Exhibit 2.1
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AGREEMENT AND PLAN OF MERGER
BETWEEN
STATE FINANCIAL SERVICES CORPORATION
AND
HOME BANCORP OF ELGIN, INC.
JUNE 1, 1998
TABLE OF CONTENTS
AGREEMENT AND PLAN OF MERGER
Page
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ARTICLE I .................................................................................... 1
I.1 The Merger ................................................................. 1
I.2 Effective Time ............................................................. 1
I.3 Effects of the Merger ...................................................... 2
I.4 Conversion of HBE Common Stock; Treatment of SFS Common Stock .............. 2
I.5 Stock Options .............................................................. 4
I.6 Articles of Incorporation .................................................. 5
I.7 By-Laws .................................................................... 5
I.8 Tax Consequences ........................................................... 5
I.9 Board of Directors and Officers of the Surviving Corporation ............... 5
I.10 Adjustments for Dilution and Other Matters ................................. 6
I.11 Closing .................................................................... 6
ARTICLE II .................................................................................... 6
II.1 SFS to Make Shares Available ............................................... 6
II.2 Exchange of Certificates ................................................... 6
ARTICLE III................................................................................... 8
III.1 Corporate Organization .................................................... 9
III.2 Capitalization ............................................................ 9
III.3 Authority; No Violation ................................................... 10
III.4 Consents and Approvals .................................................... 11
III.5 Reports ................................................................... 11
III.6 Financial Statements ...................................................... 11
III.7 Broker's Fees ............................................................. 12
III.8 Absence of Certain Changes or Events ...................................... 12
III.9 Legal Proceedings ......................................................... 13
III.10 Taxes and Tax Returns ..................................................... 13
III.11 Employees ................................................................. 14
III.12 SEC Reports ............................................................... 15
III.13 Compliance with Applicable Law ............................................ 15
III.14 Certain Contracts ......................................................... 15
III.15 Agreements with Regulatory Agencies ....................................... 16
III.16 Other Activities of HBE and the HBE Bank .................................. 17
III.17 Investment Securities ..................................................... 17
III.18 Undisclosed Liabilities ................................................... 17
III.19 Insurance ................................................................. 17
III.20 Loan Loss Reserves ........................................................ 17
III.21 Environmental Liability ................................................... 18
III.22 Approval Delays ........................................................... 18
III.23 Vote Required ............................................................. 18
III.24 Ownership of SFS Common Stock ............................................. 18
III.25 Tax Matters and Pooling ................................................... 18
III.26 Saleability of Mortgage Loans in Secondary Market ......................... 18
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ARTICLE IV................................................................................... 18
IV.1 Corporate Organization .................................................... 18
IV.2 Capitalization ............................................................ 19
IV.3 Authority; No Violation ................................................... 20
IV.4 Consents and Approvals .................................................... 21
IV.5 Reports ................................................................... 21
IV.6 Financial Statements ...................................................... 22
IV.7 Broker's Fees ............................................................. 22
IV.8 Absence of Certain Changes or Events ...................................... 22
IV.9 Legal Proceedings ......................................................... 23
IV.10 Taxes and Tax Returns ..................................................... 23
IV.11 Employees ................................................................. 24
IV.12 SEC Reports ............................................................... 25
IV.13 Compliance with Applicable Law ............................................ 25
IV.14 Certain Contracts ......................................................... 25
IV.15 Agreements with Regulatory Agencies ....................................... 26
IV.16 Other Activities of SFS and its SFS Subsidiaries .......................... 27
IV.17 Investment Securities ..................................................... 27
IV.18 Undisclosed Liabilities ................................................... 27
IV.19 Insurance ................................................................. 27
IV.20 Loan Loss Reserves ........................................................ 27
IV.21 Environmental Liability ................................................... 28
IV.22 Approval Delays ........................................................... 28
IV.23 Vote Required ............................................................. 28
IV.24 Ownership of HBE Common Stock ............................................. 28
IV.25 Tax Matters and Pooling ................................................... 28
ARTICLE V.................................................................................... 28
V.1 Conduct of Businesses Prior to the Effective Time.......................... 28
V.2 Forbearances............................................................... 29
ARTICLE VI................................................................................... 31
VI.1 Regulatory Matters; Cooperation with Respect to Filing .................... 31
VI.2 Access to Information; Due Diligence ...................................... 32
VI.3 Shareholders' Approvals ................................................... 33
VI.4 Legal Conditions to Merger ................................................ 34
VI.5 Listing of Shares ......................................................... 34
VI.6 Indemnification; Directors' and Officers' Insurance ....................... 34
VI.7 Additional Agreements ..................................................... 36
VI.8 Advice of Changes ......................................................... 36
VI.9 No Conduct Inconsistent with this Agreement ............................... 36
VI.10 Employee Matters .......................................................... 37
VI.11 Tax Treatment and Pooling ................................................. 39
VI.12 Dividends ................................................................. 39
VI.13 Rule 145 Affiliates ....................................................... 40
VI.14 Disclosure Schedules ...................................................... 40
VI.15 Filing and Other Fees ..................................................... 40
ARTICLE VII.................................................................................. 40
VII.1 Conditions to Each Party's Obligation To Effect the Merger................. 40
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VII.2 Conditions to Obligations of HBE........................................... 42
(a) Representations and Warranties ................................... 42
(b) Performance of Obligations of SFS ................................ 42
(c) No Material Adverse Change ....................................... 42
(d) Opinion of Counsel to Sfs ........................................ 42
(e) Comfort Letters .................................................. 42
(f) Fairness Opinion ................................................. 42
VII.3 Conditions to Obligations of SFS........................................... 42
(a) Representations and Warranties ................................... 43
(b) Performance of Obligations of HBE ................................ 43
(c) No Material Adverse Change ....................................... 43
(d) Opinion of Counsel to HBE ........................................ 43
(e) Comfort Letters .................................................. 43
(f) Fairness Opinion ................................................. 43
(g) Affiliate Agreements ............................................. 43
ARTICLE VIII................................................................................. 43
VIII.1 Termination ............................................................... 44
VIII.2 Effect of Termination ..................................................... 45
VIII.3 Remedies and Expenses Upon Breach or Willful Breach ....................... 46
VIII.4 Amendment ................................................................. 46
VIII.5 Extension; Waiver ......................................................... 46
ARTICLE IX................................................................................... 47
IX.1 Non-survival of Representations, Warranties and Agreements ................ 47
IX.2 Notices ................................................................... 47
IX.3 Interpretation; Definitions ............................................... 48
IX.4 Counterparts .............................................................. 49
IX.5 Entire Agreement .......................................................... 49
IX.6 Governing Law ............................................................. 49
IX.7 Severability .............................................................. 49
IX.8 Publicity ................................................................. 49
IX.9 Assignment; Third Party Beneficiaries ..................................... 49
IX.10 Enforcement ............................................................... 49
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of
June 1, 1998, by and between State Financial Services Corporation, a Wisconsin
corporation ("SFS"), and Home Bancorp of Elgin, Inc., a Delaware corporation
("HBE").
WHEREAS, the Boards of Directors of SFS and HBE have
determined that it is in the best interests of their respective corporations and
their shareholders to consummate a merger in which HBE will merge with and into
SFS (the "Merger"), so that SFS is the resulting corporation (hereinafter
sometimes called the "Surviving Corporation") in the Merger;
WHEREAS, as a condition to, and immediately after the
execution of this Agreement, SFS and HBE are entering into a Stock Option
Agreement (the "HBE Stock Option Agreement"), attached hereto as EXHIBIT A; and
WHEREAS, the parties desire to make certain representations,
warranties and agreements in connection with, and to prescribe certain
conditions, to the Merger.
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements contained herein, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
ARTICLE I
THE MERGER
I.1 THE MERGER.
Subject to the terms and conditions of this Agreement and
the Plan of Merger, a copy of which is attached hereto substantially in the form
of EXHIBIT B (the "Plan of Merger"), in accordance with the Wisconsin Business
Corporation Law (the "WBCL") and the Delaware General Corporation Law, at the
Effective Time (as defined in Section 1.2), HBE shall merge with and into SFS,
and SFS shall survive the Merger and shall continue its corporate existence
under the laws of the State of Wisconsin. Upon consummation of the Merger, the
separate corporate existence of HBE shall terminate and the name of the
Surviving Corporation shall be "State Financial Services Corporation."
The parties agree that HBE and SFS will execute a Plan of
Merger substantially in the form attached hereto as EXHIBIT B which provides for
the terms of the Merger and the mode of carrying same into effect.
I.2 EFFECTIVE TIME.
The Merger shall become effective upon the later of (a) the
time of filing of Articles of Merger with the Department of Financial
Institutions of the State of Wisconsin
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(the "Wisconsin Department"), (b) the time of filing a Certificate of Merger
with the Secretary of State of the State of Delaware and (c) the effective date
and time of the Merger as set forth in such Certificate of Merger and Articles
of Merger. The parties shall each use reasonable efforts to cause Articles of
Merger and a Certificate of Merger to be filed on the Closing Date (as defined
in Section 1.11). The term "Effective Time" shall be the date and time when the
Merger becomes effective, in accordance with this Section 1.2.
I.3 EFFECTS OF THE MERGER. At and after the Effective
Time, the Merger shall have the effects set forth in Section 180.1106 of the
WBCL and Section 252 of the Delaware General Corporation law.
I.4 CONVERSION OF HBE COMMON STOCK; TREATMENT OF SFS
COMMON STOCK
(a) At the Effective Time, subject to Section 2.2, by virtue of
the Merger and without any action on the part of HBE, or the
holder of any securities of HBE, each share of the common
stock, $.01 par value, of HBE (the "HBE Common Stock")
issued and outstanding immediately prior to the Effective
Time (other than shares canceled pursuant to Section 1.4(c))
shall be converted into the right to receive the number of
shares of the common stock, par value $.10 per share, of SFS
(the "SFS Common Stock") equal to the Exchange Ratio
determined as set forth in subparagraph (b) below (the
"Exchange Ratio").
(b) If the Market Value of SFS Common Stock (as defined below)
on the Decision Date is as set forth below, then the
Exchange Ratio shall be as indicated:
MARKET VALUE EXCHANGE RATIO
(i) less than or equal to $21.125 (i) .86
(ii) greater than $21.125 and less (ii) .857143
than or equal to $22.625
(iii) greater than $22.625 and less Market Value (iii) the quotient obtained by
of SFS than or equal to $30.00 Common Stock dividing $19.50 by the
(iv) greater than $30.00 and less (iv) .65
than or equal to $31.375
(v) greater than $31.375 (v) .64
(c) For purposes of this Agreement the "Market Value of SFS
Common Stock," on any date, will be equal to the average
closing sale price of SFS Common Stock as
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reported on the Nasdaq National Market System ("NASDAQ-NMS")
for the twenty (20) consecutive trading days immediately
preceding the five (5) business days immediately preceding
such date.
(d) The term "Decision Date" shall mean the first business day
on which the last of the following events shall have
occurred: (i) receipt of all necessary state and federal
regulatory approvals and the expiration of all required
waiting periods, (ii) approval of the transactions
contemplated by this Agreement by the shareholders of HBE,
(iii) approval of the transactions contemplated by this
Agreement by the shareholders of SFS, and (iv) the date,
after the last to occur of subsections (i) through (iii)
above but not more than thirty (30) days thereafter, on
which the Market Value of SFS Common Stock is greater than
or equal to $20.00.
(e) If the Market Value of SFS Common Stock on the Decision Date
is less than $20.00, HBE may notify SFS in writing, which
must be received by SFS within three business days after the
Decision Date, that it is not willing to close on the basis
of the Exchange Ratio set forth in Section l.4(b)(i) above.
If HBE fails to give such notice by such time, it shall be
deemed to have agreed to close on the basis of the Exchange
Ratio set forth in Section l.4(b)(i) above. Upon receipt of
such notice, SFS may elect (i) to close on the basis of an
Exchange Ratio equal to the quotient obtained by dividing
$17.25 by the Market Value of SFS Common Stock on the
Decision Date (the "Optional Exchange Ratio"), or (ii) to
require closing on the basis of the Exchange Rate set forth
in Section l.4(b)(i) above, in any case by notice in
writing, which must be received by HBE within three business
days after SFS's receipt of such notice from HBE. If SFS
fails to make such election, it shall be deemed to have
agreed to close on the basis of the Optional Exchange Ratio.
If SFS elects clause (ii) above, then HBE may elect to
terminate this Agreement by notice in writing, which must be
received by SFS within three business days after HBE's
receipt of such notice from SFS. If HBE fails to give such
notice of termination by such time, it shall be deemed to
have agreed to close on the basis of the Exchange Ratio set
forth in Section l.4(b)(i) above.
(f) All of the shares of HBE Common Stock converted into SFS
Common Stock pursuant to this Article I shall no longer be
outstanding and shall automatically be canceled and shall
cease to exist as of the Effective Time, and each
certificate (each an "HBE Common Stock Certificate")
previously representing any such shares of HBE Common Stock
shall thereafter represent only the right to receive (i) a
certificate representing the number of whole shares of SFS
Common Stock (each a "SFS Common Stock Certificate") and
(ii) cash in lieu of fractional shares into which the shares
of HBE Common Stock previously represented by such HBE
Common Stock Certificate have been converted pursuant to
this Section 1.4, Section 2.2 and the Plan of Merger. HBE
Common Stock Certificates previously representing shares of
HBE Common Stock shall be exchanged for SFS Common Stock
Certificates representing whole shares of SFS Common Stock
and cash in lieu of fractional shares issued in
consideration therefor upon the surrender of such HBE Common
Stock Certificates in accordance with Section 2.2, without
any interest thereon.
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(g) At the Effective Time, all shares of HBE Common Stock that
are owned by HBE as treasury stock, owned by the HBE RRP (as
defined herein) and not allocated to participants thereunder
or owned by SFS, if any, shall be canceled and shall cease
to exist, and no stock of SFS or other consideration shall
be delivered in exchange therefor.
(h) At and after the Effective Time, each share of SFS Common
Stock issued and outstanding immediately prior to the
Effective Time shall remain an issued and outstanding share
of common stock of the Surviving Corporation and shall not
be affected by the Merger.
I.5 STOCK OPTIONS.
(a) At the Effective Time, each option granted by HBE under the
terms of the Home Bancorp of Elgin, Inc. 1997 Stock Option
Plan (the "HBE Option Plan") to purchase shares of HBE
Common Stock which is outstanding and unexercised
immediately prior thereto shall cease to represent a right
to acquire shares of HBE Common Stock and shall be converted
automatically into an option to purchase shares of SFS
Common Stock in an amount and at an exercise price
determined pursuant to paragraph (c) of this Section 1.5
(the "Converted Option"), subject to the terms of the HBE
Option Plan and the agreements evidencing grants of such
options thereunder.
(b) From and after the Effective Time, SFS shall assume any and
all obligations of HBE under the HBE Option Plan, and the
HBE Option Plan shall remain in effect.
(c) (i) The number of shares of SFS Common Stock to be subject
to each Converted Option shall be equal to the product of
the number of shares of HBE Common Stock subject to the
original option and the "HBE Exchange Ratio" (as defined
below), PROVIDED that any fractional shares of SFS Common
Stock resulting from such multiplication shall be rounded up
to the nearest whole share; and (ii) the exercise price per
share of SFS Common Stock under the Converted Option shall
be equal to the exercise price per share of HBE Common Stock
under the original option divided by the HBE Exchange Ratio,
PROVIDED that such exercise price shall be rounded down to
the nearest whole cent. The term "HBE Exchange Ratio" shall
mean whichever of the Exchange Ratio or the Optional
Exchange Ratio is implemented at the Effective Time for the
exchange of HBE Common Stock in accordance with Section 1.4
hereof. Notwithstanding the provisions of Section 1.5(c)(i)
and (ii) above, each Converted Option which is intended to
be an "incentive stock option" shall be adjusted as required
by Section 424 of the Internal Revenue Code of 1986
("Code"), and the regulations promulgated thereunder, so as
not to constitute a modification, extension or renewal of
the Converted Option within the meaning of Section 424(h) of
the Code, and all Converted Options shall be adjusted, if
necessary so as not to impair the eligibility of the Merger
for "pooling-of-interests" accounting treatment. SFS and HBE
agree to take all steps necessary to effect the foregoing
provisions of this Section 1.5(c).
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(d) Promptly after the execution of this Agreement, HBE shall
take such action, which shall be reasonably satisfactory to
SFS, as HBE may deem necessary in order that each Converted
Option shall be, at the Effective Time, assumed by SFS and
shall from and after the Effective Time no longer entitle
the holder thereof to purchase shares of HBE Common Stock
but shall be converted into and shall become by virtue of
the Merger, automatically and without any action on the part
of the holder thereof, a stock option to purchase such
number of shares of SFS Common Stock at such exercise price
as determined pursuant to paragraph (c) of this Section 1.5.
(e) As soon as practicable after the Effective Time, SFS shall
deliver to each participant in the HBE Option Plan an
appropriate notice setting forth such participant's rights
pursuant thereto; the Converted Options shall remain subject
to the terms of the HBE Option Plan and shall continue in
effect after the Effective Time on the same terms and
conditions as those in effect prior to the Effective Time,
including without limitation, the duration thereof, subject
to the adjustments required by Section 1.5(c) hereof, after
giving effect to the Merger. The foregoing provisions are
intended to be for the benefit of, and shall be enforceable
by, each party to, or beneficiary of, the foregoing
agreements or arrangements, and his or her representatives.
