<PAGE> 1
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
FIRST FEDERAL BANCSHARES OF EAU CLAIRE, INC.
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(Name of Registrant as Specified in Its Charter)
Donald T. Tietz, President of Registrant
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[ ] $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, par value $.01 per share
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(2) Aggregate number of securities to which transaction applies:
6,806,819 shares of Common Stock (plus outstanding options to acquire
504,405 shares of Common Stock)
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing
fee is calculated and state how it was determined):
$18.85 per outstanding shares of Common Stock; $18.85 less applicable
exercise price for option shares
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(4) Proposed maximum aggregate value of transaction:
$131,763,712
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(5) Total fee paid:
$26,358
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[X] Fee paid previously with preliminary materials.
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, schedule or registration statement no.:
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(3) Filing party:
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(4) Date filed:
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<PAGE> 2
[FIRST FEDERAL BANCSHARES OF EAU CLAIRE, INC.]
February 18, 1997
Dear Shareholder:
You are cordially invited to attend the Special Meeting of Shareholders
(the "Special Meeting") of First Federal Bancshares of Eau Claire, Inc. ("First
Federal"), the holding company for First Federal Bank of Eau Claire, F.S.B.
("First Federal Bank"), which will be held on Thursday, March 27, 1997, at 10:00
a.m., Wisconsin time, at the Holiday Inn Campus Area, 2703 Craig Road, Eau
Claire, Wisconsin 54701.
At the Special Meeting, you will be asked to consider and vote on the
approval and adoption of an Agreement and Plan of Merger, dated September 16,
1996, as amended on December 23, 1996 (as so amended, the "Agreement"), by and
among First Federal, Mutual Savings Bank, a mutual savings bank organized under
the laws of the State of Wisconsin ("Mutual"), and First Federal Merger
Corporation, a Wisconsin corporation and wholly-owned subsidiary of Mutual
("Merger Corp."), pursuant to which First Federal will be acquired by Mutual
through the merger of Merger Corp. with and into First Federal (the "Merger"),
with First Federal temporarily becoming a direct, wholly-owned subsidiary of
Mutual. It currently is anticipated that immediately following the Merger,
First Federal will be liquidated into Mutual and First Federal Bank will be
merged with and into Mutual. First Federal Bank's offices will be operated
thereafter under Mutual's name.
Pursuant to the terms of the Agreement, each outstanding share of common
stock of First Federal will be converted into the right to receive $18.85 in
cash (subject to certain upward price adjustments as set forth in the
accompanying Proxy Statement), and will no longer represent an ownership
interest in First Federal. Assuming all conditions to the Agreement and the
Merger are satisfied or waived, it is currently anticipated the Merger will be
consummated on or before March 31, 1997.
Additional information regarding the Agreement and the proposed Merger are
set forth in the accompanying Proxy Statement. Please carefully read these
materials and consider the information contained in them.
YOUR BOARD OF DIRECTORS HAS CAREFULLY CONSIDERED ALL OF THE TERMS AND
CONDITIONS OF THE AGREEMENT, AND HAS UNANIMOUSLY APPROVED THE AGREEMENT. THE
BOARD OF DIRECTORS BELIEVES THAT THE AGREEMENT IS IN THE BEST INTERESTS OF, AND
IS FAIR TO, THE SHAREHOLDERS OF FIRST FEDERAL. ACCORDINGLY, THE BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR APPROVAL AND ADOPTION OF THE
AGREEMENT.
It is important that your shares are represented at the Special Meeting,
whether or not you plan to attend the Special Meeting in person. The
affirmative vote of a majority of the issued and outstanding shares of common
stock of First Federal is required to approve the Merger. An abstention or
failure to vote will have the same effect as a vote against the Merger.
Accordingly, please complete, date, sign and promptly return your proxy card in
the enclosed envelope. Returning your proxy card will not prevent you from
voting in person at the Special Meeting, but will assure that your vote is
counted if you are unable to attend. You should not send in certificates for
your shares of First Federal common stock at this time. Upon consummation of
the Merger, you will be sent instructions regarding the surrender of your First
Federal stock certificates.
On behalf of the Board of Directors, I urge you to vote in favor of the
Merger. We look forward to your representation either in person or by proxy at
the Special Meeting. Thank you for your consideration and continued support.
SINCERELY,
/s/ Donald T. Tietz
Donald T. Tietz
President and Chief
Executive Officer
<PAGE> 3
[FIRST FEDERAL BANCSHARES OF EAU CLAIRE, INC. LETTERHEAD]
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MARCH 27, 1997
TO THE HOLDERS OF COMMON STOCK OF FIRST FEDERAL BANCSHARES OF EAU
CLAIRE, INC.:
NOTICE IS HEREBY GIVEN that the Special Meeting of Shareholders
(the "Special Meeting") of First Federal Bancshares of Eau Claire,
Inc. ("First Federal") will be held on Thursday, March 27, 1997, at
10:00 a.m., Wisconsin time, at the Holiday Inn Campus Area, 2703 Craig
Road, Eau Claire, Wisconsin 54701. The Special Meeting is for the
purpose of considering and voting upon the following matters, all of
which are set forth more completely in the accompanying Proxy
Statement:
1. To consider and vote upon the approval and adoption of the Agreement
and Plan of Merger, dated September 16, 1996, as amended on December
23, 1996 (as so amended, the "Agreement"), by and among First Federal,
Mutual Savings Bank, a mutual savings bank organized under the laws of
the State of Wisconsin ("Mutual"), and First Federal Merger
Corporation, a Wisconsin corporation and wholly-owned subsidiary of
Mutual ("Merger Corp."), pursuant to which: (i) First Federal will be
acquired by Mutual through the merger of Merger Corp. with and into
First Federal (the "Merger"), with First Federal temporarily becoming
a direct, wholly-owned subsidiary of Mutual; and (ii) each outstanding
share of common stock of First Federal will be converted into the
right to receive $18.85 in cash (subject to certain upward price
adjustments as set forth in the accompanying Proxy Statement); and
2. To consider and act upon such other business as may properly come
before the Special Meeting or any adjournments or postponements
thereof.
The Board of Directors has established January 20, 1997 as the
record date for the determination of shareholders entitled to notice
of and to vote at the Special Meeting and any adjournments or
postponements thereof. Only shareholders of record as of the close of
business on that date will be entitled to vote at the Special Meeting
or any adjournments or postponements thereof. In the event there are
not sufficient votes for a quorum or to approve any of the foregoing
matters at the time of the Special Meeting, the Special Meeting may be
adjourned or postponed in order to permit further solicitation of
proxies by First Federal.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Jerome A. Reinecke
Jerome A. Reinecke
Corporate Secretary
February 18, 1997
Eau Claire, Wisconsin
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. WHETHER OR
NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING, PLEASE SIGN, DATE AND PROMPTLY
RETURN THE ACCOMPANYING PROXY CARD USING THE ENCLOSED POSTAGE-PAID ENVELOPE.
<PAGE> 4
FIRST FEDERAL BANCSHARES OF EAU CLAIRE, INC.
319 East Grand Avenue
Eau Claire, Wisconsin 54701
(715) 833-7700
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
To Be Held on March 27, 1997
This Proxy Statement is being furnished to holders of common stock,
$0.01 par value per share ("First Federal Common Stock") of First Federal
Bancshares of Eau Claire, Inc. ("First Federal") in connection with the
solicitation on behalf of the Board of Directors of First Federal of proxies to
be used at the Special Meeting of Shareholders (the "Special Meeting") to be
held on Thursday, March 27, 1997, at 10:00 a.m., Wisconsin time, at the Holiday
Inn Campus Area, 2703 Craig Road, Eau Claire, Wisconsin 54701 and at any
adjournments or postponements thereof. This Proxy Statement and accompanying
appointment form of proxy ("Proxy") are first being mailed to shareholders of
record of First Federal as of January 20, 1997 (the "Voting Record Date") on or
about February 18, 1997.
At the Special Meeting, you will be asked to consider and vote on the
approval and adoption of an Agreement and Plan of Merger, dated September 16,
1996, as amended on December 23, 1996 (as so amended, the "Agreement"), by and
among First Federal, Mutual Savings Bank, a mutual savings bank organized under
the laws of the State of Wisconsin ("Mutual"), and First Federal Merger
Corporation, a Wisconsin corporation and wholly-owned subsidiary of Mutual
("Merger Corp."), pursuant to which First Federal will be acquired by Mutual
through the merger of Merger Corp. with and into First Federal (the "Merger"),
with First Federal temporarily becoming a direct, wholly-owned subsidiary of
Mutual. It currently is anticipated that immediately following the Merger,
First Federal will be liquidated into Mutual and First Federal Bank of Eau
Claire, F.S.B. ("First Federal Bank") will be merged with and into Mutual.
First Federal Bank's offices will be operated thereafter under Mutual's name.
Pursuant to the terms of the Agreement, each outstanding share of First
Federal Common Stock will be converted into the right to receive $18.85 in cash
(subject to certain upward price adjustments as set forth in this Proxy
Statement), and will no longer represent an ownership interest in First
Federal. Assuming all conditions to the Agreement and the Merger are satisfied
or waived, it is currently anticipated the Merger will be consummated on or
before March 31, 1997.
Shareholders are requested to vote by completing the enclosed Proxy and
returning it signed and dated in the enclosed postage-paid envelope.
Shareholders are urged to indicate their vote in the space provided on the
Proxy. Proxies solicited by First Federal will be voted in accordance with the
directions given thereon. Where no instructions are indicated, signed Proxies
will be voted FOR approval and adoption of the Agreement. Returning your
completed Proxy will not prevent you from voting in person at the Special
Meeting should you be present and wish to do so.
Any shareholder giving a Proxy has the power to revoke it any time
before it is exercised by: (i) filing with the Secretary of First Federal
written notice thereof (Jerome A. Reinecke, Corporate Secretary, First Federal
Bancshares of Eau Claire, Inc., 319 East Grand Avenue, Eau Claire, Wisconsin
54701); (ii) submitting a duly-executed Proxy bearing a later date; or (iii)
appearing at the Special Meeting and giving the Secretary notice of his or her
intention to vote in person. If you are a shareholder whose shares are not
registered in your own name, you will need additional documentation from your
record holder to vote personally at the Special Meeting. Proxies solicited
hereby may be exercised only at the Special Meeting and any adjournments or
postponements thereof and will not be used for any other meeting.
The cost of solicitation of Proxies by mail on behalf of the Board of
Directors will be borne by First Federal. First Federal has retained D.F. King
& Co., Inc., a professional proxy solicitation firm, to assist in the
solicitation of proxies. D.F. King & Co., Inc. will be paid a fee of $5,000,
plus reimbursement for out-of-pocket expenses. Proxies also may be solicited
by personal interview or by telephone, in addition to the use of the mails by
directors, officers and regular employees of First Federal and First Federal
Bank of Eau Claire, F.S.B., without additional compensation therefor. First
Federal also has made arrangements with brokerage firms, banks, nominees and
other fiduciaries to forward proxy solicitation materials for shares of Common
Stock held of record by the beneficial owners of such shares. First Federal
will reimburse such holders for their reasonable out-of-pocket expenses.
Proxies solicited hereby will be returned to the Board of Directors,
and will be tabulated by inspectors of election designated by the Board of
Directors, who will not be employed by, or a director of, First Federal or any
of its affiliates.
<PAGE> 5
TABLE OF CONTENTS
PAGE
SUMMARY 3
The Parties To The Merger 3
Special Meeting of Shareholders of First Federal 4
The Merger 5
Market Prices and Dividend Information 7
SELECTED CONSOLIDATED FINANCIAL INFORMATION 8
RECENT FINANCIAL DATA 10
INTRODUCTION 15
THE SPECIAL MEETING 16
Place, Time and Date 16
Purpose 16
Record Date; Shares Entitled to Vote 16
Quorum; Votes Required 17
Proxies 17
Recommendation of the First Federal Board of
Directors Regarding the Merger 17
Security Ownership of Management and Mutual 17
THE MERGER 18
General 18
Background of the Merger 18
Reasons for the Merger and Recommendation of the First
Federal Board of Directors 21
Opinion of First Federal Financial Advisor 22
Effective Time of the Merger 25
Surrender of First Federal Stock Certificates; Payment
of Merger Consideration 25
First Federal Stock Options 26
Representations and Warranties 26
Conditions to Each Party's Obligations 26
Regulatory Approvals 27
Conduct of Business Pending the Merger 28
Amendment and Waiver 29
Termination 29
Stock Option Agreement 30
Interests of Certain Persons In The Merger 32
Effect on First Federal Employees and Employee Benefit Plans 34
Effect on First Federal Bank Liquidation Rights 35
Certain Federal Income Tax Consequences 36
Accounting Treatment 36
Expenses 36
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS 37
MARKET PRICES AND DIVIDEND INFORMATION 38
SHAREHOLDER PROPOSALS 38
INDEPENDENT AUDITORS 38
OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE MEETING 39
AVAILABLE INFORMATION 39
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE 39
EXHIBITS:
AGREEMENT AND PLAN OF MERGER AND AGREEMENT AND
PLAN OF MERGER - AMENDMENT NO. 1 EXHIBIT A
OPINION OF DAIN BOSWORTH INCORPORATED EXHIBIT B
STOCK OPTION AGREEMENT EXHIBIT C
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SUMMARY
The following is a summary of certain information contained
elsewhere in this Proxy Statement. This summary has been prepared to assist
First Federal shareholders in their review of the Proxy Statement and is not
intended to be a complete statement of all material facts. This summary is
qualified in its entirety by reference to, and should be read in conjunction
with, the more detailed information appearing elsewhere in this Proxy
Statement, including the exhibits, the documents accompanying this Proxy
Statement and the documents incorporated by reference herein.
THE PARTIES TO THE MERGER
FIRST FEDERAL AND FIRST FEDERAL BANK OF EAU CLAIRE, F.S.B.
First Federal Bancshares of Eau Claire, Inc., a Wisconsin
corporation ("First Federal"), was incorporated on March 3, 1994 for the
purpose of becoming the holding company for First Federal Bank of Eau Claire,
F.S.B. ("First Federal Bank") upon First Federal Bank's conversion from a
federally-chartered mutual savings bank to a federally-chartered stock savings
bank. This transaction was consummated on October 6, 1994. At September 30,
1996, First Federal had total assets of $728.8 million, total deposits of
$374.0 million and shareholders' equity of $97.8 million. First Federal has
not engaged in any significant activity other than holding the stock of First
Federal Bank. First Federal Bank is regulated by the Office of Thrift
Supervision ("OTS") and its deposits are insured up to applicable limits under
the Savings Association Insurance Fund ("SAIF") of the Federal Deposit
Insurance Corporation ("FDIC"). First Federal Bank's principal business
consists of attracting funds in the form of deposits and other borrowings and
originating mortgage loans principally to finance the purchase and/or
construction of residential dwellings and originating various types of consumer
loans. First Federal also invests in securities issued by the United States
Government and its agencies and in other securities such as mortgage-backed and
related securities. At September 30, 1996, First Federal operated 19
full-service banking offices in west central Wisconsin and one in eastern
Minnesota. The principal executive offices of First Federal are located at 319
East Grand Avenue, Eau Claire, Wisconsin 54701, and its telephone number is
(715)E833-7700.
MUTUAL SAVINGS BANK
Mutual Savings Bank, a mutual savings bank organized under the laws
of the State of Wisconsin ("Mutual"), was founded in 1892. At September 30,
1996, Mutual had total assets of $1.2 billion, total deposits of $1.0
billion and retained earnings of $147.8 million. Mutual is regulated by the
FDIC and the Division of Savings Institutions of the Wisconsin Department of
Financial Institutions (the "Wisconsin Division") and its deposits are insured
up to applicable limits by the SAIF. Mutual's principal business consists of
attracting funds in the form of deposits and other borrowings and originating
mortgage loans principally to finance the purchase and/or construction of
residential dwellings and originating various types of commercial and consumer
loans. Mutual also invests in securities issued by the United States
Government and its agencies and in other securities such as mortgage-backed and
related securities. At September 30, 1996, Mutual operated 33 banking offices
and one loan production office in Wisconsin. The principal executive offices
of Mutual are located at 4949 West Brown Deer Road, Milwaukee, Wisconsin 53223,
and its telephone number is (414)354-1500.
FIRST FEDERAL MERGER CORPORATION
First Federal Merger Corporation, a Wisconsin corporation ("Merger
Corp."), is a wholly-owned subsidiary of Mutual which was formed
specifically for the purpose of merging with and into First Federal in
connection with the transactions contemplated by the Agreement. Pursuant to
the terms of the Agreement, at the Effective Time, Merger Corp. will be merged
with and into First Federal, with First Federal continuing as the surviving
corporation and the separate corporate existence of Merger Corp. will cease.
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<PAGE> 7
SPECIAL MEETING OF SHAREHOLDERS OF FIRST FEDERAL
PLACE, TIME AND DATE; PURPOSE
The Special Meeting of Shareholders of First Federal will be held on
Thursday, March 27, 1997, at 10:00 a.m., Wisconsin time, at the Holiday Inn
Campus Area, 2703 Craig Road, Eau Claire, Wisconsin 54701. The purpose of the
Special Meeting is: (i) to consider and vote upon the approval and adoption of
the Agreement described herein, pursuant to which (y) First Federal will be
acquired by Mutual through the merger of Merger Corp. with and into First
Federal, and (z) each outstanding share of First Federal Common Stock will be
converted into the right to receive $18.85 in cash (subject to certain upward
price adjustments as set forth in this Proxy Statement); and (ii) to act upon
such other matters, if any, as may properly come before the Special Meeting or
any adjournments or postponements thereof.
RECORD DATE; SHARES ENTITLED TO VOTE
The Board of Directors of First Federal (the "First Federal Board")
has fixed the close of business on January 20, 1997 as the record date (the
"Voting Record Date") for the determination of shareholders entitled to notice
of and to vote at the Special Meeting or any adjournments or postponements
thereof. Only holders of shares of common stock, $0.01 par value per share
("First Federal Common Stock") of First Federal of record on the Voting Record
Date will be entitled to notice of and to vote at the Special Meeting. Each
share of First Federal Common Stock will be entitled to one vote. Shareholders
who execute proxies retain the right to revoke them at any time prior to being
voted at the Special Meeting or any postponements or adjournments thereof. On
the Voting Record Date, there were 6,855,379 shares of First Federal Common
Stock outstanding and First Federal had no other class of securities
outstanding.
VOTES REQUIRED; SECURITY OWNERSHIP OF MANAGEMENT AND MUTUAL
The affirmative vote of a majority of the issued and outstanding
shares of First Federal Common Stock is required for approval and
adoption of the Agreement.
As of the Voting Record Date, the directors and executive officers
of First Federal and their affiliates beneficially owned 740,502 shares, or
10.3% of the outstanding shares of First Federal Common Stock, and Mutual,
through Merger Corp., indirectly owned 50,000 shares of First Federal Common
Stock, or approximately 0.7% of the outstanding shares. As of the Voting Record
Date, the First Federal Board had the ability to vote the 367,711 unallocated
shares of First Federal Common Stock owned by the First Federal Bank of Eau
Claire, F.S.B. Employee Stock Ownership Plan (the "First Federal ESOP"),
representing 5.4% of the outstanding shares of First Federal Common Stock, and
will have the ability to vote the shares for which voting instructions from the
First Federal ESOP participants are not received.
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<PAGE> 8
THE MERGER
GENERAL
Pursuant to the Agreement, at the Effective Time (as defined below),
Merger Corp. will merge with and into First Federal. See "The
Merger--General." The Agreement provides, among other things, that as a
result of the Merger, each outstanding share of First Federal Common Stock will
be converted into the right to receive $18.85 in cash (the "Merger Per Share
Consideration"), subject to a $0.05 per share upward price adjustment for each
calendar month or portion of a month beyond March 31, 1997 for which
consummation of the Merger is delayed, provided that such delay is not due to a
breach of any representation, warranty or covenant by, or is otherwise
attributable to, First Federal. It is currently anticipated that immediately
following the Merger, First Federal will be liquidated into Mutual and First
Federal Bank will be merged with and into Mutual. First Federal Bank's offices
will be operated thereafter under Mutual's name.
REASONS FOR THE MERGER AND RECOMMENDATION OF THE FIRST FEDERAL BOARD OF
DIRECTORS
All members of the First Federal Board participated in the meeting
at which the Agreement was considered and approved. The First Federal Board
unanimously approved the Agreement and recommends that First Federal
shareholders vote in favor of approval of the Agreement. The First Federal
Board believes that the terms of the Merger are fair to, and in the best
interests of, First Federal's shareholders. The First Federal Board believes
that the Merger will provide significant value to all First Federal
shareholders. For a discussion of the factors considered by the First Federal
Board in reaching its decision, see "The Merger--Reasons for the Merger and
Recommendation of the First Federal Board of Directors" and "The
Merger--Opinion of First Federal Financial Advisor."
OPINION OF FIRST FEDERAL FINANCIAL ADVISOR
Dain Bosworth Incorporated ("Dain Bosworth") has delivered to the
First Federal Board its written opinion, dated February 17, 1997, to the effect
that, as of the date of its opinion, the consideration to be received in the
Merger by the holders of shares of First Federal Common Stock is fair to such
holders from a financial point of view. This opinion confirmed an opinion by
Dain Bosworth, dated September 13, 1996, that had previously been delivered to
the First Federal Board. A copy of the opinion of Dain Bosworth which sets
forth the assumptions made, matters considered and limits of its review, is
attached to this Proxy Statement as Exhibit B, and should be read in its
entirety. See also "The Merger--Opinion of First Federal Financial Advisor."
EFFECTIVE TIME OF THE MERGER
As soon as practicable after the satisfaction or waiver of the
conditions to the obligations of the parties to effect the Merger, the
Effective Time will occur on the date and at the time set forth in the
Articles of Merger to be filed with the Wisconsin Department of Financial
Institutions. See "The Merger--Conditions to Each Party's Obligations." It is
currently anticipated that the Merger will be consummated on or before March
31, 1997. First Federal or Mutual may terminate the Agreement if the Merger is
not consummated on or before August 31, 1997. See "The Merger--Termination."
SURRENDER OF FIRST FEDERAL STOCK CERTIFICATES; PAYMENT OF MERGER
CONSIDERATION
All shareholders of First Federal will be required to surrender
their First Federal Common Stock certificates in order to receive the cash
payments to which they will be entitled as a result of the Merger.
Promptly after the Effective Time, instructions with regard to the surrender of
certificates, together with a letter of transmittal to be used for that
purpose, will be mailed to each shareholder. See "The Merger--Surrender of
First Federal Stock Certificates; Payment of Merger Consideration."
FIRST FEDERAL SHAREHOLDERS SHOULD NOT SEND IN THEIR STOCK
CERTIFICATES FOR FIRST FEDERAL COMMON STOCK UNTIL THEY RECEIVE FURTHER WRITTEN
INSTRUCTIONS AND THE LETTER OF TRANSMITTAL. HOLDERS OF SHARES OF FIRST FEDERAL
COMMON STOCK ARE URGED TO PROMPTLY NOTIFY FIRST FEDERAL OR FIRST FEDERAL'S
TRANSFER AGENT OF LOST, STOLEN OR DESTROYED CERTIFICATES OR CERTIFICATES NOT
PROPERLY REGISTERED IN ORDER TO BEGIN THE PROCESS OF ISSUANCE OF REPLACEMENT
CERTIFICATES.
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<PAGE> 9
FIRST FEDERAL STOCK OPTIONS
Prior to consummation of the Merger, First Federal must have either: (i)
taken all steps necessary to accelerate the exercisability of all outstanding
options ("First Federal Stock Options") to purchase shares of First Federal
Common Stock pursuant to the First Federal Bancshares of Eau Claire, Inc. 1995
Stock Option Plan and each holder of a First Federal Stock Option shall have
voluntarily exercised all such options; or (ii) cashed out each holder of First
Federal Stock Options without the exercise thereof and with written consent by
such holder at a price per First Federal Stock Option equal to the difference
between the Merger Per Share Consideration minus the exercise price of such
option. As of the Effective Time, there will be no outstanding First Federal
Stock Options.
CONDITIONS TO EACH PARTY'S OBLIGATIONS; REGULATORY APPROVALS
The obligations of First Federal and Mutual to effect the Merger are
subject to the satisfaction of certain conditions, including: (i) obtaining
requisite shareholder approval and requisite regulatory approvals for the
Merger; (ii) the absence of a Quantified Material Adverse Effect with respect to
First Federal, as defined in the Agreement; (iii) the absence of litigation to
restrain or enjoin the consummation of the Merger; and (iv) the satisfaction of
other customary closing conditions. See "The Merger--Conditions to Each Party's
Obligations."
Mutual filed separate applications for approval of the Merger with the
Wisconsin Division, the OTS and the FDIC on October 28, 1996. Mutual received
the necessary regulatory approvals from the Wisconsin Division, the OTS and the
FDIC on January 13, January 30 and January 31, 1997, respectively, each approval
of which imposed no materially burdensome conditions on Mutual. See "The
Merger--Regulatory Approvals."
AMENDMENT AND WAIVER; TERMINATION
Prior to the Effective Time of the Merger, the Agreement may be amended or
any condition of the Agreement may be waived by the party whose favor the
provision runs; provided, however, that after First Federal shareholder approval
is obtained, no such amendment may (i) reduce the Merger Per Share
Consideration, or (ii) otherwise materially adversely affect the rights of the
First Federal shareholders. See "The Merger--Amendment and Waiver."
The Agreement may be terminated and the Merger abandoned at any time before
the Effective Time, whether before or after approval by the shareholders of
First Federal: (a) by written agreement of First Federal and Mutual; or (b) by
either First Federal or Mutual under certain specified circumstances, including
(i) if the Merger has not been consummated on or before August 31, 1997, (ii) if
there is a material breach of any representation, warranty or agreement on the
part of the other party as set forth in the Agreement, or (iii) if certain
conditions with respect to the other party have not been fulfilled. See "The
Merger--Termination."
STOCK OPTION AGREEMENT
As a condition of Mutual's entering into the Agreement and in consideration
therefor, First Federal and Mutual entered into a Stock Option Agreement, dated
September 16, 1996 (the "Stock Option Agreement"). Pursuant to the Stock Option
Agreement, First Federal granted to Mutual an option (the "Option") to purchase
up to 1,364,220 shares of First Federal Common Stock (subject to adjustment), or
approximately 19.9% of the issued and outstanding shares of First Federal Common
Stock, at an exercise price of $15.75 per share (the "Exercise Price"). The
Option is exercisable only upon the occurrence of certain events, none of which
has occurred, to the knowledge of First Federal, as of the date hereof. In lieu
of exercising the Option, Mutual can require First Federal to make a cash
payment in an amount equal to the excess of the value of the highest competing
transaction, or, if greater, the highest bid price for First Federal Common
Stock during the 30-day period preceding such cash election, over the Exercise
Price. The Option also gives Mutual certain registration rights with respect to
any First Federal Common Stock acquired upon exercise of the Option. The Stock
Option Agreement may have the effect of discouraging competing offers to the
Merger and is intended to increase the likelihood that the Merger will be
consummated in accordance with the terms of the Agreement. See "The
Merger--Stock Option Agreement."
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<PAGE> 10
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of First Federal's management and the First Federal Board
may be deemed to have interests in the Merger in addition to their interests, if
any, as shareholders of First Federal generally. These include, among other
things, provisions in the Agreement relating to entering into employment
agreements with Mutual, cash payments under outstanding stock options, service
as a member of an advisory board of First Federal, benefits under the First
Federal ESOP, participation in a severance pool which may be paid to certain
employees of First Federal, and certain other benefits. See "The
Merger--Interests of Certain Persons in the Merger" and "The Merger--Effect on
First Federal Employees and Employee Benefit Plans."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The receipt of cash for shares of First Federal Common Stock pursuant to
the Merger will be a taxable transaction for federal income tax purposes to
shareholders receiving such cash, measured by the difference between the cash
received pursuant to the Merger and such shareholder's adjusted tax basis in the
First Federal Common Stock exchanged therefor. EACH SHAREHOLDER SHOULD CONSULT
WITH HIS OR HER TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO
SUCH HOLDER, INCLUDING THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL,
FOREIGN AND OTHER TAX LAWS. See "The Merger--Certain Federal Income Tax
Consequences."
ACCOUNTING TREATMENT
It is intended that the Merger will be accounted for as a purchase under
generally accepted accounting principles. See "The Merger--Accounting
Treatment."
MARKET PRICES AND DIVIDEND INFORMATION
First Federal Common Stock is quoted on the NASDAQ National Market System
under the symbol "FFC." The table below sets forth, for the calendar quarters
indicated, (i) the high and low sales prices for First Federal Common Stock as
reported on the NASDAQ National Market System, and (ii) the dividends per share
declared on First Federal Common Stock in each quarter.
<TABLE>
<CAPTION>
SALES PRICE PER SHARE CASH
------------------------ DIVIDENDS
HIGH LOW PAID PER SHARE
----------- ----------- --------------
<S> <C> <C> <C>
1994
- -------------------------------
Quarter Ended December 31 ..... $10.50 $8.25 --
1995
- -------------------------------
Quarter Ended March 31 ........ 12.25 9.75 --
Quarter Ended June 30 ......... 12.50 11.38 --
Quarter Ended September 30 .... 14.63 12.25 --
Quarter Ended December 31 ..... 15.38 13.75 $0.05
1996
- -------------------------------
Quarter Ended March 31 ........ 15.38 13.50 0.05
Quarter Ended June 30 ......... 16.25 13.63 0.07
Quarter Ended September 30 .... 18.13 14.38 0.07
Quarter Ended December 31 ..... 18.50 18.00 0.07
1997
- -------------------------------
Quarter Ending March 31
(through February 14, 1997) .. 18.75 18.25 0.07
</TABLE>
On September 13, 1996, the last trading day before the public announcement
of the Agreement, the reported closing sales price of First Federal Common Stock
was $15.31 per share. On February 14, 1997, the most recent date for which it
was practicable to obtain market price data prior to the printing of this Proxy
Statement, the reported closing sales price of First Federal Common Stock was
$18.50 per share. See "Market Prices and Dividend Information."
-7-
<PAGE> 11
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth, for the periods indicated, certain selected
financial information for First Federal. This information should be read in
conjunction with the consolidated financial statements of First Federal, and the
related notes thereto, which are incorporated herein by reference in this Proxy
Statement. The historical balance sheet and income statement information
included in the selected financial information for First Federal for the five
years ended December 31, 1995 are derived from audited financial statements as
of, and for, such years. The historical balance sheet and income statement
information for First Federal for the nine months ended September 30, 1996 is
derived from unaudited financial statements as of, and for, such period. These
unaudited financial statements include all adjustments which are, in the opinion
of First Federal management, necessary for a fair statement of the results of
these periods and are of a normal and recurring nature. Results for the nine
months ended September 30, 1996, are not necessarily indicative of results which
may be expected for the year ending December 31, 1996. See "Available
Information" and "Incorporation of Certain Documents by Reference."
<TABLE>
<CAPTION>
AT OR FOR THE
NINE MONTHS ENDED
SEPTEMBER 30, AT OR FOR THE YEAR ENDED DECEMBER 31,
--------------------- ----------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Total interest income ............ $ 37,655 $ 28,870 $ 40,157 $ 27,549 $ 26,948 $ 30,369 $ 32,112
Total interest expense ........... 21,762 15,380 21,751 13,382 13,332 16,998 21,573
---------- --------- --------- --------- --------- --------- ---------
Net interest income ............ 15,893 13,490 18,406 14,167 13,616 13,371 10,539
Provision for loan losses ........ 131 73 84 48 453 72 108
---------- --------- --------- --------- --------- --------- ---------
Net interest income after provision
for loan losses ................ 15,762 13,417 18,322 14,119 13,163 13,299 10,431
Non-interest income (loss):
Net gain (loss) on loans held-for-
sale, mortgage-related securities
and investment securities (301) 835 974 (2,662) 1,747 1,543 647
Other.......................... 1,611 1,650 2,190 1,819 1,531 1,155 1,098
---------- --------- --------- --------- --------- --------- ---------
Total non-interest income (loss) 1,310 2,485 3,164 (843) 3,278 2,698 1,745
Non-interest expense:
Federal insurance special assessment 1,968 -- -- -- -- -- --
Other ........................... 10,296 8,411 11,924 8,989 8,620 7,790 7,093
---------- --------- --------- --------- --------- --------- ---------
Total non-interest expense 12,264 8,411 11,924 8,989 8,620 7,790 7,093
---------- --------- --------- --------- --------- --------- ---------
Income before income taxes and
cumulative effect of
accounting changes .............. 4,808 7,491 9,562 4,287 7,821 8,207 5,083
Income tax expense ................ 1,553 2,895 3,618 1,716 3,207 3,365 2,079
---------- --------- --------- --------- --------- --------- ---------
Income before cumulative
effect of accounting changes 3,255 4,596 5,944 2,571 4,614 4,842 3,004
Cumulative effect of accounting
changes ......................... -- -- -- 30 (391) -- --
---------- --------- --------- --------- --------- --------- ---------
Net income ...................... $ 3,255 $ 4,596 $ 5,944 $ 2,601 $ 4,223 $ 4,842 $ 3,004
========== ========= ========= ========= ========= ========= =========
SELECTED PER SHARE DATA:
Fully-diluted earnings (1) ....... $ 0.50 $ 0.68 $ 0.89 N/A N/A N/A N/A
Dividends declared and paid ...... 0.19 N/A 0.05 N/A N/A N/A N/A
Book value at end of period ...... 14.27 14.00 13.91 $ 13.13 N/A N/A N/A
SELECTED FINANCIAL CONDITION DATA:
Total assets ..................... $ 728,822 $ 587,533 $ 621,590 $ 437,732 $ 372,514 $ 370,257 $ 356,583
Loans receivable ................. 508,676 437,454 457,278 354,235 284,448 265,204 265,652
Loans held-for-sale .............. 21,524 2,002 3,276 7,094 30,938 45,714 31,437
Cash ............................. 9,386 9,876 9,706 8,448 6,516 8,884 5,322
Mortgage-related securities (2) .. 146,548 102,205 116,277 43,077 32,822 32,332 32,173
Investment securities ............ 23,647 20,383 18,706 16,402 9,556 10,650 13,263
Deposits ......................... 373,982 358,699 368,472 304,431 305,870 314,374 309,052
Federal Home Loan Bank advances .. 248,050 125,550 150,950 33,050 31,650 17,700 8,700
Shareholders' equity ............. 97,828 95,990 95,362 94,735 26,757 22,534 17,692
</TABLE>
- ----------------------
See notes on following page.
-8-
<PAGE> 12
<TABLE>
<CAPTION>
AT OR FOR THE
NINE MONTHS ENDED
SEPTEMBER 30, AT OR FOR THE YEAR ENDED DECEMBER 31,
------------------------ -------------------------------------------------
1996(6) 1995(6) 1995 1994 1993 1992 1991
---------- ----------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL RATIOS AND OTHER DATA:
PERFORMANCE RATIOS:
Return on average assets before cumul.
effect of accounting changes (5) . . . . . 0.63% 1.18% 1.10% 0.65% 1.26% 1.33% 0.87%
Return on average equity before cumul.
effect of accounting changes (5) . . . . . 4.48 6.32 6.17 6.24 18.65 24.10 18.62
Interest rate spread during period (3)(5) . 2.57 2.71 2.70 3.39 3.63 3.59 2.95
Net interest margin during period (3)(5) . . 3.22 3.59 3.54 3.74 3.86 3.81 3.16
Other non-interest income to
average assets (5) . . . . . . . . . . . . 0.31 0.42 0.41 0.46 0.42 0.32 0.32
Other non-interest expense to
average assets (5) . . . . . . . . . . . . 2.00 2.16 2.21 2.28 2.35 2.14 2.04
Shareholders' equity to total assets . . . . 13.42 16.34 15.34 21.64 7.18 6.09 4.96
Average shareholders' equity to
average assets . . . . . . . . . . . . . . 14.14 18.67 17.84 10.45 6.75 5.51 4.65
Average interest-earning assets to
average interest-bearing liabilities . . . 114.60 121.47 120.05 109.96 106.06 104.53 103.10
ASSET QUALITY RATIOS:
Non-accrual loans to gross
loans receivable . . . . . . . . . . . . . 0.02 0.18 0.10 0.17 0.32 0.53 0.95
Non-performing assets to total
assets (4) . . . . . . . . . . . . . . . . 0.03 0.23 0.12 0.20 0.38 0.52 1.09
Allowance for loan losses to
gross loans . . . . . . . . . . . . . . . 0.16 0.18 0.17 0.20 0.25 0.13 0.16
Allowance for loan losses to
non-accrual loans . . . . . . . . . . . . 808.49 95.12 174.16 118.08 78.23 24.32 16.62
Net charge-offs to average loans (5) . . . . 0.02 0.01 0.01 0.01 0.02 0.05 0.09
REGULATORY CAPITAL RATIOS (BANK ONLY):
Tangible capital ratio . . . . . . . . . . . 9.17 10.91 10.16 14.55 7.18 6.09 4.96
Core capital ratio . . . . . . . . . . . . . 9.17 10.91 10.16 14.55 7.18 6.09 4.96
Total risk-based capital ratio . . . . . . . 19.70 23.11 21.61 29.13 14.40 11.66 9.36
OTHER DATA:
Number of deposit accounts . . . . . . . . . 64,812 61,956 62,952 50,581 49,052 49,291 49,421
Number of real estate loans
outstanding . . . . . . . . . . . . . . . 7,366 6,577 6,753 6,248 6,123 6,295 6,228
Number of real estate loans serviced
(in portfolio and sold) . . . . . . . . . 10,239 9,782 9,917 9,448 9,368 9,144 8,996
Loan originations (in thousands) . . . . . . $159,043 $139,612 $184,641 $149,182 $209,494 $186,509 $104,975
Full-service customer facilities . . . . . . 20 17 19 13 13 14 14
</TABLE>
- ---------------
(1) First Federal completed its initial public offering on October 6, 1994,
and therefore, no earnings per share data is presented for years ended
on or prior to December 31, 1994.
(2) Includes mortgage-related securities available-for-sale (after
December 31, 1993) and held for sale (on or prior to December 31,
1993).
(3) Interest rate spread represents the difference between the average
yield on interest-earning assets and the average cost of
interest-bearing liabilities. Net interest margin represents net
interest income as a percentage of average interest-earning assets.
(4) Non-performing assets consist of non-accrual loans and foreclosed
properties which consist of real estate acquired by foreclosure or
deed-in-lieu thereof, real estate in judgment and loans which are
deemed in-substance foreclosures.
(5) Ratios for the nine months ended September 30, 1996 and 1995 are
annualized.
(6) Information at or for the nine months ended September 30, 1996 and 1995
is derived from unaudited financial statements. In the opinion of
management, all adjustments, consisting only of normal and recurring
adjustments, necessary for a fair presentation of the financial
position or results of operations at or for such periods have been
included in those financial statements.
-9-
<PAGE> 13
RECENT FINANCIAL DATA
Summarized below are certain selected data for First Federal at
December 31, 1996, September 30, 1996 and December 31, 1995 and for the three
months and years ended December 31, 1996 and 1995. Information at the end of and
for the periods presented is derived from unaudited financial statements, except
for at December 31, 1995 and for the year ended December 31, 1995. In the
opinion of management of First Federal, all adjustments, consisting only of
normal recurring adjustments, necessary for a fair statement of results for or
at such periods have been included in those financial statements.
