UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. _____)*
HOME BANCORP OF ELGIN, INC.
(Name of Issuer)
Common Stock, $.01 Par Value
(Title of Class of Securities)
436892-10-3
(CUSIP Number)
Michael J. Falbo, President and Chief Executive Officer
State Financial Services Corporation
10708 W. Janesville Road, Hales Corners, Wisconsin 53130; (414)425-1600
(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications)
With a copy to:
Ulice Payne, Jr., Esq.
Jay O. Rothman, Esq.
Foley & Lardner, 777 East Wisconsin Avenue,
Milwaukee, Wisconsin 53202-5367; (414)271-2400
June 1, 1998
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition which is the subject of this Schedule 13D, and is
filing this schedule because of Rule 13d-1(b)(3) or (4), check the
following box [_].
Note: Six copies of this statement, including all exhibits, should be
filed with the Commission. See Rule 13d-1(a) for other parties to whom
copies are to be sent.
* The remainder of this cover page shall be filled out for a reporting
person's initial filing on this form with respect to the subject class of
securities, and for any subsequent amendment containing information which
would alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be
deemed to be "filed" for the purpose of Section 18 of the Securities
Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of
that Section of the Act but shall be subject to all other provisions of
the Act (however, see the Notes).
Page 1 of 8 Pages
Exhibit Index is on Page 8
<PAGE>
CUSIP No. 436892-10-3
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
State Financial Services Corporation
IRS Employer Identification No. 39-1489983
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [_]
(b) [_]
3 SEC USE ONLY
4 SOURCE OF FUNDS*
WC*
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) OR 2(e) [_]
6 CITIZENSHIP OR PLACE OF ORGANIZATION
State of Wisconsin
7 SOLE VOTING POWER
NUMBER OF
1,371,159*
SHARES
8 SHARED VOTING POWER
BENEFICIALLY
OWNED BY 0
EACH 9 SOLE DISPOSITIVE POWER
REPORTING
1,371,159*
PERSON
10 SHARED DISPOSITIVE POWER
WITH
0
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,371,159*
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* [_]
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
16.7%
14 TYPE OF REPORTING PERSON*
CO
*Beneficial ownership of the shares of Common Stock reported hereunder is
being reported for cautionary purposes solely as a result of the Stock
Option Agreement described in item 4 hereof. The option granted pursuant
to such Stock Option Agreement has not yet become exercisable. State
Financial Services Corporation expressly disclaims beneficial ownership of
such shares.
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
Item 1. Security and Issuer.
This statement relates to the common stock, par value $.01 per
share ("HBE Common Stock"), of Home Bancorp of Elgin, Inc., a Delaware
corporation ("HBE"). The principal executive offices of HBE are located
at 16 North Spring Street, Elgin, Illinois 60120.
Item 2. Identity and Background.
(a) - (c) and (f). This Schedule 13D is filed for State
Financial Services Corporation, a Wisconsin corporation ("SFSC"). SFSC's
principal business is operating as a bank holding company. The business
address of SFSC is 10708 W. Janesville Road, Hales Corners, Wisconsin
53130.
The names, business addresses, principal occupations and
citizenship of the directors and executive officers of SFSC are set forth
in Annex A hereto and are incorporated herein by reference.
(d) and (e). During the last five years, SFSC and, to the
knowledge of SFSC, each of SFSC's directors and executive officers (i)
have not been convicted in a criminal proceeding (excluding traffic
violations and similar misdemeanors) and (ii) have not been a party to a
civil proceeding of a judicial or administrative body of competent
jurisdiction and as a result of such proceeding was or is subject to a
judgment, decree or final order enjoining future violations of, or
prohibiting or mandating activities subject to, federal or state
securities laws or finding any violation with respect to such laws.
Item 3. Source and Amount of Funds or Other Consideration.
SFSC and HBE have entered into a Stock Option Agreement (the
"Stock Option Agreement"), dated as of June 1, 1998, providing for the
grant by HBE to SFSC of an option to purchase (the "Option") up to
1,371,159 shares of HBE Common Stock (subject to adjustment for certain
dilutive events), but in no event in excess of 19.9% of the issued and
outstanding shares of HBE Common Stock, at an exercise price of $17.00 per
share subject to certain adjustments as provided in the Stock Option
Agreement. The summary of the Stock Option Agreement contained in this
Schedule 13D is qualified in its entirety to the complete text of the
Stock Option Agreement filed as an exhibit hereto. The Option is only
exercisable upon the occurrence of certain events as specified in the
Stock Option Agreement, none of which have occurred as of the date of this
Schedule 13D. In the event that the Option becomes exercisable, SFSC will
fund the exercise price (estimated at approximately $23.3 million) from
working capital or through other sources, which could include borrowings.
Item 4. Purpose of Transaction.
The Option was granted in connection with the execution and
delivery of an Agreement and Plan of Merger (the "Merger Agreement"),
dated as of June 1, 1998, between SFSC and HBE providing for the merger
(the "Merger") of HBE with and into SFSC and as an inducement for SFSC to
enter into the Merger Agreement. The description of the Merger Agreement
contained herein is qualified in its entirety to the complete text of the
Merger Agreement filed as an exhibit hereto.
The Option becomes exercisable upon the occurrence of certain
events as specified in the Stock Option Agreement. The Merger, which was
approved by the Board of Directors of each of the constituent companies,
is expected to close promptly after all of the conditions to the
consummation of the Merger, including obtaining all applicable regulatory
approvals, are fulfilled or waived.
Under the terms of the Merger Agreement, each issued and
outstanding share of HBE Common Stock (other than shares cancelled for no
consideration pursuant to the terms of the Merger Agreement) will be
cancelled and converted into the right to receive the number of shares
(plus cash in lieu of fractional shares) of the common stock, par value
$.01 per share, of SFSC (the "SFSC Common Stock") equal to an exchange
ratio (the "Exchange Ratio") to be determined based on the Market Value of
SFSC Common Stock (as defined below) on the Decision Date (as defined
below) as follows:
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 (iii) the quotient obtained by
than or equal to $30.00 dividing $19.50 by the
Market Value of SFSC
Common Stock
(iv) greater than $30.00 and less (iv) .65
than or equal to $31.375
(v) greater than $31.375 (v) .64
The "Market Value of SFSC Common Stock," on any date, will be
equal to the average closing sale price of SFSC Common Stock as 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.
If the Market Value of SFSC Common Stock on the Decision Date is
less than $20.00, HBE may notify SFSC in writing, which must be received
by SFSC within three business days after the Decision Date, that it is not
willing to close on the basis of the Exchange Ratio set forth above. If
HBE fails to give notice by such time, it shall be deemed to have agreed
to close on the basis of the Exchange Ratio set forth above. Upon receipt
of such notice, SFSC 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 SFSC Common Stock on the Decision Date (the "Optional Exchange
Ratio"), or (ii) to require closing on the basis of the Exchange Ratio set
forth above, in any case by notice in writing, which must be received by
HBE within three business days after SFSC's receipt of such notice from
HBE. If SFSC fails to make such election, it shall be deemed to have
agreed to close on the basis of the Optional Exchange Ratio. If SFSC
elects clause (ii) above, then HBE may elect to terminate the Merger
Agreement by notice in writing, which must be received by SFSC within
three business days after HBE's receipt of such notice from SFSC. If HBE
fails to give notice of termination by such time, it shall be deemed to
have agreed to close on the basis of the Exchange Ratio set forth above.