(f) SFS shall reserve shares to be issued upon the exercise of
Converted Options prior to the Effective Time. As soon as
practicable after the Effective Time, and in any event no
more than ten (10) days after the Effective Time, SFS shall
file a registration statement on Form S-8 or S-3, as the
case may be, (or other successor or appropriate forms) with
respect to the shares of SFS Common Stock subject to the
Converted Options and SFS shall use its best efforts to
maintain the current status of the prospectus or
prospectuses contained therein for so long as such Converted
Options remain outstanding. The foregoing provisions are
intended to be for the benefit of, and shall be enforceable
by, each party to, or beneficiary of, the foregoing
agreements or arrangements, and his or her representatives.
I.6 ARTICLES OF INCORPORATION. The Articles of Incorporation
of SFS in effect as of the Effective Time shall be the Articles of Incorporation
of the Surviving Corporation after the Merger until thereafter amended in
accordance with applicable law.
I.7 BY-LAWS. The By-Laws of SFS in effect as of the
Effective Time, shall be the By-Laws of the Surviving Corporation after the
Merger until thereafter amended in accordance with applicable law.
I.8 TAX CONSEQUENCES. It is intended that the Merger shall
constitute a reorganization within the meaning of Section 368(a)(1)(A) of the
Internal Revenue Code of 1986, as amended (the "Code"), and that this Agreement
and the Plan of Merger shall constitute a "plan of reorganization" for the
purposes of Section 368 of the Code.
I.9 BOARD OF DIRECTORS AND OFFICERS OF THE SURVIVING
CORPORATION. The directors of SFS immediately prior to the Effective Time
shall be the directors of the Surviving Corporation at the Effective Time, each
to hold office in accordance with the Articles of Incorporation and By-Laws of
the Surviving Corporation. The officers of SFS immediately
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prior to the Effective Time shall be the officers of the Surviving Corporation
at the Effective Time, in each case until their respective successors are duly
elected or appointed.
I.10 ADJUSTMENTS FOR DILUTION AND OTHER MATTERS. If prior to
the Effective Time, (i) HBE shall declare a stock dividend or distribution upon
or subdivide, split up, reclassify or combine the HBE Common Stock, or declare a
dividend or make a distribution on HBE Common Stock in any security convertible
into HBE Common Stock, or (ii) SFS shall declare a stock dividend or
distribution upon or subdivide, split up, reclassify or combine the SFS Common
Stock or declare a dividend or make a distribution on SFS Common Stock in any
security convertible into SFS Common Stock, appropriate adjustment or
adjustments will be made to the Exchange Ratio (and, if applicable, the Optional
Exchange Ratio) and the method for calculating the Exchange Ratio as set forth
in Section I.4 hereof.
I.11 CLOSING. Subject to the terms and conditions of this
Agreement and the Plan of Merger, including but not limited to the provisions of
Article VII of this Agreement, the closing of the Merger (the "Closing") will
take place at 10:00 a.m. Central Time on a date and at a place to be specified
by the parties, which shall be no later than the first business day in the
calendar month immediately following the month in which the last of the
conditions precedent to the Merger set forth in Article VII hereof is satisfied
or waived, or at such other time, date and place as HBE and SFS shall mutually
agree (the "Closing Date").
ARTICLE II
CONVERSION OF SHARES
II.I SFS TO MAKE SHARES AVAILABLE. At or prior to the
Effective Time, SFS shall deposit, or shall cause to be deposited, with a bank,
trust company or other entity reasonably acceptable to HBE, which may be an
affiliate of SFS, (the "Exchange Agent"), for the benefit of the holders of HBE
Common Stock Certificates, for exchange in accordance with this Article II, SFS
Common Stock Certificates and cash in lieu of any fractional shares of SFS
Common Stock (such cash and SFS Common Stock Certificates, together with any
dividends or distributions with respect thereto paid after the Effective Time,
being hereinafter referred to as the "Conversion Fund") to be issued pursuant to
Section 1.4 and paid pursuant to Section 2.2(a) in exchange for outstanding
shares of HBE Common Stock.
II.2 EXCHANGE OF CERTIFICATES.
(a) As soon as practicable after the Effective Time, and in no
event later than ten (10) business days thereafter, the
Surviving Corporation shall cause the Exchange Agent to mail
to each holder of record of one or more HBE Common Stock
Certificates a letter of transmittal (which shall specify
that delivery shall be effected, and risk of loss and title
to the HBE Common Stock Certificates shall pass, only upon
delivery of the HBE Common Stock Certificates to the
Exchange Agent) and instructions for use in effecting the
surrender of the HBE Common Stock Certificates in exchange
for SFS Common Stock Certificates and any cash in lieu of
fractional shares into which the shares of HBE Common Stock
represented by such HBE Common Stock Certificate or
Certificates shall have been converted pursuant to this
Agreement and the Plan of Merger. Upon proper surrender of
an HBE Common Stock Certificate for
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exchange and cancellation to the Exchange Agent, together
with such properly completed letter of transmittal, duly
executed, the holder of such HBE Common Stock Certificate
shall be entitled to receive in exchange therefor, as
applicable, (i) a SFS Common Stock Certificate representing
that number of whole shares of SFS Common Stock to which
such holder of HBE Common Stock shall have become entitled
pursuant to the provisions of Section 1.4 hereof, and (ii) a
check representing the amount of any cash in lieu of
fractional shares that such holder has the right to receive
in respect of such HBE Common Stock Certificate, and the HBE
Common Stock Certificate so surrendered shall forthwith be
canceled. No interest will be paid or accrued on any cash in
lieu of fractional shares payable to holders of HBE Common
Stock Certificates.
(b) If any SFS Common Stock Certificate is to be issued in a
name other than that in which the HBE Common Stock
Certificate surrendered in exchange therefor is registered,
it shall be a condition of the issuance thereof that the HBE
Common Stock Certificate so surrendered shall be properly
endorsed (or accompanied by an appropriate instrument of
transfer) and otherwise in proper form for transfer, and
that the person requesting such exchange shall pay to the
Exchange Agent in advance any transfer or other taxes
required by reason of the issuance of an SFS Common Stock
Certificate in any name other than that of the registered
holder of the HBE Common Stock Certificate surrendered, or
required for any other reason, or shall establish to the
satisfaction of the Exchange Agent that such tax has been
paid or is not payable.
(c) After the Effective Time, there shall be no transfers on the
stock transfer books of HBE of the shares of HBE Common
Stock which were issued and outstanding immediately prior to
the Effective Time. If, after the Effective Time, HBE Common
Stock Certificates are presented for transfer to the
Exchange Agent, they shall be canceled and exchanged for SFS
Common Stock Certificates representing shares of SFS Common
Stock as provided in this Article II.
(d) Notwithstanding anything to the contrary contained herein,
no certificates or scrip representing fractional shares of
SFS Common Stock shall be issued upon the surrender for
exchange of HBE Common Stock Certificates, no dividend or
distribution with respect to SFS Common Stock shall be
payable on or with respect to any fractional share, and such
fractional share interests shall not entitle the owner
thereof to vote or to any other rights of a shareholder of
the Surviving Corporation. In lieu of the issuance of any
such fractional share, the Surviving Corporation shall pay
to each former shareholder of HBE who otherwise would be
entitled to receive such fractional share an amount in cash
determined by multiplying (i) the Market Value of SFS Common
Stock on the Decision Date by (ii) the fraction of a share
(rounded to the nearest tenth when expressed as an Arabic
number) of SFS Common Stock to which such holder would
otherwise be entitled to receive pursuant to Section 1.4.
(e) Any portion of the Conversion Fund that remains unclaimed by
the shareholders of HBE for twelve (12) months after the
Effective Time shall be paid to the Surviving Corporation.
Any shareholders of HBE who have not theretofore complied
with this
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Article II shall thereafter look only to the Surviving
Corporation for the issuance of certificates representing
shares of SFS Common Stock and the payment of cash in lieu
of any fractional shares and any unpaid dividends and
distributions on the SFS Common Stock deliverable in respect
of each share of HBE Common Stock such shareholder holds as
determined pursuant to this Agreement and the Plan of
Merger, in each case, without any interest thereon.
Notwithstanding the foregoing, none of SFS, HBE, the
Exchange Agent or any other person shall be liable to any
former holder of shares of HBE Common Stock, for any amount
delivered in good faith to a public official pursuant to
applicable abandoned property, escheat or similar laws.
(f) In the event any HBE Common Stock Certificate shall have
been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the person claiming such HBE
Common Stock Certificate to be lost, stolen or destroyed
and, if reasonably required by the Surviving Corporation,
the posting by such person of a bond in such amount as the
Exchange Agent may determine is reasonably necessary as
indemnity against any claim that may be made against it with
respect to such HBE Common Stock Certificate, the Exchange
Agent will issue in exchange for such lost, stolen or
destroyed HBE Common Stock Certificate an SFS Common Stock
Certificate representing the shares of SFS Common Stock and
any cash in lieu of fractional shares deliverable in respect
thereof pursuant to this Agreement and the Plan of Merger.
(g) In the case of any shareholder of HBE who did not vote for
or consent to the Merger and who demands appraisal as
provided in Section 262 of the Delaware General Corporation
Law, each share of HBE Common Stock held by such shareholder
will be converted into the right to receive the value of the
share as provided in such statute. At the Closing Date, the
holders of HBE Common Stock will cease to have any rights
with respect to such stock other than the rights to receive
SFS Common Stock, cash in lieu of fractional shares or the
value of the stock as herein provided or as provided by law.
(h) No transfer taxes shall be payable by any shareholders of
HBE in respect of the issuance of certificates for SFS
Common Stock and no expenses shall be imposed on any
shareholder of HBE in connection with the conversion of
shares of HBE Common Stock into shares of SFS Common Stock
and the delivery of such shares to the former holder of HBE
Common Stock entitled thereto, except that, if any
certificate for shares of SFS Common Stock is to be issued
in a name other than that in which a certificate or
certificates for shares of HBE Common Stock surrendered
shall have been registered, it shall be a condition to such
issuance that the person requesting such issuance shall pay
to SFS any transfer taxes payable by reason thereof or of
any prior transfer of such surrendered certificate or
certificates or establish to the reasonable satisfaction of
the Exchange Agent that such taxes have been paid or are not
payable. 3.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF HBE
HBE hereby represents and warrants to SFS as follows:
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III.1 CORPORATE ORGANIZATION
(a) HBE is a corporation duly organized and validly existing
under the laws of the State of Delaware. HBE has the
corporate power and authority to own or lease all of its
properties and assets and to carry on its business as it is
now being conducted, and is duly licensed or qualified to do
business in each jurisdiction in which the nature of the
business conducted by it or the character or location of the
properties and assets owned or leased by it makes such
licensing or qualification necessary, except where the
failure to be so licensed or qualified would not have a
Material Adverse Effect (as defined in Section IX.3 below)
on HBE. HBE is duly registered as a savings and loan holding
company under the Home Owners' Loan Act ("HOLA"). True and
complete copies of the Articles of Incorporation and By-Laws
of HBE, as in effect as of the date of this Agreement, have
previously been made available by HBE to SFS.
(b) As of the date of this Agreement, HBE has, as its sole
direct or indirect Subsidiary, Home Federal Savings and Loan
Association of Elgin ("HBE Bank"), a federally-chartered
savings and loan association. Except as set forth on
SCHEDULE 3.1(B) of the disclosure schedules to this
Agreement prepared and delivered by HBE (the "HBE Disclosure
Schedules"), HBE does not own any voting stock or equity
securities of any bank, corporation, partnership, limited
liability company, or other organization, whether
incorporated or unincorporated, other than the HBE Bank.
(c) Except as set forth in SCHEDULE 3.1(C), the HBE Bank (i) is
duly organized and validly existing as a corporation under
the laws of its jurisdiction of organization, (ii) is duly
qualified to do business and in good standing in all
jurisdictions (whether federal, state, local or foreign)
where its ownership or leasing of property or the conduct of
its business requires it to be so qualified and in which the
failure to be so qualified would have a Material Adverse
Effect on HBE, and (iii) has all requisite corporate power
and authority to own or lease its properties and assets and
to carry on its business as now conducted. Except as set
forth in SCHEDULE 3.1(C) of the HBE Disclosure Schedules,
the HBE Bank does not own any voting stock or equity
securities of any bank, corporation, partnership, limited
liability company, or other organization, whether
incorporated or unincorporated.
(d) The minute books of HBE and of the HBE Bank have been made
available to SFS and accurately reflect in all material
respects all corporate meetings held or actions taken since
January 1, 1994 by the shareholders and Boards of Directors
of HBE and the HBE Bank, respectively (including committees
of the Boards of Directors of HBE and the HBE Bank).
III.2 CAPITALIZATION
(a) The authorized capital stock of HBE consists of 12,000,000
shares of HBE Common Stock, $.01 par value per share, of
which, as of May 28, 1998, 6,855,799 shares were issued and
outstanding (which number excludes six (6) shares of HBE
Common Stock held by the Home Bancorp of Elgin, Inc. 1997
Recognition and Retention Plan (the "HBE RRP") which have
not been awarded to
9
participants thereunder) and 3,000,000 shares of preferred
stock, $.01 par value, of which, as of May 28, 1998, none
were issued and outstanding. As of May 28, 1998, 153,451
shares of HBE Common Stock were held in treasury. All of the
issued and outstanding shares of HBE Common Stock have been
duly authorized and validly issued and are fully paid,
nonassessable and free of preemptive rights. Except for the
HBE Stock Option Agreement and as set forth on SCHEDULE
-------- 3.2(A) of the HBE Disclosure Schedules, HBE does
not have and is not bound by any outstanding ------
subscriptions, options, warrants, calls, commitments or
agreements of any character calling for the purchase or
issuance of any shares of HBE Common Stock or any other
equity securities of HBE or any securities representing the
right to purchase or otherwise receive any shares of the
capital stock of HBE. No shares of HBE Common Stock have
been reserved for issuance, other than the shares of HBE
Common Stock reserved for issuance under the HBE Stock
Option Agreement and HBE Option Plan. Since May 28, 1998,
HBE has not issued any shares of its capital stock or any
securities convertible into or exercisable for any shares of
its capital stock except upon exercise of stock options
pursuant to the HBE Option Plan outstanding as of May 28,
1998 and except with respect to the HBE Stock Option
Agreement.
(b) HBE owns, directly or indirectly, all of the issued and
outstanding shares of capital stock of the HBE Bank, free
and clear of any liens, pledges, charges, encumbrances and
interests whatsoever ("Liens"). All of the shares of capital
stock of the HBE Bank are duly authorized and validly issued
and are fully paid, nonassessable and free of preemptive
rights. The HBE Bank is not bound by any outstanding
subscriptions, options, warrants, calls, commitments or
agreements of any character calling for the purchase or
issuance of any shares of capital stock or any other equity
security of the HBE Bank or any securities representing the
right to purchase or otherwise receive any shares of capital
stock or any other equity security of the HBE Bank.
III.3 AUTHORITY; NO VIOLATION. HBE has full corporate
power and authority to execute and deliver each of this Agreement, the Plan of
Merger and the HBE Stock Option Agreement and, subject to shareholder and
regulatory approvals, to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement, the Plan of Merger and
the HBE Stock Option Agreement and the consummation of the transactions
contemplated hereby and thereby have been duly and validly approved by the Board
of Directors of HBE. The Board of Directors of HBE has directed that this
Agreement and the Plan of Merger and the transactions contemplated hereby and
thereby be submitted to HBE's shareholders for approval at a meeting of such
shareholders and, except for the adoption of this Agreement and the Plan of
Merger by the affirmative vote of the holders of a majority of the outstanding
shares of HBE Common Stock, no other corporate proceedings on the part of HBE
are necessary to approve this Agreement, the Plan of Merger and the HBE Stock
Option Agreement and to consummate the transactions contemplated hereby and
thereby. This Agreement and the HBE Stock Option Agreement have been duly and
validly executed and delivered by HBE and (assuming due authorization, execution
and delivery by SFS) constitute valid and binding obligations of HBE,
enforceable against HBE in accordance with their respective terms. Furthermore,
the Plan of Merger, when executed and delivered by HBE and (assuming due
10
authorization, execution and delivery by SFS), shall constitute a valid and
binding obligation of HBE, enforceable against HBE in accordance with its terms.
III.4 CONSENTS AND APPROVALS. No consents or approvals of
or filings or registrations with any court, administrative agency or commission
or other governmental authority or instrumentality (each a "Governmental
Entity") or with any third party are necessary in connection with the execution
and delivery by HBE of this Agreement, the Plan of Merger and the HBE Stock
Option Agreement and the consummation by HBE of the Merger and the other
transactions contemplated hereby and thereby except for (a) the filing by SFS of
an application with the Federal Reserve Board under The Bank Holding Company Act
and the approval of such application (the "Federal Reserve Application"), (b)
the filing with the Securities and Exchange Commission (the "SEC") of a joint
proxy statement in definitive form relating to the meetings of HBE's and SFS's
shareholders to be held in connection with this Agreement and the Plan of Merger
and the transactions contemplated hereby and thereby (the "Joint Proxy
Statement") and the registration statement on Form S-4 (the "S-4") in which such
Joint Proxy Statement will be included as a prospectus, (c) the filing of
Articles of Merger with the Wisconsin Department under the WBCL and the filing
of a Certificate of Merger with the Secretary of State of the State of Delaware,
(d) such filings and approvals as are required to be made or obtained under the
securities or "Blue Sky" laws of various states in connection with the issuance
of the shares of SFS Common Stock pursuant to this Agreement and the Plan of
Merger, (e) the approval of this Agreement and the Plan of Merger by the
requisite vote of the shareholders of HBE and SFS, and (f) any necessary filings
with the Office of Thrift Supervision or any state regulatory agencies.