<TABLE>
<CAPTION>
THREE MONTHS YEARS
ENDED DECEMBER 31, ENDED DECEMBER 31,
---------------------- ----------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
SELECTED OPERATING DATA:
Total interest income .................. $ 13,404 $ 11,287 $ 51,059 $ 40,157
Total interest expense ................. 7,748 6,371 29,510 21,751
-------- -------- -------- --------
Net interest income .................... 5,656 4,916 21,549 18,406
Provision for loan losses .............. 598 11 729 84
-------- -------- ------- --------
Net interest income after provision
for loan losses ...................... 5,058 4,905 20,820 18,322
Non-interest income:
Net gain on loans held-for-sale,
mortgage-related securities
and investment securities ............ 369 139 68 974
Other .................................. 671 540 2,282 2,190
-------- -------- -------- --------
Total non-interest income ............ 1,040 679 2,350 3,164
Non-interest expense:
Federal insurance special assessment . -- -- 1,968 --
Other .............................. 3,833 3,513 14,129 11,924
-------- -------- -------- --------
Total non-interest expense ....... 3,833 3,513 16,097 11,924
-------- -------- -------- --------
Income before income taxes ......... 2,265 2,071 7,073 9,562
Income tax expense ................. 920 723 2,473 3,618
-------- -------- -------- --------
Net income ......................... $ 1,345 $ 1,348 $ 4,600 $ 5,944
======== ======== ======== ========
SELECTED PER SHARE DATA:
Fully-diluted earnings .................. $ 0.20 $ 0.21 $ 0.70 $ 0.89
Dividends declared and paid ............. 0.07 0.05 0.26 0.05
Book value at end of period ............. 14.57 13.91 14.57 13.91
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1996 1996 1995
------------ ------------- ------------
<S> <C> <C> <C>
(IN THOUSANDS)
SELECTED FINANCIAL CONDITION DATA:
Total assets ................................. $724,074 $728,822 $621,590
Loans receivable ............................. 516,302 508,676 457,278
Loans held-for-sale .......................... 6,089 21,524 3,276
Cash ......................................... 10,949 9,386 9,706
Mortgage-related securities .................. 151,249 146,548 116,277
Investment securities ........................ 20,912 23,647 18,706
Deposits ..................................... 378,076 373,982 368,472
Federal Home Loan Bank advances .............. 239,250 248,050 150,950
Shareholders' equity ......................... 99,874 97,828 95,362
</TABLE>
-10-
<PAGE> 14
<TABLE>
<CAPTION>
AT OR FOR THE AT OR FOR THE
THREE MONTHS YEARS
ENDED DECEMBER 31, ENDED DECEMBER 31,
------------------ -------------------
1996 1995 1996 1995
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
SELECTED FINANCIAL RATIOS AND OTHER DATA:
PERFORMANCE RATIOS:
Return on average assets (3) ................ 0.74% 0.89% 0.66% 1.10%
Return on average equity (3) ................ 5.41 5.69 4.72 6.17
Interest rate spread during period (1)(3) 2.60 2.67 2.58 2.70
Net interest margin during period (1)(3) 3.23 3.40 3.22 3.54
Other non-interest income to
average assets (3) ........................ 0.37 0.36 0.33 0.41
Other non-interest expense to
average assets (3) ........................ 2.11 2.33 2.03 2.21
Shareholders' equity to total assets 13.79 15.34 13.79 15.34
Average shareholders' equity to
average assets ............................ 13.69 15.68 14.02 17.84
Average interest-earning assets to
average interest-bearing liabilities 114.36 116.52 114.54 120.05
ASSET QUALITY RATIOS:
Non-accrual loans to gross
loans receivable .......................... 0.03 0.10 0.03 0.10
Non-performing assets to total
assets (2) ................................ 0.06 0.12 0.06 0.12
Allowance for loan losses to
gross loans ............................... 0.27 0.17 0.27 0.17
Net charge-offs to average loans (3) 0.01 0.03 0.01 0.01
REGULATORY CAPITAL RATIOS (BANK ONLY):
Tangible capital ratio ...................... 9.46 10.16 9.46 10.16
Core capital ratio .......................... 9.46 10.16 9.46 10.16
Total risk-based capital ratio .............. 20.45 21.61 20.45 21.61
OTHER DATA:
Number of deposit accounts .................. 64,733 62,952 64,733 62,952
Number of real estate loans
outstanding ............................... 7,187 6,753 7,187 6,753
Number of real estate loans serviced
(in portfolio and sold) ................... 10,261 9,917 10,261 9,917
Loan originations (in thousands) ............ $34,948 $45,028 $193,990 $184,641
Full-service customer facilities ............ 20 19 20 19
</TABLE>
(1) Interest rate spread represents the difference between the average
yield on interest-earning assets and the average cost of
interest-bearing liabilities. Net interest margin represents net
interest income as a percentage of average interest-earning assets.
(2) Non-performing assets consist of non-accrual loans and foreclosed
properties which consist of real estate acquired by foreclosure or
deed-in-lieu thereof, real estate in judgment and loans which are
deemed in-substance foreclosures.
(3) Ratios for the three months ended December 31, 1996 and 1995 are
annualized.
-11-
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RECENT FINANCIAL
DATA
COMPARISON OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS AT AND FOR
THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995.
Financial Condition. Total assets decreased $4.7 million, or
0.7%, to $724.1 million at December 31, 1996 compared to $728.8 million at
September 30, 1996. The decrease was primarily due to a $15.4 million
decrease in loans held-for-sale to $6.1 million at December 31, 1996, and a
$2.7 million decrease in investment securities to $20.9 million at December 31,
1996. The decrease in loans held-for-sale during the three months ended
December 31, 1996 was primarily the result of management's decision to sell
$19.1 million of these loans at favorable prices, partially offset by loans
originated for sale of $3.4 million. These decreases were partially offset by
a $7.6 million increase in loans receivable to $516.3 million at December 31,
1996, a $1.6 million increase in cash to $10.9 million at December 31, 1996,
and a $4.7 million increase in mortgage-related securities to $151.2 million at
December 31, 1996.
Deposits increased $4.1 million, or 1.1%, to $378.1 million at
December 31, 1996 and Federal Home Loan Bank of Chicago ("FHLB-Chicago")
advances decreased $8.8 million, or 3.5%, to $239.3 million at December 31,
1996. The decrease in FHLB-Chicago advances was funded primarily by the sale
of loans held-for-sale.
Shareholders' equity increased $2.1 million, or 2.1%, to $99.9
million at December 31, 1996 from $97.8 million at September 30, 1996. The
increase in total equity was due to the combined effects of $1.3 million
of net income, $215,000 for the amortization of unearned First Federal ESOP
compensation, $184,000 for the amortization of unearned BIP compensation, a
$753,000 increase in unrealized holding gains on securities available-for-sale,
net of deferred income taxes, and payment of cash dividends of $451,000. The
ratio of total equity to total assets was 13.79% and 13.42% at December 31,
1996 and September 30, 1996, respectively.
Results of Operations. Net income for the three months ended December
31, 1996 decreased $3,000 to $1.3 million compared to the three months ended
December 31, 1995. The decrease was due to the combined effects of a $740,000
increase in net interest income, a $587,000 increase in provision for loan
losses, a $361,000 increase in non-interest income, a $320,000 increase in
non-interest expense and a $197,000 increase in income taxes. For the three
months ended December 31, 1996 and 1995, the annualized returns on average
assets were 0.74% and 0.89%, respectively, while the annualized returns on
average equity were 5.41% and 5.69%, respectively.
Net interest income increased $740,000, or 15.1%, to $5.7 million for the
three months ended December 31, 1996 compared to $4.9 million for the three
months ended December 31, 1995. The increase in net interest income was
primarily due to an increase in total average interest-earning assets. Total
average interest-earning assets increased by $122.0 million to $700.0 million
for the three months ended December 31, 1996 compared to $578.0 million for the
three months ended December 31, 1995. The increase in total average
interest-earning assets was primarily the result of First Federal's strategy to
leverage its capital base by using the proceeds from additional FHLB-Chicago
advances to originate and purchase additional loans and mortgage-related
securities. The effects of the increase in average interest-earning assets
during the three months ended December 31, 1996 was partially offset by a
modest decrease in First Federal's interest rate spread. The annualized
interest rate spread decreased to 2.60% for the three months ended December 31,
1996 from 2.67% for the three months ended December 31, 1995.
During the three months ended December 31, 1996, First Federal
charged $598,000 to earnings as a provision for loan losses, compared to
$11,000 for the three months ended December 31, 1995. The increased provision
for loan losses in 1996 related primarily to one loan to finance the
development of a condominium project in Minnesota, which had a carrying value
of $5.5 million at December 31, 1996. At December 31, 1996, First Federal
considered this loan to be impaired, as defined under Statement of Financial
Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment
of a Loan," primarily as a result of deterioration in the financial condition
of the borrower and management's concerns regarding the borrower's ability to
comply with the present loan repayment terms. (However, this loan was not
classified as nonaccrual at December 31, 1996 primarily because the loan was
not more than 90 days past due). Therefore, $598,000 was added to First
Federal's allowance for loan losses in order to cover the difference between
the carrying value of this loan and the estimated fair value of its collateral
and to maintain First Federal's desired allowance for loan loss percentages for
each component of First Federal's asset classification categories. At December
31, 1996, First Federal applied the estimated loan loss percentages to the loan
balances in the asset classification categories, in addition to the allowance
estimated to be necessary for the one impaired loan, to arrive at $1.4 million
as the appropriate level of the allowance for loan losses. Therefore, a
provision of $598,000 was necessary in order to bring First Federal's overall
allowances to the appropriate level.
-12-
<PAGE> 16
Non-interest income, including gains and losses on the sale of
loans, mortgage-related securities and investment securities,
increased $361,000 to $1.0 million compared to $679,000 for the three
months ended December 31, 1995. The change in non-interest income was
primarily attributable to the effect of changes in interest rates on
mortgage loans held-for-sale. Loans held-for-sale and commitments to
make future loans are recorded at the lower of aggregate cost or
market value. Unrealized gains and losses to adjust the carrying
value of loans held-for-sale to the lower of their cost or market
value and realized gains and losses on the sales of these loans are
reported as net gain or loss on loans held-for-sale. For the three
months ended December 31, 1996 and 1995, First Federal reported gains
of $369,000 and $107,000, respectively, on the loans held-for-sale
portfolio. These portfolios tend to perform well in stable or
decreasing interest rate environments, such as that experienced during
both of these periods. The increase in the gains on the loans
held-for-sale portfolio was primarily due to an increase in the
average balances of loans held-for-sale. The average balances
increased by $9.0 million to $13.5 million for the three months ended
December 31, 1996 compared to $4.5 million for the three months ended
December 31, 1995.
Non-interest expense increased $320,000 to $3.8 million for the
three months ended December 31, 1996 compared to $3.5 million for the
three months ended December 31, 1995. The increase was primarily
attributable to a $368,000 increase in compensation and other employee
benefits to $2.2 million for the three months ended December 31, 1996
compared to $1.8 million for the
three months ended December 31, 1995. The increase in compensation
and other employee benefits for the three months ended December 31,
1996 was due primarily to normal salary increases and additional
retirement plan expenses associated with the First Federal Bank of Eau
Claire, F.S.B. Employee Stock Ownership Plan ("First Federal ESOP")
and the First Federal Bank of Eau Claire, F.S.B. Deferred Compensation
Plan (the "Deferred Compensation Plan").
Income taxes increased $197,000 to $920,000 for the three months
ended December 31, 1996 from $723,000 for the three months ended
December 31, 1995. This increase was primarily due to an increase in
income before income taxes along with an increase in the effective
income tax rate. The effective income tax rates for the three months
ended December 31, 1996 and 1995 were 40.6% and 34.9%, respectively.
The increase in the effective income tax rates was due primarily to
additional tax expense recorded during the three months ended December
31, 1996 in connection with the First Federal ESOP.
COMPARISON OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS AT AND FOR
THE YEARS ENDED DECEMBER 31, 1996 AND 1995.
Financial Condition. Total assets increased $102.5 million, or
16.5%, to $724.1 million at December 31, 1996 compared to $621.6
million at December 31, 1995. The increase was primarily due to a
$59.0 million increase in loans receivable to $516.3 million at
December 31, 1996, a $2.8 million increase in loans held-for-sale to
$6.1 million at December 31, 1996, a $1.2 million increase in cash to
$10.9 million at December 31, 1996, a $35.0 million increase in
mortgage-related securities to $151.2 million at December 31, 1996 and
a $2.2 million increase in investment securities to $20.9 million at
December 31, 1996. The increase in First Federal's total assets was
primarily the result of First Federal's leveraging strategy whereby
proceeds from additional FHLB-Chicago advances were used to originate
and purchase additional loans and mortgage-related securities.
Deposits increased $9.6 million, or 2.6%, to $378.1 million at
December 31, 1996 and FHLB-Chicago advances increased $88.3 million,
or 58.5%, to $239.3 million at December 31, 1996. The increase in
FHLB-Chicago advances was primarily the result of First Federal's
strategy to leverage its capital base by using the proceeds from
additional FHLB-Chicago advances to originate and purchase additional
loans and mortgage-related securities.
Shareholders' equity increased $4.5 million, or 4.7%, to $99.9
million at December 31, 1996 from $95.4 million at December 31, 1995.
The increase in total equity was due to the combined effects of $4.6
million of net income, $1.2 million for the amortization of unearned
First Federal ESOP compensation and $931,000 for the amortization of
unearned BIP compensation, a $516,000 decrease in net unrealized
holding gains on securities available-for-sale, net of deferred income
taxes, and payment of cash dividends of $1.7 million. The ratio of
total equity to total assets was 13.79% and 15.34% at December 31,
1996 and December 31, 1995, respectively.
Results of Operations. Net income for the year ended December
31, 1996 decreased $1.3 million to $4.6 million compared to $5.9
million for the year ended December 31, 1995. The decrease was due to
the combined effects of a $3.1 million increase in net interest
income, a $645,000 increase in provision for loan losses, a $814,000
decrease in non-interest income, a $4.2 million increase in
non-interest expense (including a $2.0 million federal insurance
special assessment) and a $1.1 million decrease in income taxes. For
the years ended December 31, 1996 and 1995, the returns on average
assets were 0.66% and 1.10%, respectively, while the returns on
average equity were 4.72% and 6.17%, respectively.
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<PAGE> 17
Net interest income increased $3.1 million, or 17.1%, to $21.5
million for the year ended December 31, 1996 compared to $18.4 million
for the year ended December 31, 1995. The increase in net interest income was
primarily due to an increase in total average interest-earning assets.
Total average interest-earning assets increased by $148.9 million to
$668.8 million for the year ended December 31, 1996 compared to $519.9
million for the year ended December 31, 1995. The increase in total
average interest-earning assets was primarily the result of First
Federal's strategy to leverage its capital base by using the proceeds
from additional FHLB-Chicago advances to originate and purchase
additional loans and mortgage-related securities. The effects of the
increase in average interest-earning assets during the year ended
December 31, 1996 was partially offset by a modest decrease in First
Federal's interest rate spread. The interest rate spread decreased to
2.58% for the year ended December 31, 1996 from 2.70% for the year
ended December 31, 1995.
During the year ended December 31, 1996, First Federal charged
$729,000 to earnings as a provision for loan losses, compared to
$84,000 for the year ended December 31, 1995. The increased provision
for loan losses in 1996 related primarily to one loan to finance the
development of a condominium project in Minnesota, which had a
carrying value of $5.5 million at December 31, 1996. At December 31,
1996, First Federal considered this loan to be impaired, as defined
under SFAS No. 114, primarily as a result of the deterioration in the
financial condition of the borrower and management's concerns
regarding the borrower's ability to comply with the present loan
repayment terms. (However, this loan was not classified as nonaccrual
at December 31, 1996 primarily because the loan was not more than 90
days past due). Therefore, $729,000 was added to First Federal's
allowance for loan losses in order to cover the difference between the
carrying value of this loan and the estimated fair value of its
collateral and to maintain First Federal's desired allowance for loan
loss percentages for each component of First Federal's asset
classification categories. At December 31, 1996, First Federal
applied the estimated loan loss percentages to the loan balances in
the asset classification categories, in addition to the allowance
estimated to be necessary for the one impaired loan, to arrive at $1.4
million as the appropriate level of the allowance for loan losses.
Therefore, a provision of $729,000 was necessary in order to bring
First Federal's overall allowances to the appropriate level.
Non-interest income, including gains and losses on the sale of
loans, mortgage-related securities and investment securities,
decreased $814,000 to $2.4 million for the year ended December 31,
1996 compared to $3.2 million for the year ended December 31, 1995.
The change in non-interest income was primarily attributable to the
effect of changes in interest rates on mortgage loans held-for-sale
and mortgage-related securities available-for-sale. Loans
held-for-sale and commitments to make future loans are recorded at the
lower of aggregate cost or market value. Unrealized gains and losses
to adjust the carrying value of loans held-for-sale to the lower of
their cost or market value and realized gains and losses on the sales
of these loans are reported as net gain or loss on loans
held-for-sale. Mortgage-related securities available-for-sale are
recorded at fair value with unrealized gains and losses credited or
charged directly to equity net of deferred taxes. Realized gains and
losses on the sale of these securities are reported as net gain or
loss on mortgage-related securities. For the years ended December 31,
1996 and 1995, First Federal reported gains of $57,000 and $942,000,
respectively, on the loans held-for-sale portfolio and sales of
mortgage-related securities. These portfolios tend to perform well in
stable or decreasing interest rate environments, such as that
experienced during these periods. For the year ended December 31,
1996, First Federal recognized gains of $57,000 on loans
held-for-sale. These modest gains occurred as interest rates remained
on average relatively stable during 1996.
Non-interest expense increased by $4.2 million to $16.1 million
for the year ended December 31, 1996 compared to $11.9 million for the
year ended December 31, 1995. The increase was primarily attributable
to: (i)Ea $2.0 million special assessment during the year ended
December 31, 1996 to recapitalize the Savings Association Insurance
Fund ("SAIF"); and (ii) a $1.4 million increase in compensation and
other employee benefits to $7.7 million for the year ended December
31, 1996 compared to $6.3 million for the year ended December 31,
1995. The $2.0 million federal insurance special assessment was the
result of legislation enacted effective September 30, 1996 that
required SAIF member banks to pay a federal insurance special
assessment of 65.7 cents per $100 of SAIF-assessable deposits as of
March 31, 1995. The increase in compensation and other employee
benefits for the year ended December 31, 1996 was due primarily to
normal salary increases, additional retirement plan expenses
associated with the First Federal ESOP and the Deferred Compensation
Plan and additional salary and employee benefit expense required to
operate the offices acquired in the branch acquisitions consummated in
July 1995.
Income taxes decreased $1.1 million to $2.5 million for the year
ended December 31, 1996 from $3.6 million for the year ended December
31, 1995. This decrease was primarily due to a decrease in income
before income taxes along with a decrease in the effective income tax
rate. The effective income tax rates for the years ended December 31,
1996 and 1995 were 35.0% and 37.8%, respectively. The decrease in the
effective income tax rates was due primarily to a greater portion of
interest income not being subject to state income taxes.
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<PAGE> 18
INTRODUCTION
GENERAL
This Proxy Statement is being furnished to the holders of common stock,
par value $0.01 per share ("First Federal Common Stock"), of First Federal
Bancshares of Eau Claire, Inc., a Wisconsin corporation ("First Federal"),
in connection with the solicitation of proxies by the Board of Directors
of First Federal (the "First Federal Board") for use at the Special
Meeting of Shareholders of First Federal to be held on Thursday, March 27,
1997, at 10:00 a.m., Wisconsin time, at the Holiday Inn Campus Area, 2703
Craig Road, Eau Claire, Wisconsin 54701, and at any adjournments or
postponements thereof (the "Special Meeting").
At the Special Meeting, holders of record of First Federal Common
Stock as of the close of business on January 20, 1997 (the "Voting
Record Date") will consider and vote upon a proposal to approve the
Agreement and Plan of Merger, dated as of September 16, 1996, as
amended on December 23, 1996 (as so amended, the "Agreement"), by and
among First Federal, Mutual Savings Bank, a mutual savings bank
organized under the laws of the State of Wisconsin ("Mutual"), and
First Federal Merger Corporation, a Wisconsin corporation and
wholly-owned subsidiary of Mutual ("Merger Corp."), pursuant to which
First Federal will be acquired by Mutual through the merger of Merger
Corp. with and into First Federal (the "Merger"), with First Federal
temporarily becoming a direct, wholly-owned subsidiary of Mutual. It
currently is anticipated that immediately following the Merger, First
Federal will be liquidated into Mutual and First Federal Bank will be
merged with and into Mutual. First Federal Bank's offices will be
operated thereafter under Mutual's name.
Pursuant to the terms of the Agreement, each outstanding share of
First Federal Common Stock will be converted into the right to receive
$18.85 in cash (the "Merger Per Share Consideration"), subject to a
$0.05 per share upward price adjustment for each calendar month or
portion of a month beyond March 31, 1997 for which consummation of the
Merger is delayed, provided that such delay is not due to a breach of
any representation, warranty or covenant by, or is otherwise
attributable to, First Federal; provided that shares of First Federal
Common Stock owned by Mutual and any of Mutual's affiliates (including
Merger Corp.), and the 48,560 shares of First Federal Common Stock
held in the trust established under the First Federal Bank of Eau
Claire, F.S.B. Incentive Plan and Trust Agreement which have not been
awarded to participants, will be canceled in the Merger without
consideration. The First Federal Board has unanimously approved the
terms of the Agreement and recommends that shareholders of First
Federal vote FOR the approval and adoption of the Agreement.
PARTIES TO THE MERGER
First Federal was incorporated on March 3, 1994 for the purpose of
becoming the holding company for First Federal Bank of Eau Claire,
F.S.B. ("First Federal Bank") upon First Federal Bank's conversion
from a federally-chartered mutual savings bank to a federally-chartered stock
savings bank (the "Conversion"). The Conversion was consummated on October 6,
1994. At September 30, 1996, First Federal had total assets of $728.8
million, total deposits of $374.0 million and shareholders' equity of $97.8
million. First Federal has not engaged in any significant activity other than
holding the stock of First Federal Bank. First Federal Bank is regulated by
the Office of Thrift Supervision ("OTS") and its deposits are insured up to
applicable limits under the SAIF of the Federal Deposit Insurance Corporation
("FDIC"). First Federal Bank's principal business consists of attracting funds
in the form of deposits and other borrowings and originating mortgage loans
principally to finance the purchase and/or construction of residential
dwellings and originating various types of consumer loans. First Federal also
invests in securities issued by the United States Government and its agencies
and in other securities such as mortgage-backed and related securities. At
September 30, 1996, First Federal operated 19 full-service banking offices in
west central Wisconsin and one in eastern Minnesota. The principal executive
offices of First Federal are located at 319 East Grand Avenue, Eau Claire,
Wisconsin 54701, and its telephone number is (715) 833-7700.
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<PAGE> 19
Mutual, a mutual savings bank organized under the laws of the State of
Wisconsin, was founded in 1892. At September 30, 1996, Mutual had total assets
of $1.2 billion, total deposits of $1.0 billion and retained earnings of $147.8
million. Mutual is regulated by the FDIC and the Division of Savings
Institutions of the Wisconsin Department of Financial Institutions (the
"Wisconsin Division") and its deposits are insured up to applicable limits by
the SAIF. Mutual's principal business consists of attracting funds in the form
of deposits and other borrowings and originating mortgage loans principally to
finance the purchase and/or construction of residential dwellings and
originating various types of commercial and consumer loans. Mutual also invests
in securities issued by the United States Government and its agencies and in
other securities such as mortgage-backed and related securities. At September
30, 1996, Mutual operated 33 banking offices and one loan production office in
Wisconsin. The principal executive offices of Mutual are located at 4949 West
Brown Deer Road, Milwaukee, Wisconsin 53223, and its telephone number is (414)
354-1500.
Merger Corp. is a wholly-owned subsidiary of Mutual which was formed
specifically for the purpose of merging with and into First Federal in
connection with the transactions contemplated by the Agreement. Pursuant to the
terms of the Agreement, at the Effective Time, Merger Corp. will be merged with
and into First Federal, with First Federal continuing as the surviving
corporation and the separate corporate existence of Merger Corp. will cease.
THE SPECIAL MEETING
PLACE, TIME AND DATE
The Special Meeting of Shareholders of First Federal will be held on
Thursday, March 27, 1997, at 10:00 a.m., Wisconsin time at the Holiday Inn
Campus Area, 2703 Craig Road, Eau Claire, Wisconsin 54701. This Proxy Statement
is being sent to holders of shares of First Federal Common Stock and is
accompanied by an appointment form of proxy ("Proxy") which is being solicited
by the First Federal Board for use at the Special Meeting and any adjournments
or postponements thereof.
PURPOSE
The purpose of the Special Meeting is: (i) to consider and vote upon the
approval and adoption of the Agreement described herein, pursuant to which (y)
First Federal will be acquired by Mutual through the merger of Merger Corp. with
and into First Federal, and (z) each outstanding share of First Federal Common
Stock will be converted into the right to receive $18.85 in cash (subject to
certain upward price adjustments as set forth in this Proxy Statement); and (ii)
to act upon such other matters, if any, as may properly come before the Special
Meeting or any adjournments or postponements thereof.
RECORD DATE; SHARES ENTITLED TO VOTE
The First Federal Board has fixed the close of business on January 20, 1997
as the Voting Record Date for the determination of shareholders entitled to
notice of and to vote at the Special Meeting. Only those holders of First
Federal Common Stock of record on the Voting Record Date will be entitled to
notice of and to vote at the Special Meeting. Each share of First Federal
Common Stock will be entitled to one vote on each matter presented for action at
the Special Meeting. As of the Voting Record Date, 6,855,379 shares of First
Federal Common Stock were issued and outstanding, and First Federal had no other
class of securities issued and outstanding.
FIRST FEDERAL SHAREHOLDERS SHOULD NOT SEND IN THEIR STOCK CERTIFICATES FOR
FIRST FEDERAL COMMON STOCK UNTIL THEY RECEIVE FURTHER WRITTEN INSTRUCTIONS AND
THE LETTER OF TRANSMITTAL. HOLDERS OF SHARES OF FIRST FEDERAL COMMON STOCK ARE
URGED TO PROMPTLY NOTIFY FIRST FEDERAL OR FIRST FEDERAL'S TRANSFER AGENT OF
LOST, STOLEN OR DESTROYED CERTIFICATES OR CERTIFICATES NOT PROPERLY REGISTERED
IN ORDER TO BEGIN THE PROCESS OF ISSUANCE OF REPLACEMENT CERTIFICATES.
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<PAGE> 20
QUORUM; VOTES REQUIRED
The presence, in person or by proxy, of the holders of at least a majority
of the total number of shares of First Federal Common Stock entitled to vote is
necessary to constitute a quorum at the Special Meeting. Abstentions are
included in the determination of shares present and voting for purposes of
whether a quorum exists, while broker non-votes are not included.
The affirmative vote of the holders of a majority of the shares of First
Federal Common Stock entitled to vote at the Special Meeting is required for
approval and adoption of the Agreement. Abstentions and broker non-votes will
have the same effect as votes cast against approval of the Agreement.
PROXIES
Holders of shares of First Federal Common Stock may vote either in person
or by properly executed Proxy. Shares of First Federal Common Stock represented
by a properly executed Proxy received prior to or at the Special Meeting will,
unless such Proxy is revoked, be voted in accordance with the instructions
indicated on such Proxy. If no instructions are indicated on a properly
executed Proxy, the shares covered thereby will be voted FOR approval and
adoption of the Agreement. If any other matters are properly presented at the
Special Meeting for consideration, including, among other things, a motion to
adjourn the Special Meeting to another time and/or place (including, without
limitation, for the purpose of soliciting additional proxies), the persons named
in the Proxy and acting thereunder will have discretion to vote on such matters
in accordance with their best judgment. As of the date hereof, First Federal
knows of no such other matters.
Any Proxy given pursuant to this solicitation or otherwise may be revoked
by the person giving it at any time before it is voted by: (i) filing with the
Secretary of First Federal written notice thereof (Jerome A. Reinecke, Corporate
Secretary, First Federal Bancshares of Eau Claire, Inc., 319 East Grand Avenue,
Eau Claire, Wisconsin 54701); (ii) submitting a duly-executed Proxy bearing a
later date; or (iii) appearing at the Special Meeting and giving the Secretary
notice of his or her intention to vote in person. If you are a shareholder
whose shares are not registered in your own name, you will need additional
documentation from your record holder to vote personally at the Special Meeting.
Proxies solicited hereby may be exercised only at the Special Meeting and any
adjournments or postponements thereof and will not be used for any other
meeting.
The cost of solicitation of proxies on behalf of the Board of Directors of
First Federal will be borne by First Federal. First Federal has retained D.F.
King & Co., Inc., a professional proxy solicitation firm, to assist in the
solicitation of proxies. D.F. King & Co., Inc. will be paid a fee of $5,000,
plus reimbursement for out-of-pocket expenses. Proxies will be solicited
principally by mail, but also may be solicited by personal interview, telephone,
facsimile or other means of communication by directors, officers and other
employees of First Federal. Such directors, officers and employees will receive
no compensation, but may be reimbursed for out-of-pocket expenses in connection
with such solicitation. First Federal also has made arrangements with brokerage
firms, banks, nominees and other fiduciaries to forward proxy solicitation
materials for shares of First Federal Common Stock held of record by the
beneficial owners of such shares. First Federal will reimburse such holders for
their reasonable out-of-pocket expenses.
RECOMMENDATION OF THE FIRST FEDERAL BOARD OF DIRECTORS REGARDING THE
MERGER
The First Federal Board has unanimously approved the Agreement and
recommends that shareholders of First Federal vote FOR adoption and approval of
the Agreement and the transactions contemplated thereby. For the reasons
described herein, the First Federal Board believes the Merger will provide
significant value to all shareholders of First Federal. See "The
Merger--Background of the Merger,"--Reasons for the Merger and Recommendation of
the First Federal Board of Directors," and "--Opinion of First Federal Financial
Advisor."
SECURITY OWNERSHIP OF MANAGEMENT AND MUTUAL
As of the Voting Record Date, the directors and executive officers of First
Federal beneficially owned 740,502 shares of First Federal Common Stock (or
approximately 10.3% of the outstanding shares of First Federal Common Stock),
and Mutual owned, indirectly through Merger Corp., 50,000 shares of First
Federal Common Stock, or approximately 0.7% of all outstanding shares. As of
the Voting Record Date, the directors and executive officers of Mutual and their
affiliates did not own any shares of First Federal Common Stock. As of the
Voting Record Date, the First Federal Board had the ability to vote 367,711
unallocated shares of First Federal Common Stock owned by the First Federal Bank
of Eau Claire, F.S.B. Employee Stock Ownership Plan (the "First Federal ESOP")
and the ability to vote the shares for which voting instructions from the First
Federal ESOP participants are not received.
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<PAGE> 21
THE MERGER
The following information, insofar as it relates to matters contained in
the Agreement by and among First Federal, Mutual and Merger Corp., is qualified
in its entirety by reference to the Agreement which is incorporated herein by
reference and attached hereto as Exhibit A. FIRST FEDERAL SHAREHOLDERS ARE URGED
TO READ THE AGREEMENT IN ITS ENTIRETY.
THE AFFIRMATIVE VOTE OF A MAJORITY OF THE SHARES OF FIRST FEDERAL COMMON
STOCK IS REQUIRED TO APPROVE THE AGREEMENT. UNLESS OTHERWISE SPECIFIED, THE
SHARES OF FIRST FEDERAL COMMON STOCK REPRESENTED BY THE PROXIES SOLICITED HEREBY
WILL BE VOTED IN FAVOR OF THE APPROVAL OF THE AGREEMENT. THE FIRST FEDERAL
BOARD RECOMMENDS THAT YOU VOTE FOR THE APPROVAL OF THE AGREEMENT.
GENERAL
The Agreement provides that Mutual will acquire First Federal through a
merger of Merger Corp. with and into First Federal. The Agreement provides,
among other things, that as a result of the Merger, each outstanding share of
First Federal Common Stock will be converted into the right to receive $18.85,
subject to a $0.05 per share upward price adjustment for each calendar month or
portion of a month beyond March 31, 1997 for which consummation of the Merger is
delayed, provided that such delay is not due to a breach of any representation,
warranty or covenant by, or is otherwise attributable to, First Federal;
provided, however, that shares of First Federal Common Stock owned by Mutual and
any of Mutual's affiliates (including Merger Corp.), and the 48,560 shares of
First Federal Common Stock held in the trust established under the First Federal
Bank of Eau Claire, F.S.B. Incentive Plan and Trust Agreement which have not
been awarded to participants, will be canceled in the Merger without
consideration.
Upon consummation of the Merger, all shares of First Federal Common Stock
will no longer be outstanding and will automatically be cancelled and retired
and will cease to exist, and each holder of a certificate representing any
shares of First Federal Common Stock will cease to have any rights with respect
thereto, except the right to receive cash to be paid upon the surrender of such
certificate, without interest, as described below.
BACKGROUND OF THE MERGER
Following consummation of the Conversion in October 1994, First Federal
focused on a business strategy intended to enhance earnings and shareholder
value. This included an analysis of potential regional acquisitions, adoption
of a strategy of attempting to profitably invest and leverage Conversion
proceeds, franchise enhancement efforts (which led to the acquisition of a
number of branch offices from First Bank Systems, Inc.) and implementation of
share repurchase programs. While these efforts were partially successful, they
did not achieve the return on equity, earnings performance, or lead to the
increase in share price sought by the First Federal Board.
In view of the limited success of these shareholder value enhancement
efforts, on December 22, 1995, the First Federal Board retained Dain Bosworth as
its financial advisor and authorized Dain Bosworth to explore various strategies
to enhance shareholder value, including the potential sale of First Federal. In
subsequent months, Dain Bosworth and the First Federal Board discussed various
alternatives, including: (i) the merits of a potential "growth by acquisition"
initiative by First Federal; (ii) a strategy of increased financial leverage,
and attendant investment portfolio growth, to more fully utilize First Federal's
ample equity capital base; (iii) continued stock repurchase programs; (iv) the
initiation of significantly increased cash dividends or a large one-time special
cash dividend; (v)the challenges and likelihood of success in continuing First
Federal's transformation from a "traditional thrift" to a "community banking"
philosophy; and (vi) the likely values which might be attained should the First
Federal Board elect to pursue the potential sale of First Federal. After a
thorough review of the available alternatives to enhance shareholder value, the
First Federal Board determined that the possible sale of First Federal was
likely to be the alternative which would be in the best interest of First
Federal and its shareholders. Based on this determination, the First Federal
Board authorized Dain Bosworth to prepare a package of information about First
Federal and to explore a possible sale by contacting, on a confidential basis
and subject to the execution of confidentiality agreements, those entities that
Dain Bosworth and the First Federal Board believed to be the most likely
potential acquirors.
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<PAGE> 22
During March 1996, Dain Bosworth contacted 19 prospective or potential
acquirors, of which 17 expressed interest and agreed to execute confidentiality
agreements as a condition of receiving an information packet on First Federal.
Nine of the prospective or potential acquirors responded with initial
expressions of interest at preliminary prices ranging from $14.25 to $19.75 per
share. Following receipt of these expressions of interest, Dain Bosworth and
the First Federal Board evaluated the various preliminary proposals and
determined that the preliminary proposal received from one of the interested
potential acquirors (the "Other Bidder") was initially the most attractive,
primarily due to the fact that it offered the highest proposed purchase price
and offered a combination of cash and stock consideration.
Based on its evaluation, the First Federal Board in May 1996 authorized
Dain Bosworth and Michael Best & Friedrich, First Federal's legal counsel (the
"First Federal Counsel"), to meet with representatives of the Other Bidder to
discuss the possible sale of First Federal. The First Federal Board also
authorized the Other Bidder to conduct a full due diligence examination of First
Federal's operations. The Other Bidder conducted its due diligence examination,
which included a review of First Federal's books, records, facilities, and
meetings with key employees of First Federal. Subsequent to completing its due
diligence examination, the Other Bidder indicated that it intended to reduce the
per share purchase price in its final offer below that proposed in its initial
expression of interest. In addition, representatives of the Other Bidder
advocated certain post-acquisition, cost-savings measures that in the opinion of
the First Federal Board could have been detrimental to many of First Federal's
employees and might substantially reduce levels of service in communities being
served by First Federal. Despite the possibility of a reduced price and
concerns over First Federal employees and service levels, discussions continued
with the Other Bidder. The Other Bidder delivered a proposed purchase agreement
to First Federal in early June 1996, offering a reduced per share purchase price
of $18.25 per share from the $19.75 per share previously indicated in its
expression of interest, and including a change in the form of consideration from
a combination of stock and cash to all cash. The First Federal Board, Dain
Bosworth and First Federal Counsel reviewed the Other Bidder's proposed
agreement and responded with a revised document, seeking to address the First
Federal Board's concerns regarding the reduced purchase price and other various
issues. Discussions between the First Federal Board and the Other Bidder
continued throughout June 1996, with relatively little progress being made on
the major points of disagreement, including the proposed purchase price. After
further discussions, the Other Bidder increased the proposed purchase price to
$18.75 per share in cash; however, issues relating to First Federal employees
and continued service in communities currently served by First Federal remained
unresolved.
While discussions with the Other Bidder continued, a representative of
Mutual contacted the First Federal Board in mid-July 1996 and indicated that it
would be interested in exploring an acquisition of First Federal. The First
Federal Board advised Mutual that it was currently in discussions with another
institution, but that First Federal was not restricted in its ability to
consider other potential acquirors and would be willing to meet with
representatives of Mutual. In late July 1996, Mutual provided an initial
expression of interest to First Federal, indicating a proposed cash purchase
price (Mutual can only offer cash consideration because it is a non-stock,
mutually-owned organization), subject to a due diligence examination, in a range
of $18.75 to $19.00 per share. Mutual further indicated that its acquisition of
First Federal likely would not result in the termination of many First Federal
employees or in the closing of First Federal offices. Based on Mutual's
expression of interest, particularly due to a proposed purchase price range that
would result in a purchase price equal to or better than the Other Bidder's
proposed purchase price and without extensive First Federal employee
terminations or office closings, the First Federal Board agreed to allow Mutual
ten days in which to complete a due diligence examination of First Federal and
submit a definitive offer.
Mutual completed its due diligence review and on August 5, 1996, it
proposed to the First Federal Board a purchase price of $18.85 per share in
cash. The First Federal Board discussed Mutual's proposal and concluded that
the combination of a slightly higher cash price per share ($18.85 per share from
Mutual versus $18.75 per share from the Other Bidder), in addition to the
potential to protect First Federal employees and maintain community and customer
service in existing First Federal office locations, made the Mutual proposal
more attractive than the Other Bidder proposal, particularly in light of the
lack of progress in the negotiation of a number of significant issues presented
by the Other Bidder's proposed agreement. Based on this evaluation, the First
Federal Board authorized Dain Bosworth and First Federal Counsel to further
negotiate with Mutual to determine whether an acceptable definitive agreement
could be reached.
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<PAGE> 23
The First Federal Board, Dain Bosworth and First Federal Counsel entered
into discussions with Mutual and received a proposed purchase agreement from
Mutual on August 8, 1996. Following a review and discussion of Mutual's
proposed agreement, the First Federal Board decided to continue negotiations
with Mutual based on its determination that Mutual's proposal offered the
highest value for First Federal shareholders, greater opportunities and security
for First Federal employees and greater community and customer service
initiatives. First Federal and Mutual, through their representatives, continued
negotiations on the remaining terms of the definitive agreement, the terms and
conditions on each parties' business operations during the time between
execution of the Agreement and the Effective Time (see "-- Conduct of Business
Pending the Merger"), and the nature of the events that could result in the
issuance of stock options to Mutual for the purchase of shares of First Federal
Common Stock pursuant to the Stock Option Agreement (as defined and described in
"--Stock Option Agreement").
The First Federal Board convened on September 13, 1996 to review the
negotiated proposed Agreement and the Stock Option Agreement. Prior to the
meeting, copies of the proposed Agreement and the Stock Option Agreement were
delivered for review by the First Federal Board. Following extensive discussions
on the proposed Agreement and Stock Option Agreement and the related
transactions thereto, the estimated range of values to First Federal
shareholders if First Federal remained independent, other possible alternatives
to the Merger (including the other indications of interest from other
prospective or potential acquirors), the likelihood of continued employment for
First Federal employees and continued service in communities currently served by
First Federal, the fact that the transaction would be taxable to First Federal
shareholders (noting that the transaction proposed by the Other Bidder also
would have been taxable to the shareholders of First Federal), the operational,
legal, and regulatory issues relating to Mutual's proposal, a presentation by
Dain Bosworth regarding financial aspects of the proposed Merger, and receipt of
an opinion from Dain Bosworth that the consideration to be received by the First
Federal shareholders pursuant to the proposed Agreement would be fair from a
financial point of view, the First Federal Board unanimously approved the
Agreement and the Stock Option Agreement and authorized their execution and
delivery. The Agreement and Stock Option Agreement were executed and delivered
by the parties on September 16, 1996, and a joint press release was issued that
day announcing the proposed Merger.
Following execution of the Agreement, First Federal Common Stock continued
to trade on the NASDAQ National Market System ("NASDAQ/NMS") at prices below the
$18.85 price being offered in the Merger. This discounted trading price
presented Mutual with an opportunity to realize certain cost savings by
acquiring shares of First Federal Common Stock in the secondary market in
advance of the Merger. Accordingly, Mutual obtained regulatory approvals
necessary to authorize Merger Corp. to purchase up to 10% of the outstanding
shares of First Federal Common Stock in advance of the Merger in secondary
market transactions executed through independent brokers at prevailing market
prices. On December 26, 1996, Mutual issued a press release announcing Merger
Corp.'s intention to implement such a pre-Merger stock purchase program. As of
the Voting Record Date for the Special Meeting, Merger Corp. had acquired a
total of 50,000 shares of First Federal Common Stock, or approximately 0.7% of
all outstanding shares. Merger Corp. may purchase additional shares of First
Federal Common Stock prior to the Merger if shares are available at attractive
prices, but in no event will Merger Corp. purchase in excess of 10% of the
outstanding shares of First Federal Common Stock.