The term "Decision Date" means 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 the Merger Agreement by the shareholders of HBE, (iii) approval of the
transactions contemplated by the Merger Agreement by the shareholders of
SFSC, 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 SFSC Common Stock is greater than or equal to
$20.00.
The cancellation and conversion of HBE Common Stock at the
effective time of the Merger into shares of SFSC Common Stock will cause
HBE Common Stock to cease to be listed on the NASDAQ-NMS and to make HBE
Common Stock eligible for termination of registration pursuant to Section
12(g)(4) of the Securities Exchange Act of 1934, as amended. Following
consummation of the Merger, the directors and officers of SFSC, as the
surviving corporation in the Merger, will continue as the directors and
officers of such surviving corporation.
Item 5. Interest in Securities of the Issuer.
(a) and (b) The Option covers 1,371,159 shares of HBE Common
Stock or approximately 16.7% of the outstanding HBE Common Stock computed
in accordance with Rule 13d-3(d)(1)(i). If the Option is exercised,
shares of HBE Common Stock acquired upon exercise will be acquired by SFSC
with sole voting and dispositive power. SFSC disclaims beneficial
ownership of shares of HBE Stock subject to the Option until the events
allowing exercise of such Option occur.
(c) Except for the execution and delivery of the Merger
Agreement and the Stock Option Agreement, there have been no transactions
by SFSC and, to the knowledge of SFSC, by any of SFSC's directors or
executive officers, with respect to HBE Common Stock during the 60 days
preceding the date of the Schedule 13D.
(d) None.
(e) Not applicable.
Item 6. Contracts, Arrangements, Understandings or
Relationships With Respect to Securities of the Issuer.
Other than the Merger Agreement and the Stock Option Agreement
incorporated by reference in this Schedule 13D, and agreements referred to
or contained therein, there are no material contracts, arrangements,
understandings or relationships between SFSC and any other person, or, to
the knowledge of SFSC, among any of SFSC's executive officers and
directors and any other person, with respect to securities of HBE.
Item 7. Material to be Filed as Exhibits.
(a) Agreement and Plan of Merger, dated as of June 1, 1998,
between SFSC and HBE.
(b) Stock Option Agreement, dated as of June 1, 1998, between
SFSC and HBE.
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this statement is
true, complete and correct.
Dated: June 10, 1998
STATE FINANCIAL SERVICES CORPORATION
By: /s/ Michael A. Reindl
Michael A. Reindl, Senior Vice
President, Controller and Chief
Financial Officer
<PAGE>
ANNEX A
Set forth below is the name, business or residence address,
present principal occupation or employment, and the name, principal
business and address of any corporation or other organization in which
such employment is conducted, of each of the directors and executive
officers of SFSC. Each of the directors and executive officers of SFSC is
a citizen of the United States. If no address is given, the director's or
executive officer's business address is State Financial Services
Corporation, 10708 W. Janesville Road, Hales Corners, Wisconsin 53130.
Unless otherwise indicated, each occupation set forth opposite an
executive officer's name refers to employment with SFSC.
Present Principal Occupation or Employment and
Name Address
Directors of SFSC
Jerome J. Holz Chairman of the Board and President, Holz
Motors, Inc. (automobile dealership); Chairman
of the Board and Vice President, State
Financial Services Corporation
Michael J. Falbo President and Chief Executive Officer, State
Financial Services Corporation
Richard A. Horn President, Horn Bros., Inc. (a retail feed,
seed and fertilizer firm), P. O. Box 5,
Muskego, Wisconsin 53150
Ulice Payne, Jr. Partner, Foley & Lardner, Attorneys at Law, 777
East Wisconsin Avenue, Milwaukee, Wisconsin
53202
David M. Stamm President, George Webb Corporation (a franchise
restaurant operation), N7 W22081 Johnson Drive,
Waukesha, Wisconsin 53186
Barbara E. Holz-Weis Owner, Barb's Green House Florist (a retail
full-service flower shop), 5645 South 108th
Street, Hales Corners, Wisconsin 53130
Executive Officers
of SFSC
Jerome J. Holz Chairman of the Board and Vice President
Michael J. Falbo President and Chief Executive Officer
John B. Beckwith Senior Vice President
Philip F. Hudson Senior Vice President
Michael A. Reindl Senior Vice President, Controller and Chief
Financial Officer; Secretary/Treasurer
Daniel L. Westrope Senior Vice President
Thomas M. Lilly President and Chief Executive Officer of State
Financial Bank - Waterford, a subsidiary of
State Financial Services Corporation
<PAGE>
STATE FINANCIAL SERVICES CORPORATION
EXHIBIT INDEX TO SCHEDULE 13D
Exhibit
(2.1) Agreement and Plan of Merger, dated as of June
1, 1998, by and between State Financial
Services Corporation and Home Bancorp of Elgin,
Inc.
(2.2) Stock Option Agreement, dated as of June 1,
1998, by and between State Financial Services
Corporation and Home Bancorp of Elgin, Inc.
AGREEMENT AND PLAN OF MERGER
BETWEEN
STATE FINANCIAL SERVICES CORPORATION
AND
HOME BANCORP OF ELGIN, INC.
June 1, 1998
<PAGE>
TABLE OF CONTENTS
AGREEMENT AND PLAN OF MERGER
Page
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
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
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
<PAGE>
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
1.1 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.
1.2 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 (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.
1.3 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.
1.4 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 (ii) .857143
less than or equal to
$22.625
(iii) greater than $22.625 and (iii) the quotient obtained by
less than or equal to dividing $19.50 by the
$30.00 Market Value of SFS
Common Stock
(iv) greater than $30.00 and (iv) .65
less 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 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.
(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.
1.5 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).
(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.
1.6 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.
1.7 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.
1.8 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.
1.9 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 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.
1.10 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.
1.11 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.1 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
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 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.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF HBE
HBE hereby represents and warrants to SFS as follows:
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 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 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 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 Hovde
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.
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 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)
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;
(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 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.
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.
(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"),
Hales Corners Development Corporation, a Wisconsin
corporation, Hales 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.
(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 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.
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.
IV.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.
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
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 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;
(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.
(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 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.
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 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;
(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 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.
(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.
(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 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 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; 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 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 George L. Perucco and Lyle N. Dolan 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 George L.
Perucco 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 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 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 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.
VI.15 Filing and Other Fees. 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
VII.1 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.
(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.
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 Foley
& Lardner, 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 Hovde
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:
(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, Proffitt & Wood, 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
VIII.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,
(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.
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.5 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 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.
16 North Spring Street
Elgin, Illinois 60120-5569
Attention: George L. Perucco
Telephone: (847) 742-3800
Telecopier: (847) 742-0793
with a copy to:
Thacher Proffitt & Wood
1500 K Street, NW Suite 200
Washington, D.C. 20005
Attention: V. Gerard Comizio, Esq.
Matthew Dyckman, Esq.
Telephone: (202) 347-8400
Telecopier: (202) 347-6238
and
(b) if to SFS, to:
State Financial Services Corporation
10708 W. Janesville Road
Hales Corners, WI 53130
Attn: Michael J. Falbo
Telephone: (414) 425-1600
Telecopier: (414) 425-8939
with a copy to:
Foley & Lardner
Firstar Center
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202-5367
Attention: Ulice Payne, Jr.
Rodney H. Dow
Telephone: (414) 271-2400
Telecopier: (414) 297-4900
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
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.
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 /s/ Michael J. Falbo
Michael J. Falbo
President and CEO
HOME BANCORP OF ELGIN, INC.