III.5 REPORTS. HBE and each of the HBE Bank have timely
filed all reports, registrations and statements, together with any amendments
required to be made with respect thereto, that they were required to file since
January 1, 1994 with (i) the OTS, (ii) the Federal Deposit Insurance Corporation
(the "FDIC"), (iii) any state regulatory authority (each a "State Regulator"),
(iv) the SEC, and (v) any self-regulatory organization ("SRO") with jurisdiction
over any of the activities of HBE or the HBE Bank (collectively "Regulatory
Agencies"), and all other reports and statements required to be filed by them
since January 1, 1994, including, without limitation, any report or statement
required to be filed pursuant to the laws, rules or regulations of the United
States, any state, or any Regulatory Agency, and have paid all fees and
assessments due and payable in connection therewith, except where the failure to
file such report, registration or statement or to pay such fees and assessments,
either individually or in the aggregate, will not have a Material Adverse Effect
on HBE. Except for normal examinations conducted by a Regulatory Agency in the
regular course of the business of HBE and the HBE Bank, no Regulatory Agency has
initiated any proceeding or, to the best knowledge of HBE, investigation into
the business or operations of HBE or the HBE Bank since January 1, 1994. There
is no unresolved written violation, written criticism, or written exception by
any Regulatory Agency with respect to any report or statement relating to any
examinations of HBE or the HBE Bank, which is likely, either individually or in
the aggregate, to have a Material Adverse Effect on HBE.
III.6 FINANCIAL STATEMENTS. HBE has previously made
available to SFS copies of (a) the consolidated statements of financial
condition of HBE and the HBE Bank as of
11
December 31, 1996 and 1997, and the related consolidated statements of income,
stockholders' equity and cash flows for the fiscal years ended December 31, 1996
and 1997, inclusive, as reported in HBE's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 (the "HBE Form 10-K") filed with the SEC
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), in
each case accompanied by the audit report of KPMG Peat Marwick LLP, independent
public accountants with respect to HBE, and (b) the unaudited consolidated
statements of financial condition of HBE and the HBE Bank as of March 31, 1998,
and the related unaudited consolidated statements of income, stockholders'
equity and cash flows for the three-month period then ended as reported in HBE's
Quarterly Report on Form 10-Q for the period ended March 31, 1998 filed with the
SEC under the Exchange Act (the "HBE First Quarter 10-Q"). The December 31, 1997
consolidated statements of financial condition of HBE (including the related
notes, where applicable) fairly present the consolidated financial position of
HBE and the HBE Bank as of the dates thereof, and the other financial statements
referred to in this Section 3.6 or included in the HBE Reports (including the
related notes, where applicable) fairly present the results of the consolidated
operations and stockholders' equity and consolidated financial position of HBE
and the HBE Bank for the respective fiscal periods or as of the respective dates
therein set forth, subject, in the case of the unaudited statements, to
recurring audit adjustments normal in nature and amount; each of such statements
(including the related notes, where applicable) comply in all material respects
with applicable accounting requirements and with the published rules and
regulations of the SEC with respect thereto; and each of such statements
(including the related notes, where applicable) has been prepared in all
material respects in accordance with generally accepted accounting principles
("GAAP") consistently applied during the periods involved, except, in each case,
as indicated in such statements or in the notes thereto or, in the case of
unaudited statements, as permitted by Form 10-Q.
III.7 BROKER'S FEES. Other than HBE's arrangement with
Xxxxx Financial, Inc. to serve as a financial advisor to HBE in connection with
the Merger and related transactions contemplated by this Agreement and the Plan
of Merger, neither HBE nor the HBE Bank nor any of their respective officers or
directors has employed any financial advisor, broker or finder or incurred any
liability for any financial advisory fees, broker's fees, commissions or
finder's fees in connection with the Merger or related transactions contemplated
by this Agreement and the Plan of Merger.
III.8 ABSENCE OF CERTAIN CHANGES OR EVENTS.
(a) Except as publicly disclosed in the HBE Reports (as defined
in Section 3.12) filed prior to the date hereof or as set
forth in SCHEDULE 3.8(A), since December 31, 1997, (i) HBE
and the HBE Bank taken as a whole have not incurred any
material liability, except in the ordinary course of their
respective businesses, and (ii) no event has occurred which
has had, individually or in the aggregate, a Material
Adverse Effect on HBE or will have a Material Adverse Effect
on HBE.
(b) Except as publicly disclosed in the HBE Reports filed prior
to the date hereof, since December 31, 1997, HBE and the HBE
Bank have conducted their respective businesses in all
material respects in the ordinary and usual course.
12
III.9 LEGAL PROCEEDINGS.
(a) Except as set forth in SCHEDULE 3.9, there are no pending
or, to the best of HBE's knowledge, threatened, legal,
administrative, arbitration or other proceedings, claims,
actions or governmental or regulatory investigations of any
nature against HBE or the HBE Bank or challenging the
validity or propriety of the transactions contemplated by
this Agreement, the Plan of Merger or the HBE Stock Option
Agreement.
(b) There is no injunction, order, judgment, decree, or
regulatory restriction (other than regulatory restrictions
that apply to similarly situated savings and loan holding
companies or savings associations) imposed upon HBE, the HBE
Bank or the assets of HBE or the HBE Bank.
III.10 TAXES AND TAX RETURNS.
(a) Each of HBE and the HBE Bank has duly filed all federal,
state, county, foreign and, to the best of HBE's knowledge,
local information returns and tax returns required to be
filed by it (all such returns being accurate and complete in
all material respects) and has duly paid or made provisions
for the payment of all Taxes (as defined in Section 3.10(b))
and other governmental charges which have been incurred or
are due or claimed to be due from it by federal, state,
county, foreign or local taxing authorities on or prior to
the date of this Agreement (including, without limitation,
if and to the extent applicable, those due in respect of its
properties, income, business, capital stock, deposits,
franchises, licenses, sales and payrolls) other than Taxes
or other charges which are not yet delinquent or are being
contested in good faith and have not been finally
determined. The income tax returns of HBE and the HBE Bank
remain open for the applicable statutory time periods and
any deficiencies, penalties or assessments have been paid or
provided for in HBE's consolidated financial statements.
There are no material disputes pending with respect to, or
claims asserted for, Taxes or assessments upon HBE or the
HBE Bank for which HBE does not have adequate reserves, nor
has HBE or the HBE Bank given any currently effective
waivers extending the statutory period of limitation
applicable to any federal, state, county, foreign or local
income tax return for any period. In addition, (i) proper
and accurate amounts have been withheld by HBE and the HBE
Bank from their employees for all prior periods in
compliance in all material respects with the tax withholding
provisions of applicable federal, state, foreign and local
laws, except where failure to do so would not have a
Material Adverse Effect on HBE, (ii) federal, state,
foreign, county and local returns which are accurate and
complete in all material respects have been filed by HBE and
the HBE Bank for all periods for which returns were due with
respect to income tax withholding, Social Security and
unemployment taxes, (iii) the amounts shown on such federal,
state, foreign, local or county returns to be due and
payable have been paid in full or adequate provision
therefor has been included by HBE in its consolidated
financial statements as of December 31, 1997, and (iv) there
are no Tax liens upon any property or assets of HBE or the
HBE Bank except liens for current taxes not yet due. Except
as set forth in SCHEDULE 3.10(A), neither HBE nor the HBE
Bank has been required to include in income any
adjustment pursuant to
13
Section 481 of the Code by reason of a voluntary change in
accounting method initiated by HBE or the HBE Bank, and the
Internal Revenue Service (the "IRS") has not initiated or
proposed any such adjustment or change in accounting method.
Except as set forth in the financial statements described in
Section 3.6, neither HBE nor the HBE Bank has entered into a
transaction which is being accounted for as an installment
obligation under Section 453 of the Code.
(b) As used in this Agreement, the term "Tax" or "Taxes" means
all federal, state, county, local, and foreign income,
excise, gross receipts, gross income, ad valorem, profits,
gains, property, capital, sales, transfer, use, payroll,
employment, severance, withholding, duties, intangibles,
franchise, backup withholding, and other taxes, charges,
levies or like assessments together with all penalties and
additions to tax and interest thereon.
III.11 EMPLOYEES.
(a) SCHEDULE 3.11(A) of the HBE Disclosure Schedules sets forth
a true and complete list of each employee benefit plan,
arrangement, commitment, agreement or understanding that is
maintained as of the date of this Agreement (the "HBE
Benefit Plans") (i) by HBE or the HBE Bank or (ii) by any
trade or business, whether or not incorporated which (A) is
under "common control," as described in Section 414(c) of
the Code, with HBE, (B) is a member of a "controlled group,"
as defined in Section 414(b) of the Code, or (C) is a member
of an "affiliated service group," as defined in Section
414(m) of the Code, which includes HBE (an "HBE ERISA
Affiliate"), all of which together with HBE would be deemed
a "single employer" within the meaning of Section 4001 of
the Employee Retirement Income Security Act of 1974, as
amended ("ERISA").
(b) HBE has heretofore delivered to SFS true and complete copies
of each of the HBE Benefit Plans and certain related
documents, including, but not limited to, (i) the Annual
Report Form 5500 for such HBE Benefit Plan (if applicable)
for each of the last two years, and (ii) the most recent
determination letter from the IRS (if applicable) for such
HBE Benefit Plan.
(c) (i) Each of the HBE Benefit Plans has been operated and
administered in all material respects with applicable laws,
including, but not limited to, ERISA and the Code, (ii) each
of the HBE Benefit Plans intended to be "qualified" within
the meaning of Section 401(a) of the Code has been operated
and administered in all material respects with the
requirements of Section 401(a) of the Code, (iii) except as
provided in SCHEDULE 3.11(A), no HBE Benefit Plan provides
benefits, including, without limitation, death or medical
benefits (whether or not insured), with respect to current
or former employees of HBE, the HBE Bank or any HBE ERISA
Affiliate beyond their retirement or other termination of
service, other than (A) coverage mandated by applicable law,
(B) death benefits, disability benefits or retirement
benefits under any "employee pension plan" (as such term is
defined in Section 3(2) of ERISA), (C) deferred compensation
benefits accrued as liabilities on the books of HBE, the HBE
Bank or the HBE ERISA Affiliates, or (D) benefits the full
cost of which is borne by the current or former employee (or
his beneficiary), (iv)
14
except as set forth in SCHEDULE 3.11(A), neither HBE, the
HBE Bank nor any HBE ERISA Affiliate maintains or has ever
maintained a plan subject to Title IV of ERISA, (v) neither
HBE, the HBE Bank nor any HBE ERISA Affiliate contributes to
or has ever contributed to a "Multiemployer" pension plan
(as such term is defined in Section 3(37) of ERISA, (vi) all
contributions or other amounts payable by HBE or the HBE
Bank as of the Effective Time with respect to each HBE
Benefit Plan in respect of current or prior plan years have
been paid or accrued in accordance with GAAP and Section 412
of the Code, (vii) neither HBE, the HBE Bank nor any HBE
ERISA Affiliate has engaged in a transaction in connection
with which HBE, the HBE Bank or any HBE ERISA Affiliate
reasonably could be subject to either a material civil
penalty assessed pursuant to Section 409 or 502(i) of ERISA
or a material tax imposed pursuant to Sections 4975 or 4976
of the Code, and (viii) to the best knowledge of HBE, there
are no pending, threatened or anticipated claims (other than
routine claims for benefits) by, on behalf of or against any
of the HBE Benefit Plans or any trusts related thereto which
are, in the reasonable judgment of HBE, likely, either
individually or in the aggregate, to have a Material Adverse
Effect on HBE.
III.12 SEC REPORTS. HBE and the HBE Bank has made
available to SFS an accurate and complete copy of each (a) final registration
statement, prospectus, report, schedule and definitive proxy statement filed
since December 31, 1995 by HBE with the SEC pursuant to the Securities Act of
1933, as amended (the "Securities Act"), or the Exchange Act (collectively, "HBE
Reports"), and (b) communication mailed by HBE to its shareholders since
December 31, 1995. None of the HBE Reports or such communications to
shareholders, as of their respective dates, contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances in which they were made, not misleading. Since December 31, 1995,
HBE has timely filed all HBE Reports and other documents required to be filed by
it under the Securities Act and the Exchange Act, and, as of their respective
dates, all HBE Reports complied in all material respects with the published
rules and regulations of the SEC with respect thereto.
III.13 COMPLIANCE WITH APPLICABLE LAW. HBE and the HBE
Bank hold all licenses, franchises, permits and authorizations necessary for the
lawful conduct of their respective businesses under and pursuant to all, and
have complied with and are not in default under any, applicable laws, statutes,
orders, rules, regulations, policies and/or guidelines of any Governmental
Entity relating to HBE or the HBE Bank, except where the failure to hold such
license, franchise, permit or authorization or such noncompliance or default
would not, individually or in the aggregate, have a Material Adverse Effect on
HBE.
III.14 CERTAIN CONTRACTS.
(a) Except as set forth in SCHEDULE 3.14(A) of the HBE
Disclosure Schedules, neither HBE nor the HBE Bank is a
party to or bound by:
(i) any contract, arrangement, commitment or understanding
(whether written or oral) with respect to the
employment or compensation of any directors, officers
or employees;
15
(ii) any contract, arrangement, commitment or understanding
(whether written or oral) which, upon the consummation
of the transactions contemplated by this Agreement or
the Plan of Merger will (either alone or upon the
occurrence of any additional acts or events) result in
any payment (including, without limitation, severance,
unemployment compensation, golden parachute or
otherwise) becoming due from HBE, SFS, the Surviving
Corporation, or any of their respective Subsidiaries to
any officer, director or employee thereof or to the
trustee under any "rabbi trust" or similar arrangement;
(iii) any contract, arrangement, commitment or
understanding (whether written or oral) which
materially restricts the conduct of any line of
business by HBE; or
(iv) any contract, arrangement, commitment or
understanding (whether written or oral), including any
stock option plan, stock appreciation rights plan,
restricted stock plan or stock purchase plan, any of
the benefits of which will be increased or be required
to be paid, or the vesting of the benefits of which
will be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement or the Plan
of Merger, or the value of any of the benefits of which
will be calculated on the basis of any of the
transactions contemplated by this Agreement or the Plan
of Merger.
HBE has previously made available to SFS true and correct
copies of all employment and deferred compensation
arrangements which are in writing and to which HBE or the
HBE Bank is a party. Each contract, arrangement, commitment
or understanding of the type described in this Section
3.14(a), is referred to herein as an "HBE Contract," and
neither HBE nor the HBE Bank knows of, or has received
notice of, any violation of any HBE Contract by any of the
other parties thereto, which, individually or in the
aggregate, would have a Material Adverse Effect on HBE.
(b) (i) Each HBE Contract is valid and binding on HBE or the HBE
Bank, as the case may be, and is in full force and effect,
(ii) each of HBE and the HBE Bank has performed all
obligations required to be performed by it to date under
each HBE Contract to which it is a party, except where such
noncompliance, individually or in the aggregate, would not
have a Material Adverse Effect on HBE, and (iii) no event or
condition exists which constitutes or, after notice or lapse
of time or both, would constitute, a default on the part of
HBE or the HBE Bank under any such HBE Contract, except
where any such default, individually or in the aggregate,
would not have a Material Adverse Effect on HBE.
III.15 AGREEMENTS WITH REGULATORY AGENCIES. Neither HBE
nor the HBE Bank is subject to any cease-and-desist or other order issued by, or
is a party to any written agreement, consent agreement or memorandum of
understanding with, or is a party to any commitment letter or similar
undertaking to, or, is subject to any order or directive by, except as set forth
in SCHEDULE 3.15 or has been Since December 31, 1995, a recipient of any
supervisory letter from, or since December 31, 1995, has adopted any board
resolutions at the request of any Regulatory Agency or other Governmental Entity
that
16
currently restricts the conduct of its business or that relates to its
capital adequacy, compliance with laws, its credit policies, its management or
its business (each, whether or not set forth in the HBE Disclosure Schedules, an
"HBE Regulatory Agreement"), nor has HBE or the HBE Bank been advised since
December 31, 1995 by any Regulatory Agency or other Governmental Entity that it
is considering issuing or requesting any such HBE Regulatory Agreement.
III.16 OTHER ACTIVITIES OF HBE AND THE HBE BANK. Neither
HBE nor the HBE Bank that is neither a savings association, a savings
association operating subsidiary or a savings association service corporation
directly or indirectly engages in any activity prohibited by the OTS. Without
limiting the generality of the foregoing, no equity investment of HBE or the HBE
Bank that is neither a savings association, a savings association operating
subsidiary nor a savings association service corporation is prohibited by the
OTS.
III.17 INVESTMENT SECURITIES. Each of HBE and the HBE Bank
has good and marketable title to all securities held by it (except securities
sold under repurchase agreements or held in any fiduciary or agency capacity),
free and clear of any Lien, except to the extent such securities are pledged in
the ordinary course of business consistent with prudent banking practices to
secure obligations of HBE or the HBE Bank. Such securities are valued on the
books of HBE and the HBE Bank in accordance with GAAP.
III.18 UNDISCLOSED LIABILITIES. Except for those
liabilities that are fully reflected or reserved against on the consolidated
statement of financial condition of HBE included in the HBE First Quarter 10-Q,
liabilities disclosed in SCHEDULE 3.18 of the HBE Disclosure Schedules, and
liabilities incurred in the course of business consistent with past practice
since March 31, 1998, neither HBE nor the HBE Bank has incurred any liability of
any nature whatsoever (whether absolute, accrued, contingent or otherwise and
whether due or to become due) that, either alone or when combined with all
similar liabilities, has had, or could reasonably be expected to have, a
Material Adverse Effect on HBE.
III.19 INSURANCE. SCHEDULE 3.19 of the HBE Disclosure
Schedules describes all policies of insurance in which HBE or the HBE Bank is
named as an insured party or which otherwise relate to or cover any assets or
properties of HBE or the HBE Bank. Each of such policies is in full force and
effect, and the coverage provided under such properties complies with the
requirements of any contracts binding on HBE or the HBE Bank relating to such
assets or properties. Except as set forth in SCHEDULE 3.19 of the HBE Disclosure
Schedules, neither HBE nor the HBE Bank has received any notice of cancellation
or termination with respect to any material insurance policy of HBE or the HBE
Bank.