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<PAGE> 24
REASONS FOR THE MERGER AND RECOMMENDATION OF THE FIRST FEDERAL BOARD
OF DIRECTORS
THE FIRST FEDERAL BOARD BELIEVES THAT THE MERGER IS FAIR TO, AND IN THE
BEST INTERESTS OF, FIRST FEDERAL'S SHAREHOLDERS, AND RECOMMENDS THAT THE
SHAREHOLDERS OF FIRST FEDERAL VOTE IN PERSON OR BY PROXY AT THE SPECIAL MEETING
FOR THE APPROVAL OF THE AGREEMENT. The First Federal Board believes that the
Merger will provide significant value to all First Federal shareholders.
In reaching its unanimous determination to approve the Agreement, the First
Federal Board considered a number of factors, both from a short term and longer
term perspective, including, among others:
(a) the presentation by Dain Bosworth, First Federal's financial advisor,
indicating that the price offered by Mutual in the Merger compares
favorably with the other transactions reviewed by Dain Bosworth, and
the opinion of Dain Bosworth that, as of September 13, 1996 and
confirmed on February 17, 1997, the Merger Per Share Consideration of
$18.85 in cash per share was fair, from a financial point of view, to
the shareholders of First Federal (see "--Opinion of First Federal
Financial Advisor");
(b) the belief of the First Federal Board that Mutual's proposal was from
a price standpoint more favorable to First Federal shareholders than
any other potential merger proposal based on discussions with other
potential merger partners and on the views of Dain Bosworth (see
"--Background of the Merger");
(c) the relationship of the Merger Per Share Consideration to the range of
possible values to shareholders of First Federal potentially
obtainable through a strategy of independence, with due consideration
given to the timing and likelihood of actually receiving such values
(see "--Opinion of First Federal Financial Advisor");
(d) the other possible alternatives to the Merger available to First
Federal to enhance shareholder value and First Federal's limited
success in pursuing such alternatives (see "--Background of the
Merger" and "--Opinion of First Federal Financial Advisor");
(e) the consideration to be received by First Federal shareholders in the
Merger in relation to the current and historical market values of
First Federal Common Stock preceding the announcement of the Merger,
including the fact that the $18.85 per share purchase price
represented a 23.1% premium to the closing price of $15.31 per share
of First Federal Common Stock on the last full trading day prior to
the public announcement of the execution of the Agreement (see "Market
Prices and Dividend Information");
(f) the current and prospective economic environment and the competition
from larger institutions that First Federal likely would encounter
were it to remain an independent company;
(g) the assessment that the Merger with Mutual would be likely to provide
First Federal's employees attractive employment opportunities and
security, particularly in light of other proposals received (see
"--Background of the Merger");
(h) the assessment that First Federal would better serve the convenience
and needs of its customers and the communities that it serves through
affiliation with a larger institution, such as Mutual, which evidenced
a desire to retain existing First Federal offices and also to thereby
afford access to Mutual's financial and managerial resources and the
ability to offer an expanded range of potential products and services;
(i) the financial resources of Mutual and the likelihood of receiving the
requisite regulatory approvals in a timely manner;
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<PAGE> 25
(j) the fact that the Merger would be a taxable transaction for First
Federal's shareholders (see "--Certain Federal Income Tax
Consequences");
(k) the interests of directors and executive officers of First Federal and
First Federal Bank in the Merger (see "--Interests of Certain Persons
In the Merger"); and
(l) the assessment that Mutual has the financial capability to acquire
First Federal for the total amount of cash consideration to be paid.
In reaching its determination to recommend approval of the Agreement, the
First Federal Board did not assign any relative or specific weights to the
foregoing factors, and individual directors may have given different weights to
different factors.
OPINION OF FIRST FEDERAL FINANCIAL ADVISOR
First Federal retained Dain Bosworth on December 22, 1995 to act as its
financial advisor in connection with a possible sale or merger of First Federal,
and to provide an opinion to the First Federal Board as to the fairness, from a
financial point of view, of the consideration to be received by shareholders of
First Federal in connection with any such sale or merger. While Dain Bosworth
acted as First Federal's financial advisor, provided certain analysis to the
First Federal Board and assisted First Federal in the negotiations between First
Federal and Mutual, Dain Bosworth was not requested to and did not make any
recommendation to the First Federal Board as to the form or amount of
consideration in connection with the Merger. See "--Background of the Merger."
Dain Bosworth rendered an oral opinion to the First Federal Board,
subsequently confirmed in writing, that, as of September 13, 1996 and updated as
of February 17, 1997, the consideration to be received in the Merger by the
holders of First Federal Common Stock is fair to such shareholders from a
financial point of view. A copy of the updated opinion of Dain Bosworth is
attached as Exhibit B to this Proxy Statement.
There were no limitations imposed by First Federal on the scope of Dain
Bosworth's investigation, and Dain Bosworth solicited proposals from parties
other than Mutual regarding a potential sale or merger of First Federal with
such parties. Dain Bosworth's opinion did not address First Federal's
underlying business decision to proceed with the Merger. As set forth in its
opinion, Dain Bosworth relied on, and did not independently verify, the accuracy
and completeness of the financial and other information furnished to it by First
Federal. Dain Bosworth did not make an independent evaluation or appraisal of
the assets and liabilities of First Federal or Mutual, and did not express any
opinion regarding the liquidation value or regulatory compliance of either
entity. First Federal shareholders are urged to read Dain Bosworth's opinion in
its entirety for a summary description of the procedures followed, the factors
considered and the assumptions made by Dain Bosworth in rendering its opinion.
In connection with its opinion, Dain Bosworth, among other things: (i)
reviewed the Agreement and related documents; (ii) visited the executive offices
of First Federal; (iii) held discussions with the First Federal Board regarding
the business, operations and prospects of First Federal and the reasons for
completing the Merger; (iv)Ereviewed certain business and financial information
on First Federal, including financial forecasts that had been prepared and
provided by the management of First Federal; (v) made further inquiries
regarding the financial forecasts for First Federal on a stand-alone basis; (vi)
reviewed certain business and financial information regarding Mutual;
(vii)Ereviewed certain publicly available documents filed by First Federal with
the SEC pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act"); (viii) compared certain financial statistics of First Federal
with statistics for other publicly traded companies deemed comparable; (ix)
reviewed price and trading data of the First Federal Common Stock; and (x) to
the extent publicly available, compared the financial terms of the Merger with
those of other transactions deemed comparable. Dain Bosworth used the foregoing
information to further its understanding of First Federal and the market for the
First Federal Common Stock.
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<PAGE> 26
In conducting the review and in performing the analyses described below,
Dain Bosworth did not attribute any particular weight to any information or
analysis considered by it, but rather made qualitative judgments as to the
significance and relevance of each factor and analysis. Accordingly, Dain
Bosworth believes that the information reviewed and the analyses conducted must
be considered as a whole and that considering any portion of such information or
analysis, without considering all of such information and analyses, could create
a misleading or incomplete view of the process underlying its opinion.
In delivering its oral opinion to the First Federal Board on September 13,
1996, Dain Bosworth prepared and delivered to the First Federal Board and the
First Federal Counsel certain written materials containing a summary of various
analyses and information that Dain Bosworth considered to be material to its
opinion. The following is a summary of certain of these materials.
Analysis of Selected Publicly Traded Companies. Dain Bosworth compared
First Federal's financial information and recent prices of First Federal Common
Stock to similar information for selected publicly traded Midwestern thrifts,
including: FCB Financial Corp., First Northern Capital Corporation, OSB
Financial Corp., Security Capital Corporation, FSF Financial Corp. and HMN
Financial, Inc. (the "Comparable Companies"). The Comparable Companies were
selected because they were Wisconsin- or Minnesota-based thrift holding
companies with total assets of $200 million or more and a ratio of tangible
shareholders' equity to assets of greater than 10.0% as of the last publicly
reported date.
Dain Bosworth calculated valuation ratios based on published stock prices
for each of the Comparable Companies. The valuation ratios were based upon
several variables, including earnings for the latest twelve months ("LTM"),
earnings per share ("EPS") estimated for the current and next fiscal years, book
value and tangible book value. The estimates of EPS for the Comparable Companies
and First Federal were based upon consensus earnings estimates obtained from an
independent reporting system that monitors estimates prepared by research
analysts from various investment firms.
Dain Bosworth compared the historical performance and expectations for the
Comparable Companies with the performance and management's expectations for
future profitability of First Federal. Based upon this comparison, Dain Bosworth
determined that the median valuation ratios for the Comparable Companies were
the appropriate benchmarks against which the value of First Federal Common Stock
should be measured; accordingly, Dain Bosworth computed the same valuation
ratios for First Federal Common Stock based on (i) the closing price for First
Federal Common Stock on September 11, 1996, three trading days prior to the
announcement of the Merger, and (ii) the Merger Per Share Consideration, and
compared such ratios to the median valuation ratios for the Comparable
Companies. The following table lists the results of this analysis:
<TABLE>
<CAPTION>
MULTIPLE FOR FIRST FEDERAL
COMMON STOCK BASED UPON
MEDIAN FOR CLOSING PRICE MERGER
COMPARABLE ON SEPT. 11, PER SHARE
COMPANIES 1996 CONSIDERATION
---------- ------------- -------------
<S> <C> <C> <C>
Valuation Variable:
Price/book value 0.90x 1.05x 1.33x
Price/tangible book value 0.90 1.10 1.38
Price/LTM EPS 17.4 17.4 21.9
Price/current fiscal year EPS estimate 15.2 16.3 20.5
Price/next fiscal year EPS estimate 13.5 12.5 15.7
</TABLE>
Analysis of Selected Merger and Acquisition Transactions. Dain Bosworth
reviewed and summarized the terms of relevant merger and acquisition
transactions, including 19 acquisitions of Midwestern thrifts with tangible
equity in excess of 10.0% of total assets. Dain Bosworth concentrated on
transactions that were announced after January 1, 1995 and those for which
relevant financial data was available.
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<PAGE> 27
For purposes of evaluating the Merger, valuation multiples were calculated
for each of the acquisitions based upon several variables, including book value,
tangible book value, LTM earnings per share and the ratio of the premium paid to
tangible equity over core deposits. These valuation multiples were then compared
to the valuation multiples implied in the Merger. The following table lists the
results of Dain Bosworth's analysis of selected merger and acquisition
transactions:
<TABLE>
<CAPTION>
VALUATION RATIOS
---------------------------------------------------
PRICE TO PRICE TO PRICE TO PREMIUM
TO BOOK TANGIBLE LTM TO CORE
VALUE BOOK EPS DEPOSITS
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Acquisitions (median) ....... 1.24x 1.24x 27.9x 6.1%
Implied in the Merger ....... 1.33 1.38 21.9 10.1
</TABLE>
Dain Bosworth also analyzed the price to tangible book value multiples
implied in the acquisitions as adjusted for varying levels of capitalization.
Under the assumption that acquirors will not pay a premium on capital deemed to
be in excess of an assumed optimal capital level, Dain Bosworth attributed the
entire premium paid in each acquisition to an estimated "base equity" of seven
percent of assets. The median implied multiple for price to "base equity" for
the comparable acquisitions was 1.54, while the comparable valuation multiple
implied in the Merger was 1.76.
In addition to the valuation analyses described above, Dain Bosworth
performed an analysis of the premiums paid to prevailing market prices in the
comparable acquisitions. These premiums were then compared to the premiums
implied in the Merger, as calculated on September 12, 1996. The following table
lists the results of Dain Bosworth's analysis of premiums paid:
<TABLE>
<CAPTION>
PREMIUM PAID TO PRICE
----------------------------------------
THREE MONTHS ONE MONTH ONE DAY
PRIOR TO PRIOR TO PRIOR TO
ANNOUNCEMENT ANNOUNCEMENT ANNOUNCEMENT
------------ ------------ ------------
<S> <C> <C> <C>
Acquisitions (median) ....... 31% 27% 18%
Implied in the Merger ....... 26 26 26
</TABLE>
Discounted Cash Flow Analysis. Dain Bosworth performed a discounted cash
flow analysis using financial projections through the year 2000 that had been
prepared and provided by management of First Federal. Dain Bosworth calculated
ranges of present values for First Federal Common Stock using discount rates
ranging from 13.0% to 19.0%. These discount rates were applied to projected
dividends and terminal values over various assumed holding periods. The
terminal values were estimated by using multiples ranging from (i) 0.80 to 1.20
times book value estimated at the end of each year, and (ii) 8.0 to 12.0 times
estimated earnings for each year. This range of multiples for estimated
earnings was based upon current multiples paid for thrifts which Dain Bosworth
believed were being primarily valued in the marketplace on an earnings basis
rather than on a book value basis.
The computed ranges for the present value of First Federal Common Stock
were (i) $9.78 to $17.92 per fully diluted share using terminal multiples based
upon estimated book value, and (ii) $8.96 to $18.84 per fully diluted share
using terminal multiples based upon estimated earnings.
Dain Bosworth did not assign any particular weight to the individual
analyses described above. Dain Bosworth's determination regarding the fairness
of the Merger is not based on a mathematical model but rather upon the body of
information obtained from such analyses and qualitative factors.
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<PAGE> 28
For its services as financial advisor and for rendering its opinion to the
First Federal Board in connection with the transaction contemplated by the
Agreement, First Federal has paid Dain Bosworth $150,000 and also has agreed to
pay Dain Bosworth an additional estimated $600,000 upon consummation of the
Merger, based upon the implied value in the Merger. In addition, First Federal
has agreed to reimburse Dain Bosworth for its reasonable out-of-pocket expenses
and to indemnify Dain Bosworth against certain expenses and liabilities arising
in connection with its engagement, including liabilities under the Securities
Act of 1933, as amended (the "Securities Act"), and the Exchange Act.
Dain Bosworth was selected by First Federal on the basis of its experience
in valuing securities in connection with mergers and acquisitions, knowledge of
First Federal, and expertise in transactions involving financial institutions.
Dain Bosworth is a nationally recognized investment banking firm and is
regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. In the past, Dain Bosworth
has provided investment banking services to First Federal and has received
customary fees for the rendering of such services. Dain Bosworth has from time
to time issued research reports and recommendations on First Federal Common
Stock. In the course of its trading activities, Dain Bosworth may, from time to
time, have a long or short position in, and buy and sell securities of, First
Federal. Dain Bosworth also periodically publishes research reports regarding
other financial institutions, including other thrifts based in the Midwest.
EFFECTIVE TIME OF THE MERGER
As soon as practicable after the satisfaction or waiver of the conditions
to the obligations of the parties to effect the Merger, the Effective Time will
occur on the date and at the time the Articles of Merger are filed with the
Wisconsin Division. See "--Conditions to Each Party's Obligations." It is
currently anticipated that the Merger will be consummated on or before March 31,
1997. First Federal or Mutual may terminate the Agreement if the Merger is not
consummated on or before August 31, 1997.
SURRENDER OF FIRST FEDERAL STOCK CERTIFICATES; PAYMENT OF MERGER CONSIDERATION
Prior to the Effective Time, Mutual will deposit with Firstar Trust Company
(the "Paying Agent") an amount of cash sufficient to pay the total amount of
consideration to be paid in the Merger (the "Payment Fund"). Within three
business days after the Effective Time, the Paying Agent will mail to each
holder of shares of First Federal Common Stock a letter of transmittal and
instructions for use in effecting the surrender of certificates representing
shares of First Federal Common Stock (the "Certificates") in exchange for the
Merger Per Share Consideration. FIRST FEDERAL SHAREHOLDERS SHOULD NOT SEND IN
THEIR CERTIFICATE(S) UNTIL THEY RECEIVE THEIR LETTER OF TRANSMITTAL AND
INSTRUCTIONS.
Upon surrender to the Paying Agent of Certificate(s), together with a
properly completed and duly executed letter of transmittal, the Paying Agent
will promptly pay to the First Federal shareholder, in cash, the Merger Per
Share Consideration multiplied by the number of shares of First Federal Common
Stock represented by each surrendered Certificate. No interest will be paid or
accrued on the amounts paid for such shares of First Federal Common Stock. If
payment is to be made to any person other than the person named on the
surrendered Certificate(s), such Certificate(s) so surrendered must be properly
endorsed and otherwise in proper form for transfer, and such person requesting
payment shall: (i) pay to the Paying Agent any transfer or other taxes required
by reason of such payment to a person other than that named on the surrendered
Certificate(s); (ii) authorize the Paying Agent to deduct such taxes from such
payment; or (iii) establish to the satisfaction of the Paying Agent that such
tax has been paid or is not applicable.
Until so surrendered, each Certificate that before the Effective Time
represented outstanding shares of First Federal Common Stock will be deemed to
represent and evidence the right to receive the amount of cash into which the
same may be exchanged for, and until so surrendered, no cash will be paid to the
holder of such Certificate(s). After the Effective Time, there will be further
transfers on the records of First Federal for Certificates and, if such
Certificates are presented to First Federal for transfer, they will be canceled
and exchanged for cash as described above.
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<PAGE> 29
FIRST FEDERAL STOCK OPTIONS
Prior to consummation of the Merger, First Federal must have either: (i)
taken all steps necessary to accelerate the exercisability of all outstanding
options ("First Federal Stock Options") to purchase shares of First Federal
Common Stock pursuant to the First Federal Bancshares of Eau Claire, Inc. 1995
Stock Option Plan (the "Stock Option Plan") and each holder of a First Federal
Stock Option shall have voluntarily exercised all such options; or (ii) cashed
out each holder of First Federal Stock Options without the exercise thereof and
with written consent by such holder at a price per First Federal Stock Option
equal to the difference between the Merger Per Share Consideration minus the
exercise price of such option (the "Option Consideration"). As of the Effective
Time, there will be no outstanding First Federal Stock Options.
REPRESENTATIONS AND WARRANTIES
The Agreement contains various customary representations and warranties
relating to, among other things: (a) each of First Federal's, First Federal
Bank's, Mutual's and Merger Corp.'s organization and similar corporate matters;
(b) each of First Federal's and Merger Corp.'s capital structure; (c)
authorization, execution, delivery, performance and enforceability of the
Agreement and related matters; (d) conflicts under charters or bylaws, required
consents or approvals and violations of any agreements, instruments or laws; (e)
properties; (f) litigation; (g) documents filed by First Federal and First
Federal Bank with the SEC, the OTS, the Federal Home Loan Bank of Chicago, the
FDIC and other state securities or savings and loan authorities; (h) absence of
events having a material adverse effect; (i) contractual rights and duties; (j)
undisclosed liabilities; (k) insurance policies; (l) retirement and other
employee plans and matters relating to the Employee Retirement Income Security
Act of 1974, as amended; (m) compliance with law, including environmental law;
(n) brokers', finders', financial advisor's or other similar fees; (o) tax
returns and audits; (p) government approvals; (q) no pending acquisitions
concerning First Federal; (r) labor matters; (s) indebtedness; and (t) the
accuracy of information supplied by each of First Federal and Mutual in
connection with this Proxy Statement.
CONDITIONS TO EACH PARTY'S OBLIGATIONS
Consummation of the Merger is subject to various conditions. While it is
anticipated that all such conditions will be satisfied, there can be no
assurance that all of such conditions will indeed be satisfied or (where
permissible) waived.
Conditions to Each Party's Obligations. The respective obligations of each
party to effect the Merger are subject to the satisfaction or waiver as of the
Effective Time of the following conditions: (i) the Agreement shall have been
approved by vote of the holders of at least a majority of the outstanding shares
of First Federal Common Stock; (ii) all necessary regulatory approvals, consents
or waivers required to consummate the transactions contemplated by the Agreement
shall have been obtained from the OTS, the FDIC and the Wisconsin Division, and
all statutory waiting periods in respect thereof shall have expired; provided,
however, that no approval, consent or waiver received shall have any condition
which would, in the reasonable judgment of Mutual, be materially burdensome on
Mutual's business or would so adversely impact the economic and business
benefits of the Merger to Mutual so as to render inadvisable the consummation of
the Merger; (iii) the absence of any suit, action or other proceeding seeking to
restrain, enjoin or prohibit the transactions contemplated by the Agreement, and
where in the reasonable judgment of First Federal or Mutual, such suit, action
or other proceeding is likely to have a material adverse effect with respect to
such party's interest; (iv) all covenants, agreements and other obligations
under the Agreement shall have been performed or complied with in all material
respects prior to or as of the Effective Time; and (v) duly executed replacement
employment or severance agreements for the executive officers of First Federal
Bank shall have been delivered to Mutual upon Mutual's direction.
Conditions to the Obligation of First Federal. The obligation of First
Federal to effect the Merger shall be subject to the satisfaction or waiver as
of the Effective Time of the following additional conditions: (i) each of the
representations and warranties made by Mutual and Merger Corp. in the Agreement
shall be true and correct as of the Effective Time, except for those
representations and warranties which address matters only as of a particular
date (which shall remain true and correct as of such date); and (ii) receipt of
an opinion from Dain Bosworth, dated on the date on which this Proxy Statement
is first mailed to First Federal shareholders, that the consideration to be
received by First Federal shareholders pursuant to the Merger is fair from a
financial point of view.
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<PAGE> 30
Conditions to the Obligation of Mutual. The obligation of Mutual to effect
the Merger shall be subject to the satisfaction or waiver as of the Effective
Time of the following conditions: (i) the representations and warranties made
by First Federal in the Agreement shall be true and correct as of the Effective
Time, except for those representations and warranties which address matters only
as of a particular date (which shall remain true and correct as of such date)
and except for those matters which in the aggregate do not have a material
adverse effect on the business, operations, properties (including intangible
properties), condition (financial or otherwise), assets, liabilities (including
contingent liabilities) or prospects of First Federal and First Federal Bank
taken as a whole; (ii) no conditions or facts shall have occurred or exist which
individually or in the aggregate has a Quantified Material Adverse Effect (as
defined below) upon First Federal and its subsidiaries taken as a whole; (iii)
receipt by Mutual of "comfort letters" from First Federal's independent
accountants with respect to facts concerning the financial condition of First
Federal; (iv) continued listing of First Federal Common Stock on the NASDAQ/NMS
up to the Effective Time; and (v) First Federal shall have prior to consummation
of the Merger (a) accelerated the exercisability of, and each holder thereof
shall have voluntarily exercised, all outstanding First Federal Stock Options,
or (b) cashed out each holder of First Federal Stock Options by written consent
from such holder and without the exercise thereof at a price equal to the Merger
Per Share Consideration minus the exercise price.
As used in the Agreement, the term "Quantified Material Adverse Effect"
means any change or development (or a series of changes or developments) which
individually or in the aggregate have a Material Adverse Effect on First
Federal's business, operations, properties (including intangible properties),
condition (financial or otherwise), assets, liabilities (including contingent
liabilities) or prospects in an aggregate dollar amount, on an after-tax basis,
of $1.0 million or more; provided such change(s) or development(s) result solely
from a failure by First Federal to perform or fulfill any agreement or covenant
made by First Federal in the Agreement or result from one or more of the
representations and warranties made by First Federal in the Agreement becoming
untrue based upon (i) any event occurring after September 16, 1996, or (ii) a
discovery after September 16, 1996 relating to the untruth of such
representations and warranties as of September 16, 1996, but in either case
excluding therefrom the effects on First Federal and its subsidiaries arising
from (y) general changes in market interest rates, any changes in law, generally
accepted accounting principles, regulatory accounting principles, regulatory
assessments or economic or other changes affecting depository institutions or
their holding companies generally, or (z) the costs and expenses relating to the
Agreement and the transactions contemplated thereby, except to the extent such
costs and expenses exceed $700,000 in the aggregate (excluding the amount paid
to Dain Bosworth).
The fourth quarter provision to First Federal's loan loss reserve (see
"Recent Financial Data--Management's Discussion and Analysis of Recent Financial
Data--Comparison of Financial Condition and Results of Operations At and For the
Three Months Ended December 31, 1996 and 1995--Results of Operations") resulted
in after-tax costs to First Federal of approximately $300,000 which potentially
could be counted toward the $1.0 million threshold contained in the definition
of "Quantified Material Adverse Effect." There can be no assurance that, prior
to closing, other matters will not develop or be discovered that potentially
could constitute additional Material Adverse Effects and, in the aggregate,
exceed $1.0 million thereby resulting in the occurrence of a Quantified Material
Adverse Effect. In addition, there can be no assurance that if a Quantified
Material Adverse Effect occurs, Mutual would waive this condition to its
obligation to consummate the Merger.
REGULATORY APPROVALS
As a state savings bank organized under the laws of the State of Wisconsin,
Mutual is subject to regulation and supervision by the Wisconsin Division under
Chapter 214 of the Wisconsin Statutes ("Chapter 214") and the regulations
promulgated thereunder and by the FDIC under the Federal Deposit Insurance Act
(the "FDI Act") and the regulations promulgated thereunder. As a savings and
loan holding company, First Federal is subject to OTS regulation and supervision
under the Home Owners' Loan Act of 1956, as amended (the "HOLA") and the
regulations promulgated thereunder. First Federal Bank, a federally-chartered
stock savings bank, also is subject to OTS regulation and supervision under HOLA
and the regulations promulgated thereunder. The Merger and the subsequent
related transactions are subject to the separate approvals of the Wisconsin
Division, the OTS and the FDIC.
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<PAGE> 31
Mutual filed an application with the Wisconsin Division on
October 28, 1996 for approval under Chapter 214 of the acquisition of
First Federal by, and the consolidation of First Federal and First
Federal Bank with and into, Mutual. The Wisconsin Division approved
the Agreement and the related transactions on January 13, 1997 and is
expected to issue a Certificate of Absorption under Chapter 214 upon
the consummation of the transactions contemplated thereby. The
Wisconsin Division's approval did not impose any materially burdensome
conditions on Mutual.
Mutual filed an application with OTS on October 28, 1996 for the
approval to acquire control of First Federal under HOLA. OTS approved
such application under HOLA on January 30, 1997, and imposed no
materially burdensome conditions on Mutual.
Mutual filed an application with the FDIC under Section 18(c) of
the FDI Act (also known as the "Bank Merger Act") on October 28, 1996
to merge First Federal and First Federal Bank into Mutual. The FDIC
approved such application under the Bank Merger Act on January 31,
1997, and the 15-day waiting period required before consummation of
the Merger expired on February 15, 1997. The FDIC's approval did not
impose any materially burdensome conditions on Mutual.
CONDUCT OF BUSINESS PENDING THE MERGER
Pursuant to the terms of the Agreement, First Federal has agreed
that before the Effective Time, First Federal and its subsidiaries
will: (i) carry on their business in the regular course and
substantially in the same manner as previously conducted; (ii) manage,
operate, maintain and repair all assets and properties in the normal
business manner; (iii) use reasonable efforts to maintain all of its
existing insurance policies in full force and effect, except as
mutually agreed with Mutual; (iv) use their best efforts to preserve
their business organizations intact, to retain the services of their
present officers and other key employees and to preserve the goodwill
of depositors, borrowers and other customers, suppliers, creditors and
others with business relationships; (v) comply with all applicable
laws, except for non-compliances which would not individually or in
the aggregate have a Material Adverse Effect (as defined below) on
First Federal and its subsidiaries taken as a whole; and (vi) timely
and properly file all required federal, state, local and foreign tax
returns, and pay or make provision for the payment of all taxes owed.
For purposes of the Agreement, "Material Adverse Effect" means any
change or effect that is or is reasonably likely to be materially
adverse to First Federal's business operations, properties (including
intangible properties), condition (financial or otherwise), assets,
liabilities (including contingent liabilities) or prospects.
Furthermore, the Agreement contains certain restrictions agreed to by
First Federal that, before the Effective Time, First Federal and its
subsidiaries will not: (i) do any act or omit to do any act, or permit any act
or omission to act, which will cause a breach of any existing contracts, except
where such breach would not have a Material Adverse Effect on First Federal and
its subsidiaries taken as a whole; (ii) grant any increase, except within
specified parameters, in the rate of pay of any of their employees, or
institute or amend any employee benefit plan, except as contemplated by the
Agreement, or enter into or modify any written employment arrangement with any
person, or make any discretionary contributions to any of its existing benefit
plans, except for contributions to the First Federal ESOP necessary for the
First Federal ESOP to make scheduled installment payments required under the
terms of its indebtedness, or make any allocation to the account of any
employee benefit plan participant, other than in the normal course and in
accordance with the terms of the relevant employee benefit plan or except as
expressly contemplated by the Agreement; (iii) enter into any contract or
commitment or engage in any transaction not in the usual and ordinary course of
business and consistent with normal business practices, or purchase, lease,
sell or dispose of any capital asset, except for capital assets which do not
individually or in the aggregate exceed $50,000 or $150,000, respectively; (iv)
create, incur, invest in or assume any indebtedness or investment securities
not in the usual and ordinary course of business, or incur costs and expenses
in connection with the transactions contemplated by the Agreement (excluding
the financial advisory fee) which materially exceed $700,000 without prior
written consent of Mutual; (v) amend its Articles of Incorporation, Charter or
Bylaws, except as mutually agreed by First Federal and Mutual or as required by
law; (vi) except in connection with the exercise of First Federal Stock
Options, issue any additional shares of its capital stock, or issue or grant
any stock options, warrants or rights to subscribe for or acquire any
additional shares of its capital stock; (vii) declare or pay any dividend or
make any capital or surplus distributions of any nature, except for its regular
quarterly cash dividends not to exceed $0.07 per share for each outstanding
share of First Federal Common Stock; (viii) directly or indirectly redeem,
purchase or otherwise acquire, recapitalize or reclassify any of its capital
stock or liquidate in whole or in part; (ix) make or institute any unusual or
novel methods of lending, investing, purchasing, selling, leasing, managing,
accounting or operating; or (x) extend any additional credit or modify the
terms of any existing credit to certain borrowers without the prior approval of
Mutual.
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In addition, First Federal has agreed that it will not, directly
or indirectly, initiate, solicit or knowingly encourage (including by way of
furnishing any information or assistance), or take any other action to
facilitate, any inquiries or the making of any proposal that constitutes, or
may reasonably be expected to lead to, any Acquisition Proposal (as defined
below), or negotiate with any person in furtherance of such inquiries or to
obtain an Acquisition Proposal, or agree to endorse, or endorse, any
Acquisition Proposal, or authorize or permit any of its officers, directors or
employees or any investment banker, financial advisor, attorney, accountant or
other representative retained by it to take any such action, and notify Mutual
orally, and confirm in writing, subject to disclosure being consistent with the
fiduciary duties of the First Federal Board, all relevant details relating to
all inquiries and proposals which it may receive relating to any of such
matters. However, the Agreement provides that this provision will not prohibit
the First Federal Board from (a) taking any of the foregoing actions necessary
to fulfill their fiduciary obligations if prior to furnishing information to
any party, First Federal receives from such party an executed confidentiality
agreement, or (b) complying with Rules 14d-2 and 14e-2 promulgated under the
Exchange Act with regard to an Acquisition Proposal. "Acquisition Proposal"
means any of the following involving First Federal (other than the transactions
contemplated under the Agreement): (a) any merger, consolidation, share
exchange, business combination or other similar transaction; (b) any sale,
lease, exchange, mortgage, pledge, transfer or other disposition of 10% or more
of the assets of First Federal in a single transaction or series of related
transactions; (c) any sale of 10% or more of the outstanding shares of capital
stock of First Federal (or securities convertible or exchangeable into or
otherwise evidencing, or an agreement or instrument evidencing, the right to
acquire such capital stock); (d) any tender offer or exchange offer for 10% or
more of the outstanding shares of capital stock of First Federal or the filing
of a registration statement under the Securities Act in connection therewith;
(e) any solicitation of proxies in opposition to approval by First Federal's
shareholders of the Merger; (f) the filing of an acquisition application (or
the giving of acquisition notice) under HOLA; (g) any person shall have
acquired beneficial ownership or the right to acquire beneficial ownership of,
or any "group" (as such term is defined under Section 13(d) of the Exchange Act
and the rules and regulations of the SEC promulgated thereunder) shall have
been formed which beneficially owns or has the right to acquire beneficial
ownership of, 10% or more of the then outstanding shares of capital stock of
First Federal, other than the acquisition by Merger Corp. of up to 10% of the
outstanding shares of First Federal Common Stock pursuant to Merger Corp.'s
pre-Merger stock purchase program (see "The Merger--Background of the Merger");
or (h) any public announcement of a proposal, plan or intention to do any of
the foregoing.
AMENDMENT AND WAIVER
Prior to the Effective Time of the Merger, the Agreement may be
amended or any condition of the Agreement may be waived by the party
whose favor the provision runs; provided, however, that after First
Federal shareholder approval is obtained, no such amendment may (i)
reduce the Merger Per Share Consideration, or (ii) otherwise
materially adversely affect the rights of the First Federal
shareholders.
TERMINATION
The Agreement may be terminated and the Merger abandoned at any
time before the Effective Time, whether before or after approval by
the shareholders of First Federal: (a) by written agreement of First
Federal and Mutual; (b) by either First Federal or Mutual if generally
there has been a breach of any representation, warranty or agreement
on the part of the other party set forth in the Agreement; (c) by
either party if there is a suit, action or other proceeding pending or
overtly threatened on the transactions contemplated by the Agreement
and where, in the reasonable judgement of either party, such suit,
action or other proceeding is likely to have a material adverse effect
with respect to such party's interest; (d) by either party if the
Agreement is not approved by a majority of the holders of First
Federal Common Stock; (e) by either party if the requisite regulatory
approvals are not obtained; (f) by First Federal or Mutual if certain
conditions with respect to the other as described in "--Conditions to
Each Party's Obligations" have not been fulfilled; and (g) by either
First Federal or Mutual if the Merger is not consummated on or before
August 31, 1997.
In the event of a valid termination of the Agreement, the
obligations of the parties to the Agreement will terminate, and there
will be no liability on the part of either party to the Agreement,
except that certain provisions will survive and remain in full force
and effect, including: (i) liability for willful breach of the
Agreement; (ii) confidentiality of information exchanged by the
parties; and (iii) payment of certain expenses under various
circumstances.
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STOCK OPTION AGREEMENT
The following is a summary of the material provisions of a Stock
Option Agreement, dated September 16, 1996 (the "Stock Option
Agreement"), entered into by and between First Federal and Mutual.
This summary is qualified in its entirety by reference to the Stock
Option Agreement, a copy of which is attached hereto as Exhibit C.
Execution of the Stock Option Agreement was a condition to the
Agreement. Pursuant to the Stock Option Agreement, First Federal
granted to Mutual an option (the "Option") to purchase up to 1,364,220
shares of First Federal Common Stock (representing approximately 19.9%
of the issued and outstanding shares of First Federal Common Stock)
(the "Option Shares") at an exercise price of $15.75 per share (the
"Exercise Price"), subject to the terms and conditions set forth
therein.
The Option is exercisable only upon the occurrence of a
Triggering Event (as defined below) and an Exercise Event (as defined
below). For purposes of the Stock Option Agreement, each of the
following events is a "Triggering Event":
(a) First Federal or First Federal Bank, without having received
Mutual's prior written consent, shall have entered into an
agreement to engage in an Acquisition Transaction (as defined
below) with any person (the term "person" for purposes of the
Stock Option Agreement having the meaning assigned thereto in
Sections 3(a)(9) and 13(d)(3) of the Exchange Act, and the rules
and regulations thereunder) other than Mutual or any of its
affiliates or the First Federal Board shall have recommended that
the shareholders of First Federal approve or accept any
Acquisition Transaction with any person other than Mutual or any
of Mutual's affiliates. For purposes of the Stock Option
Agreement, "Acquisition Transaction" means: (x) a merger,
consolidation, share exchange, or any similar business
combination transaction, involving First Federal or First Federal
Bank; (y) a purchase, lease or other acquisition of 10% or more
of the assets of First Federal or First Federal Bank; or (z) a
purchase or other acquisition (including by way of merger,
consolidation, share exchange or otherwise) of securities
representing 10% or more of the voting power of First Federal or
First Federal Bank; provided that the term "Acquisition
Transaction" does not include any internal merger or
consolidation involving only First Federal and/or First Federal
Bank;
(b) any person (other than Mutual or any of its affiliates) shall
have acquired beneficial ownership or the right to acquire
beneficial ownership of (the term "beneficial ownership" for
purposes of the Stock Option Agreement having the meaning
assigned thereto in Section 13(d) of the Exchange Act and the
rules and regulations thereunder), or commenced a tender offer
for, 10% or more of the outstanding shares of First Federal
Common Stock;
(c) any person other than Mutual or any of its affiliates shall have
made a bona fide proposal to First Federal or First Federal Bank, by
public announcement or written communication that is or becomes the subject
of public disclosure, to engage in an Acquisition Transaction;
(d) after a proposal is made by a third party to First Federal or
First Federal Bank to engage in an Acquisition Transaction, First
Federal shall have breached any covenant or obligation contained
in the Agreement and such breach: (i) would entitle Mutual to
terminate the Agreement; and (ii) shall not have been cured prior
to the date Mutual sends written notice to First Federal of its
intention to exercise the Option (the "Notice Date"); or
(e) any person other than Mutual or any of its affiliates, other
than in connection with a transaction to which Mutual has given
its prior written consent, shall have filed an application or
notice with the OTS or the FDIC or other federal or state bank
regulatory authority, which application or notice has been
accepted for processing, for approval to engage in an Acquisition
Transaction.
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For purposes of the Stock Option Agreement, each of the following events is
an "Exercise Event":
(a) any person (other than Mutual or any of its affiliates) shall have
acquired beneficial ownership of 20% or more of then outstanding First
Federal Common Stock; and
(b) First Federal or First Federal Bank, without having received Mutual's
prior written consent, shall have entered into an agreement to engage
in an Acquisition Transaction (as defined below) with any person other
than Mutual or any of its affiliates or the First Federal Board shall
have recommended that the shareholders of First Federal approve or
accept any Acquisition Transaction with any person other than Mutual
or any of its affiliates. As used in this paragraph only,
"Acquisition Transaction" means: (x) a merger, consolidation, share
exchange or any similar business combination transaction involving
First Federal or First Federal Bank; (y) a purchase, lease or other
acquisition of 10% or more of the assets of First Federal or First
Federal Bank; or (z) a purchase or other acquisition (including by way
of merger, consolidation, share exchange or otherwise) of securities
representing 20% or more of the voting power of First Federal or First
Federal Bank; provided that the term "Acquisition Transaction" does
not include any internal merger or consolidation involving only First
Federal and/or First Federal Bank.
The Option expires upon the occurrence of any of the following: (i) the
Effective Time; (ii) termination of the Agreement in accordance with the terms
thereof prior to the occurrence of a Triggering Event; (iii) twelve months after
termination of the Agreement if such termination follows the occurrence of a
Triggering Event, provided that if a Triggering Event continues or occurs beyond
such termination, twelve months from the latest occurring Triggering Event (but
no more than 18 months after such occurrence). Each of the foregoing are
referred to as "Exercise Termination Events."
In the event of any change in First Federal Common Stock by reason of a
stock dividend, stock split, merger, recapitalization, combination, exchange of
shares or similar transaction, or the sale of First Federal Common Stock or the
grant of any option for the purchase of First Federal Common Stock to anyone
other than Mutual, the type and number of shares of First Federal Common Stock
subject to the Option, and the Exercise Price, will be adjusted so that the
number of shares of First Federal Common Stock subject to the Option, together
with shares previously purchased pursuant thereto, represents 19.9% of the First
Federal Common Stock then issued and outstanding, without giving effect to
shares subject to or issued pursuant to the Option.
Mutual may elect to request that First Federal pay a "Termination Fee" to
Mutual in lieu of exercising the Option at any time (i) after the occurrence of
an Exercise Event and prior to an Exercise Termination Event, or (ii) prior to
or 30 business days after (x) mutual receives official notice that an approval
of the OTS, the FDIC or any other regulatory authority required for the purchase
of the First Federal Common Stock pursuant to the exercise of the Option would
not be issued or granted, or (y) the purchase of the First Federal Common Stock
pursuant to the exercise of the Option has not occurred within 18 months of the
Notice Date due to the failure to obtain any such required approval (the
"Election Date"). The Termination Fee is equal to the excess, if any, of (i)
the Applicable Price (as defined below) for each share of First Federal Common
Stock over (ii) the Exercise Price, multiplied by the number of Option Shares
with respect to which the Option has not been exercised or, where the Option has
been exercised in whole or in part but the shares subject to the exercise have
not yet been distributed, the number of shares that would have not yet been
purchased pursuant to such exercise.
The term "Applicable Price" shall mean the highest of: (i) the highest
price per share of First Federal Common Stock at which a tender offer or
exchange offer has been made after the date of the Agreement and on or prior to
such Election Date; (ii) the price per share to be paid by any third party for
shares of First Federal Common Stock or the consideration per share to be
received by holders of First Federal Common Stock pursuant to an agreement for a
merger or other business combination transaction with First Federal entered into
on or prior to such Election Date; (iii) the highest bid price per share as
quoted on the NASDAQ/NMS (or, if the shares of First Federal Common Stock are no
longer quoted thereon, on the principal trading market on which such shares are
traded as reported by a recognized service) during the 30 business days
preceding such Election Date. In determining the Applicable Price, the value of
such consideration other than cash shall be the value determined in good faith
by an investment banking firm selected by Mutual and reasonably acceptable to
First Federal, whose determination shall be conclusive for all purposes of the
Stock Option Agreement.