By /s/ George L. Perucco
George L. Perucco
President and CEO
Exhibit A
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated June 1, 1998, between State
Financial Services Corporation, a Wisconsin corporation ("Grantee"), and
Home Bancorp of Elgin, Inc., a Delaware corporation ("Issuer").
WITNESSETH:
WHEREAS, Grantee and Issuer have entered into an Agreement and
Plan of Merger (the "Merger Agreement");
WHEREAS, as a condition and an inducement to Grantee's entering
into the Merger Agreement, Issuer is granting Grantee the Option (as
hereinafter defined); and
WHEREAS, the Board of Directors of Issuer has approved the grant
of the Option and the Merger Agreement:
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein and in the Merger Agreement, the
parties hereto agree as follows:
1. (a) Issuer hereby grants to Grantee an unconditional,
irrevocable option (the "Option") to purchase, subject to the terms
hereof, up to an aggregate of 1,371,159 (as adjusted or set forth in
Sections 1(b) and 5(b) hereof) fully paid and nonassessable shares of the
common stock, par value $0.01 per share, of Issuer ("Issuer Common Stock")
at a price per share of $17.00 (the "Option Price"); provided, however,
that in the event Issuer issues or agrees to issue any shares of Issuer
Common Stock (other than shares of Issuer Common Stock issued pursuant to
stock options granted pursuant to any director or employee benefit or
stock option plan prior to the date hereof) at a price less than $17.00
(as adjusted pursuant to subsection (b) of Section 5 hereof), the Option
Price shall be equal to such lesser price; provided, further, that in no
event shall the number of shares for which this Option is exercisable
exceed 19.9% of the issued and outstanding shares of Issuer Common Stock.
The number of shares of Issuer Common Stock that may be received upon the
exercise of the Option at Option Price are subject to adjustment as herein
set forth.
(b) In the event that any additional shares of Issuer Common Stock
are issued or otherwise become outstanding after the date of this
Agreement (other than pursuant to this Agreement and other than pursuant
to an event described in Section 5(a) hereof), the number of shares of
Issuer Common Stock subject to the Option shall be increased so that,
after such issuance, such number together with any shares of Issuer Common
Stock previously issued pursuant hereto, equals 19.9% of the number of
shares of Issuer Common Stock then issued and outstanding without giving
effect to any shares subject or issued pursuant to the Option. Nothing
contained in this Section 1(b) or elsewhere in this Agreement shall be
deemed to authorize Issuer to issue shares of Issuer Common Stock in
breach of any provision of the Merger Agreement.
2. (a) Grantee may exercise the Option, in whole or part if, but
only if, both an Initial Triggering Event (as hereinafter defined) and a
Subsequent Triggering Event (as hereinafter defined) shall have occurred
prior to the occurrence of an Exercise Termination Event (as hereinafter
defined); provided, however, that Grantee shall have sent the written
notice of such exercise (as provided in subsection (e) of this Section 2)
within three (3) months following such Subsequent Triggering Event (or
such later period as provided in Section 10 hereof). Each of the following
shall be an Exercise Termination Event: (i) the Effective Time of the
Merger; (ii) termination of the Merger Agreement in accordance with the
provisions thereof if such termination occurs prior to the occurrence of
an Initial Triggering Event except a termination by Grantee pursuant to
Section 8.l(f) of the Merger Agreement, or by Grantee or Issuer pursuant
to Section 8.1(d) of the Merger Agreement if prior to or within three
months after, the duly held meeting of the shareholders of the Issuer at
which the required vote to approve the Merger was not obtained it shall
have been publicly announced or disclosed that any person (other than
Grantee or any Grantee Subsidiary (as defined below)) shall have made, or
disclosed an intention to make, a proposal to engage in an Acquisition
Transaction (as defined below) (each, a "Listed Termination"); or (iii)
the passage of twelve (12) months (or such longer period as provided in
Section 10) after termination of the Merger Agreement if such termination
follows the occurrence of an Initial Triggering Event or is a Listed
Termination. Notwithstanding anything to the contrary contained herein,
(i) the Option may not be exercised at any time when Grantee shall be in
material breach of any of its representations, warranties, covenants or
agreements contained in this Agreement or in the Merger Agreement such
that, in the case of the Merger Agreement, Issuer shall be entitled to
terminate the Merger Agreement pursuant to Section 8.l(e)(i) and (ii)
thereof and (ii) this Agreement shall automatically terminate upon the
proper termination of the Merger Agreement by Issuer either pursuant to
Section 8.l(e) thereof as a result of the material breach by Grantee of
its covenants or agreements contained in the Merger Agreement or pursuant
to Section 8.l(g) thereof. Notwithstanding the occurrence of an exercise
Termination Event, Grantee shall be entitled to purchase those shares of
Issuer Common stock with respect to which it has exercised the Option in
accordance with the terms hereof prior to the Exercise Termination event.
(b) The term "Initial Triggering Event" shall mean any of the
following events or transactions occurring on or after the date hereof:
(i) Issuer or any subsidiary of Issuer (an "Issuer
Subsidiary"), without having received Grantee's prior
written consent, shall have entered into an agreement to
engage in an Acquisition Transaction (as hereinafter
defined) with any person (the term "person" for purposes of
this Agreement having the meaning assigned thereto in
Sections 3(a)(9) and 13(d)(3) of the Securities Exchange
Act of 1934, as amended (the "1934 Act"), and the rules and
regulations thereunder) other than Grantee or any of the
subsidiaries of Grantee (each a "Grantee Subsidiary") or
the Board of Directors of Issuer (the "Issuer Board") shall
have recommended that the shareholders of Issuer approve or
accept any Acquisition Transaction other than the Merger
(as defined in the Merger Agreement). For purposes of this
Agreement, "Acquisition Transaction" shall mean either (x)
a merger or consolidation, or any similar transaction,
involving Issuer or Home Federal Savings and Loan
Association of Elgin (other than internal mergers,
consolidations or similar transactions involving solely
Issuer and/or one or more existing wholly-owned Issuer
Subsidiaries, provided, that any such transaction is not
entered into in violation of the terms of the Merger
Agreement), (y) a purchase, lease or other disposition of
15% or more of the consolidated assets, net revenues or net
income of Issuer (on a consolidated basis), or (z) an
issuance, sale or other disposition (including by way of
merger, consolidation, share exchange or otherwise) of
securities representing 10% or more of the voting power of
Issuer or Home Federal Savings and Loan Association of
Elgin (notwithstanding the foregoing, the beneficial
ownership by any current stockholders of Issuer of greater
than 10% of voting stock of Issuer as of the date of this
Agreement shall not constitute an Initial Triggering
Event);
(ii) Any person (other than Grantee or any Grantee Subsidiary)
shall have acquired beneficial ownership (as such term is
defined in Rule I 3d-3 under the 1934 Act) or the right to
acquire beneficial ownership of, or any "group" (as such
term is defined under the 1934 Act) shall have been formed
which beneficially owns or has the right to acquire
beneficial ownership of, 20% or more of the then
outstanding shares of Issuer Common Stock (other than
shares held in accounts related to Issuer's employee
benefit plans);
(iii) The shareholders of Issuer shall have voted and failed to
approve the Merger Agreement and the Merger at a meeting
which has been held for that purpose, or such meeting, in
violation of the Merger Agreement, shall not have been
held, or such meeting shall have been cancelled prior to
termination of the Merger Agreement if, in any event, prior
to such meeting (or if such meeting shall not have been
held or shall have been cancelled, prior to the termination
of the Merger Agreement), it shall have been publicly
announced or disclosed that any person (other than Grantee
or any Grantee Subsidiary) shall have made, or disclosed an
intention to make, a proposal to engage in an Acquisition
Transaction;
(iv) The Board of Directors of the Issuer shall have withdrawn
or modified (or publicly announced its intention to
withdraw or modify), in any manner adverse in any respect
to Grantee, its recommendation that the shareholders of
Issuer approve the transactions contemplated by the Merger
Agreement, or Issuer or any Issuer Subsidiary shall have
authorized, recommended, proposed (or publicly announced
its intention to authorize, recommend or propose) an
agreement to engage in an Acquisition Transaction with any
person other than Grantee or a Grantee Subsidiary;
(v) Any person other than Grantee or any Grantee Subsidiary
shall have made a proposal to Issuer or its shareholders to
engage in an Acquisition Transaction and such proposal
shall have been publicly announced;
(vi) Any person other than Grantee or any Grantee Subsidiary
shall have commenced (as such term is defined in Rule 17d-2
under the 1934 Act), or shall have filed with the SEC a
registration statement under the 1934 Act or tender offer
materials with respect to, a potential exchange offer or
tender offer to purchase any shares of Issuer Common Stock
such that, upon consummation of such offer, such person or
a "group" (as such term is defined under the 1934 Act) of
which such person is a member, would acquire beneficial
ownership (as such term is defined in Rule 13d-3 of the
1934 Act), or the right to acquire beneficial ownership, of
20% or more of the then outstanding shares of Issuer Common
Stock:
(v) Issuer shall have willfully breached any covenant or
obligation contained in the Merger Agreement in
anticipation of and in order to facilitate engaging in an
Acquisition Transaction, and following such breach Grantee
would be entitle to terminate the Merger Agreement (whether
immediately or after the giving of notice or passage of
time or both); or
(vi) Any person other than Grantee or any Grantee Subsidiary
shall have filed an application or notice with the Board of
Governors of the Federal Reserve System (the "Federal
Reserve Board"), the Office of Thrift Supervision ("OTS"),
or other federal or state bank regulatory or antitrust
authority, which application or notice has been accepted
for processing. for approval to engage in an Acquisition
Transaction.