III.20 LOAN LOSS RESERVES. The reserve for possible loan
losses shown on the March 31, 1998 call report filed for the HBE Bank is
adequate in all material respects under the requirements of GAAP to provide for
possible losses, net of recoveries relating to loans previously charged off, on
loans outstanding as of March 31, 1998. The aggregate loan balances of the HBE
Bank at such date in excess of such reserves are, to the best knowledge and
belief of HBE, collectible in accordance with their terms.
17
III.21 ENVIRONMENTAL LIABILITY. Except as set forth in
SCHEDULE 3.21, there are no legal, administrative, arbitration or other
proceedings, claims, actions, causes of action, private environmental
investigations or remediation activities or governmental investigations of any
nature pending or, to the best of HBE's knowledge, threatened against HBE
seeking to impose, or that could reasonably result in the imposition, on HBE of
any liability or obligation arising under common law or under any local, state,
federal or foreign environmental statute, regulation or ordinance including,
without limitation, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA") which, insofar as reasonably can be
foreseen, could have a Material Adverse Effect on HBE.
Except as set forth in SCHEDULE 3.21, to the best of
HBE's knowledge, there is no reasonable basis for any proceeding, claim, action
or governmental investigation that would impose any such liability or obligation
which, insofar as reasonably can be foreseen, could have a Material Adverse
Effect on HBE. HBE is not subject to any agreement, order, judgment, decree,
letter or memorandum by or with any court, governmental authority, regulatory
agency or third party imposing any such liability or obligation which, insofar
as reasonably can be foreseen, could have a Material Adverse Effect on HBE.
III.22 APPROVAL DELAYS. HBE knows of no reason why any of
the Requisite Regulatory Approvals (as defined in Section 7.1(b)) should be
denied or unduly delayed.
III.23 VOTE REQUIRED. The approval by the holders of a
majority of the votes entitled to be cast by all holders of HBE Common Stock to
approve the Merger is the only vote of the holders of any class or series of the
capital stock of HBE required for any of the transactions contemplated by this
Agreement, the Plan of Merger and the HBE Stock Option Agreement.
III.24 OWNERSHIP OF SFS COMMON STOCK. Except as set forth
in SCHEDULE 3.24 of the HBE Disclosure Schedules, HBE does not "beneficially
own" (as such term is defined for purposes of Section 13(d) of the Exchange Act)
any shares of SFS Common Stock.
III.25 TAX MATTERS AND POOLING. Neither HBE nor, to the
best of HBE's knowledge, any of its affiliates has through the date of this
Agreement taken or agreed to take any action that would prevent the Merger from
qualifying as (i) a reorganization under Section 368(a)(1)(A) of the Code or
(ii) for pooling-of-interests accounting treatment under GAAP.
III.26 SALEABILITY OF MORTGAGE LOANS IN SECONDARY MARKET.
Except for the loans identified on SCHEDULE 3.26, as a general matter, to the
best of HBE's knowledge and belief, a substantial portion of the loans in the
HBE Bank's portfolio of residential, owner-occupied mortgage loans substantially
conform to secondary market underwriting standards and, accordingly, are
saleable in the secondary market.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SFS
SFS hereby represents and warrants to HBE as follows:
IV.1 CORPORATE ORGANIZATION.
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(a) SFS is a corporation duly organized and validly existing
under the laws of the State of Wisconsin. SFS has the
corporate power and authority to own or lease all of its
properties and assets and to carry on its business as it is
now being conducted, and is duly licensed or qualified to do
business in each jurisdiction in which the nature of the
business conducted by it or the character or location of the
properties and assets owned or leased by it makes such
licensing or qualification necessary, except where the
failure to be so licensed or qualified would not have a
Material Adverse Effect on SFS. SFS is duly registered as a
bank holding company under The Bank Holding Company Act of
1956. True and complete copies of the Articles of
Incorporation and By-Laws of SFS, as in effect as of the
date of this Agreement, have previously been made available
by SFS to HBE.
(b) As of the date of this Agreement, SFS has, as its sole
direct or indirect subsidiaries, State Financial Bank, a
Wisconsin-chartered bank, State Financial Bank, an
Illinois-chartered bank, State Financial Bank-Waterford, a
Wisconsin-chartered bank (collectively, the "SFS Banks" and
each an "SFS Bank"), Xxxxx Corners Development Corporation,
a Wisconsin corporation, Xxxxx Corners Investment
Corporation, a Nevada corporation, Waterford Investment
Corporation, a Nevada corporation, State Financial Mortgage
Company, a Wisconsin corporation, Richmond Bancorp, Inc., an
Illinois corporation, State Financial Insurance Agency, a
Wisconsin corporation, and Richmond Financial Services,
Inc., a Florida corporation (collectively with the SFS
Banks, the "SFS Subsidiaries" and each an "SFS Subsidiary").
Except as set forth on SCHEDULE 4.1(B) of the disclosure
schedules to this Agreement prepared and delivered by SFS
(the "SFS Disclosure Schedules"), SFS does not own any
voting stock or equity securities of any bank, corporation,
partnership, limited liability company, or other
organization, whether incorporated or unincorporated, other
than the SFS Subsidiaries.
(c) Each SFS Subsidiary (i) is duly organized and validly
existing as a corporation under the laws of its jurisdiction
of organization, (ii) is duly qualified to do business and
in good standing in all jurisdictions (whether federal,
state, local or foreign) where its ownership or leasing of
property or the conduct of its business requires it to be so
qualified and in which the failure to be so qualified would
have a Material Adverse Effect on SFS, and (iii) has all
requisite corporate power and authority to own or lease its
properties and assets and to carry on its business as now
conducted. Except as set forth in SCHEDULE 4.1(C) of the SFS
Disclosure Schedules, none of the SFS Subsidiaries owns any
voting stock or equity securities of any bank, corporation,
partnership, limited liability company, or other
organization, whether incorporated or unincorporated.
(d) The minute books of SFS and of each of the SFS Subsidiaries
have been made available to HBE and accurately reflect in
all material respects all corporate meetings held or actions
taken since January 1, 1994 by the shareholders and Boards
of Directors of SFS and each SFS Subsidiary, respectively
(including committees of the Boards of Directors of SFS and
the SFS Subsidiaries).
IV.2 CAPITALIZATION.
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(a) The authorized capital stock of SFS consists of 10,000,000
shares of common stock, $.10 par value per share, of which,
as of May 28, 1998, 3,882,195 shares were issued and
outstanding and 100,000 shares of preferred stock, $1.00 par
value per share, of which, as of May 28, 1998, none were
issued and outstanding. As of May 28, 1998, no shares of SFS
Common Stock were held in treasury. All of the issued and
outstanding shares of SFS Common Stock have been duly
authorized and validly issued and are fully paid,
nonassessable (except as otherwise provided by Section
180.0622(2)(b) of the WBCL) and free of preemptive rights.
Except as set forth on SCHEDULE 4.2(A) of the SFS Disclosure
Schedules, SFS does not have and is not bound by
any outstanding subscriptions, options, warrants, calls,
commitments or agreements of any character calling for the
purchase or issuance of any shares of SFS Common Stock or
any other equity securities of SFS or any securities
representing the right to purchase or otherwise receive any
shares of the capital stock of SFS. No shares of SFS Common
Stock have been reserved for issuance, other than the shares
of SFS Common Stock reserved for issuance under the SFS 1990
Directors Stock Option Plan, the SFS 1990 Stock Option/Stock
Appreciation Right and Restricted Stock Plan for Key
Officers and Employees and the SFS 1998 Stock Incentive Plan
(the "SFS Option Plan"). Since May 28, 1998, SFS has not
issued any shares of its capital stock or any securities
convertible into or exercisable for any shares of its
capital stock except upon exercise of stock options pursuant
to the SFS Option Plan outstanding as of May 28, 1998.
(b) SFS owns, directly or indirectly, all of the issued and
outstanding shares of capital stock of each of the SFS
Subsidiaries, free and clear of any Liens. All of the shares
of capital stock of each SFS Subsidiary are duly authorized
and validly issued and are fully paid, nonassessable (except
as otherwise provided by Section 180.0622(2)(b) of the WBCL)
and free of preemptive rights. No SFS Subsidiary has or is
bound by any outstanding subscriptions, options, warrants,
calls, commitments or agreements of any character calling
for the purchase or issuance of any shares of capital stock
or any other equity security of such SFS Subsidiary or any
securities representing the right to purchase or otherwise
receive any shares of capital stock or any other equity
security of such SFS Subsidiary.
IV.3 AUTHORITY; NO VIOLATION. SFS has full corporate power
and authority to execute and deliver each of this Agreement, the Plan of Merger
and the HBE Stock Option Agreement, subject to shareholder and regulatory
approvals, and to consummate the transactions contemplated hereby and thereby.
The execution and delivery of this Agreement, the Plan of Merger and the HBE
Stock Option Agreement and the consummation of the transactions contemplated
hereby and thereby have been duly and validly approved by the Board of Directors
of SFS. The Board of Directors of SFS has directed that this Agreement and the
Plan of Merger and the transactions contemplated hereby and thereby be submitted
to SFS's shareholders for approval at a meeting of such shareholders and, except
for the adoption of this Agreement and the Plan of Merger and the transactions
contemplated hereby and thereby by the affirmative vote of the holders of a
majority of the outstanding shares of SFS Common Stock, no other corporate
proceedings on the part of SFS are necessary to approve this Agreement, the Plan
of Merger and the HBE Stock Option Agreement and to consummate the transactions
contemplated hereby and thereby. This Agreement and the HBE Stock Option
Agreement
20
have been duly and validly executed and delivered by SFS and (assuming due
authorization, execution and delivery by HBE) constitute valid and binding
obligations of SFS, enforceable against SFS in accordance with their respective
terms. Furthermore, the Plan of Merger, when executed and delivered by SFS and
(assuming due authorization, execution and delivery by HBE), shall constitute a
valid and binding obligation of SFS, enforceable against SFS in accordance with
its terms.
IV.4 CONSENTS AND APPROVALS. No consents or approvals of or
filings or registrations with any Governmental Entity or with any third party
are necessary in connection with the execution and delivery by SFS of this
Agreement, the Plan of Merger and the HBE Stock Option Agreement and the
consummation by SFS of the Merger and the other transactions contemplated hereby
and thereby except for (a) the filing by SFS of an application with The Federal
Reserve under The Bank Holding Company Act and the approval of the Federal
Reserve Application, (b) the filing with the SEC of the Joint Proxy Statement in
definitive form relating to the meetings of HBE's and SFS's shareholders to be
held in connection with this Agreement and the Plan of Merger and the
transactions contemplated hereby and thereby and the S-4 in which such Joint
Proxy Statement will be included as a prospectus, (c) the filing of Articles of
Merger with the Wisconsin Department under the WBCL and the filing of a
Certificate of Merger with the Secretary of State of the State of Delaware, (d)
such filings and approvals as are required to be made or obtained under the
securities or "Blue Sky" laws of various states in connection with the issuance
of the shares of SFS Common Stock pursuant to this Agreement and the Plan of
Merger, (e) the approval of this Agreement and Plan of Merger by the requisite
vote of the shareholders of SFS and HBE, and (f) any necessary filings with the
Office of Thrift Supervision or any state regulatory agencies.
IV.5 REPORTS. SFS and each of the SFS Subsidiaries have
timely filed all reports, registrations and statements, together with any
amendments required to be made with respect thereto, that they were required to
file since January 1, 1994 with the Regulatory Agencies, and all other reports
and statements required to be filed by them since January 1, 1994, including,
without limitation, any report or statement required to be filed pursuant to the
laws, rules or regulations of the United States, any state, or any Regulatory
Agency, and have paid all fees and assessments due and payable in connection
therewith, except where the failure to file such report, registration or
statement or to pay such fees and assessments, either individually or in the
aggregate, will not have a Material Adverse Effect on SFS. Except for normal
examinations conducted by a Regulatory Agency in the regular course of the
business of SFS or the SFS Subsidiaries, no Regulatory Agency has initiated any
proceeding or, to the best knowledge of SFS, investigation into the business or
operations of SFS or any of the SFS Subsidiaries since January 1, 1994. There is
no unresolved written violation, written criticism, or written exception by any
Regulatory Agency with respect to any report or statement relating to any
examinations of SFS or any of the SFS Subsidiaries, which is likely, either
individually or in the aggregate, to have a Material Adverse Effect on SFS.
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IV.6 FINANCIAL STATEMENTS. SFS has previously made
available to HBE copies of (a) the consolidated statements of financial
condition of SFS and the SFS Subsidiaries as of December 31, 1996 and 1997, and
the related consolidated statements of income, shareholders' equity and cash
flows for the fiscal years ended December 31, 1995, 1996 and 1997, inclusive, as
reported in SFS's Annual Report on Form 10-K for the fiscal year ended December
31, 1997 (the "SFS Form 10-K") filed with the SEC under the Exchange Act, in
each case accompanied by the audit report of Ernst & Young LLP, independent
public accountants with respect to SFS, and (b) the unaudited consolidated
statements of financial condition of SFS and the SFS Subsidiaries as of March
31, 1998, and the related unaudited consolidated statements of income,
shareholders' equity and cash flows for the three-month period then ended as
reported in SFS's Quarterly Report on Form 10-Q for the period ended March 31,
1998 filed with the SEC under the Exchange Act (the "SFS First Quarter 10-Q").
The December 31, 1997 consolidated statements of financial condition of SFS
(including the related notes, where applicable) fairly present the consolidated
financial position of SFS and the SFS Subsidiaries as of the dates thereof, and
the other financial statements referred to in this Section 4.6 or included in
the SFS Reports (including the related notes, where applicable) fairly present
the results of the consolidated operations and shareholders' equity and
consolidated financial position of SFS and the SFS Subsidiaries for the
respective fiscal periods or as of the respective dates therein set forth,
subject, in the case of the unaudited statements, to recurring audit adjustments
normal in nature and amount; each of such statements (including the related
notes, where applicable) comply in all material respects with applicable
accounting requirements and with the published rules and regulations of the SEC
with respect thereto; and each of such statements (including the related notes,
where applicable) has been prepared in all material respects in accordance with
GAAP consistently applied during the periods involved, except, in each case, as
indicated in such statements or in the notes thereto or, in the case of
unaudited statements, as permitted by Form 10-Q.
VI.7 BROKER'S FEES. Other than SFS's arrangement with
Everen Securities to serve as a financial advisor to SFS in connection with the
Merger and related transactions contemplated by this Agreement and the Plan of
Merger, neither SFS nor any SFS Subsidiary nor any of their respective officers
or directors has employed any financial advisor, broker or finder or incurred
any liability for any financial advisory fees, broker's fees, commissions or
finder's fees in connection with the Merger or related transactions contemplated
by this Agreement and the Plan of Merger.
IV.8 ABSENCE OF CERTAIN CHANGES OR EVENTS.
(a) Except as publicly disclosed in the SFS Reports (as defined
in Section 4.12) filed prior to the date hereof or as set
forth in SCHEDULE 4.8(A), since December 31, 1997, (i) SFS
and the SFS Subsidiaries taken as a whole have not incurred
any material liability, except in the ordinary course of
their businesses, and (ii) no event has occurred which has
had, individually or in the aggregate, a Material Adverse
Effect on SFS or will have a Material Adverse Effect on SFS.
(b) Except as publicly disclosed in the SFS Reports filed prior
to the date hereof, since December 31, 1997, SFS and each
SFS Subsidiary have carried on their respective businesses
in all material respects in the ordinary and usual course.
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IV.9 LEGAL PROCEEDINGS
(a) Except as set forth in SCHEDULE 4.9, there are no pending
or, to the best of SFS's knowledge, threatened, legal,
administrative, arbitration or other proceedings, claims,
actions or governmental or regulatory investigations of any
nature against SFS or any of the SFS Subsidiaries or
challenging the validity or propriety of the transactions
contemplated by this Agreement, the Plan of Merger or the
HBE Stock Option Agreement.
(b) There is no injunction, order, judgment, decree, or
regulatory restriction (other than regulatory restrictions
that apply to similarly situated bank holding companies or
banks) imposed upon SFS, any of the SFS Subsidiaries or the
assets of SFS or any of the SFS Subsidiaries.
IV.10 TAXES AND TAX RETURNS. Each of SFS and the SFS
Subsidiaries has duly filed all federal, state, county, foreign and, to the best
of SFS's knowledge, local information returns and tax returns required to be
filed by it on or prior to the date hereof (all such returns being accurate and
complete in all material respects) and has duly paid or made provisions for the
payment of all Taxes and other governmental charges which have been incurred or
are due or claimed to be due from it by federal, state, county, foreign or local
taxing authorities on or prior to the date of this Agreement (including, without
limitation, if and to the extent applicable, those due in respect of its
properties, income, business, capital stock, deposits, franchises, licenses,
sales and payrolls) other than Taxes or other charges which are not yet
delinquent or are being contested in good faith and have not been finally
determined. The income tax returns of SFS and the SFS Subsidiaries remain open
for the applicable statutory time periods and any deficiencies, penalties or
assessments have been paid or provided for in SFS's consolidated financial
statements. There are no material disputes pending with respect to, or claims
asserted for, Taxes or assessments upon SFS or any of the SFS Subsidiaries for
which SFS does not have adequate reserves, nor has SFS or any of the SFS
Subsidiaries given any currently effective waivers extending the statutory
period of limitation applicable to any federal, state, county, foreign or local
income tax return for any period. In addition, (i) proper and accurate amounts
have been withheld by SFS and each of the SFS Subsidiaries from their employees
for all prior periods in compliance in all material respects with the tax
withholding provisions of applicable federal, state, foreign and local laws,
except where failure to do so would not have a Material Adverse Effect on SFS,
(ii) federal, state, foreign, county and local returns which are accurate and
complete in all material respects have been filed by SFS and each of the SFS
Subsidiaries for all periods for which returns were due with respect to income
tax withholding, Social Security and unemployment taxes, (iii) the amounts shown
on such federal, state, foreign, local or county returns to be due and payable
have been paid in full or adequate provision therefor has been included by SFS
in its consolidated financial statements as of December 31, 1997, and (iv) there
are no Tax liens upon any property or assets of SFS or any of the SFS
Subsidiaries except liens for current taxes not yet due. Except as set forth in
SCHEDULE 4.10(A), neither SFS nor any of the SFS Subsidiaries has been required
to include in income any adjustment pursuant to Section 481 of the Code by
reason of a voluntary change in accounting method initiated by SFS or any of the
SFS Subsidiaries, and the IRS has not initiated or proposed any such adjustment
or change in accounting method. Except as set forth in the
23
financial statements described in Section 4.6, neither SFS nor any of the SFS
Subsidiaries has entered into a transaction which is being accounted for as an
installment obligation under Section 453 of the Code.