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<PAGE> 35
First Federal has granted Mutual certain registration rights with respect
to the Option and shares of First Federal Common Stock that may be acquired by
Mutual upon exercise of the Option. These rights include that First Federal
will file up to two registration statements under the Securities Act if
requested by Mutual after the Option becomes exercisable to permit the sale or
other disposition of the shares issued pursuant to the Option. Such
registration rights are subject to an exception that allows First Federal, in
the exercise of its business judgment, to delay such registration (but by no
more than 90 days) or reduce the number of shares purchasable by Mutual (such
reduction affecting only the then current exercise of the Option, and not the
total number of shares subject to the Option). In connection with any
registration described above, First Federal and Mutual will provide to each
other and any underwriter of the offering customary representations, warranties,
indemnities and other agreements.
The Stock Option Agreement is intended to increase the likelihood that the
Merger will be consummated in accordance with the terms of the Agreement.
Consequently, certain aspects of the Stock Option Agreement may have the effect
of discouraging persons who might now or prior to the Effective Time be
interested in acquiring all of, or a significant interest in, First Federal from
considering or proposing such an acquisition, even if such persons were prepared
to pay a higher price per share for First Federal Common Stock than the
then-current market price of such shares. The acquisition of, or an interest
in, First Federal, or an agreement to do either, could cause the Option to
become exercisable. The existence of the Stock Option Agreement could
significantly increase the cost to a potential acquiror of acquiring First
Federal compared to its cost had the Stock Option Agreement not been entered
into. Such increased cost might discourage a potential acquiror from
considering or proposing an acquisition or might result in a potential acquiror
proposing to pay a lower share price to acquire First Federal than it might
otherwise have proposed to pay.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the First Federal Board, shareholders
should be aware that certain members of First Federal's Board and executive
officers may be deemed to have interests in the Merger in addition to their
interests, if any, as holders of First Federal Common Stock.
Employment Agreements; Severance Agreements. In connection with the
Merger, Mutual will enter into three-year employment agreements or severance
agreements with Messrs. Donald T. Tietz (President and Chief Executive Officer
of First Federal and First Federal Bank), Jerome A. Reinecke (Vice President,
Treasurer, Chief Financial Officer and Corporate Secretary of First Federal and
First Federal Bank), Robert D. Stanton (Vice President of First Federal Bank),
David L. Johnson (Vice President of First Federal Bank), Thomas E. Schommer
(Vice President of First Federal Bank) and Douglas D. Hillestad (Vice President
of First Federal Bank). The employment agreements will continue each of these
executive officers' previously effective base salaries and are intended to
ensure that Messrs. Tietz, Reinecke, Stanton, Johnson, Schommer and Hillestad
remain with Mutual following the Merger and are available to assist in the
integration of the former First Federal offices into Mutual's operations and
then to oversee ongoing operations and marketing in the areas formerly served by
First Federal.
In the event any of these executive officers are not employed by Mutual
following the Merger, Mutual will enter into a severance agreement with the
executive officer in which such executive officer will receive severance
benefits equal to three times his average base salary for the past three years;
provided, however, that if the severance payments would constitute "parachute
payments" within the meaning of Section 280G(b)(2) of the Internal Revenue Code
of 1986, as amended (the "Internal Revenue Code"), and the present value of such
"parachute payments" equals or exceeds three times the executive officer's
average annual compensation for the five calendar years preceding the year in
which a change in ownership or control of First Federal occurred, such payments
shall be reduced to an amount equal to the present value of 2.99 times the
average annual compensation paid to the executive officer during the five years
immediately preceding such change in ownership or control. For purposes of the
agreements, "change in ownership or control" shall have the meaning set forth in
Section 280G(b) of the Internal Revenue Code and any temporary or final
regulations promulgated thereunder. Pursuant to such executive officers'
current employment agreements with First Federal Bank, if the executive officers
are terminated following a change in control (which would include the Merger),
the executive officers would receive severance payments in the form of salary
payments for the unexpired term of the employment agreements, which, at the
executive officers' election, may be payable in one lump sum, calculated on the
basis of the executive officers' average annual compensation for the past three
years multiplied by the time remaining to the end of the term of the employment
agreements (subject to the "parachute payment" limitations of Section 280G(b)(2)
of the Internal Revenue Code as described above); provided, however, that the
amount of such severance payment shall not in any event be less than two year's
compensation for the executive officers based on the executive officers' annual
compensation as of the termination date.
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Under the employment agreements, the base salaries for Messrs. Tietz,
Reinecke, Stanton, Johnson, Schommer and Hillestad would be $198,000, $86,510,
$69,270, $70,000, $65,500 and $55,500, respectively. The base salaries may be
increased by Mutual's Board of Directors, but may not be reduced. In addition
to base salary, the employments agreements will provide for participation in any
bonus or other incentive compensation plans as determined by Mutual's Board of
Directors, with the exception of any supplemental retirement plans of Mutual.
The employment agreements may be terminated by Mutual upon death, disability,
retirement or for cause at any time, and Mutual's obligations under the
employment agreements would then cease and terminate; provided, however, that if
the agreements are terminated due to disability, the executive shall be paid
100% of his base salary at the rate in effect at the time notice of termination
is given for one year (or the remaining portion of the employment term, if
shorter) and thereafter in amount equal to 80% of such base salary for any
remaining portion of the employment term. The agreements inure to the benefit
of, and are binding upon, any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of Mutual.
Messrs. Tietz, Reinecke, Stanton, Johnson, Schommer and Hillestad would be
entitled to severance pay (based on their highest base salary within the three
years preceding the date of termination) for the remaining unexpired term under
their employment agreements together with other compensation and benefits in
which they were vested at the termination date, if terminated by Mutual for any
reason other than the foregoing (including any reassignment to a location
outside of a radius of 50 miles from Eau Claire); provided, however, that such
severance pay may not exceed the "parachute payment" limitations of Section
280G(b)(2) of the Internal Revenue Code as described above.
First Federal Stock Options. Pursuant to the First Federal Stock Option
Plan, First Federal has granted 523,174 First Federal Stock Options to directors
and executive officers of First Federal Bank, of which 18,769 options were
surrendered to First Federal for $6.375 per option (which equaled the current
market price of First Federal Common Stock less the exercise price) in December
1996 and an additional 330,019 options were 100% vested and exercisable prior to
the date of execution of the Agreement in September 1996. Pursuant to the
Agreement, prior to the consummation of the Merger, First Federal shall have
caused the exercise of all First Federal Stock Options or the purchase of such
options for the Option Consideration (calculated as the difference between the
Merger Per Share Consideration and the $12.00 exercise price of the options).
See "--First Federal Stock Options." In the event the Merger is consummated and
First Federal purchases all of the outstanding First Federal Stock Options,
notwithstanding any applicable withholding taxes and assuming there is no
adjustment in the Option Consideration, the directors and executive officers of
First Federal will receive the following amounts: Mr. Tietz, $1,112,193; Mr.
Anderson, $267,150; Mr. Frederikson, $296,584; Mr. Kell, $258,224; Mr. Trembath,
$257,731; Mr. Walker, $274,664; Mr. Reinecke, $197,725; Mr. Stanton, $197,725;
Mr. Johnson, $197,725; Mr. Schommer, $197,725; and Mr. Hillestad, $197,725.
First Federal Common Stock Issued Pursuant to BIP. First Federal Bank
maintains the First Federal Bank of Eau Claire, F.S.B. Incentive Plan and Trust
Agreement (the "BIP") for certain executive officers and directors of First
Federal. Pursuant to the BIP, 231,787 shares of First Federal Common Stock were
issued to directors and executive officers of First Federal Bank, of which
46,363 shares were 100% vested prior to the date of execution of the Agreement
in September 1996. Pursuant to the Agreement, unvested shares of First Federal
Common Stock awarded pursuant to the BIP will become vested as of the Effective
Time. Such shares of First Federal Common Stock will be converted into the
right to receive the Merger Per Share Consideration in the same manner as all
other outstanding shares of First Federal Common Stock. Of the 231,787 shares
of First Federal Common Stock issued to the directors and executive officers of
First Federal Bank, 185,424 shares will become vested as a result of the Merger.
The directors and executive officers of First Federal Bank will receive the
following amounts, notwithstanding any applicable withholding taxes and assuming
there is no adjustment in the Merger Per Share Consideration, attributable to
their shares of First Federal Common Stock acquired pursuant to the BIP which
will become vested as a result of the Merger and which are exchanged for the
Merger Per Share Consideration: Mr. Tietz, $1,088,192; Mr. Anderson, $217,623;
Mr. Frederikson, $217,623; Mr. Kell, $217,623; Mr. Trembath, $217,623; Mr.
Walker, $217,623; Mr. Reinecke, $263,787; Mr. Stanton, $263,787; Mr. Johnson,
$263,787; Mr. Schommer, $263,787; and Mr. Hillestad, $263,787. All shares of
First Federal Common Stock held by the BIP which had not yet been granted will
be cancelled without consideration as of the Effective Time.
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Advisory Board. Pursuant to the Agreement, Mutual will create an advisory
board to assist in and advise with respect to Mutual's west-central operations.
The advisory board will consist of all current members of the First Federal
Board. The advisory board will remain in existence for at least 18 months
following the Effective Time. Members of the advisory board will receive a
$1,000 per month retainer for their services in this capacity.
Directors' and Officers' Indemnification. The Agreement provides that for
a period of seven years from the Effective Time, all rights to indemnification
and exculpation from liability for acts or omissions occurring at or prior to
the Effective Time now existing in favor of the current or former directors or
officers of First Federal and its subsidiaries as provided in WBCL and their
respective Articles of Incorporation, Charter, Bylaws or otherwise shall survive
the Effective Time and any merger, consolidation or reorganization of Mutual.
Bonus Pool. Pursuant to the Agreement, Mutual has agreed to allow First
Federal to establish a bonus pool not to exceed $28,000 which may be used as
additional 1996 year-end bonus payments at the discretion of the First Federal
Board and as needed to assure the retention of key personnel necessary to the
integration of Mutual's and First Federal's operations.
Severance Pool. In the event any full-time employee who has completed one
or more years of service with First Federal Bank and who is not covered by an
employment contract or severance agreement is terminated from employment by
Mutual other than for cause and within four months of the consummation of the
Merger, Mutual has agreed to provide such employee with a severance benefit
equal to two weeks' base compensation plus an additional week of base
compensation for each full year of service completed with First Federal Bank
prior to consummation of the Merger, with a total maximum severance benefit of
eight weeks' base compensation.
EFFECT ON FIRST FEDERAL EMPLOYEES AND EMPLOYEE BENEFIT PLANS
Mutual will consider each of First Federal Bank's employees for continued
employment following the Effective Time (each, a "Continued Employee"). Mutual
anticipates that, at least initially, continued employment will be offered to
substantially all, if not all, of First Federal Bank's present employees.
Continued Employees will be eligible to participate in the health and welfare
benefits, programs, plans, insurance and policies sponsored by Mutual for the
benefit of its employees. Continued Employees will receive sick days and
vacation days in accordance with Mutual's standard policies and will receive
credit for their years of service at First Federal Bank in determining the
amount of sick days and vacation days they receive; however, accrued and unused
sick days and vacation days will not be carried over to their employment at
Mutual. All employees of First Federal Bank as of the Effective Time will be
paid for any vacation days accrued at December 31, 1996 and unused as of the
Effective Time.
Pursuant to the Agreement, unvested shares of First Federal Common Stock
awarded pursuant to the BIP will become vested as of the Effective Time. Such
shares of First Federal Common Stock will be converted into the right to receive
the Merger Per Share Consideration in the same manner as all other outstanding
shares of First Federal Common Stock. See "--Interests of Certain Persons In
The Merger." All shares of First Federal Common Stock held by the BIP which had
not yet been granted will be cancelled as of the Effective Time.
First Federal Bank maintains two qualified plans for eligible employees of
First Federal Bank, the First Federal ESOP and the First Federal Bank of Eau
Claire, F.S.B. Profit Sharing Plan (the "Profit Sharing Plan"). Once all assets
of the First Federal ESOP have been allocated to the participants in accordance
with the terms of the First Federal ESOP, Mutual will terminate the First
Federal ESOP and apply for a letter of determination from the Internal Revenue
Service ("IRS") confirming that such termination will not adversely affect its
tax qualified status. The cash proceeds received in connection with the Merger
upon the exchange of cash for shares of First Federal Common Stock held in the
First Federal ESOP suspense account will be used to prepay the principal and
interest outstanding and unpaid on the First Federal ESOP's indebtedness. Upon
full payment for such indebtedness, maximum allocations from the First Federal
ESOP suspense account will be made to participants' accounts until completely
exhausted. Continued Employees that participate in the First Federal ESOP will
be eligible to participate in any and all qualified pension and retirement plans
and other qualified employee benefit plans sponsored by Mutual once the First
Federal ESOP is terminated. Continued Employees that do not participate in the
First Federal ESOP will be eligible to participate in Mutual's qualified pension
and retirement plans and other qualified employee benefit plans upon
consummation of the Merger. Continued Employees will be credited for
eligibility and vesting purposes, but not for benefit accrual purposes, for the
years of credited service they accumulated during their employment with First
Federal Bank prior to the Effective Time.
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Mutual will terminate the Profit Sharing Plan, and as soon as reasonably
practicable after the Effective Time, and will apply for a letter of
determination from the IRS that such termination will not adversely affect its
tax qualified status. Upon receipt of such determination letter, all assets
held in the Profit Sharing Plan will be distributed to participants or
transferred on behalf of the participants to Mutual's tax-qualified retirement
plans in accordance with the terms of such plans and ERISA.
First Federal maintains the First Federal Bank of Eau Claire, F.S.B.
Deferred Compensation Plan (the "Deferred Compensation Plan"). The Deferred
Compensation Plan provides for contributions by First Federal Bank on behalf of
eligible employees in an amount equal to the additional benefits such persons
would have received under the First Federal ESOP but for the maximum annual
contribution limitation in Section 415 of the Internal Revenue Code ($30,000 or
25% of compensation for 1996) and the maximum annual contribution limitation in
Section 401(a)(17) of the Internal Revenue Code ($150,000 for 1996). The
Deferred Compensation Plan will continue only for Mr. Tietz following the
Merger; however, following termination of the First Federal ESOP, Mutual's
contributions will be based on the additional benefits Mr. Tietz would have
received under Mutual's tax qualified retirement plans but for the maximum
contribution limitations under the Internal Revenue Code.
First Federal sponsors a defined benefit health care plan that provides
post-retirement medical benefits to all retired employees, directors and their
spouses who have completed ten or more years of service. Mutual will continue
offering benefits to those employees who have reached age 50 and have completed
15 years of service with First Federal Bank prior to consummation of the Merger
and who subsequently remain employees by First Federal Bank, Mutual or any of
its subsidiaries until age 65. The total amount of benefits payable under this
plan, which has been accrued by First Federal, is limited in the aggregate to
$846,000.
EFFECT ON FIRST FEDERAL BANK LIQUIDATION RIGHTS
In connection with First Federal Bank's Conversion from mutual to stock
form in October 1994, First Federal Bank established a liquidation account in an
amount equal to its net worth as of the latest practicable date prior to
consummation of the Conversion. The liquidation account has been maintained at
First Federal Bank for the benefit of holders of deposit accounts greater than
$50.00 at September 30, 1993 ("Eligible Account Holders") who have continued to
maintain their accounts at First Federal Bank. With respect to each such
account, each Eligible Account Holder holds a pro-rata inchoate interest in the
liquidation account balance in the same proportion his or her savings account
balance was to the total savings account balances as of September 30, 1993,
subject to downward adjustment to reflect any subsequent decrease in such
Eligible Account Holder's account balance.
Under the terms of the liquidation account, in the event of a complete
liquidation of First Federal Bank, following all payments to creditors and
depositors up to the withdrawal value of their accounts, each Eligible Account
Holder is entitled to receive a liquidating distribution from the liquidation
account based upon the then adjusted subaccount balance for his or her savings
account before any other liquidating distribution is made. No merger,
consolidation, purchase of bulk assets with the assumption of savings accounts
and other liabilities, or similar transaction with an FDIC-insured institution
in which First Federal Bank is not the surviving institution, is deemed to be a
complete liquidation for purposes of the liquidation account. In such
transactions, the liquidation account is to be assumed by the surviving
institution.
Following Mutual's acquisition of First Federal and First Federal Bank, and
to the extent First Federal Bank is not consolidated with and into Mutual, the
liquidation account and subaccount balances of First Federal Bank Eligible
Account Holders shall continue for the benefit of those Eligible Account Holders
of First Federal Bank who maintain their accounts at Mutual. The liquidation
account balance shall be subject to further downward adjustment in accordance
with Section 563b.3(f) of OTS regulations and the terms of the liquidation
account established pursuant to the Conversion of First Federal Bank. A
distribution of each subaccount balance would be made only in the event of a
complete liquidation of First Federal Bank and only out of funds available for
such purpose after payment of all creditors but before any payments to
shareholders.
In the event First Federal Bank is subsequently merged with and into Mutual
pursuant to applicable law and subject to receipt of required regulatory
approvals, rights of First Federal Bank Eligible Account Holders under the
liquidation account may be replaced with liquidation rights established for the
benefit of Mutual account holders under laws applicable to Mutual and Mutual's
Articles and Bylaws.
-35-
<PAGE> 39
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary description of the material federal income tax
consequences of the Merger to holders of First Federal Common Stock in their
capacity as such. This summary is not a complete description of all of the
consequences of the Merger and, in particular, does not address federal income
tax considerations that may affect the treatment of certain holders, such as
financial institutions, broker-dealers, life insurance companies, tax-exempt
organizations, investment companies, foreign taxpayers, individuals who acquired
First Federal Common Stock pursuant to employee stock options or otherwise as
compensation, and other special status taxpayers. Holders should be aware that
the federal income tax rate for individuals on long-term capital gains may be
significantly lower than the rate imposed on ordinary income or short-term
capital gain. No information is provided herein with respect to the tax
consequences of the Merger to any holder or party under applicable foreign,
state or local laws. Consequently, each First Federal holder is advised to
consult a tax advisor as to the specific tax consequences of the Merger to that
holder.
The receipt of cash by a shareholder of First Federal in exchange for First
Federal Common Stock pursuant to the Merger will be a taxable transaction for
federal income tax purposes and also may be a taxable transaction under
applicable foreign, state or local laws. A shareholder will recognize gain or
loss for federal income tax purposes equal to the difference between the cash
received and such holder's tax basis in the First Federal Common Stock
surrendered in exchange therefor (however, a shareholder of First Federal may be
required to compute gain or loss separately with respect to each block of
shares). Such gain or loss will be a capital gain or loss, provided that such
shares were held as capital assets of the holder at the Effective Time of the
Merger. Such gain or loss will be long-term capital gain or loss if the
shareholder's holding period is more than one year at the Effective Time of the
Merger.
The cash payments due a holder of First Federal Common Stock upon the
exchange of such First Federal Common Stock pursuant to the Merger (other than
certain exempt persons or entities) will be subject to "backup withholding" for
federal income tax purposes unless certain requirements are met. Under federal
law, the Paying Agent must withhold 31% of the cash payments to a holder, unless
such holder: (i) is a corporation or comes within certain other exempt
categories and, when required, demonstrates this fact; or (ii) provides the
Paying Agent with his or her taxpayer identification number and completes a form
in which he or she certifies that he or she has not been notified by the IRS
that he or she is subject to backup withholding as a result of a failure to
report interest and dividends. The taxpayer identification number of an
individual is his or her Social Security number. Any amount paid as backup
withholding will be credited against the holder's federal income tax liability.
No ruling has been or will be requested from the IRS as to any of the tax
effects to First Federal's shareholders of the transactions discussed in this
Proxy Statement, and no opinion of counsel has been or will be rendered to First
Federal's shareholders with respect to any of the tax effects of the Merger to
such shareholders.
ACCOUNTING TREATMENT
Mutual intends to treat the Merger as a "purchase" under generally accepted
accounting principles. Under the purchase method of accounting, the assets and
liabilities of First Federal will be, as of the Effective Time, recorded at
their respective fair values and added to those of Mutual. The expected excess
of the consideration paid by Mutual over the fair value of First Federal's
assets and liabilities will be recorded as goodwill.
EXPENSES
The Agreement provides that First Federal and Mutual will each pay their
own expenses in connection with the Agreement and the transactions contemplated
thereby. If the Agreement is terminated due to a breach of one party of a
condition in the Agreement, the non-breaching party shall have the right to
recover all reasonable and necessary expenses related to the Agreement and the
transactions contemplated thereby from the breaching party.
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<PAGE> 40
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth the beneficial ownership of shares of First
Federal Common Stock as of January 31, 1997 (or as of December 31, 1996 for
shareholders reporting in accordance with Section 13(g) of the Exchange Act)
by: (i) each shareholder known to First Federal to beneficially own more than
5% of the shares of First Federal Common Stock outstanding, as disclosed in
reports regarding such ownership filed with First Federal and the SEC in
accordance with Sections 13(d) or 13(g) of the Exchange Act; (ii) each director
of First Federal; (iii) each executive officer of First Federal with total
compensation (salary and bonus) exceeding $100,000; and (iv) all directors and
executive officers as a group. Members of the First Federal Board also serve as
directors of First Federal Bank.
<TABLE>
<CAPTION>
Number of Shares
Beneficially Percent
Name Owned (1) of Class
---- ---------------- --------
<S> <C> <C>
First Federal Bank of Eau Claire, F.S.B.
Employee Stock Ownership Plan (2) 497,223 7.3%
Donald T. Tietz (3)(4)(5) 216,004 3.1
David G. Anderson (3)(4) 51,000 *
David M. Frederikson (3)(4) 48,297 *
Michael P. Kell (3)(4)(6) 59,534 *
Douglas R. Trembath (3)(4) 47,625 *
Kermit C. Walker (3)(4) 71,897 1.0
All directors and executive
officers as a group (11 persons) (3)(4)(5) 740,502 10.3
</TABLE>
- ---------------
* Amount represents less than 1% of the total number of shares of First
Federal Common Stock outstanding on the Voting Record Date.
(1) Unless otherwise indicated, includes shares of First Federal Common Stock
held directly by the individuals as well as by members of such individuals'
immediate family who share the same household, shares held in trust and
other indirect forms of ownership over which shares the individuals
effectively exercise sole or shared voting and/or investment power.
(2) First Bank Milwaukee, N.A. (the "Trustee") is the trustee for the First
Federal ESOP. The Trustee's address is 201 West Wisconsin Avenue,
Milwaukee, Wisconsin 53202.
(3) Includes shares of First Federal Common Stock which the named individuals
and certain executive officers have the right to acquire within 60 days of
the Voting Record Date pursuant to the exercise of stock options as
follows: Mr. Tietz - 108,243, Mr. Anderson - 24,568, Mr. Frederikson -
28,865, Mr. Kell - 23,265, Mr. Trembath - 23,193, Mr. Walker - 25,665 and
all directors and executive officers as a group - 330,019. Does not
include options for shares of First Federal Common Stock which do not vest
within 60 days of the Voting Record Date which have been awarded to
executive officers and directors under the First Federal Stock Option Plan.
(4) Includes shares of First Federal Common Stock awarded under the BIP which
are subject to vesting requirements. Recipients of restricted stock awards
may direct voting prior to vesting.
(5) Includes shares of First Federal Common Stock allocated to certain
executive officers under the First Federal ESOP, for which such individuals
possess shared voting power, of which approximately 6,719 shares were
allocated to Mr. Tietz.
(6) Includes 10,000 shares of First Federal Common Stock held by Kell Container
Corporation of which Mr. Kell serves as President, and as to which he
disclaims any beneficial interest.
-37-
<PAGE> 41
MARKET PRICES AND DIVIDEND INFORMATION
First Federal Common Stock is quoted on the NASDAQ/NMS under the symbol
"FFEC." The table below sets forth, for the calendar quarters indicated, (i)
the high and low sales prices for First Federal Common Stock as reported on the
NASDAQ/NMS, and (ii) the dividends per share declared on First Federal Common
Stock in each quarter.
<TABLE>
<CAPTION>
SALES PRICE CASH
-------------- DIVIDENDS
HIGH LOW PAID
------ ----- ---------
<S> <C> <C> <C>
1994
Quarter Ended December 31 ....... $10.50 $8.25 --
1995
Quarter Ended March 31 .......... 12.25 9.75 --
Quarter Ended June 30 ........... 12.50 11.38 --
Quarter Ended September 30 ...... 14.63 12.25 --
Quarter Ended December 31 ....... 15.38 13.75 $0.05
1996
Quarter Ended March 31 .......... 15.38 13.50 0.05
Quarter Ended June 30 ........... 16.25 13.63 0.07
Quarter Ended September 30 ...... 18.13 14.38 0.07
Quarter Ended December 31 ....... 18.50 18.00 0.07
1997
Quarter Ending March 31
(through February 14, 1997) .. 18.75 18.25 0.07
</TABLE>
On September 13, 1996, the last trading day before the public announcement
of the Agreement, the reported closing sale price of First Federal Common Stock
was $15.31 per share. On February 14, 1997, the most recent date for which it
was practicable to obtain market price data prior to the printing of this Proxy
Statement, the closing sale price of First Federal Common Stock was $18.50 per
share.
Pursuant to the Agreement, First Federal will be permitted to pay regular
quarterly cash dividends not to exceed $0.07 per share for each outstanding
share of First Federal Common Stock.
SHAREHOLDER PROPOSALS
As described in First Federal's proxy statement relating to its 1996 Annual
Meeting of Shareholders, proposals to be presented by shareholders of First
Federal at the 1997 Annual Meeting of Shareholders, if held, must have been
received by First Federal not later than December 6, 1996 in order that they be
considered for inclusion in the proxy statement and form of proxy relating to
that meeting. No such proposals were received by First Federal's Corporate
Secretary by such date.
INDEPENDENT AUDITORS
Ernst & Young LLP serves as First Federal's independent auditors. A
representative of Ernst & Young LLP will not be at the Special Meeting to
answer questions by shareholders.
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<PAGE> 42
OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE MEETING
The First Federal Board knows of no business which will be presented for
consideration at the Special Meeting other than as stated in the Notice of
Special Meeting of Shareholders. If, however, other matters are properly
brought before the Special Meeting, it is the intention of the persons named in
the accompanying proxy to vote the shares represented thereby on such matters in
accordance with their best judgment.
AVAILABLE INFORMATION
First Federal is subject to the informational requirements of the Exchange
Act, and in accordance therewith, files reports, proxy statements and other
information with the SEC. Such reports, proxy statements and other information
can be inspected and copied at the public reference facilities of the SEC at
Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549.
Copies of such material also can be obtained at prescribed rates by writing to
Public Reference Section of the SEC at 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549.
After consummation of the Merger, registration of First Federal Common
Stock under the Exchange Act will be terminated.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by First Federal with the SEC are
incorporated into this Proxy Statement by reference:
(i) First Federal's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995;
(ii) First Federal's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1996, June 30, 1996 and September 30, 1996;
(iii) First Federal's Current Report on Form 8-K, dated September 16, 1996;
(iv) The portions of First Federal's Annual Report to Shareholders for the
fiscal year ended December 31, 1995 under the captions "Management's
Discussion and Analysis" and "Consolidated Statements of Financial
Condition;" and
(v) All other reports filed by First Federal pursuant to Section 13(a) or
15(d) of the Exchange Act since the end of the fiscal period covered
by the annual report referred to in (i) above.
First Federal will provide without charge to any person to whom this Proxy
Statement is delivered, on the written or oral request of such person, a copy of
any or all of the foregoing documents incorporated by reference (other than
exhibits not specifically incorporated by reference into the texts of such
documents). Requests for such documents should be directed to Jerome A.
Reinecke, Corporate Secretary, First Federal Bancshares of Eau Claire, Inc., 319
East Grand Avenue, Eau Claire, Wisconsin 54701 (telephone (715) 833-7700).
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, YOU ARE REQUESTED TO
SIGN AND PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE.
-39-
<PAGE> 43
EXHIBIT A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
MUTUAL SAVINGS BANK,
FIRST FEDERAL MERGER CORPORATION
AND
FIRST FEDERAL BANCSHARES OF EAU CLAIRE, INC.
DATED AS OF SEPTEMBER 16, 1996
<PAGE> 44
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<C> <S> <C>
RECITALS A-1
ARTICLE I DEFINITIONS
1.1 Acquisition A-1
1.2 Acquisition Proposal A-2
1.3 Affiliate A-2
1.4 Agreement A-2
1.5 Announcement A-2
1.6 Bank A-2
1.7 Buildings A-2
1.8 CERCLA A-2
1.9 Closing A-2
1.10 Closing Date A-2
1.11 Code A-2
1.12 Contracts A-2
1.13 Control A-2
1.14 Effective Time A-3
1.15 Employee Benefit Plans A-2
1.16 Environmental Claim, Environmental Hazardous Material, Environmental Laws, A-2
Environmental Permits and Environmental Release A-3
1.17 Equipment A-3
1.18 ERISA A-3
1.19 Exchange Act A-3
1.20 FDIC A-3
1.21 FHLB of Chicago A-3
1.22 First Federal A-3
1.23 First Federal Closing Certificate A-3
1.24 First Federal Common Stock A-3
1.25 First Federal Counsel Opinion A-3
1.26 First Federal Deferred Compensation Plan A-3
1.27 First Federal Disclosure Schedule A-3
1.28 First Federal ESOP A-4
1.29 First Federal ESOP Indebtedness A-4
1.30 First Federal Executives A-4
1.31 First Federal Existing Contracts A-4
1.32 First Federal Existing Employment Agreements A-4
1.33 First Federal Existing Indebtedness A-4
1.34 First Federal Existing Insurance Policies A-4
1.35 First Federal Existing Investment Securities A-4
1.36 First Federal Existing Liens A-5
1.37 First Federal Existing Litigation A-5
1.38 First Federal Existing Permits A-5
1.39 First Federal Existing Plans A-5
1.40 First Federal Incentive Plan A-5
1.41 First Federal Meeting A-5
1.42 First Federal Profit Sharing Plan A-5
1.43 First Federal Proxy Statement A-5
1.44 First Federal Real Estate A-5
1.45 First Federal Replacement Employment Agreement A-5
1.46 First Federal Reports A-5
1.47 First Federal Severance Agreement A-5
1.48 First Federal Shareholders A-5
1.49 First Federal Stock Option Plan A-6
1.50 First Federal Stock Options A-6
1.51 First Federal Subsidiaries A-6
</TABLE>
-i-
<PAGE> 45
<TABLE>
Page
<C> <S> <C>
1.52 HOLA A-6
1.53 Indebtedness A-6
1.54 Indemnified Liabilities A-6
1.55 Indemnified Parties A-6
1.56 Information A-6
1.57 Investment Securities A-6
1.58 IRS A-6
1.59 Law A-6
1.60 Lien A-6
1.61 Material Adverse Effect A-6
1.62 Merger A-6
1.63 Merger Corp A-6
1.64 Merger Per Share Consideration A-7
1.65 Merger Stock A-7
1.66 Merger Total Consideration A-7
1.67 Minnesota Savings Association Regulatory Authority A-7
1.68 Mutual A-7
1.69 Mutual and Merger Corp. Closing Certificate A-7
1.70 Mutual Counsel Opinion A-7
1.71 NASDAQ/NMS A-7
1.72 OTS A-7
1.73 Paying Agent A-7
1.74 Payment Fund A-7
1.75 Permits A-7
1.76 Permitted Liens A-7
1.77 Person A-7
1.79 Regulatory Approvals A-8
1.80 Restructuring A-8
1.81 SAIF A-8
1.82 SEC A-8
1.83 Securities Act A-8
1.84 Stock Option Agreement A-8
1.85 Stock Option Consideration A-8
1.86 Subsidiary A-8
1.87 Surviving Corporation A-8
1.88 Trading Day A-8
1.89 WBCL A-8
1.90 Wisconsin Savings Association Regulatory Agency A-8
ARTICLE II THE MERGER
2.1 The Merger A-9
2.2 Effect of the Merger A-9
2.3 Effective Time A-9
2.4 Articles and Bylaws of Surviving Corporation A-9
2.5 Charter and Bylaws of the Bank; Offices of the Bank A-10
2.6 Directors and Officers of Surviving Corporation A-10
2.7 Conversion of First Federal Common Stock A-10
2.8 Conversion of Stock of Merger Corp. A-10
2.9 Meeting of First Federal Shareholders A-10
2.10 Payment of Merger Total Consideration A-11
2.11 Surrender of Certificates A-11
2.12 [Reserved] A-12
2.13 Continuation of Deposits A-12
2.14 Liquidation Account and Sub-Accounts A-12
2.15 Subsequent Restructuring A-12
2.16 Anti-Dilution Provisions A-12
</TABLE>
-ii-
<PAGE> 46
<TABLE>
<CAPTION>
Page
ARTICLE III OTHER AGREEMENTS
<C> <S> <C>
3.1 Access A-13
3.2 First Federal's Disclosure Schedule A-13
3.3 Duties Concerning Representations A-13
3.4 Deliveries of Information; Consultation A-13
3.5 Directors' and Officers' Indemnification A-14
3.6 Letter of First Federal's Accountants A-15
3.7 Legal Conditions to Merger A-15
3.8 Stock Listings A-15
3.9 Announcements A-15
3.10 Best Efforts A-15
3.11 Employee And Managerial Matters A-15
3.12 Employee Benefit Matters A-16
3.13 Confidentiality A-18
3.14 Conformance to Reserve Policies A-18
3.15 Conduct of Mutual's Business A-18
3.16 FDICIA Management Certification Systems A-18
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF FIRST FEDERAL
4.1 Organization and Qualification; Subsidiaries A-19
4.2 Articles of Incorporation and Bylaws A-19
4.3 Capitalization A-20
4.4 Authorization: Enforceability A-20
4.5 No Violation or Conflict A-20
4.6 Title to Assets; Leases A-21
4.7 Litigation A-21
4.8 Securities and Banking Reports; Books and Records A-21
4.9 Absence of Certain Changes A-22
4.10 Buildings and Equipment A-22
4.11 First Federal Existing Contracts A-22
4.12 Performance of First Federal Existing Contracts A-23
4.13 Contingent and Undisclosed Liabilities A-23
4.14 First Federal Existing Insurance Policies A-23
4.15 Employee Benefit Plans A-24
4.16 No Violation of Law A-25
4.17 Brokers A-25
4.18 Taxes A-25
4.19 Real Estate A-26
4.20 Governmental Approvals A-26
4.21 No Pending Acquisitions A-26
4.22 Labor Matters A-26
4.23 Indebtedness A-27
4.24 First Federal Existing Permits A-27
4.25 Disclosure A-27
4.26 Information Supplied A-27
4.27 Vote Required A-27
4.28 Opinion of Financial Advisor A-27
4.29 Environmental Protection A-27
4.30 Investment Securities A-28
ARTICLE V REPRESENTATIONS AND WARRANTIES OF MUTUAL AND MERGER CORP.
5.1 Organization and Capitalization; Business A-29
5.2 Authorization; Enforceability A-29
5.3 No Violation or Conflict A-29
5.4 Litigation A-30
5.5 Brokers A-30
5.6 Governmental Approvals A-30
5.7 Disclosure A-30
5.8 Information Supplied A-30
5.9 Opinion of Financial Advisor A-30
5.10 Cash Payment A-30
5.11 Compliance with Laws A-30
5.12 Consummation A-30
5.13 Employee Benefit Plans A-30
</TABLE>
-iii-
<PAGE> 47
<TABLE>
<CAPTION>
Page
ARTICLE VI CONDUCT OF BUSINESS BY FIRST FEDERAL PENDING THE MERGER
<S> <C> <C>
6.1 Carry on in Regular Course A-31
6.2 Use of Assets A-31
6.3 No Default A-31
6.4 Existing Insurance Policies A-31
6.5 Employment Matters A-31
6.6 Contracts and Commitments A-31
6.7 Indebtedness; Investments A-31
6.8 Preservation of Relationships A-31
6.9 Compliance with Laws A-32
6.10 Taxes A-32
6.11 Amendments A-32
6.12 Issuance of Stock; Dividends; Redemptions A-32
6.13 Policy Changes A-32
6.14 Carlson Loans A-32
6.15 Acquisition Transaction A-32
ARTICLE VII CONDITIONS PRECEDENT TO THE MERGER
7.1 Conditions to Each Parties Obligations to Effect the Merger A-33
7.2 Conditions to Obligation of Mutual A-33
7.3 Conditions to Obligation of First Federal A-34
ARTICLE VIII DETERMINATION; MISCELLANEOUS
8.1 Termination A-35
8.2 Rights on Termination; Waiver A-35
8.3 Survival of Representations, Warranties and Covenants A-36
8.4 Entire Agreement; Amendment A-36
8.5 Expenses A-36
8.6 Governing Law A-36
8.7 Assignment A-36
8.8 Notices A-36
8.9 Counterparts; Headings A-37
8.10 Interpretation A-37
8.11 Severability A-37
8.12 Specific Performance A-37
8.13 No Reliance A-37
8.14 Further Assurances A-37
EXHIBITS
Exhibit 1 - Form of First Federal Closing Certificate (not included)
Exhibit 2 - Form of First Federal Counsel Opinion (not included)
Exhibit 3 - Form of First Federal Replacement Employment Agreement (not included)
Exhibit 4 - Form of First Federal Severance Agreement (not included)
Exhibit 5 - Form of Mutual and Merger Corp. Closing Certificate (not included)
Exhibit 6 - Form of Mutual Counsel Opinion (not included)
</TABLE>
-iv-
<PAGE> 48
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is made as of this 16th day of September,
1996 by and among MUTUAL SAVINGS BANK, FIRST FEDERAL MERGER CORPORATION and
FIRST FEDERAL BANCSHARES OF EAU CLAIRE, INC.
RECITALS
WHEREAS, the respective Boards of Directors of Mutual, Merger Corp. and
First Federal have approved this Agreement by the requisite vote imposed by Law,
and deem it advisable and in the best interest of their respective institutions
and members or stockholders, as the case may be, to consummate the
reorganization provided for herein, pursuant to which Merger Corp. will merge
with and into First Federal, the surviving institution, and in connection
therewith the stockholders of First Federal will receive cash in exchange for
their shares of First Federal Common Stock;
WHEREAS, concurrently with this Agreement and as a condition and an
inducement to the willingness of Mutual to enter into this Agreement, First
Federal and Mutual are entering into a Stock Option Agreement granting Mutual,
under the conditions set forth therein, the option to purchase shares of
newly-issued First Federal Common Stock;
WHEREAS, the Board of Directors of First Federal has directed that this
Agreement and the transactions described in this Agreement be submitted for
approval at the First Federal Meeting.
NOW, THEREFORE, in consideration of the Recitals and of the mutual
covenants, conditions and agreements set forth herein and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, it is hereby agreed that:
ARTICLE I
DEFINITIONS
When used in this Agreement, the following terms shall have the meanings
specified:
1.1 Acquisition. "Acquisition" shall mean any of the following involving
First Federal or the Bank, other than the Merger:
(a) any merger, consolidation, share exchange, business combination or
other similar transaction;
(b) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of 10% or more of assets in a single transaction or series of
related transactions, excluding from this calculation any such transactions
undertaken in the ordinary course of business and consistent with past practice;
(c) any sale of 10% or more of the outstanding shares of capital stock
(or securities convertible or exchangeable into or otherwise evidencing, or an
agreement or instrument evidencing, the right to acquire capital stock);
(d) any tender offer or exchange offer for 10% or more of the
outstanding shares of capital stock or the filing of a registration statement
under the Securities Act in connection therewith;
(e) any solicitation of proxies in opposition to approval by First
Federal's shareholders of the Merger or the Stock Option Agreement;
A-1
<PAGE> 49
(f) The filing of an acquisition application (or the giving of
acquisition notice), whether in draft or final form, under HOLA with respect to
First Federal or the Bank;
(g) any person shall have acquired beneficial ownership or the right
to acquire beneficial ownership of, or any "group" (as such term is defined
under Section 13(d) of the Exchange Act and the rules and regulations of the SEC
promulgated thereunder) shall have been formed which beneficially owns or has
the right to acquire beneficial ownership of, 10% or more of the then
outstanding shares of capital stock; or
(h) any public announcement of a proposal, plan or intention to do any
of the foregoing.
1.2 Acquisition Proposal. "Acquisition Proposal" shall mean the making of
any proposal by any Person concerning an Acquisition.
1.3 Affiliate. "Affiliate" shall mean, with respect to any Person, any
other Person who directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control with the first Person,
including without limitation all directors and executive officers of the first
Person.