(c) The term "Subsequent Triggering Event" shall mean any of the
following events or transactions occurring after the date hereof:
(i) The acquisition by any person (other than Grantee or any
Grantee Subsidiary) of beneficial ownership of 30% or more
of the then outstanding shares of Issuer Common Stock; or
(ii) The occurrence of the Initial Triggering Event described in
clause (i) of subsection (b) of this Section 2, except that
the percentage referred to in clause (z) of the second
sentence thereof shall be 30%.
(d) Issuer shall notify Grantee promptly in writing of the
occurrence of any Initial Triggering Event or Subsequent Triggering Event
(together, a "Triggering Event") to the extent that such Triggering Event
is known to the Issuer, it being understood that the giving of such notice
by Issuer shall not be a condition to the right of Grantee to exercise the
Option.
(e) In the event Grantee is entitled to and wishes to exercise the
Option (or any portion thereof), it shall send to Issuer a written notice
(the date of which being herein referred to as the "Notice Date")
specifying (i) the total number of shares it will purchase pursuant to
such exercise and (ii) a place and date not earlier than three business
days nor later than 30 business days from the Notice Date for the closing
of such purchase (the "Closing Date"); provided, that if the closing of
the purchase and sale pursuant to the Option cannot be consummated by
reason of any applicable judgment, decree, order, law or regulation, the
period of time that otherwise would run pursuant to this sentence shall
run instead from the date on which such restriction or consummation has
expired or been terminated; and, provided, further, without limiting the
foregoing, that if prior notification to or approval of the Federal
Reserve Board, OTS or any other regulatory or antitrust authority is
required in connection with such purchase, Grantee shall promptly file the
required notice or application for approval, shall promptly notify Issuer
of such filing (and the Issuer shall fully cooperate with Grantee in the
filing of any notice or application and the obtaining of any such
approval), and shall expeditiously process the same. and the period of
time that otherwise would run pursuant to this sentence shall run instead
from the date on which any required notification periods have expired or
been terminated or such approvals have been obtained, and in either event,
any requisite waiting period or periods shall have passed. Any exercise of
the Option shall be deemed to occur on the Notice Date relating thereto.
(f) At the closing referred to in subsection (e) of this Section 2,
Grantee shall (i) pay to Issuer the aggregate purchase price for the
shares of Issuer Common Stock purchased pursuant to the exercise of the
Option in immediately available funds by wire transfer to a bank account
designated by Issuer and (ii) present and surrender this Agreement to
Issuer at its principal executive offices; provided, however, that the
failure or refusal of the Issuer to designate such a bank account or
accept surrender of this Agreement shall not preclude Grantee from
exercising the Option.
(g) At such closing, simultaneously with the delivery of immediately
available funds as provided in subsection (f) of this Section 2, Issuer
shall deliver to Grantee a certificate or certificates representing the
number of shares of Issuer Common Stock purchased by Grantee and, if the
Option should be exercised in part only, a new Option evidencing the
rights of Grantee thereof to purchase the balance of the shares
purchasable hereunder.
(h) Certificates for lssuer Common Stock delivered at a closing
hereunder may be endorsed with a restrictive legend that shall read
substantially as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933. AS AMENDED, OR ANY STATE
SECURITIES LAWS OR BLUE SKY LAWS, AND MAY BE REOFFERED OR SOLD ONLY
IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE. SUCH SECURITIES ARE ALSO SUBJECT TO ADDITIONAL
RESTRICTIONS ON TRANSFER AS SET FORTH IN THE STOCK OPTION AGREEMENT
DATED JUNE 1, 1998, A COPY OF WHICH MAY BE OBTAINED FROM THE ISSUER
UPON REQUEST."
It is understood and agreed that: (i) the reference to the resale
restrictions of the Securities Act of 1933, as amended (the "1933 Act"),
in the above legend shall be removed by delivery of substitute
certificate(s) without such reference if Grantee shall have delivered to
Issuer a copy of a letter from the staff of the SEC. or an opinion of
counsel, in form and substance reasonably satisfactory to Issuer, to the
effect that such legend is not required for purposes of the 1993 Act; (ii)
the reference to the provisions of this Agreement in the above legend
shall be removed by delivery of substitute certificate(s) without such
reference if the shares have been sold or transferred in compliance with
the provisions of this Agreement and under circumstances that do not
require the retention of such reference in the opinion of counsel to
Grantee, which opinion shall be reasonably satisfactory to Issuer; and
(iii) the legend shall be removed in its entirety if the conditions in the
preceding clauses (i) and (ii) are both satisfied. In addition, such
certificates shall bear any other legend as may be required by law.
(i) Upon the giving by Grantee to Issuer of the written notice
of exercise of the Option provided for under subsection (e) of this
Section 2 and the tender of the applicable purchase price in immediately
available funds, the Issuer shall deliver to Grantee a certificate or
certificates in definitive form representing the shares of Issuer Common
Stock issued upon such exercise, which shares shall be free and clear of
all liens, claims, charges and encumbrances of any kind whatsoever, and
Grantee shall be deemed to be the holder of record of such shares,
notwithstanding that the stock transfer books of Issuer shall then be
closed. Issuer shall pay its out-of-pocket expenses payable in connection
with the preparation, issue and delivery of stock certificates under this
Section 2 in the name of Grantee or its assignee, transferee or designee.
3. Issuer agrees: (i) that it shall at all times maintain, free
from preemptive tights, sufficient authorized but unissued or treasury
shares of Issuer Common Stock so that the Option may be exercised without
additional authorization of Issuer Common Stock after giving effect to all
other options, warrants, convertible securities and other rights to
purchase Issuer Common Stock; (ii) that it will not, by charter amendment
or through reorganization, consolidation, merger, dissolution or sale of
assets, or by any other voluntary act, avoid or seek to avoid the
observance or performance of any of the covenants, stipulations or
conditions to be observed or performed hereunder by Issuer; (iii) promptly
to take all action as may from time to time be required (including (x)
complying with all applicable premerger notification, reporting and
waiting period requirements specified in 15 U.S.C. Section 18a and
regulations promulgated thereunder and (y) in the event, under any state
or federal banking law, prior approval of or notice to the Federal Reserve
Board, OTS or to any state or other federal regulatory authority is
necessary before the Option may be exercised, cooperating fully with
Grantee in preparing such applications or notices and providing such
information to the Federal Reserve Board, OTS or such state or other
federal regulatory authority as they may require) in order to permit
Grantee to exercise the Option and Issuer duly and effectively to issue
shares of Issuer Common Stock pursuant hereto; and (iv) promptly to take
all action provided herein to protect the rights of Grantee against
dilution.
4. This Agreement (and the Option granted hereby) are exchangeable,
without expense, at the option of Grantee, upon presentation and surrender
of this Agreement at the principal office of Issuer, for other Agreements
providing for Options of different denominations entitling Grantee to
purchase, on the same terms and subject to the same conditions as are set
forth therein, in the aggregate the same number of shares of Issuer Common
Stock purchasable hereunder. The terms "Agreement" and "Option" as used
herein include any Agreements and related Options for which this Agreement
(and the Option granted hereby) may be exchanged. Upon receipt by Issuer
of evidence reasonably satisfactory to it of the loss, theft, destruction
or mutilation of this Agreement, and (in the case of loss, theft or
destruction) of reasonably satisfactory indemnification, and upon
surrender and cancellation of this Agreement, if mutilated, Issuer will
execute and deliver a new Agreement of like tenor and date. Any such new
Agreement executed and delivered shall constitute an additional
contractual obligation on the part of Issuer, whether or not the Agreement
so lost, stolen, destroyed mutilated shall at any time be enforceable by
anyone.
5. In addition to the adjustment in the number of shares of Issuer
Common Stock that are purchasable upon exercise of the Option pursuant to
Section 1 of this Agreement, the number of shares of Issuer Common stock
purchasable upon the exercise of the Option and the Option Price shall be
subject to adjustment from time to time as provided in this Section 5.
(a) In the event of any change in, or distributions (other than the
payment of cash dividends in the ordinary course consistent with past
practice) in respect of, the Issuer Common Stock by reason of stock
dividends, split-ups, mergers, recapitalizations, combinations,
subdivisions, conversions, exchanges of shares or the like, the type and
number of shares of Issuer Common Stock purchasable upon exercise hereof
shall be appropriately adjusted and proper provision shall be made so
that, in the event that any additional shares of Issuer Common Stock are
to be issued or otherwise become outstanding as a result of any such
change (other than pursuant to an exercise of the Option), the number of
shares of Issuer Common Stock that remain subject to the Option shall be
increased so that, after such issuance and together with shares of Issuer
Common Stock previously issued pursuant to the exercise of the Option (as
adjusted on account of any of the foregoing changes in the Issuer Common
Stock), it equals 19.9% of the number of shares of Issuer Common Stock
then issued and outstanding.
(b) Whenever the number of shares of Issuer Common Stock purchasable
upon exercise hereof is adjusted as provided in this Section 5, the Option
Price shall be adjusted by multiplying the Option Price by a fraction, the
numerator of which shall be equal to the number of shares of Issuer Common
Stock purchasable prior to the adjustment and the denominator of which
shall be equal to the number of shares of Issuer Common Stock purchasable
after the adjustment.
6. (a) Upon the occurrence of a Subsequent Triggering Event that
occurs prior to an Exercise Termination Event Grantee may, within twelve
(12) months (or such later period as provided in Section 10) of such
Subsequent Triggering Event, by written notice (the "Registration Notice")
to Issuer request Issuer to register under the 1933 Act all or any part of
the shares of capital stock of Issuer acquired by Grantee pursuant to this
Agreement beneficially owned by Grantee (the "Registrable Securities").
(b) Issuer shall thereupon have the option exercisable by written
notice delivered to Grantee within three (3) business days after the
receipt of the Registration Notice, irrevocably to agree to purchase all
or any part of the Registrable Securities proposed to be so sold for cash
at a price equal to the product of (i) the number of Registrable
Securities to be so purchased by the Issuer and (ii) the Fair Market Value
(as defined below) of a share of such Registrable Securities. As used
herein, the "Fair Market Value" of any share of Registrable Securities
shall be the average of the daily closing sales price for a share of
Issuer Common Stock on the Nasdaq National Market during the five (5)
trading days prior to the date on which the Registration Notice for such
share is received by Issuer.
(c) Any purchase of Registrable Securities by Issuer under Section
6(b) shall take place at a closing to be held at the principal executive
offices of Issuer or at the offices of its counsel at any reasonable date
and time designated by Issuer in such notice with ten (10) business days
after delivery of such notice, and payment of the purchase price for the
shares to be so purchase shall be made by delivery at the time of such
closing in immediately available funds.
(d) If Issuer does not elect to exercise its option pursuant to this
Section 6 with respect to all Registrable Securities, it shall use its
best efforts to effect, as promptly as practicable, and keep current the
registration under the 1933 Act of the unpurchased Registrable Securities
proposed to be sold. Issuer will use its reasonable best efforts to cause
such registration statement promptly to become effective and then to
remain effective for such period not in excess of 120 days from the day
such registration statement first becomes effective or such shorter time
as may be reasonably necessary to effect the sale or other disposition of
the Registrable Securities; provided, however, that
(i) Grantee shall not be entitled to demand more than one (1)
effective registration statements hereunder, and
(ii) Issuer will not be required to file any such registration
statement during any period of time (not to exceed 90 days
after such request in the case of clauses (A) and (B) below
or 120 days in the case of clause (C) below) when
(A) Issuer is in possession of material non-public
information which it reasonably believes would be
detrimental to be disclosed at such time and, in the
opinion of counsel to Issuer, such information would
be required to be disclosed if a registration
statement were filed at that time;
(B) Issuer is required under the 1933 Act to include
audited financial statements for any period in such
registration statement and such financial statements
are not yet available for inclusion in such
registration statement; or
(C) Issuer determines, in its reasonable judgment, that
such registration would interfere with any financing,
acquisition or other material transaction involving
Issuer or any of its affiliates.
(e) Issuer shall use its reasonable best efforts to cause any
Registrable Securities registered pursuant to this Section 6 to be
qualified for sale under the securities or "blue sky" laws of such
jurisdictions as Grantee may reasonably request and shall continue such
registration or qualification in effect in such jurisdiction; provided,
however, that Issuer shall not be required to qualify to do business in,
or consent to general service of process in, any jurisdiction by reason of
this provision.
(f) The registration rights set forth in this Section 6 are subject
to the condition that Grantee shall provide Issuer with such information
with respect to the Registrable securities, the plans for the distribution
thereof, and such other information with respect to such holder as, in the
reasonable judgment of counsel for Issuer, is necessary to enable Issuer
to include in such registration statement all material facts required to
be disclosed with respect to a registration thereunder.
(g) A registration effected under this Section 6 shall be effected
at Issuer's expense, except for underwriting discounts and commissions,
broker's fees and the fees and the expenses of counsel and other advisors
to Grantee.
(h) In connection with any registration effected under this Section
6, the parties agree
(i) to indemnify each other in the customary manner, and
(ii) to take all reasonable further actions which shall be
reasonably necessary to effect such registration and sale.
(i) If Issuer Common Stock or any other securities to be acquired
upon exercise of the Option are then listed on the Nasdaq National Market
or a national securities exchange, Issuer, upon the request of Grantee,
will promptly file an application to list the shares of Issuer Common
Stock or other securities to be acquired upon exercise of the Option on
the Nasdaq National Market or a national securities exchange, as the case
may be, and will its best efforts to obtain approval of such listing as
soon as practicable.
7. (a) At any time after the occurrence of a Repurchase Event (as
defined below), (i) at the request of Grantee, delivered prior to an
Exercise Termination Event (or such later period as provided in Section
10), Issuer (or any successor thereto) shall repurchase the Option from
Grantee at a price (the "Option Repurchase Price") equal to the amount by
which (A) the market/offer price (as defined below) exceeds (B) the Option
Price, multiplied by the number of shares for which this Option may then
be exercised and (ii) at the request of Grantee delivered prior to an
Exercise Termination Event (or such later period as provided in Section
10), Issuer (or any successor thereto) shall repurchase such number of the
Option Shares from Grantee as Grantee shall designate at a price (the
"Option Share Repurchase Price") equal to the market/offer price
multiplied by the number of Option Shares so designated. The term
"market/offer price" shall mean the highest of (i) the price per share of
Issuer Common Stock at which a tender or exchange offer therefor has been
made, (ii) the price per share of Issuer Common Stock to be paid by any
third party pursuant to an agreement with Issuer, (iii) the highest
closing price for shares of Issuer Common Stock within the six-month
period immediately preceding the date Grantee gives notice of the required
repurchase of this Option or Grantee gives notice of the required
repurchase of Option Shares, as the case may be, or (iv) in the event of a
sale of all or any substantial part of Issuer's assets or deposits, the
sum of the net price paid in such sale for such assets or deposits and the
current market value of the remaining net assets of Issuer as determined
by a nationally recognized investment banking firm selected by Grantee and
reasonably acceptable to Issuer, divided by the number of shares of Issuer
Common Stock of Issuer outstanding at the time of such sale. In
determining the market/offer price, the value of consideration other than
cash shall be determined by a nationally recognized investment banking
firm selected by Grantee and reasonably acceptable to Issuer.
(b) Grantee may exercise its right to require Issuer to repurchase
the Option and any Option Shares pursuant to this Section 7 by
surrendering for such purpose to Issuer, at its principal office, a copy
of this Agreement or certificates for Option Shares, as applicable,
accompanied by a written notice or notices stating that Grantee elects to
require Issuer to repurchase this Option and/or the Option Shares in
accordance with the provisions of this Section 7. As promptly as
practicable, and in any event within five business days after the
surrender of the Option and/or certificates representing Option Shares and
the receipt of such notice or notices relating thereto, Issuer shall
deliver or cause to be delivered to Grantee the Option Repurchase Price
and/or to Grantee the Option Share Repurchase Price therefor or the
portion thereof that Issuer is not then prohibited under applicable law
and regulation from so delivering.
(c) To the extent that Issuer is prohibited under applicable law or
regulation, or as a consequence of administrative policy, from
repurchasing the Option and/or the Option Shares in full, Issuer shall
immediately so notify Grantee and thereafter deliver or cause to be
delivered, from time to time, to Grantee the portion of the Option
Repurchase Price and the Option Share Repurchase Price, respectively, that
it is no longer prohibited from delivering, within five business days
after the date on which Issuer is no longer so prohibited; provided,
however, that if Issuer at any time after delivery of a notice of
repurchase pursuant to paragraph (b) of this Section 7 is prohibited under
applicable law or regulation, or as a consequence of administrative
policy, from delivering to Grantee the Option Repurchase Price and the
Option Share Repurchase Price in full (and Issuer hereby undertakes to use
its reasonable best efforts to obtain all required regulatory and legal
approvals and to file any required notices as promptly as practicable in
order to accomplish such repurchase), Grantee may revoke its notice of
repurchase of the Option and/or the Option Shares whether in whole or to
the extent of the prohibition, whereupon, in the latter case, Issuer shall
promptly (i) deliver to Grantee that portion of the Option Repurchase
Price and/or the Option Shares Repurchase Price that Issuer is not
prohibited from delivering; and (ii) deliver to Grantee either (A) a new
Agreement evidencing the right of Grantee to purchase that number of
shares of Issuer Common Stock obtained by multiplying the number of shares
of Issuer Common Stock for which the surrendered Agreement was exercisable
at the time of delivery of the notice of repurchase by a fraction, the
numerator of which is the Option Repurchase Price less the portion thereof
theretofore delivered to Grantee and the denominator of which is the
Option Repurchase Price, and/or (B) a certificate for the Option Shares it
is then so prohibited from repurchasing. If an Exercise Termination Event
shall have occurred prior to the date of the notice by Issuer described in
the first sentence of this subsection (c), or shall be scheduled to occur
at any time before the expiration of a period ending on the thirtieth day
after such date. Grantee shall nonetheless have the right to exercise the
Option until the expiration of such 30-day period.
(d) For purposes of this Section 7, a "Repurchase Event" shall be
deemed to have occurred upon the occurrence of any of the following events
or transactions after the date hereof:
(i) the acquisition by any person (other than Grantee or any
Grantee Subsidiary) of beneficial ownership of 50% or more
of the then outstanding Issuer Common Stock; or
(ii) the consummation of any Acquisition Transaction described
in Section 2(b)(i) hereof, except that the percentage
referred to in clause (z) shall be 50%.
8. (a) In the event that prior to an Exercise Termination Event,
Issuer shall enter into an agreement (i) to consolidate with or merge into
any person. ("other than Grantee or a Grantee Subsidiary), or engage in a
plan of exchange with any person (other than Grantee or a Grantee
Subsidiary) and Issuer shall not be the continuing or surviving
corporation of such consolidation or merger or the acquirer in such plan
of exchange, (ii) to permit any person, other than Grantee or a Grantee
Subsidiary, to merge into Issuer or be acquired by Issuer in a plan of
exchange and Issuer shall be the continuing or surviving or acquiring
corporation, but, in connection with such merger or plan of exchange, the
then outstanding shares of Issuer Common Stock shall be changed into or
exchanged for stock or other securities of any other person or cash or any
other property or the then outstanding shares of Issuer Common Stock shall
after such merger or plan or exchange represent less than 50% of the
outstanding shares and share equivalents of the merged or acquiring
company, or (iii) to sell or otherwise transfer all or a substantial part
of its or an Issuer Subsidiary's assets or deposits to any person, other
than Grantee or a Grantee Subsidiary, then, and in each such case, the
agreement governing such transaction shall make proper provision so that
the Option shall, upon the consummation of any such transaction and upon
the terms and conditions set forth herein, be converted into, or exchanged
for, an option (the "Substitute Option"), at the election of Grantee, of
either (x) the Acquiring Corporation (as hereinafter defined) or (y) any
person that controls the Acquiring Corporation.
(b) The following terms have the meanings indicated:
(i) "Acquiring Corporation" shall mean (i) the continuing or
surviving person of a consolidation or merger with Issuer
(if other than Issuer), (ii) the acquiring person in a plan
of exchange in which Issuer is acquired, (iii) the Issuer
in a merger or plan of exchange in which Issuer is the
continuing or surviving or acquiring person. and (iv) the
transferee of all or a substantial part of Issuer's assets
or deposits (or the assets or deposits of the Issuer
Subsidiary).
(ii) "Substitute Common Stock" shall mean the common stock
issued by the issuer of the Substitute Option upon exercise
of the Substitute Option.
(iii) "Assigned Value" shall mean the market/offer price, as
defined in Section 7.
(iv) "Average Price" shall mean the average closing price of a
share of the Substitute Common Stock for one year
immediately preceding the consolidation, merger or sale
referred to in Section 8(a), but in no event higher than
the closing price of the shares of Substitute Common Stock
on the day preceding such consolidation, merger or sale;
provided, that if Issuer is the issuer of the Substitute
Option, the Average Price shall be computed with respect to
a share of common stock issued by the person merging into
Issuer or by any company which controls or is controlled by
such person. as Grantee may elect.
(v) "Person" as used in this Agreement shall have the meaning
specified in Sections 3(a)(9) and 13(d)(3) of the Exchange
Act.
(c) The Substitute Option shall have the same terms as the Option:
provided, that the exercise price therefor and number of shares subject
thereto shall be as set forth in this Section 8; provided, further, that
the Substitute Option shall be exercisable immediately upon issuance
without the occurrence of a Triggering Event; and provided, further, that
if the terms of the Substitute Option cannot, for legal reasons, be the
same as the Option. such terms shall be as similar as possible and in no
event less advantageous to Grantee. The issuer of the Substitute Option
shall also enter into an agreement with Grantee in substantially the same
form as this Agreement (subject to the variations described in the
foregoing provisos), which agreement shall be applicable to the Substitute
Option.
(d) The Substitute Option shall be exercisable for such number of
shares of Substitute Common Stock as is equal to the Assigned Value
multiplied by the number of shares of Issuer Common Stock for which the
Option was exercisable immediately prior to the event described in the
first sentence of Section 8(a), divided by the Average Price, rounded up
to the nearest whole share. The exercise price of the Substitute Option
per share of Substitute Common Stock shall then be equal to the Option
Price multiplied by a fraction, the numerator of which shall be the number
of shares of Issuer Common Stock for which the Option was exercisable
immediately prior to the event described in the first sentence of Section
8(a) and the denominator of which shall be the number of shares of
Substitute Common Stock for which the Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs, shall
the Substitute Option be exercisable for more than 19.9% of the shares of
Substitute Common Stock outstanding prior to exercise of the Substitute
Option. In the event that the Substitute Option would be exercisable for
more than 19.9% of the shares of Substitute Common Stock outstanding prior
to exercise but for this Section 8(e), the issuer of the Substitute Option
(the "Substitute Option Issuer") shall make a cash payment to Grantee
equal to the excess of (i) the value of the Substitute Option without
giving effect to the limitation in this Section 8(e) over (ii) the value
of the Substitute Option after giving effect to the limitation in this
Section 8(e). This difference in value shall be determined by a nationally
recognized investment banking firm selected by Grantee.
(f) Issuer shall not enter into any transaction described in
subsection (a) of this Section 8 unless the Acquiring Corporation and any
person that controls the Acquiring Corporation assume in writing all the
obligations of Issuer hereunder and take all other actions that may be
necessary so that the provisions of this Section 8 are given full force
and effect (including, without limitation, any action that may be
necessary so that the holders of the other shares of common stock issued
by Substitute Option Issuer are not entitled to exercise any rights by
reason of the issuance of exercise of the Substitute Option and the shares
of Substitute Common Stock are otherwise in no way distinguishable from or
have lesser economic value than other share of common stock issued by
Substitute Option Issuer (other than any diminution in value resulting
from the fact that the shares of Substitute Common Stock are restricted
securities, as defined in Rule 144 under the 1934 Act or any successor
provision)).
9. (a) At the request of the holder of the Substitute Option (the
"Substitute Option Holder"), the Substitute Option Issuer shall repurchase
the Substitute Option from the Substitute Option Holder at a price (the
"Substitute Option Repurchase Price") equal to the amount by which (i) the
Highest Closing Price (as hereinafter defined) exceeds (ii) the exercise
price of the Substitute Option, multiplied by the number of shares of
Substitute Common Stock for which the Substitute Option may then be
exercised, and at the request of the owner (the "Substitute Share Owner")
of shares of Substitute Common Stock (the "Substitute Shares"), the
Substitute Option Issuer shall repurchase the Substitute Shares at a price
(the "Substitute Share Repurchase Price") equal to the Highest Closing
Price multiplied by the number of Substitute Shares so designated. The
term "Highest Closing Price" shall mean the highest closing price for
shares of Substitute Common Stock within the six-month period immediately
preceding the date the Substitute Option Holder gives notice of the
required repurchase of the Substitute Option or the Substitute Share Owner
gives notice of the required repurchase of the Substitute Shares, as
applicable.
(b) The Substitute Option Holder and Substitute Share Owner, as the
case may be, may exercise its respective rights to require the Substitute
Option Issuer to repurchase the Substitute Option and the Substitute
Shares pursuant to this Section 9 by surrendering for such purpose to the
Substitute Option Issuer, at its principal office, the agreement for such
Substitute Option (or, in the absence of such an agreement, a copy of this
Agreement) and/or certificates for Substitute Shares accompanied by a
written notice or notices stating that the Substitute Option Holder or the
Substitute Share Owner, as the case may be, elects to require the
Substitute Option Issuer to repurchase the Substitute Option and/or the
Substitute Shares in accordance with the provisions of this Section 9. As
promptly as practicable and in any event within five business days after
the surrender of the Substitute Option and/or certificates representing
Substitute Shares and the receipt of such notice or notices relating
thereto, the Substitute Option Issuer shall deliver or cause to be
delivered to the Substitute Option Holder the Substitute Option Repurchase
Price and/or to the Substitute Share Owner the Substitute Share Repurchase
Price therefor or the portion thereof which the Substitute Option Issuer
is not then prohibited under applicable law and regulation from so
delivering.
(c) To the extent that the Substitute Option Issuer is prohibited
under applicable law or regulation, or as a consequence of administrative
policy, from repurchasing the Substitute Option and/or the Substitute
Shares in part or in full, the Substitute Option Issuer shall immediately
so notify the Substitute Option Holder and/or the Substitute Share Owner
and thereafter deliver or cause to be delivered, from time to time, to the
Substitute Option Holder and/or the Substitute Share Owner, as
appropriate, the portion of the Substitute Option Repurchase Price and/or
the Substitute Share Repurchase Price, respectively, which it is no longer
prohibited from delivering, within five (5) business days after the date
on which the Substitute Option Issuer is no longer so prohibited;
provided, however, that if the Substitute Option Issuer is at any time
after delivery of a notice of repurchase pursuant to subsection (b) of
this Section 9 prohibited under applicable law or regulation, or as a
consequence of administrative policy, from delivering to the Substitute
Option Holder and/or the Substitute Share Owner, as appropriate, the
Substitute Option Repurchase Price and the Substitute Share Repurchase
Price, respectively, in full (and the Substitute Option Issuer shall use
its reasonable best efforts to receive all required regulatory and legal
approvals as promptly as practicable in order to accomplish such
repurchase), the Substitute Option Holder and/or Substitute Share Owner
may revoke its notice of repurchase of the Substitute Option or the
Substitute Shares either in whole or to the extent of prohibition.