IV.11 EMPLOYEES.
(a) SCHEDULE 4.11 of the SFS Disclosure Schedules sets forth a
true and complete list of each employee benefit plan,
arrangement, commitment, agreement or understanding that is
maintained as of the date of this Agreement (the "SFS
Benefit Plans") (i) by SFS or any of the SFS Subsidiaries or
(ii) by any trade or business, whether or not incorporated,
which (A) is under "common control," as described in Section
414(c) of the Code, with SFS, (B) is a member of a
"controlled group," as defined in Section 414(b) of the
Code, or (C) is a member of an "affiliated service group,"
as defined in Section 414(m) of the Code which includes SFS
(an "SFS ERISA Affiliate"), all of which together with SFS
would be deemed a "single employer" within the meaning of
Section 4001 of ERISA.
(b) SFS has heretofore delivered to HBE true and complete copies
of the SFS Benefit Plans and certain related documents,
including, but not limited to, (i) the Annual Report Form
5500 for such SFS Benefit Plan (if applicable) for each of
the last two years, and (ii) the most recent determination
letter from the IRS (if applicable) for such SFS Benefit
Plan.
(c) (i) Each of the SFS Benefit Plans has been operated and
administered in all material respects with applicable laws,
including, but not limited to, ERISA and the Code, (ii) each
of the SFS Benefit Plans intended to be "qualified" within
the meaning of Section 401(a) of the Code has been operated
and administered in all material respects with the
requirements of Section 401(a) of the Code, (iii) no SFS
Benefit Plan provides benefits, including, without
limitation, death or medical benefits (whether or not
insured), with respect to current or former employees of
SFS, the SFS Subsidiaries or any SFS ERISA Affiliate beyond
their retirement or other termination of service, other than
(A) coverage mandated by applicable law, (B) death benefits,
disability benefits or retirement benefits under any
"employee pension plan" (as such term is defined in Section
3(2) of ERISA), (C) deferred compensation benefits accrued
as liabilities on the books of SFS, the SFS Subsidiaries or
the SFS ERISA Affiliates, or (D) benefits the full cost of
which is borne by the current or former employee (or his
beneficiary), (iv) neither SFS, the SFS Subsidiaries nor any
SFS ERISA Affiliate maintains or has ever maintained a plan
subject to Title IV of ERISA, (v) neither SFS, the SFS
Subsidiaries nor any SFS ERISA Affiliate contributes to or
has ever contributed to a "Multiemployer" pension plan (as
such term is defined in Section 3(37) of ERISA, (vi) all
contributions or other amounts payable by SFS or the SFS
Subsidiaries as of the Effective Time with respect to each
SFS Benefit Plan in respect of current or prior plan years
have been paid or accrued in accordance with GAAP and
Section 412 of the Code, (vii) neither SFS, the SFS
Subsidiaries nor any SFS ERISA Affiliate has engaged in a
transaction in connection with which SFS, the SFS
Subsidiaries or any ERISA Affiliate reasonably could be
subject to either a material civil penalty assessed pursuant
to Section 409 or 502(i) of ERISA or a material tax imposed
pursuant to Sections
24
4975 or 4976 of the Code, and (viii) to the best knowledge
of SFS, there are no pending, threatened or anticipated
claims (other than routine claims for benefits) by, on
behalf of or against any of the SFS Benefit Plans or any
trusts related thereto which are, in the reasonable judgment
of SFS, likely, either individually or in the aggregate, to
have a Material Adverse Effect on SFS.
(d) There are no current employment agreements, employee
retention agreements or change in control agreements,
contracts or arrangements between SFS (or any SFS
Subsidiary) and any director, officer or employee of SFS (or
any SFS Subsidiary) and any director, officer or employee of
SFS (or any SFS Subsidiary) containing terms that would
provide for the accelerated vesting and payment by SFS (or
the SFS Subsidiary, as applicable) of compensation and
benefits to any such director, officer or employee as a
result of either (i) the approval of this Agreement by a
majority of the shareholders of SFS or (ii) the consummation
to the transactions contemplated by this Agreement.
IV.12 SEC REPORTS. SFS and each of the SFS Subsidiaries has
made available to HBE an accurate and complete copy of each (a) final
registration statement, prospectus, report, schedule and definitive proxy
statement filed since December 31, 1995 by SFS with the SEC pursuant to the
Securities Act or the Exchange Act (collectively, the "SFS Reports"), and (b)
communication mailed by SFS to its shareholders since December 31, 1995. None of
the SFS Reports or such communications to shareholders, as of their respective
dates, contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances in which they were made, not
misleading. Since December 31, 1995, SFS has timely filed all SFS Reports and
other documents required to be filed by it under the Securities Act and the
Exchange Act, and, as of their respective dates, all SFS Reports complied in all
material respects with the published rules and regulations of the SEC with
respect thereto.
IV.13 COMPLIANCE WITH APPLICABLE LAW. SFS and each of the
SFS Subsidiaries hold all licenses, franchises, permits and authorizations
necessary for the lawful conduct of their respective businesses under and
pursuant to all, and have complied with and are not in default under any,
applicable laws, statutes, orders, rules, regulations, policies and/or
guidelines of any Governmental Entity relating to SFS or any of the SFS
Subsidiaries, except where the failure to hold such license, franchise, permit
or authorization or such noncompliance or default would not, individually or in
the aggregate, have a Material Adverse Effect on SFS.
IV.14 CERTAIN CONTRACTS.
(a) Except as set forth in SCHEDULE 4.14(A) of the SFS
Disclosure Schedules, neither SFS nor any of the SFS
Subsidiaries is a party to or bound by:
(i) any contract, arrangement, commitment or understanding
(whether written or oral) with respect to the
employment or compensation of any directors, officers
or employees;
25
(ii) any contract, arrangement, commitment or understanding
(whether written or oral) which, upon the consummation
of the transactions contemplated by this Agreement or
the Plan of Merger will (either alone or upon the
occurrence of any additional acts or events) result in
any payment (including, without limitation, severance,
unemployment compensation, golden parachute or
otherwise) becoming due from HBE, SFS, the Surviving
Corporation, or any of their respective Subsidiaries to
any officer, director or employee thereof or to the
trustee under any "rabbi trust" or similar arrangement;
(iii) any contract, arrangement, commitment or understanding
(whether written or oral) which materially restricts
the conduct of any line of business by SFS; or
(iv) any contract, arrangement, commitment or understanding
(whether written or oral), including any stock option
plan, stock appreciation rights plan, restricted stock
plan or stock purchase plan, any of the benefits of
which will be increased or be required to be paid, or
the vesting of the benefits of which will be
accelerated, by the occurrence of any of the
transactions contemplated by this Agreement or the Plan
of Merger, or the value of any of the benefits of which
will be calculated on the basis of any of the
transactions contemplated by this Agreement or the Plan
of Merger.
SFS has previously made available to HBE true and correct
copies of all employment and deferred compensation
arrangements which are in writing and to which SFS or an SFS
Subsidiary is a party. Each contract, arrangement,
commitment or understanding of the type described in this
Section 4.14(a), is referred to herein as an "SFS Contract,"
and neither SFS nor any of the SFS Subsidiaries knows of, or
has received notice of, any violation of any SFS Contract by
any of the other parties thereto, which, individually or in
the aggregate, would have a Material Adverse Effect on SFS.
ii.
(b) (i) each SFS Contract is valid and binding on SFS or the
applicable SFS Subsidiary, as the case may be, and is in
full force and effect, (ii) SFS and each of the SFS
Subsidiaries has performed all obligations required to be
performed by it to date under each SFS Contract to which it
is a party, except where such noncompliance, individually or
in the aggregate, would not have a Material Adverse Effect
on SFS, and (iii) no event or condition exists which
constitutes or, after notice or lapse of time or both, would
constitute, a default on the part of SFS or any of the SFS
Subsidiaries under any such SFS Contract, except where any
such default, individually or in the aggregate, would not
have a Material Adverse Effect on SFS.
IV.15 AGREEMENTS WITH REGULATORY AGENCIES. Neither SFS nor
any of the SFS Subsidiaries is subject to any cease-and-desist or other order
issued by, or (except as set forth in SCHEDULE 4.15 of the SFS Disclosure
Schedules) is a party to any written agreement, consent agreement or memorandum
of understanding with, or is a party to any commitment letter or similar
undertaking to, or is subject to any order or directive by, or has been since
December 31, 1995, a recipient of any supervisory letter from, or since December
31, 1995, has adopted any board resolutions at the request of any Regulatory
26
Agency or other Governmental Entity that currently restricts the conduct of its
business or that relates to its capital adequacy, compliance with laws, its
credit policies, its management or its business (each, whether or not set forth
in the SFS Disclosure Schedules, a "SFS Regulatory Agreement") nor has SFS or
any of the SFS Subsidiaries been advised since December 31, 1995 by any
Regulatory Agency or other Governmental Entity that it is considering issuing or
requesting any such SFS Regulatory Agreement.
IV.16 OTHER ACTIVITIES OF SFS AND ITS SFS SUBSIDIARIES.
Neither SFS nor any of the SFS Subsidiaries that is neither a bank, bank
operating subsidiary or a bank service corporation directly or indirectly
engages in any activity prohibited by the Federal Reserve. Without limiting the
generality of the foregoing, no equity investment of SFS or any SFS Subsidiary
that is neither a bank, a bank operating subsidiary nor a bank service
corporation is prohibited by the Federal Reserve.
IV.17 INVESTMENT SECURITIES. Each of SFS and the SFS
Subsidiaries has good and marketable title to all securities held by it (except
securities sold under repurchase agreements or held in any fiduciary or agency
capacity), free and clear of any Lien, except to the extent such securities are
pledged in the ordinary course of business consistent with prudent banking
practices to secure obligations of SFS or any of the SFS Subsidiaries. Such
securities are valued on the books of SFS and the SFS Subsidiaries in accordance
with GAAP.
IV.18 UNDISCLOSED LIABILITIES. Except for those liabilities
that are fully reflected or reserved against on the consolidated statement of
financial condition of SFS included in the SFS First Quarter 10-Q, liabilities
disclosed in SCHEDULE 4.18 of the SFS Disclosure Schedules, and liabilities
incurred in the ordinary course of business consistent with past practice since
March 31, 1998, neither SFS nor any of the SFS Subsidiaries has incurred any
liability of any nature whatsoever (whether absolute, accrued, contingent or
otherwise and whether due or to become due) that, either alone or when combined
with all similar liabilities, has had, or could reasonably be expected to have,
a Material Adverse Effect on SFS.
IV.19 INSURANCE. SCHEDULE 4.19 of the SFS Disclosure
Schedules describes all policies of insurance in which SFS or any of the SFS
Subsidiaries is named as an insured party or which otherwise relate to or cover
any assets or properties of SFS or any of the SFS Subsidiaries. Each of such
policies is in full force and effect, and the coverage provided under such
properties complies with the requirements of any contracts binding on SFS or any
of the SFS Subsidiaries relating to such assets or properties. Except as set
forth in SCHEDULE 4.19 of the SFS Disclosure Schedules, neither SFS nor any of
the SFS Subsidiaries has received any notice of cancellation or termination with
respect to any material insurance policy of SFS or any of the SFS Subsidiaries.
IV.20 LOAN LOSS RESERVES. The reserve for possible loan
losses shown on the March 31, 1998 call report filed for each SFS Bank is
adequate in all material respects under the requirements of GAAP to provide for
possible losses, net of recoveries relating to loans previously charged off, on
loans outstanding as of March 31, 1998. The aggregate loan balances of each SFS
Bank at such date in excess of such reserves of each SFS Bank are, to the best
knowledge and belief of SFS, collectible in accordance with their terms.
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IV.21 ENVIRONMENTAL LIABILITY. Except as set forth in
SCHEDULE 4.21, there are no legal, administrative, arbitration or other
proceedings, claims, actions, causes of action, private environmental
investigations or remediation activities or governmental investigations of any
nature pending or, to the best of SFS's knowledge, threatened against SFS
seeking to impose, or that could reasonably result in the imposition, on SFS of
any liability or obligation arising under common law or under any local, state,
federal or foreign environmental statute, regulation or ordinance including,
without limitation, CERCLA which, insofar as reasonably can be foreseen, could
have a Material Adverse Effect on SFS. Except as set forth in SCHEDULE 4.21, to
the best of SFS's knowledge, there is no reasonable basis for any such
proceeding, claim, action or governmental investigation that would impose any
such liability or obligation which, insofar as reasonably can be foreseen, could
have a Material Adverse Effect on SFS. SFS is not subject to any agreement,
order, judgment, decree, letter or memorandum by or with any court, governmental
authority, regulatory agency or third party imposing any such liability or
obligation which, insofar as reasonably can be foreseen, could have a Material
Adverse Effect on SFS.
IV.22 APPROVAL DELAYS. SFS knows of no reason why any of
the Requisite Regulatory Approvals (as defined in Section 7.1(b)) should be
denied or unduly delayed.
IV.23 VOTE REQUIRED. The approval by the holders of a
majority of the votes entitled to be cast by all holders of SFS Common Stock to
approve the Merger (including the issuance of shares of SFS Common Stock in
connection therewith) is the only vote of the holders of any class or series of
the capital stock of SFS required for any of the transactions contemplated by
this Agreement, the Plan of Merger and the HBE Stock Option Agreement.
IV.24 OWNERSHIP OF HBE COMMON STOCK. Except as set forth in
SCHEDULE 4.24 of the SFS Disclosure Schedules and except pursuant to the terms
of the HBE Stock Option Agreement, SFS does not "beneficially own" (as such term
is defined for purposes of Section 13(d) of the Exchange Act) any shares of HBE
Common Stock.
IV.25 TAX MATTERS AND POOLING.
Neither SFS nor, to SFS's knowledge, any of its affiliates
has through the date of this Agreement taken or agreed to take any action that
would prevent the Merger from qualifying (i) as a reorganization under Section
368(a)(1)(A) of the Code or (ii) for pooling-of-interests accounting treatment
under GAAP.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
V.1 CONDUCT OF BUSINESSES PRIOR TO THE EFFECTIVE TIME.
During the period from the date of this Agreement to the Effective Time, except
as expressly contemplated or permitted by this Agreement and the Plan of Merger
(including the HBE Disclosure Schedules and the SFS Disclosure Schedules), each
of SFS and HBE shall, and shall cause the SFS Subsidiaries and the HBE Bank ,
respectively, to (a) conduct its business in good faith in the usual, regular
and ordinary course consistent with past practice, (b) use reasonable efforts to
maintain and preserve intact its business organization, employees and
28
advantageous business relationships and retain the services of its key officers
and key employees, and (c) take no action which would adversely affect or delay
the ability of either SFS or HBE to obtain any necessary approvals of any
Regulatory Agency or other governmental authority required for the transactions
contemplated hereby or to perform its covenants and agreements under this
Agreement, the Plan of Merger or the HBE Stock Option Agreement.
V.2 FORBEARANCES. During the period from the date of this
Agreement to the Effective Time, except as set forth in the HBE Disclosure
Schedules or the SFS Disclosure Schedules, as the case may be, and, except as
expressly contemplated or permitted by this Agreement, the Plan of Merger or the
HBE Stock Option Agreement, neither SFS nor HBE shall, nor shall SFS or HBE
permit the SFS Subsidiaries or the HBE Bank, respectively to, without the prior
written consent of the other:
(a) other than in the ordinary course of business consistent
with past practice, (i) incur any indebtedness for borrowed
money (other than pursuant to existing lines of credit or
short-term indebtedness incurred in the ordinary course of
business consistent with past practice, indebtedness of HBE
to the HBE Bank or of the HBE Bank to HBE, or indebtedness
of SFS to any of the SFS Subsidiaries or of any of the SFS
Subsidiaries to SFS, it being understood and agreed that
incurrence of indebtedness in the ordinary course of
business shall include, without limitation, the creation of
deposit liabilities, purchases of Federal funds, Federal
Home Loan Bank borrowings, sales of certificates of deposit
and entering into repurchase agreements), (ii) assume,
guarantee, endorse or otherwise as an accommodation become
responsible for the obligations of any other individual,
corporation or other entity; or (iii) make any loan or
advance;
(b) (i) adjust, split, combine or reclassify any capital stock,
(ii) make, declare or pay any dividend or make any other
distribution on, any shares of its capital stock or any
securities or obligations convertible into or exchangeable
for any shares of its capital stock (except (A) in the case
of SFS, for regular quarterly cash dividends at a rate not
in excess of $0.12 per share of SFS Common Stock, and (B) in
the case of HBE, for regular quarterly cash dividends at a
rate not in excess of $0.10 per share of HBE Common Stock);
(iii) directly or indirectly redeem, purchase or otherwise
acquire any shares of capital stock or any securities or
obligations convertible into or exchangeable for any shares
of its capital stock; (iv) grant any stock appreciation
rights or grant any individual, corporation or other entity
any right to acquire any shares of its capital stock, or (v)
issue any additional shares of capital stock (except
pursuant to (A) the exercise of stock options outstanding as
of the date of this Agreement, or (B) the HBE Stock Option
Agreement);
(c) sell, transfer, mortgage, encumber or otherwise dispose of
any of its properties or assets to any individual,
corporation or other entity other than a Subsidiary, or
cancel, release or assign any indebtedness to any such
person or any claims held by any such person, except in the
ordinary course of business consistent with past practice or
pursuant to contracts or agreements in force at the date of
this Agreement;
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(d) except for transactions in the ordinary course of business
consistent with past practice or pursuant to contracts or
agreements in force at the date of this Agreement, make any
material investment either by purchase of stock or
securities, contributions to capital, property transfers, or
purchase of any property or assets of any other individual,
corporation or other entity other than a Subsidiary thereof
or any existing joint venture to which HBE or SFS is a
party;
(e) except for transactions in the ordinary course of business
consistent with past practice, enter into or terminate any
material contract or agreement, or make any change in any of
its material leases or contracts, other than renewals of
contracts and leases without material adverse changes of
terms;
(f) other than in the ordinary course of business consistent
with past practice, or as required by law, increase in any
manner the compensation or fringe benefits of any of its
employees, or pay any pension or retirement allowance not
required by any existing plan or agreement to any such
employees or become a party to, amend or commit itself to
any pension, retirement, profit-sharing or welfare benefit
plan or agreement or employment agreement with or for the
benefit of any employee;
(g) grant, amend or modify in any material respect any stock
option, stock awards or other stock based compensation,
except as contemplated in Section 1.5(c) hereof;
(h) pay, discharge or satisfy any material claims, liabilities
or obligations (whether absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the
payment, discharge or satisfaction, in the ordinary course
of business consistent with past practice (which includes
the payment of final and unappealable judgments) or in
accordance with their terms, of liabilities reflected or
reserved against in, or contemplated by, the most recent
consolidated financial statements (or the notes thereto) of
such party included in such party's reports filed with the
SEC, or incurred in the ordinary course of business
consistent with past practice;
(i) take any action that would prevent or impede the Merger from
qualifying as a reorganization within the meaning of Section
368 of the Code; PROVIDED, HOWEVER, that nothing contained
herein shall limit the ability of HBE or SFS to exercise its
rights under the HBE Stock Option Agreement;
(j) amend its articles of incorporation (other than, in the case
of SFS, to increase the amount of its authorized common
stock) or its bylaws;
(k) other than in prior consultation with the other party to
this Agreement, restructure or materially change its
investment securities portfolio or its gap position, through
purchases, sales, or otherwise, or the manner in which the
portfolio is classified or reported;
(l) take any action that is intended or may reasonably be
expected to result in any of its representations and
warranties set forth in this Agreement being or becoming
untrue in any material respect at any time prior to the
Effective Time, or in any of the conditions to the Merger
set forth in Article VII not being satisfied or in a
30
violation of any provision of this Agreement, the Plan of
Merger or the HBE Stock Option Agreement, except, in every
case, as may be required by applicable law; or
(m) agree to, or make any commitment to, take any of the actions
prohibited by this Section 5.2.
ARTICLE VI
ADDITIONAL AGREEMENTS
VI.1 REGULATORY MATTERS; COOPERATION WITH RESPECT TO FILING
(a) (i) SFS shall promptly prepare and file with the SEC the
Joint Proxy Statement in preliminary form; (ii) SFS shall
promptly prepare and file an application with the Federal
Reserve and any necessary state applications, for approval
to consummate the transactions contemplated by this
Agreement, the Plan of Merger and, to the extent required,
the HBE Stock Option Agreement. Each of SFS and HBE shall
use all reasonable efforts to have the S-4, in which the
Joint Proxy Statement will be included as a prospectus,
declared effective under the Securities Act as promptly as
practicable after such filing and to mail or deliver the
Joint Proxy Statement to their respective shareholders. SFS
shall also use all reasonable efforts to obtain all
necessary state securities law or "Blue Sky" permits and
approvals required to carry out the transactions
contemplated by this Agreement and the Plan of Merger, and
HBE shall furnish all information concerning HBE and the
holders of the HBE Common Stock as may be reasonably
requested by SFS in connection with any such action.
(b) The parties hereto shall cooperate with each other and shall
each use reasonable efforts to promptly prepare and file all
necessary documentation, to effect all applications,
notices, petitions and filings, to obtain as promptly as
practicable all permits, consents, approvals and
authorizations of all third parties and Governmental
Entities which are necessary or advisable to consummate the
transactions contemplated by this Agreement and the Plan of
Merger (including, without limitation, the Merger), and to
comply with the terms and conditions of all such permits,
consents, approvals and authorizations of all such
Governmental Entities. SFS and HBE shall have the right to
review in advance, and, to the extent practicable, each will
consult the other on, in each case subject to applicable
laws relating to the exchange of information, all the
information relating to SFS or HBE, as the case may be, and
the SFS Subsidiaries and the HBE Bank, respectively, which
appears in any filing made with, or written materials
submitted to, any third party or any Governmental Entity in
connection with the transactions contemplated by this
Agreement and the Plan of Merger. In exercising the
foregoing right, each of the parties hereto shall act
reasonably and as promptly as practicable. The parties
hereto agree that they will consult with each other with
respect to the obtaining of all permits, consents, approvals
and authorizations of all third parties and Governmental
Entities necessary or advisable to consummate the
transactions contemplated by this Agreement and the Plan of
Merger, and each party will keep the other apprised of the
status of matters relating to completion of the transactions
contemplated herein.
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(c) SFS and HBE shall, upon request, furnish each other with all
information concerning themselves, and the SFS Subsidiaries
and the HBE Bank, respectively, directors, officers and
shareholders and such other matters as may be reasonably
necessary or advisable in connection with the Joint Proxy
Statement, the S-4 or any other statement, filing, notice or
application made by or on behalf of SFS or HBE or the SFS
Subsidiaries and the HBE Bank, as the case may be, to any
Governmental Entity in connection with the Merger and the
other transactions contemplated by this Agreement and the
Plan of Merger. SFS covenants and agrees that none of the
information which is furnished by SFS for inclusion, or
which is included, in the S-4, the Joint Proxy Statement or
any other statement, filing, notice or application made by
or on behalf of SFS or HBE or the SFS Subsidiaries or the
HBE Bank, as the case may be, to any Governmental Entity in
connection with the Merger and the other transactions
contemplated by this Agreement and the Plan of Merger will,
at the respective times such documents are filed and, in the
case of the S-4, when it becomes effective and, with respect
to the Joint Proxy Statement, when mailed or at the time of
the meetings of the shareholders of SFS and HBE, be false or
misleading with respect to any material fact or shall omit
to state any material fact necessary in order to make the
statements therein, in light of the circumstances in which
they were made, not misleading. HBE covenants and agrees
that none of the information which is furnished by HBE for
inclusion, or which is included, in the S-4, the Joint Proxy
Statement or any other statement, filing, notice or
application made by or on behalf of SFS or HBE or the SFS
Subsidiaries or the HBE Bank, as the case may be, to any
Governmental Entity in connection with the Merger and the
other transactions contemplated by this Agreement and the
Plan of Merger will, at the respective times such documents
are filed and, in the case of the S-4, when it becomes
effective and, with respect to the Joint Proxy Statement,
when mailed or at the time of the meetings of the
shareholders of SFS and HBE, be false or misleading with
respect to any material fact or shall omit to state any
material fact necessary in order to make the statements
therein, in light of the circumstances in which they were
made, not misleading. Notwithstanding the foregoing, SFS
shall have no responsibility for the truth or accuracy of
any information with respect to HBE or the HBE Bank included
in the S-4, the Joint Proxy Statement, or any other
statement, filing, notice or application filed with any
Governmental Entity in connection with the Merger and the
other transactions contemplated by this Agreement and the
Plan of Merger, and HBE shall have no responsibility for the
truth or accuracy of any information with respect to SFS or
the SFS Subsidiaries included in the S-4, the Joint Proxy
Statement, or any other statement, filing, notice or
application filed with any Governmental Entity in connection
with the Merger and the other transactions contemplated by
this Agreement and the Plan of Merger.
(d) SFS and HBE shall promptly advise one another upon receiving
any communication from any Governmental Entity whose consent
or approval is required for consummation of the transactions
contemplated by this Agreement and the Plan of Merger which
causes such party to believe that there is a reasonable
likelihood that any Requisite Regulatory Approval will not
be obtained or that the receipt of any such approval will be
materially delayed.
VI.2 ACCESS TO INFORMATION; DUE DILIGENCE.
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(a) Upon reasonable notice and subject to applicable laws
relating to the exchange of information, each of SFS and HBE
shall, and shall cause the SFS Subsidiaries and the HBE
Bank, respectively, to, afford to the officers, employees,
accountants, counsel and other representatives of the other
party, access, during normal business hours during the
period prior to the Effective Time, to all its properties,
books, contracts, commitments and records and, during such
period, each of SFS and HBE shall, and shall cause the SFS
Subsidiaries and the HBE Bank, respectively, to, make
available to the other party (i) a copy of each report,
schedule, registration statement and other document filed or
received by it during such period pursuant to the
requirements of federal securities laws or federal or state
banking laws, and (ii) all other information concerning its
business, properties and personnel as such party may
reasonably request. Neither SFS, HBE, the SFS Subsidiaries
nor the HBE Bank shall be required to provide access to or
to disclose information where such access or disclosure
would (A) violate or prejudice the rights of SFS's or HBE's,
as the case may be, customers or contravene any law, rule,
regulation, order, judgment, decree, fiduciary duty or
binding agreement entered into prior to the date of this
Agreement, or (B) impair any attorney-client privilege of
the disclosing party. The parties hereto will make
appropriate substitute disclosure arrangements under
circumstances in which the restrictions of the preceding
sentence apply.
(b) Each of SFS and HBE shall hold all information furnished by
or on behalf of the other party or the SFS Subsidiaries or
the HBE Bank, as the case may be, or their representatives
pursuant to Section 6.2(a) in confidence and shall return
all documents containing any information concerning the
properties, business and assets of each other party that may
have been obtained in the course of negotiations or
examination of the affairs of each other party either prior
or subsequent to the execution of this Agreement (other than
such information as shall be in the public domain or
otherwise ascertainable from public or outside sources) and
shall destroy any information, analyses or the like derived
from such confidential information. Each of SFS and HBE
shall use such information solely for the purpose of
conducting business, legal and financial reviews of the
other party and for such other purposes as may be related to
this Agreement and the Plan of Merger.
(c) No investigation by either of the parties or their
respective representatives shall affect the representations
and warranties of the other set forth herein. Without
limitation of the foregoing, each party shall promptly
notify the other party of any information obtained by such
party during the course of any due diligence conducted by
such party or its representatives in accordance with this
Section 6.2 which is materially inconsistent with any
representation or warranty made by the other party under
this Agreement; PROVIDED, HOWEVER, that either party's
failure to provide such notice to the other party shall not,
in turn, be deemed to constitute a material breach of such
party's obligations under this Agreement and the Plan of
Merger.
VI.3 SHAREHOLDERS' APPROVALS. Each of SFS and HBE shall
call a meeting of its shareholders to be held as soon as reasonably practicable
for the purpose of voting upon this Agreement and the Plan of Merger (and, in
the case of SFS, the issuance of shares of
33
SFS Common Stock in the Merger and the reserve of shares of SFS Common Stock for
the HBE Option Plan), and each shall use all reasonable efforts to obtain
shareholder approval of this Agreement, the Plan of Merger and the Merger.
VI.4 LEGAL CONDITIONS TO MERGER. Each of SFS and HBE shall,
and shall cause the SFS Subsidiaries and the HBE Bank, respectively, to use
reasonable efforts (a) to take, or cause to be taken, all actions necessary,
proper or advisable to comply promptly with all legal requirements which may be
imposed on such party with respect to the Merger and, subject to the conditions
set forth in Article VII hereof, to consummate the transactions contemplated by
this Agreement and the Plan of Merger and (b) to obtain (and to cooperate with
the other party to obtain) any consent, authorization, order or approval of, or
any exemption by, any Governmental Entity and any other third party which is
required to be obtained by SFS, the SFS Subsidiaries, HBE or the HBE Bank in
connection with the Merger and the other transactions contemplated by this
Agreement, the Plan of Merger and the HBE Stock Option Agreement.
VI.5 LISTING OF SHARES. SFS shall use all reasonable efforts
to cause the shares of SFS Common Stock issuable in the Merger to be approved
for listing on the NASDAQ-NMS.
VI.6 Indemnification; Directors' and Officers' Insurance.
(a) In the event of any threatened or actual claim, action,
suit, proceeding or investigation, whether civil, criminal
or administrative, including, without limitation, any such
claim, action, suit, proceeding or investigation in which
any individual who is now, or has been at any time prior to
the date of this Agreement, or who becomes prior to the
Effective Time, a director or officer or employee of SFS,
the SFS Subsidiaries, HBE or the HBE Bank (the "Indemnified
Parties"), is, or is threatened to be, made a party based in
whole or in part on, or arising in whole or in part out of,
or pertaining to (i) the fact that he or she is or was a
director, officer or employee of SFS, the SFS Subsidiaries,
HBE or the HBE Bank or any of their respective predecessors,
or (ii) this Agreement, the Plan of Merger or the HBE Stock
Option Agreement or any of the transactions contemplated
hereby or thereby, whether in any case asserted or arising
before or after the Effective Time, the parties hereto agree
to cooperate and use reasonable efforts to defend against
and respond thereto. It is understood and agreed that after
the Effective Time, the Surviving Corporation shall
indemnify and hold harmless, as and to the fullest extent
permitted by law, each such Indemnified Party against any
losses, claims, damages, liabilities, costs, expenses
(including reasonable attorney's fees and expenses in
advance of the final disposition of any claim, suit,
proceeding or investigation incurred by each Indemnified
Party to the fullest extent permitted by law, including the
full scope of indemnification available to officers and
directors of federally chartered thrift institutions with
respect to HBE, upon receipt of any undertaking required by
applicable law), judgments, fines and amounts paid in
settlement in connection with any such threatened or actual
claim, action, suit, proceeding or investigation, and in the
event of any such threatened or actual claim, action, suit,
proceeding or investigation (whether asserted or arising
before or after the Effective Time), the Indemnified Parties
may retain counsel reasonably satisfactory to them
34
after consultation with the Surviving Corporation; PROVIDED,
HOWEVER, that (A) the Surviving Corporation shall have the
right to assume the defense thereof and upon such assumption
the Surviving Corporation shall not be liable to any
Indemnified Party for any legal expenses of other counsel or
any other expenses subsequently incurred by any Indemnified
Party in connection with the defense thereof, except that if
the Surviving Corporation elects not to assume such defense
or counsel for the Indemnified Parties reasonably advises
the Indemnified Parties that there are issues which raise
conflicts of interest between the Surviving Corporation and
the Indemnified Parties, the Indemnified Parties may retain
counsel reasonably satisfactory to them after consultation
with the Surviving Corporation, and the Surviving
Corporation shall pay the reasonable fees and expenses of
such counsel for the Indemnified Parties, (B) the Surviving
Corporation shall be obligated pursuant to this paragraph to
pay for only one firm of counsel for all Indemnified
Parties, unless an Indemnified Party shall have reasonably
concluded, based on the advice of counsel, that there is a
material conflict of interest between the interests of such
Indemnified Party and the interests of one or more other
Indemnified Parties and that the interests of such
Indemnified Party will not be adequately represented unless
separate counsel is retained, in which case, the Surviving
Corporation shall be obligated to pay such separate counsel,
(C) the Surviving Corporation shall not be liable for any
settlement effected without its prior written consent (which
consent shall not be unreasonably withheld) and (D) the
Surviving Corporation shall have no obligation hereunder to
any Indemnified Party when and if a court of competent
jurisdiction shall ultimately determine, and such
determination shall have become final and nonappealable,
that indemnification of such Indemnified Party in the manner
contemplated hereby is prohibited by applicable law. Any
Indemnified Party wishing to claim Indemnification under
this Section 6.6, upon learning of any such claim, action,
suit, proceeding or investigation, shall notify the
Surviving Corporation thereof, provided that the failure to
so notify shall not affect the obligations of the Surviving
Corporation under this Section 6.6 except to the extent such
failure to notify materially prejudices the Surviving
Corporation. The Surviving Corporation's obligations under
this Section 6.6 shall continue in full force and effect for
a period of five years from the Effective Time (or the
period of the applicable statute of limitations, if longer);
PROVIDED, HOWEVER, that all rights to indemnification in
respect of any claim (a "Claim") asserted or made within
such period shall continue until the final disposition of
such Claim.
(b) The Surviving Corporation shall use reasonable efforts (i)
to obtain, after the Effective Time, directors' and
officers' liability insurance coverage for the officers and
directors of the Surviving Corporation, to the extent that
the same is economically practicable, and (ii) either (A) to
cause the individuals serving as officers and directors of
SFS, the SFS Subsidiaries, HBE or the HBE Bank immediately
prior to the Effective Time to be covered for a period of
three years from the Effective Time by the directors' and
officers' liability insurance policies maintained by the
Surviving Corporation, or to (B) substitute therefor
policies of at least the same coverage and amounts
containing terms and conditions which are not less
advantageous than the policies previously maintained by SFS
and HBE, respectively, with respect to acts or omissions
occurring prior to the Effective Time which were committed
by such officers and directors in their capacity as such;
35
PROVIDED, HOWEVER, that in no event shall the Surviving
Corporation be required to expend per year an amount in
excess of 200% of the premium for such insurance paid by SFS
during its 1997 fiscal year (the "Insurance Amount") to
maintain or procure insurance coverage pursuant to clause
(ii) of this sentence, and provided further that if the
Surviving Corporation is unable to maintain or obtain the
insurance called for by clause (ii) of this sentence, the
Surviving Corporation shall use reasonable efforts to obtain
as much comparable insurance as available for the Insurance
Amount.
