Consolidated Statements of
Financial Condition reflects no par value for preferred and common stock.
Cash Equivalents -- For purposes of the Consolidated Statements of Cash Flows,
all cash, daily interest and noninterest-bearing deposits with banks are
classified as cash equivalents.
Computation of Net Income Per Share -- Net income or earnings per share is
calculated by dividing net income by the weighted average number of common
shares outstanding during the period. The weighted average number of common
shares outstanding for the quarters and nine months ended September 30, 1997,
and September 30, 1996, were 1,223,312.
Recent Accounting Pronouncements -- In February 1997, the Financial Accounting
Standards Board issued Statement No. 128 "Earnings Per Share." This statement
simplifies the standards for computing earnings per share (EPS) by replacing
the presentation of primary and fully diluted EPS with a presentation of basic
EPS and diluted EPS on the face of the income statement for all entities with
complex capital structures. Statement No. 128 also requires a reconciliation
of the numerator and the denominator of the basic EPS computation to the
numerator and denominator of the diluted EPS computations. The provisions of
Statement No. 128 apply to financial statements issued for periods ending
after December 15, 1997. Earlier adoption is not permitted. Adoption will not
have a material impact on the results on operations or the reported earnings
per share of the Company.
Dividends Declared -- On July 28, 1997, the Board of Directors of United
declared a third-quarter 1997 cash dividend of $.245 per share, paid August
25, 1997, to shareholders of record on August 11, 1997. On October 27, 1997,
the Board of Directors of United declared a fourth-quarter 1997 cash dividend
of $.25 per share, payable November 24, 1997, to shareholders of record on
November 10, 1997.
Material Contracts-Severance Agreements -- Beginning in 1993, and renewed each
year, United Bank's Board of Directors provided change of control severance
agreements to its President and each of its five Vice-Presidents. The
agreements provide for severance compensation in the event any company or
person acquires control of United Bank, as determined in accordance with
applicable federal regulations. Pursuant to his agreement upon a change of
control, United Bank's President would be entitled to lump-sum compensation
equal to two times his annual base salary plus any target bonuses, and 24
months of continued welfare and employee benefits. The agreements with each
of the five Vice-Presidents provide for payment, upon a change of control, of
lump-sum compensation equal to their annual base salary, plus any target
bonuses, and 12 months of continued welfare and employee benefits.
FDIC/SAIF Insurance Special Assessment and Change in Insurance Premium --
Enacted into law in 1996 was legislation providing for a special assessment
against FDIC/SAIF member institutions which capitalized the SAIF insurance
reserve to the statutory prescribed 1.25% of insured deposits level. For
United Bank, this one-time special assessment was $549,700, based upon 65.7
6
basis points per $100 of United Bank's insured deposit base on March 31, 1995.
The Company's 1996 consolidated financial statements reflect this additional
FDIC/SAIF insurance expense, the after tax impact amounting to a $338,300, or
$.28 per share, reduction in third quarter and all 1996 net income.
Based upon United Bank's 1996 year-end "1A" FDIC risk classification, United
Bank's semi-annual FDIC/SAIF assessment rate, beginning January 1, 1997,
decreased from 23 basis points to 6.5 basis points per $100 of insured
deposits. Most commercial banks, now insured under the FDIC/Bank Insurance
Fund (BIF), began paying 1.3 basis points per $100 of insured deposits. For
the second half of 1997 United Bank's FDIC/SAIF assessment rate will be 6.3
basis points and BIF members will pay 1.26 basis points. In addition, this
new law provides for the merger of the BIF/SAIF insurance funds on January 1,
1999, provided the bank and savings association charters have been merged by
that date.
Emerging Legislation -- Now being debated in the U.S. Congress and Senate are
several "Banking" and "Financial Modernization" bills that include such issues
as thrift and thrift holding company charter changes, conversion of thrifts to
national bank charter status, changes in bank holding company powers, merger
of the BIF and SAIF FDIC insurance funds, consolidation of federal regulatory
agencies, "modernization" of the FHLB, branch banking and several other
"consumer" and regulatory issues. What final form, and impact, this type of
legislation and other potential changes in federal law regarding interstate
banking and branching, Glass-Stegall Act revisions, the continued
consolidation of the banking industry and other regulatory changes will have
on United Bank's operations cannot be predicted at this time.
Debt and Equity Investment Accounting -- FASB Statement No. 115, "Accounting
for Investments in Certain Debt and Equity Securities" addresses the
accounting and reporting for investments in equity securities that have
readily determinable fair values and all investments in debt securities.
Statement No. 115 requires that the Company's investments be classified into
the following three categories and accounted for as follows:
1) Debt securities purchased with the positive intent and ability to
hold to maturity are classified as held-to-maturity and reported at
amortized cost.
2) Debt and equity securities purchased and held principally for the
purpose of selling them in the near term are classified as trading
securities and reported at fair value, with unrealized gains and
losses included in earnings.
3) Debt and equity securities not classified as either held-to-maturity
securities or trading securities are classified as available-for-sale
and reported at fair value, with net unrealized gains and losses
excluded from earnings and reported (net of tax effect) as a separate
component of stockholders' equity.
The Company does not maintain a trading portfolio. All investment securities
are therefore classified as either held-to-maturity or available-for-sale.
Held-to-maturity investments, shown at cost, are comprised of mortgage-backed
securities, Federal Home Loan Bank (FHLB) certificates of deposit and U.S.
Government securities and agencies. Available-for-sale securities, shown at
fair value with net unrealized holding gains and losses, net of tax, reported
in stockholders' equity, are comprised of the Kemper U.S. Government bond
mutual fund and U.S. Government securities and agencies.
A comparison of the amortized cost and estimated fair value of investment
securities at the dates indicated is as follows:
(Dollars in thousands) September 30, 1997
(Unaudited, except December 31) ----------------------------------------
Gross Gross Estimated
Amortized Unreal. Unreal. Fair
Cost Gains Losses Value
Held-to-Maturity: --------- ------- -------- -------
U.S. Government agencies $11,000 $ 78 $11,078
GNMA fixed and adjustable rate 1,728 41 1,769
FNMA and FHLMC adjustable rate 5,619 46 $ (83) 5,582
FNMA and FHLMC 7 yr and
FHLMC 5 yr balloons 12,646 112 12,758
FNMA and FHLMC REMIC certificates 1,307 (2) 1,305
------- ------ ------ -------
Mortgage-backed securities 21,300 199 (85) 21,414
------- ------ ------ -------
$32,300 $277 $(85) $32,492
======= ====== ====== =======
Available-for-Sale:
U.S. Treasuries and U.S.
Government agencies $21,022 $ 65 $(16) $21,071
Kemper U.S. Government bond
mutual fund 5,996 (718) 5,278
------- ------ ------ -------
$27,018 $ 65 $(734) $26,349
======= ====== ====== =======
December 31, 1996
----------------------------------------
Held-to-Maturity:
U.S. Government agencies $ 2,600 $ 9 $ 2,609
FHLB certificates of deposit 6,000 6,000
------- ---- -------
U.S. Government agencies and other 8,600 9 8,609
------- ---- -------
GNMA fixed and adjustable rate 2,092 31 $ (1) 2,122
FNMA and FHLMC adjustable rate 5,787 28 (79) 5,736
FNMA and FHLMC 7 yr and FHLMC
5 yr balloons 14,965 143 (3) 15,105
FNMA and FHLMC REMIC certificates 4,384 (13) 4,371
------- ---- ----- -------
Mortgage-backed securities 27,228 202 (96) 27,334
------- ---- ----- -------
$35,828 $211 $ (96) $35,943
======= ==== ===== =======
Available-for-Sale:
U.S. Treasuries and U.S.
Government agencies $20,024 $ 94 $(115) $20,003
Kemper U.S. Government bond
mutual fund 5,996 (814) 5,182
------- ---- ----- -------
$26,020 $ 94 $(929) $25,185
======= ==== ===== =======
8
A comparison of the amortized cost and estimated fair values of held-to-
maturity and available-for-sale investment securities by contractual
maturities at September 30, 1997, is shown below. Estimated maturities may
differ from contractual maturities as some securities have call or prepayment
options.
(Dollars in thousands)
(Unaudited) September 30, 1997
---------------------------
Amortized Estimated
Cost Fair Value
--------- ----------
Held-to-Maturity:
Due after 2 years through 5 years $ 8,000 $ 8,063
Due after 5 years through 7 years 3,000 3,015
Mortgage-backed securities 21,300 21,414
------- -------
$32,300 $32,492
======= =======
Available-for-Sale:
Due in 1 year or less $14,043 $14,040
Due after 1 year through 2 years 1,985 2,001
Due after 2 years through 5 years 4,994 5,030
Kemper U.S. Government bond mutual fund 5,996 5,278
------- -------
$27,018 $26,349
======= =======
During the nine months ended September 30, 1997, no investment security was
sold. During the nine months ended September 30, 1996, one available-for-sale
investment security with a book value of $3,007,090 was sold realizing a gain
of $132,363.
Regulatory Capital -- United Bank, the wholly owned regulated thrift
institution of United is required to meet three FIRREA-enacted capital
regulations: (1) a tangible capital requirement (stockholders' equity adjusted
for the effects of intangibles, investments and advances to "nonincludable"
subsidiaries and other factors) equal to not less than 1.5% of tangible assets
(as defined in the regulations), (2) a core capital requirement, comprised of
tangible capital adjusted for supervisory goodwill and other defined factors
equal to not less than 3% of tangible assets, and (3) a risk-based capital
requirement equal to 8% of all risk- weighted assets. For risk-weighting,
selected assets are given a risk assignment of 0% to 100%. For example, cash
and securities backed by the full faith and credit of the U.S. Government are
risk-weighted at 0% of book value, while repossessed assets and delinquent
loans over 90 days past due are assigned a 100% factor, or a risk-weighting
equal to their book value. United Bank's total risk-weighted assets at
September 30, 1997 were approximately $35.4 million.
9
The following table demonstrates as of September 30, 1997, the extent to which
United Bank exceeds in dollars and in percent, the three minimum regulatory
capital requirements:
(Dollars in thousands)
(Unaudited) Regulatory Capital
----------------------------------------
Actual Requirement Excess
-------- ----------- --------
Tangible capital:
$ Amount $15,052 $1,400 $13,652
% of tangible assets 16.1% 1.5% 14.6%
Core capital:
$ Amount $15,052 $2,800 $12,252
% of tangible assets 16.1% 3.0% 13.1%
Risk-based capital:
$ Amount $15,127 $2,836 $12,291
% of risk-weighted assets 42.7% 8.0% 34.7%
Stockholders' equity as shown on the Company's consolidated financial
statements differs from regulatory United Bank tangible, core and risk-based
capital at the date indicated as follows:
(Dollars in thousands)
(Unaudited)
September 30, 1997
------------------
Consolidated stockholders' equity $24,757
United stockholders' equity 9,347
-------
United Bank stockholders' equity 15,410
Non-includable investments and notes
of United Bank subsidiary (351)
Unrealized loss on debt investment securities
available-for-sale (7)
-------
Tangible and Core United Bank capital 15,052
Reserve for possible loan losses 75
-------
Risk-based capital $15,127
=======
The Office of Thrift Supervision (OTS) is responsible for insuring that
capital standards reflect interest rate risk (IRR), defined as the potential
for the reduction of earnings and stockholders' equity resulting from changes
in market interest rates. The OTS has delayed implementation of a proposed
capital deduction for savings institutions with a greater than normal level of
IRR as calculated by the OTS Net Portfolio Value Model. Due to its current
capital position, most recent OTS calculated IRR and proposed exemption
criteria, United Bank would not have an IRR capital adjustment.
Failure to comply with applicable regulatory capital requirements can result
in capital directives from the director of the OTS, restrictions on growth,
and other limitations on a savings association's operations.
10
The following table sets forth for the third quarter 1997, information
regarding (1) average balance sheets, (2) an analysis of net interest income,
and (3) other information regarding changes in interest-earning assets and
interest-bearing liabilities.
(Dollars in thousands, except per share data-unaudited)
Average Interest Average
Balance Earned/Pd Yield/Cost
ASSETS --------- --------- ----------
Mortgage loans (net of LIP) $ 31,262 $ 731 9.35%
Non-mortgage loans 3,190 66 8.28%
-------- ----- -----
Loans receivable 34,452 797 9.25%
Mortgage-backed securities 22,225 363 6.53%
Investments-other 38,700 610 6.30%
Interest-earning deposits 5,477 75 5.48%
-------- ------ -----
Total interest-earning assets 100,854 $1,845 7.32%
====== =====
Non-earning assets 4,192
--------
$105,046
LIABILITIES AND STOCKHOLDERS' EQUITY ========
NOW and money market accounts $ 8,104 $ 60 2.96%
Savings deposits 26,758 237 3.54%
Time deposits 38,284 520 5.43%
-------- ------ -----
Total deposits 73,146 817 4.47%
FHLB advances 5,000 75 5.90%
-------- ------ -----
Total interest-bearing liabilities $ 78,146 $ 892 4.57%
======== ====== =====
Stockholders' Equity $ 25,121
Unrealized loss on securities
available-for-sale (475)
--------
Stockholders' equity, net $ 24,646
========
Net interest-earning assets $ 22,708
Net interest income $ 953
Net interest spread (1) ====== 2.75%
Net interest margin (2) 3.78% =====
Net income $ 402
Return on average assets (3) 1.53% ======
Return on average equity (4) 6.52%
Equity to average assets ratio (5) 23.46%
Dividend payout ratio (6) 74.63%
Interest-earning assets to
interest-bearing liabilities ratio 1.29
Net income per share $ .33
Cash dividends paid $ 300
(1) Average yield interest-earning assets minus average rate interest-bearing
liabilities
(2) Net interest income divided by average interest-earning assets
(3) Net income divided by average total assets
(4) Net income divided by average equity
(5) Average equity divided by average total assets
(6) Dividends paid per share divided by net income per share
11
The following table sets forth for the third quarter 1996, information
regarding (1) average balance sheets, (2) an analysis of net interest income,
and (3) other information regarding changes in interest-earning assets and
interest-bearing liabilities.
(Dollars in thousands, except per share data-unaudited)
Average Interest Average
Balance Earned/Pd Yield/Cost
ASSETS --------- --------- ----------
Mortgage loans (net of LIP) $ 29,081 $ 683 9.39%
Non-mortgage loans 3,266 73 8.94%
-------- ------ -----
Loans receivable 32,347 756 9.35%
Mortgage-backed securities 32,257 507 6.29%
Investments-other 36,241 544 6.01%
Interest-earning deposits 1,057 14 5.24%
-------- ------ -----
Total interest-earning assets 101,902 1,821 7.15%
====== =====
Non-earning assets 3,969
--------
$105,871
LIABILITIES AND STOCKHOLDERS' EQUITY ========
NOW and money market accounts $ 8,401 $ 64 3.03%
Savings deposits 30,205 267 3.54%
Time deposits 39,603 536 5.42%
-------- ------ -----
Total deposits 78,209 867 4.44%
FHLB advances 880 12 5.62%
-------- ------ -----
Total interest-bearing liabilities $ 79,089 $ 879 4.45%
======== ====== =====
Stockholders' equity $ 25,070
Unrealized loss on securities
available-for-sale (561)
--------
Stockholders' equity, net $ 24,509
========
Net interest-earning assets $ 22,813
Net interest income $ 942
Net interest spread (1) ====== 2.70%
Net interest margin (2) 3.70% =====
Net income $ 37
Return on average assets (3) .14% ======
Return on average equity (4) .60%
Equity to average assets ratio (5) 23.15%
Dividend payout ratio (6) 743.24%
Interest-earning assets to
interest-bearing liabilities ratio 1.29
Net income per share $ .03
Cash dividends paid $ 275
(1) Average yield interest-earning assets minus average rate interest-bearing
liabilities
(2) Net interest income divided by average interest-earning assets
(3) Net income divided by average total assets
(4) Net income divided by average equity
(5) Average equity divided by average total assets
(6) Dividends paid per share divided by net income per share
12
The following table sets forth for the nine month period ended September 30,
1997, information regarding (1) average balance sheets, (2) an analysis of net
interest income, and (3) other information regarding changes in
interest-earning assets and interest-bearing liabilities.