whereupon, in the latter case, the Substitute Option Issuer shall promptly
(i) deliver to the Substitute Option Holder or Substitute Share Owner, as
appropriate, that portion of the Substitute Option Repurchase Price or the
Substitute Share Repurchase Price that the Substitute Option Issuer is not
prohibited from delivering; and (ii) deliver, as appropriate, either (A)
to the Substitute Option Holder, a new Substitute Option evidencing the
right of the Substitute Option Holder to purchase that number of shares of
the Substitute Common Stock obtained by multiplying the number of shares
of the Substitute Common Stock for which the surrendered Substitute Option
was exercisable at the time of delivery of the notice of repurchase by a
fraction, the numerator of which is the Substitute Option Repurchase Price
less the portion thereof theretofore delivered to the Substitute Option
Holder and the denominator of which is the Substitute Option Repurchase
Price, and/or (B) to the Substitute Share Owner, a certificate for the
Substitute Option Shares it is then so prohibited from repurchasing. If an
Exercise Termination Event shall have occurred prior to the date of the
notice by the Substitute Option Issuer described in the first sentence of
this subsection (c), or shall be scheduled to occur at any time before the
expiration of a period ending on the thirtieth day after such date, the
Substitute Option Holder shall nevertheless have the right to exercise the
Substitute Option until the expiration of such 30-day period.
10. The 30-day, 3-month, 6-month, or 12-month periods for exercise
of certain rights under Sections 2, 6, 7 and 9 shall be extended: (i) to
the extent necessary to obtain all regulatory approvals for the exercise
of such rights (for so long as Grantee. Substitute Option Holder or
Substitute Share owner, as the case may be, is using commercially
reasonable efforts to obtain such regulatory approvals), and for the
expiration of all statutory waiting periods; and (ii) to the extent
necessary to avoid liability under Section 16(b) of the 1934 Act by reason
of such exercise.
11. (a) Issuer hereby represents and warrants to Grantee as
follows:
(i) Issuer has full corporate power and authority to execute
and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly
authorized by the Issuer Board prior to the date hereof and
no other corporate proceedings on the part of the Issuer
are necessary to authorize this Agreement or to consummate
the transactions so contemplated. This Agreement has been
duly and validly executed and delivered by Issuer.
(ii) Issuer has taken all necessary corporate action to
authorize and reserve and to permit it to issue, and at all
times from the date hereof through the termination of this
Agreement in accordance with its terms will have reserved
for issuance upon the exercise of the Option, that number
of shares of Issuer Common Stock equal to the maximum
number of shares of Issuer Common Stock at any time and
from time to time issuable hereunder, and all such shares,
upon issuance pursuant thereto, will be duly authorized,
validly issued, fully paid, nonassessable, and will be
delivered free and clear of all claims, liens, encumbrance
and security interests and not subject to any preemptive
rights.
(b) Grantee hereby represents and warrants to Issuer as follows:
(i) Grantee has corporate power and authority to execute and
deliver this Agreement and to perform its obligations
hereunder. The execution and delivery of this Agreement by
Grantee and the performance of its obligations hereunder by
Grantee have been duly and validly authorized by the Board
of Directors of Grantee and no other corporate proceedings
on the part of grantee are necessary to authorize this
Agreement or for Grantee to perform its obligations
hereunder. This Agreement has been duly and validly
executed and delivered by Grantee.
(ii) Any Option Shares acquired upon exercise of this Option by
Grantee will be acquired for Grantee's own account and for
investment purposes only. This Option is not being, and any
Option Shares or other securities acquired by Grantee upon
exercise of the Option will not be, acquired with a view to
the public distribution thereof and will not be transferred
or otherwise disposed of except in a transaction registered
or exempt from registration under the 1933 Act.
12. Neither of the parties hereto may assign any of its rights or
obligations under this Agreement or the Option created hereunder to any
other person, without the express written consent of the other party.
Certificates representing shares sold in a registered public offering
pursuant to Section 9 shall not be required to bear the legend set forth
in Section 2(h).
13. Each of Grantee and Issuer will use its reasonable best efforts
to make all filings with, and to obtain consents of. all third parties and
governmental authorities necessary to the consummation of the transactions
contemplated by this Agreement, including, without limitation, applying to
the Federal Reserve Board and OTS for approval to acquire the shares
issuable hereunder, but Grantee shall not be obligated to apply to state
banking authorities for approval to acquire the shares of Issuer Common
Stock issuable hereunder until such time, if ever, as it deems appropriate
to do so.
14. The parties hereto acknowledge that damages would be an
inadequate remedy for a breach of this Agreement by either party hereto
and that the obligations of the parties hereto shall be enforceable by
either party hereto through injunctive or other equitable relief, this
being in addition to any other remedy to which they are entitled at law or
in equity. In connection therewith both parties waive the posing of any
bond or similar requirement.
15. If any term, provision, covenant or restriction contained in
this Agreement is held by a court or a federal or state regulatory agency
of competent jurisdiction to be invalid, void or unenforceable, the
remainder of the terms, provisions and covenants and restrictions
contained in this Agreement shall remain in full force and effect, and
shall in no way be affected, impaired or invalidated. If for any reason
such court or regulatory agency determines that Grantee is not permitted
to acquire, or Issuer is not permitted to repurchase pursuant to Section
7, the full number of shares of Issuer Common Stock provided in Section
1(a) hereof (as adjusted pursuant to Section 1(b) or Section 5 hereof), it
is the express intention of Issuer to allow Grantee to acquire or to
require Issuer to repurchase such lesser number of shares as may be
permissible, without any amendment or modification hereof.
16. All notices, requests, claims, demands and other communications
hereunder shall be deemed to have been duly given when delivered in
person, by fax, telecopy, or by registered or certified mail (postage
prepaid, return receipt requested) at the respective addresses of the
parties set forth in the Merger Agreement.
17. This Agreement shall be governed by and construed in accordance
with the laws of the State of Wisconsin, without regard to the conflict of
law principles thereof.
18. This Agreement may be executed in two or more counterparts, each
of which shall be deemed to be an original, but all of which shall
constitute one and the same agreement.
19. Except as otherwise expressly provided herein, each of the
parties hereto shall bear and pay all costs and expenses incurred by it or
on its behalf in connection with the transactions contemplated hereunder,
including fees and expenses of its own financial consultants, investment
bankers, accountants and counsel.
20. Except as otherwise expressly provided herein or in the Merger
Agreement, this Agreement contains the entire agreement between the
parties with respect to the transactions contemplated hereunder and
supersedes all prior arrangements or understandings with respect thereof,
written or oral. The terms and conditions of this Agreement shall inure to
the benefit of and be binding upon the parties hereto and their respective
successors and permitted assignees. Nothing in this Agreement, expressed
or implied, is intended to confer upon any party, other than the parties
hereto, and their respective successors except as assignees, any rights,
remedies, obligations or liabilities under or by reason of this Agreement,
except as expressly provided herein.
21. Each party shall execute and deliver such other documents and
instruments and take such further action that may be necessary in order to
consummate the transactions contemplated hereby.
22. Capitalized terms used in this Agreement and not defined herein
shall have the meanings assigned thereto in the Merger Agreement.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be executed on its behalf by its officers thereunto duly authorized, all
as of the date first above written.
HOME BANCORP OF ELGIN, INC.
By: /s/ George L. Perucco
George L. Perucco
President and Chief Executive Officer
STATE FINANCIAL SERVICES CORPORATION
By: /s/ Michael J. Falbo
Michael J. Falbo
President and Chief Executive Officer