(c) In the event the Surviving Corporation or any of its
successors or assigns (i) consolidates with or merges into
any other person and shall not be the continuing or
surviving corporation or entity of such consolidation or
merger, or (ii) transfers or conveys all or substantially
all of its properties and assets to any person, then, and in
each such case, to the extent necessary, proper provision
shall be made so that the successors and assigns of the
Surviving Corporation assume the obligations set forth in
this Section 6.6.
(d) The provisions of this Section 6.6 are intended to be for
the benefit of, and shall be enforceable by, each
Indemnified Party and his or her heirs and representatives.
VI.7 ADDITIONAL AGREEMENTS. In case at any time after the
Effective Time any further action is necessary or desirable to carry out the
purposes of this Agreement, the Plan of Merger or the HBE Stock Option Agreement
or to vest SFS with full title to all properties, assets, rights, approvals,
immunities and franchises of any of the parties to the Merger, the proper
officers and directors of each party to this Agreement shall take, or cause the
proper officers and directors of the SFS Subsidiaries or the HBE Bank to take,
as the case may be, all such necessary action as may be reasonably requested by
SFS.
VI.8 ADVICE OF CHANGES. Between the date hereof and the
Effective Time, SFS and HBE shall promptly provide notice to the other party of
any change or event having a Material Adverse Effect on it or which it believes
would or would be reasonably likely to cause or constitute a material breach of
any of its representations, warranties or covenants contained herein.
VI.9 NO CONDUCT INCONSISTENT WITH THIS AGREEMENT.
(a) HBE shall not from the date hereof through the Effective
Time or the termination of this Agreement:
(i) solicit, encourage or authorize any individual,
corporation or other entity to solicit from any third
party any inquires or proposals relating to the
disposition of its business or assets, or the
acquisition of its capital stock, or the merger of it
or the HBE Bank, respectively, with any corporation or
other entity other than as provided by this Agreement
except pursuant to a written direction from a
regulatory authority; or
(ii) negotiate with or entertain any proposals from any
other person for any such transaction wherein the
business, assets or capital stock of it or the HBE
Bank, respectively, would be acquired, directly or
indirectly, by any party
36
other than as provided by this Agreement, except
pursuant to a written direction from any regulatory
authority or upon the receipt of an unsolicited offer
from a third party where the Board of Directors of HBE
reasonably believes, upon the written opinion of
counsel, that its fiduciary duties require it to enter
into discussions with such party. HBE shall promptly
notify SFS of all of the relevant details relating to
all inquiries and proposals which it may receive
relating to any proposed disposition of its business or
assets, or the acquisition of its capital stock, or the
merger of it or the HBE Bank, respectively, with any
corporation or other entity other than as provided by
this Agreement and shall keep SFS informed of the
status and details of any such inquiry or proposal, and
shall give SFS five days' advance notice of any
agreement to be entered into with, or any information
to be supplied to, any person making such inquiry or
proposal; or
(b) Nothing contained herein shall prohibit HBE from disclosing
to its shareholders a position contemplated by Rule 14e-2(a)
under the Exchange Act with respect to a tender offer for
HBE Common Stock, or satisfying any other applicable
disclosure obligations under the federal securities laws.
VI.10 Employee Matters.
(a) At the Effective Time, SFS shall assume and honor the
written terms and conditions of the existing written
employment agreements and employee retention agreements
("HBE Employment Contracts") with officers and employees of
HBE and HBE Bank that are included in the HBE Disclosure
Schedules. SFS acknowledges that the consummation of the
transactions contemplated by this Agreement shall trigger
the "change in control" provisions in the HBE Employment
Contracts and may require payments to be made thereunder.
SFS agrees to honor the terms of these Employment Contracts
and agrees to make all payments, as and when required
thereunder. SFS acknowledges that Xxxxxx X. Xxxxxxx and Xxxx
X. Xxxxx will terminate employment with HBE and HBE Bank as
of the Effective Time and will be paid in full all amounts
due under their respective HBE Employment Contracts on that
date. At the Effective Time, SFS shall enter into a
consulting agreement with Xxxxxx X. Xxxxxxx attached hereto
as Exhibit C. The provisions of - the foregoing Section are
intended to be for the benefit of, and shall be enforceable
by, each party to, or beneficiary of, the foregoing HBE
Employment Contracts, and his or her representatives.
(b) The Merger shall not effect any interruption in the
employment of employees of HBE Bank (hereinafter each an
"HBE Employee"). SFS agrees to assume and honor the terms
and conditions of the Severance Pay Plan of Home Federal
Savings and Loan Association of Elgin ("HBE Severance Plan")
included in the HBE Disclosure Schedules. SFS also agrees
that, in connection with reviewing applicants for employment
positions, it shall give any HBE Employee who is terminated
within three (3) months after the Effective Time, the same
priority consideration with respect to hiring, that is given
to SFS employees for such positions in accordance with any
formal or informal policies of SFS for a period of three (3)
months from such date of termination. The foregoing
provisions are intended to be for the
37
benefit of, and shall be enforceable by, each party to, or
beneficiary of, the foregoing agreements and arrangements,
and his or her representatives.
(c) Effective as of the Effective Time, SFS shall assume
sponsorship of the HBE ESOP as the successor employer to
HBE. Prior to the date on which a "change in control" (as
such term is defined in the HBE ESOP, hereinafter "ESOP
Change in Control") occurs, the HBE ESOP will be amended (i)
to eliminate Section 14.3(b); (ii) to eliminate Section
14.4; (iii) to amend Article XIV of the HBE ESOP to provide
for the allocation of excess assets remaining after its
outstanding loan is satisfied to be made to the HBE ESOP
participants and beneficiaries in the same manner as
earnings received by the ESOP on investments allocated to
participants' accounts are allocated; and (iv) to adopt any
other amendments to the HBE ESOP that are deemed necessary
to accomplish all of the foregoing and the final allocation
of all the HBE ESOP's remaining assets to all of the ESOP's
participants and their beneficiaries. Following the
Effective Time, and subject to receipt of a favorable
determination from the Internal Revenue Service that the
merger does not adversely affect qualification of the merged
plan, the HBE ESOP will be merged into the SFS 401k Savings
Plan. In the event that between the date of the execution of
this Agreement and the Effective Time, it is determined, to
the satisfaction of HBE and SFS, that the HBE ESOP is not an
"affiliate" within the meaning of Rule 145 of the Securities
Act of 1933, as amended ("Securities Act"), the HBE ESOP
Trustee shall be permitted to sell unallocated shares of HBE
Common Stock held in its suspense account at any time and
all such times as the Trustee shall deem to be prudent on or
after the date the ESOP Change in Control has occurred in
order to repay the HBE ESOP's outstanding loan. In the event
that the HBE ESOP or the trust which forms part thereof is
determined to be an affiliate of HBE within the meaning of
Rule 145 promulgated by the Securities and Exchange
Commission under the Securities Act, no provision of Article
XIV of the HBE ESOP shall be interpreted to require the sale
of shares of HBE Common Stock held by the trust during the
period beginning thirty (30) days prior to the Effective
Time and ending immediately after the release by SFS of
financial results covering at least thirty (30) days of
post-Merger combined operations by means of filing a Form
10-Q, 10-K or 8-K under the Securities Act of 1934, as
amended, the issuance of a quarterly earnings report, or any
other public issuance which satisfies the requirements of
Accounting Series Release 135, as amended by Staff
Accounting Bulletins Nos. 65 and 76. Effective as of the
Effective Time, SFS and HBE agree that former participants
in the HBE ESOP shall be treated as new hires for purposes
of the State Financial Services Corporation Employee Stock
Ownership Plan. The foregoing provisions are intended to be
for the benefit of, and shall be enforceable by, each party
to, or beneficiary of, the foregoing agreements and
arrangements, and his or her representatives.
(d) At the Effective Time, each HBE Employee shall immediately
become eligible to participate in the State Financial
Services Corporation and Subsidiaries Money Purchase Plan
(the "Pension Plan"). The Surviving Corporation will give
each HBE Employee full credit for prior service with HBE or
the HBE Bank for purposes of eligibility to participate
under the Pension Plan. HBE employees will be treated as new
hires for vesting purposes under the Pension Plan. SFS
agrees to take, prior to the Effective Time, all actions
necessary to cause amendments to be made to the
38
Plan in order to give effect to the preceding sentences. The
foregoing provisions are intended to be for the benefit of,
and shall be enforceable by, each party to, or beneficiary
of, the foregoing agreements and arrangements, and his or
her representatives.
(e) At the Effective Time, the Surviving Corporation will give
each HBE Employee full credit for prior service with HBE or
the HBE Bank for purposes of eligibility to participate and
vesting in the State Financial Service Corporation 401(k)
Savings Plan and the Effective Time will be a special entry
date thereunder for HBE employees. SFS agrees to take, prior
to the Effective Time, all actions necessary to cause
amendments to be made to the Plan in order to give effect to
the preceding sentences. The foregoing provisions are
intended to be for the benefit of, and shall be enforceable
by, each party to, or beneficiary of, the foregoing
agreements and arrangements, and his or her representatives.
(f) At the Effective Time, each HBE Employee shall immediately
become eligible to participate in all employee welfare
benefit plans and other fringe benefits programs offered or
maintained by the Surviving Corporation on the same terms
and conditions that the Surviving Corporation may make
available to officers and employees of the SFS Banks,
including, without limitation, any health, life, long-term
disability, short-term disability, severance, vacation or
paid time off programs (the "SFS Welfare Plans"). Any
expenses incurred by an HBE Employee under the HBE or an HBE
Bank employee welfare benefit plans (such as deductibles or
co-payments), shall be counted for all purposes under the
SFS Welfare Plans. SFS Bank shall provide insurance coverage
(for which SFS or SFS Bank may act as the self-insurer) for
pre-existing medical conditions (to the extent such
condition is currently covered under the HBE plan, and such
condition would be covered under SFS Bank's plan if it were
no pre-existing), subject to deductibles and/or copayment
provisions generally applicable to such coverage. The
foregoing provisions are intended to be for the benefit of,
and shall be enforceable by, each party to, or beneficiary
of, the foregoing agreements and arrangements, and his or
her representatives.
(g) At the Effective Time, SFS shall assume all of the
obligations under the HBE RRP and HBE Option Plan, and all
shares of HBE Common Stock owned by the HBE RRP, which have
not been awarded, shall be canceled at or prior to the
Effective Time.
VI.11 TAX TREATMENT AND POOLING. Each of HBE and SFS will
use its reasonable best efforts to cause the Merger to qualify for
pooling-of-interests accounting treatment and as a reorganization under Section
368(a)(1)(A) of the Code.
VI.12 DIVIDENDS. After the date of this Agreement, each of
SFS and HBE shall coordinate with the other the declaration of any dividends in
respect of SFS Common Stock and HBE Common Stock and the record dates and
payment dates relating thereto, it being the intention of the parties hereto
that holders of SFS Common Stock or HBE Common Stock shall not receive two
dividends, or fail to receive one dividend, for any quarter with respect to
their shares of SFS Common Stock and/or HBE Common Stock and
39
any shares of common stock of the Surviving Corporation any holder of HBE Common
Stock receives in exchange therefor in the Merger.
VI.13 RULE 145 AFFILIATES. Within 30 days before the
Closing Date, HBE shall identify in a letter to SFS all persons who are, and to
HBE's knowledge who will be at the Closing Date, "affiliates" of HBE as such
term is used in Rule 145 under the Securities Act. HBE shall use all reasonable
efforts to cause its affiliates (including any person who may be deemed to have
become an affiliate after the date of the letter referred to in the prior
sentence) to deliver to SFS on or prior to the Closing Date a written agreement
substantially in the form attached hereto as EXHIBIT F.
VI.14 DISCLOSURE SCHEDULES. On the date hereof,
(a) SFS has delivered to HBE the SFS Disclosure Schedules,
accompanied by a certificate signed by the Chief Financial
officer of SFS stating the SFS Disclosure Schedules are
being delivered pursuant to this Section 6.14.
(b) HBE has delivered to SFS the HBE Disclosure Schedules,
accompanied by a certificate signed by the Chief Financial
Officer of HBE stating the HBE Disclosure Schedules are
being delivered pursuant to this Section 6.14. O. FILING AND
OTHER FEES.
VI.15 All filing and other fees paid to the SEC, the
Federal Reserve, the OTS or any State Regulatory Agency in connection with the
Merger and the transactions contemplated by this Agreement and the costs and
expenses of printing and mailing the Joint Proxy Statement shall be borne
equally by SFS and HBE.
ARTICLE VII
CONDITIONS PRECEDENT
VI.14 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligation of each party to effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) SHAREHOLDER APPROVAL. This Agreement, the Plan of Merger and
the transactions contemplated hereby and thereby shall have
been approved and adopted by the respective requisite
affirmative votes of the holders of HBE Common Stock and SFS
Common Stock entitled to vote thereon.
(b) OTHER APPROVALS. All regulatory approvals required to
consummate the transactions contemplated hereby shall have
been obtained, on terms and conditions reasonably
satisfactory to each of HBE and SFS, and shall remain in
full force and effect and all statutory waiting periods in
respect thereof shall have expired (all such approvals and
the expiration of all such waiting periods being referred to
herein as the "Requisite Regulatory Approvals").
(c) REGISTRATION STATEMENTS. The S-4 shall have become effective
under the Securities Act and no stop order suspending the
effectiveness of the S-4 shall have been issued and no
proceedings for that purpose shall have been initiated or,
to the knowledge of SFS or HBE, threatened by the SEC.
40
(d) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No order,
injunction or decree issued by any court or agency of
competent jurisdiction or other legal restraint or
prohibition (an "Injunction") preventing the consummation of
the Merger or any of the other transactions contemplated by
this Agreement or the Plan of Merger shall be in effect. No
statute, rule, regulation, order, injunction or decree shall
have been enacted, entered, promulgated or enforced by any
Governmental Entity which prohibits, materially restricts or
makes illegal consummation of the Merger.
(e) FEDERAL TAX OPINION. HBE and SFS shall each have
received an opinion of their respective counsel, in form and
substance reasonably satisfactory to each, dated as of the
Effective Time, substantially to the effect that on the
basis of the facts, representations and assumptions set
forth in such opinion which are consistent with the state of
facts existing at the Effective Time, the merger will
constitute for federal income tax purposes a reorganization
under Section 368(a)(1)(A) of the Code and that accordingly:
(i) No gain or loss will be recognized by HBE or SFS as
a result of the Merger;
(ii) Except to the extent of any cash received in lieu of a
fractional share interest in SFS Common Stock, no gain
or loss will be recognized by the shareholders of HBE
who exchange their HBE Common Stock for SFS Common
Stock pursuant to the Merger;
(iii)The aggregate tax basis of SFS Common Stock received by
shareholders who exchange their HBE Common Stock for
SFS Common Stock in the Merger will be the same as the
aggregate tax basis of HBE Common Stock surrendered
pursuant to the Merger, reduced by any amount allocable
to a fractional share interest for which cash is
received and increased by any gain recognized on the
exchange; and
(iv) The holding period of SFS Common Stock received by each
shareholder in the Merger will include the holding
period of HBE Common Stock exchanged therefor, provided
that such shareholder held such HBE Common Stock as a
capital asset on the date of the Merger.
Such opinion may be based on, in addition to the review of
such matters of fact and law as such counsel consider
appropriate, (i) representations made at the request of such
counsel by HBE and SFS, or either of them and (ii)
certificates provided at the request of such counsel by
officers of HBE, SFS and other appropriate persons.
(f) POOLING OF INTERESTS.HBE shall have received a letter of
HBE's independent accountants, dated as of the Effective
Time, stating that HBE is an entity that qualifies for
pooling-of-interests accounting treatment pursuant to GAAP.
SFS shall also have received a letter of SFS's independent
accountants, dated the Effective Time, stating that the
transactions effective pursuant to this Agreement will
qualify as a pooling-of-interests pursuant to GAAP.
41
VII.2 CONDITIONS TO OBLIGATIONS OF HBE. The obligation of
HBE to effect the Merger is also subject to the satisfaction, or waiver by HBE,
at or prior to the Effective Time of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of SFS set forth in this Agreement shall be true
and correct (i) on and as of the date hereof and (ii) on and
as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of
the Closing Date (except for representations and warranties
that expressly speak only as of a specific date or time
other than the date hereof or the Closing Date which need
only be true and correct as of such date or time) except in
each of cases (i) and (ii) for such failures of
representations or warranties to be true and correct
(without regard to any materiality qualifications contained
therein) which, individually or in the aggregate do not, and
insofar as reasonably can be foreseen, would not, result in
an SFS Material Adverse Effect. HBE shall have received a
certificate signed on behalf of SFS by the Chief Executive
Officer and Chief Financial Officer of SFS to the foregoing
effect.
(b) PERFORMANCE OF OBLIGATIONS OF SFS. SFS shall have performed
in all material respects all obligations required to be
performed by it under this Agreement, the Plan of Merger and
the HBE Stock Option Agreement at or prior to the Closing
Date, and HBE shall have received a certificate signed on
behalf of SFS by the Chief Executive Officer and Chief
Financial Officer of SFS to such effect.