(Dollars in thousands, except per share data-unaudited)
Average Interest Average
Balance Earned/Pd Yield/Cost
ASSETS --------- --------- ----------
Mortgage loans (net of LIP) $ 31,374 $2,190 9.31%
Non-mortgage loans 3,522 229 8.67%
-------- ------ -----
Loans receivable 34,896 2,419 9.24%
Mortgage-backed securities 24,085 1,177 6.52%
Investments-other 39,124 1,821 6.21%
Interest-earning deposits 3,567 143 5.35%
-------- ------ -----
Total interest-earning assets 101,672 $5,560 7.29%
====== =====
Non-earning assets 3,811
--------
$105,483
LIABILITIES AND STOCKHOLDERS' EQUITY ========
NOW and money market demand accounts $ 8,373 $ 187 2.98%
Savings deposits 27,908 733 3.50%
Time deposits 39,074 1,577 5.38%
-------- ------ -----
Total deposits 75,355 2,497 4.42%
FHLB advances 3,481 155 5.87%
-------- ------ -----
Total interest-bearing liabilities $ 78,836 $2,652 4.49%
======== ====== =====
Stockholders' Equity $ 25,014
Unrealized loss on securities
available-for-sale (502)
--------
Stockholders' equity, net $ 24,512
========
Net interest-earning assets $ 22,836
Net interest income $2,908
Net interest spread (1) ====== 2.80%
Net interest margin (2) 3.81% =====
Net income $1,140
Return on average assets (3) 1.44% ======
Return on average equity (4) 6.20%
Equity to average assets ratio (5) 23.24%
Dividend payout ratio (6) 77.28%
Interest-earning assets to
interest-bearing liabilities ratio 1.29
Net income per share $ .93
Cash dividends paid $ 881
(1) Average yield interest-earning assets minus average rate interest-bearing
liabilities
(2) Net interest income divided by average interest-earning assets
(3) Net income divided by average total assets
(4) Net income divided by average equity
(5) Average equity divided by average total assets
(6) Dividends paid per share divided by net income per share
13
The following table sets forth for the nine month period ended September 30,
1996, information regarding (1) average balance sheets, (2) an analysis of net
interest income, and (3) other information regarding changes in
interest-earning assets and interest-bearing liabilities.
(Dollars in thousands, except per share data-unaudited)
Average Interest Average
Balance Earned/Pd Yield/Cost
ASSETS --------- --------- ----------
Mortgage loans (net of LIP) $ 28,515 $1,989 9.30%
Non-mortgage loans 2,377 161 9.03%
-------- ------ -----
Loans receivable 30,892 2,150 9.28%
Mortgage-backed securities 33,656 1,550 6.14%
Investments-other 35,061 1,578 6.00%
Interest-earning deposits 3,175 124 5.22%
-------- ------ -----
Total interest-earning assets 102,784 5,402 7.01%
====== =====
Non-earning assets 3,979
--------
Total assets $106,763
LIABILITIES AND STOCKHOLDERS' EQUITY ========
NOW and money market accounts $ 8,472 $ 192 3.02%
Savings deposits 30,910 815 3.52%
Time deposits 39,247 1,596 5.42%
-------- ------ -----
Total deposits 78,629 2,603 4.41%
FHLB advances 1,644 71 5.76%
-------- ------ -----
Total interest-bearing liabilities $ 80,273 $2,674 4.44%
======== ====== =====
Stockholders' equity $ 25,015
Unrealized loss on securities
available-for-sale (434)
--------
Stockholder's equity, net $ 24,581
========
Net interest-earning assets $ 22,511
Net interest income $2,728
Net interest spread (1) ====== 2.57%
Net interest margin (2) 3.54% =====
Net income $ 752
Return on average assets (3) .94% ======
Return on average equity (4) 4.08%
Equity to average assets ratio (5) 23.02%
Dividend payout ratio (6) 107.31%
Interest-earning assets to
interest-bearing liabilities ratio 1.28
Net income per share $ .62
Cash dividends paid $ 807
(1) Average yield interest-earning assets minus average rate interest-bearing
liabilities
(2) Net interest income divided by average interest-earning assets
(3) Net income divided by average total assets
(4) Net income divided by average equity
(5) Average equity divided by average total assets
(6) Dividends paid per share divided by net income per share
14
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
(1) MATERIAL CHANGES IN FINANCIAL CONDITION. COMPARISON OF THE
NINE-MONTH PERIOD FROM DECEMBER 31, 1996, TO SEPTEMBER 30, 1997.
(Dollars in thousands)
(Unaudited, except December 31)
Selected Financial Condition Recap
---------------------------------------
September, December 31,
1997 1996 Change
----------- ------------ ---------
Total assets $103,082 $103,837 $ (755)
Cash and cash equivalents 5,743 2,934 2,809
Investments (held-to-maturity) 32,300 35,828 (3,528)
Investments (available-for-sale) 26,349 25,185 1,164
Loans receivable, net 34,160 35,176 (1,016)
Real estate owned 357 425 (68)
FHLB stock 524 379 145
All other assets 3,649 3,910 (261)
Deposits 72,111 78,697 (6,586)
FHLB advances 5,000 5,000
All other liabilities 1,214 724 490
Total liabilities 78,325 79,421 (1,096)
Stockholders' equity, net 24,757 24,416 341
General -- Total assets decreased $.8 million, or less than 1%, to $103.1
million. A $5.0 million FHLB advance due in mid-October 1997 was incurred
with the proceeds utilized to purchase investment securities. In addition,
deposits decreased $6.6 million, or 8.4%, to $72.1 million.
Investments -- During the first nine months of 1997, securities held-to-
maturity (HTM) decreased $3.5 million, or 9.8%, to $32.3 million. HTM
securities totalling $17.4 million were purchased, proceeds from called and
matured HTM securities were $14.9 million and $6.0 million of mortgage-backed
securities principal payments were received. The majority of the HTM
purchases were medium-term five-seven year maturity, callable FHLB notes.
Available-for-sale (AFS) investment securities increased $1.2 million, or
4.6%, to $26.3 million. Purchases of AFS securities were $4.0 million, while
proceeds from matured and called AFS securities were $3.0 million. In
addition, due to lower market interest rates the AFS unrealized loss
adjustment improved $.2 million. The AFS securities purchased were 3 1/2 to 4
year maturity, callable FHLB notes.
Loans Receivable -- For the nine months ended September 30, 1997, net loans
receivable decreased $1.0 million, or 2.9%, as follows: (Unaudited)
Loans originated for portfolio $ 12.0 million
Sales of portfolio loans (1.9) "
Payments and payoffs (10.9) "
Other changes (.2) "
-----
Net decrease $ (1.0)million
=====
During the nine months ended September 30, 1997, $8.0 million of loans were
originated for sale and $8.4 million of loans were sold to the secondary
market. 15
Loans receivable at the dates indicated consisted of the following:
(Dollars in thousands)
(Unaudited, except December 31, 1996) September 30, December 31,
1997 1996 1996
Conventional: -------- -------- --------
1-4 family residential units $15,717 $14,389 $15,445
5 or more family residential units 5,729 4,607 4,497
Construction 4,559 5,492 4,620
Commercial and other 2,766 2,289 3,077
FHA insured or VA guaranteed loans 4,783 5,875 5,530
Home equity loans 706 1,211 1,132
Loans to depositors, savings secured 66 184 92
Recreational vehicle and auto loans 972 1,253 1,239
Other non-mortgage loans 833 872 1,251
------- ------- -------
36,131 32,172 36,883
Less:
Discounts on loans 3 5 4
Reserve for possible loan losses 75 75 75
Loans in process 1,893 2,507 1,628
------- ------- -------
$34,160 $33,585 $35,176
======= ======= =======
Real Estate Owned -- The $68,000, or 16.0%, decrease was due to additional
depreciation for properties held for investment and the sale at no loss of a
$40,100 held-for-sale Great Falls commercial lot. At September 30, 1997 real
estate owned was comprised of two 24-unit apartment complexes in Glendive,
Montana, owned as depreciating investments by United Bank's wholly-owned
subsidiary.
FHLB Stock -- FHLB stock increased $145,000, or 38.3%, to $524,000. In
addition to $27,000 in dividends, an additional $118,000 stock purchase was
required by the FHLB due to the increase in United Bank's loans during 1996.
All Other Assets -- This combined category decreased $.3 million, or 6.7%, to
$3.6 million. Loans receivable contracted for sale to the secondary market
decreased $.4 million from $1.2 million to $.8 million.
Deposits -- Deposits decreased $6.6 million, or 8.4%, to $72.1 million.
United Bank's average cost of deposits for the first nine months of 1997 was
4.42%, compared to an average cost of 4.41% for the same nine months in 1996.
The Bank's cost of deposits was 4.48% at September 30, 1997, 4.45% at December
31, 1996, and 4.44% at September 30, 1996.
The following table indicates the amounts and maturities of time certificates
of deposit of $100,000 or more outstanding as of September 30, 1997:
(Dollars in thousands)
(Unaudited)
Maturity Amount
-------- ------
3 months or less $ 523
>3 months through 6 months 864
>6 months through 1 year 697
>1 year 1,662
------
$3,746
16 ======
FHLB Advances -- At the end of the first quarter of 1997, United Bank incurred
a $5.0 million, 5.90% fixed rate advance due in mid-October 1997.
All Other Liabilities -- This combined category totalled $1.2 million on
September 30, 1997, compared to $.7 million at December 31, 1996. The $.5
million, or 67.7%, change was primarily due to increases in both accrued
interest payable and advance payments by borrowers for taxes and insurance.
Stockholders' Equity -- The $341,000, or 1.4%, increase in stockholders'
equity was comprised of $1.1 million of net income, $.9 million of cash
dividends paid and an approximate $.1 million improvement in the unrealized
loss adjustment for available-for-sale securities. Book value per share was
$20.24 at September 30, 1997, and $19.96 per share at December 31, 1996.
Stockholders' equity ratio (stockholders' equity divided by assets) was 24.0%
at September 30, 1997, compared to 23.5% at December 31, 1996.
Asset Quality and Loss Reserves -- At September 30, 1997 and December 31,
1996, total loan loss reserves were $75,200. Non-performing assets consisting
of non-accrual uninsured loans, accruing loans past due over 90 days,
restructured loans, other repossessed assets and real estate owned held-for-
sale (REO/HFS) were $136,000 at September 30, 1997 and $57,700 at December 31,
1996. Loan loss reserves as a percentage of all uninsured loans and REO/HFS
were .26% at September 30, 1997 and .25% at December 31, 1996.
Federal regulations require United Bank to classify its assets as substandard
(distinct possibility that some loss will be sustained), doubtful (high
likelihood of loss), and loss (uncollectible). At September 30, 1997, United
Bank's substandard assets were $50,500 and no asset was classified as doubtful
or loss. At December 31, 1996, United Bank's substandard assets were $40,100
and no asset was classified as doubtful or loss.
Given the continuing low level of nonperforming and classified assets and the
sale of a large percentage of new loan production, no loss provision expense
was deemed necessary (i.e. both probable and estimable) for the nine months
ended September 30, 1997 and September 30, 1996. In 1996, loans receivable
increased approximately $1.2 million as a result of new recreational vehicle
(RV) consumer loans. Future loan loss provisions may be necessary for the now
$.9 million of RV loans outstanding at September 30, 1997.
17
(2) MATERIAL CHANGES IN RESULTS OF OPERATIONS. COMPARISON OF THE
THREE MONTHS ENDED SEPTEMBER 30, 1997, AND SEPTEMBER 30, 1996.
(Dollars in thousands)
(Unaudited)
INCOME RECAP
Three Months Ended September 30,
--------------------------------
1997 1996 Change
------ ------ ------
Interest income $1,845 $1,821 $ 24
Interest expense 892 879 13
------ ------ -----
Net interest income 953 942 11
Noninterest income 192 192
Noninterest expense 502 1,083 (581)
------ ------ -----
Income before income taxes 643 51 592
Provision for income taxes 241 14 227
------ ------ -----
Net income $ 402 $ 37 $ 365
====== ====== =====
General -- Net income for the third quarter of 1997 was $401,200, a $364,100,
or over nine-fold, increase when compared to $37,100 earned in the same 1996
quarter. Included in last year's third quarter was the pre-tax $549,700 one-
time FDIC deposit insurance special assessment. Without the after tax
$338,300 decrease in 1996 earnings, net income for the third quarter of 1997
was up $25,800, or 6.9%. This improvement was due to higher 1997 net interest
income and lower 1997 noninterest expense due to reduced FDIC/SAIF deposit
insurance rates.
The third quarter 1997 return on average assets was 1.53%, compared to .14%
for the same 1996 quarter. Based on weighted average shares outstanding,
third quarter 1997 net income was $.33 per share, compared to $.03 per share
for the same 1996 quarter.
Interest Income -- Compared to the same 1996 quarter, average third quarter
1997 interest-earning assets decreased $1.0 million, or 1.0%. The mix of
interest-earning assets changed as loans receivable average balances increased
$2.1 million, or 6.5%, mortgage-backed securities average balances declined
$10.0 million, or 31.1%, and other investments and interest-earning deposits
average balances increased $6.9 million, or 18.4%. The third quarter 1997
average yield for all interest-earning assets increased to 7.32%, compared to
7.15% for the same 1996 quarter. As a result third quarter 1997 interest
income increased $23,500, or 1.3%.
Interest Expense -- Compared to the same 1996 quarter, third quarter 1997
average deposits decreased $5.1 million, or 6.5%. The decrease in average
balances, partially offset by an increase in average deposit costs resulted in
a $49,900, or 5.8%, reduction in deposit interest expense. The average cost
of deposits was 4.47% for the third quarter of 1997, compared to 4.44% for the
same 1996 quarter. Third quarter 1997 average FHLB advances were $5.0
million, average cost was 5.90%, and interest expense was $75,400. This
compares with $.9 million of average FHLB advances, a 5.62% average cost, and
$12,400 of interest expense in the same 1996 quarter. The third quarter 1997
cost of all interest-bearing liabilities was 4.57%, compared to 4.45% for the
same quarter in 1996.
18
Net Interest Income -- This category increased $10,400, or 1.1%, for the
reasons cited above. Net interest spread (the difference between the average
yield on interest-earning assets less the average cost of interest-bearing
liabilities) was 2.75% for the third quarter of 1997, compared to 2.70% for
the same 1996 quarter. Net interest margin (net interest income divided by
average interest-earning assets) increased to 3.78% for the third quarter of
1997, compared to 3.70% for the same 1996 quarter.
Noninterest Income -- Third quarter 1997 noninterest income was $192,500,
compared to $191,900 for the same 1996 quarter.
Noninterest Expense -- This category decreased $580,600, or 53.6%, due
primarily to the third quarter 1996 $549,700 one-time FDIC special assessment.
Absent the special assessment, 1996 third quarter noninterest expense was
$532,900, compared to $502,000 for the same 1997 quarter. This $30,900, or
5.8%, improvement was primarily due to a $33,100, or 73.2%, reduction in 1997
FDIC insurance expense as assessment rates decreased from 23 to 6.5 basis
points per $100 of insured deposits. In addition, salaries and employee
benefits increased $22,800, offset by a $19,200 decline in other expenses.
Income Taxes -- Income before taxes was $642,500 for the third quarter of 1997
compared to only $50,900 for the same 1996 quarter. Income taxes increased
$227,300 from $13,900 in 1996 to $241,200 in 1997. The primary reason for
this change was the additional $547,700 before tax expense and $211,400 tax
impact for the 1996 FDIC special assessment.
(2) MATERIAL CHANGES IN RESULTS OF OPERATIONS. COMPARISON OF THE
NINE MONTHS ENDED SEPTEMBER 30, 1997, AND SEPTEMBER 30, 1996.
(Dollars in thousands) INCOME RECAP
(Unaudited) Nine Months Ended September 30,
-------------------------------
1997 1996 Change
------ ------ ------
Interest income $5,560 $5,402 $158
Interest expense 2,652 2,674 (22)
------ ------ ----
Net interest income 2,908 2,728 180
Noninterest income 482 643 (161)
Noninterest expense 1,565 2,179 (614)
------ ------ ----
Income before income taxes 1,825 1,192 633
Provision for income taxes 685 440 245
------ ------ ----
Net income $1,140 $ 752 $388
====== ====== ====
General -- Net income for the first nine months of 1997 was $1,139,700, a
$387,500, or 51.5%, improvement compared to $752,200 earned in the same nine
months in 1996. Included in last year's earnings was a $132,400 pre-tax gain
on the sale of an available-for-sale investment and an additional $549,700 of
pre-tax noninterest expense for the one-time FDIC special assessment. Without
the after tax $81,500 net income benefit from the investment sale, and the
after tax $338,300 reduction in earnings due to the special assessment, net
income for the first nine months of 1997 was up $130,700, or 13.0%. The
primary reason for this improvement was increased 1997 net interest income.
The cash flows from mortgage-backed securities repayments and an FHLB advance
were utilized to fund higher yielding portfolio loans and investment
purchases. In addition, noninterest expense was lower due primarily to
reduced 1997 FDIC/SAIF deposit insurance rates.
The Company's return on average assets for the first nine months of 1997 was
1.44%, compared to .94% for the same 1996 period. Based on weighted average
shares outstanding, year-to-date 1997 net income was $.93 per share, compared
to $.62 per share for the same 1996 period.
Interest Income -- Compared to the same nine month period in 1996, average
year-to-date 1997 interest-earning assets decreased $1.1 million, or 1.1%.
The mix of interest-earning assets changed as loans receivable average
balances increased $4.0 million, or 13.0%, mortgage-backed securities average
balances declined $9.6 million, or 28.4% and other investments and interest-
earning deposits average balances increased $4.5 million, or 11.7%. The year-
to-date 1997 average yield for all interest-earning assets increased to 7.29%,
compared to 7.01% for the same 1996 period. As a result, 1997 year-to-date
interest income increased $157,900, or 2.9%.