1.4 Agreement. "Agreement" shall mean this Agreement and Plan of Merger,
together with the Exhibits attached hereto and together with the First Federal
Disclosure Schedule, as the same may be amended or supplemented from time to
time in accordance with the terms hereof.
1.5 Announcement. "Announcement" shall mean any public notice, release,
statement or other communication to employees, suppliers, distributors,
customers, members, stockholders, the general public, the press or any
securities exchange or securities quotation system relating to the negotiation
and preparation of this Agreement or the transactions contemplated hereby.
1.6 Bank. "Bank" shall mean First Federal Bank of Eau Claire, F.S.B., a
federally-chartered savings bank which is a wholly-owned subsidiary of First
Federal.
1.7 Buildings. "Buildings" shall mean all buildings, fixtures, structures
and improvements (including without limitation stand-alone automated teller
machines or similar devices) used by First Federal or an Affiliate and located
on the First Federal Real Estate.
1.8 CERCLA. "CERCLA" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as the same may be in effect from time
to time.
1.9 Closing. "Closing" shall mean the conference to be held at
10:00 A.M., Central Time, on the Closing Date at the offices of Quarles & Brady,
411 East Wisconsin Avenue, Milwaukee, Wisconsin 53202, or such other time and
place as the parties may mutually agree to in writing, at which the transactions
contemplated by this Agreement shall be consummated.
1.10 Closing Date. "Closing Date" shall mean the date of the Effective
Time or such other date as the parties may mutually agree to in writing.
1.11 Code. "Code" shall mean the Internal Revenue Code of 1986, as the
same may be in effect from time to time.
1.12 Contracts. "Contracts" shall mean all of the contracts, agreements,
leases, relationships and commitments, written or oral, to which the relevant
Person is a party or by which it is bound.
1.13 Control. "Control," as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities or by contract or otherwise. "Control," as used
with respect to securities or other property, shall mean the power to exercise
or direct the exercise of any voting rights associated therewith, or the power
to dispose or direct the disposition thereof, or both.
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1.14 Effective Time. "Effective Time" shall have the meaning
specified in Section 2.3 of this Agreement.
1.15 Employee Benefit Plans. "Employee Benefit Plans" shall mean any
pension plan, profit sharing plan, bonus plan, incentive compensation plan,
deferred compensation plan, stock ownership plan, stock purchase plan, stock
option plan, stock appreciation plan, employee benefit plan, employee benefit
policy, retirement plan, fringe benefit program, insurance plan, severance plan,
disability plan, health care plan, sick leave plan, death benefit plan, or any
other plan or program to provide retirement income, fringe benefits or other
benefits to former or current employees of the relevant Person.
1.16 Environmental Claim, Environmental Hazardous Material,
Environmental Laws, Environmental Permits and Environmental Release.
"Environmental Claim," " Environmental Hazardous Material," "Environmental
Laws," "Environmental Permits" and "Environmental Release" shall have the
meanings specified in Section 4.29 of this Agreement.
1.17 Equipment. "Equipment" shall mean all equipment, boilers,
furniture, fixtures, motor vehicles, furnishings, office equipment, computers
and other items of tangible personal property owned by the relevant Person which
are either presently used, or are used on the Closing Date, by the relevant
Person in the conduct of its business.
1.18 ERISA. "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as the same may be in effect from time to time.
1.19 Exchange Act. "Exchange Act" shall mean the Securities Exchange
Act of 1934, as the same may be in effect from time to time.
1.20 FDIC. "FDIC" shall mean the Federal Deposit Insurance
Corporation.
1.21 FHLB of Chicago. "FHLB of Chicago" shall mean the Federal Home
Loan Bank of Chicago, Illinois.
1.22 First Federal. "First Federal" shall mean First Federal
Bancshares of Eau Claire, Inc., a Wisconsin corporation which is registered as a
unitary savings and loan holding company under HOLA and the rules and
regulations of the OTS promulgated thereunder.
1.23 First Federal Closing Certificate. "First Federal Closing
Certificate" shall mean the Closing Certificate of First Federal in
substantially the form of Exhibit 1 attached to this Agreement.
1.24 First Federal Common Stock. "First Federal Common Stock" shall
mean all of the authorized shares of common stock, $.01 par value per share, of
First Federal.
1.25 First Federal Counsel Opinion. "First Federal Counsel Opinion"
shall mean an opinion of Michael Best & Friedrich in substantially the form of
Exhibit 2 attached to this Agreement.
1.26 First Federal Deferred Compensation Plan. "First Federal
Deferred Compensation Plan" shall mean the First Federal Bank of Eau Claire,
F.S.B. Deferred Compensation Plan, established by the Bank effective January 1,
1994 to provide for contributions by the Bank on behalf of certain employees in
an amount equal to the additional benefits such persons would have received
under the First Federal ESOP but for the maximum annual contribution limitation
in Section 415 of the Code and the maximum annual contribution limit in Section
401(a)(17) of the Code.
1.27 First Federal Disclosure Schedule. "First Federal Disclosure
Schedule" shall mean the disclosure schedule, dated the date of this Agreement,
delivered by First Federal to Mutual contemporaneously with the execution and
delivery of this Agreement and as the same may be amended from time to time
after the date of this Agreement and prior to the Closing Date in accordance
with the terms of this Agreement.
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1.28 First Federal ESOP. "First Federal ESOP" shall mean the First Federal
Bank of Eau Claire, F.S.B. Employee Stock Ownership Trust effective January 1,
1994.
1.29 First Federal ESOP Indebtedness. "First Federal ESOP Indebtedness"
shall mean the Indebtedness of the First Federal ESOP to First Federal under the
loan extended by First Federal to the First Federal ESOP for the purpose of
financing the First Federal ESOP's purchase of shares of First Federal Common
Stock in connection with the Bank's October 6, 1994 conversion from mutual to
stock form and its concurrent reorganization into a holding company structure
pursuant to which the Bank became a wholly-owned subsidiary of First Federal.
First Federal ESOP Indebtedness shall include the outstanding principal and
accrued and unpaid interest under the terms of said loan as of the relevant time
of inquiry.
1.30 First Federal Executives. "First Federal Executives" shall mean the
individuals set forth in the table below in their capacities as executive
officers of First Federal or the Bank, or both, as identified adjacent to their
respective names:
<TABLE>
<CAPTION>
OFFICE(S) HELD IN
NAME OF EXECUTIVE FIRST FEDERAL AND THE BANK
----------------- --------------------------
<S> <C>
Donald T. Tietz President and Chief Executive Officer of First Federal
and the Bank
Douglas D. Hillestad Vice President, Home Office Loan Originations of the Bank
David L. Johnson Vice President, Mortgage Loan Originations, Processing
and Servicing of the Bank
Jerome A. Reinecke Vice President, Treasurer, Chief Financial Officer and
Corporate Secretary of First Federal and of the Bank
Thomas E. Schommer Vice President, Branch Coordination of the Bank
Robert D. Stanton Vice President, Marketing, Data Processing, and Deposit
Services of the Bank
</TABLE>
1.31 First Federal Existing Contracts. "First Federal Existing Contracts"
shall mean those Contracts which are listed and briefly described pursuant to
Section 4.11 of this Agreement on the First Federal Disclosure Schedule.
1.32 First Federal Existing Employment Agreements. "First Federal Existing
Employment Agreements" shall mean the employment agreements by and between the
Bank and each of the First Federal Executives, each effective as of October 6,
1994.
1.33 First Federal Existing Indebtedness. "First Federal Existing
Indebtedness" shall mean all Indebtedness of First Federal and the First Federal
Subsidiaries, all of which is listed and briefly described on the First Federal
Disclosure Schedule.
1.34 First Federal Existing Insurance Policies. "First Federal Existing
Insurance Policies" shall mean all of the insurance policies in effect and owned
by First Federal or any First Federal Subsidiary, all of which are listed and
briefly described on the First Federal Disclosure Schedule.
1.35 First Federal Existing Investment Securities. "First Federal Existing
Investment Securities" shall mean Investment Securities of First Federal and the
First Federal Subsidiaries, all of which are listed and briefly described on the
First Federal Disclosure Schedule.
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1.36 First Federal Existing Liens. "First Federal Existing Liens" shall
mean all Liens affecting any of the assets and properties of First Federal or
any First Federal Subsidiary except for Liens for current taxes not yet due and
payable, pledges to secure deposits and such imperfections of title, easements
and other encumbrances, if any, as do not materially detract from the value of
or substantially interfere with the present use of the property affected
thereby, all of which are listed and briefly described on the First Federal
Disclosure Schedule.
1.37 First Federal Existing Litigation. "First Federal Existing
Litigation" shall mean all pending or, to the knowledge of First Federal,
threatened claims, suits, audit inquiries, charges, workers compensation claims,
litigation, arbitrations, proceedings, governmental investigations, citations
and actions of any kind against First Federal or any First Federal Subsidiary,
or affecting any assets or the business of First Federal or any First Federal
Subsidiary, all of which are listed and briefly described on the First Federal
Disclosure Schedule.
1.38 First Federal Existing Permits. "First Federal Existing Permits"
shall mean all Permits of First Federal and all First Federal Subsidiaries, the
significant ones of which are listed and briefly described on the First Federal
Disclosure Schedule.
1.39 First Federal Existing Plans. "First Federal Existing Plans" shall
mean all Employee Benefit Plans of First Federal and the First Federal
Subsidiaries and any Employee Benefit Plans of such entities that have been
terminated since January 1, 1994, all of which are listed and briefly described
on the First Federal Disclosure Schedule.
1.40 First Federal Incentive Plan. "First Federal Incentive Plan" shall
mean the First Federal Bank of Eau Claire, F.S.B. Incentive Plan and Trust
Agreement effective as of May 17, 1995.
1.41 First Federal Meeting. "First Federal Meeting" shall mean the
special or annual meeting of the First Federal Shareholders for the purpose of
approving the Merger, this Agreement and the transactions contemplated by this
Agreement, and for such other purposes as may be necessary or desirable.
1.42 First Federal Profit Sharing Plan. "First Federal Profit Sharing
Plan" shall mean the First Federal Bank of Eau Claire, F.S.B. Profit Sharing
Plan, a tax qualified defined contribution plan covering substantially all
full-time employees of the Bank.
1.43 First Federal Proxy Statement. "First Federal Proxy Statement" shall
have the meaning specified in Section 2.9(b) of this Agreement.
1.44 First Federal Real Estate. "First Federal Real Estate" shall mean
the parcels of real property identified in the legal descriptions set forth in
the First Federal Disclosure Schedule.
1.45 First Federal Replacement Employment Agreement. "First Federal
Replacement Employment Agreement" shall mean an employment agreement in
substantially the form of Exhibit 3 attached to this Agreement, to be entered
into at the Closing and to be effective as of the Effective Time, by and between
the Bank and any one or more of the First Federal Executives, all as provided in
Section 3.11(d) of this Agreement.
1.46 First Federal Reports. "First Federal Reports" shall have the
meaning specified in Section 4.8 of this Agreement.
1.47 First Federal Severance Agreement. "First Federal Severance
Agreement" shall mean a severance agreement in substantially the form of Exhibit
4 attached to this Agreement, to be entered into at the Closing and to be
effective as of the Effective Time, by and between the Bank and those of the
First Federal Executives with whom the Bank does not enter into a First Federal
Replacement Employment Agreement, all as described in Section 3.11(d) of this
Agreement.
1.48 First Federal Shareholders. "First Federal Shareholders" shall mean
all Persons owning shares of First Federal Common Stock on the relevant date of
inquiry.
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1.49 First Federal Stock Option Plan. "First Federal Stock Option Plan"
shall mean the First Federal Bancshares of Eau Claire, Inc. 1995 Stock Option
Plan.
1.50 First Federal Stock Options. "First Federal Stock Options" shall
mean options to purchase shares of First Federal Common Stock granted pursuant
to the First Federal Stock Option Plan which are outstanding as of the relevant
time of inquiry.
1.51 First Federal Subsidiaries. "First Federal Subsidiaries" shall mean
those Subsidiaries of First Federal listed on the First Federal Disclosure
Schedule pursuant to Section 4.1(c) of this Agreement.
1.52 HOLA. "HOLA" shall mean the Home Owners' Loan Act of 1933, as
amended, including the rules and regulations of the OTS promulgated thereunder.
1.53 Indebtedness. "Indebtedness" shall mean all liabilities or
obligations (except deposit accounts) of the relevant Person, whether primary or
secondary, absolute or contingent: (a) for borrowed money; (b) evidenced by
notes, bonds, debentures or similar instruments; or (c) secured by Liens on any
assets of the relevant Person.
1.54 Indemnified Liabilities. "Indemnified Liabilities" shall have the
meaning defined in Section 3.5 of this Agreement.
1.55 Indemnified Parties. "Indemnified Parties" shall have the meaning
defined in Section 3.5 of this Agreement.
1.56 Information. "Information" shall refer to the financial and other
business information, whether in written or oral form, furnished to Mutual or
any of its Affiliates by First Federal or any of the First Federal Subsidiaries.
1.57 Investment Securities. "Investment Securities" shall mean all
investment securities of the relevant Person permitted to be held by the
relevant Person under Law.
1.58 IRS. "IRS" shall mean the United States Internal Revenue Service.
1.59 Law. "Law" shall mean any federal, state, local or other law, rule,
regulation, policy or governmental requirement of any kind, and the rules,
regulations and orders promulgated thereunder by any regulatory agencies or
other Persons.
1.60 Lien. "Lien" shall mean, with respect to any asset: (a) any
mortgage, pledge, lien, charge, claim, restriction, reservation, condition,
easement, covenant, lease, encroachment, title defect, imposition, security
interest or other encumbrance of any kind; and (b) the interest of a vendor or
lessor under any conditional sale agreement, financing lease or other title
retention agreement relating to such asset.
1.61 Material Adverse Effect. "Material Adverse Effect" shall mean any
change or effect that is or is reasonably likely to be materially adverse to the
relevant Person's business, operations, properties (including intangible
properties), condition (financial or otherwise), assets, liabilities (including
contingent liabilities) or prospects.
1.62 Merger. "Merger" shall mean the merger of Merger Corp. with and
into First Federal pursuant to this Agreement.
1.63 Merger Corp. "Merger Corp." shall mean First Federal Merger
Corporation, a Wisconsin corporation organized as a wholly-owned subsidiary of
Mutual specifically for the purpose of effecting the transactions contemplated
by this Agreement.
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1.64 Merger Per Share Consideration. "Merger Per Share Consideration"
shall mean the amount of Eighteen and 85/100 Dollars ($18.85). The Merger Per
Share Consideration shall be subject to increase if the Closing Date is delayed
beyond March 31, 1997, unless the delay results from a breach by First Federal
of any representation or warranty made herein or a failure by First Federal to
perform or fulfill any covenant or agreement made herein, or otherwise is
attributable to the acts or omissions of First Federal. Any such increase in
the Merger Per Share Consideration shall be in an amount equal to $.05 per share
for each calendar month or portion of a month beyond March 31, 1997 for which
the Closing Date is delayed.
1.65 Merger Stock. "Merger Stock" shall mean the shares of First Federal
Common Stock outstanding as of the Effective Time, excluding the 48,560 shares
of First Federal Common Stock held in the First Federal Incentive Plan which
have not been allocated to participants.
1.66 Merger Total Consideration. "Merger Total Consideration" shall mean
that amount which is equal to the product of the Merger Per Share Consideration
times the total number of shares of Merger Stock.
1.67 Minnesota Savings Association Regulatory Authority. "Minnesota
Savings Association Regulatory Authority" shall mean the Commissioner of
Commerce for the State of Minnesota.
1.68 Mutual. "Mutual" shall mean Mutual Savings Bank, a mutual savings
bank chartered under Chapter 214 of the Wisconsin Statutes.
1.69 Mutual and Merger Corp. Closing Certificate. "Mutual and Merger
Corp. Closing Certificate" shall mean the Closing Certificate of Mutual and
Merger Corp. in substantially the form of Exhibit 5 attached to this Agreement.
1.70 Mutual Counsel Opinion. "Mutual Counsel Opinion" shall mean the
opinion of Quarles & Brady in substantially the form of Exhibit 6 attached to
this Agreement.
1.71 NASDAQ/NMS. "NASDAQ/NMS" shall mean the National Association of
Securities Dealers Automated Quotations National Market System.
1.72 OTS. "OTS" shall mean the Office of Thrift Supervision, Department
of the Treasury.
1.73 Paying Agent. "Paying Agent" shall mean a bank or trust company
selected by Mutual and reasonably satisfactory to First Federal.
1.74 Payment Fund. "Payment Fund" shall have the meaning specified in
Section 2.10 of this Agreement.
1.75 Permits. "Permits" shall mean all licenses, permits, approvals,
franchises, qualifications, permissions, agreements, orders and governmental
authorizations required for the conduct of the business of the relevant Person.
1.76 Permitted Liens. "Permitted Liens" shall mean those of the First
Federal Existing Liens which are expressly noted as Permitted Liens on the First
Federal Disclosure Schedule.
1.77 Person. "Person" shall mean a natural person, corporation, bank,
trust, partnership, association, governmental entity, agency or branch or
department thereof, or any other legal entity.
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1.78 Quantified Material Adverse Effect. "Quantified Material Adverse
Effect" shall mean the occurrence of a Material Adverse Effect upon First
Federal and the First Federal Subsidiaries taken as a whole, in an amount
greater than $1,000,000, calculated on an after-tax basis, resulting solely from
a failure by First Federal to perform or fulfill any agreement or covenant made
by First Federal in this Agreement or resulting solely from one or more of the
representations and warranties made by First Federal in this Agreement becoming
untrue based upon (i) any event occurring after the date hereof, or (ii) a
discovery after the date hereof relating to the untruth of such representations
and warranties as of the date hereof, but in either case excluding therefrom the
effects on First Federal and the First Federal Subsidiaries arising from (y)
general changes in market interest rates, any changes in Law, generally accepted
accounting principals, regulatory accounting principals, regulatory assessments
or economic or other changes affecting depository institutions or their holding
companies generally, or (z) the costs and expenses relating to this Agreement
and the transactions contemplated hereby, except to the extent such costs and
expenses exceed $700,000 in the aggregate.
1.79 Regulatory Approvals. "Regulatory Approvals" shall mean all of the
approvals which are conditions precedent to consummating the Merger, as
specified in Section 7.1(c) of this Agreement.
1.80 Restructuring. "Restructuring" shall mean exclusively the
consolidation of First Federal and the Bank with and into Mutual as described in
Section 2.15 of this Agreement.
1.81 SAIF. "SAIF" shall mean the Savings Association Insurance Fund of
the FDIC.
1.82 SEC. "SEC" shall mean the United States Securities and Exchange
Commission.
1.83 Securities Act. "Securities Act" shall mean the Securities Act of
1933, as the same may be in effect from time to time.
1.84 Stock Option Agreement. "Stock Option Agreement" shall mean the
Stock Option Agreement, of even date herewith, being entered into by and between
First Federal and Mutual concurrently with their execution and delivery of this
Agreement.
1.85 Stock Option Consideration. "Stock Option Consideration" shall
mean, with respect to any First Federal Stock Option, that amount which is equal
to the difference between the Merger Per Share Consideration minus the exercise
price of such First Federal Stock Option, if a positive number.
1.86 Subsidiary. "Subsidiary" shall mean any corporation, financial
institution, joint venture, partnership, limited liability company, trust or
other business entity: (i) 25% or more of any outstanding class of whose voting
interests is directly or indirectly owned by the relevant Person, or is held by
it with power to vote; (ii) the election of a majority of whose directors,
trustees, general partners or comparable governing body is controlled in any
manner by the relevant Person; or (iii) with respect to the management or
policies of which the relevant Person has the power, directly or indirectly, to
exercise a controlling influence. Subsidiary shall include an indirect
Subsidiary of the relevant Person which is controlled in any manner specified
above through one of more corporations or financial institutions which are
themselves Subsidiaries.
1.87 Surviving Corporation. "Surviving Corporation" shall have the
meaning specified in Section 2.1 of this Agreement.
1.88 Trading Day. "Trading Day" shall mean any day on which stocks trade
on NASDAQ/NMS.
1.89 WBCL. "WBCL" shall mean the Wisconsin Business Corporation Law.
1.90 Wisconsin Savings Association Regulatory Agency. "Wisconsin Savings
Association Regulatory Agency" shall mean the Administrator of the Division of
Savings Institutions of the Wisconsin Department of Financial Institutions.
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ARTICLE II
THE MERGER
2.1 The Merger. This Agreement provides for the merger of Merger Corp.
with and into First Federal, whereby the Merger Stock outstanding as of the
Effective Time will be converted to cash as described herein. As of the
Effective Time, Merger Corp. will be merged with and into First Federal which,
as the surviving corporation (the "Surviving Corporation"), shall remain a
Wisconsin business corporation registered under HOLA as a savings and loan
holding company and, in such capacity, shall be governed by the laws of the
State of Wisconsin and Federal laws applicable to registered savings and loan
holding companies, including rules and regulations of regulatory authorities
thereunder. The separate existence of Merger Corp. shall thereupon cease. The
Merger shall be effected pursuant to the provisions of federal Law and the WBCL,
and shall have the effects provided in the WBCL.
2.2 Effect of the Merger.
(a) At the Effective Time, the effect of the Merger shall be as
provided in the WBCL, including the effects described in Sections 2.2(b) and
2.2(c) of this Agreement.
(b) The corporate identity, existence, purposes, powers, franchises,
privileges, assets, properties and rights of both First Federal and Merger Corp.
shall be merged into and continued in the Surviving Corporation, and the
Surviving Corporation shall be fully vested therewith. The separate existence
of Merger Corp., except insofar as otherwise specifically provided by Law, shall
cease at the Effective Time, whereupon Merger Corp. and the Surviving
Corporation shall be and become one single corporation.
(c) At the Effective Time, the Surviving Corporation shall succeed
to, without other transfer, and shall possess and enjoy, all the rights,
privileges, assets, properties, powers and franchises both of a public and a
private nature, and be subject to all the restrictions, disabilities and duties
of First Federal and Merger Corp., and all the rights, privileges, assets,
properties, powers and franchises of First Federal or Merger Corp. and all
property, real, personal and mixed, tangible or intangible, and all debts due to
First Federal or Merger Corp. on whatever account, shall be vested in the
Surviving Corporation; and all rights, privileges, assets, properties, powers
and franchises, and all and every other interest shall be thereafter as
effectively the property of the Surviving Corporation as they were of First
Federal or Merger Corp.; and the title to or any interest in any real estate
vested by deed or otherwise in First Federal or Merger Corp. shall not revert or
be in any way impaired by reason of the Merger; provided, however, that all
rights of creditors and Liens upon any property of either First Federal or
Merger Corp. shall be preserved unimpaired, and all debts, liabilities and
duties of First Federal or Merger Corp. shall thenceforth attach to the
Surviving Corporation and may be enforced against the Surviving Corporation to
the same extent as if said debts, liabilities and duties had been incurred or
contracted by the Surviving Corporation.
2.3 Effective Time. The consummation of the Merger shall be effected as
promptly as practicable after the satisfaction or waiver of the conditions set
forth in Article VII of this Agreement. The Merger shall become effective on
the date and time specified in Articles of Merger to be filed with the Wisconsin
Secretary of Financial Institutions. The date and time on which the Merger
shall become effective is referred to in this Agreement as the "Effective Time."
2.4 Articles and Bylaws of Surviving Corporation.
(a) The Articles of Incorporation of Merger Corp. as in effect
immediately prior to the Effective Time shall be the Articles of Incorporation
of the Surviving Corporation until amended in accordance with Law, except that
the name of the corporation identified therein shall be changed to First Federal
Bancshares of Eau Claire, Inc.
(b) The Bylaws of Merger Corp. as in effect immediately prior to the
Effective Time shall be the Bylaws of the Surviving Corporation until amended in
accordance with Law, except that the name of the corporation identified therein
shall be changed to First Federal Bancshares of Eau Claire, Inc.
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2.5 Charter and Bylaws of the Bank; Offices of the Bank.
(a) The Federal Stock Charter and Bylaws of the Bank in force
immediately prior to the Effective Time initially shall be the Charter and
Bylaws of the Bank immediately following the Effective Time.
(b) The location of the main office of the Bank immediately prior to
the Effective Time initially shall continue as the main office of the Bank
immediately following the Effective Time, and the location of each of the Bank's
branch offices immediately prior to the Effective Time shall continue as a
branch location of the Bank immediately following the Effective Time.
2.6 Directors and Officers of Surviving Corporation. As of the Effective
Time, the duly qualified and acting directors and officers of Merger Corp.
immediately prior to the Effective Time shall be the directors and officers of
the Surviving Corporation, to hold office as provided in the Bylaws of the
Surviving Corporation.
2.7 Conversion of First Federal Common Stock. At the Effective Time, and
without any action on the part of the holders thereof:
(a) Each share of Merger Stock shall be converted into the right to
receive cash in an amount equal to the Merger Per Share Consideration in the
manner and form, and on the terms and conditions, set forth in this Agreement.
All such shares of Merger Stock shall no longer be outstanding and shall
automatically be cancelled and retired and shall cease to exist, and each
certificate previously representing any such shares shall thereafter represent
the right to receive cash at the rate of the Merger Per Share Consideration.
(b) Each share of First Federal Common Stock held in the treasury of
First Federal or owned by First Federal or any First Federal Subsidiary for its
own account (other than shares of First Federal Common Stock held directly or
indirectly in trust accounts, managed accounts and the like or otherwise held in
a fiduciary capacity that are beneficially owned by third parties) immediately
prior to the Effective Time shall be canceled and extinguished without any
conversion thereof and no payment shall be made with respect thereto.
2.8 Conversion of Stock of Merger Corp. At the Effective Time, each
share of common stock of Merger Corp. then issued and outstanding, without any
action on the part of the holder thereof, shall be converted into one share of
common stock of the Surviving Corporation.
2.9 Meeting of First Federal Shareholders.
(a) First Federal will promptly take all steps necessary to cause
the First Federal Meeting to be duly called, noticed, and held as soon as
practicable and, in any event, no later than February 28, 1997 (unless postponed
pursuant to Section 2.9(b) hereof), for the purpose of voting to approve this
Agreement, the Stock Option Agreement, the Merger and all matters related
thereto. Subject to Section 2.9(c) of this Agreement, First Federal will use its
best efforts to secure the required approval of its Shareholders.
(b) In connection with the First Federal Meeting, First Federal will
prepare and cause to be mailed to its Shareholders a notice of the Meeting and a
definitive proxy statement (together the "First Federal Proxy Statement") as
soon as practicable. Notwithstanding the foregoing, mailing of the First Federal
Proxy Statement shall be postponed until all of the conditions set forth in
Sections 7.1(a), 7.1(c) and 7.2(j) of this Agreement have been satisfied, unless
the parties mutually agree that said mailing should be commenced notwithstanding
that any one or more of such conditions has not been satisfied. Moreover, First
Federal shall not be obligated to commence mailing the First Federal Proxy
Statement unless and until First Federal receives from Mutual written
confirmation that Mutual is unaware of any facts, circumstances, conditions or
developments that would cause the conditions set forth in Section 7.2(d) of this
Agreement not to be satisfied.
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Mutual and Merger Corp. shall provide First Federal with any
information for inclusion in the First Federal Proxy Statement which is required
by Law or which is reasonably requested by First Federal. First Federal shall
consult with Mutual with respect to the First Federal Proxy Statement and shall
afford Mutual reasonable opportunity to comment thereon. If, at any time prior
to the First Federal Meeting, any event should occur relating to First Federal
which should be set forth in an amendment of, or a supplement to, the First
Federal Proxy Statement, First Federal will promptly inform Mutual. In each
such case, First Federal, with the cooperation of Mutual, will promptly prepare
and mail such amendment or supplement and First Federal shall consult with
Mutual with respect to such supplement or amendment and shall afford Mutual
reasonable opportunity to comment thereon prior to such mailing. First Federal
shall notify Mutual at least 48 hours prior to the mailing of the First Federal
Proxy Statement, or any amendment or supplement thereto, to First Federal's
Shareholders.
(c) The First Federal Proxy Statement shall include the
recommendation of the Board of Directors of First Federal in favor of the
Merger; provided, however, that if the Board of Directors of First Federal
shall, in good faith and after consulting with legal counsel, determine that to
make such a recommendation would be a violation of its fiduciary obligations
under applicable Law, then the Board of Directors of First Federal shall not be
obligated to make any such recommendation.
2.10 Payment of Merger Total Consideration. At the Closing and prior to
the Effective Time, Mutual shall deliver to the Paying Agent, by a single wire
transfer of immediately available funds to an account in the United States of
America designated by the Paying Agent, an amount (such amount hereinafter
referred to as the "Payment Fund") equal to the Merger Total Consideration.
2.11 Surrender of Certificates.
(a) Promptly after the Effective Time but no later than three (3)
business days after the Effective Time, the Paying Agent shall deliver to each
First Federal Shareholder a form of letter of transmittal and instructions for
use in effecting the surrender of Merger Stock certificates for payment. Upon
surrender to the Paying Agent of such certificates, together with such letter of
transmittal, duly executed, the Paying Agent shall promptly pay to the First
Federal Shareholder entitled thereto, in cash, the Merger Per Share
Consideration multiplied by the number of shares of Merger Stock covered by such
surrendered certificates and transmittal letters.
(b) Until surrendered, each outstanding certificate, which prior to
the Effective Time represented shares of Merger Stock, shall be deemed to
represent and evidence only the right to receive the consideration to be paid
therefor as set forth in Section 2.7 of this Agreement and until such surrender,
no cash shall be paid to the holder of such outstanding certificate in respect
thereof.
(c) If payment of cash is to be made to a Person other than the
Person in whose name the certificate surrendered is registered, it shall be a
condition to such payment that the certificate so surrendered shall be properly
endorsed and otherwise in proper form for transfer, and that the Person
requesting such payment shall (i) pay to the Paying Agent any transfer or other
taxes required by reason of payment to a person other than the registered holder
of the certificates surrendered, (ii) authorize the Paying Agent to deduct any
such taxes from such payment, or (iii) establish to the satisfaction of the
Paying Agent that such tax has been paid or is not applicable.
(d) No interest shall accrue or be payable with respect to any
amounts which any holder of shares of Merger Stock shall be entitled to receive
pursuant to this Agreement. The Paying Agent shall be authorized to pay the
Merger Per Share Consideration attributable to any certificate representing
shares of Merger Stock which has been lost or destroyed upon receipt of evidence
of ownership of the shares of Merger Stock represented thereby and of
appropriate indemnification, in each case reasonably satisfactory to Mutual.
(e) After the Effective Time, there shall be no transfers on the
stock transfer books of the Surviving Corporation of the shares of Merger Stock
which were outstanding immediately prior to the Effective Time. If, after the
Effective Time, certificates representing such shares are presented to the
Surviving Corporation, they shall be canceled and exchanged for cash as provided
in this Section 2.11 of this Agreement.
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(f) Any portion of the Payment Fund which remains undistributed to
the shareholders of the Company six (6) months after the Effective Time shall be
returned, at Mutual's request, by the Paying Agent to Mutual, which thereafter
shall act as paying agent subject to the rights of holders of unsurrendered
certificates of Merger Stock under this Article II and subject to applicable
Law. Notwithstanding the foregoing, neither Mutual, the Paying Agent, nor any
other party hereto shall be responsible or liable to any holder of Merger Stock
for any cash delivered to any public official pursuant to any abandoned
property, escheat or similar Law.
(g) Mutual shall be entitled to deduct and withhold from the
consideration otherwise payable pursuant to this Agreement to any holder of
Merger Stock such amounts as Mutual is required to deduct and withhold with
respect to the making of such payment under the Code, or any provision of state,
local or foreign tax Law. To the extent that amounts are so withheld by Mutual,
such withheld amounts shall be treated for all purposes of this Agreement as
having been paid to the holder of the Merger Stock in respect of which such
deduction and withholding was made by Mutual.
2.12 [Reserved].
2.13 Continuation of Deposits. All savings accounts of the Bank shall
retain the same status immediately after the Effective Time as they had prior
thereto. Each deposit shall have a value equal to and the same character as the
deposit immediately prior to the Effective Time and each holder of a savings
account shall retain, without payment, a withdrawable savings account or
accounts in the Bank equal in withdrawable amount to the withdrawal value of
such holder's savings account in the Bank immediately prior to the Effective
Time.
2.14 Liquidation Account and Sub-Accounts. The liquidation account and
sub-account balances of the Bank shall be continued for the benefit of certain
account holders of First Federal who maintain their account in the Bank in the
event of a complete liquidation of the Bank. The liquidation account balance
shall be subject to downward adjustment to the extent of any downward adjustment
to any sub-account balance in accordance with Section 563b.3(f) of the
regulations of the OTS. A distribution of each sub-account balance may be made
only in the event of a complete liquidation of the Bank and only out of funds
available for such purpose after payment of all creditors but before any
payments to stockholders. In the event the restructuring described in Section
2.15 below is effected following the Merger, the liquidation rights of holders
of savings accounts in the Bank will be replaced with liquidation rights
established for the benefit of Mutual's account holders under Laws applicable to
Mutual and Mutual's Articles and Bylaws.
2.15 Subsequent Restructuring. Concurrent with the Merger or promptly
following the Effective Time, Mutual plans to consolidate First Federal and the
Bank with and into Mutual. Presently it is anticipated that the Restructuring
will be completed by liquidating First Federal and distributing its assets,
after paying off or providing for all of its liabilities, to Mutual as First
Federal's sole shareholder. Alternatively, First Federal may be merged into
Mutual pursuant to applicable Law. Concurrent with or promptly following such
liquidation or merger, the Bank will be merged with and into Mutual pursuant to
the provisions of applicable Law, and dissolving First Federal. The
Restructuring is subject to certain regulatory approvals. In the event the
Restructuring is effected, Mutual agrees that it will assume and timely
discharge any and all obligations, covenants and agreements of First Federal
under this Agreement which are to be performed or discharged after the Effective
Time, but which have not been fully performed or discharged as of the time the
Restructuring is effected. Mutual agrees, however, that it will not alter the
structure of the Restructuring as described herein if it would: (i) alter,
change or reduce the amount of the consideration to be paid to holders of First
Federal Common Stock or the manner or basis upon which such exchange is made;
(ii) have an adverse federal or state income tax consequence to First Federal,
or any of the shareholders of First Federal; (iii) have an adverse effect on the
shareholders of First Federal Common Stock; or (iv) would be likely to delay or
jeopardize receipt of the Regulatory Approvals or satisfaction of any of the
conditions to the Merger set forth in Article VII.
2.16 Anti-Dilution Provisions. In the event that between the date of
this Agreement and the Effective Time the issued and outstanding shares of First
Federal Common Stock shall have been changed into a different number of shares
as a result of a stock split, reverse stock split, stock dividend,
recapitalization, reclassification or other similar transaction, or in the event
the number of authorized and unissued shares of First Federal Common Stock
subject to issuance upon the exercise of outstanding First Federal Stock Options
shall have changed between the date of this Agreement and the Effective Time as
the result of the granting of additional First Federal Stock Options, then the
Per Share Merger Consideration shall be adjusted appropriately.
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ARTICLE III
OTHER AGREEMENTS
3.1 Access. Upon reasonable notice, First Federal shall afford to Mutual's
officers, employees, accountants, legal counsel and other representatives
access, during normal business hours, to all of First Federal's and its
Subsidiaries' properties, books, contracts, commitments and records; provided
that First Federal shall have the right to redact any information from such
materials which relates to assessments, analyses or discussions of a possible
Acquisition engaged in by First Federal prior to the date of this Agreement, or
which, subsequent to such date, relates to any breach by Mutual, any failure of
any of the closing conditions of any of the parties, or any other matters or
issues related to First Federal's evaluation of the Merger or its obligations
under this Agreement, or would impair the First Federal Board of Directors'
ability to discharge its fiduciary duties.
3.2 First Federal's Disclosure Schedule.
(a) Contemporaneously with the execution and delivery of this
Agreement, First Federal is delivering to Mutual the First Federal Disclosure
Schedule, which is accompanied by a certificate signed by the Chief Executive
Officer and Secretary of First Federal stating that the First Federal Disclosure
Schedule is being delivered pursuant to this Agreement and is the First Federal
Disclosure Schedule referred to in this Agreement. The First Federal Disclosure
Schedule is deemed to constitute an integral part of this Agreement and to
modify the representations, warranties, covenants or agreements of First Federal
contained in this Agreement to the extent that such representations, warranties,
covenants or agreements expressly refer to the First Federal Disclosure
Schedule. All capitalized terms used in the First Federal Disclosure Schedule
shall have the definitions specified in this Agreement. All descriptions or
listings of documents contained in the First Federal Disclosure Schedule are
qualified in their entirety by reference to the documents so described, true
copies of which First Federal heretofore has delivered to Mutual. Except as
expressly stated to the contrary in the First Federal Disclosure Schedule,
disclosure of a matter or document in the First Federal Disclosure Schedule
shall not be deemed to be an acknowledgement that such matter is material or
outside the ordinary course of business of First Federal. Disclosure of any
matter or event in any of the schedules included in the First Federal Disclosure
Schedule shall be deemed disclosure for purposes of any and all other schedules
included therein without the need of specific cross reference or duplication,
provided, however, that disclosure of an agreement or other document in a
listing of agreements or documents without any summary or description of the
substance thereof shall be deemed disclosure only for purposes of the schedule
in which such agreement or other document is listed.
(b) Updates. Prior to the Closing Date, First Federal shall update
the First Federal Disclosure Schedule on a monthly basis by written notice to
Mutual to reflect any matters which have occurred from and after the date of
this Agreement which, if existing on the date of this Agreement, would have been
required to be described in the First Federal Disclosure Schedule.
3.3 Duties Concerning Representations. Each party to this Agreement shall:
(a) to the extent within its control, use best efforts to cause all of its
representations and warranties contained in this Agreement to be true and
correct in all respects at the Effective Time with the same force and effect as
if such representations and warranties had been made on and as of the Effective
Time; (b) use best efforts to cause all of the conditions precedent set forth in
Article VII of this Agreement to be satisfied. Neither party shall take any
action, nor agree to commit to take any action, which would or reasonably can be
expected to: (i) adversely affect the ability of either Mutual or First Federal
to obtain the Regulatory Approvals; (ii) adversely affect a party's ability to
perform its covenants or agreements under this Agreement; or (iii) result in any
of the conditions to the Merger set forth in Article VII not being satisfied.
3.4 Deliveries of Information; Consultation. From time to time prior to
the Effective Time, and subject to the limitations on Mutual's access rights
under Section 3.1 of this Agreement and to the confidentiality provisions of
Section 3.13 of this Agreement:
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(a) Deliveries by First Federal. First Federal shall furnish promptly
to Mutual: (i) a copy of each significant report, schedule and other document
filed by or received by First Federal or its Subsidiaries pursuant to the
requirements of federal or state securities or financial institution Laws or any
other applicable Laws promptly after such documents are available; (ii) its
consolidated monthly financial statements (as prepared in accordance with its
normal accounting procedures) promptly after such financial statements are
available; (iii) a summary of any action taken by First Federal or its
Subsidiaries' Board of Directors, or any committee thereof; and (iv) all other
significant information concerning First Federal and its Subsidiaries' business,
properties and personnel as Mutual may reasonably request.
(b) Consultation. Representatives of First Federal and Mutual shall
confer and consult with one another on a regular and frequent basis to report on
operational matters and the general status of First Federal's ongoing business
operations.
(c) Regulatory Matters. Representatives of First Federal and Mutual
shall discuss with one another any matters in which any state or federal
regulator (i) of First Federal or any of its Subsidiaries, is involved, or (ii)
of Mutual is involved if such involvement relates to any of the transactions
contemplated by this Agreement.
(d) Litigation. Each party to this Agreement shall provide prompt
notice to the other party of any litigation, arbitration, proceeding,
governmental investigation, citation or action of any kind which may be
commenced, threatened or proposed by any Person concerning the legality,
validity or propriety of the transactions contemplated by this Agreement. If
any such litigation is commenced against any party to this Agreement, the
parties shall cooperate in all respects in connection with such litigation.