(c) NO MATERIAL ADVERSE CHANGE. Since the date of this
Agreement, (i) no event shall have occurred which has had a
Material Adverse Effect on SFS, and (ii) no condition (other
than general economic or competitive conditions generally
affecting bank holding companies and banks of a size or in
locations comparable to those of SFS or the SFS
Subsidiaries), event, circumstances, fact or other
occurrence shall have occurred that may reasonably be
expected to have or result in such a Material Adverse Effect
on SFS.
(d) OPINION OF COUNSEL TO SFS. HBE shall have received from
Xxxxx & Xxxxxxx, counsel to SFS, an opinion, dated the
Closing Date, in substantially the form of EXHIBIT L.
(e) COMFORT LETTERS. HBE shall have received from Ernst & Young
"comfort letters" dated the date of mailing of the Joint
Proxy Statement and the Closing Date, covering matters
customary to transactions such as the Merger and in form and
substance reasonably satisfactory to HBE.
(f) FAIRNESS OPINION. HBE shall have received from Xxxxx
Financial, Inc., a fairness opinion, dated the date of
mailing of the Joint Proxy Statement and in form and
substance reasonably satisfactory to HBE, to the effect that
the consideration to be received in the Merger by the
shareholders of HBE is fair, from a financial point of view,
to the shareholders of HBE.
VII.3 CONDITIONS TO OBLIGATIONS OF SFS. The obligation of
SFS to effect the Merger is also subject to the satisfaction, or waiver by SFS,
at or prior to the Effective Time of the following conditions:
42
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of HBE set forth in this Agreement shall be true
and correct (i) on and as of the date hereof and (ii) on and
as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of
the Closing Date (except for representations and warranties
that expressly speak only as of a specific date or time
other than the date hereof or the Closing Date which need
only be true and correct as of such date or time) except in
each of cases (i) and (ii) for such failures of
representations or warranties to be true and correct
(without regard to any materiality qualifications contained
therein) which, individually or in the aggregate do not, and
insofar as reasonably can be foreseen, would not, result in
an HBE Material Adverse Effect. SFS shall have received a
certificate signed on behalf of HBE by the Chief Executive
Officer and Chief Financial Officer of HBE to the foregoing
effect.
(b) PERFORMANCE OF OBLIGATIONS OF HBE. HBE shall have performed
in all material respects all obligations required to be
performed by it under this Agreement, the Plan of Merger and
the HBE Stock Option Agreement at or prior to the Closing
Date, and SFS shall have received a certificate signed on
behalf of HBE by the Chief Executive Officer and Chief
Financial Officer of HBE to such effect.
(c) NO MATERIAL ADVERSE CHANGE. Since the date of this
Agreement, (i) no event shall have occurred which has had a
Material Adverse Effect on HBE, and (ii) no condition (other
than general economic or competitive conditions generally
affecting savings and loan holding companies and savings
associations of a size or in locations comparable to those
of HBE or the HBE Bank), event, circumstances, fact or other
occurrence shall have occurred that may reasonably be
expected to have or result in such a Material Adverse Effect
on HBE.
(d) OPINION OF COUNSEL TO HBE. SFS shall have received from
Thacher, Xxxxxxxx & Xxxx, counsel to HBE, an opinion, dated
the Closing Date, in substantially the form of EXHIBIT M.
(e) COMFORT LETTERS. SFS and HBE shall have received from KPMG
Peat Marwick LLP "comfort letters" dated the date of mailing
of the Joint Proxy Statement and the Closing Date, covering
matters customary to transactions such as the Merger and in
form and substance reasonably satisfactory to SFS and HBE.
(f) FAIRNESS OPINION. SFS shall have received from Everen
Securities (or another recognized investment banking firm) a
fairness opinion, dated the date of mailing of the Joint
Proxy Statement and in form and substance reasonably
satisfactory to SFS, to the effect that the consideration
received by SFS shareholders pursuant to the Merger is fair,
from a financial point of view, to the shareholders of SFS.
(g) AFFILIATE AGREEMENTS. SFS shall have received Affiliate
Agreements, duly executed by each affiliate of HBE,
substantially in the form of EXHIBIT F.
ARTICLE VIII
TERMINATION, EXPENSES AND AMENDMENT
43
VII.1 TERMINATION. This Agreement may be terminated prior to
the Effective Time:
(a) at any time, whether before or after approval of the matters
presented in connection with the Merger by the shareholders
of SFS or HBE, by written agreement between SFS and HBE, if
the Board of Directors of each so determines;
(b) at any time, whether before or after approval of the matters
presented in connection with the Merger by the shareholders
of SFS or HBE, by either the Board of Directors of SFS or
the Board of Directors of HBE if (i) any Governmental Entity
which must grant a Requisite Regulatory Approval (A) has
denied approval of the Merger and such denial has become
final and nonappealable or (B) has advised the parties of
its unwillingness to grant such a Requisite Regulatory
Approval on terms and conditions reasonably acceptable to
the parties, notwithstanding the parties' fulfillment of
their obligations to take reasonable efforts to obtain such
Requisite Regulatory Approval, or (ii) any Governmental
Entity of competent jurisdiction shall have issued a final
nonappealable order permanently enjoining or otherwise
prohibiting the consummation of the transactions
contemplated by this Agreement;
(c) by either the Board of Directors of SFS or the Board of
Directors of HBE if the Merger shall not have been
consummated on or before January 31, 1999, unless the
failure of the Closing to occur by such date shall be due to
the failure of the party seeking to terminate this Agreement
to perform or observe the covenants and agreements of such
party set forth herein;
(d) by either SFS or HBE if any approval of the shareholders of
SFS or HBE required for the consummation of the Merger shall
not have been obtained by reason of the failure to obtain
the required vote at a duly held meeting of shareholders or
at any adjournment or postponement thereof;
(e) by HBE, by written notice to SFS, if
(i) there exists any breach or breaches of the
representations and warranties of SFS made herein,
which breaches, individually or in the aggregate have
or, insofar as reasonably can be foreseen, would have,
a SFS Material Adverse Effect, and such breaches shall
not have been remedied within thirty (30) days after
receipt by SFS of notice in writing from HBE,
specifying the nature of such breaches and requesting
that they be remedied;
(ii) SFS shall have failed to perform and comply with, in
all material respects, its agreements and covenants
hereunder and such failure to perform or comply shall
not have been remedied within thirty (30) days after
receipt by SFS of notice in writing from HBE,
specifying the nature of such failure and requesting
that it be remedied; or
(iii)the Board of Directors of SFS or any committee thereof:
(A) shall fail to reaffirm such approval or
recommendation upon HBE's request,
44
(B) shall approve or recommend any Business
Combination involving SFS other than the
Merger or any tender offer or share exchange
for shares of capital stock of SFS, in each
case, by or involving a party other than HBE
or any of its affiliates or
(C) shall resolve to take any of the actions
specified in clause (A) or (B); or
(f) by SFS, by written notice to HBE, if
(i) there exists any breach or breaches of the
representations and warranties of HBE made herein or in
the HBE Stock Option Agreement which breaches,
individually or in the aggregate have, or insofar as
reasonably can be foreseen, would have, an HBE Material
Adverse Effect and such breaches shall not have been
remedied within thirty (30) days after receipt by HBE
of notice in writing from SFS, specifying the nature of
such breaches and requesting that they be remedied;
(ii)HBE shall have failed to perform and comply with,
in all material respects, its agreements and covenants
hereunder or under the HBE Stock Option Agreement and
such failure to perform or comply shall not have been
remedied within thirty (30) days after receipt by HBE
of notice in writing from SFS, specifying the nature of
such failure and requesting that it be remedied; or
(iii)the Board of Directors of HBE or any committee
thereof:
(A) shall withdraw or modify in any manner
adverse to SFS its approval or recommendation
of this Agreement or the Merger,
(B) shall fail to reaffirm such approval or
recommendation upon SFS's request,
(C) shall approve or recommend any Business
Combination involving HBE other than the
Merger involving HBE or any tender offer or
share exchange for shares of capital stock of
HBE, in each case, by or involving a party
other than SFS or any of its affiliates or
(D) shall resolve to take any of the actions
specified in clause (A), (B) or (C).
(g) by HBE, pursuant and subject to Section I.4(e) in the
event that the Market Value of SFS Common Stock, as of the
Decision Date, is less than $20.00 per share.
VIII.2 EFFECT OF TERMINATION. Subject to Section 8.3, in the
event of termination of this Agreement by HBE or SFS pursuant to Section 8.1
there shall be no liability on the part of either HBE or SFS or their respective
officers or directors hereunder, except that Section 6.2(b), Section 6.15,
Section 8.2 and Section 8.3 shall survive the termination.
45
VIII.3 REMEDIES AND EXPENSES UPON BREACH OR WILLFUL BREACH.
(a) REMEDIES. If this Agreement is terminated at such time that
this Agreement is terminable pursuant to one (but not both)
of (A) Section 8.1(e)(i) or (ii), or (B) Section 8.1(f)(i)
or (ii) then the breaching party shall promptly (but no
later than five (5) business days after receipt of notice
from the non-breaching party) pay to the non-breaching party
in cash an amount equal to all documented out-of-pocket
expenses and fees incurred by the non-breaching party
(including, without limitation, fees and expenses payable to
all legal, accounting, financial, public relations and other
professional advisors arising out of, in connection with or
related to the Merger or the transactions contemplated by
this Agreement) not in excess of $350,000; PROVIDED,
HOWEVER, that, if this Agreement is terminated by a party as
a result of a willful breach by the other party, the
non-breaching party may pursue any remedies available to it
at law or in equity and shall, in addition to its documented
out-of-pocket expenses and fees (which shall be paid as
specified above and shall not be limited to $350,000), be
entitled to recover such additional amounts as such
non-breaching party may be entitled to receive at law or in
equity.
(b) EXPENSES. If one party fails to promptly pay to any other
party any amount due hereunder, the defaulting party shall
pay the costs and expenses (including legal fees and
expenses) in connection with any action, including the
filing of any lawsuit or other legal action, taken to
collect payment, together with interest on the amount of any
unpaid fee at the publicly announced prime rate as published
in the Wall Street Journal (Midwest Edition) from the date
such fee was required to be paid.
VIII.4 AMENDMENT. Subject to compliance with applicable law,
this Agreement may be amended by the parties hereto, by action taken or
authorized by their respective Boards of Directors, at any time before or after
approval of the matters presented in connection with the Merger by the
shareholders of SFS or HBE; PROVIDED, HOWEVER, that after any approval of the
transactions contemplated by this Agreement by the respective shareholders of
SFS or HBE, there may not be, without further approval of such shareholders, any
amendment of this Agreement which changes the amount or the form of the
consideration to be delivered to the holders of HBE Common Stock hereunder other
than as contemplated by this Agreement. This Agreement may not be amended except
by an instrument in writing signed on behalf of each of the parties hereto.
VIII.4 EXTENSION; WAIVER. At any time prior to the
Effective Time, the parties hereto, by action taken or authorized by their
respective Board of Directors, may, to the extent legally allowed, (a) extend
the time for the performance of any of the obligations or other acts of the
other parties hereto, (b) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto, and
(c) waive compliance with any of the agreements or conditions contained herein;
PROVIDED, HOWEVER, that after any approval of the transactions contemplated by
this Agreement by the respective shareholders of SFS or HBE, there may not be,
without further approval of such shareholders, any extension or waiver of this
Agreement or any portion thereof which reduces the amount or changes the form of
the consideration to be delivered to the holders of HBE Common Stock hereunder
other than as contemplated by this Agreement. Any agreement on the part of a
party hereto to any such extension or waiver shall be valid only
46
if set forth in a written instrument signed on behalf of such party, but such
extension or waiver or failure to insist on strict compliance with an
obligation, covenant, agreement or condition shall not operate as a waiver of,
or estoppel with respect to, any subsequent or other failure.
ARTICLE IX
GENERAL PROVISIONS
IX.1 NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
AGREEMENTS. None of the representations, warranties, covenants and
agreements in this Agreement or the Plan of Merger (or in any instrument
delivered pursuant to this Agreement, which shall terminate in accordance with
its terms) shall survive the Effective Time, except for those covenants and
agreements contained herein and therein which by their terms apply in whole or
in part after the Effective Time. Without by implication limiting the foregoing,
none of the directors or officers of the parties hereto shall have any liability
for any of the representations, warranties, covenants and agreements contained
herein.
IX.2 NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally,
telecopied (with confirmation), mailed by registered or certified mail (return
receipt requested) or delivered by an express courier (with confirmation) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) if to HBE, to:
Home Bancorp of Elgin, Inc.
00 Xxxxx Xxxxxx Xxxxxx
Xxxxx, Xxxxxxxx 00000-0000
Attention: Xxxxxx X. Xxxxxxx
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
with a copy to:
Xxxxxxx Xxxxxxxx & Wood
0000 X Xxxxxx, XX Xxxxx 000
Xxxxxxxxxx, X.X. 00000
Attention: V. Xxxxxx Xxxxxxx, Esq.
Xxxxxxx Xxxxxxx, Esq.
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
and
(a) if to SFS, to:
State Financial Services Corporation
47
00000 X. Xxxxxxxxxx Xxxx
Xxxxx Xxxxxxx, XX 00000
Attn: Xxxxxxx X. Xxxxx
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
with a copy to:
Xxxxx & Xxxxxxx
Firstar Center
000 Xxxx Xxxxxxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxxx 00000-0000
Attention: Xxxxx Xxxxx, Xx.
Xxxxxx X. Xxx
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
IX.3 INTERPRETATION; DEFINITIONS. When a reference is made
in this Agreement to Sections, Exhibits or Schedules, such reference shall be to
a section of or exhibit or schedule to this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation." No provision of this Agreement shall be
construed to require HBE, the HBE Bank, SFS or the SFS Subsidiaries or
affiliates to take any action which would violate any applicable law, rule or
regulation. As used in this Agreement, the term "Material Adverse Effect" means,
with respect to HBE or SFS, as the case may be, a material adverse effect (i) on
the business, assets, properties, results of operations, financial condition, or
(insofar as they can reasonably be foreseen) prospects of such party and its
Subsidiaries, taken as a whole or (ii) on the consummation of the Merger;
provided, however, that the following shall not constitute or contribute to a
Material Adverse Effect: (i) changes in the financial condition, business, or
results of operations of a person resulting directly or indirectly from (1)
changes attributable to or resulting from changes in general economic conditions
affecting banks, savings institutions or their holding companies generally,
including changes in the prevailing level of interest rates (provided that HBE
is in substantial compliance with its Interest Rate Risk Management Policy as
disclosed to SFS prior to the date of this Agreement, as the same may be revised
thereafter with SFS's concurrence), or (2) changes in state and federal
regulations or legislation affection Wisconsin or Illinois banks; or (ii)
matters related to changes in federal, state or local tax status,
characteristics, or attributes or the ability to use such attributes.
Notwithstanding the above, fees and expenses reasonably related to this
transaction (such as any additional insurance coverages, employment and
consulting services, legal, accounting, and investment banking fees and
expenses, and severance and retention provisions) shall not be included in any
determination of a Material Adverse Effect. The word "Subsidiary" when used with
respect to any party means any bank, corporation, partnership, limited liability
company, or other organization, whether
48
incorporated or unincorporated, which is consolidated with such party for
financial reporting purposes.
IX.4 COUNTERPARTS. This Agreement may be executed in
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each of the parties
and delivered to the other parties, it being understood that all parties need
not sign the same counterpart.
IX.5 ENTIRE AGREEMENT. This Agreement (including the
documents and the instruments referred to herein) constitutes the entire
agreement and supersedes all prior agreements and understandings, both written
and oral, among the parties hereto with respect to the subject matter hereof.
IX.6 GOVERNING LAW. This Agreement and the exhibits attached
hereto shall be governed and construed in accordance with the laws of the State
of Wisconsin, without regard to any applicable conflicts of law.
IX.7 SEVERABILITY. Any term or provision of this Agreement
which is invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or affecting the validity or enforceability of
any of the terms or provisions of this Agreement in any other jurisdiction. If
any provision of this Agreement is so broad as to be unenforceable, the
provision shall be interpreted to be only so broad as is enforceable.
IX.8 PUBLICITY. Except as otherwise required by applicable
law or the rules of The Nasdaq Stock Market, neither HBE nor SFS shall, nor
shall HBE or SFS permit the HBE Bank or the SFS Subsidiaries, respectively, to
issue or cause the publication of any press release or other public announcement
with respect to, or otherwise make any public statement concerning, the
transactions contemplated by this Agreement without the consent of the other
party, which consent shall not be unreasonably withheld.
IX.9 ASSIGNMENT; THIRD PARTY BENEFICIARIES. Neither this
Agreement nor any of the rights, interests or obligations of the parties under
this Agreement shall be assigned by any of the parties hereto (whether by
operation of law or otherwise) without the prior written consent of the other
parties. Subject to the preceding sentence, this Agreement will be binding upon,
inure to the benefit of and be enforceable by the parties and their respective
successors and assigns. Except as otherwise specifically provided in this
Section 9.9 and in Section 6.6, Section 1.5 and Section 7.10, this Agreement
(including the documents and instruments referred to herein) is not intended to
confer upon any person other than the parties hereto any rights or remedies
hereunder.
IX.10 ENFORCEMENT. The parties agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof, this being in addition to any other remedy to
which they are entitled at law or in equity.
49
IN WITNESS WHEREOF, SFS and HBE have caused this Agreement to
be executed by their respective officers thereunto duly authorized as of the
date first above written.
STATE FINANCIAL SERVICES CORPORATION
By
-------------------------------------------
Xxxxxxx X. Xxxxx
President and CEO
HOME BANCORP OF ELGIN, INC.
By
-------------------------------------------
Xxxxxx X. Xxxxxxx
President and CEO
50