Interest Expense -- Compared to the first nine months of 1996, year-to-date
1997 average deposits decreased $3.3 million, or 4.2%. The average cost of
deposits was 4.42% for the first nine months of 1997, compared to 4.41% for
the same 1996 period. As a result, deposits interest expense declined
$106,400, or 4.1%. The first nine months of 1997 average FHLB advances were
$3.5 million, average cost was 5.87%, and borrowing expense was $155,700. For
the same 1996 period, average FHLB advances were $1.6 million, average cost
was 5.76%, and borrowing expense was $71,000. The first nine months of 1997
and 1996 cost of all interest-bearing liabilities was 4.49% and 4.44%,
respectively.
Net Interest Income -- This category increased $179,700, or 6.6%, for the
reasons cited above. Net interest spread (the difference between the average
yield on interest-earning assets less the average cost of interest-bearing
liabilities) increased to 2.80% for the first nine months of 1997, compared to
2.57% for the same 1996 period. Net interest margin (net interest income
divided by average interest-earning assets) increased to 3.81% for the first
half of 1997, compared to 3.54% for the same 1996 period. The ratio of average
interest-earning assets to average interest-bearing liabilities was 1.29 and
1.28 for the first nine months of 1997 and 1996, respectively.
Noninterest Income -- Year-to-date 1997 noninterest income was $482,000, a
$161,400, or 25.1%, decrease compared to the same nine month period in 1996.
The primary reason for this decline was the 1996 sale of an available-for-sale
investment which resulted in a pre-tax gain of $132,400. In addition, fees
and discounts income was down $18,300, or 5.6%, FHLB stock dividend income was
up $4,000, or 17.0%, and other income was down $14,700, or 9.1%.
Noninterest Expense -- This category decreased $613,800, or 28.2%, due
primarily to the third quarter 1996 $549,700 one-time FDIC special assessment.
Absent this special assessment, the first nine months of 1996 noninterest
expense was $1,629,200 compared to $1,565,100 for the same 1997 nine month
period. This $64,100, or 3.9%, improvement was primarily due to a $97,800, or
72.3%, reduction in 1997 FDIC insurance expense as assessment rates dropped
from 23 to 6.5 basis points per $100 of insured deposits. In addition,
salaries and employee benefits increased $58,500, or 6.9%, offset by other
expenses which decreased $35,400, or 9.0%.
Income Taxes -- Income before taxes for the first nine months of 1997 was
$1,825,500 compared to $1,192,400 for the same 1996 period. Income taxes
increased $244,600 from $440,200 in 1996 to $684,800 in 1997. The primary
reason for this change was the additional $547,700 before tax expense and
20
$211,400 tax reduction for the 1996 FDIC special assessment, and the 1996
$132,400 before tax income and $50,900 additional taxes for the 1996
investment securities sale.
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS.
There are no pending material legal proceedings to which the registrant or its
subsidiary is a party.
ITEM 2 CHANGE IN SECURITIES.
None.
ITEM 3 DEFAULTS ON SENIOR SECURITIES.
None.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.
None.
ITEM 5 OTHER INFORMATION.
Included as Exhibit A is the Amendment of Article 2(a) of the Articles of
Incorporation of the registrant changing the capital stock to no par value.
Stockholders approved the change at the Annual Meeting held April 23, 1997.
The Amendment was filed with the Minnesota Secretary of State on October 7,
1997.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K.
Included as Exhibit B is the Agreement and Plan of Merger between the
registrant and Heritage Bancorporation signed on August 25, 1997.
Report on Form 8-K. On July 1, 1997 a Form 8-K was filed reporting the signing
of a letter of intent to merge the registrant with Heritage Bancorporation.
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized:
UNITED FINANCIAL CORP.
Date November 7, 1997 /s/ Bruce K. Weldele
------------------------- ----------------------------
Bruce K. Weldele
President, CEO and
Chairman of the Board
of Directors
Date November 7, 1997 /s/ G. Brent Marvosh
-------------------------- -----------------------------
G. Brent Marvosh, CPA
Vice President-Finance
and Treasurer
(Principal Finance and
Accounting Officer)
22
EXHIBIT A
---------
ARTICLES OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
UNITED FINANCIAL CORP.
1. The name of the corporation is United Financial Corp., a Minnesota
corporation.
2. The amendment adopted is:
Article 2(a) of the Articles of Incorporation of the Company be,
and hereby is, replaced with the following:
"Authorized Capital Stock. The total number of shares of capital
stock which the Corporation is authorized to issue shall be 10,000,000
shares, consisting of 8,000,000 shares of no par value common stock
("Common Stock") and 2,000,000 shares of no par value preferred stock
("Preferred Stock"). There shall be no cumulative voting among
shareholders of the Corporation. The shareholders of the Corporation
shall not have, as a matter of right, any preemptive rights to subscribe
for or acquire securities or rights to purchase securities of any class,
kind or series of the Corporation."
3. The amendment has been adopted pursuant to Chapter 302A of the
Minnesota Business Corporation Act.
IN WITNESS WHEREOF, the undersigned, the Chairman of the Board
and Chief Executive Officer of United Financial Corp., being duly authorized
on behalf of United Financial Corp., has executed this document this 3rd day
of October, 1997.
/s/Bruce K. Weldele
---------------------------
Bruce K. Weldele
Chairman of the Board and
Chief Executive Officer
EXHIBIT B
---------
AGREEMENT AND PLAN OF MERGER
BETWEEN
UNITED FINANCIAL CORP.
AND
HERITAGE BANCORPORATION
August 25, 1997
TABLE OF CONTENTS
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Basic Transaction . . . . . . . . . . . . . . . . . . . . . . . 4
(a) The Merger. . . . . . . . . . . . . . . . . . . . . . . . 4
(b) The Closing . . . . . . . . . . . . . . . . . . . . . . . 4
(c) Actions at the Closing. . . . . . . . . . . . . . . . . . 4
(d) Effect of Merger. . . . . . . . . . . . . . . . . . . . . 4
(e) Procedure for Payment . . . . . . . . . . . . . . . . . . 7
(f) Closing of Transfer Records . . . . . . . . . . . . . . . 7
3. Representations and Warranties of Heritage. . . . . . . . . . . 7
(a) Organization, Qualification, and Corporate Power. . . . . 8
(b) Capitalization. . . . . . . . . . . . . . . . . . . . . . 8
(c) Authorization of Transaction. . . . . . . . . . . . . . . 8
(d) Noncontravention. . . . . . . . . . . . . . . . . . . . . 8
(e) Governmental Authorities; Consents. . . . . . . . . . . . 9
(f) Heritage Subsidiaries . . . . . . . . . . . . . . . . . . 9
(g) Financial Statements. . . . . . . . . . . . . . . . . . . 9
(h) Events Subsequent to Most Recent Fiscal Quarter End . . . 9
(i) Absence of Undisclosed Liabilities. . . . . . . . . . . .11
(j) Title to Properties . . . . . . . . . . . . . . . . . . .11
(k) Tax Matters . . . . . . . . . . . . . . . . . . . . . . .12
(l) Employee Benefit Plans. . . . . . . . . . . . . . . . . .14
(m) Insurance . . . . . . . . . . . . . . . . . . . . . . . .15
(n) Compliance with Laws; Permits . . . . . . . . . . . . . .15
(o) Environmental Matters . . . . . . . . . . . . . . . . . .16
(p) Brokers' Fees . . . . . . . . . . . . . . . . . . . . . .17
(q) Continuity of Business Enterprise . . . . . . . . . . . .17
(r) Disclosure. . . . . . . . . . . . . . . . . . . . . . . .17
4. Representations and Warranties of United. . . . . . . . . . . .18
(a) Organization. . . . . . . . . . . . . . . . . . . . . . .18
(b) Capitalization. . . . . . . . . . . . . . . . . . . . . .18
(c) Authorization of Transaction. . . . . . . . . . . . . . .18
(d) Noncontravention. . . . . . . . . . . . . . . . . . . . .18
(e) Governmental Authorities; Consents. . . . . . . . . . . .18
(f) United Subsidiaries . . . . . . . . . . . . . . . . . . .19
(g) Financial Statements. . . . . . . . . . . . . . . . . . .19
(h) Events Subsequent to Most Recent Fiscal Quarter End . . .19
(i) Absence of Undisclosed Liabilities. . . . . . . . . . . .20
(j) Title to Properties . . . . . . . . . . . . . . . . . . .21
(k) Tax Matters . . . . . . . . . . . . . . . . . . . . . . .22
(l) Employee Benefit Plans. . . . . . . . . . . . . . . . . .24
(m) Insurance . . . . . . . . . . . . . . . . . . . . . . . .25
(n) Compliance with Laws; Permits . . . . . . . . . . . . . .25
(o) Environmental Matters . . . . . . . . . . . . . . . . . .26
(p) Brokers' Fees . . . . . . . . . . . . . . . . . . . . . .27
(q) Disclosure. . . . . . . . . . . . . . . . . . . . . . . .27
5. Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . .27
(a) General. . . . . . . . . . . . . . . . . . . . . . . . . 27
(b) Notices and Consents . . . . . . . . . . . . . . . . . . 28
(c) Regulatory Matters and Approvals . . . . . . . . . . . . 28
(d) Fairness Opinion and Comfort Letters . . . . . . . . . . 29
(e) Listing of United Shares . . . . . . . . . . . . . . . . 29
(f) Operation of Business. . . . . . . . . . . . . . . . . . 29
(g) Full Access. . . . . . . . . . . . . . . . . . . . . . . 30
(h) Notice of Developments . . . . . . . . . . . . . . . . . 30
(i) Exclusivity. . . . . . . . . . . . . . . . . . . . . . . 30
(j) Insurance and Indemnification. . . . . . . . . . . . . . 31
(k) Continuity of Business Enterprise. . . . . . . . . . . . 31
(l) Loan Review. . . . . . . . . . . . . . . . . . . . . . . 31
6. Conditions to Obligation to Close . . . . . . . . . . . . . . .31
(a) Conditions to Obligation of United . . . . . . . . . . . 31
(b) Conditions to Obligation of Heritage . . . . . . . . . . 33
7. Termination . . . . . . . . . . . . . . . . . . . . . . . . . .34
(a) Termination of Agreement . . . . . . . . . . . . . . . . 34
(b) Effect of Termination. . . . . . . . . . . . . . . . . . 35
8. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . .35
(a) Survival . . . . . . . . . . . . . . . . . . . . . . . . 35
(b) Press Releases and Public Announcements. . . . . . . . . 35
(c) No Third Party Beneficiaries . . . . . . . . . . . . . . 35
(d) Entire Agreement . . . . . . . . . . . . . . . . . . . . 35
(e) Succession and Assignment. . . . . . . . . . . . . . . . 36
(f) Counterparts . . . . . . . . . . . . . . . . . . . . . . 36
(g) Headings . . . . . . . . . . . . . . . . . . . . . . . . 36
(h) Notices. . . . . . . . . . . . . . . . . . . . . . . . . 36
(i) Governing Law. . . . . . . . . . . . . . . . . . . . . . 36
(j) Amendments and Waivers . . . . . . . . . . . . . . . . . 37
(k) Severability . . . . . . . . . . . . . . . . . . . . . . 37
(l) Expenses . . . . . . . . . . . . . . . . . . . . . . . . 37
(m) Construction . . . . . . . . . . . . . . . . . . . . . . 37
(n) Incorporation of Exhibits and Schedules. . . . . . . . . 37
i
AGREEMENT AND PLAN OF MERGER
Agreement entered into on August 25, 1997 by and between United Financial
Corp., a Minnesota corporation ("United"), and Heritage Bancorporation, a
Montana corporation ("Heritage"). United and Heritage are referred to
collectively herein as the "Parties."
This Agreement contemplates a tax-free merger of Heritage with and into
United in a reorganization pursuant to Code Section 368(a)(1)(A) in which
United will be the surviving legal entity. The Heritage Stockholders will
receive capital stock in United in exchange for their capital stock in
Heritage. In addition, Heritage Stockholders will receive certain rights with
respect to appointment of a majority of the directors of United upon the
consummation of the merger and certain rights of refusal with respect to the
transfer of a portion of United capital stock. In recognition of these rights,
the Parties will account for the transaction treating Heritage as the
accounting acquiror of United as required by the purchase method of
accounting. The Parties expect that the Merger, together with the
contemporaneous merger of the Parties subsidiary banking organizations, will
further certain of their business objectives including, without limitation, a
strengthening of capital base with which to diversify the loan portfolios and
expand the deposit base of the Parties subsidiary banking organizations.
Now, therefore, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
1. Definitions.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Certificate of Merger" has the meaning set forth in Section 2(c) below.
"Closing" has the meaning set forth in Section 2(b) below.
"Closing Date" has the meaning set forth in Section 2(b) below.
"Confidential Information" means any information concerning the businesses
and affairs of Heritage and its Subsidiaries that is not already generally
available to the public.
"Conversion Ratio" has the meaning set forth in Section 2(d)(v) below.
"Current Liabilities" means any liability which is due and payable in less
than 12 months.
"Definitive United Proxy Materials" means the definitive proxy materials
relating to the Special United Meeting.
"Definitive Heritage Proxy Materials" means the definitive proxy materials
relating to the Special Heritage Meeting.
"Disclosure Schedule" has the meaning set forth in Section 3 below.
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"Dissenting Share" means any Heritage Share or United Share which any
respective Heritage or United Stockholder holds of record and who or which has
exercised his or its appraisal rights under the Montana Business Corporation
Act with respect to any Heritage Share or the Minnesota Business Corporation
Law with respect to any United Share.
"Effective Time" has the meaning set forth in Section 2(d)(i) below.
"Exchange Agent" has the meaning set forth in Section 2(e) below.
"GAAP" means United States generally accepted accounting principles as in
effect from time to time.
"Heritage" means Heritage Bancorporation.
"Heritage Comfort Letter" has the meaning set forth in Section 5(d) below.
"Heritage Fairness Opinion" has the meaning set forth in Section 5(d)
below.
"Heritage Share" means any share of the Common Stock, no par value, of
Heritage.
"Heritage Stockholder" means any Person who or which holds any Heritage
Shares.
"HOLA" means the Home Owners Loan Act, as amended.
"IRS" means the Internal Revenue Service.
"Joint Disclosure Document" means the disclosure document combining the
Prospectus, the Definitive United Proxy Materials, and the Definitive Heritage
Proxy Materials.
"Knowledge" means actual knowledge after reasonable investigation.
"Loan Agreement" the $2,750,000 loan agreement, dated January 15, 1995 and
amended as of January 31, 1996, by and between Heritage Bancorporation, as
borrower, and Norwest Bank Minnesota, National Association as lender and which
is guaranteed by certain Heritage Stockholders.
"Merger" has the meaning set forth in Section 2(a) below.
"Minnesota Business Corporation Law" means the Business Corporation Act of
the State of Minnesota, as amended.
"Montana Business Corporation Act" means the Montana Business Corporation
Act of the State of Montana, as amended.
"Most Recent Fiscal Quarter End" has the meaning set forth in Section 3(g)
below.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity
and frequency).
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"OTS" means the Office of Thrift Supervision.
"Party" has the meaning set forth in the preface above.
"Person" means an individual, a partnership, a corporation, an association,
a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or
political subdivision thereof).
"Prospectus" means the final prospectus relating to the registration of
United Shares under the Securities Act.
"Public Report" has the meaning set forth in Section 3(e) below.
"Registration Statement" has the meaning set forth in Section 5(c)(i)
below.
"Requisite United Stockholder Approval" means the affirmative vote of the
holders of a majority of United Shares in favor of this Agreement and the
Merger.
"Requisite Heritage Stockholder Approval" means the affirmative vote of the
holders of two-thirds of Heritage Shares in favor of this Agreement and the
Merger.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance, charge,
or other security interest, other than (a) mechanic's, materialmen's, and
similar liens, (b) liens for taxes not yet due and payable or for taxes that
the taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business
and not incurred in connection with the borrowing of money.
"Special United Meeting" has the meaning set forth in Section 5(c)(ii)
below.
"Special Heritage Meeting" has the meaning set forth in Section 5(c)(ii)
below.
"Subsidiary" means any corporation with respect to which a specified Person
(or a Subsidiary thereof) owns a majority of the common stock or has the power
to vote or direct the voting of sufficient securities to elect a majority of
the directors.
"Surviving Corporation" has the meaning set forth in Section 2(a) below.
"United" means United Financial Corp.
"United-owned Share" means any Heritage Share that United owns
beneficially.
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"United Comfort Letter" has the meaning set forth in Section 5(d) below.
"United Fairness Opinion" has the meaning set forth in Section 5(d) below.
"United Share" means any share of the Common Stock, no par value, of
United.
2. Basic Transaction.
(a) The Merger. On and subject to the terms and conditions of this
Agreement, Heritage will merge with and into United (the "Merger") at the
Effective Time and the separate existence of Heritage shall cease. United
shall be the corporation surviving the Merger (the "Surviving Corporation").
(b) The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Dorsey & Whitney
LLP, Eight Third Street North, in Great Falls, Montana, commencing at 9:00
a.m. local time on the first business day following the satisfaction or waiver
of all conditions to the obligations of the Parties to consummate the
transactions contemplated hereby (other than conditions with respect to
actions the respective Parties will take at the Closing itself) or such other
date as the Parties may mutually determine (the "Closing Date"); provided,
however, that the Closing Date shall be no earlier than January 1, 1998 and no
later than June 30, 1998.
(c) Actions at the Closing. At the Closing, (i) Heritage will deliver to
United the various certificates, instruments, and documents referred to in
Section 6(a) below, (ii) United will deliver to Heritage the various
certificates, instruments, and documents referred to in Section 6(b) below,
(iii) United and Heritage will file with the Secretaries of State of the
States of Minnesota and Montana Certificates or Articles of Merger in the form
acceptable to counsel for United and Heritage (the "Certificate of Merger"),
and (iv) United will deliver to the Exchange Agent in the manner provided
below in this Section 2 the certificate evidencing United Shares issued in the
Merger.
(d) Conditions and Effect of Merger.
(i) General. The Merger shall become effective at the time (the
"Effective Time") United and Heritage file the Certificate or Articles of
Merger with the Secretaries of State of the States of Minnesota and Montana.
The Merger shall have the effect set forth in the Minnesota Business
Corporation Law. The Surviving Corporation may, at any time after the
Effective Time, take any action (including executing and delivering any
document) in the name and on behalf of either United or Heritage in order to
carry out and effectuate the transactions contemplated by this Agreement.
(ii) Certificate of Incorporation. The Certificate of Incorporation
of United in effect at and as of the Effective Time will remain the
Certificate of Incorporation of the Surviving Corporation without any
modification or amendment in the Merger.
(iii) Bylaws. The Bylaws of United in effect at and as of the
Effective Time will remain the Bylaws of the Surviving Corporation without any
modification or amendment in the Merger.
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(iv) Directors. As of the Effective Time, four (4) members of the
existing Board of Directors of United shall resign and the remaining members
of the Board of Directors shall create two new vacancies on the Board with one
new member added to those classes in order to provide that each class shall
have one-third of the total number of directors comprising the Board. Upon the
resignation and creation of the new directorships, the remaining Board shall
elect five persons, nominated by the Heritage Shareholders at the Special
Heritage Meeting, to fill the unexpired terms of the members resigning and the
newly created directorships according to the respective class of such
directorship.
(v) Officers. All existing officers of United and Heritage shall
resign as of the Effective Time and the majority of the newly constituted
Board of Directors of United shall appoint all officers in accordance with the
Bylaws; provided that any existing officer who resigns and is reappointed
shall be deemed to have been engaged in continuous service with the Surviving
Corporation and no termination of employment for any reason shall be deemed to
have occurred. The Surviving Corporation will assume all obligations with
respect to change of control agreements existing between any officer and
United or Heritage.
(vi) Benefit and Welfare Plans.
(1) Effective at such time as the Board of Directors of the
Surviving Corporation may determine, but not later than the
close of the plan year following the plan year that includes the
Effective Time, the Board of Directors of the Surviving
Corporation may terminate the multiple employer defined benefit
pension plan administered by the Financial Institutions
Retirement Fund (hereinafter the United plan ) subject to the
terms of the plan and the requirements of law. Former Heritage
officers and employees shall not be entitled to commence
participation in the United plan at any time subsequent to the
Effective Time and prior to termination.
(2) The Surviving Corporation shall assume and maintain the
Heritage Subsidiary 401(k) plan with the United Subsidiary 401(k)
plan to merge with and into the Heritage Subsidiary 401(k) plan;
provided, that Effective not later than the date on which the
United defined benefit pension plan is terminated (or the United
plan is amended to significantly reduce or terminate the accrual
of benefits, if earlier):
(a) the Surviving Corporation shall extend coverage in the
Heritage Subsidiary 401(k) plan (hereinafter the Heritage
plan ) to employees of United on the same terms and
conditions as such plan extends to similarly situated
Heritage employees, and
(b) the Surviving Corporation shall amend the Heritage plan
to provide a transitional employer contribution subject to
the following principles:
(i) the transitional contribution shall not be
directly or indirectly dependent on employees making
elective contributions to the Heritage plan, and
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(ii) the transitional contribution shall be made only
for those United employees who the Board of Directors
of the Surviving Corporation reasonably determines
could be expected to receive, in the aggregate, lesser
benefits as a result of the termination of the United
defined benefit pension plan and the substitution of
the Heritage plan than if the United defined benefit
pension plan had continued in place, and
(iii) the transitional contribution shall be limited
to a specific period of time as determined by the Board
of Directors and structured to approximately replace
the benefits that will not be expected to be earned by
those United employees as a result of the transition
from defined benefit to defined contribution plan
structure, and
(iv) the transitional contribution shall not be
directly or indirectly dependent on employees making
elective contributions to the Heritage plan, and
(v) the transitional contribution shall be in addition
to any other contribution that United employees would
receive by reason of coverage under the Heritage plan
on the same terms and conditions as similarly situated
Heritage employees, and
(vi) to the extent necessary to satisfy federal income
tax rules regarding prohibited discrimination in favor
of highly compensated employees, the transitional
employer contribution to the Heritage plan may be
reduced or eliminated for United employees that are
highly compensated employees.
(3) The Surviving Corporation shall maintain health,
disability, and other insurance plans for the benefit of its
employees substantially similar, in the aggregate, to those
maintained by the Heritage Subsidiary.
(vii) Conversion of Heritage Shares. At and as of the Effective Time,
(A) each Heritage Share (other than any Dissenting Share or United-owned
Share) shall be converted into the right to receive forty seven and one half
(47.5) United Shares (the ratio of 47.5 United Shares to one Heritage Share is
referred to herein as the "Conversion Ratio"), (B) each Dissenting Share shall
be converted into the right to receive payment from the Surviving Corporation
with respect thereto in accordance with the provisions of the Minnesota
Business Corporation Law, and (C) each United-owned Share shall be canceled;
provided, however, that no fractional shares shall be issued and the
Conversion Ratio shall be subject to equitable adjustment in the event of any
stock split, stock dividend, reverse stock split, or other change in the
number of Heritage Shares outstanding. No Heritage Share shall be deemed to be
outstanding or to have any rights other than those set forth above in this
Section 2(d)(v) after the Effective Time.
(viii) United Shares. Each United Share issued and outstanding at and
as of the Effective Time will remain issued and outstanding.
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(x) Merger of Heritage Subsidiary and United Subsidiary. As of the
Closing Date the Parties shall execute an agreement and plan of merger in form
and substance substantially similar to that attached as Exhibit A providing
for the merger of the United Subsidiary with and into the Heritage Subsidiary,
the separate existence of the United Subsidiary shall cease, and the Heritage
Subsidiary shall be the corporation surviving the merger.
(e) Procedure for Payment.
(i) Immediately after the Effective Time, (A) United will furnish to
TrustCorp, a Montana Trust Company, (the "Exchange Agent") a stock certificate
(issued in the name of the Exchange Agent or its nominee) representing that
number of United Shares equal to the product of (I) the Conversion Ratio times
(II) the number of outstanding Heritage Shares (other than any Dissenting
Shares and United-owned Shares) and (B) United will cause the Exchange Agent
to mail a letter of transmittal (with instructions for its use) in the form
acceptable to counsel for United and Heritage to each record holder of
outstanding Heritage Shares for the holder to use in surrendering the
certificates which represented his or its Heritage Shares in exchange for a
certificate representing the number of United Shares to which he or it is
entitled.
(ii) United will not pay any dividend or make any distribution on
United Shares (with a record date at or after the Effective Time) to any
record holder of outstanding Heritage Shares until the holder surrenders for
exchange his or its certificates which represented Heritage Shares. United
instead will pay the dividend or make the distribution to the Exchange Agent
in trust for the benefit of the holder pending surrender and exchange. United
may cause the Exchange Agent to invest any cash the Exchange Agent receives
from United as a dividend or distribution in direct general obligations of the
United States or its agencies; provided, however, that the terms and
conditions of the investments shall be such as to permit the Exchange Agent to
make prompt payments of cash to the holders of outstanding Heritage Shares as
necessary. United may cause the Exchange Agent to pay over to United any net
earnings with respect to the investments, and United will replace promptly any
cash which the Exchange Agent loses through investments. In no event, however,
will any holder of outstanding Heritage Shares be entitled to any interest or
earnings on the dividend or distribution pending receipt.
(iii) United may cause the Exchange Agent to return any United Shares
and dividends and distributions thereon remaining unclaimed 180 days after the
Effective Time, and thereafter each remaining record holder of outstanding
Heritage Shares shall be entitled to look to United (subject to abandoned
property, escheat, and other similar laws) as a general creditor thereof with
respect to United Shares and dividends and distributions thereon to which he
or it is entitled upon surrender of his or its certificates.
(iv) United shall pay all charges and expenses of the Exchange Agent.
(f) Closing of Transfer Records. After the close of business on the Closing
Date, transfers of Heritage Shares outstanding prior to the Effective Time
shall not be made on the stock transfer books of the Surviving Corporation.
3. Representations and Warranties of Heritage. Heritage represents and
warrants to United that the statements contained in this Section 3 are correct
and complete as of the date of this Agreement and will be correct and complete
as of the Closing Date (as though made then and as though the Closing Date
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were substituted for the date of this Agreement throughout this Section 3),
except as set forth in the disclosure schedule accompanying this Agreement and
initialed by the Parties (the "Disclosure Schedule"). The Disclosure Schedule
will be arranged in paragraphs corresponding to the lettered and numbered
paragraphs contained in this Section 3.
(a) Organization, Qualification, and Corporate Power. Each of Heritage and
its Subsidiaries is a corporation duly organized, validly existing, and in
good standing under the laws of the jurisdiction of its incorporation. Each of
Heritage and its Subsidiaries is duly authorized to conduct business and is in
good standing under the laws of each jurisdiction where such qualification is
required. Each of Heritage and its Subsidiaries has full corporate power and
authority to carry on the businesses in which it is engaged and to own and use
the properties owned and used by it.
(b) Capitalization. The entire authorized capital stock of Heritage
consists of 50,000 Heritage Shares, of which 10,000 Heritage Shares are issued
and outstanding. All of the issued and outstanding Heritage Shares have been
duly authorized and are validly issued, fully paid, and nonassessable. There
are no outstanding or authorized options, warrants, purchase rights,
subscription rights, conversion rights, exchange rights, or other contracts or
commitments that could require Heritage to issue, sell, or otherwise cause to
become outstanding any of its capital stock. There are no outstanding or
authorized stock appreciation, phantom stock, profit participation, or similar
rights with respect to Heritage.
(c) Authorization of Transaction. The Board of Directors of Heritage has,
by resolutions duly adopted at a meeting held on August 25, 1997, approved
this Agreement and the Articles of Merger and the transactions contemplated
hereby and thereby, including the Merger, and resolved to recommend approval
of the Plan of Merger by Heritage's shareholders. None of the resolutions
described in this Section 3(c) has been amended or otherwise modified in any
respect since the date of adoption thereof and all such resolutions remain in
full force and effect. Heritage has full power and authority (including full
corporate power and authority) to execute and deliver this Agreement and to
perform its obligations hereunder; provided, however, that Heritage cannot
consummate the Merger unless and until it receives the Requisite Heritage
Stockholder Approval. This Agreement constitutes the valid and legally binding
obligation of Heritage, enforceable in accordance with its terms and
conditions.
(d) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which any of Heritage and its Subsidiaries is
subject or any provision of the charter or bylaws of any of Heritage and its
Subsidiaries or (ii) except with respect to Loan Agreement which shall be
satisfied by the Heritage Shareholders as of the Closing, conflict with,
result in a breach of, constitute a default under, result in the acceleration
of, create in any party the right to accelerate, terminate, modify, or cancel,
or require any notice under any agreement, contract, lease, license,
instrument or other arrangement to which any of Heritage and its Subsidiaries
is a party or by which it is bound or to which any of its assets is subject
(or result in the imposition of any Security Interest upon any of its assets),
except where the violation, conflict, breach, default, acceleration,
termination, modification, cancellation, or failure to give notice would not
E-8
have a material adverse effect on the ability of the Parties to consummate the
transactions contemplated by this Agreement.
(e) Governmental Authorities; Consents. Except in connection with the
provisions of HOLA, the information required of Heritage in connection with
any filing with the SEC in connection with the Agreement and the filing of
the Articles of Merger with the Secretary of State of the State of Montana,
Heritage is not required to submit any notice, report or other filing with any
governmental authority in connection with the execution or delivery by it of
this Agreement or the Articles of Merger or the consummation of the
transactions contemplated hereby or thereby. Except as set forth in the
Disclosure Schedule, no consent, approval or authorization of any governmental
or regulatory authority or any other party or person (except the approval of
the Plan of Merger by the shareholders of Heritage) is required to be obtained
by Heritage in connection with its execution, delivery and performance of this
Agreement or the Articles of Merger or the transactions contemplated hereby or
thereby.
(f) Heritage Subsidiaries. Each Subsidiary of Heritage is set forth in the
Disclosure Schedule under the caption referencing this Section 3(f) and is
owned by Heritage, either directly or through one or more other subsidiaries,
free and clear of all liens, charges, encumbrances, claims and options of any
nature, except with respect to liens and encumbrances held by Norwest Bank
Minnesota, National Association, in connection with the Loan Agreement is to
be satisfied by the Heritage Shareholders as of the Closing. All of the
outstanding shares of capital stock each Subsidiary has been duly and validly
authorized and issued, and is fully paid and nonassessable.
(g) Financial Statements. Heritage has provided United with financial
statements of income and expenses and a balance sheet for the fiscal quarters
ended June 30, 1997 (the "Most Recent Fiscal Quarter End"), and March 31,1997
and annual financial statements of income and expenses and a balance sheet for
the fiscal years ended December 31, 1996, 1995 and 1994. The financial
statements and balance sheets (including the related notes and schedules) have
been prepared in accordance with GAAP applied on a consistent basis throughout
the periods covered thereby, and present fairly the financial condition of
Heritage and its Subsidiaries as of the indicated dates and the results of
operations of Heritage and its Subsidiaries for the indicated periods are
correct and complete in all material respects, and are consistent with the
books and records of Heritage and its Subsidiaries; provided, however, that
the interim statements are subject to normal year-end adjustments.
(h) Events Subsequent to Most Recent Fiscal Quarter End. Since the Most
Recent Fiscal Quarter End, there has not been any material adverse change in
the business, financial condition, operations, results of operations, or
future prospects of Heritage and its Subsidiaries taken as a whole. Since the
Most Recent Fiscal Quarter End, Heritage has not:
(1) borrowed any amount or incurred or become subject to any liability
in excess of $25,000, except (i) Current Liabilities incurred in the ordinary
course of business and (ii) liabilities under contracts entered into in the
ordinary course of business;
(2) mortgaged, pledged or subjected to any lien, charge or any other
encumbrance, any of its assets with a fair market value in excess of $25,000,
except (i) liens for current property taxes not yet due and payable, (ii)
liens imposed by law and incurred in the ordinary course of business for
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obligations not yet due to carriers, warehousemen, laborers, materialmen and
the like, (iii) liens in respect of pledges or deposits under workers'
compensation laws, (iv) liens set forth under the caption referencing this
Section 3(h) in the Disclosure Schedule, or (v) liens voluntarily created in
connection with any pledge to the Federal Home Loan Board, any pledge to state
or local governments as a condition precedent for the deposit of public funds,
and any pledge related to a repurchase agreement, as well as any other lien
created in the ordinary course of business;
(3) discharged or satisfied any lien or encumbrance or paid any
liability, in each case with a value in excess of $25,000, other than the Loan
Agreement and Current Liabilities paid in the ordinary course of business;
(4) sold, assigned or transferred (including, without limitation,
transfers to any employees, affiliates or shareholders) any tangible assets
with a fair market value in excess of $25,000, or canceled any debts or
claims, in each case, except in the ordinary course of business;
(5) sold, assigned or transferred (including, without limitation,
transfers to any employees, affiliates or shareholders) any patents,
trademarks, trade names, copyrights, trade secrets or other intangible assets;
(6) waived any rights of material value or suffered any extraordinary
losses or adverse changes in collection loss experience, whether or not in the
ordinary course of business or consistent with past practice;
(7) declared or paid any dividends or other distributions with respect
to any shares of Heritage's capital stock, except in the ordinary course of
business and consistent with past practice, or redeemed or purchased,
directly or indirectly, any shares of the Heritage's capital stock or any
options;
(8) issued, sold or transferred any of its equity securities,
securities convertible into or exchangeable for its equity securities or
warrants, options or other rights to acquire its equity securities, or any
bonds or debt securities;
(9) taken any other action or entered into any other transaction other
than in the ordinary course of business and in accordance with past custom and
practice, or entered into any transaction with any director or officer other
than employment arrangements otherwise disclosed in this Agreement and the
Disclosure Schedule, or the transactions contemplated by this Agreement;
(10) suffered any material theft, damage, destruction or loss of or to
any property or properties owned or used by it, whether or not covered by
insurance;
(11) made or granted any bonus or any wage, salary or compensation
increase to any director, officer, employee, or consultant or made or granted
any increase in any employee benefit plan or arrangement, or amended or
terminated any existing employee benefit plan or arrangement, or adopted any
new employee benefit plan or arrangement or made any commitment or incurred
any liability to any labor organization, except in the ordinary course of
business and consistent with past practice;
(12) made any single capital expenditure or commitment therefor in
excess of $25,000; or
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(13) made any change in accounting principles or practices from those
utilized in the preparation of the Annual Financial Statements.
(i) Absence of Undisclosed Liabilities. Except as reflected in the
balance sheet as of the Most Recent Fiscal Quarter End, Heritage and its
Subsidiaries have no liabilities (whether accrued, absolute, contingent,
unliquidated or otherwise, whether due or to become due, whether known or
unknown, and regardless of when asserted) arising out of transactions or
events heretofore entered into, or any action or inaction, or any state of
facts existing, with respect to or based upon transactions or events
heretofore occurring, except (i) liabilities which have arisen after the date
of the Most Recent Fiscal Quarter End in the ordinary course of business (none
of which is a material uninsured liability for breach of contract, breach of
warranty, tort, infringement, claim or lawsuit), or (ii) as otherwise set
forth in the Disclosure Schedule under the caption referencing this Section
3(i).
(j) Title to Properties.
(1) The real property owned by Heritage and its Subsidiary or
demised by the leases (the "Leases") described under the caption referencing
this Section 3(j) in the Disclosure Schedule constitute all of the real
property owned, used or occupied by Heritage or its Subsidiary (the "Real
Property"). The Real Property has access, sufficient for the conduct of
Heritage or its Subsidiary's businesses as now conducted or as presently
proposed to be conducted, to public roads and to all utilities, including
electricity, sanitary and storm sewer, potable water, natural gas and other
utilities, used in the operation of the business of Heritage or its Subsidiary
at such location.
(2) The Leases are in full force and effect, and Heritage or its
Subsidiary holds a valid and existing leasehold interest under each of the
Leases for the term set forth under such caption in the Disclosure Schedule.
Heritage has delivered to United complete and accurate copies of each of the
Leases, and none of the Leases has been modified in any respect, except to the
extent that such modifications are disclosed by the copies delivered to
United. Neither Heritage or any Subsidiary is in default, and no circumstances
exist which, if unremedied, would, either with or without notice or the
passage of time or both, result in such default under any of the Leases; nor,
to the best knowledge of Heritage, is any other party to any of the Leases in
default.
(3) Heritage or its Subsidiary owns good and marketable title to each
parcel of Real Property identified in the Disclosure Schedule under the
caption referencing this Section 3(j) as being owned by Heritage or its
Subsidiary to each of the tangible properties and tangible assets reflected on
the balance sheet as of the Most Recent Fiscal Quarter End or acquired since
the date thereof, free and clear of all liens and encumbrances, except for (i)
liens for current taxes not yet due and payable, (ii) liens set forth under
the caption referencing this Section 3(j) in the Disclosure Schedule, (iii)
the properties subject to the Leases, (iv) assets disposed of since the date
of the Most Recent Fiscal Quarter End in the ordinary course of business, (v)
liens imposed by law and incurred in the ordinary course of business for
obligations not yet due to carriers, warehousemen, laborers and materialmen
and (vi) liens in respect of pledges or deposits under workers' compensation
laws.
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(4) All of the buildings, machinery, equipment and other tangible
assets necessary for the conduct of Heritage or its Subsidiary s business are
in good condition and repair, ordinary wear and tear excepted, and are usable
in the ordinary course of business. There are no defects in such assets or
other conditions relating thereto which, in the aggregate, materially
adversely affect the operation or value of such assets. Heritage or its
Subsidiary owns, or leases under valid leases, all buildings, machinery,
equipment and other tangible assets necessary for the conduct of its business.
(5) Heritage and its Subsidiary are not in violation of any applicable
zoning ordinance or other law, regulation or requirement relating to the
operation of any properties used in the operation of its business, and neither
Heritage or its Subsidiary have not received any notice of any such violation,
or the existence of any condemnation proceeding with respect to any of the
Real Property, except, in each case, with respect to violations the potential
consequences of which do not or will not have a material adverse effect on
Heritage or its Subsidiary.
(6) Heritage has no knowledge of improvements made or contemplated to
be made by any public or private authority, the costs of which are to be
assessed as special taxes or charges against any of the Real Property, and
there are no present assessments.
(k) Tax Matters.
(1) Each of Heritage and its Subsidiary, any affiliated, combined or
unitary group of which Heritage and its Subsidiary is or was a member, any
"Plans" (as defined in Section 3(l) hereof), as the case may be (each, a "Tax
Affiliate" and, collectively, the "Tax Affiliates"), has: (i) timely filed
(or has had timely filed on its behalf) all returns, declarations, reports,
estimates, information returns, and statements ("Returns") required to be
filed or sent by it in respect of any "Taxes" (as defined in subsection (11)
below) or required to be filed or sent by it by any taxing authority having
jurisdiction; (ii) timely and properly paid (or has had paid on its behalf)
all Taxes shown to be due and payable on such Returns; (iii) established on
its latest balance sheet as of the Most Recent Fiscal Quarter End, in
accordance with generally accepted accounting principles, reserves that are
adequate for the payment of any Taxes not yet due and payable; (iv) complied
with all applicable laws, rules, and regulations relating to the withholding
of Taxes and the payment thereof (including, without limitation, withholding
of Taxes under Sections 1441 and 1442 of the Internal Revenue Code of 1986, as
amended (the "Code"), or similar provisions under any foreign laws), and
timely and properly withheld from individual employee wages and paid over to
the proper governmental authorities all amounts required to be so withheld and
paid over under all applicable laws.
(2) There are no liens for Taxes upon any assets of Heritage, its
Subsidiary or of any Tax Affiliate, except liens for Taxes not yet due.
(3) No deficiency for any Taxes has been proposed, asserted or
assessed against Heritage, its Subsidiary or the Tax Affiliates that has not
been resolved and paid in full. No waiver, extension or comparable consent
given by Heritage, its Subsidiary or the Tax Affiliates regarding the
application of the statute of limitations with respect to any Taxes or Returns
is outstanding, nor is any request for any such waiver or consent pending.
There has been no Tax audit or other administrative proceeding or court
proceeding with regard to any Taxes or Returns, nor is any such Tax audit or
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other proceeding pending, nor has there been any notice to Heritage or its
Subsidiary by any Taxing authority regarding any such Tax, audit or other
proceeding, or, to the best knowledge of Heritage, is any such Tax audit or
other proceeding threatened with regard to any Taxes or Returns. Heritage does
not expect the assessment of any additional Taxes of Heritage, its Subsidiary
or the Tax Affiliates and is not aware of any unresolved questions, claims or
disputes concerning the liability for Taxes of Heritage, its Subsidiary or the
Tax Affiliates which would exceed the estimated reserves established on its
books and records.
(4) Neither Heritage, its Subsidiary nor any Tax Affiliate is a party
to any agreement, contract or arrangement that would result, separately or in
the aggregate, in the payment of any "excess parachute payments" within the
meaning of Section 280G of the Code and the consummation of the transactions
contemplated by this Agreement will not be a factor causing payments to be
made by Heritage, its Subsidiary or any Tax Affiliate that are not deductible
(in whole or in part) under Section 280G of the Code.
(5) Neither Heritage, its Subsidiary nor any Tax Affiliate has
requested any extension of time within which to file any Return, which Return
has not since been filed.
(6) No property of Heritage, its Subsidiary or any Tax Affiliate is
property that Heritage, its Subsidiary or any Tax Affiliates is or will be
required to treat as being owned by another person under the provisions of
Section 168(f)(8) of the Code (as in effect prior to amendment by the Tax
Reform Act of 1986) or is "tax-exempt use property" within the meaning of
Section 168 of the Code.
(7) Neither Heritage, its Subsidiary nor any Tax Affiliate is
required to include in income any adjustment under Section 481(a) of the Code
by reason of a voluntary change in accounting method initiated by Heritage,
its Subsidiary or any Tax Affiliate as a result of the Tax Reform Act of 1986
and neither Heritage, its Subsidiary nor any Tax Affiliate has knowledge that
the Internal Revenue Service has proposed any such adjustment or change in
accounting method.
(8) All transactions that could give rise to an understatement of
federal income tax (within the meaning of Section 6661 of the Code as it
applied prior to repeal) or an underpayment of tax (within the meaning of
Section 6662 of the Code) were reported in a manner for which there is
substantial authority or were adequately disclosed (or, with respect to
Returns filed before the Closing Date, will be reported in such a manner or
adequately disclosed) on the Returns required in accordance with Sections
6661(b)(2)(B) and 6662(d)(2)(B) of the Code.
(9) Neither Heritage, its Subsidiary nor any Tax Affiliate has
engaged in any transaction that would result in a deemed election under
Section 338(e) of the Code, and neither Heritage nor any Tax Affiliate will
engage in any such transaction within any applicable "consistency period" (as
such term is defined in Section 338 of the Code).
(10) Neither Heritage, its Subsidiary nor any Tax Affiliate has filed
any consent under Section 341(f) of the Code.
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(11) For purposes of this Agreement, the term "Taxes" means all
taxes, charges, fees, levies, or other assessments, including, without
limitation, all net income, gross income, gross receipts, sales, use, ad
valorem, transfer, franchise, profits, license, withholding, payroll,
employment, social security, unemployment, excise, estimated, severance,
stamp, occupation, property, or other taxes, customs duties, fees,
assessments, or charges of any kind whatsoever, including, without limitation,
all interest and penalties thereon, and additions to tax or additional amounts
imposed by any taxing authority, domestic or foreign, upon Heritage, its
Subsidiary or any Tax Affiliate.
(l) Employee Benefit Plans.
(1) Except as set forth under the caption referencing this Section
3(l) hereof in the Disclosure Schedule, with respect to all employees and
former employees of the Company and all dependents and beneficiaries of such
employees and former employees, (i) Heritage and its Subsidiary do not
maintain or contribute to any nonqualified deferred compensation or retirement
plans, contracts or arrangements; (ii) Heritage and its Subsidiary do not
maintain or contribute to any qualified defined contribution plans (as defined
in Section 3(34) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or Section 414(i) of the Code; (iii) Heritage and its
Subsidiary do not maintain or contribute to any qualified defined benefit
plans (as defined in Section 3(35) of ERISA or Section 414(j) of the Code);
and (iv) Heritage and its Subsidiary do not maintain or contribute to any
employee welfare benefit plans (as defined in Section 3(1) of ERISA).
(2) To the extent required (either as a matter of law or to obtain
the intended tax treatment and tax benefits), all employee benefit plans (as
defined in Section 3(3) of ERISA) which Heritage or its Subsidiary does
maintain or to which Heritage or its Subsidiary does contribute (collectively,
the "Plans") comply in all material respects with the requirements of ERISA
and the Code and any other applicable law (including all reporting and
disclosure requirements thereunder) and the terms of the Plan. With respect
to the Plans, (i) all required contributions which are due have been made and
a proper accrual has been made for all contributions due in the current fiscal
year; (ii) there are no actions, suits or claims pending, other than routine
uncontested claims for benefits; and (iii) there have been no prohibited
transactions (as defined in Section 406 of ERISA or Section 4975 of the Code).
(3) Heritage and its Subsidiary have delivered to United true and
complete copies of (i) the most recent determination letter, if any, received
by Heritage and its Subsidiary from the Internal Revenue Service regarding the
Plans which Heritage or its Subsidiary maintains or to which Heritage or its
Subsidiary contributes and any amendment to any Plan made subsequent to any
Plan amendments covered by any such determination letter; (ii) the most recent
financial statements and annual report or return for the Plans including form
5500 for the three most recent plan years; and (iii) the most recently
prepared actuarial valuation reports; the current plan document and
amendments, summary plan descriptions, trust documents, insurance contracts,
service agreements and all related contracts and documents (including any
employee summaries and material employee communications).
(4) Neither Heritage nor its Subsidiary contribute (and have never
contributed) to any multi-employer plan, as defined in Section 3(37) of ERISA.
Heritage and its Subsidiary have no actual or potential liabilities under
Section 4201 of ERISA for any complete or partial withdrawal from a
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multi-employer plan. Heritage and its Subsidiary have no actual or potential
liability for death or medical benefits after separation from employment,
other than set forth under the caption referencing this Section 3(l) in the
Disclosure Schedule with respect to (i) death benefits under the employee
benefit plans or programs (whether or not subject to ERISA) and (ii) health
care continuation benefits described in Section 4980B of the Code.
(5) Neither Heritage and its Subsidiary or any of their respective
directors, officers, employees or other "fiduciaries", as such term is defined
in Section 3(21) of ERISA, has committed any breach of fiduciary
responsibility imposed by ERISA or any other applicable law with respect to
the Plans which would subject Heritage and its Subsidiary or United or any of
their respective directors, officers or employees to any liability under ERISA
or any applicable law.
(6) Heritage and its Subsidiary have not incurred any liability for
any tax or civil penalty or any disqualification of any employee benefit plan
(as defined in Section 3(3) of ERISA) imposed by Sections 4980B and 4975 of
the Code and Part 6 of Title I and Section 502(i) of ERISA.
(m) Insurance. The Disclosure Schedule, under the caption referencing
this Section 3(m), lists and briefly describes each insurance policy
maintained by Heritage and its Subsidiary with respect to their respective,
assets and operations and sets forth the date of expiration of each such
insurance policy. All of such insurance policies are in full force and effect
and are issued by insurers of recognized responsibility. Neither Heritage nor
its Subsidiary is in default with respect to its obligations under any of such
insurance policies.
(n) Compliance with Laws; Permits.
(1) Heritage, its Subsidiary and their respective officers,
directors, agents and employees have complied in all material respects with
all applicable laws, regulations and other requirements, including, but not
limited to, federal, state, local and foreign laws, ordinances, rules,
regulations and other requirements pertaining to banking, truth-in-lending,
truth-in-savings, consumer credit disclosures, equal employment opportunity,
employee retirement, affirmative action and other hiring practices,
occupational safety and health, workers' compensation, unemployment and
building and zoning codes, which materially affect the business of Heritage
and its Subsidiary or the Real Property and to which Heritage and its
Subsidiary may be subject, and no claims have been filed against Heritage and
its Subsidiary alleging a violation of any such laws, regulations or other
requirements. Heritage and its Subsidiary have no knowledge of any action,
pending or threatened, to change the zoning or building ordinances or any
other laws, rules, regulations or ordinances affecting the Real Property.
Heritage and its Subsidiary are not relying on any exemption from or deferral
of any such applicable law, regulation or other requirement that would not be
available to United after it acquires Heritage s properties, assets and
business.
(2) Heritage and its Subsidiary have, in full force and effect, all
licenses, permits and certificates, from federal, state, local and foreign
authorities (including, without limitation, federal and state agencies
regulating occupational health and safety) necessary to conduct its business
and own and operate its properties (other than Environmental Permits, as such
term is defined in Section 3(o)(3) hereof) (collectively, the "Permits"). A
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true, correct and complete list of all the Permits is set forth under the
caption referencing this Section 3(n) in the Disclosure Schedule. Heritage and
its Subsidiary have conducted its business in compliance with all material
terms and conditions of the Permits.
(3) Heritage and its Subsidiary have not made or agreed to make gifts
of money, other property or similar benefits (other than incidental gifts of
articles of nominal value) to any actual or potential customer, supplier,
governmental employee or any other person in a position to assist or hinder
Heritage and its Subsidiary in connection with any actual or proposed
transaction.
(4) In particular, but without limiting the generality of the
foregoing, Heritage and its Subsidiary have not violated and have no
liability, and have not received a notice or charge asserting any violation of
or liability under, the federal Occupational Safety and Health Act of 1970 or
any other federal or state acts (including rules and regulations thereunder)
regulating or otherwise affecting employee health and safety.
(o) Environmental Matters.
(1) As used in this Section 3(o), the following terms shall have the
following meanings:
(i) "Hazardous Materials" means any dangerous, toxic or hazardous
pollutant, contaminant, chemical, waste, material or substance as defined in
or governed by any federal, state or local law, statute, code, ordinance,
regulation, rule or other requirement relating to such substance or otherwise
relating to the environment or human health or safety, including without
limitation any waste, material, substance, pollutant or contaminant that might
cause any injury to human health or safety or to the environment or might
subject the Company to any imposition of costs or liability under any
Environmental Law.
(ii) "Environmental Laws" means all applicable federal, state,
local and foreign laws, rules, regulations, codes, ordinances, orders,
decrees, directives, permits, licenses and judgments relating to pollution,
contamination or protection of the environment (including, without limitation,
all applicable federal, state, local and foreign laws, rules, regulations,
codes, ordinances, orders, decrees, directives, permits, licenses and
judgments relating to Hazardous Materials in effect as of the date of this
Agreement).
(iii) "Release" shall mean the spilling, leaking, disposing,
discharging, emitting, depositing, ejecting, leaching, escaping or any other
release or threatened release, however defined, whether intentional or
unintentional, of any Hazardous Material.
(2) Heritage, its Subsidiary and the Real Property are in material
compliance with all applicable Environmental Laws.
(3) Heritage and its Subsidiary have obtained, and maintained in full
force and effect, all environmental permits, licenses, certificates of
compliance, approvals and other authorizations necessary to conduct its
business and own or operate the Real Property (collectively, the
"Environmental Permits"). A true and correct copy of each such Environmental
Permit shall be provided by Heritage and its Subsidiary at least 14 days prior
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to the Closing. Heritage and its Subsidiary have conducted their respective
businesses in compliance with all terms and conditions of the Environmental
Permits. Heritage and its Subsidiary have filed all reports and notifications
required to be filed under and pursuant to all applicable Environmental Laws.