3.5 Directors' and Officers' Indemnification.
(a) Mutual's Indemnification. From and after the Effective Time,
Mutual shall indemnify, defend and hold harmless each person who is now, or has
been at any time prior to the date hereof or who becomes prior to the Effective
Time, an officer, director or employee of First Federal or any First Federal
Subsidiary (the "Indemnified Parties") against (i) all losses, claims, damages,
costs, expenses, liabilities or judgments or amounts that are paid in settlement
with the approval of Mutual (which approval shall not be unreasonably withheld)
of or in connection with any claim, action, suit, proceeding or investigation
which is based in whole or in part on or arising in whole or in part out of the
fact that such person is or was a director, officer or employee of First Federal
or any First Federal Subsidiary, whether pertaining to any matter existing or
occurring at or prior to the Effective Time, but only if filed, initiated,
asserted or claimed prior to, or at or within seven years after, the Effective
Time ("Indemnified Liabilities") and (ii) all Indemnified Liabilities based in
whole or in part, or arising in whole or in part out of, or pertaining to, this
Agreement or the transactions contemplated hereby, in each case to the full
extent First Federal would have been permitted under the WBCL and First
Federal's Articles of Incorporation and Bylaws (as amended and in effect as of
the date of this Agreement) to indemnify such person, and Mutual shall pay
expenses in advance of the final disposition of any such action or proceeding to
each Indemnified Party to the full extent permitted by Law upon receipt of any
affirmation and undertaking required by Section 180.0853 of the WBCL. Without
limiting the foregoing, in the event any such claim, action, suit, proceeding or
investigation is brought against any Indemnified Party (whether brought before
or within seven years after the Effective Time): (x) any counsel retained by the
Indemnified Parties for any period after the Effective Time shall be reasonably
satisfactory to Mutual; (y) after the Effective Time, Mutual shall pay all
reasonable fees and expenses of such counsel for the Indemnified Parties
promptly as statements therefor are received; and (z) after the Effective Time,
Mutual will use all reasonable efforts to assist in the vigorous defense of any
such matter, provided that Mutual shall not be liable for any settlement of any
claim effected without its written consent, which consent, however, shall not be
unreasonably withheld. Any Indemnified Party wishing to claim indemnification
under this Section 3.5, upon learning of any such claim, action, suit,
proceeding or investigation, shall notify Mutual (but the failure so to notify
Mutual shall not relieve it from any liability which it may have under this
Section 3.5 except to the extent such failure prejudices such party), and shall
deliver to Mutual the affirmation and undertaking, if any, required by Section
180.0853 of the WBCL. The Indemnified Parties as a group may retain only one
law firm to represent them with respect to each such matter unless there is,
under applicable standards of professional conduct, a conflict on any
significant issue between the positions of any two or more Indemnified Parties.
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(b) Parties Benefitted. The provisions of this Section 3.5 are
intended to be for the benefit of, and shall be enforceable by, each Indemnified
Party, his or her heirs and his or her representatives, and shall survive the
Effective Time and any merger, consolidation or reorganization of Mutual,
including the Restructuring.
3.6 Letter of First Federal's Accountants. First Federal shall use its
best efforts to cause to be delivered to Mutual a letter of Ernst & Young LLP,
First Federal's independent auditors, dated a date within three business days
before the date on which the First Federal Proxy Statement is first mailed to
First Federal Shareholders and addressed to Mutual, in form and substance
reasonably satisfactory to Mutual and customary in scope and substance for
letters delivered by independent public accountants in connection with proxy
statements similar to the First Federal Proxy Statement.
3.7 Legal Conditions to Merger. Each party to this Agreement will: (a)
take all reasonable actions necessary to comply promptly with all legal
requirements which may be imposed on it with respect to the Merger (including
making all filings and requests in connection with the Regulatory Approvals and
furnishing all information required in connection therewith); (b) promptly
cooperate with and furnish information to the other party in connection with any
such requirements imposed upon any of them in connection with the Merger; and
(c) take all reasonable actions necessary to obtain (and will cooperate with the
other party in obtaining) any consent, authorization, order or approval of, or
any exemption by, any governmental entity or other public or private Person,
required to be obtained by the parties to this Agreement in connection with the
Merger or the taking of any action contemplated thereby or by this Agreement.
3.8 Stock Listings. First Federal shall use its best efforts to maintain
the listing of First Federal Common Stock on the NASDAQ/NMS through the
Effective Time. It is the intention of the parties that by taking this action
First Federal Shareholders will not be entitled to any dissenters' or appraisal
rights under applicable Law as a result of the Merger and the transactions
contemplated by this Agreement.
3.9 Announcements. Subject to each party's disclosure obligations imposed
by Law, First Federal and Mutual will cooperate with each other in the
development and distribution of all news releases and other public information
disclosures with respect to this Agreement or any of the transactions
contemplated hereby and shall not issue any public Announcement or statement
with respect thereto prior to consultation with the other party.
3.10 Best Efforts. Subject to the terms and conditions of this Agreement
and subject to the fiduciary duties of the Board of Directors of each party,
each of the parties agrees to use its best efforts to take, or cause to be
taken, all action and to do, or cause to be done, all things necessary or
advisable to consummate the transactions contemplated by this Agreement.
3.11 Employee And Managerial Matters.
(a) Employees. Mutual agrees to consider each of the Bank's employees
for continued employment by the Bank in a comparable position following the
Effective Time. All such evaluations will be conducted in accordance with
Mutual's hiring practices and employment standards, including Mutual's
assessments of the Bank's present and future needs for the experience and skills
possessed by any particular employee. Mutual anticipates that, at least
initially, the Bank will continue to employ substantially all, if not all, of
the Bank's present employees. In the event any full-time employee who has
completed one or more years of service with the Bank (and who is not covered by
an employment contract or severance agreement) is terminated by Mutual other
than for cause and within four months of the Closing Date, such employee shall
be entitled to a severance benefit equal to two weeks' base compensation plus an
additional week of base compensation for each additional full year of service
completed with the Bank prior to the Closing Date (up to a total maximum
severance benefit of eight weeks' base compensation).
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(b) Advisory Board of Mutual. Mutual shall establish an
advisory board of directors of Mutual consisting of the following individuals,
all of whom presently serve as directors of First Federal: Donald T.
Tietz, Douglas R. Trembath, David G. Anderson, Michael P. Kell, Kermit C.
Walker and David M. Frederikson. Such individuals shall serve and remain as
members of Mutual's Advisory Board pursuant to the terms of Mutual's Bylaws for
a period of eighteen (18) months following the Closing Date. For their
services in this capacity, each member of the Advisory Board shall receive a
retainer fee in the amount of $1,000 per month. Mutual shall have no
obligation to fill any vacancy which arises on the Advisory Board as a result
of the voluntary resignation, disability or death of any member of the Advisory
Board.
(c) Board of Directors of Bank. The Board of Directors of the Bank
initially shall consist of individuals designated by Mutual.
(d) First Federal Replacement Employment Agreements; Severance
Benefits. At the Closing and at the election and direction of Mutual, the Bank
shall, with respect to each of the First Federal Executives, either:
(i) enter into a First Federal Replacement Employment Agreement; or (ii) enter
into a First Federal Severance Agreement.
3.12 Employee Benefit Matters.
(a) First Federal Stock Option Plan. Prior to the Closing
Date, First Federal shall take any and all actions necessary so that, effective
as of the Effective Time, the First Federal Stock Option Plan will be
terminated, and any and all shares reserved for issuance in connection with the
exercise of options granted under such Plan (including those reserved for
issuance upon the exercise of First Federal Stock Options granted prior to, and
outstanding as of, the Effective Time) shall be free of all restrictions
associated with such reservation and shall constitute authorized and unissued
shares of First Federal Common Stock.
(b) First Federal ESOP. At or prior to the Effective Time,
participation in the First Federal ESOP shall be discontinued and no additional
participants shall be permitted in the First Federal ESOP at or after such
time. Mutual shall, as soon as reasonably practicable after all assets of the
ESOP have been allocated to the participants in accordance with the terms of
the ESOP, terminate the First Federal ESOP and apply for a letter of
determination from the IRS confirming that the termination of the First Federal
ESOP does not adversely affect its tax qualified status. The cash proceeds
received in connection with the Merger upon the conversion into cash of shares
of First Federal Common Stock held in the First Federal ESOP suspense account
shall be used to prepay the principal and interest outstanding and unpaid under
the First Federal ESOP Indebtedness. Upon full payment of the First Federal
ESOP Indebtedness, maximum allocations from the First Federal ESOP suspense
account shall be made to participants' accounts until completely exhausted.
(c) First Federal Deferred Compensation Plan. Prior to the Closing Date,
First Federal shall cause to be taken any and all actions necessary to
limit contributions to the First Federal Deferred Compensation Plan so that:
(i) for the year ending December 31, 1997 and for all years thereafter until
the First Federal ESOP has been terminated as provided in Section 3.12(b) of
this Agreement, such contributions will be calculated so as to provide to the
participant an allocation in an amount equal to the difference between the
amount of the allocation such participant would be entitled to receive for the
relevant year under the provisions of the First Federal ESOP (including as
total compensation for such participant only such participant's base salary and
bonus for the relevant year) without taking into effect the limitations imposed
under the Code, minus the amount of the First Federal ESOP allocation actually
received by such participant as a result of the application of such Code
limitations; and (ii) for years after the First Federal ESOP is terminated as
provided in Section 3.12(b) of this Agreement, so as to provide the participant
with a contribution in an amount equal to the difference between the amount of
the contribution Mutual would make to its qualified retirement plans on behalf
of such participant (including as the participant's total compensation only the
participant's base salary and bonus for the relevant year) without giving
effect to any limitations imposed under the Code, minus the amount of the
contribution actually made by Mutual to its qualified retirement plans on
behalf of such participant giving effect to the limitations imposed by the
Code. After the Closing Date, Mutual shall assume and continue the First
Federal Deferred Compensation Plan for the benefit of Mr. Tietz to this limited
extent.
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(d) First Federal Profit Sharing Plan. At or prior to the Effective
Time, participation in the First Federal Profit Sharing Plan shall be
discontinued and no additional participants shall be permitted in such Plan at
or after such time. Mutual shall as soon as reasonably practicable after the
Effective Time terminate the First Federal Profit Sharing Plan and apply for a
letter of determination from the IRS confirming that the termination of the
First Federal Profit Sharing Plan does not adversely affect its tax qualified
status. Upon receipt of such a determination letter, all assets held in the
First Federal Profit Sharing Plan shall be distributed to participants or
transferred on behalf of the participants to Mutual's tax-qualified retirement
plans in accordance with the terms of the Plan and ERISA.
(e) First Federal Incentive Plan. First Federal shall take any and all
actions necessary so that, effective as of the Effective Time, all shares of
First Federal Common Stock awarded to participants in the First Federal
Incentive Plan prior to the Effective Time immediately will vest to the
participant, and the 48,560 shares of First Federal Common Stock held by the
First Federal Incentive Plan which have not been awarded to participants will
be cancelled without consideration and restored to the status of authorized and
unissued shares of First Federal Common Stock.
(f) Health and Welfare Benefits. Prior to the Closing Date, First
Federal shall cause to be taken all actions necessary to terminate and
discontinue, as of the Effective Time, all of First Federal's and the Bank's
health and welfare benefit plans, programs, insurance and policies, except as
necessary to continue paying benefits to eligible participants receiving
benefits as of the Effective Time and except as necessary to provide COBRA
benefits to any employees of the Bank who may be entitled to receive such
benefits as a result of discontinuance of their employment with the Bank, if
any. In this regard, Mutual acknowledges that First Federal sponsors a defined
benefit healthcare plan that provides post-retirement medical benefits to all
retired employees, directors and their spouses who have completed 10 or more
years of service. Mutual agrees to cause the Bank to continue offering
benefits to those employees who have reached age 50 and have completed 15 years
of service with the Bank prior to the Closing Date and who subsequently remain
employed by the Bank, Mutual or any Subsidiary of Mutual until attainment of
age 65 (a schedule of employees receiving such benefits, or who may become
eligible to receive such benefits, is included in the First Federal Disclosure
Schedule), it being agreed that, prior to the Closing Date, First Federal shall
cause to be taken any and all actions necessary to amend such plan so as to
achieve this result and so that, on an actuarial basis, the total projected
benefits payable under such plan will not exceed $846,000 (the accrued
liability associated with this plan as reflected on First Federal's
consolidated balance sheet as of December 31, 1995). Notwithstanding the
foregoing, the parties agree and intend that Mutual's total liability to pay
benefits under this plan is limited in the aggregate to $846,000. From and
after the Effective Time, employees retained in the employment of the Bank will
be eligible to participate in the health and welfare benefits, programs, plans,
insurance and policies sponsored by Mutual for the benefit of its employees.
(g) Sick Leave and Vacation Pay. Effective as of the Effective Time,
employees retained in the employment of the Bank will receive sick days and
vacation days in accordance with Mutual's standard policies. Such
employees will not be permitted to carry over any accrued and unused sick days
or vacation time accumulated during their employment with the Bank prior to the
Effective Time. However, for purposes of determining the amount of vacation
time such employees will be entitled to receive under Mutual's vacation policy,
such employees will receive credit for their years of credit service with the
Bank prior to the Effective Time. Furthermore, as soon as reasonably
practicable following the Effective Time, Mutual shall cause the Bank to pay to
all persons in its employ as of the Effective Time who have accumulated accrued
and unused vacation days while employed by the Bank prior to the Effective Time
an aggregate amount equal to their respective shares of the accrued value of
the total vacation days as will be reflected on First Federal's consolidated
balance sheet as of December 31, 1996. For purposes of determining the amount
of sick days such employees will be entitled to receive under Mutual's sick
days policy, employees will receive credit for their years of credit service
prior to the Effective Time.
(h) Participation in Qualified Mutual Employee Benefit Plans. All
employees retained in the employment of the Bank following the Effective Time
shall be eligible to participate in any and all qualified pension and
retirement plans and other qualified Employee Benefit Plans sponsored from time
to time by Mutual for the benefit of its employees as of the first entry date
following the date on which the First Federal ESOP is terminated as provided in
Section 3.12(b) of this Agreement. Such employees shall be credited for
eligibility and vesting
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purposes, but not for benefit purposes, for the years of credit service they
accumulated during their employment with the Bank prior to the Effective
Time. In addition, Mutual shall exercise all reasonable efforts to enable
employees retained by the Bank following the Effective Time to reinvest in
Mutual's 401(k) Savings Plan the proceeds received by them in connection with
the distributions from the First Federal ESOP, the First Federal Deferred
Compensation Plan and the First Federal Profit Sharing Plan described in
Sections 3.12(b), (c) and (d), respectively, of this Agreement.
3.13 Confidentiality. Mutual agrees to treat as strictly confidential
and agrees not to divulge to any other Person (other than its employees,
attorneys, accountants, financial advisors and other agents and representatives
who have a need to know such information for purposes of assisting Mutual in
fulfilling its obligations under this Agreement) any financial statements,
schedules, contracts, agreements, instruments, papers, documents and other
information relating to First Federal which it may come to know or which may
come into its possession pursuant to this Agreement or otherwise during the
course of conducting its investigations contemplated by this Agreement and, if
the transactions contemplated by this Agreement are not consummated for any
reason, Mutual agrees promptly to return to First Federal
all materials furnished to Mutual by or at the direction of First Federal.
Notwithstanding the foregoing, information shall not be deemed confidential,
and Mutual shall have no duty of confidentiality with respect to information
which: (a) is known to Mutual at the time it is disclosed by or at the
direction of First Federal; (b) is disclosed to Mutual by a third party not
known by Mutual to have an independent duty of confidentiality to First Federal
with respect thereto; (c) is in the public domain at the time it is provided to
Mutual by or at the direction of First Federal, or thereafter falls into the
public domain otherwise than as a result of a breach by Mutual of its
obligation of confidentiality under this Section 3.13 of this Agreement. In
the event Mutual is required or finds it necessary to disclose any of the
confidential information in connection with any of the Regulatory Approvals,
Mutual will notify First Federal of that fact and will cooperate with First
Federal so as to minimize the amount of confidential information to be so
disclosed and to take such reasonable precautions to maintain the
confidentiality of such information as may be requested by First Federal,
including requests to the regulatory authorities that such information be
deemed confidential and not subject to disclosure under the Freedom of
Information Act. In the event Mutual otherwise is required to disclose any
such confidential information, Mutual agrees that it will provide First Federal
with prompt notice of such required disclosures so that First Federal may seek
an appropriate protective order and/or waive Mutual's compliance with the
provisions of this Section 3.13 of this Agreement.
3.14 Conformance to Reserve Policies. First Federal shall
cause the Bank to establish such additional accruals and reserves as may be
necessary, in the reasonable judgment of Mutual, to conform the Bank's
general valuation allowances to Mutual's asset classification policy, as well
as to reflect the costs and expenses of First Federal with respect to the
Merger and the other transactions contemplated by this Agreement; provided,
however, that First Federal shall not be required to cause the Bank to take any
such action until the Regulatory Approvals have been received and First Federal
is reasonably satisfied that the Merger will be consummated. First Federal's
representations, warranties and covenants contained in this Agreement shall not
be deemed to be untrue or breached in any respect for any purpose as a
consequence of any modification or changes undertaken by the Bank in order for
First Federal to comply with the requirements of this Section 3.14 of this
Agreement.
3.15 Conduct of Mutual's Business. Mutual will maintain its corporate
existence in good standing and conduct its business so as to be able to
consummate the transactions contemplated by the Agreement. Mutual shall, in
the event it becomes aware of the impending or threatened occurrence of any
event or condition which would cause or constitute a breach (or would have
caused or constituted a breach had such event occurred or been known prior to
the date hereof) of any of its representations, covenants or agreements
contained or referred to herein, give prompt written notice thereof to First
Federal and use its best efforts to prevent or promptly remedy the same.
3.16 FDICIA Management Certification Systems. As soon as
reasonably practicable following the date of this Agreement, First Federal
shall retain the services of its independent accounting firm, Ernst & Young
LLP, for the purpose of providing consultation and advice to First Federal in
connection with First Federal's development of management certification systems
and controls designed to comply with the requirements of the Federal Deposit
Insurance Corporation Improvement Act of 1991 applicable to institutions with
total consolidated assets in excess of $500 million. Any expenses incurred
by First Federal in this regard will not be considered expenses incurred in
connection with the transactions contemplated by this Agreement, nor shall such
expenses be considered in determining whether a Quantified Material Adverse
Effect has occurred for purposes of Section 7.2(d) of this Agreement.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF FIRST FEDERAL
First Federal hereby represents and warrants to Mutual that:
4.1 Organization and Qualification; Subsidiaries.
(a) First Federal is a corporation duly organized, validly existing and
in active status under the Laws of the State of Wisconsin, and is a registered
savings and loan holding company under HOLA. The Bank is a Federally-chartered
capital stock savings bank duly organized, validly existing and in good
standing under the Laws of the United States. The deposits of the Bank are
insured by the SAIF of the FDIC as permitted by Federal Law, and the Bank has
paid all premiums and assessments required thereunder. The Bank is a member in
good standing of the FHLB of Chicago. Each of the other First Federal
Subsidiaries is duly organized, validly existing and in good standing under the
laws of the state of its incorporation. Each of First Federal and the First
Federal Subsidiaries has the requisite corporate power and authority and is in
possession of all franchises, grants, authorizations, licenses, permits,
easements, consents, certificates, approvals and orders ("First Federal
Approvals") necessary to own, lease and operate its properties and to carry on
its business as it is now being conducted, including appropriate authorizations
from the OTS, the FDIC, the Wisconsin Savings Association Regulatory Agency and
the Minnesota Savings Association Regulatory Agency, except where a failure to
be so organized, existing and in good standing or to have such power, authority
and First Federal Approvals would not, individually or in the aggregate, have a
Material Adverse Effect on First Federal and the First Federal Subsidiaries,
taken as a whole, and neither First Federal nor any First Federal Subsidiary
has received any notice of proceedings relating to the revocation or
modification of any First Federal Approvals.
(b) First Federal and each First Federal Subsidiary is duly qualified or
licensed as a foreign corporation to conduct business, and is in good standing
(or the equivalent thereof) in each jurisdiction where the character of the
properties it owns, leases or operates or the nature of the activities it
conducts make such qualification or licensing necessary, except for such
failures to be so duly qualified and licensed and in good standing that would
not, either individually or in the aggregate, have a Material Adverse Effect on
First Federal and the First Federal Subsidiaries, taken as a whole.
(c) A true and complete list all Subsidiaries of First Federal (the
"First Federal Subsidiaries"), together with (i) First Federal's direct or
indirect percentage ownership of each First Federal Subsidiary; (ii) the
jurisdiction in which the First Federal Subsidiaries are incorporated; and
(iii) a description of the principal business activities conducted by each
First Federal Subsidiary, is set forth in the First Federal Disclosure
Schedule. Except as set forth in the First Federal Disclosure Schedule, First
Federal and/or one or more of the First Federal Subsidiaries owns beneficially
and of record all of the outstanding shares of capital stock of each of the
First Federal Subsidiaries. Except for the Subsidiaries identified in the First
Federal Disclosure Schedule, First Federal does not directly or indirectly own
any equity or similar interests in, or any interests convertible into or
exchangeable or exercisable for any equity or similar interest in, any
corporation, partnership, limited liability company, joint venture or other
business association or entity other than in the ordinary course of business,
and in no event in excess of 10% of the outstanding equity or voting securities
of such entity.
4.2 Articles of Incorporation and Bylaws. First Federal heretofore has
furnished to Mutual a complete and correct copy of the Articles of
Incorporation and Bylaws, as amended or restated, of First Federal and of each
First Federal Subsidiary. Such Articles of Incorporation and Bylaws are in
full force and effect. Neither First Federal nor any First Federal Subsidiary
is in violation of any of the provisions of its Articles of Incorporation or
Bylaws.
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4.3 Capitalization. The authorized capital stock of First Federal
consists of 12,000,000 shares of First Federal Common Stock and 1,000,000
shares of preferred stock, par value $.01 per share. As of the date of this
Agreement, (a) 6,855,379 shares of First Federal Common Stock are issued and
outstanding, all of which are duly authorized, validly issued, fully paid and
non-assessable, except as otherwise provided by Section 180.0622(2)(b) of the
WBCL (including judicial interpretations thereof and of Section 180.40(6), its
predecessor statute), and not issued in violation of any preemptive right of
any First Federal Shareholder, (b) 360,809 shares of First Federal Common Stock
are held in the treasury of First Federal, (c) 523,174 shares of First Federal
Common Stock are subject to issuance pursuant to outstanding First Federal
Stock Options, and (d) 198,444 shares of First Federal Common Stock are
reserved for future issuance pursuant to the First Federal Stock Option Plan.
As of the date of this Agreement, no shares of First Federal's preferred stock
are issued and outstanding. Except as set forth in clauses (c) and (d) above,
as of the date of this Agreement First Federal has not granted any options,
warrants or other rights, agreements, arrangements or commitments of any
character, including without limitation voting agreements or arrangements,
relating to the issued or unissued capital stock of First Federal or any First
Federal Subsidiary or obligating First Federal or any First Federal Subsidiary
to issue or sell any shares of capital stock of, or other equity interests in,
First Federal or any First Federal Subsidiary. All shares of First Federal
Common Stock subject to issuance as described in the foregoing, upon issue on
the terms and conditions specified in the instruments pursuant to which they
are issuable, will be duly authorized, validly issued, fully paid and
nonassessable, except as otherwise provided in Section 180.0622(2)(b) of the
WBCL (including judicial interpretations thereof and of Section 180.40(6), its
predecessor statute), and will not be issued in violation of any preemptive
right of any First Federal Shareholder. Except as described in the First
Federal Disclosure Schedule, there are no obligations, contingent or otherwise,
of First Federal or any First Federal Subsidiary to repurchase, redeem or
otherwise acquire any shares of First Federal Common Stock or the capital stock
of any First Federal Subsidiary or to provide funds to or make any investment
(in the form of a loan, capital contribution or otherwise) in any First Federal
Subsidiary or any other entity. Each of the outstanding shares of capital
stock of each First Federal Subsidiary is duly authorized, validly issued,
fully paid and nonassessable, except, where applicable, as provided in Section
180.0622(2)(b) of the WBCL (including judicial interpretations thereof and of
Section 180.40(6), its predecessor statute), and such shares owned by First
Federal or another First Federal Subsidiary are owned free and clear of all
security interests, liens, claims, pledges, agreements, limitations of First
Federal's voting rights, charges or other encumbrances of any nature
whatsoever.
4.4 Authorization: Enforceability. The entering into, execution,
delivery and performance of this Agreement and all of the documents
and instruments required by this Agreement to be executed and delivered
by First Federal or the Bank are within the corporate power of First Federal or
the Bank, as the case may be, and: (a) have been duly and validly authorized
by the requisite vote of the Board of Directors of First Federal or the Bank,
as the case may be; and (b) upon the approval of the First Federal Shareholders
and receipt of all Regulatory Approvals, shall be duly and validly authorized
by all necessary corporate action. This Agreement is, and the other documents
and instruments required by this Agreement to be executed and delivered by
First Federal or the Bank will be, when executed and delivered by First Federal
and the Bank, the valid and binding obligations of First Federal and the Bank,
enforceable against each of them in accordance with their respective terms,
except as the enforcement thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar Laws generally affecting the
rights of creditors and subject to general equity principles.
4.5 No Violation or Conflict. Subject to the receipt of the Regulatory
Approvals, the execution, delivery and performance of this Agreement and all
of the documents and instruments required by this Agreement to be executed and
delivered by First Federal do not and will not conflict with or result in a
breach of any Law, the Articles of Incorporation or Bylaws of First Federal,
the Federal Stock Charter or Bylaws of the Bank or the Articles of
Incorporation or Bylaws of any First Federal Subsidiary, constitute a default
(or an event that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any First Federal Existing Contract or any First Federal
Existing Permit, or the creation of any Lien upon any of the properties or
assets of First Federal or any First Federal Subsidiary, in each case which
would have a Material Adverse Effect on First Federal and the First Federal
Subsidiaries taken as a whole.
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4.6 Title to Assets; Leases. Except for Liens for current
taxes not yet due and payable, pledges to secure deposits and such
imperfections of title, easements and other encumbrances, if any,
as do not materially detract from the value of or substantially
interfere with the present use of the property affected thereby,
First Federal owns good and marketable title to the assets and
properties which it owns or purports to own, free and clear of any
and all Liens, except: (a) the First Federal Existing Liens; and
(b) the Permitted Liens on the Closing Date. There is not, under
any leases pursuant to which First Federal or any of the First
Federal Subsidiaries leases from others real or personal property,
any default by First Federal, any First Federal Subsidiary or, to
the best of First Federal's knowledge, any other party thereto, or
any event which with notice or lapse of time or both would
constitute such a default.
4.7 Litigation. Except for the First Federal Existing Litigation: (a)
neither First Federal nor any First Federal Subsidiary is subject to any
continuing order of, or written agreement or memorandum of understanding with,
or, to the knowledge of First Federal, any continuing material investigation
by, any federal or state savings and loan or insurance authority or other
governmental entity, or any judgment, order, writ, injunction, decree or award
of any governmental entity or arbitrator, including, without limitation, cease
and desist or other orders of any savings and loan regulatory authority; (b)
there is no claim, litigation, arbitration, proceeding, governmental
investigation, citation or action of any kind pending or, to the knowledge of
First Federal, proposed or threatened, against or relating to First Federal or
any First Federal Subsidiary, nor is there any basis known to First Federal for
any such action; (c) there are no actions, suits or proceedings pending or, to
the knowledge of First Federal, proposed or threatened, against First Federal
by any Person which question the legality, validity or propriety of the
transactions contemplated by this Agreement; and (d) there are no uncured
material violations or violations with respect to which material refunds or
restitutions may be required, cited in any compliance report to First Federal
or any First Federal Subsidiary as a result of an examination by any regulatory
authority.
4.8 Securities and Banking Reports; Books and Records.
(a) Since January 1, 1993, First Federal and the Bank have
filed all reports, registration statements, definitive proxy
statements and prospectuses, together with any amendments required
to be made with respect thereto, that were and are required to be
filed under the Securities Act, Exchange Act or any other Law with:
(i) the SEC; (ii) the OTS; (iii) the FHLB of Chicago; (iv) the
FDIC; and (v) any other applicable state securities or savings and
loan authorities (all such reports, statements and prospectuses are
collectively referred to herein as the "First Federal Reports").
When filed, each of the First Federal Reports complied as to form
and substance in all material respects with the requirements of
applicable Laws.
(b) Each of the consolidated audited financial statements and
consolidated unaudited interim financial statements (including, in
each case, any related notes thereto) of First Federal included in
the First Federal Reports filed with the SEC have been or will be,
as the case may be, prepared in accordance with generally accepted
accounting principles applied on a consistent basis (except as may
be indicated therein or in the notes thereto and except with
respect to consolidated unaudited interim statements as permitted
by Form 10-Q of the SEC) and each fairly present the consolidated
financial condition of First Federal as of the respective dates
thereof and the consolidated income, equity and cash flows for the
periods then ended, subject, in the case of the consolidated
unaudited interim financial statements, to normal year-end and
audit adjustments and any other adjustments described therein.
(c) The minute books of First Federal and the First Federal
Subsidiaries contain accurate and complete records of all meetings
and actions taken by written consent by their respective
shareholders and Boards of Directors (including all committees of
such Boards), and all signatures contained therein are the true
signatures of the Persons whose signatures they purport to be. The
share transfer books of First Federal are correct, complete and
current in all respects. The accounting books and records of First
Federal: (i) are in all material respects correct and complete;
(ii) are current in a manner consistent with past practice; and
(iii) have recorded therein all the properties and assets and
liabilities of First Federal.
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4.9 Absence of Certain Changes. Except as set forth in the
First Federal Disclosure Schedule, since December 31, 1995 there
has not been any:
(a) change in the financial condition, properties, business or
results of operations of First Federal or any First Federal
Subsidiary having a Material Adverse Effect on First Federal and
the First Federal Subsidiaries, taken as a whole;
(b) damage, destruction or loss (whether or not covered by
insurance) with respect to any assets of First Federal or any First
Federal Subsidiary having a Material Adverse Effect on First
Federal and the First Federal Subsidiaries, taken as a whole;
(c) transactions by First Federal or any First Federal
Subsidiary outside the ordinary course of their respective
businesses or inconsistent with past practices, except for the
transactions contemplated by this Agreement;
(d) except for regular quarterly cash dividends of $0.07 per
share on First Federal Common Stock with usual record and payment
dates, declaration or payment or setting aside the payment of any
dividend or any distribution in respect of the capital stock of
First Federal or any direct or indirect redemption, purchase or
other acquisition of any such stock by First Federal;
(e) allocations to the accounts of any directors, officers or
employees of First Federal or of any First Federal Subsidiary
pursuant to any of the First Federal Existing Plans other than in
the normal course and in accordance with the terms of the First
Federal Existing Plans (none of which have been amended or
established subsequent to December 31, 1995);
(f) contribution to, increase in, or establishment of any
Employee Benefit Plan (including, without limitation, the granting
of stock options, stock appreciation rights, performance awards or
restricted stock awards), or any other increase in the compensation
payable or to become payable to any officers, directors or key
employees of First Federal or any First Federal Subsidiary other
than in the normal course and in accordance with the terms of the
First Federal Existing Plans (none of which have been amended or
established subsequent to December 31, 1995); or
(g) change in the method of accounting or accounting practices
of First Federal or any First Federal Subsidiary.
4.10 Buildings and Equipment. Except as set forth in the
First Federal Disclosure Schedule: (a) the Buildings and the
Equipment of First Federal and the First Federal Subsidiaries are
in good operating condition and repair, reasonable wear and tear
excepted; (b) are adequately insured for the nature of First
Federal's business with the self-insured retentions specified on
the First Federal Disclosure Schedule; (c) such assets and their
use conform in all material respects to applicable Laws; and (d) no
notice of any violation of any building, zoning or other Law
relating to such assets or their use has been received by First
Federal or any First Federal Subsidiary.
4.11 First Federal Existing Contracts. The First Federal
Disclosure Schedule lists and briefly describes each Contract (the
"First Federal Existing Contracts") to which First Federal or a
First Federal Subsidiary is a party or by which its assets are
bound and which constitutes:
(a) a lease of, or agreement to purchase or sell, any capital
assets;
(b) any management, consulting, employment, personal service,
severance, agency or other contract or contracts providing for
employment or rendition of services and which: (i) are in waiting,
or (ii) create other than an at will employment relationship; or
(iii) provide for any commission, bonus, profit sharing, incentive,
retirement, consulting or additional compensation;
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(c) any agreements or notes evidencing any Indebtedness;
(d) a power of attorney (whether revocable or irrevocable)
given to any Person by First Federal or any First Federal
Subsidiary that is in force;
(e) an agreement by First Federal or any First Federal
Subsidiary not to compete in any business or in any geographical
area;
(f) an agreement restricting the right of First Federal or any
First Federal Subsidiary to use or disclose any information in its
possession;
(g) a partnership, joint venture or similar arrangement;
(h) a license;
(i) an agreement or arrangement with any Affiliate;
(j) an agreement for data processing services;
(k) any assistance agreement, supervisory agreement,
memorandum of understanding, consent order, cease and desist order
or other regulatory order or decree with or by the SEC, OTS, the
FDIC or any other regulatory authority.
(l) any other agreement or set of related agreements or series
of agreements which: (i) involve an amount in excess of $50,000 on
an annual basis or $100,000 in the aggregate; or (ii) is not in the
ordinary course of business of First Federal or any First Federal
Subsidiary.
4.12 Performance of First Federal Existing Contracts. First
Federal and each First Federal Subsidiary has fully performed each
term, covenant and condition of each First Federal Existing
Contract which is to be performed by it at or before the date
hereof, except where such non-performance would not have a Material
Adverse Effect on First Federal and the First Federal Subsidiaries
taken as a whole.
4.13 Contingent and Undisclosed Liabilities. First Federal
and the First Federal Subsidiaries have no material liabilities of
any nature (contingent or otherwise) except for those which: (a)
are disclosed in the First Federal Reports or in the First Federal
Disclosure Schedule or in this Agreement; or (b) arise in the
ordinary course of business since December 31, 1995 and are not
required to be disclosed in the First Federal Reports or pursuant
to this Agreement or the First Federal Disclosure Schedule.
4.14 First Federal Existing Insurance Policies. All real and
personal property owned or leased by First Federal or any First
Federal Subsidiary has been and is being insured against, and First
Federal or the respective First Federal Subsidiary maintains
liability insurance against, such insurable risks and in such
amounts as set forth in the First Federal Existing Insurance
Policies. The First Federal Existing Insurance Policies constitute
all insurance coverage owned by First Federal or any First Federal
Subsidiary and are in full force and effect and First Federal or
any First Federal Subsidiary has not received notice of and is not
otherwise aware of any cancellation or threat of cancellation of
such insurance. Except as described in the First Federal
Disclosure Schedule, no property damage, personal injury or
liability claims have been made, or are pending, against First
Federal or any First Federal Subsidiary that are not covered by
insurance. Within the past two (2) years, no insurance company has
canceled any insurance (of any type) maintained by First Federal or
any First Federal Subsidiary. Neither First Federal nor any First
Federal Subsidiary has any liability for unpaid premiums or premium
adjustments for any insurance policy. To the knowledge of First
Federal, the cost of any insurance currently maintained by First
Federal or any First Federal Subsidiary will not increase
significantly upon renewal other than increases consistent with the
general upward trend in the cost of obtaining insurance.
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4.15 Employee Benefit Plans.
(a) Except for the First Federal Existing Plans, First Federal does
not maintain, nor is it bound by, any Employee Benefit Plan. First Federal has
furnished Mutual with a complete and accurate copy of each First Federal
Existing Plan and a complete and accurate copy of each material document
prepared in connection with each such First Federal Existing Plan, including,
without limitation and where applicable, a copy of (i) each trust or other
funding arrangement, (ii) each summary plan description and summary of material
modifications, (iii) the most recently filed IRS Form 5500, (iv) the most
recently received IRS determination letter, and (v) the most recently prepared
actuarial report and financial statement.
(b) Except as indicated on the First Federal Disclosure Schedule, no
member of First Federal's "controlled group," within the meaning of Section
4001(a)(14) of ERISA, maintains or contributes to, or within the two years
preceding the Effective Time has maintained or contributed to, an employee
pension benefit plan subject to Title IV of ERISA. Except as indicated on the
First Federal Disclosure Schedule, none of the First Federal Existing Plans or
First Federal Existing Contracts obligates First Federal or any First Federal
Subsidiary to pay material separation, severance, termination or similar-type
benefits solely as a result of any transaction contemplated by this Agreement or
as a result of a "change in control," within the meaning of such term under
Section 280G of the Code. Except as indicated on the First Federal Disclosure
Schedule, none of the First Federal Existing Plans or First Federal Existing
Contracts provides for or promises retiree medical, disability or life insurance
benefits to any current or former employee, officer or director of First Federal
or any First Federal Subsidiary. Each of the First Federal Existing Plans is
subject only to the Laws of the United States or a political subdivision
thereof.
(c) Each First Federal Existing Plan has always been operated in
material compliance with the requirements of all applicable Law, and all persons
who participate in the operation of such First Federal Existing Plans and all
First Federal Existing Plan "fiduciaries" (within the meaning of Section 3(21)
of ERISA) have always acted in material compliance with the provisions of all
applicable Law. First Federal and all of the First Federal Subsidiaries have
performed in all material respects all obligations required to be performed by
any of them under, are not in any material respect in default under or in
violation of, and have no knowledge of any material default or violation by any
party to, any First Federal Existing Plan. No legal action, suit or claim is
pending or, to the knowledge of First Federal, threatened with respect to any
First Federal Existing Plan (other than claims for benefits in the ordinary
course) and no fact or event exists to the knowledge of First Federal that could
give rise to any such action, suit or claim.
(d) Except as set forth on the First Federal Disclosure Schedule, each
First Federal Existing Plan that is intended to be qualified under Section
401(a) of the Code or Section 401(k) of the Code has received a favorable
determination letter from the IRS that it is so qualified, and each trust
established in connection with any First Federal Existing Plan that is intended
to be exempt from federal income taxation under Section 501(a) of the Code has
received a determination letter from the IRS that it is so exempt, and no fact
or event has occurred since the date of such determination letter from the IRS
to adversely affect the qualified status of any such First Federal Existing Plan
or the exempt status of any such trust. No trust maintained or contributed to
by First Federal or any First Federal Subsidiary is intended to be qualified as
a voluntary employees' beneficiary association or is intended to be exempt from
federal income taxation under Section 501(c)(9) of the Code.
(e) There has been no non-exempt prohibited transaction (within the
meaning of Section 406 of ERISA or Section 4975 of the Code) with respect to any
First Federal Existing Plan. First Federal and each of the First Federal
Subsidiaries has not incurred any liability for any excise tax arising under
Section 4972 or 4980B of the Code and no fact or event exists that could give
rise to any such liability.
(f) All contributions, premiums or payments required to be made with
respect to any First Federal Existing Plan have been made on or before their due
dates. There is no accumulated funding deficiency, within the meaning of ERISA
or the Code, in connection with the First Federal Existing Plans and no
reportable event, as defined in ERISA, has occurred in connection with the First
Federal Existing Plans. First Federal and the First Federal Subsidiaries are
not contributing to, and have not contributed to any multi-employer plan, as
defined in ERISA.
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4.16 No Violation of Law. Except as set forth in the First Federal
Disclosure Schedule, neither First Federal, any First Federal Subsidiary nor any
of the assets of First Federal or the First Federal Subsidiaries materially
violate or conflict with any Law, any First Federal Exiting Permits, or any
decree, judgment or order, or any zoning, building line restriction, planning,
use or other similar restriction, in each case which would have a Material
Adverse Effect on First Federal and the First Federal Subsidiaries taken as a
whole.
4.17 Brokers. Except for fees to Dain Bosworth Incorporated, First
Federal's financial advisor, neither First Federal nor any First Federal
Subsidiary has incurred any brokers', finders', financial advisor or any similar
fee in connection with the transactions contemplated by this Agreement. The
First Federal Disclosure Schedule contains a list of all fees to be paid to Dain
Bosworth Incorporated in connection with the transactions contemplated by this
Agreement.
4.18 Taxes.
(a) Except as disclosed in the First Federal Disclosure Schedule and
except as may arise as a result of the transactions contemplated by this
Agreement: First Federal and the First Federal Subsidiaries have timely and
properly filed all federal, state, local and foreign tax returns (including but
not limited to income, franchise, sales, payroll, employee withholding and
social security and unemployment) which were required to be filed except where
the failure to have filed timely or properly would not have a Material Adverse
Effect on First Federal and the First Federal Subsidiaries taken as a whole;
First Federal and the First Federal Subsidiaries have paid or made adequate
provision, in reserves reflected in its financial statements included in the
First Federal Reports in accordance with generally accepted accounting
principles, for the payment of all taxes (including interest and penalties) and
withholding amounts owed by them or assessable against them; no tax deficiencies
have been assessed or proposed against First Federal or any First Federal
Subsidiary and to the knowledge of First Federal there is no basis in fact for
the assessment of any tax or penalty tax against First Federal or any First
Federal Subsidiary.
(b) As of the date of this Agreement, there are no fiscal years of
First Federal currently under examination by the IRS or the Wisconsin Department
of Revenue, and none of the open years have been examined by the IRS or the
Wisconsin Department of Revenue. First Federal and the First Federal
Subsidiaries have not consented to any extension of the statute of limitation
with respect to any open tax returns.
(c) There are no tax Liens upon any property or assets of First
Federal or any First Federal Subsidiary except for Liens for current taxes not
yet due and payable.