(4) Except as set forth in the Disclosure Schedule under the caption
referencing this Section 3(o)(4), the Company has not received notice alleging
in any manner that Heritage or its Subsidiary is, or might be potentially
responsible for any Release of Hazardous Materials, or any costs arising under
or violation of Environmental Laws.
(5) No expenditure will be required in order for United to comply with
any Environmental Laws in effect at the time of the Closing in connection with
the operation or continued operation of the business of Heritage, its
Subsidiary or the Real Property in a manner consistent with the current
operation thereof by Heritage or the Subsidiary.
(6) Heritage and its Subsidiary have disclosed and delivered to United
all environmental reports and investigations which Heritage or its Subsidiary
have obtained or ordered with respect to their respective businesses and the
Real Property.
(7) Except as set forth in the Disclosure Schedule under the caption
referencing this Section 3(o)(7), no part of the business of Heritage, its
Subsidiary or the Real Property have been used as a landfill, dump or other
disposal, storage, transfer, handling or treatment area for Hazardous
Materials, or as a gasoline service station or a facility for selling,
dispensing, storing, transferring, disposing or handling petroleum and/or
petroleum products.
(8) No lien has been attached or filed against Heritage, its
Subsidiary or the Real Property in favor of any governmental or private entity
for (i) any liability or imposition of costs under or violation of any
applicable Environmental Law; or (ii) any Release of Hazardous Materials.
(p) Brokers' Fees. Heritage and its Subsidiaries are liable and obligated
to pay all fees or commissions owed to D.A. Davidson & Co. Great Falls,
Montana which has acted as a broker to Heritage and its Subsidiary with
respect to the transactions contemplated by this Agreement.
(q) Continuity of Business Enterprise. Heritage operates at least one
significant historic business line, or owns at least a significant portion of
its historic business assets, in each case within the meaning of Reg. Section
1.368-1(d).
(r) Disclosure. The Definitive Heritage Proxy Materials will comply with
the Securities Exchange Act in all material respects. The Definitive Heritage
Proxy Materials will not contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements made
therein, in the light of the circumstances under which they will be made, not
misleading; provided, however, that Heritage makes no representation or
warranty with respect to any information that United will supply specifically
for use in the Definitive Heritage Proxy Materials. None of the information
that Heritage will supply specifically for use in the Registration Statement,
the Prospectus, or the Definitive United Proxy Materials will contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements made therein, in the light of the
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circumstances under which they will be made, not misleading.
4. Representations and Warranties of United. United represents and
warrants to Heritage that the statements contained in this Section 4 are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this Section
4), except as set forth in the Disclosure Schedule. The Disclosure Schedule
will be arranged in paragraphs corresponding to the numbered and lettered
paragraphs contained in this Section 4.
(a) Organization. Each of United and its Subsidiaries is a corporation
duly organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation. Each of United and its Subsidiaries is duly
authorized to conduct business and is in good standing under the laws of each
jurisdiction where such qualification is required. Each of United and its
Subsidiaries has full corporate power and authority to carry on the businesses
in which it is engaged and to own and use the properties owned and used by it.
(b) Capitalization. The entire authorized capital stock of United
consists of 2,000,000 shares of United Preferred Stock, no par value of which
no shares are outstanding and 8,000,000 United Shares, of which 1,223,312
United Shares are issued and outstanding. All of United Shares to be issued in
the Merger have been duly authorized and, upon consummation of the Merger,
will be validly issued, fully paid, and nonassessable. There are no
outstanding or authorized options, warrants, purchase rights, subscription
rights, conversion rights, exchange rights, or other contracts or commitments
that could require United to issue, sell, or otherwise cause to become
outstanding any of its capital stock. There are no outstanding or authorized
stock appreciation, phantom stock, profit participation, or similar rights
with respect to United.
(c) Authorization of Transaction. United has full power and authority
(including full corporate power and authority) to execute and deliver this
Agreement and to perform its obligations hereunder; provided, however, that
United cannot consummate the Merger unless and until it receives the Requisite
United Stockholder Approval. This Agreement constitutes the valid and legally
binding obligation of United, enforceable in accordance with its terms and
conditions.
(d) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which United is subject or any provision of
the charter or bylaws of United or (ii) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify, or cancel, or require any notice
under any agreement, contract, lease, license, instrument or other arrangement
to which United is a party or by which it is bound or to which any of its
assets is subject, except where the violation, conflict, breach, default,
acceleration, termination, modification, cancellation, or failure to give
notice would not have a material adverse effect on the ability of the Parties
to consummate the transactions contemplated by this Agreement.
(e) Governmental Authorities; Consents. Except in connection with the
provisions of HOLA, the Minnesota Business Corporation Law, the Securities
Exchange Act, the Securities Act, and the state securities laws, United is not
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required to submit any notice, report or other filing with any governmental
authority in connection with the execution or delivery by it of this Agreement
or the Articles of Merger or the consummation of the transactions contemplated
hereby or thereby. Except as set forth in the Disclosure Schedule under the
caption referencing this Section 4(e), no consent, approval or authorization
of any governmental or regulatory authority or any other party or person
(except the approval of the Plan of Merger by the shareholders of Heritage) is
required to be obtained by Heritage in connection with its execution, delivery
and performance of this Agreement or the Articles of Merger or the
transactions contemplated hereby or thereby.
(f) United Subsidiaries. Each Subsidiary of United is set forth in the
Disclosure Schedule under the caption referencing this Section 4(f) and is
owned by United, either directly or through one or more other subsidiaries,
free and clear of all liens, charges, encumbrances, claims and options of any
nature. All of the outstanding shares of capital stock each Subsidiary has
been duly and validly authorized and issued, and is fully paid and
nonassessable.
(g) Financial Statements. United has provided Heritage with financial
statements of income and expenses and a balance sheet for the fiscal quarters
ended June 30, 1997 (the "Most Recent Fiscal Quarter End"), and March 31,1997
and annual financial statements of income and expenses and a balance sheet for
the fiscal years ended December 31, 1996, 1995 and 1994. The financial
statements and balance sheets (including the related notes and schedules) have
been prepared in accordance with GAAP applied on a consistent basis throughout
the periods covered thereby, and present fairly the financial condition of
United and its Subsidiaries as of the indicated dates and the results of
operations of United and its Subsidiaries for the indicated periods are
correct and complete in all material respects, and are consistent with the
books and records of United and its Subsidiaries; provided, however, that the
interim statements are subject to normal year-end adjustments.
(h) Events Subsequent to Most Recent Fiscal Quarter End. Since the Most
Recent Fiscal Quarter End, there has not been any material adverse change in
the business, financial condition, operations, results of operations, or
future prospects of United and its Subsidiaries taken as a whole. Since the
Most Recent Fiscal Quarter End, United has not:
(1) borrowed any amount or incurred or become subject to any
liability in excess of $25,000, except (i) Current Liabilities incurred in the
ordinary course of business and (ii) liabilities under contracts entered into
in the ordinary course of business;
(2) mortgaged, pledged or subjected to any lien, charge or any other
encumbrance, any of its assets with a fair market value in excess of $25,000,
except (i) liens for current property taxes not yet due and payable, (ii)
liens imposed by law and incurred in the ordinary course of business for
obligations not yet due to carriers, warehousemen, laborers, materialmen and
the like, (iii) liens in respect of pledges or deposits under workers'
compensation laws, (iv) liens set forth under the caption referencing this
Section 4(h) in the Disclosure Schedule, or (v) liens voluntarily created in
connection with any pledge to the Federal Home Loan Board, any pledge to state
or local governments as a condition precedent for the deposit of public funds,
and any pledge related to a repurchase agreement, as well as any other lien
created in the ordinary course of business;
E-19
(3) discharged or satisfied any lien or encumbrance or paid any
liability, in each case with a value in excess of $25,000, other than Current
Liabilities paid in the ordinary course of business;
(4) sold, assigned or transferred (including, without limitation,
transfers to any employees, affiliates or shareholders) any tangible assets
with a fair market value in excess of $25,000, or canceled any debts or
claims, in each case, except in the ordinary course of business;
(5) sold, assigned or transferred (including, without limitation,
transfers to any employees, affiliates or shareholders) any patents,
trademarks, trade names, copyrights, trade secrets or other intangible assets;
(6) waived any rights of material value or suffered any extraordinary
losses or adverse changes in collection loss experience, whether or not in the
ordinary course of business or consistent with past practice;
(7) declared or paid any dividends or other distributions with
respect to any shares of United's capital stock, except in the ordinary course
of business and consistent with past practice, or redeemed or purchased,
directly or indirectly, any shares of the United's capital stock or any
options;
(8) issued, sold or transferred any of its equity securities,
securities convertible into or exchangeable for its equity securities or
warrants, options or other rights to acquire its equity securities, or any
bonds or debt securities;
(9) taken any other action or entered into any other transaction
other than in the ordinary course of business and in accordance with past
custom and practice, or entered into any transaction with any director or
officer other than employment arrangements otherwise disclosed in this
Agreement and the Disclosure Schedule, or the transactions contemplated by
this Agreement;
(10) suffered any material theft, damage, destruction or loss of or
to any property or properties owned or used by it, whether or not covered by
insurance;
(11) made or granted any bonus or any wage, salary or compensation
increase to any director, officer, employee, or consultant or made or granted
any increase in any employee benefit plan or arrangement, or amended or
terminated any existing employee benefit plan or arrangement, or adopted any
new employee benefit plan or arrangement or made any commitment or incurred
any liability to any labor organization, except in the ordinary course of
business and consistent with past practice;
(12) made any single capital expenditure or commitment therefor in
excess of $25,000; or
(13) made any change in accounting principles or practices from those
utilized in the preparation of the Annual Financial Statements.
(i) Absence of Undisclosed Liabilities. Except as reflected in the
balance sheet as of the Most Recent Fiscal Quarter End, United and its
Subsidiaries have no liabilities (whether accrued, absolute, contingent,
unliquidated or otherwise, whether due or to become due, whether known or
E-20
unknown, and regardless of when asserted) arising out of transactions or
events heretofore entered into, or any action or inaction, or any state of
facts existing, with respect to or based upon transactions or events
heretofore occurring, except (i) liabilities which have arisen after the date
of the Most Recent Fiscal Quarter End in the ordinary course of business (none
of which is a material uninsured liability for breach of contract, breach of
warranty, tort, infringement, claim or lawsuit), or (ii) as otherwise set
forth in the Disclosure Schedule under the caption referencing this Section
4(i).
(j) Title to Properties.
(1) The real property owned by United and its Subsidiary or demised
by the leases (the "Leases") described under the caption referencing this
Section 4(j) in the Disclosure Schedule constitute all of the real property
owned, used or occupied by United or its Subsidiary (the "Real Property").
The Real Property has access, sufficient for the conduct of United or its
Subsidiary's businesses as now conducted or as presently proposed to be
conducted, to public roads and to all utilities, including electricity,
sanitary and storm sewer, potable water, natural gas and other utilities, used
in the operation of the business of United or its Subsidiary at such location.
(2) The Leases are in full force and effect, and United or its
Subsidiary holds a valid and existing leasehold interest under each of the
Leases for the term set forth under such caption in the Disclosure Schedule.
United has delivered to United complete and accurate copies of each of the
Leases, and none of the Leases has been modified in any respect, except to the
extent that such modifications are disclosed by the copies delivered to
United. Neither United or any Subsidiary is in default, and no circumstances
exist which, if unremedied, would, either with or without notice or the
passage of time or both, result in such default under any of the Leases; nor,
to the best knowledge of United, is any other party to any of the Leases in
default.
(3) United or its Subsidiary owns good and marketable title to each
parcel of Real Property identified in the Disclosure Schedule under the
caption referencing this Section 4(j) as being owned by United or its
Subsidiary to each of the tangible properties and tangible assets reflected on
the balance sheet as of the Most Recent Fiscal Quarter End or acquired since
the date thereof, free and clear of all liens and encumbrances, except for (i)
liens for current taxes not yet due and payable, (ii) liens set forth under
the caption referencing this Section 4(j) in the Disclosure Schedule, (iii)the
properties subject to the Leases, (iv) assets disposed of since the date of
the Most Recent Fiscal Quarter End in the ordinary course of business, (v)
liens imposed by law and incurred in the ordinary course of business for
obligations not yet due to carriers, warehousemen, laborers and materialmen
and (vi) liens in respect of pledges or deposits under workers' compensation
laws.
(4) All of the buildings, machinery, equipment and other tangible
assets necessary for the conduct of United or its Subsidiary s business are in
good condition and repair, ordinary wear and tear excepted, and are usable in
the ordinary course of business. There are no defects in such assets or other
conditions relating thereto which, in the aggregate, materially adversely
affect the operation or value of such assets. United or its Subsidiary owns,
or leases under valid leases, all buildings, machinery, equipment and other
tangible assets necessary for the conduct of its business.
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(5) United and its Subsidiary are not in violation of any applicable
zoning ordinance or other law, regulation or requirement relating to the
operation of any properties used in the operation of its business, and neither
United or its Subsidiary have not received any notice of any such violation,
or the existence of any condemnation proceeding with respect to any of the
Real Property, except, in each case, with respect to violations the potential
consequences of which do not or will not have a material adverse effect on
United or its Subsidiary.
(6) United has no knowledge of improvements made or contemplated to be
made by any public or private authority, the costs of which are to be assessed
as special taxes or charges against any of the Real Property, and there are no
present assessments.
(k) Tax Matters.
(1) Each of United and its Subsidiary, any affiliated, combined or
unitary group of which United and its Subsidiary is or was a member, any
"Plans" (as defined in Section 4(l) hereof), as the case may be (each, a "Tax
Affiliate" and, collectively, the "Tax Affiliates"), has: (i) timely filed
(or has had timely filed on its behalf) all returns, declarations, reports,
estimates, information returns, and statements ("Returns") required to be
filed or sent by it in respect of any "Taxes" (as defined in subsection (11)
below) or required to be filed or sent by it by any taxing authority having
jurisdiction; (ii) timely and properly paid (or has had paid on its behalf)
all Taxes shown to be due and payable on such Returns; (iii) established on
its latest balance sheet as of the Most Recent Fiscal Quarter End, in
accordance with generally accepted accounting principles, reserves that are
adequate for the payment of any Taxes not yet due and payable; (iv) complied
with all applicable laws, rules, and regulations relating to the withholding
of Taxes and the payment thereof (including, without limitation, withholding
of Taxes under Sections 1441 and 1442 of the Internal Revenue Code of 1986, as
amended (the "Code"), or similar provisions under any foreign laws), and
timely and properly withheld from individual employee wages and paid over to
the proper governmental authorities all amounts required to be so withheld and
paid over under all applicable laws.
(2) There are no liens for Taxes upon any assets of United, its
Subsidiary or of any Tax Affiliate, except liens for Taxes not yet due.
(3) No deficiency for any Taxes has been proposed, asserted or
assessed against United, its Subsidiary or the Tax Affiliates that has not
been resolved and paid in full. No waiver, extension or comparable consent
given by United, its Subsidiary or the Tax Affiliates regarding the
application of the statute of limitations with respect to any Taxes or Returns
is outstanding, nor is any request for any such waiver or consent pending.
There has been no Tax audit or other administrative proceeding or court
proceeding with regard to any Taxes or Returns, nor is any such Tax audit or
other proceeding pending, nor has there been any notice to United or its
Subsidiary by any Taxing authority regarding any such Tax, audit or other
proceeding, or, to the best knowledge of United, is any such Tax audit or
other proceeding threatened with regard to any Taxes or Returns. United does
not expect the assessment of any additional Taxes of United, its Subsidiary or
the Tax Affiliates and is not aware of any unresolved questions, claims or
disputes concerning the liability for Taxes of United, its Subsidiary or the
Tax Affiliates which would exceed the estimated reserves established on its
books and records.
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(4) Neither United, its Subsidiary nor any Tax Affiliate is a party
to any agreement, contract or arrangement that would result, separately or in
the aggregate, in the payment of any "excess parachute payments" within the
meaning of Section 280G of the Code and the consummation of the transactions
contemplated by this Agreement will not be a factor causing payments to be
made by United, its Subsidiary or any Tax Affiliate that are not deductible
(in whole or in part) under Section 280G of the Code.
(5) Neither United, its Subsidiary nor any Tax Affiliate has
requested any extension of time within which to file any Return, which Return
has not since been filed.
(6) No property of United, its Subsidiary or any Tax Affiliate is
property that United, its Subsidiary or any Tax Affiliates is or will be
required to treat as being owned by another person under the provisions of
Section 168(f)(8) of the Code (as in effect prior to amendment by the Tax
Reform Act of 1986) or is "tax-exempt use property" within the meaning of
Section 168 of the Code.
(7) Neither United, its Subsidiary nor any Tax Affiliate is required
to include in income any adjustment under Section 481(a) of the Code by reason
of a voluntary change in accounting method initiated by United, its Subsidiary
or any Tax Affiliate as a result of the Tax Reform Act of 1986 and neither
United, its Subsidiary nor any Tax Affiliate has knowledge that the Internal
Revenue Service has proposed any such adjustment or change in accounting
method.
(8) All transactions that could give rise to an understatement of
federal income tax (within the meaning of Section 6661 of the Code as it
applied prior to repeal) or an underpayment of tax (within the meaning of
Section 6662 of the Code) were reported in a manner for which there is
substantial authority or were adequately disclosed (or, with respect to
Returns filed before the Closing Date, will be reported in such a manner or
adequately disclosed) on the Returns required in accordance with Sections
6661(b)(2)(B) and 6662(d)(2)(B) of the Code.
(9) Neither United, its Subsidiary nor any Tax Affiliate has engaged
in any transaction that would result in a deemed election under Section 338(e)
of the Code, and neither United nor any Tax Affiliate will engage in any such
transaction within any applicable "consistency period" (as such term is
defined in Section 338 of the Code).
(10) Neither United, its Subsidiary nor any Tax Affiliate has filed
any consent under Section 341(f) of the Code.
(11) For purposes of this Agreement, the term "Taxes" means all
taxes, charges, fees, levies, or other assessments, including, without
limitation, all net income, gross income, gross receipts, sales, use, ad
valorem, transfer, franchise, profits, license, withholding, payroll,
employment, social security, unemployment, excise, estimated, severance,
stamp, occupation, property, or other taxes, customs duties, fees,
assessments, or charges of any kind whatsoever, including, without limitation,
all interest and penalties thereon, and additions to tax or additional amounts
imposed by any taxing authority, domestic or foreign, upon United, its
Subsidiary or any Tax Affiliate.
E-23
(l) Employee Benefit Plans.
(1) Except as set forth under the caption referencing this Section
4(l) hereof in the Disclosure Schedule, with respect to all employees and
former employees of the Company and all dependents and beneficiaries of such
employees and former employees, (i) United and its Subsidiary does not
maintain or contribute to any nonqualified deferred compensation or retirement
plans, contracts or arrangements; (ii) United and its Subsidiary does not
maintain or contribute to any qualified defined contribution plans (as defined
in Section 3(34) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or Section 414(i) of the Code; (iii) United and its
Subsidiary does not maintain or contribute to any qualified defined benefit
plans (as defined in Section 3(35) of ERISA or Section 414(j) of the Code);
and (iv) United and its Subsidiary does not maintain or contribute to any
employee welfare benefit plans (as defined in Section 3(1) of ERISA).
(2) With the exception of the Financial Institutions Retirement Fund
defined benefit pension plan in which the United Subsidiary participates, to
the extent required (either as a matter of law or to obtain the intended tax
treatment and tax benefits), all employee benefit plans (as defined in Section
3(3) of ERISA) which United or its Subsidiary maintains or to which United or
its Subsidiary contributes (collectively, the "Plans") comply in all material
respects with the requirements of ERISA and the Code and any other applicable
law(including all reporting and disclosure requirements thereunder) and the
terms of the Plan. With respect to the Plans, (i) all required contributions
which are due have been made and a proper accrual has been made for all
contributions due in the current fiscal year; (ii) there are no actions, suits
or claims pending, other than routine uncontested claims for benefits; and
(iii) there have been no prohibited transactions (as defined in Section 406 of
ERISA or Section 4975 of the Code). With respect to the United Subsidiary s
participation in the Financial Institutions Retirement Fund defined benefit
pension plan, the United Subsidiary has made the contributions required under
the terms of its participation in the Fund.
(3) United and its Subsidiary have delivered to Heritage true and
complete copies of (i) the most recent determination letter, if any, received
by United and its Subsidiary from the Internal Revenue Service regarding the
Plans which United or its Subsidiary maintains or to which United or its
Subsidiary contributes and any amendment to any Plan made subsequent to any
Plan amendments covered by any such determination letter; (ii) the most recent
financial statements and annual report or return for the Plans including Form
5500 for the three most recent plan years; the current plan document and
amendments, summary plan descriptions, trust documents, insurance contracts,
service agreements and all related contracts and documents (including any
employee summaries and material employee communications).
(4) Neither United nor its Subsidiary contribute (and have never
contributed) to any multi-employer plan, as defined in Section 3(37) of ERISA.
United and its Subsidiary have no actual or potential liabilities under
Section 4201 of ERISA for any complete or partial withdrawal from a
multi-employer plan. United and its Subsidiary have no actual or potential
liability for death or medical benefits after separation from employment,
other than as set forth under the caption referencing this Section 4(l) in the
Disclosure Schedule with respect to (i) death benefits under the employee
benefit plans or programs (whether or not subject to ERISA) and (ii) health
care continuation benefits described in Section 4980B of the Code.
E-24
(5) Neither United and its Subsidiary or any of their respective
directors, officers, employees or other "fiduciaries", as such term is defined
in Section 3(21) of ERISA, has committed any breach of fiduciary
responsibility imposed by ERISA or any other applicable law with respect to
the Plans which would subject United and its Subsidiary or United or any of
their respective directors, officers or employees to any liability under ERISA
or any applicable law.
(6) United and its Subsidiary have not incurred any liability for any
tax or civil penalty or any disqualification of any employee benefit plan (as
defined in Section 3(3) of ERISA) imposed by Sections 4980B and 4975 of the
Code and Part 6 of Title I and Section 502(i) of ERISA.
(m) Insurance. The Disclosure Schedule, under the caption referencing
this Section 4(m), lists and briefly describes each insurance policy
maintained by United and its Subsidiary with respect to their respective,
assets and operations and sets forth the date of expiration of each such
insurance policy. All of such insurance policies are in full force and effect
and are issued by insurers of recognized responsibility. Neither United nor
its Subsidiary is in default with respect to its obligations under any of such
insurance policies.
(n) Compliance with Laws; Permits.
(1) United, its Subsidiary and their respective officers, directors,
agents and employees have complied in all material respects with all
applicable laws, regulations and other requirements, including, but not
limited to, federal, state, local and foreign laws, ordinances, rules,
regulations and other requirements pertaining to banking, truth-in-lending,
truth-in-savings, consumer credit disclosures, equal employment opportunity,
employee retirement, affirmative action and other hiring practices,
occupational safety and health, workers' compensation, unemployment and
building and zoning codes, which materially affect the business of United and
its Subsidiary or the Real Property and to which United and its Subsidiary may
be subject, and no claims have been filed against United and its Subsidiary
alleging a violation of any such laws, regulations or other requirements.
United and its Subsidiary have no knowledge of any action, pending or
threatened, to change the zoning or building ordinances or any other laws,
rules, regulations or ordinances affecting the Real Property. United and its
Subsidiary are not relying on any exemption from or deferral of any such
applicable law, regulation or other requirement that would not be available to
United after it acquires United s properties, assets and business.
(2) United and its Subsidiary have, in full force and effect, all
licenses, permits and certificates, from federal, state, local and foreign
authorities (including, without limitation, federal and state agencies
regulating occupational health and safety) necessary to conduct its business
and own and operate its properties (other than Environmental Permits, as such
term is defined in Section 4(o)(3) hereof) (collectively, the "Permits"). A
true, correct and complete list of all the Permits is set forth under the
caption referencing this Section 4(n) in the Disclosure Schedule. United and
its Subsidiary have conducted its business in compliance with all material
terms and conditions of the Permits.
(3) United and its Subsidiary have not made or agreed to make gifts of
money, other property or similar benefits (other than incidental gifts of
articles of nominal value) to any actual or potential customer, supplier,
E-25
governmental employee or any other person in a position to assist or hinder
United and its Subsidiary in connection with any actual or proposed
transaction.
(4) In particular, but without limiting the generality of the
foregoing, United and its Subsidiary have not violated and have no liability,
and have not received a notice or charge asserting any violation of or
liability under, the federal Occupational Safety and Health Act of 1970 or any
other federal or state acts (including rules and regulations thereunder)
regulating or otherwise affecting employee health and safety.
(o) Environmental Matters.
(1) As used in this Section 4(o), the following terms shall have the
following meanings:
(i) "Hazardous Materials" means any dangerous, toxic or hazardous
pollutant, contaminant, chemical, waste, material or substance as defined in
or governed by any federal, state or local law, statute, code, ordinance,
regulation, rule or other requirement relating to such substance or otherwise
relating to the environment or human health or safety, including without
limitation any waste, material, substance, pollutant or contaminant that might
cause any injury to human health or safety or to the environment or might
subject the Company to any imposition of costs or liability under any
Environmental Law.
(ii) "Environmental Laws" means all applicable federal, state,
local and foreign laws, rules, regulations, codes, ordinances, orders,
decrees, directives, permits, licenses and judgments relating to pollution,
contamination or protection of the environment (including, without limitation,
all applicable federal, state, local and foreign laws, rules, regulations,
codes, ordinances, orders, decrees, directives, permits, licenses and
judgments relating to Hazardous Materials in effect as of the date of this
Agreement).
(iii) "Release" shall mean the spilling, leaking, disposing,
discharging, emitting, depositing, ejecting, leaching, escaping or any other
release or threatened release, however defined, whether intentional or
unintentional, of any Hazardous Material.
(2) United, its Subsidiary and the Real Property are in material
compliance with all applicable Environmental Laws.
(3) United and its Subsidiary have obtained, and maintained in full
force and effect, all environmental permits, licenses, certificates of
compliance, approvals and other authorizations necessary to conduct its
business and own or operate the Real Property (collectively, the
"Environmental Permits"). A true and correct copy of each such Environmental
Permit shall be provided by United and its Subsidiary at least 14 days prior
to the Closing. United and its Subsidiary have conducted their respective
businesses in compliance with all terms and conditions of the Environmental
Permits. United and its Subsidiary have filed all reports and notifications
required to be filed under and pursuant to all applicable Environmental Laws.
(4) Except as set forth in the Disclosure Schedule under the caption
referencing this Section 4(o)(4), the Company has not received notice alleging
in any manner that United or its Subsidiary is, or might be potentially
E-26
responsible for any Release of Hazardous Materials, or any costs arising under
or violation of Environmental Laws.
(5) No expenditure will be required in order for United to comply
with any Environmental Laws in effect at the time of the Closing in connection
with the operation or continued operation of the business of United, its
Subsidiary or the Real Property in a manner consistent with the current
operation thereof by United or the Subsidiary.
(6) United and its Subsidiary have disclosed and delivered to United
all environmental reports and investigations which United or its Subsidiary
have obtained or ordered with respect to their respective businesses and the
Real Property.
(7) Except as set forth in the Disclosure Schedule under the caption
referencing this Section 4(o)(7), no part of the business of United, its
Subsidiary or the Real Property have been used as a landfill, dump or other
disposal, storage, transfer, handling or treatment area for Hazardous
Materials, or as a gasoline service station or a facility for selling,
dispensing, storing, transferring, disposing or handling petroleum and/or
petroleum products.
(8) No lien has been attached or filed against United, its Subsidiary
or the Real Property in favor of any governmental or private entity for (i)
any liability or imposition of costs under or violation of any applicable
Environmental Law; or (ii) any Release of Hazardous Materials.
(p) Brokers' Fees. United does not have any liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which any of Heritage and its
Subsidiaries could become liable or obligated.
(q) Disclosure. The Registration Statement, the Prospectus, and the
Definitive United Proxy Materials will comply with the Securities Act and the
Securities Exchange Act in all material respects. The Registration Statement,
the Prospectus, and the Definitive United Proxy Materials will not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements made therein, in the light of the
circumstances under which they will be made, not misleading; provided,
however, that United makes no representation or warranty with respect to any
information that Heritage will supply specifically for use in the Registration
Statement, the Prospectus, and the Definitive United Proxy Materials. None of
the information that United will supply specifically for use in the Definitive
Heritage Proxy Materials will contain any untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements
made therein, in the light of the circumstances under which they will be made,
not misleading.
5. Covenants. The Parties agree as follows with respect to the period from
and after the execution of this Agreement.
(a) General. Each of the Parties will use its reasonable best efforts to
take all action and to do all things necessary, proper, or advisable in order
to consummate and make effective the transactions contemplated by this
Agreement (including satisfaction, but not waiver, of the closing conditions
set forth in Section 6 below).
E-27
(b) Notices and Consents. Heritage and United will give any notices (and
will cause each of its respective Subsidiaries to give any notices) to third
parties, and will use its reasonable best efforts to obtain (and will cause
each of its respective Subsidiaries to use its reasonable best efforts to
obtain) any third party consents, that (i) United reasonably may request of
Heritage in connection with the matters referred to in Section 3(e) above; and
(ii) that Heritage reasonably may request of United in connection with the
matters referred to in Section 4(e) above.
(c) Regulatory Matters and Approvals. Each of the Parties will (and will
cause each of its Subsidiaries to) give any notices to, make any filings with,
and use its reasonable best efforts to obtain any authorizations, consents,
and approvals of governments and governmental agencies in connection with the
matters referred to in Section 3(e) and Section 4(e) above. Without limiting
the generality of the foregoing:
(i) Securities Act, Securities Exchange Act, and State Securities
Laws. United will prepare and file with the SEC a registration statement
under the Securities Act relating to the offering and issuance of United
Shares (the "Registration Statement") and preliminary proxy materials under
the Securities Exchange Act relating to the Special United Meeting. United
will use its reasonable best efforts to respond to the comments of the SEC
thereon and will make any further filings (including amendments and
supplements) in connection therewith that may be necessary. At its own
expense, Heritage will provide United with whatever financial statements,
related disclosure information and assistance in connection with the
foregoing filing that United reasonably may request. United will take all
actions that may be necessary under state securities laws in connection
with the offering and issuance of United Shares.
(ii) Applicable Corporation Law. Heritage will call a special meeting
of its stockholders (the "Special Heritage Meeting") as soon as reasonably
practicable in order that the stockholders may consider and vote upon the
adoption of this Agreement, the approval of the Merger in accordance with
the Montana Business Corporation Act and to take such other action as
necessary to effect the terms of the Agreement. United will call a special
meeting of its stockholders (the "Special United Meeting") as soon as
reasonably practicable in order that the stockholders may consider and vote
upon the adoption of this Agreement, the approval of the Merger in
accordance with the Minnesota Business Corporation Law and to take such
other action as necessary to effect the terms of the Agreement. The Parties
will mail the Joint Disclosure Document to their respective stockholders
simultaneously and as soon as reasonably practicable. The Joint Disclosure
Document will contain the affirmative recommendations of the respective
boards of directors of the Parties in favor of the adoption of this
Agreement and the approval of the Merger; provided, however, that an
affirmative recommendation shall be excused in the event of the occurance
of a material intervening event following the adoptions of resolutions by
the board of directors to submit the Joint Disclosure Document to the
shareholders for approval which event would require contrary action
pursuant to the applicable fiduciary duties of directors of Heritage or
United, as determined by such directors in good faith after consultation
with and based upon the written advice of independent legal counsel.
(iii) HOLA. United will file an application on Form H-(e)3 with OTS
and will make any further filings pursuant thereto and with such other
government agencies and departments that may be necessary.
E-28
(d) Fairness Opinion and Comfort Letters. Heritage will deliver to United
on or before the date the Joint Disclosure Document is mailed to their
respective stockholders (i) an opinion of D.A. Davidson & Co. as to the
fairness of the Merger to Heritage Stockholders from a financial point of view
("Heritage Fairness Opinion") and (ii) a letter of KPMG-Peat Marwick stating
their conclusions as to the accuracy of certain information derived from the
financial records of Heritage and its Subsidiaries and included within the
pro-forma financial statements contained in the Joint Disclosure Document (the
"Heritage Comfort Letter"). Each of the Heritage Fairness Opinion and Heritage
Comfort Letter shall be reasonably satisfactory to United in form and
substance. United will deliver to Heritage on or before the date the Joint
Disclosure Document is mailed to their respective stockholders (i) an opinion
of Columbia Financial Advisors, Inc. as to the fairness of the Merger to
United Stockholders from a financial point of view ("United Fairness Opinion")
and (ii) a letter of KPMG-Peat Marwick stating their conclusions as to the
accuracy of certain information derived from the financial records of United
and its Subsidiaries and the appropriateness under Generally Accepted
Accounting Principals of the purchase method accounting treatment applied to
the pro-forma financial statements contained in the Joint Disclosure Document
(the "United Comfort Letter"). Each of the United Fairness Opinion and United
Comfort Letter shall be reasonably satisfactory to Heritage in form and
substance.
(e) Listing of United Shares. United will use its reasonable best efforts
to cause United Shares that will be issued in the Merger to be approved for
listing on NASDAQ-NMS, subject to official notice of issuance, prior to the
Effective Time.
(f) Operation of Business. Heritage and United will not (and will not
cause or permit any of its Subsidiaries to) engage in any practice, take any
action, or enter into any transaction outside the Ordinary Course of Business
except as may be required to fulfill an obligation or covenant undertaken
pursuant to this Agreement. Without limiting the generality of the foregoing
none of United, Heritage or any of their respective Subsidiaries:
(i) will authorize or effect any change in their respective charter or
bylaws;
(ii) will grant any options, warrants, or other rights to purchase or
obtain any capital stock or issue, sell, or otherwise dispose of any
capital stock (except upon the conversion or exercise of options, warrants,
and other rights currently outstanding);
(iii) will declare, set aside, or pay any dividend or distribution
with respect to capital stock (whether in cash or in kind), or redeem,
repurchase, or otherwise acquire any of their respective capital stock, in
either case outside the Ordinary Course of Business;
(iv) issue any note, bond, or other debt security or create, incur,
assume, or guarantee any indebtedness for borrowed money or capitalized
lease obligation outside the Ordinary Course of Business;
(v) will impose any Security Interest upon any assets outside the
Ordinary Course of Business;
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(vi) will make any capital investment in, make any loan to, or acquire
the securities or assets of any other Person outside the Ordinary Course of
Business;
(vii) will make any change in employment terms for any of its
directors, officers, and employees outside the Ordinary Course of Business;
and
(viii) will commit to any of the foregoing.
(g) Full Access. Heritage will (and it will cause each of its respective
Subsidiaries to) permit representatives of United to have full access to all
premises, properties, personnel, books, records (including tax records),
contracts, and documents of or pertaining to each of Heritage and its
Subsidiaries. United will treat and hold as such any Confidential Information
it receives from any of Heritage and its Subsidiaries in the course of the
reviews contemplated by this Section 5(g), will not use any of the
Confidential Information except in connection with this Agreement, and, if
this Agreement is terminated for any reason whatsoever, agrees to return to
Heritage all tangible embodiments (and all copies) thereof which are in its
possession. United will (and it will cause each of its respective Subsidiaries
to) permit representatives of Heritage to have full access to all premises,
properties, personnel, books, records (including tax records), contracts, and
documents of or pertaining to each of United and its Subsidiaries. Heritage
will treat and hold as such any Confidential Information it receives from any
of United and its Subsidiaries in the course of the reviews contemplated by
this Section 5(g), will not use any of the Confidential Information except in
connection with this Agreement, and, if this Agreement is terminated for any
reason whatsoever, agrees to return to United all tangible embodiments (and
all copies) thereof which are in its possession.
(h) Notice of Developments. Each Party will give prompt written notice to
the other of any material adverse development causing a breach of any of its
own representations and warranties in Section 3 and Section 4 above. No
disclosure by any Party pursuant to this Section 5(h), however, shall be
deemed to amend or supplement the Disclosure Schedule or to prevent or cure
any misrepresentation, breach of warranty, or breach of covenant.
(i) Exclusivity. Heritage will not (and will not cause or permit any of
its Subsidiaries to) solicit, initiate, or encourage the submission of any
proposal or offer from any Person relating to the acquisition of all or
substantially all of the capital stock or assets of any of Heritage and its
Subsidiaries (including any acquisition structured as a merger, consolidation,
or share exchange); provided, however, that Heritage, its Subsidiaries, and
their directors and officers will remain free to participate in any
discussions or negotiations regarding, furnish any information with respect
to, assist or participate in, or facilitate in any other manner any effort or
attempt by any Person to do or seek any of the foregoing to the extent their
fiduciary duties may require. Heritage shall notify United immediately if any
Person makes any proposal, offer, inquiry, or contact with respect to any of
the foregoing.
United will not (and will not cause or permit any of its Subsidiaries to)
solicit, initiate, or encourage the submission of any proposal or offer from
any Person relating to the acquisition of all or substantially all of the
capital stock or assets of any of United and its Subsidiaries (including any
acquisition structured as a merger, consolidation, or share exchange);
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provided, however, that United, its Subsidiaries, and their directors and
officers will remain free to participate in any discussions or negotiations
regarding, furnish any information with respect to, assist or participate in,
or facilitate in any other manner any effort or attempt by any Person to do or
seek any of the foregoing to the extent their fiduciary duties may require.
United shall notify Heritage immediately if any Person makes any proposal,
offer, inquiry, or contact with respect to any of the foregoing.
(j) Insurance and Indemnification.
(i) United will provide each individual who served as a director or
officer of Heritage at any time prior to the Effective Time with liability
insurance for a period of 48 months after the Effective Time no less
favorable in coverage and amount than any applicable insurance in effect
immediately prior to the Effective Time; provided, however, that United
may reduce the coverage and amount of liability insurance to the extent
the cost of liability insurance having the full coverage and amount would
exceed $20,000 per annum.
(ii) United, as the Surviving Corporation in the Merger, will observe
any indemnification provisions now existing in the certificate of
incorporation or bylaws of Heritage for the benefit of any individual who
served as a director or officer of Heritage at any time prior to the
Effective Time.
(k) Continuity of Business Enterprise. United will continue at least one
significant historic business line of Heritage, or use at least a significant
portion of Heritage's historic business assets in a business, in each case
within the meaning of Reg. Section 1.368-1(d).
(l) Loan Review. Each Subsidiary of United and Heritage engaged in banking
activities shall permit officers of the other Subsidiary to review any loans
proposed to be made to customers in excess of $100,000 prior to the Effective
Time.
6. Conditions to Obligation to Close.
(a) Conditions to Obligation of United. The obligation of United to
consummate the transactions to be performed by it in connection with the
Closing is subject to satisfaction of the following conditions:
(i) this Agreement and the Merger shall have received the Requisite
Heritage Stockholder Approval and the number of Dissenting Shares shall not
exceed six per cent (6%) of the number of outstanding Heritage Shares;
(ii) Heritage and its Subsidiaries shall have procured all of the
third party consents specified in Section 5(b) above;
(iii) the representations and warranties set forth in Section 3 above
shall be true and correct in all material respects at and as of the Closing
Date;
(iv) Heritage shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(v) no action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any federal,
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state, local, or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge would
(A) prevent consummation of any of the transactions contemplated by this
Agreement, (B) cause any of the transactions contemplated by this Agreement
to be rescinded following consummation, (C) affect adversely the right of
the Surviving Corporation to own the former assets, to operate the former
businesses, and to control the former Subsidiaries of Heritage, or (D)
affect adversely the right of any of the former Subsidiaries of Heritage to
own its assets and to operate its businesses (and no such injunction,
judgment, order, decree, ruling, or charge shall be in effect);
(vi) Heritage shall have delivered to United a certificate to the
effect that each of the conditions specified above in Section 6(a)(i)-(v)
is satisfied in all respects;
(vii) this Agreement and the Merger shall have received the Requisite
United Stockholder Approval;
(viii) the Registration Statement shall have become effective under
the Securities Act;
(ix) United Shares that will be issued in the Merger shall have been
approved for listing on NASDAQ-NMS, subject to official notice of issuance;
(x) all applicable waiting periods required by the OTS shall have
expired or otherwise been terminated and the Parties shall have received
all other authorizations, consents, and approvals of governments and
governmental agencies referred to in Section 3(e) and Section 4(e) above;
(xi) United shall have received from counsel to Heritage an opinion in
form and substance acceptable to counsel for United, addressed to United,
and Dated as of the Closing Date;
(xii) United shall have received a certificate from Norwest Bank
Minnesota, N.A. that the Loan Agreement has been satisfied by the Heritage
Shareholders as of the Closing;
(xiii) all actions, conditions, approvals and filings, except for the
filing of Articles of Merger with the appropriate authorities, shall have
been taken in connection with the merger and consolidation of the United
Subsidiaries and Heritage Subsidiaries engaged in the banking business and
such Articles of Merger shall be filed subsequent to the Effective Time;
(xiv) all actions to be taken by Heritage in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form
and substance to United;
(xv) all requisite approvals from all applicable regulatory agencies
having jurisdiction over the transactions contemplated by the Agreement and
the accounting methods to be used have been obtained and there is no
objection by KPMG-Peat Marwick to treating Heritage as the accounting
acquiror of United under GAAP as applied to the purchase method of
accounting; and
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(xvi) Heritage shall have provided to United title insurance or title
opinions covering all real property owned by Heritage and its Subsidiary
and a Phase I environmental audit with respect to such real property.
United may waive any condition specified in this Section 6(a) if it
executes a writing so stating at or prior to the Closing.
(b) Conditions to Obligation of Heritage. The obligation of Heritage to
consummate the transactions to be performed by it in connection with the
Closing is subject to satisfaction of the following conditions:
(i) this Agreement and the Merger shall have received the Requisite
United Stockholder Approval and the number of Dissenting Shares shall not
exceed ten per cent (10%) of the number of outstanding United Shares;
(ii) the Registration Statement shall have become effective under the
Securities Act;
(iii) United Shares that will be issued in the Merger shall have been
approved for listing on NASDAQ-NMS, subject to official notice of issuance;
(iv) the representations and warranties set forth in Section 4 above
shall be true and correct in all material respects at and as of the
Closing Date;
(v) United shall have performed and complied with all of its covenants
hereunder in all material respects through the Closing;
(vi) no action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge would
(A) prevent consummation of any of the transactions contemplated by this
Agreement, (B) cause any of the transactions contemplated by this Agreement
to be rescinded following consummation, (C) affect adversely the right of
the Surviving Corporation to own the former assets, to operate the former
businesses, and to control the former Subsidiaries of United, or (D) affect
adversely the right of any of the former Subsidiaries of United to own its
assets and to operate its businesses (and no such injunction, judgment,
order, decree, ruling, or charge shall be in effect);
(vii) United shall have delivered to Heritage a certificate to the
effect that each of the conditions specified above in Section 6(b)(i)-(vi)
is satisfied in all respects;
(viii) this Agreement and the Merger shall have received the Requisite
Heritage Stockholder Approval;
(ix) all necessary approvals have been obtained from OTS pursuant to
HOLA and the Parties shall have received all other authorizations,
consents, and approvals of governments and governmental agencies referred
to in Section 3(e) and Section 4(e) above;
(x) Heritage shall have received from counsel to United an opinion in
form and substance acceptable to counsel for Heritage, addressed to
Heritage, and dated as of the Closing Date;
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(xi) Heritage shall have received from its counsel an opinion to the
effect that the Merger will constitute a tax-free reorganization pursuant
to Code Section 368(a)(1)(A);
(xii) Heritage shall have received the resignations, effective as of
the Effective Time, of the directors and officers of United and its
Subsidiaries as provided in Section 2(d)(iv);
(xiii) Heritage or the Heritage Shareholder owning or controlling a
majority of Heritage Shares shall have received Rights of First Refusal in
form and substance substantially similar to attached Exhibit B from United
Shareholders representing not less than 250,000 shares of the outstanding
Common Stock of United as of the date of this Agreement; and
(xiv) all actions to be taken by United in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form
and substance to Heritage;
(xv) all requisite approvals from all applicable regulatory agencies
having jurisdiction over the transactions contemplated by the Agreement and
the accounting methods to be used have been obtained and there is no
objection by KPMG-Peat Marwick to treating Heritage as the accounting
acquiror of United under GAAP as applied to the purchase method of
accounting; and
(xvi) United shall have provided to Heritage title insurance or title
opinions covering all real property owned by United and its Subsidiary and
a Phase I environmental audit with respect to such real property.
Heritage may waive any condition specified in this Section 6(b) if it
executes a writing so stating at or prior to the Closing.
7. Termination.
(a) Termination of Agreement. Either of the Parties may terminate this
Agreement with the prior authorization of its board of directors (whether
before or after stockholder approval) as provided below:
(i) the Parties may terminate this Agreement by mutual written consent
at any time prior to the Effective Time;
(ii) United may terminate this Agreement by giving written notice to
Heritage at any time prior to the Effective Time (A) in the event Heritage
has breached any material representation, warranty, or covenant contained
in this Agreement in any material respect, United has notified Heritage of
the breach, and the breach has continued without cure for a period of 30
days after the notice of breach or (B) if the Closing shall not have
occurred on or before March 31, 1998, by reason of the failure of any
condition precedent under Section 6(a) hereof (unless the failure results
primarily from United breaching any representation, warranty, or covenant
contained in this Agreement);
(iii) Heritage may terminate this Agreement by giving written notice
to United at any time prior to the Effective Time (A) in the event United
has breached any material representation, warranty, or covenant contained
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in this Agreement in any material respect, Heritage has notified United of
the breach, and the breach has continued without cure for a period of 30
days after the notice of breach or (B) if the Closing shall not have
occurred on or before March 31, 1998, by reason of the failure of any
condition precedent under Section 6(b) hereof (unless the failure results
primarily from Heritage breaching any representation, warranty, or covenant
contained in this Agreement);
(iv) any Party may terminate this Agreement by giving written notice
to the other Party at any time prior to the Effective Time in the event a
Fairness Opinion is withdrawn; or
(v) any Party may terminate this Agreement by giving written notice to
the other Party at any time after the Special United Meeting or the Special
Heritage Meeting in the event this Agreement and the Merger fail to receive
the Requisite United Stockholder Approval or the Requisite Heritage
Stockholder Approval respectively.
(b) Effect of Termination. If any Party terminates this Agreement pursuant
to Section 7(a) above, all rights and obligations of the Parties hereunder
shall terminate without any liability of any Party to any other Party (except
for any liability of any Party then in breach); provided, however, that the
confidentiality provisions contained in Section 5(g) above shall survive any
such termination.
8. Miscellaneous.
(a) Survival. None of the representations, warranties, and covenants of
the Parties other than the provisions in Section 2 above concerning issuance
of United Shares, the provisions in Section 5(j) above concerning insurance
and indemnification, and the provisions in Section 5(k) above concerning
certain requirements for a tax-free reorganization will survive the Effective
Time.
(b) Press Releases and Public Announcements. No Party shall issue any
press release or make any public announcement relating to the subject matter
of this Agreement without the prior written approval of the other Party;
provided, however, that any Party may make any public disclosure it believes
in good faith is required by applicable law or any listing or trading
agreement concerning its publicly-traded securities (in which case the
disclosing Party will use its [reasonable] best efforts to advise the other
Party prior to making the disclosure).
(c) No Third Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns; provided, however, that (i) the provisions
in Section 2 above concerning issuance of United Shares and the provisions in
Section 5(k) above concerning certain requirements for a tax-free
reorganization are intended for the benefit of Heritage Stockholders and (ii)
the provisions in Section 5(j) above concerning insurance and indemnification
are intended for the benefit of the individuals specified therein and their
respective legal representatives.
(d) Entire Agreement. This Agreement (including the documents referred to
herein) constitutes the entire agreement between the Parties and supersedes
any prior understandings, agreements, or representations by or between the
Parties, written or oral, to the extent they related in any way to the subject
matter hereof. E-35
(e) Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement or
any of its rights, interests, or obligations hereunder without the prior
written approval of the other Party.
(f) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(g) Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(h) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and
then two business days after) it is sent by registered or certified mail,
return receipt requested, postage prepaid, and addressed to the intended
recipient as set forth below:
If to the Heritage: Mr. Kurt Weise
Secretary
Heritage Bancorporation
5500 Wayzata Blvd., No. 145
Golden Valley, Minnesota 55416
Copy to: Lindquist & Vennum
80 South 8th Street
4200 IDS Center
Minneapolis, Minnesota 55402
Attn: Kevin Costley
If to United: Mr. Bruce Weldele
President and CEO
601 First Avenue North
Great Falls, Montana 59401
Copy to: Dorsey & Whitney LLP
8 Third Street North
P. O. Box 1566
Great Falls, Montana 59403
Attn: Bruce A. MacKenzie
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger
service, telecopy, telex, ordinary mail, or electronic mail), but no such
notice, request, demand, claim, or other communication shall be deemed to have
been duly given unless and until it actually is received by the intended
recipient. Any Party may change the address to which notices, requests,
demands, claims, and other communications hereunder are to be delivered by
giving the other Party notice in the manner herein set forth.
(i) Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Minnesota without giving
effect to any choice or conflict of law provision or rule (whether of the
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State of Minnesota or any other jurisdiction) that would cause the application
of the laws of any jurisdiction other than the State of Minnesota.
(j) Amendments and Waivers. The Parties may mutually amend any provision
of this Agreement at any time prior to the Effective Time with the prior
authorization of their respective boards of directors; provided, however, that
any amendment effected subsequent to stockholder approval will be subject to
the restrictions contained in the Minnesota Business Corporation Law. No
amendment of any provision of this Agreement shall be valid unless the same
shall be in writing and signed by both of the Parties. No waiver by any Party
of any default, misrepresentation, or breach of warranty or covenant
hereunder, whether intentional or not, shall be deemed to extend to any prior
or subsequent default, misrepresentation, or breach of warranty or covenant
hereunder or affect in any way any rights arising by virtue of any prior or
subsequent such occurrence.
(k) Severability. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(l) Expenses. Each of the Parties will bear its own costs and expenses
(including legal fees and expenses) incurred in connection with this Agreement
and the transactions contemplated hereby.
(m) Construction. The Parties have participated jointly in the negotiation
and drafting of this Agreement. In the event an ambiguity or question of
intent or interpretation arises, this Agreement shall be construed as if
drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local,
or foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context otherwise requires. The
word "including" shall mean including without limitation.
(n) Incorporation of Exhibits and Schedules. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on the
date first above written.
HERITAGE BANCORPORATION
By: /s/Mr. Kurt Weise
---------------------------------
Secretary
Title: ---------------------------------
UNITED FINANCIAL CORP.
By: /s/Mr. Bruce K. Weldele
---------------------------------
President and CEO
Title: ---------------------------------
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