(d) As soon as practicable after the date of this Agreement, First
Federal and the First Federal Subsidiaries will deliver to Mutual correct and
complete copies of all tax returns and reports of First Federal filed for all
periods not barred by the applicable statute of limitations. No examination or
audit of any tax return or report for any period not closed by audit or not
barred by the applicable statute of limitations has occurred, no such
examination is in progress and, to the knowledge of First Federal, no such
examination or audit is planned.
(e) Except where the failure to withhold, pay or file would not have a
Material Adverse Effect on First Federal and the First Federal Subsidiaries
taken as a whole, First Federal and the First Federal Subsidiaries have properly
withheld and timely paid all withholding and employment taxes which they were
required to withhold and pay relating to salaries, compensation and other
amounts heretofore paid to their employees or other Persons. All Forms W-2 and
1099 required to be filed with respect thereto have been timely and properly
filed.
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4.19 Real Estate. The First Federal Real Estate: (a) constitutes all real
property and improvements (or interest therein, including without limitation
easements, licenses or similar arrangements authorizing First Federal or a First
Federal Subsidiary to place, maintain, operate and/or use an automated teller
machine or similar device on real property of a third-party) leased or owned by
First Federal or any First Federal Subsidiary; (b) other than with respect to
First Federal or any First Federal Subsidiary as lessee, is not subject to any
leases or tenancies of any kind; (c) is not in the possession of any adverse
possessors; (d) has direct access to and from a public road or street; (e) is
used in a manner which is consistent with applicable Law; (f) is, and has been
since the date of possession thereof by First Federal or any First Federal
Subsidiary, in the peaceful possession of First Federal or any First Federal
Subsidiary; (g) is served by all water, sewer, electrical, telephone, drainage
and other utilities required for the normal operations of the Buildings of First
Federal and the First Federal Subsidiaries and the First Federal Real Estate;
(h) except as disclosed in the First Federal Disclosure Schedule, to the
knowledge of First Federal, is not located in an area designated as a flood
plain or wetland; (i) is not subject to any outstanding special assessment; (j)
is not subject to any zoning, ordinance, decrees or other Laws which would
materially restrict or prohibit Mutual from continuing the operations presently
conducted thereon by First Federal or any First Federal Subsidiary; (k) is not
subject to any interest of any Person under an easement, contract, option or
mineral rights or other agreements which would have a Material Adverse Effect on
First Federal and the First Federal Subsidiaries, taken as a whole; (l) is not
subject to any presently pending condemnation proceedings, nor to First
Federal's knowledge, are such proceedings threatened against the Real Estate.
4.20 Governmental Approvals. No permission, approval, determination,
consent or waiver by, or any declaration, filing or registration with, any
governmental or regulatory authority is required in connection with the
execution, delivery and performance of this Agreement by First Federal or any
First Federal Subsidiary, except for the Regulatory Approvals.
4.21 No Pending Acquisitions. Except for this Agreement, First Federal is
not a party to or bound by any agreement, undertaking or commitment with respect
to an Acquisition on the date of this Agreement.
4.22 Labor Matters.
(a) Except as disclosed on the First Federal Disclosure Schedule (or
in an updated First Federal Disclosure Schedule with respect to vacations in
(iii) below), there is no present or former employee of First Federal or any
First Federal Subsidiary who has any claim against any of such entities (whether
under Law, under any employee agreement or otherwise) on account of or for: (i)
overtime pay, other than overtime pay for the current payroll period; (ii) wages
or salaries, other than wages or salaries for the current payroll period; or
(iii) vacations, sick leave, time off or pay in lieu of vacation, sick leave or
time off, other than vacation, sick leave or time off (or pay in lieu thereof)
earned in the twelve-month period immediately preceding the date of this
Agreement or incurred in the ordinary course of business and appearing as a
liability on the most recent financial statements included in the First Federal
Reports.
(b) There are no pending and unresolved claims by any Person against
First Federal or any First Federal Subsidiary arising out of any Law relating to
discrimination against employees or employee practices or occupational or safety
and health standards. There is no pending or, to the knowledge of First
Federal, threatened, nor has First Federal or any First Federal Subsidiary ever
experienced any, labor dispute, strike or work stoppage which affected, affects
or may affect the business of First Federal or any First Federal Subsidiary or
which did, may or would interfere with the continued operation of First Federal
or any First Federal Subsidiary.
(c) Neither First Federal nor any First Federal Subsidiary is a party
to any collective bargaining agreement. There is not now pending or, to the
knowledge of First Federal, threatened, any charge or complaint against First
Federal or any First Federal Subsidiary by or before the National Labor
Relations Board or any representative thereof, or any comparable state agency or
authority. No union organizing activities are in process or contemplated and no
petitions have been filed for union organization or representation of employees
of First Federal or any First Federal Subsidiary and First Federal and the First
Federal Subsidiaries have not committed any unfair labor practices which have
not heretofore been corrected and fully remedied.
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4.23 Indebtedness. Except for the First Federal Existing Indebtedness,
First Federal has no Indebtedness.
4.24 First Federal Existing Permits. The First Federal Existing Permits
constitute all Permits which First Federal and the First Federal Subsidiaries
currently have and need for the conduct of their respective businesses as
currently conducted.
4.25 Disclosure. No statement of fact by First Federal contained in this
Agreement, the First Federal Disclosure Schedule, the First Federal Proxy
Statement or any other document furnished or to be furnished by First Federal
contains or will contain any untrue statement of a material fact or omits or
will omit to state a material fact necessary in order to make the statements
herein or therein contained, in the light of the circumstances under which they
were made, not misleading as of the date to which it speaks.
4.26 Information Supplied. None of the information supplied or to be
supplied by First Federal for inclusion or incorporation by reference in the
First Federal Proxy Statement will, at the date(s) mailed to the First Federal
Shareholders and at the time(s) of the First Federal Meeting, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. The First Federal
Proxy Statement will comply as to form in all material respects with the
provisions of the Exchange Act and the rules and regulations of the SEC
thereunder.
4.27 Vote Required. The affirmative vote of the holders of a majority of
the outstanding shares of First Federal Common Stock is the only vote of the
holders of any class or series of capital stock or other securities of First
Federal necessary to approve the Merger, this Agreement and the transactions
contemplated by this Agreement.
4.28 Opinion of Financial Advisor. First Federal has received the opinion
of Dain Bosworth Incorporated dated the date of this Agreement, to the effect
that the consideration to be received in the Merger by the First Federal
Shareholders is fair to the First Federal Shareholders from a financial point of
view, and a copy of such opinion has been delivered to Mutual.
4.29 Environmental Protection.
(a) As used in this Section 4.29 of this Agreement:
(i) "Environmental Claim" shall mean any and all administrative,
regulatory or judicial actions, suits, demands, demand letters, directives,
claims, Liens, investigations, proceedings or notices of noncompliance or
violation (written or oral) by any Person alleging potential liability
(including, without limitation, potential liability for enforcement,
investigatory costs, cleanup costs, governmental response costs, removal
costs, remedial costs, natural resources damages, property damages,
personal injuries, or penalties) arising out of, based on or resulting
from: (A) the presence, or release into the environment, of any
Environmental Hazardous Materials at any location, whether or not owned by
First Federal or any First Federal Subsidiary; or (B) circumstances forming
the basis of any violation or alleged violation, of any Environmental Law;
or (C) any and all claims by any Person seeking damages, contribution,
indemnification, cost, recovery, compensation or injunctive relief
resulting from the presence or Environmental Release of any Environmental
Hazardous Materials.
(ii) "Environmental Laws" shall mean all federal, state, local or
foreign statute, Law, rule, ordinance, code, policy, guideline, rule of
common law and regulations relating to pollution or protection of human
health or the environment (including, without limitation, ambient air,
surface water, ground water, land surface or subsurface strata), including,
without limitation, Laws and regulations relating to Environmental Releases
or threatened Environmental Releases of Environmental Hazardous Materials,
or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Environmental
Hazardous Materials.
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(iii) "Environmental Hazardous Materials" shall mean: (A) any
petroleum or petroleum products, radioactive materials, asbestos in any
form that is or could become friable, urea formaldehyde foam insulation,
and transformers or other equipment that contain dielectric fluid
containing levels of polychlorinated biphenyls (PCBs) and radon gas; and
(B) any chemicals, materials or substances which are now defined as or
included in the definition of "hazardous substances," "hazardous wastes,"
"hazardous materials," "extremely hazardous wastes, restricted hazardous
wastes," "toxic substances," "toxic pollutants," or words of similar
import, under any Environmental Law; and (C) any other chemical, material,
substance or waste, exposure to which is now prohibited, limited or
regulated by any governmental authority.
(iv) "Environmental Release" shall mean any release, spill,
emission, leaking, injection, deposit, disposal, discharge, dispersal,
leaching or migration into the atmosphere, soil, surface water, groundwater
or property.
(b) Except as set forth in the First Federal Disclosure Schedule, to
the knowledge of First Federal, First Federal and the First Federal
Subsidiaries: (i) are in material compliance with all applicable Environmental
Laws; and (ii) have not received any communication (written or oral), from a
governmental authority or other Person, that alleges that First Federal is not
in compliance with applicable Environmental Laws.
(c) Except as set forth in the First Federal Disclosure Schedule, to
the knowledge of First Federal, First Federal and the First Federal Subsidiaries
have obtained all environmental, health and safety permits and governmental
authorizations (collectively, the "Environmental Permits") necessary for its
operations, and all such permits are in good standing and First Federal and the
First Federal Subsidiaries are in material compliance with all terms and
conditions of the Environmental Permits.
(d) Except as set forth in the First Federal Disclosure Schedule,
there is no Environmental Claim pending or, to the knowledge of First Federal,
threatened against First Federal, any First Federal Subsidiary or against any
Person whose liability for any Environmental Claim First Federal or any First
Federal Subsidiary has or may have retained or assumed either contractually or
by operation of Law, or against any real or personal property or operations
which First Federal or any First Federal Subsidiary owns, leases or manages.
(e) Except as set forth in the First Federal Disclosure Schedule, to
the knowledge of First Federal, there have been no Environmental Releases of any
Environmental Hazardous Material by First Federal or by any Person on real
property owned (including REO properties of the Bank), used, leased or operated
by First Federal or any of the First Federal Subsidiaries.
(f) To the knowledge of First Federal, no real property at any time
owned (including REO properties of the Bank), operated, used or controlled by
First Federal or any First Federal Subsidiary is currently listed on the
National Priorities List or the Comprehensive Environmental Response,
Compensation and Liability Information System, both promulgated under the
CERCLA, or on any comparable state list, and, except as described in the First
Federal Disclosure Schedule, First Federal has not received any written notice
from any Person under or relating to CERCLA or any comparable state or local
Law.
(g) To the knowledged of First Federal, no off-site location at which
First Federal or any First Federal Subsidiary has disposed or arranged for the
disposal of any waste is listed on the National Priorities List or on any
comparable state list and neither First Federal nor any First Federal Subsidiary
has received any written notice from any Person with respect to any off-site
location, of potential or actual liability or a written request for information
from any Person under or relating to CERCLA or any comparable state or local
Law.
(h) The First Federal Disclosure Schedule includes an estimate by
First Federal of future costs to First Federal and each First Federal Subsidiary
of compliance with, and environmental cleanup and response under, Environmental
Laws.
4.30 Investment Securities. Except for the First Federal Existing
Investment Securities, First Federal does not own, and does not have any right
or obligation to acquire, any Investment Securities.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF MUTUAL AND MERGER CORP.
Mutual and Merger Corp. hereby jointly and severally represent and warrant
to First Federal that:
5.1 Organization and Capitalization; Business.
(a) Mutual is a mutual savings bank duly organized, validly existing
and in good standing under Chapter 214 of the Wisconsin Statutes. The deposits
of Mutual are insured by the SAIF of the FDIC as permitted by Federal Law, and
Mutual has paid all premiums and assessments required thereunder. Mutual is a
member in good standing of the FHLB of Chicago.
(b) Mutual has full corporate power and authority and those Permits
necessary to carry on its business as it is now conducted and to own, lease and
operate its assets and properties.
(c) Merger Corp. is a corporation duly organized, validly existing and
in active status under the Laws of the State of Wisconsin. Prior to the date of
this Agreement, Merger Corp. engaged in no business other than matters necessary
to the organization and incorporation of Merger Corp. and to authorize Merger
Corp. to enter into, execute and deliver this Agreement. The authorized capital
stock of Merger Corp. consists of 9,000 shares of common stock, One Cent ($.01)
par value per share. As of the date of this Agreement, 100 shares of Merger
Corp.'s common stock are issued and outstanding, all of which are duly
authorized, validly issued, fully paid, and non-assessable, except as otherwise
provided by Section 180.0622(2)(b) of the WBCL (including judicial
interpretations thereof and of Section 180.40(6), its predecessor statute), and
are owned by Mutual.
(d) Copies of the Articles of Incorporation and Bylaws of Mutual and
of Merger Corp. have been delivered to First Federal. Such copies are complete
and correct copies of such documents, and are in full force and effect. Neither
Mutual nor Merger Corp. are in violation of any of the provisions of their
Articles of Incorporation or Bylaws in any respect which reasonably could be
expected to have an adverse effect on their ability to consummate the
transactions contemplated by this Agreement.
5.2 Authorization; Enforceability. The entering into, execution, delivery
and performance of this Agreement and all of the documents and instruments
required by this Agreement to be executed and delivered by Mutual or Merger
Corp. are within the corporate power of Mutual or Merger Corp., as the case may
be, and: (a) have been duly and validly authorized by the requisite vote of the
Board of Directors of Mutual and, where required, by the Board of Directors and
sole shareholder of Merger Corp.; and (b) upon receipt of all Regulatory
Approvals, shall be duly and validly authorized by all necessary corporate
action on the part of both Mutual and Merger Corp. This Agreement is, and the
other documents and instruments required by this Agreement to be executed and
delivered by Mutual or Merger Corp. will be, when executed and delivered by
Mutual or Merger Corp., as the case may be, the valid and binding obligations of
Mutual or Merger Corp., as the case may be, enforceable against Mutual or Merger
Corp., as the case may be, in accordance with their respective terms, except as
the enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar Laws generally affecting the rights of
creditors and subject to general equity principles.
5.3 No Violation or Conflict. Subject to the receipt of the Regulatory
Approvals, the execution, delivery and performance of this Agreement and all of
the documents and instruments required by this Agreement to be executed and
delivered by Mutual or Merger Corp. do not and will not conflict with or result
in a breach of any Law or the Articles of Incorporation or Bylaws of Mutual or
Merger Corp. or constitute a default (or an event that with notice or lapse of
time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any Contract of Mutual
or Merger Corp. or any Permit held by or the creation of any Lien upon any of
the properties or assets of Mutual or Merger Corp.
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5.4 Litigation. There are no actions, suits or proceedings pending or, to
the knowledge of Mutual, proposed or threatened, against Mutual or Merger Corp.
by any Person which question the legality, validity or propriety of the
transactions contemplated by this Agreement. There is no reasonable basis for
any proceeding, claim, action or governmental investigation against Mutual which
reasonably can be expected to have an adverse effect on the ability of Mutual to
consummate the transactions contemplated by this Agreement.
5.5 Brokers. Except for fees to RP Financial, L.L.C., Mutual's financial
advisor, neither Mutual nor Merger Corp. has not incurred any brokers',
finders', financial advisor or any similar fee in connection with the
transactions contemplated by this Agreement.
5.6 Governmental Approvals. Other than the Regulatory Approvals, no
permission, approval, determination, consent or waiver by, or any declaration,
filing or registration with, any governmental or regulatory authority is
required in connection with the execution, delivery and performance of this
Agreement by Mutual or Merger Corp.
5.7 Disclosure. No statement of fact by Mutual contained in this
Agreement, the First Federal Proxy Statement or any other document furnished or
to be furnished by Mutual contains or will contain any untrue statement of a
material fact or omits or will omit to state a material fact necessary in order
to make the statements herein or therein contained, in the light of the
circumstances under which they were made, not misleading as of the date to which
it speaks.
5.8 Information Supplied. None of the information supplied or to be
supplied by Mutual for inclusion or incorporation by reference in the First
Federal Proxy Statement will, at the date(s) mailed to the First Federal
Shareholders and at the time(s) of the First Federal Meeting, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading.
5.9 Opinion of Financial Advisor. Mutual has received the opinion of RP
Financial, L.L.C., dated the date of this Agreement, to the effect that the
consideration to be paid in the Merger by Mutual is fair to Mutual and its
Members from a financial point of view, and a copy of such opinion has been
delivered to First Federal.
5.10 Cash Payment. Mutual has sufficient funds or has financing committed
(evidence of which has been provided to First Federal) to pay the cash payment
required under Section 2.10 of this Agreement and such payment will not cause
Mutual to fail to meet any regulatory capital requirements to which it is
subject.
5.11 Compliance with Laws. Mutual is in compliance in all material
respects with all applicable Laws.
5.12 Consummation. Mutual has no reason to believe that it will be unable
to obtain the Regulatory Approvals.
5.13 Employee Benefit Plans. Each "employee benefit plan," as that term is
defined in Section 3 of ERISA, any "employee welfare benefit plan" or
"multi-employer plan," as those terms are defined in Section 3 of ERISA, or
dental plan, retirement plan, flexible benefits or cafeteria plan, deferred
compensation plan, or other employee benefit program or arrangement maintained
by Mutual or any Subsidiary of Mutual (collectively, "Mutual Benefit Plans") has
been operated in all material respects in compliance with the applicable
provisions of ERISA, the Code, and all regulations, rulings and announcements
promulgated or issued thereunder. Each of the Mutual Benefit Plans that is
intended to be a pension, profit sharing, thrift, or savings plan that is
qualified under Section 401(a) of the Code satisfies the applicable requirements
of such provision, and there exist no circumstances that would adversely affect
the qualified status of any such Plan under that Section, except with respect to
any required retroactive amendment for which the remedial amendment period has
not yet expired.
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ARTICLE VI
CONDUCT OF BUSINESS BY FIRST FEDERAL PENDING THE MERGER
From and after the date of this Agreement and until the Effective Time,
First Federal and the First Federal Subsidiaries shall:
6.1 Carry on in Regular Course. Diligently carry on their business in the
regular course and substantially in the same manner as heretofore conducted and
shall not make or institute any unusual or novel methods of lending, investing,
purchasing, selling, leasing, managing, accounting or operating.
6.2 Use of Assets. Use, manage, operate, maintain and repair all of their
assets and properties in a normal business manner.
6.3 No Default. Not do any act or omit to do any act, or permit any act or
omission to act, which will cause a breach of any of the First Federal Existing
Contracts, except where such breach would not have a Material Adverse Effect on
First Federal and the First Federal Subsidiaries taken as a whole.
6.4 Existing Insurance Policies. Use reasonable efforts to maintain all of
the First Federal Existing Insurance Policies in full force and effect, except
as mutually agreed to by First Federal and Mutual.
6.5 Employment Matters. Not: (a) except as described in the First Federal
Disclosure Schedule, grant any increase in the rate of pay of any of their
employees, other than regularly scheduled year-end pay adjustments in the normal
course which shall not, in the aggregate, exceed (i) 3.5% of current payroll for
all employees not subject to employment contracts and (ii) a total of $20,000
for those employees who have employment agreements; (b) institute or amend any
Employee Benefit Plan, except as expressly contemplated under this Agreement;
(c) enter into or modify any written employment arrangement with any Person; (d)
make any discretionary contributions to any of the First Federal Existing Plans,
except for contributions to the First Federal ESOP necessary for the First
Federal ESOP to make scheduled installment payments required under the terms of
the First Federal ESOP Indebtedness; or (e) make any allocation to the account
of any participant(s) in any of the First Federal Existing Plans, other than in
the normal course and in accordance with the terms of the relevant First Federal
Existing Plan or except as expressly contemplated by this Agreement.
Notwithstanding the foregoing, First Federal may provide for the payment of
normal 1996 year-end bonuses, which shall not in the aggregate exceed $40,000
for all non-contract employees as a group and $65,000 for all employees with
employment contracts as a group, and may further establish a bonus pool of not
in excess of $28,000 which may be used as additional 1996 year-end bonus
payments at the discretion of the Board and as needed to assure the retention of
key personnel necessary to the integration of Mutual's and First Federal's
operations.
6.6 Contracts and Commitments. Not enter into any contract or commitment
or engage in any transaction not in the usual and ordinary course of business
and consistent with First Federal's normal business practices and not purchase,
lease, sell or dispose of any capital asset, except for such capital asset
transactions which individually do not involve a dollar amount in excess of
$50,000 and which together do not involve an aggregate dollar amount in excess
of $150,000.
6.7 Indebtedness; Investments. Not create, incur, invest in or assume any
Indebtedness or Investment Securities not in the usual and ordinary course of
business; and not, without the prior written consent of Mutual, incur costs and
expenses in connection with the transactions contemplated by this Agreement
which materially exceed the estimate set forth in the First Federal Disclosure
Schedule pursuant to Section 8.5 of this Agreement.
6.8 Preservation of Relationships. Use their best efforts to preserve
their business organizations intact, to retain the services of their present
officers and key employees and to preserve the goodwill of depositors, borrowers
and other customers, suppliers, creditors and others having business
relationships with First Federal.
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6.9 Compliance with Laws. Comply with all applicable Laws, except for such
noncompliances which would not individually or in the aggregate have a Material
Adverse Effect on First Federal and the First Federal Subsidiaries taken as a
whole.
6.10 Taxes. Timely and properly file all federal, state, local and foreign
tax returns which are required to be filed, and shall pay or make provision for
the payment of all taxes owed by it.
6.11 Amendments. Not amend First Federal's Articles of Incorporation or
Bylaws, the Bank's Federal Stock Charter or Bylaws, or the Articles of
Incorporation or Bylaws of any other First Federal Subsidiary, except as
mutually agreed to by First Federal and Mutual or as required by Law.
6.12 Issuance of Stock; Dividends; Redemptions. Not: (a) issue any
additional shares of stock of any class (including any shares of First Federal
Preferred Stock) or grant any warrants, options (including any options pursuant
to the First Federal Stock Option Plan) or rights to subscribe for or acquire
any additional shares of stock of any class other than the issuance of First
Federal Common Stock issuable upon exercise of First Federal Stock Options
outstanding as of the date of this Agreement; (b) except as provided below,
declare or pay any dividend or make any capital or surplus distributions of any
nature, except for First Federal's regular quarterly cash dividends not
exceeding $0.07 per share for each outstanding share of First Federal Common
Stock; or (c) directly or indirectly redeem, purchase or otherwise acquire,
recapitalize or reclassify any of their capital stock or liquidate in whole or
in part.
6.13 Policy Changes. Not make a material change in any lending,
investment, liability, management or other material policies concerning their
business or operations, except as required by Law or as required by the Board of
Directors of First Federal in the exercise of its fiduciary duties.
6.14 Carlson Loans. Not, except with the prior approval of Mutual,: (a)
make any loans or otherwise extend any additional credit to David Carlson or any
Affiliate of David Carlson; or (b) modify the terms of any existing loans or
other credit facilities previously extended to David Carlson or any Affiliate of
David Carlson.
6.15 Acquisition Transaction. Promptly following the execution of this
Agreement, take affirmative steps necessary to discontinue, and thereafter not
initiate, solicit or knowingly encourage (including by way of furnishing any
information or assistance), or take any other action to facilitate, any
inquiries or the making of any proposal that constitutes, or may reasonably be
expected to lead to, any Acquisition Proposal, or negotiate with any person in
furtherance of such inquires or to obtain an Acquisition Proposal, or agree to
endorse, or endorse, any Acquisition Proposal, or authorize or permit any of its
officers, directors or employees or any investment banker, financial advisor,
attorney, accountant or other representative retained by First Federal or any of
the First Federal Subsidiaries to take any such action, and First Federal shall
promptly notify Mutual orally, and confirm in writing, subject to disclosure
being consistent with the fiduciary duties of the Board of Directors of First
Federal, all of the relevant details relating to all inquiries and proposals
which First Federal or a First Federal Subsidiary may receive relating to any of
such matters; provided, however, that nothing contained in this Section 6.15
shall prohibit the Board of Directors of First Federal from: (a) furnishing or
permitting any of its officers, directors, employees, investment bankers,
financial advisors, attorneys, accountants or other representatives to furnish
information to any party that requests information as to First Federal and/or
the Bank or take any other action if (i) the Board of Directors of First
Federal, after consultation with legal counsel, determines in good faith that
such action is required for the Board of Directors of First Federal to comply
with its fiduciary duties to shareholders imposed by applicable Laws, and (ii)
prior to furnishing such information to such party, First Federal receives from
such party an executed confidentiality agreement in reasonably customary form;
or (b) complying with Rules 14d-2 and 14e-2 promulgated under the Exchange Act
with regard to an Acquisition Proposal.
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ARTICLE VII
CONDITIONS PRECEDENT TO THE MERGER
7.1 Conditions to Each Parties Obligations to Effect the Merger. The
respective obligations of Mutual and First Federal to effect the transactions
contemplated by this Agreement shall be subject to the fulfillment at or prior
to the Closing and as of the Effective Time of the following conditions
precedent:
(a) No Litigation. No suit, action or other proceeding shall be
pending or overtly threatened before any court in which the consummation of the
transactions contemplated by this Agreement is restrained or enjoined or in
which the relief requested is to restrain, enjoin or prohibit the consummation
of the transactions contemplated by this Agreement and, in either case, where in
the reasonable judgment of either Mutual or First Federal, such suit, action or
other proceeding, is likely to have a material adverse effect with respect to
such party's interest.
(b) Approval of First Federal Shareholders. This Agreement and the
Merger shall have received the requisite approval and authorization of the First
Federal Shareholders.
(c) Regulatory Approvals.
(i) The Merger, this Agreement and the transactions contemplated
hereby, shall have been approved by the OTS, the FDIC, the Wisconsin
Savings Association Regulatory Agency, the Minnesota Savings Association
Regulatory Agency, and any other governmental entities whose approval is
necessary, all conditions required to be satisfied prior to the Effective
Time imposed by the terms of such approvals shall have been satisfied, and
all waiting periods relating to such approvals shall have expired. The
Restructuring described in Section 2.15 of this Agreement also shall have
been approved by the OTS, the FDIC and the Wisconsin Savings Association
Regulatory Agency, and any other governmental entity whose approval is
necessary in order for Mutual to proceed with such restructuring.
(ii) No permission, approval, determination, consent or waiver
received pursuant to Section 7.1(c)(i) of this Agreement shall contain any
condition applicable to Mutual which is, in the reasonable judgment of
Mutual, materially burdensome upon the conduct of Mutual's business or
which would so adversely impact the economic and business benefits of the
Merger to Mutual so as to render it inadvisable to proceed with the Merger.
7.2 Conditions to Obligation of Mutual. The obligation of Mutual to effect
the transactions contemplated by this Agreement shall be subject to the
fulfillment at or prior to the Closing and as of the Effective Time of the
following additional conditions precedent:
(a) Compliance with Agreement. First Federal shall have performed and
complied in all material respects with all of its covenants, agreements and
other obligations under this Agreement which are to be performed or complied
with by it prior to or on the Closing Date and as of the Effective Time.
(b) Proceedings and Instruments Satisfactory. All proceedings,
corporate or other, to be taken in connection with the transactions contemplated
by this Agreement, and all documents incident thereto, shall be reasonably
satisfactory in form and substance to Mutual, and First Federal shall have made
available to Mutual for examination the originals or true and correct copies of
all documents Mutual may reasonably request in connection with the transactions
contemplated by this Agreement.
(c) Representations and Warranties of First Federal. Each of the
representations and warranties of First Federal contained in this Agreement,
after giving effect to any update to the First Federal Disclosure Schedule or
notice to Mutual under Section 3.2(b), shall be true and correct, as of the
Effective Time with the same force and effect as though made on and as of the
Effective Time, except for those representations and warranties which address
matters only as of a particular date (which shall remain true and correct as of
such date), and except for those breaches which individually or in the aggregate
do not or would not be reasonably likely to have a Material Adverse Effect on
First Federal and the First Federal Subsidiaries taken as a whole.
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(d) No Material Adverse Change. During the period from the date of this
Agreement to the Closing Date and as of the Effective Time there shall not
have occurred, and there shall not exist on the Closing Date and as of the
Effective Time, any condition(s) or fact(s) having individually or in the
aggregate a Quantified Material Adverse Effect (including any such condition(s)
or fact(s) disclosed in an update to the First Federal Disclosure Schedule
delivered to Mutual by First Federal pursuant to Section 3.2(b) of this
Agreement).
(e) Deliveries at Closing. First Federal shall have delivered to Mutual
the following documents, each properly executed and dated the Closing
Date: (i) the First Federal Closing Certificate; and (ii) the First Federal
Counsel Opinion.
(f) Other Documents. First Federal shall have delivered to Mutual such
certificates and documents of officers of First Federal and public officials as
shall be reasonably requested by Mutual to establish the existence of First
Federal and the due authorization of this Agreement and the transactions
contemplated by this Agreement by First Federal.
(g) Accountant Letters. Mutual shall have received a copy of each of the
following letters from Ernst & Young LLP, each of which shall be in form and
substance reasonably satisfactory to Mutual and shall contain information
concerning the financial condition of First Federal: (i) the letter described
in Section 3.6 of this Agreement; (ii) a similar letter dated the Closing Date.
(h) First Federal Replacement Employment Agreements and Severance
Agreements. Pursuant to Section 3.11(d) of this Agreement, First
Federal shall have delivered to Mutual, with respect to each of the First
Federal Executives, either: (i) a First Federal Replacement Employment
Agreement; or (ii) a First Federal Severance Agreement, as directed by Mutual,
in each case dated as of the Closing Date and duly executed by the appropriate
First Federal Executive.
(i) Stock Listing. First Federal Common Stock shall continue to be
listed on the NASDAQ/NMS.
(j) First Federal Stock Options. First Federal shall have, at its
election, either (i) taken all steps necessary to accelerate exercisability of
all outstanding First Federal Stock Options so that the same become
exercisable as of a date prior to the Closing Date, and each holder of a First
Federal Stock Option shall voluntarily have exercised all of his or her First
Federal Stock Options prior to the Closing Date; or (ii) prior to the Closing
Date and with the written consent of the First Federal Stock Option holder,
cashed out each of such holder's First Federal Stock Options without the
exercise thereof at a price equal to the Stock Option Consideration. In any
event, as of the Closing Date there shall be no outstanding First Federal Stock
Options.
7.3 Conditions to Obligation of First Federal. The obligation of First
Federal to effect the transactions contemplated by this Agreement shall be
subject to the fulfillment at or prior to the Closing and as of the Effective
Time of the following additional conditions precedent:
(a) Compliance with Agreement. Mutual and Merger Corp. each shall have
performed and complied in all material respects with all of its
obligations under this Agreement which are to be performed or complied with by
it prior to or on the Closing Date and as of the Effective Time.
(b) Proceedings and Instruments Satisfactory. All proceedings, corporate
or other, to be taken in connection with the transactions contemplated by
this Agreement, and all documents incident thereto, shall be reasonably
satisfactory in form and substance to First Federal, and Mutual shall have made
available to First Federal for examination the originals or true and correct
copies of all documents which First Federal may reasonably request in
connection with the transactions contemplated by this Agreement.
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(c) Representations and Warranties of Mutual and Merger Corp. Each of the
representations and warranties of Mutual and Merger Corp. contained in this
Agreement shall be true and correct in all material respects (except that where
any statement in a representation or warranty expressly includes a statement of
materiality, such statement shall be true and correct in all respects) as of
the Effective Time with the same force and effect as though made on and as of
the Effective Time, except for those representations and warranties which
address matters only as of a particular date (which shall remain true and
correct as of such date).
(d) Deliveries at Closing. Mutual shall have delivered to First Federal
the following documents, each properly executed and dated the Closing Date:
(i) the Mutual and Merger Corp. Closing Certificate; and (ii) the Mutual
Counsel Opinion.
(e) Other Documents. Mutual shall have delivered to First Federal such
certificates and documents of officers of Mutual and of public officials as
shall be reasonably requested by First Federal to establish the existence of
Mutual and the due authorization of this Agreement and the transactions
contemplated by this Agreement by Mutual.
(f) Opinion of Financial Advisor. First Federal shall have received the
opinion of Dain Bosworth Incorporated dated the date on which the First
Federal Proxy Statement is first mailed to First Federal Shareholders, to the
effect that the consideration to be received in the Merger by the First Federal
Shareholders is fair to the First Federal Shareholders from a financial point
of view.
(g) First Federal Replacement Employment Agreements and Severance
Agreements. Pursuant to Section 3.11(d) of this Agreement, First
Federal shall have delivered to Mutual, on behalf of each of the First Federal
Executives, either: (i) a First Federal Replacement Employment Agreement; or
(ii) a First Federal Severance Agreement, in each case dated as of the Closing
Date and executed on behalf of the Bank by a duly authorized officer and by the
appropriate First Federal Executive.
ARTICLE VIII
TERMINATION; MISCELLANEOUS
8.1 Termination. This Agreement may be terminated and the transactions
contemplated by this Agreement may be abandoned at any time prior to the
Closing (whether before or after approval of this Agreement by the First
Federal Shareholders), as follows:
(a) by mutual written agreement of Mutual and First Federal;
(b) by Mutual if any of the conditions set forth in Sections 7.1 or 7.2
of this Agreement shall not have been fulfilled by the Closing;
(c) by First Federal if any of the conditions set forth in Sections 7.1
or 7.3 of this Agreement shall not have been fulfilled by the Closing;
(d) by either Mutual or First Federal if the Closing has not occurred on
or before 11:59 p.m. on August 31, 1997.
8.2 Rights on Termination; Waiver. The representations, warranties,
covenants, agreements and other obligations of the parties set forth in
this Agreement shall terminate upon the termination of this Agreement pursuant
to Section 8.1 hereof, except that the agreements set forth in Sections 3.9,
3.13, and Article VIII of this Agreement shall survive any such termination
indefinitely, and each party to this Agreement shall retain any and all
remedies which it may have for breach of contract provided by Law based on
another party's willful failure to comply with the terms of this Agreement. If
any of the conditions set forth in Sections 7.1 and 7.2 of this Agreement have
not been satisfied, Mutual may nevertheless elect to proceed with the
consummation of the transactions contemplated by this Agreement and if any of
the conditions set forth in Sections 7.1 and 7.3 of this Agreement have not
been satisfied, First Federal may nevertheless elect to proceed with the
consummation of the transactions contemplated by this Agreement. Any such
election to proceed shall be evidenced by a certificate signed on behalf of the
waiving party by an officer of that party.
A-35
<PAGE> 83
8.3 Survival of Representations, Warranties and Covenants. The
representations, warranties, covenants, agreements and other obligations of
the parties set forth in this Agreement shall terminate at the Effective Time,
except the covenants, agreements, and other obligations of the parties which by
their terms are contemplated to be performed after the Effective Time,
including those set forth in Sections 2.10, 2.11, 2.12, 2.13, 2.14, 3.5, 3.11,
3.12, 8.4, 8.6, 8.8, 8.9, 8.10, 8.11, 8.13 and 8.14 shall survive the Effective
Time indefinitely.
8.4 Entire Agreement; Amendment. This Agreement, the Stock Option Agreement,
and the other documents referred to in this Agreement and required to be
delivered pursuant to this Agreement constitute the entire agreement among the
parties pertaining to the subject matter of this Agreement, and supersede all
prior and contemporaneous agreements, understandings, negotiations and
discussions of the parties, whether oral or written, and there are no
warranties, representations or other agreements between the parties in
connection with the subject matter of this Agreement, except as specifically
set forth in this Agreement. This Agreement may be amended by the parties at
any time before or after approval of this Agreement by the First Federal
Shareholders, except that after such approval no amendment shall be made
without the further approval of the First Federal Shareholders if such
amendment: (a) reduces the Per Share Merger Consideration; or (b) otherwise
materially adversely affects the rights of the First Federal Shareholders. No
amendment, supplement, modification, waiver or termination of this Agreement
shall be binding unless executed in writing by the party to be bound thereby.
No waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver of any other provision of this Agreement, whether or not
similar, nor shall such waiver constitute a continuing waiver unless otherwise
expressly provided.
8.5 Expenses. All costs and expenses incurred in connection with this
Agreement and the transactions contemplated by this Agreement shall be paid
by the party incurring such expenses. The First Federal Disclosure Schedule
includes an estimate by First Federal of all costs and expenses incurred or to
be incurred by First Federal in connection with the transactions contemplated
by this Agreement. Notwithstanding the foregoing, in the event Mutual
terminates this Agreement pursuant to Section 8.1(b) on account of First
Federal having failed to fulfill or comply with one or more of the conditions
set forth in Section 7.2(a) or 7.2(c) of this Agreement, or if First Federal
terminates this Agreement pursuant to Section 8.1(c) hereof on account of
Mutual having failed to fulfill or comply with one or more of the conditions
set forth in Section 7.3(a) or 7.3(c) of this Agreement, then, in addition to
any other rights or remedies such party (the "non-breaching party") shall have
against the other party (the "breaching party") under this Agreement or at law
or in equity, the non-breaching party shall have the right to recover from the
breaching party all reasonable and necessary expenses incurred by the
non-breaching party exclusively for the purpose of entering into this Agreement
and consummating the transactions contemplated hereby.
8.6 Governing Law. This Agreement shall be construed and interpreted
according to the Laws of the State of Wisconsin.
8.7 Assignment. This Agreement and the Stock Option Agreement shall not
be assigned by operation of law or otherwise, except that Mutual may
assign all or any of its rights hereunder and thereunder to any Affiliate
provided that no such assignment shall relieve Mutual of its obligations
hereunder.
8.8 Notices. All communications or notices required or permitted by
this Agreement shall be in writing and shall be deemed to have been given at
the earlier of the date when actually delivered to an officer of a party by
personal delivery or telephonic facsimile transmission or when deposited in the
United States mail, certified or registered mail, postage prepaid, return
receipt requested, and addressed as follows, unless and until any of such
parties notifies the others in accordance with this Section of a change of
address:
IF TO MUTUAL OR MERGER CORP.: Mutual Savings Bank
Attn: Michael T. Crowley, Jr.
President and Chief Executive Officer
4949 West Brown Deer Road
Milwaukee WI 53223
Fax No: (414) 362-6195
with a copy to:
Quarles & Brady
Attention: James D. Friedman
411 East Wisconsin Avenue
Milwaukee WI 53202
Fax No: 414-277-5874
A-36
<PAGE> 84
IF TO FIRST FEDERAL: First Federal Bancshares of Eau Claire, Inc.
Attn: Donald T. Tietz
President and Chief Executive Officer
319 East Grand Avenue
Eau Claire WI 54710
Fax No: (715) 833-8997
with a copy to:
Michael Best & Friedrich
Attn: W. Charles Jackson
100 East Wisconsin Avenue
Milwaukee WI 53202
Fax No.: (414) 277-0656
8.9 Counterparts; Headings. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but such
counterparts shall together constitute but one and the same Agreement. The
Table of Contents and Article and Section headings in this Agreement are
inserted for convenience of reference only and shall not constitute a part
hereof.
8.10 Interpretation. Unless the context requires otherwise, all words
used in this Agreement in the singular number shall extend to and include
the plural, all words in the plural number shall extend to and include the
singular, and all words in any gender shall extend to and include all genders.
8.11 Severability. If any provision, clause, or part of this Agreement,
or the application thereof under certain circumstances, is held invalid, the
remainder of this Agreement, or the application of such provision, clause or
part under other circumstances, shall not be affected thereby unless such
invalidity materially impairs the ability of the parties to consummate the
transactions contemplated by this Agreement.
8.12 Specific Performance. The parties agree that the assets and
business of First Federal as a going concern constitute unique property.
There is no adequate remedy at Law for the damage which any party might sustain
for failure of the other parties to consummate the Merger and the transactions
contemplated by this Agreement, and accordingly, each party shall be entitled,
at its option, to the remedy of specific performance to enforce the Merger
pursuant to this Agreement.
8.13 No Reliance. Except for the parties to this Agreement, any
Indemnified Parties under Section 3.5 of this Agreement and any assignees
permitted by Section 8.8 of this Agreement: (a) no Person is entitled to rely
on any of the representations, warranties and agreements of the parties
contained in this Agreement; and (b) the parties assume no liability to any
Person because of any reliance on the representations, warranties and
agreements of the parties contained in this Agreement.
8.14 Further Assurances. If, at any time after the Effective Time, any
further action is necessary or desirable to carry out the purposes of
this Agreement and to vest the Surviving Corporation with full right, title and
possession to all assets, properties, rights, privileges, powers and franchises
of either Merger Corp. or First Federal, the officers of the Surviving
Corporation are fully authorized to take any such action in the name of Merger
Corp. or First Federal.
A-37
<PAGE> 85
IN WITNESS WHEREOF, the parties have caused this Agreement and
Plan of Merger to be duly executed as of the day and year first
above written.
MUTUAL SAVINGS BANK
By: /s/ Michael T. Crowley, Jr.
-------------------------------------
Michael T. Crowley, Jr.
President and Chief Executive Officer
Attest:
/s/ P. Terry Anderegg
------------------------------------------
P. Terry Anderegg, Senior Vice President
FIRST FEDERAL MERGER CORPORATION
By: /s/ Michael T. Crowley, Jr.
---------------------------------------
Michael T. Crowley, Jr.
President
FIRST FEDERAL BANCSHARES OF EAU
CLAIRE, INC.
By: /s/ Donald T. Tietz
--------------------------------------
Donald T. Tietz
President and Chief Executive Officer
Attest:
/s/ Jerome A. Reinecke
-----------------------------------------
Jerome A. Reinecke, Secretary
A-38
<PAGE> 86
AGREEMENT AND PLAN OF MERGER
AMENDMENT NO. 1
THIS AMENDMENT is made and entered into this 23rd day of December, 1996
by and among MUTUAL SAVINGS BANK ("Mutual"), FIRST FEDERAL MERGER
CORPORATION ("Merger Corp.") and FIRST FEDERAL BANCSHARES OF EAU CLAIRE, INC.
("First Federal").
RECITALS
WHEREAS, Mutual, Merger Corp. and First Federal have entered into that
certain Agreement and Plan of Merger, dated as of September 16, 1996 (the
"Merger Agreement"), providing for the acquisition by Mutual of First Federal
in a merger transaction pursuant to which each outstanding share of First
Federal Common Stock would be converted into cash in an amount equal to the
Merger Per Share Consideration;
WHEREAS, First Federal Common Stock presently is trading in the secondary
market at prices below the Merger Per Share Consideration, which presents
Mutual with a cost savings opportunity if it were to accumulate shares in
secondary market transactions prior to consummation of the Merger;
WHEREAS, Mutual proposes, through its wholly-owned subsidiary, Merger
Corp., to acquire shares of First Federal Common Stock in secondary market
transactions effected through independent brokers at prevailing market
prices that Mutual determines represent an acceptable discount/cost savings as
compared to the Merger Per Share Consideration (the "Pre-Merger Stock
Accumulation Program"), provided that Mutual does not plan, through this
Pre-Merger Stock Accumulation Program, to acquire more than 10% of all
outstanding shares of First Federal Common Stock;
WHEREAS, in order to enable Mutual to engage in the Pre-Merger Stock
Accumulation Program it is necessary to amend certain provisions of the
Merger Agreement which the proposed Pre-Merger Stock Accumulation Program
otherwise might be deemed to breach or violate;
WHEREAS, Mutual and Merger Corp. desire to so amend the Merger Agreement,
and First Federal is willing to cooperate by consenting to an appropriate
amendment to the Merger Agreement;
AGREEMENT
NOW, THEREFORE, in order to facilitate Mutual's and Merger
Corp.'s execution of the Pre-Merger Stock Accumulation Program and in
consideration of the mutual covenants, conditions and agreements set forth
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
A. DEFINED TERMS. All capitalized terms used in this Amendment to the
Merger Agreement shall have the meanings ascribed to them in the Merger
Agreement, unless specifically defined herein, in which latter case such
capitalized terms shall have the meanings defined in this Amendment.
A-39
<PAGE> 87
B. MERGER STOCK. Section 1.65 of the Merger Agreement is
hereby amended to read in its entirety as follows:
"1.65 Merger Stock. "Merger Stock" shall
mean the shares of First Federal Common Stock
outstanding as of the Effective Time, excluding
the 48,560 shares of First Federal Common Stock
held in the First Federal Incentive Plan which
have not been allocated to participants, and also
excluding shares of First Federal Common Stock
outstanding immediately prior to the Effective
Time which are owned beneficially or of record by
Mutual or any of Mutual's Affiliates."
C. CONVERSION OF FIRST FEDERAL COMMON STOCK. Section 2.7 of
the Merger Agreement is amended to add a new paragraph (c) at the
end of said Section 2.7 to read in its entirety as follows:
"(c) Each share of First Federal Common
Stock which is owned beneficially or of record by
Mutual or any of Mutual's Affiliates immediately
prior to the Effective Time shall be cancelled
and extinguished in the Merger without
consideration and without any conversion thereof
or any other payment being made with respect
thereto."
D. ACQUISITION. The parties hereto agree and acknowledge that
purchases of First Federal Common Stock by Mutual or any of
Mutual's Affiliates pursuant to the Pre-Merger Stock Accumulation
Program shall not be deemed an "Acquisition" within the meaning of
Section 1.1 of the Merger Agreement.
E. CONFIDENTIALITY AND NON-DISCLOSURE AGREEMENT. The parties
hereto agree and acknowledge that the Confidentiality and
Non-Disclosure Agreement previously executed between Mutual and
First Federal was merged with and into the Merger Agreement
pursuant to Section 8.4 thereof, and therefore is of no further
force or effect, and the parties hereto further agree and
acknowledge that execution of the Pre-Merger Stock Accumulation
Program by Mutual and Mutual's Affiliates therefore shall not be
deemed in violation of any of the provisions of the terminated
Confidentiality and Non-Disclosure Agreement.
F. PRESS RELEASE. Prior to executing the Pre-Merger Stock Accumulation
Program, Mutual intends to issue a press release announcing its intentions to
accumulate up to 10% of the outstanding shares of First Federal Common Stock in
secondary market transactions at prevailing market prices prior to the Merger.
Attached as Appendix A to this Amendment is a copy of Mutual's proposed Press
Release. The parties hereto agree and acknowledge that issuance of such press
release by Mutual is consistent with the provisions of Section 3.9, captioned
"Announcements," of the Merger Agreement.
G. MISCELLANEOUS. To the extent any other provision(s) of the
Merger Agreement not specifically identified and amended pursuant
to this Amendment potentially could be deemed breached or violated
on account of Mutual's and Mutual's Affiliates' execution of the
Pre-Merger Stock Accumulation Program, the parties hereto agree
that such provisions of the Merger Agreement shall be deemed
amended and/or waived insofar as is necessary to facilitate such
execution and completion of the Pre-Merger Stock Accumulation
Program, but any such provision(s) shall be deemed so amended
and/or waived only to such extent and for no other purpose. Except
as expressly set forth herein, the Merger Agreement shall remain in
full force and effect, unaffected by this Amendment.
-132-
<PAGE> 88
EXHIBIT B
CORPORATE FINANCE DEPARTMENT
[DAIN BOSWORTH LETTERHEAD]
February 17, 1997
The Board of Directors
First Federal Bancshares of Eau Claire, Inc.
319 E. Grand Ave.
Eau Claire, Wisconsin 54701
To the Board of Directors:
You have requested our opinion, as of the date hereof, as to the fairness, from
a financial point of view, to the common stockholders of First Federal
Bancshares of Eau Claire, Inc., a Wisconsin corporation (the "Company"), of the
consideration to be received in connection with an Agreement and Plan of Merger
(the "Merger Agreement"), dated September 16, 1996, by and among Mutual Savings
Bank, a mutual savings bank chartered under Wisconsin law ("Mutual"), and the
Company. Pursuant to the Merger Agreement, (i) a wholly-owned subsidiary of
Mutual will be merged with and into the Company (the "Merger"), (ii) each
outstanding share of the Company's common stock, excluding 48,560 shares of
common stock held in the First Federal Incentive Plan which have not been
allocated to participants, will be converted into the right to receive $18.85
in cash, and (iii) each of the Company's outstanding stock options will be
converted into the right to receive cash equal to the difference between $18.85
and the exercise price of such option. The consideration to be received is
subject to increase if the closing date for the Merger is delayed beyond March
31, 1997, unless the delay results from acts, breaches or omissions of the
Company.
Dain Bosworth Incorporated ("Dain Bosworth"), as part of its investment banking
business, is continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive bids, secondary distributions of listed and unlisted
securities, private placements, and valuations for estate, corporate, and other
purposes. In the ordinary course of business Dain Bosworth has published
research and made recommendations regarding the equity securities of the
Company and other companies in the thrift industry. Also, Dain Bosworth has
acted as a market maker in the equity securities of the Company and other
publicly traded companies in the thrift industry and, accordingly, periodically
may have positions in such securities. In addition, Dain Bosworth acted as a
stand-by underwriter for a public offering of the Company's common stock in
August 1994 and we were engaged to
act as the Company's financial advisor in connection with the Merger. We will
receive a fee for our advisory services, a substantial portion of which is
contingent upon
B-1
<PAGE> 89
[DAIN BOSWORTH LETTERHEAD]
The Board of Directors
First Federal Bancshares of Eau Claire, Inc.
Page 2
consummation of the Merger, and will be indemnified against certain liabilities
that may arise from activities related to our engagement.
In connection with this opinion, we have, among other things, reviewed certain
publicly available information regarding the Company and other financial and
operating information supplied to us by the Company, including certain
historical audited financial statements, certain internal unaudited financial
information, and certain financial projections relating to the Company. Also,
we have reviewed summary financial information regarding Mutual. We have
visited the corporate offices of the Company and made inquiries of the
management regarding the past and current business operations, financial
condition, and future prospects of the Company. We have reviewed the Merger
Agreement and selected other documents related to the Merger. In addition, we
have held discussions with management of the Company to understand the reasons
for completing the Merger.
We have analyzed the historical reported market prices and trading activity of
the common stock of the Company. We have compared financial and stock market
information on the Company to similar information for certain publicly traded
companies in the thrift industry. We have also reviewed, to the extent
publicly available, the terms of selected relevant mergers and acquisitions,
analyzed the general economic outlook for companies in the thrift industry, and
performed other studies and analyses as we considered appropriate.
In conducting our review and in rendering our opinion, we have assumed and
relied upon the accuracy and completeness of the financial and other
information provided to us or publicly available and we have not assumed any
responsibility for independent verification of such information. It is
understood that we were retained by the Board of Directors of the Company, and
that the Board of Directors has not looked to us for independent verification
with respect to the financial and other information provided to us or publicly
available, including the projections provided to us relating to the Company.
We have further relied upon the assurances of management of the Company that
they are not aware of any facts that would make the information supplied to us,
or publicly available, inaccurate or misleading.
Our opinion as expressed herein is limited to the fairness to common
stockholders of the Company, from a financial point of view, of the
consideration to be received by such stockholders in connection with the
Merger, and does not address the Company's underlying business decision to
proceed with the Merger. We did not make an independent appraisal of the
assets or liabilities of the Company, and we do not express an opinion
regarding the liquidation value or solvency of the Company. Our opinion is
based solely on information available to us on or before the date hereof, and
reflects general market, economic, financial, monetary, and other conditions as
of such date.
This opinion is for the Board of Directors of the Company only and does not
constitute a recommendation to any stockholder of the Company as to how such
stockholder should vote at
B-2
<PAGE> 90
[DAIN BOSWORTH LETTERHEAD]
The Board of Directors
First Federal Bancshares of Eau Claire, Inc.
Page 3
the stockholders' meeting to be held in connection with the Merger.
Also, this letter may not be reproduced, quoted, published, or referred to in
any manner, nor shall our opinion be used for any other purposes, without our
prior written consent, except that this opinion may be appended to and
summarized in the proxy statement of the Company relating to the Merger. This
opinion confirms our opinion, dated September 13, 1996, addressed to the Board
of Directors of the Company.
Based upon the foregoing, and other matters that we considered relevant, it is
our opinion that, as of the date hereof, the consideration to be received by
the common stockholders of the Company pursuant to the terms of the Merger is
fair to such stockholders from a financial point of view.
Very truly yours,
/s/ Dain Bosworth Incorporated
DAIN BOSWORTH INCORPORATED
B-3
<PAGE> 91
EXHIBIT C
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of September 16, 1996, by and
between Mutual Savings Bank, a mutual savings bank chartered under
Chapter 214 of Wisconsin Statutes ("Mutual"), and First Federal
Bancshares of Eau Claire, Inc., a Wisconsin corporation (the
"Company").
WHEREAS, concurrently with the execution and delivery of this
Agreement, the Company, Mutual, and First Federal Merger
Corporation, a Wisconsin corporation ("Merger Corp."), are entering
into an Agreement and Plan of Merger, dated as of the date hereof
(the "Merger Agreement"), which provides, among other things, for
the merger of Merger Corp. with and into the Company (the
"Merger"), upon the terms and subject to the conditions thereof.
WHEREAS, as a condition to Mutual's willingness to enter into
the Merger Agreement, Mutual has requested that the Company agree,
and the Company has so agreed, to grant to Mutual an option with
respect to certain shares of the Company's common stock, par value
$.01 ("Common Stock"), on the terms and subject to the conditions
set forth herein.
NOW, THEREFORE, to induce Mutual to enter into the Merger
Agreement, and in consideration of the mutual covenants and
agreements set forth herein and in the Merger Agreement, the
parties hereto agree as follows:
1. GRANT OF OPTION. Subject to the terms and conditions set
forth herein, the Company hereby grants to Mutual an irrevocable
option (the "Option") to purchase up to 1,364,220 shares of Common
Stock (subject to adjustment as set forth in Section 9 of this
Agreement) (the "Option Shares") at a per share purchase price of
$15.75 (also subject to adjustment as set forth in Section 9 of
this Agreement) (the "Exercise Price"); provided, however, that in
no event shall the number of shares for which the Option is
exercisable exceed 19.9% of the issued and outstanding shares of
Common Stock.
2. EXERCISE OF OPTION.
(a) Conditions to Exercise. If the Merger Agreement has not been
terminated by the Company pursuant to Section 8.1(c) thereof, Mutual may
exercise the Option, in whole or in part, at any time and from time to time,
if, but only if both a Triggering Event (as defined below) and an Exercise
Event (as defined below) shall have occurred prior to the occurrence of an
Exercise Termination Event (as defined below). Each of the following shall be
an "Exercise Termination Event": (i) the Effective Time, (ii) termination of
the Merger Agreement in accordance with the provisions thereof if such
termination occurs prior to the occurrence of a Triggering Event; or (iii) the
passage of 12 months after termination of the Merger Agreement if such
termination follows the occurrence of a Triggering Event, provided that if a
Triggering Event continues or occurs beyond such termination, the Exercise
Termination Event shall be 12 months from the occurrence of the Last Triggering
Event but in no event more than 18 months after such occurrence. The "Last
Triggering Event" shall mean the latest Triggering Event to occur. Mutual's
rights under Section 6 shall not terminate upon expiration of the right to
exercise the Option pursuant to this Section 2, but shall continue until such
rights may otherwise terminate in accordance with the terms of Section 6. Any
date Mutual exercises its rights under Section 6 shall be referred to herein as
an "Election Date." Notwithstanding the expiration of the Option, Mutual shall
be entitled to purchase those Option Shares with respect to which it has
exercised the Option in accordance with the terms hereof prior to the
occurrence of an Exercise Termination Event. Any purchase of shares upon
exercise of the Option shall be subject to compliance with applicable law,
including the Home Owners' Loan Act of 1933 and the Regulations of the Office
of Thrift Supervision ("OTS") promulgated thereunder (together, "HOLA").
<PAGE> 92
(b) Triggering Event. The term "Triggering Event" shall mean any
of the following events or transactions occurring after the date hereof:
(i) The Company or its wholly-owned subsidiary, First
Federal Savings Bank of Eau Claire, a federally chartered savings bank
("First Federal"), without having received Mutual'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 shall have the meaning assigned thereto in
Sections 3(a)(9) and 13(d)(3) of the Exchange Act, and the rules and
regulations thereunder) other than Mutual or any of its affiliates, or the
Board of Directors of the Company shall have recommended that the
shareholders of the Company approve or accept any Acquisition Transaction
other than as contemplated by the Merger Agreement. For purposes of this
Agreement, "Acquisition Transaction" shall mean (x) a merger,
consolidation, share exchange, or similar business combination transaction,
involving the Company or First Federal, (y) a purchase, lease or other
acquisition of 10% or more of the assets of the Company or First Federal,
or (z) a purchase or other acquisition (including by way of merger,
consolidation, share exchange or otherwise) of securities representing 10%
or more of the voting power of the Company or First Federal; provided that
the term "Acquisition Transaction" does not include any internal merger or
consolidation involving only the Company and/or First Federal.
(ii) Any person other than Mutual or an affiliate of
Mutual shall have acquired beneficial ownership or the right to acquire
beneficial ownership of, or commenced a tender offer or exchange offer for,
10% or more of the outstanding shares of Common Stock (the term "beneficial
ownership" for purposes of this Agreement having the meaning assigned
thereto in Section 13(d) of the Exchange Act, and the rules and regulations
thereunder);
(iii) Any person other than Mutual or an affiliate of
Mutual shall have made a bona fide proposal to the Company or First Federal
by public announcement or written communication that is or becomes the
subject of public disclosure to engage in an Acquisition Transaction;
(iv) After a proposal is made by a third party to the
Company or First Federal to engage in an Acquisition Transaction, the
Company shall have breached any covenant or obligation contained in the
Merger Agreement and such breach (x) would entitle Mutual to terminate the
Merger Agreement and (y) shall not have been cured prior to the Notice Date
(as defined below); or
(v) Any person other than Mutual or an affiliate of
Mutual, other than in connection with a transaction to which Mutual has
given its prior written consent, shall have filed an application or notice
with the OTS or the Federal Deposit Insurance Corporation ("FDIC") or other
federal or state bank regulatory authority, which application or notice has
been accepted for processing, for approval to engage in an Acquisition
Transaction.
(c) Exercise Event. The term "Exercise Event" shall mean either
of the following events or transactions occurring after the date hereof:
(i) The acquisition by any person, other than Mutual or
an affiliate of Mutual, of beneficial ownership of 20% or more of the then
outstanding Common Stock; or
(ii) The occurrence of the Triggering Event described in
clause (i) of subsection (b) of this Section 2, except that the percentage
referred to in clause (z) shall be 20%.
(d) Notice by Company of Triggering and Exercise Events. The
Company shall notify Mutual promptly in writing of the occurrence of any
Triggering Event or Exercise Event, it being understood that the giving of such
notice by the Company shall not be a condition to the right of Mutual to
exercise the Option.
C-2
<PAGE> 93
(e) Exercise Procedures and Closing. In the event Mutual wishes to
exercise the Option, it shall send to the Company a written notice (the date of
which being herein referred to as the "Notice Date") specifying (i) the total
number of Option Shares it intends to 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 (the "Closing") 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 OTS, the FDIC or any other regulatory authority is required in
connection with such purchase, Mutual shall promptly file the required notice or
application for approval and shall expeditiously process the same (and the
Company shall fully cooperate with Mutual in the filing of any such notice or
application and the obtaining of any such approval), and the period of time that
otherwise would run pursuant to this sentence shall run instead from the date on
which, as the case may be, (i) any required notification period has expired or
been terminated or (ii) such approval has been obtained, and in either event,
any requisite waiting period has passed.
(f) Termination of Exercise Election. Notwithstanding Section 2(e),
in no event shall any Closing Date be more than 18 months after the related
Notice Date, and if the Closing Date shall not have occurred within 18 months
after the related Notice Date due to the failure to obtain any such required
approval, the exercise of the Option effected on the Notice Date shall be deemed
to have expired. In the event (i) Mutual receives official notice that an
approval of the OTS, the FDIC or any other regulatory authority required for the
purchase of Option Shares would not be issued or granted or (ii) a Closing Date
shall not have occurred within 18 months after the related Notice Date due to
the failure to obtain any such required approval, Mutual shall be entitled to
exercise its rights as set forth in Section 6 or to exercise the Option in
connection with the resale of Common Stock or other securities pursuant to a
registration statement as provided in Section 7.
3. PAYMENT AND DELIVERY OF CERTIFICATES.
(a) Payment of Exercise Price. On each Closing Date, Mutual shall pay
to the Company in immediately available funds by wire transfer to a bank account
designated by the Company an amount equal to the Exercise Price multiplied by
the number of Option Shares to be purchased on such Closing Date.
(b) Issuance of Certificates. At each Closing, simultaneously with
the delivery of immediately available funds as provided in Section 3(a), the
Company shall deliver to Mutual a certificate or certificates representing the
Option Shares to be purchased at such Closing, which Option Shares shall be free
and clear of all liens, claims, charges and encumbrances of any kind whatsoever,
except as provided by Section 180.0622(2)(b) of the WBCL, and Mutual shall
deliver to the Company a letter, in customary form, agreeing that Mutual shall
not offer to sell or otherwise dispose of such Option Shares in violation of
applicable law or the provisions of this Agreement.
(c) Certificate Legend. Certificates for the Option Shares delivered
at each Closing shall be endorsed with a restrictive legend which shall read
substantially as follows:
THE TRANSFER OF THE STOCK REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO
RESTRICTIONS ARISING UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
PURSUANT TO THE TERMS OF A STOCK OPTION AGREEMENT DATED AS OF SEPTEMBER 16,
1996. A COPY OF SUCH AGREEMENT WILL BE PROVIDED TO THE HOLDER HEREOF
WITHOUT CHARGE UPON RECEIPT BY SELLER OR A WRITTEN REQUEST THEREFOR.
It is understood and agreed that the above legend shall be removed by delivery
of substitute certificate(s) without such legend if Mutual shall have delivered
to the Company a copy of a letter from the staff to the SEC, or an opinion of
counsel in form and substance reasonably satisfactory to the Company and its
counsel, to the effect that such legend is not required for purposes of the
Securities Act.
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4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to Mutual that:
(a) Corporate Status and Authority. The Company is a corporation
duly organized, validly existing and in current status under the laws of the
State of Wisconsin and has the corporate power and authority to enter into this
Agreement, and subject to any regulatory approvals referred to herein (and, with
respect to Section 6 of this Agreement only, to the provisions of Section
180.0640 of the Wisconsin Business Corporation Law ("WBCL"), if applicable), to
consummate the transactions contemplated hereby.
(b) Due Authorization. The execution and delivery of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of the Company and no other corporate proceedings on the part of the
Company are necessary to authorize this Agreement or any of the transactions
contemplated hereby.
(c) Enforceability. This Agreement has been duly executed and
delivered by the Company, constitutes a valid and binding obligation of the
Company and, assuming this Agreement constitutes a valid and binding obligation
of Mutual, is enforceable against the Company in accordance with its terms,
subject to any approvals required by any governmental authority, and except as
enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other similar laws affecting the enforcement of
creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the discretion
of the court before which any proceeding may be brought, notwithstanding the
express agreement of the parties regarding specific performance set forth in
Section 11 of this Option Agreement.
(d) Authority and Validity of Option Shares. The Company has
taken all necessary corporate action to authorize and reserve for issuance and
to permit it to issue, upon exercise of the Option, and at all times from the
date hereof through the expiration of the Option will have reserved, authorized
and unissued shares of Common Stock equal to the number of outstanding Option
Shares as adjusted pursuant to Section 9 hereof, all of which, upon their
issuance and delivery in accordance with the terms of this Agreement, will be
validly issued, fully paid and nonassessable, except as provided in Section
180.0622(2)(b) of the WBCL.
(e) Absence of Liens on Option Shares. Upon delivery of the
Option Shares to Mutual upon the exercise of the Option, Mutual will acquire the
Option Shares free and clear of all claims, liens, charges, encumbrances and
security interests of any nature whatsoever.
(f) No Conflict. The execution and delivery of this Agreement by
the Company does not, and the consummation by the Company of the transactions
contemplated hereby will not, violate, conflict with, or result in a breach of
any provision of, or constitute a default (with or without notice or lapse of
time, or both) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination, cancellation, or
acceleration of any obligation or the loss of a material benefit under or the
creation of a lien, pledge, security interest or other encumbrance on assets
(any such conflict, violation, default, right of termination, cancellation or
acceleration, loss or creation, a "Violation") of the Company or any of its
Subsidiaries.
5. REPRESENTATIONS AND WARRANTIES OF MUTUAL. Mutual represents and
warrants to the Company that:
(a) Corporate Status and Authority. Mutual is a mutual savings
bank duly organized, validly existing and in good standing under Chapter 214 of
the Wisconsin Statutes and has the corporate power and authority to enter into
this Agreement and to carry out its obligations hereunder.
(b) Due Authorization. The execution and delivery of this
Agreement by Mutual and the consummation by Mutual of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of Mutual and no other corporate proceedings on the part of Mutual
are necessary to authorize this Agreement or any of the transactions
contemplated hereby.
(c) Enforceability. This Agreement has been duly executed and
delivered by Mutual and constitutes a valid and binding obligation of Mutual,
and, assuming this Agreement constitutes a valid and binding obligation of the
Company, is enforceable against Mutual in accordance with its terms.
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6. TERMINATION ELECTION BY MUTUAL.
(a) Termination Fee. At the request of Mutual at any time (i)
commencing upon the first occurrence of an Exercise Event and ending upon the
occurrence of an Exercise Termination Event or (ii) prior to or on the thirtieth
(30th) business day following the occurrence of either of the events set forth
in clauses (i) and (ii) of Section 2(f), the right to exercise the Option
pursuant to Section 2 hereof, to the extent not exercised, shall terminate and
the Company (or any successor entity thereof) shall pay to Mutual the
Termination Fee. The Termination Fee (the "Termination Fee") shall be equal to
the excess, if any, of (x) the Applicable Price (as defined below) for each
share of Common Stock over (y) the Exercise Price, multiplied by the number of
Option Shares with respect to which the Option has not been exercised and, where
the Option has been exercised, in whole or in part, but the Closing Date has not
occurred, the number of Option Shares which would have been distributed at the
Closing Date.
(b) Payment of Termination Fee. If Mutual exercises its rights
under this Section 6, the Company shall, within 20 business days after such
Election Date, pay the Termination Fee to Mutual in immediately available funds,
and, as of the date of and upon such payment, the right to exercise the Option
pursuant to Section 2 hereof shall terminate. Notwithstanding the foregoing, to
the extent that prior notification to or approval of the OTS, the FDIC or other
regulatory authority is required in connection with the payment of all or any
portion of the Termination Fee, the Company shall deliver from time to time that
portion of the Termination Fee that it is not then so prohibited from paying and
shall promptly file the required notice or application for approval and shall
expeditiously process the same (and Mutual shall cooperate with the Company in
the filing of any such notice or application and the obtaining of any such
approval), and the period of time that otherwise would run pursuant to the
preceding sentence for the payment of the portion of the Termination Fee
requiring such notification or approval shall run instead from the date on
which, as the case may be, (i) any required notification period has expired or
been terminated or (ii) such approval has been obtained and, in either event,
any requisite waiting period shall have expired. If the OTS, the FDIC or any
other regulatory authority prohibits payment of any part of the Terminate Fee,
the Company shall promptly give notice of such fact to Mutual and Mutual shall
thereafter have the right to exercise the Option as to the number of Option
Shares for which the Option was exercisable at such Election Date less the
number of shares as to which a Termination Fee has been delivered pursuant to
Section 6(a); provided that, if the Option shall have expired pursuant to
Section 2 hereof prior to the date of such notice or shall be scheduled to
expire at any time before the expiration of a period ending on the thirtieth
(30th) business day after such date, Mutual shall nonetheless have the right so
to exercise the Option pursuant to Section 2 hereof until the expiration of such
period of 30 business days.
(c) Applicable Price. For purposes of this Agreement, the
"Applicable Price" means the highest of (i) the highest price per share at which
a tender or exchange offer has been made for shares of Common Stock after the
date of this Agreement and on or prior to such Election Date, (ii) the price per
share to be paid by any third party for shares of Common Stock or the
consideration per share to be received by holders of Common Stock, in each case
pursuant to an agreement for a merger or other business combination transaction
with the Company entered into on or prior to such Election Date or (iii) the
highest bid price per share as quoted on the NASDAQ/NMS (or, if the shares of
Common Stock are no longer quoted thereon, on the principal trading market on
which such shares are traded as reported by a recognized source) during the 30
business days preceding such Election Date. If the consideration to be offered,
paid or received pursuant to either of the foregoing clauses (i) or (ii) shall
be other than in cash, the value of such consideration shall be determined in
good faith by an investment banking firm selected by Mutual and reasonably
acceptable to the Company, which determination shall be conclusive for all
purposes of this Agreement.
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7. REGISTRATION RIGHTS. The Company shall, if requested by Mutual at
any time and from time to time (a) within three years of the first
exercise of the Option or (b) for 30 business days following the occurrence of
either of the events set forth in clauses (i) and (ii) of Section 2(f) or
receipt by Mutual of official notice that an approval of the OTS, the FDIC or
any other regulatory authority required to complete the transactions
contemplated by Section 6 hereof would not be issued or granted, as
expeditiously as possible prepare and file up to two registration statements
under the Securities Act if such registration is necessary in order to permit
the sale or other disposition of any or all shares of Common Stock or other
securities that have been acquired by or are issuable to Mutual upon exercise
of the Option in accordance with the intended method of sale or other
disposition stated by Mutual, including a "shelf" registration statement under
Rule 415 under the Securities Act or any successor provision, and the Company
shall use its best efforts to qualify such shares or other securities under any
applicable state securities laws. Mutual agrees to use all reasonable efforts
to cause, and to cause any underwriters of any sale or other disposition to
cause, any sale or other disposition pursuant to such registration statement to
be effected on a widely distributed basis so that upon consummation thereof no
purchaser or transferee shall own beneficially 5% or more of the then
outstanding voting power of the Company. The Company shall use all reasonable
efforts to cause each such registration statement to become effective, to
obtain all consents or waivers of other parties which are required therefor and
to keep such registration statement effective for such period not in excess of
120 days from the day such registration statement first becomes effective as
may be reasonably necessary to effect such sale or other disposition. In the
event that Mutual requests the Company to file a registration statement
following the failure to obtain a required approval for an exercise of the
Option as described in Section 2(f), the closing of the sale or other
disposition of Common Stock or other securities pursuant to such registration
statement shall occur substantially simultaneously with the exercise of the
Option. The obligations of the Company hereunder to file a registration
statement and to maintain its effectiveness may be suspended for one or more
periods of time not exceeding 90 days in the aggregate if the Board of
Directors of the Company shall have determined that the filing of such
registration statement or the maintenance of its effectiveness would require
disclosure of nonpublic information that would materially and adversely affect
the Company, provided that the option/exercise period shall be extended during
any such period. Any registration statement prepared and filed under this
Section 7, and any sale covered thereby, shall be at the Company's expense
except for underwriting discounts or commissions, brokers' fees and the fees
and disbursement of Mutual's counsel related thereto. Mutual shall provide all
information reasonably requested by the Company for inclusion in any
registration statement to be filed hereunder. If, during the time periods
referred to in the first sentence of this Section 7, the Company effects a
registration under the Securities Act of Common Stock for its own account or
for any other shareholders of the Company (other than on Form S-4 or Form S-8,
or any successor form), it shall allow Mutual the right to participate in such
registration, and such participation shall not affect the obligation of the
Company to effect two registration statements for Mutual under this Section 7;
provided that, if the managing underwriters of such offering advise the Company
in writing that in their opinion the number of shares of Common Stock requested
to be included in such registration exceeds the number which can be sold in
such offering, the Company shall include the shares requested to be included
therein by Mutual only to the extent permitted by the managing underwriters
consistent with the financing requirements of the Company. In connection with
any registration pursuant to this Section 7, the Company and Mutual shall
provide each other and any underwriter of the offering with customary
representations, warranties, covenants, indemnification and contribution in
connection with such registration.
8. RIGHTS OF OPTION SHARES. Except to the extent Mutual exercises the
Option to purchase Option Shares, Mutual shall have no rights to vote or
receive dividends or have any other rights as a shareholder with respect to the
shares of Common Stock subject to the Option.
9. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. Without limitation to any
restriction on the Company contained in this Agreement or in the Merger
Agreement, in the event of any change in Common Stock by reason of stock
dividends, splitups, mergers (other than the Merger), recapitalizations,
combinations, exchange of shares or the like, or the sale of Common Stock or
the grant of any option for the purchase of Common Stock to anyone other than
Mutual, the type and number of shares or securities subject to the Option, and
the Exercise Price provided in Section 1, shall be adjusted appropriately to
restore to Mutual its rights hereunder, including the right to purchase from
the Company (or its successors) shares of Common Stock representing 19.9% of
the outstanding Common Stock for the aggregate price calculated as of the date
of this Agreement by multiplying the number of Option Shares set forth in
Section 1 by the per share Exercise Price set forth in Section 1.
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10. BINDING EFFECT; NO ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. This
Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns. Except as
expressly provided for in this Agreement or the Merger Agreement, neither this
Agreement nor the rights or the obligations of either party hereto are
assignable, except by operation of law, or with the written consent of the
other party. Nothing contained in this Agreement, express or implied, is
intended to confer upon any person other than the parties hereto and their
respective permitted assigns any rights or remedies of any nature whatsoever by
reason of this Agreement. Any Option Shares sold by Mutual in compliance with
the provisions of Section 7 shall, upon consummation of such sale, be free of
the restrictions imposed with respect to such shares by this Agreement.
11. SPECIFIC PERFORMANCE. The parties recognize and agree that if for
any reason any of the provisions of this Agreement are not performed in
accordance with their specific terms or are otherwise breached, immediate or
irreparable harm or injury would be caused for which money damages would not be
an adequate remedy. Accordingly, each party agrees that, in addition to other
remedies, the other party shall be entitled to an injunction restraining any
violation or threatened violation of the provisions of this Agreement. In the
event that any action should be brought in equity to enforce the provisions of
the Agreement, neither party will allege, and each party hereby waives the
defense, that there is adequate remedy at law.
12. ENTIRE AGREEMENT. This Agreement and the Merger Agreement (including
the exhibits and schedules thereto) constitute the entire agreement among the
parties with respect to the subject matter hereof and thereof and supersede
all other prior agreements and understandings, both written and oral, among the
parties or any of them with respect to the subject matter hereof and thereof.
13. FURTHER ASSURANCES. Each party will execute and deliver all such
further documents and instruments and take all such further action as may
be necessary or in order to consummate the transactions contemplated hereby.
14. VALIDITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of the other
provisions of this Agreement, which shall remain in full force and effect. In
the event any court or other competent authority holds any provisions of this
Agreement to be null, void or unenforceable, the parties hereto shall negotiate
in good faith the execution and delivery of an amendment to this Agreement in
order, as nearly as possible, to effectuate, to the extent permitted by law,
the intent of the parties hereto with respect to such provision and the
economic effects thereof. If for any reason such court or regulatory agency
determines that the Option does not permit Mutual to acquire, or does not
require the Company to comply with Section 6 hereof with respect to the full
number of shares of Common Stock as provided in Sections 2 and 6 (as adjusted
pursuant to Section 9), it is the express intention of the Company to allow
Mutual to acquire or require the Company to comply with Section 6 hereof with
respect to such lessor number of shares as may be permissible without any
amendment or modification hereof. Each party agrees that, should any court or
other competent authority hold any provision of this Agreement or part hereof
to be null, void or unenforceable, or order any party to take any action
inconsistent herewith, or not take any action required herein, the other party
shall not be entitled to specific performance of such provision or part hereof
or to any other remedy, including but not limited to money damages, for breach
hereof or of any other provision of this Agreement or part hereof as the result
of such holding or order.
15. NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if (i) delivered personally, or (ii) sent by
reputable overnight courier service, or (iii) telecopies (which is confirmed),
or (iv) five days after being mailed by registered or certified mail (return
receipt requested) 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 Mutual, to:
Mutual Savings Bank
Attn: Michael T. Crowley, Jr.
President and Chief Executive Officer
4949 West Brown Deer Road
Milwaukee, WI 53223
Fax No.: (414) 362-6195
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with a copy to:
Quarles & Brady
Attn: James D. Friedman, Esq.
411 East Wisconsin Avenue
Milwaukee, WI 53202-4497
Fax No.: (414) 271-3552
B. If to the Company, to:
First Federal Bancshares of Eau Claire, Inc.
Attn: Donald T. Tietz
President and Chief Executive Officer
319 East Grand Avenue
Eau Claire, WI 54710
Fax No.: (715) 833-8997
with a copy to:
Michael Best & Friedrich
Attn: W. Charles Jackson, Esq.
100 East Wisconsin Avenue
Milwaukee, WI 53202
Fax No.: (414) 277-0656
16. GOVERNING LAW; CHOICE OF FORUM. This Agreement shall be governed by
and construed in accordance with the laws of the State of Wisconsin applicable
to agreements made and to be performed within such State.
17. INTERPRETATION. When a reference is made in this Agreement to a
Section such reference shall be to a Section of this Agreement unless
otherwise indicated. Whenever the words "include," "includes" or "including"
are used in this Agreement, they shall be deemed to be followed by the words
"without limitation". The descriptive headings herein are inserted for
convenience of reference only and are not intended to be part of or to affect
the meaning or interpretation of this Agreement. Capitalized terms used in this
Agreement which are not specifically defined herein shall have the meanings
ascribed to them in the Merger Agreement.
18. EXPENSES. Except as otherwise expressly provided herein or in the
Merger Agreement or herein, all costs and expenses incurred in connection
with the transactions contemplated by this Agreement shall be paid by the party
incurring such expenses.
19. EXTENSION OF TIME PERIODS. The time periods for exercise of certain
rights under the Agreement shall be extended to the extent necessary to
avoid any liability under Section 16(b) of the Exchange Act by reason of such
exercise.
20. REPLACEMENT OF OPTION. Upon receipt by the Company of evidence
reasonably satisfactory to it on 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, the Company will execute and deliver a new
Agreement of like tenor and date.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective duly authorized
officers as of the date first above written.
MUTUAL SAVINGS BANK
By: /s/ Michael T. Crowley, Jr.
---------------------------
Michael T. Crowley, Jr.
President and Chief Executive Officer
Attest:
/s/ P. Terry Anderegg
----------------------------------------
P. Terry Anderegg, Senior Vice President
FIRST FEDERAL BANCSHARES OF EAU
CLAIRE, INC.
By: /s/ Donald T. Tietz
-------------------------------------
Donald T. Tietz
President and Chief Executive Officer
Attest:
/s/ Jerome A. Reinecke
-----------------------------------------
Jerome A. Reinecke
Secretary
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THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
FIRST FEDERAL BANCSHARES OF EAU CLAIRE, INC. FOR USE ONLY AT THE
SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON MARCH 27, 1997
AND AT ANY ADJOURNMENTS OR POSTPONEMENTS THEREOF.
The undersigned hereby acknowledges receipt of the Notice of Special
Meeting of Shareholders (the "Special Meeting") and the Proxy Statement and,
revoking any proxy heretofore given, hereby constitutes and appoints Messrs.
Kermit C. Walker and Donald T. Tietz, and any of the other directors of First
Federal Bancshares of Eau Claire, Inc. ("First Federal") or any successors in
their respective positions, to represent and to vote, as designated below, all
the shares of common stock, $0.01 par value per share (the "Common Stock") of
First Federal Bancshares of Eau Claire, Inc. ("First Federal") held of record
by the undersigned on January 20, 1997, at the Special Meeting which will be
held on March 27, 1997, at 10:00 a.m., Wisconsin time, at the Holiday Inn
Campus Area, 2703 Craig Road, Eau Claire, Wisconsin 54701, or any adjournments
or postponements thereof.
1. To approve and adopt an Agreement and Plan of Merger, dated September
16, 1996, as amended on December 23, 1996 (as so amended, the
"Agreement"), by and among First Federal, Mutual Savings Bank, a
mutual savings bank organized under the laws of the State of Wisconsin
("Mutual"), and First Federal Merger Corporation, a Wisconsin
corporation and wholly-owned subsidiary of Mutual ("Merger Corp."),
pursuant to which: (i) First Federal will be acquired by Mutual
through the merger of Merger Corp. with and into First Federal (the
"Merger"), with First Federal temporarily becoming a direct,
wholly-owned subsidiary of Mutual; and (ii) each outstanding share of
Common Stock will be converted into the right to receive $18.85 in
cash (subject to a $0.05 per share upward price adjustment for each
calendar month or portion of a month beyond March 31, 1997 for which
consummation of the Merger is delayed, provided that such delay is not
due to a breach of any representation, warranty or covenant by, or is
otherwise attributable to, First Federal).
/ / FOR / / AGAINST / / ABSTAIN
(Continued, and to be signed and dated, on the reverse side)
* * * * * * *
(Reverse Side)
2. In their discretion, the proxies are authorized to vote upon such
other business as may properly come before the Special Meeting or any
adjournments or postponements thereof.
THIS PROXY IS REVOCABLE AND WILL BE VOTED AS DIRECTED, BUT IF NO
INSTRUCTIONS ARE SPECIFIED, THIS PROXY WILL BE VOTED FOR APPROVAL OF
THE AGREEMENT. If any other business is presented at the Special Meeting, this
proxy will be voted by the Board of Directors in their best judgment. At the
present time, the Board of Directors of First Federal knows of no other
business to be presented at the Special Meeting.
Dated:___________________________, 1997
________________________________________
________________________________________
Signature(s)
IMPORTANT: Please sign your name
exactly as it appears on this proxy.
When signing in a representative
capacity, please give title. When
shares are held jointly, only one
holder need sign.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE
