UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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:
[X] Preliminary Proxy Statement [ ] Confidential, for use of the
[ ] Definitive Proxy Statement Commission Only (as permitted
[ ] Definitive Additional Materials by Rule 14a-6(e)(2))
[ ] Soliciting Material pursuant to Rule 14a-12
FSF FINANCIAL CORP.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[ ] No fee required
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
COMMON STOCK, PAR VALUE $0.10
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(2) Aggregate number of securities to which transaction applies:
2,599,785, INCLUDING OUTSTANDING STOCK OPTIONS
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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):
$35.00, THE PER SHARE MERGER CONSIDERATION (4) Proposed maximum aggregate value
of transaction: $90,992,475 (5) Total fee paid: $11,528.75
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[ ] Fee paid previously with preliminary materials.
[ ] 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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[FSF FINANCIAL CORP. LETTERHEAD]
____________, 2004
Dear fellow shareholder:
We invite you to attend a Special Meeting of Shareholders of FSF Financial
Corp. to be held at the Victorian Inn, 1000 Highway 7 West, Hutchinson,
Minnesota, on __________, ____________, 2004 at __:__ _.m., local time. At the
special meeting, you will be asked to consider and vote upon a proposal to
approve and adopt the Agreement and Plan of Merger among MidCountry Financial
Corp., MidCountry Interim Corp. II and FSF Financial Corp. which provides for
the merger of MidCountry Interim Corp. II with and into FSF Financial Corp.
If the merger agreement is approved and the merger is subsequently
completed, each outstanding share of FSF Financial Corp. common stock will be
converted into the right to receive $35.00 in cash, without interest.
The merger cannot be completed unless the shareholders of FSF approve and
adopt the merger agreement and the parties receive all required regulatory
approvals, among other customary conditions. Approval of the merger agreement
requires the affirmative vote of a majority of the FSF shares outstanding and
entitled to vote at the special meeting at which a quorum is present. Directors
and executive officers holding approximately _____% of FSF common stock have
agreed with MidCountry to vote in favor of the adoption and approval of the
merger agreement.
Based on our reasons described herein, including the fairness opinion
issued by our financial advisor, Keefe, Bruyette & Woods, Inc., which is
attached to the proxy statement as Appendix B, your board of directors believes
that the merger agreement is fair to you and in your best interests.
ACCORDINGLY, YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR"
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
The accompanying document gives you detailed information about the special
meeting, the merger, the merger agreement and related matters. We urge you to
read this entire document carefully, including the attached merger agreement.
IT IS VERY IMPORTANT THAT YOUR SHARES BE VOTED AT THE SPECIAL MEETING,
REGARDLESS OF WHETHER YOU PLAN TO ATTEND IN PERSON. TO ENSURE THAT YOUR SHARES
ARE REPRESENTED ON THIS VERY IMPORTANT MATTER, PLEASE TAKE THE TIME TO VOTE BY
COMPLETING AND MAILING THE ENCLOSED PROXY CARD. SHAREHOLDERS OF RECORD MAY ALSO
VOTE VIA TOUCHTONE TELEPHONE OR THE INTERNET USING THE INSTRUCTIONS ON YOUR
PROXY CARD.
Thank you for your cooperation and your continued support of FSF and First
Federal fsb.
Sincerely,
George B. Loban Donald A. Glas
President Chief Executive Officer
FSF FINANCIAL CORP.
201 MAIN STREET SOUTH
HUTCHINSON, MN 55350
(320) 234-4500
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON ____________, 2004
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Notice is hereby given that a Special Meeting of Shareholders of FSF
Financial Corp. ("FSF") will be held at the Victorian Inn, 1000 Highway 7 West,
Hutchinson, Minnesota, on __________, ____________, 2004 at __:__ _.m., local
time, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger, dated May 14, 2004, by and among
MidCountry Financial Corp., MidCountry Interim Corp. II and FSF
Financial Corp., pursuant to which, among other things, (i) MidCountry
Interim Corp. II ("Interim"), a newly-formed subsidiary of MidCountry
Financial Corp. ("MidCountry") will merge with and into FSF, and (ii)
upon consummation of the merger, each outstanding share of FSF common
stock (other than shares the holders of which have perfected
dissenters' rights of appraisal) will be converted into the right to
receive $35.00 in cash, without interest; and
2. To transact such other business as may properly come before the
special meeting or any adjournment or postponement of the special
meeting.
We have fixed the close of business on August 6, 2004 as the record date
for the determination of shareholders entitled to notice of and to vote at the
special meeting or any adjournment or postponement. Only holders of FSF common
stock of record at the close of business on that date will be entitled to notice
of and to vote at the special meeting or any adjournment or postponement of the
special meeting. A copy of the merger agreement is enclosed as Appendix A to the
accompanying proxy statement. The affirmative vote of the holders of a majority
of shares of FSF common stock issued and outstanding and entitled to vote at the
special meeting is necessary to approve and adopt the merger agreement.
Directors and executive officers holding approximately _____% of the FSF common
stock have agreed with MidCountry to vote in favor of the adoption and approval
of the merger agreement.
Shareholders of FSF have the right to dissent from the merger and seek an
appraisal of their shares provided they comply with the applicable provisions of
the Minnesota Statutes which are attached hereto as Appendix C.
YOUR BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER AGREEMENT IS FAIR TO
AND IN THE BEST INTERESTS OF FSF'S SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE "FOR" APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
By Order of the Board of Directors
Richard H. Burgart, Secretary
Hutchinson, Minnesota
____________, 2004
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IMPORTANT: YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE SIGN, DATE AND PROMPTLY
RETURN THE ACCOMPANYING PROXY CARD USING THE ENCLOSED POSTAGE-PREPAID ENVELOPE.
IF YOU ARE A RECORD SHAREHOLDER AND FOR ANY REASON YOU SHOULD DESIRE TO REVOKE
YOUR PROXY, YOU MAY DO SO AT ANY TIME BEFORE IT IS VOTED AT THE SPECIAL MEETING.
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TABLE OF CONTENTS
Page
----
QUESTIONS AND ANSWERS ABOUT VOTING PROCEDURES
FOR THE SPECIAL MEETING...................................................
SUMMARY TERM SHEET............................................................
THE SPECIAL MEETING...........................................................
Time, Date and Place.......................................................
Matter to be Considered....................................................
Shares Outstanding and Entitled to Vote; Record Date.......................
How to Vote Your Shares....................................................
Quorum; Vote Required......................................................
Solicitation of Proxies....................................................
THE MERGER....................................................................
The Parties................................................................
Acquisition Structure......................................................
Merger Consideration.......................................................
Effective Time of the Merger...............................................
Background of the Merger...................................................
Recommendation of the FSF Board of Directors
and Reasons for the Merger.............................................
Opinion of Keefe, Bruyette & Woods, Inc....................................
Treatment of Stock Options and Restricted Stock............................
Surrender of Stock Certificates; Payment for Shares........................
Financing the Transaction..................................................
Board of Directors' Covenant to Recommend the Merger Agreement.............
No Solicitation............................................................
Conditions to the Merger...................................................
Representations and Warranties of FSF and MidCountry.......................
Conduct Pending the Merger.................................................
Extension, Waiver and Amendment of the Merger Agreement....................
Termination of the Merger Agreement........................................
Termination Fee and Expenses...............................................
Interests of Certain Persons in the Merger.................................
Employee Benefits Matters..................................................
Merger Regulatory Approvals................................................
Certain Federal Income Tax Consequences....................................
Accounting Treatment.......................................................
Support Agreements.........................................................
Dissenters' Rights of Appraisal............................................
MARKET FOR COMMON STOCK AND DIVIDENDS.........................................
CERTAIN BENEFICIAL OWNERS OF FSF COMMON STOCK.................................
SHAREHOLDER PROPOSALS FOR THE 2005 ANNUAL MEETING.............................
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS....................
WHERE YOU CAN FIND MORE INFORMATION...........................................
Appendix A Agreement and Plan of Merger, dated May 14, 2004, by and among
MidCountry Financial Corp., MidCountry Interim Corp. II and FSF
Financial Corp........................................... . . . A-1
Appendix B Fairness Opinion of Keefe, Bruyette & Woods, Inc................B-1
Appendix C Sections 302A.471 and 302A.473 of the Minnesota Business
Corporations Act............................................... C-1
QUESTIONS AND ANSWERS ABOUT VOTING PROCEDURES
FOR THE SPECIAL MEETING
Q. WHAT AM I BEING ASKED TO VOTE ON?
A. FSF stockholders are being asked to vote on an Agreement and Plan of
Merger, which, if approved, will result in FSF being acquired by
MidCountry. As a result of this transaction, each outstanding share of FSF
common stock (other than shares the holders of which perfect dissenters'
rights of appraisal) will be converted into the right to receive $35.00 in
cash.
You may be asked to consider other matters as may properly come before the
special meeting. FSF does not know of any other matters that will be
presented for consideration at its special meeting.
Q. WHAT DO I NEED TO DO NOW?
A. First, carefully read this proxy statement in its entirety. Then, vote your
shares of FSF common stock by one of the following methods:
o marking, signing, dating and returning your proxy card in the enclosed
postage prepaid envelope;
o attending the special meeting and submitting a properly executed proxy
or ballot. If a broker holds your shares in "street name," you will
need to get a proxy from your broker to vote your shares in person; or
o If you are a record shareholder, you may also vote your proxy using a
touchtone telephone or the internet using the instructions on your
proxy card.
Q. WHY IS MY VOTE IMPORTANT?
A. A majority of the outstanding shares of FSF common stock must be
represented in person or by proxy at the special meeting for there to be a
quorum. If you do not vote using one of the methods described above, it
will be more difficult for FSF to obtain the necessary quorum to hold its
special meeting. In addition, the affirmative vote of a majority of the
shares of FSF common stock outstanding and entitled to vote at the special
meeting is necessary to approve and adopt the merger agreement. Therefore,
abstentions or failures to vote have the same effect as a vote "against"
the merger agreement.
Q. IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER
AUTOMATICALLY VOTE MY SHARES FOR ME?
A. No. If you do not provide your broker with instructions on how to vote your
shares that are held in street name, your broker will not be permitted to
vote them. Therefore, you should be sure to provide your broker with
instructions on how to vote these shares. Please check the voting form used
by your broker to see if your broker offers telephone or internet voting.
Q. CAN I CHANGE MY VOTE?
A. Yes. If you have not voted through your broker, there are several ways you
can change your vote after you have submitted a proxy.
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o First, you may send a written notice stating that you would like to
revoke your proxy to FSF's Corporate Secretary, Richard H. Burgart,
Secretary, FSF Financial Corp., 201 Main Street South, Hutchinson,
Minnesota 55350;
o Second, you may complete and submit a new proxy card. Any earlier
proxy will be revoked automatically; or
o Third, you may attend the meeting and vote in person. Any earlier
proxy will be revoked. However, simply attending the meeting without
voting will not revoke your earlier proxy.
If you have instructed a broker to vote your shares, you must follow
directions you receive from your broker to change your vote.
Q. SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A. No. Within five days after the closing date of the merger,
_________________________, acting as exchange agent, will send you a letter
of transmittal containing written instructions for exchanging your FSF
stock certificates.
Please do not send in any FSF stock certificates until you have received
these written instructions. However, if you are not sure where your stock
certificates are located, now would be a good time to find them so you
don't encounter any delays in processing your exchange at closing.
Likewise, if your stock certificates are lost, please contact
____________________ at (___) ___-____ or our transfer agent,
_______________________, (___) ___-____ to find out how to get a
replacement certificate.
Q. WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A. We currently expect to complete the merger by ____________, 2004, assuming
all the conditions to completion of the merger, including obtaining the
approval of FSF shareholders at the special meeting and receiving
regulatory approvals, have been fulfilled. Fulfilling some of these
conditions, such as receiving certain governmental clearances or approvals,
is not entirely within our control. If all the conditions to completion of
the merger have not been fulfilled at that time, we expect to complete the
merger as quickly as practicable once the conditions are fulfilled.
Q. WHOM DO I CALL IF I HAVE QUESTIONS ABOUT THE SPECIAL MEETING OR THE MERGER?
A. You should direct any questions regarding the special meeting of
shareholders or the merger to Donald A. Glas at (320) 234-4501, George B.
Loban at (651) 480-6020 or Richard H. Burgart at (320) 234-4536.
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SUMMARY TERM SHEET
This summary term sheet highlights selected information from this proxy
statement and may not contain all of the information that may be important to
you. To understand the merger fully and for a more complete description of the
legal terms of the merger, you should read carefully this entire document,
including the merger agreement, a copy of which is included as Appendix A to
this proxy statement, and the other documents to which we have referred you. You
may obtain copies of all publicly filed reports and other information from the
sources listed under the section "Where You Can Find More Information,"
beginning on page __. Page references are included in this summary to direct you
to a more complete description of the topics.
Throughout this document, "FSF," "we" and "our" refers to FSF Financial
Corp.; "First Federal" refers to our wholly-owned banking subsidiary, First
Federal fsb, and "MidCountry" refers to MidCountry Financial Corp. Also, we
refer to the merger between MidCountry Interim Corp. II and FSF as the "merger"
and the Agreement and Plan of Merger, dated as of May 14, 2004, by and among
MidCountry Financial Corp., MidCountry Interim Corp. II and FSF Financial Corp.
as the "merger agreement."
This proxy statement is first being mailed to shareholders of FSF on or
about ____________, 2004.
THE PARTIES (PAGE __)
o FSF was formed in 1994 in connection with the conversion of First
Federal from mutual to stock form. FSF is registered with the Office
of Thrift Supervision as a savings and loan holding company and
conducts no significant business apart from its ownership of the
capital stock of First Federal. First Federal is a federally-chartered
stock savings bank with 13 offices located in the Minnesota counties
of Carver, Dakota, McLeod, Meeker, Sibley, Stearns, and Wright. First
Federal operates a traditional savings bank business and at June 30,
2004, FSF had total assets of $510.8 million and stockholders' equity
of $51.6 million. The executive offices of FSF are located at 201 Main
Street South and its telephone number at that location is (320)
234-4500.
o MidCountry is a corporation incorporated under the laws of the State
of Georgia. At June 30, 2004, MidCountry had total assets of $_____
million and total stockholders' equity of $_____ million. The
executive offices of MidCountry are located at 201 Second Street,
Suite 950, Macon, Georgia 31201 and its telephone number at that
location is (478) 746- 8222.
o MidCountry Interim Corp. II is a Minnesota corporation and a
wholly-owned subsidiary of MidCountry formed for the purpose of
effecting the merger. It has not conducted any operations to date. The
executive offices of MidCountry Interim Corp. II are located at 201
Second Street, Suite 950, Macon, Georgia 31201 and its telephone
number at that location is (478) 746-8222.
FSF SHAREHOLDERS WILL RECEIVE $35.00 IN CASH FOR EACH SHARE OF FSF COMMON STOCK
(PAGE __)
MidCountry and FSF propose a transaction in which FSF will become a
wholly-owned subsidiary of MidCountry by virtue of the merger of MidCountry
Interim Corp. II, a newly-formed subsidiary of MidCountry with and into FSF. If
the acquisition of FSF by MidCountry is completed, you will have the right to
receive $35.00 in cash, without interest, for each share of FSF common stock
that you own as of the effective time of the merger.
3
You will need to surrender your FSF stock certificates to receive the cash
merger consideration, but you should not send us any certificates now. If the
merger is completed, an escrow agent appointed by MidCountry will send you
detailed instructions on how to exchange your shares.
THE MERGER WILL BE TAXABLE FOR FSF SHAREHOLDERS (PAGE __)
For federal income tax purposes, the merger will be treated as the sale to
MidCountry of all of the shares of FSF common stock. You will recognize taxable
gain or loss equal to the difference between the cash payment that you receive
for your shares of FSF common stock and your adjusted tax basis in your shares
that you exchange for that payment. In general, the gain or loss will be either
long-term capital gain or short-term capital gain depending on the length of
time you have held your shares of FSF common stock.
Tax matters are complicated, and the tax consequences of the merger may
vary among shareholders. In addition, you may be subject to state, local or
foreign tax laws that are not discussed in this proxy statement. You should
therefore consult your own tax advisor for a full understanding of the tax
consequences to you of the merger.
OUTSTANDING FSF STOCK OPTIONS WILL BE CANCELLED FOR THEIR CASH VALUE TO THE
EXTENT THEY ARE NOT EXERCISED PRIOR TO THE MERGER AND ALL UNVESTED RESTRICTED
STOCK AWARDS WILL VEST (PAGE __)
Immediately prior to the effective time of the merger (which is the date on
which the merger is consummated), each outstanding and unexercised option to
purchase shares of FSF common stock issued under the FSF stock option plan,
whether or not then vested and exercisable, will be terminated and each holder
will be entitled to receive in consideration for each such option a cash payment
from FSF in an amount equal to the difference between the merger consideration
and the per share exercise price of the option, multiplied by the number of
shares covered by the option, less any required tax withholdings. All unvested
shares of restricted stock awarded under the FSF Restricted Stock Plan will
become fully vested and immediately prior to the effective time and, at the
effective time, will be converted into the merger consideration.
WE HAVE RECEIVED AN OPINION FROM OUR FINANCIAL ADVISOR THAT THE MERGER
CONSIDERATION IS FAIR TO FSF'S SHAREHOLDERS FROM A FINANCIAL POINT OF VIEW (PAGE
__)
Among other factors considered in deciding to approve the merger agreement,
the FSF board of directors received the written opinion of its financial
advisor, Keefe, Bruyette & Woods, Inc. ("KBW") that, as of May 14, 2004 (the
date on which the FSF board of directors approved the merger agreement), the
merger consideration is fair to the holders of FSF common stock from a financial
point of view. This opinion was subsequently updated as of the date of this
proxy statement. The opinion dated as of the date of this proxy statement is
included as Appendix B to this proxy statement. You should read this opinion
completely to understand the assumptions made, matters considered and
limitations of the review undertaken by KBW in providing its opinion. KBW's
opinion is directed to the FSF board of directors and does not constitute a
recommendation to any shareholder as to any matters relating to the merger,
including how to vote.
THE SPECIAL MEETING (PAGE __)
The special meeting will be held at __:__ _.m., local time, on __________,
____________, 2004, at the Victorian Inn, 1000 Highway 7 West, Hutchinson,
Minnesota. At the special meeting, you will be asked to approve and adopt the
merger agreement and to act on any other matters that may properly come before
the special meeting.
4
RECORD DATE; VOTE REQUIRED (PAGES __ AND __)
You can vote at the special meeting if you owned shares of FSF common stock
as of the close of business on August 6, 2004. On that date, there were
__________ shares of FSF common stock outstanding. You will have one vote at the
special meeting for each share of FSF common stock that you owned of record on
that date.
The affirmative vote of a majority of the shares of FSF common stock
outstanding and entitled to vote at the special meeting, or __________ shares,
at which a quorum is present is necessary to approve and adopt the merger
agreement.
Directors and executive officers of FSF have individually agreed with
MidCountry to vote their shares of FSF common stock in favor of the merger and
the merger agreement. These individuals own in the aggregate approximately
_____% of the outstanding shares of FSF common stock (exclusive of unexercised
stock options and shares held in a fiduciary capacity under various employee
benefit plans).
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT BY FSF SHAREHOLDERS (PAGE __)
Based on the reasons described elsewhere in this proxy statement, FSF's
board of directors believes that the merger agreement is fair to and in your
best interests. Accordingly, your board of directors unanimously recommends that
you vote "FOR" approval and adoption of the merger agreement.
FSF AND MIDCOUNTRY MUST MEET SEVERAL CONDITIONS TO COMPLETE THE MERGER (PAGE __)
Completion of the merger depends on the satisfaction or waiver of a number
of conditions, including the following:
o The representations and warranties of each of MidCountry and FSF in
the merger agreement that are qualified as to materiality or knowledge
must be true and correct and any such representations and warranties
that are not so qualified must be true and correct in all material
respects, in each case as of the date of the merger agreement and as
of the closing date of the merger;
o Shareholders of FSF must approve the merger agreement in accordance
with applicable law and all other corporate proceedings required to
have been taken shall have been done;
o MidCountry and FSF must receive all required regulatory approvals to
complete the transactions contemplated by the merger agreement and any
required waiting periods shall have passed;
o Neither party shall be subject to any order, decree or injunction
which enjoins or prohibits the completion of the transactions
contemplated by the merger agreement;
o MidCountry and FSF must have performed in all material respects their
respective obligations required to be performed under the merger
agreement at or prior to the closing of the merger;
o Certain payments have been made to grantor trusts in connection with
the termination of various benefit plans;
5
o Certain executive officers of FSF have entered into new employment and
consulting agreements with MidCountry;
o The receipt by FSF of a certificate from the escrow agent to the
effect that an amount equal to the aggregate merger consideration has
been deposited with it; and
o the receipt of various closing certificates and legal opinions.
Unless prohibited by law, either MidCountry or FSF could elect to waive any
of the conditions for its benefit that have not been satisfied and complete the
merger anyway. The parties cannot be certain whether or when any of the
conditions to the merger will be satisfied or waived where permissible, or that
the merger will be completed.
THE PARTIES NEED TO OBTAIN REGULATORY APPROVAL IN ORDER TO COMPLETE THE MERGER
AND THE BANK MERGER (PAGE __)
To complete the merger and the bank merger, the parties and their
affiliates need to obtain the consent of the Office of Thrift Supervision. The
U.S. Department of Justice may provide input into the approval process of the
Office of Thrift Supervision and will have between 15 and 30 days following any
approval by the Office of Thrift Supervision of the application to challenge the
approval on antitrust grounds. MidCountry and FSF have filed all necessary
applications with the Office of Thrift Supervision in connection with the merger
and the bank merger. MidCountry and FSF cannot predict, however, whether or when
all required regulatory approvals or consents will be obtained, what conditions
they might include, or whether they will be received on a timely basis.
THE MERGER AGREEMENT MAY BE TERMINATED BY THE PARTIES (PAGE __)
The merger agreement may be terminated at any time (even after approval of
the merger by the FSF shareholders) as follows:
o By mutual written consent of the parties;
o By MidCountry or FSF if the other party materially breaches any of its
representations, warranties, covenants or agreements under the merger
agreement or in the event of an inaccuracy of a representation or
warranty of the other party which inaccuracy would provide the
terminating party with the ability to refuse to consummate the merger
under the standards set forth in the merger agreement, provided that
the terminating party is not then in breach of the merger agreement;
o By MidCountry or FSF if any of the conditions precedent to the
obligations of the other party to complete the merger cannot be
satisfied or fulfilled prior to the closing date and the party giving
the notice is not in material breach of any of its representations,
warranties, covenants or undertakings;
o By MidCountry or FSF if any of the applications for prior approval are
denied and the time period for appeals and requests for
reconsideration has expired;
o By MidCountry or FSF if the shareholders of FSF do not approve the
merger agreement at a duly held meeting;
6
o By MidCountry or FSF if the merger is not completed by March 31, 2005
and the party giving the notice is not in material breach of any of
its representations, warranties, covenants or undertakings;
o By MidCountry if FSF enters into an agreement to be acquired by, or
merge or combine with, a third party in connection with a superior
proposal.
o By FSF if it receives a superior proposal that it determines in good
faith and after consultation with counsel, its fiduciary duties
require that such superior proposal be accepted, after compliance with
the provisions set forth in the merger agreement.
FSF AND MIDCOUNTRY MAY BE OBLIGATED TO PAY THE OTHER A TERMINATION FEE UNDER
CERTAIN CIRCUMSTANCES (PAGE __)
MidCountry must raise additional capital in order to complete the merger.
If the merger agreement is terminated due to MidCountry's failure to satisfy its
covenant to complete its capital raising by December 31, 2004, MidCountry would
be obligated to pay FSF a termination fee in the amount of $1,700,000.
FSF will be obligated to pay MidCountry a fee of $1,700,000 if:
o MidCountry terminates the merger agreement as a result of FSF having
entered into an agreement to be acquired by, or merge or combine with,
a third party in connection with a superior proposal; or
o FSF terminates the merger agreement if, as a result of a superior
proposal, the Board of Directors of FSF determines, in good faith and
in consultation with counsel, that its fiduciary duties require that
such Superior Proposal be accepted; or
o Either party terminates the merger agreement as a result of the
shareholders of FSF not having approved the merger agreement at a duly
held meeting of the shareholders of FSF, and before the date of the
FSF shareholders' meeting, a superior proposal shall have been
publicly announced, and if within 12 months of the date of such
termination of the merger agreement, FSF or any of its subsidiaries
executes any definitive agreement with respect to, or consummates, any
superior proposal.
Concurrent with the execution of the merger agreement, each party deposited
$1,700,000 with a third party escrow agent. Such funds would be used to make any
required payment of a termination fee in the circumstances described above.
CERTAIN DIRECTORS AND OFFICERS OF FSF HAVE INTERESTS IN THE MERGER WHICH DIFFER
FROM YOUR INTERESTS AS A FSF SHAREHOLDER (PAGE __)
Some of the directors and executive officers of FSF have agreements, stock
options, restricted stock awards and other benefit plans or arrangements that
provide them with interests in the merger that are different from, or in
addition to, your interests. These interests arise from the merger agreement and
because of rights under benefits and compensation plans or arrangements
maintained by FSF or First Federal and, in the case of the executive officers,
under employment agreements, and include the following:
7
o The value of all stock options held by directors and executive
officers of $3.6 million granted under FSF's equity compensation plans
to be received upon consummation of the merger;
o The allocation under the First Federal ESOP of any unallocated assets
attributable to the exchange of shares of FSF common stock will be
made to all plan participants, pro rata based upon allocated account
balances, including the accounts of executive officers, following
termination of the ESOP upon consummation of the merger;
o Lump sum payments to Donald A. Glas, George B. Loban and Richard H.
Burgart pursuant to the terms of their current employment agreements
in the approximate amounts of $1,540,000, $1,360,000 and $800,000,
respectively;
o MidCountry's agreement to provide indemnification arrangements for,
among others, directors and executive officers of FSF and to maintain
directors' and officers' indemnification insurance for such persons
for a period of three years following the merger;
o MidCountry's agreement to enter into employment and consulting
agreements with certain executive officers of FSF; and
o Payments to grantor trusts for the benefit of Donald A. Glas, George
B. Loban and Richard A. Burgart in the approximate amounts of
$________ with such trust assets to be paid out in accordance with the
terms of existing salary continuation agreements.
The board of directors of FSF was aware of these factors and considered
them in approving the merger and the merger agreement.
FSF SHAREHOLDERS MAY DISSENT FROM THE MERGER AND SEEK APPRAISAL OF THEIR SHARES
(PAGE __ AND APPENDIX C)
In accordance with Minnesota law, holders of FSF common stock may dissent
from the merger and seek appraisal of their shares of FSF common stock in
connection with the merger provided they comply with the detailed statutory
requirements described herein and set forth in their entirety in Appendix C.
Shareholders considering seeking appraisal should be aware that the fair
value of their shares could be more than, the same as or less than the merger
consideration they would receive pursuant to the merger agreement if they did
not seek appraisal of their shares.
THE SPECIAL MEETING
TIME, DATE AND PLACE
A special meeting of shareholders of FSF will be held at __:__ _.m., local
time, on __________, ______________, 2004 at the Victorian Inn, 1000 Highway 7
West, Hutchinson, Minnesota and at any adjournment thereof.
MATTER TO BE CONSIDERED
The purpose of the special meeting is to consider and approve and adopt the
merger agreement and to transact such other business as may properly come before
the special meeting or any adjournment or
8
postponement of the special meeting. At this time, the FSF board of directors is
unaware of any matters, other than set forth in the preceding sentence, that may
be presented for action at the special meeting.
In addition, stockholders may be asked to consider such other matters as
are properly brought before the special meeting, including a proposal to adjourn
the special meeting to permit further solicitation of proxies by the FSF board
of directors in the event that there are an insufficient number of votes to
approve and adopt the merger agreement at the time of the special meeting.
SHARES OUTSTANDING AND ENTITLED TO VOTE; RECORD DATE
The close of business on August 6, 2004 has been fixed by FSF as the record
date for the determination of holders of FSF common stock entitled to notice of
and to vote at the special meeting and any adjournment or postponement of the
special meeting. At the close of business on the record date, there were
__________ shares of FSF common stock outstanding and entitled to vote. Each
share of FSF common stock entitles the holder to one vote at the special meeting
on all matters properly presented at the special meeting.
HOW TO VOTE YOUR SHARES
Shareholders of record may vote by mail or by attending the special meeting
and voting in person. If you choose to vote by mail, simply mark the enclosed
proxy card, date and sign it, and return it in the postage paid envelope
provided. Shareholders of record may also vote their shares using a touchtone
telephone or the internet in accordance with the instructions on the proxy card.
If your shares are held in the name of a bank, broker or other holder of
record, you will receive instructions from the holder of record that you must
follow in order for your shares to be voted. Your failure to instruct your
broker to vote on the proposal to approve and adopt the merger agreement will be
the equivalent of voting against the proposal. Also, please note that if the
holder of record of your shares is a broker, bank or other nominee and you wish
to vote in person at the special meeting, you must bring a letter from the
broker, bank or other nominee confirming that you are the beneficial owner of
the shares.
Any shareholder executing a proxy may revoke it at any time before it is
voted by:
o Delivering to the Secretary of FSF prior to the special meeting a
written notice of revocation addressed to Richard H. Burgart,
Secretary, FSF Financial Corp., 201 Main Street South, Hutchinson,
Minnesota 55350;
o Delivering to FSF prior to the special meeting a properly executed
proxy with a later date; or
o Attending the special meeting and voting in person.
Attendance at the special meeting will not, in and of itself, constitute
revocation of a proxy.
Each proxy returned to FSF (and not revoked) by a holder of FSF common
stock will be voted in accordance with the instructions indicated thereon. If no
instructions are indicated, the proxy will be voted "FOR" approval and adoption
of the merger agreement.
At this time, the FSF board of directors is unaware of any matters, other
than set forth above, that may be presented for action at the special meeting or
any adjournment or postponement of the special
9
meeting. If other matters are properly presented, however, the persons named as
proxies will vote in accordance with their judgment with respect to such
matters. The persons named as proxies by a shareholder may propose and vote for
one or more adjournments or postponements of the special meeting to permit
additional solicitation of proxies in favor of approval and adoption of the
merger agreement, but no proxy voted against the merger agreement will be voted
in favor of any such adjournment or postponement.
QUORUM; VOTE REQUIRED
A quorum, consisting of the holders of a majority of the issued and
outstanding shares of FSF common stock, must be present in person or by proxy
before any action may be taken at the special meeting. Abstentions will be
treated as shares that are present for purposes of determining the presence of a
quorum.
The affirmative vote of a majority of the issued and outstanding shares of
FSF common stock entitled to vote at the special meeting, in person or by proxy,
is necessary to approve and adopt the merger agreement on behalf of FSF.
FSF intends to count shares of FSF common stock present in person at the
special meeting but not voting, and shares of FSF common stock for which it has
received proxies but with respect to which holders of such shares have abstained
on any matter, as present at the special meeting for purposes of determining
whether a quorum exists. However, because approval and adoption of the merger
agreement requires the affirmative vote of a majority of the issued and
outstanding shares of FSF common stock entitled to vote at the special meeting,
such nonvoting shares and abstentions have the same effect as a vote against the
merger agreement. In addition, under applicable rules, brokers who hold shares
of FSF common stock in street name for customers who are the beneficial owners
of such shares are prohibited from giving a proxy to vote shares held for such
customers in favor of the approval of the merger agreement without specific
instructions to that effect from such customers. Accordingly, the failure of
such customers to provide instructions with respect to their shares of FSF
common stock to their broker will have the effect of the shares not being voted
and have the same effect as a vote against the merger agreement. Such "broker
non-votes," if any, will be counted as present for determining the presence or
absence of a quorum for the transaction of business at the special meeting or
any adjournment or postponement thereof.
The directors and executive officers of FSF and their respective affiliates
collectively owned approximately _____% of the outstanding shares of FSF common
stock as of the record date for the special meeting (inclusive of stock options
exercisable within 60 days). The directors and executive officers of FSF have
entered into support agreements with MidCountry pursuant to which they have
agreed to vote all of their shares (excluding shares held in a fiduciary
capacity where the beneficiary is not related by blood or marriage) in favor of
the merger agreement. These individuals own in the aggregate approximately
_____% of the outstanding shares of FSF common stock (exclusive of unexercised
stock options). See "Certain Beneficial Owners of FSF Common Stock," on page __
and "The Merger -- Support Agreements" on page __.
SOLICITATION OF PROXIES
FSF will pay for the costs of mailing this proxy statement to its
shareholders, as well as all other costs incurred by it in connection with the
solicitation of proxies from its shareholders on behalf of its board of
directors. In addition to solicitation by mail, the directors, officers and
employees of FSF and its subsidiaries may solicit proxies from shareholders of
FSF in person or by telephone, telegram, facsimile or other electronic methods
without compensation other than reimbursement by FSF for their actual expenses.
10
Arrangements also will be made with brokerage firms and other custodians,
nominees and fiduciaries for the forwarding of solicitation material to the
beneficial owners of FSF common stock held of record by such persons, and FSF
will reimburse such firms, custodians, nominees and fiduciaries for their
reasonable out-of-pocket expenses in connection therewith.
THE MERGER
The following information describes the material aspects of the merger
agreement and the merger. This description does not purport to be complete and
is qualified in its entirety by reference to the appendices to this proxy
statement, including the merger agreement attached as Appendix A. You are urged
to carefully read the merger agreement and the other appendices in their
entirety.
THE PARTIES
Set forth below is a brief description of the parties to the merger
agreement.
o FSF was formed in 1994 in connection with the conversion of First
Federal from mutual to stock form. FSF is registered with the Office
of Thrift Supervision as a savings and loan holding company and
conducts no significant business apart from its ownership of the
capital stock of First Federal. First Federal is a federally-chartered
stock savings bank with 13 offices located in the Minnesota counties
of Carver, Dakota, McLeod, Meeker, Sibley, Stearns, and Wright. First
Federal operates a traditional savings bank business and at June 30,
2004, FSF has total assets of $510.8 million and stockholders' equity
of $51.6 million. The executive offices of FSF are located at 201 Main
Street South, Hutchinson, Minnesota 55350 and its telephone number at
that location is (320) 234-4500.
o MidCountry is a savings and loan holding company incorporated under
the laws of the State of Georgia and is engaged in the banking
business through its wholly-owned subsidiary, Bayside Bank. At June
30, 2004, MidCountry had total assets of $_____ million and total
stockholders' equity of $_____ million. The executive offices of
MidCountry are located at 201 Second Street, Suite 950, Macon, Georgia
31201, Macon, Georgia and its telephone number at that location is
(478) 746-8222.
o MidCountry Interim Corp. II is a Minnesota corporation and a
wholly-owned subsidiary of MidCountry formed for the purpose of
effecting the merger. It has not conducted any operations to date. The
executive offices of MidCountry Interim Corp. II are located at 201
Second Street, Suite 950, Macon, Georgia 31201 and its telephone
number at that location is (478) 746-8222.
ACQUISITION STRUCTURE
Subject to the terms and conditions set forth in the merger agreement,
MidCountry Interim Corp. II, a newly-formed subsidiary of MidCountry, will be
merged with and into FSF. Immediately following consummation of the merger,
Bayside Bank will be merged with and into First Federal fsb. First Federal fsb
will be the surviving bank but will be renamed "MidCountry Bank."
MERGER CONSIDERATION
At the effective time of the merger, each share of FSF common stock issued
and outstanding immediately prior to the effective time (other than shares held
by persons who have perfected dissenters'
11
rights of appraisal and certain shares held by FSF or MidCountry) will be
cancelled and converted automatically into the right to receive from MidCountry
an amount equal $35.00 in cash, without interest.
After the completion of the merger, holders of certificates that prior to
the merger represented issued and outstanding shares of FSF common stock will
have no rights with respect to those shares except for the right to surrender
the certificates for the merger consideration. After the completion of the
merger, holders of shares of FSF common stock will have no continuing equity
interest in FSF or MidCountry and, therefore, will not share in future earnings,
dividends or growth of FSF or MidCountry.
EFFECTIVE TIME OF THE MERGER
The closing of the merger shall take place at the offices of FSF in
Hutchinson, Minnesota, at 10:00 a.m., local time, on a date designated by
MidCountry that is within five business days following the satisfaction of the
conditions to closing or at such later date, time or place as the parties may
agree. The merger will become effective on the day and at the time specified in
the Articles of Merger, executed in accordance with the relevant provisions of
the Minnesota Business Corporation Act, and filed with the Secretary of State of
Minnesota. It is anticipated that the merger will be completed during the
__________ quarter of 200_.
BACKGROUND OF THE MERGER
In August 2001, as part of its continuing planning process, the FSF board
conducted a strategic planning session at which a variety of topics were
discussed including executive management succession planning, general operating
strategy and potential other lines of business and other strategic alternatives
to enhance shareholder value including a possible strategic alliance. Management
was directed to continue to investigate all of these alternatives and
subsequently met with the board on several occasions to discuss the various
strategic alternatives available to FSF.
As part of its review, management reviewed the material contracts to which
FSF was party including, most significantly, its data processing contract which
would be up for renewal in February 2005. Management and the board also noted
that to adequately provide for management succession and to provide the depth
needed if FSF was to expand into other lines of business, several management
positions would need to be added. Based on these factors and the board's view
that the company's further growth opportunities would be somewhat limited, in
May 2002, the board determined to engage a financial advisor to assist it in
exploring possible strategic alliances.
During the next ten months, the financial advisor held discussions with
various potential strategic partners but did not receive any indications of
interest in an alliance with FSF.
In April 2003, the FSF board terminated its relationship with that
financial advisor and on May 13, 2003, engaged Keefe, Bruyette and Woods to
assist it in exploring its strategic alternatives. During May and June 2003, KBW
prepared a confidential memorandum regarding FSF and compiled a list of
potential parties who would be contacted to determine if they had any interest
in a possible alliance with FSF.
KBW contacted a total of 42 institutions of which 23 companies executed
a confidentiality agreement and received a copy of the confidential memorandum.
In July 2003, one party submitted an indication of interest for a mixture of
stock and cash as consideration. After reviewing the various terms of the
proposal, the board ultimately determined that it was inadequate and no further
discussions were held. In December 2003 and January 2004, KBW held discussions
with a large financial services company that ultimately opted not to submit any
indication of interest.
12
MidCountry was contacted by KBW in January 2004 and, upon execution of a
confidentiality agreement, received a copy of the confidential memorandum.
Executive management of the two companies met in February 2004 to discuss a
potential strategic alliance. MidCountry submitted an indication of interest on
March 16, 2004 which called for a mixture of stock and cash. After reviewing
this proposal, the FSF board directed KBW to go back to MidCountry to request an
all-cash proposal. On March 31, 2004, MidCountry submitted a revised indication
of interest in pursuing an all-cash transaction at $35.00. This was nonbinding
and subject to due diligence and other matters.
The FSF board met on April 5, 2004 to review this revised indication of
interest and at that meeting approved permitting MidCountry to conduct due
diligence. MidCountry conducted due diligence on FSF on April 13-15, 2004 and
representatives of FSF, together with legal counsel, traveled to Macon, Georgia
on April 18, 2004 to perform due diligence on MidCountry.
The terms of the definitive agreement were negotiated from late April, 2004
through May 14, 2004 at which time the FSF board met to review the final version
of the merger agreement. Legal counsel and representatives of KBW were present
at this meeting as well. Counsel discussed with the board the final terms of the
merger agreement and KBW presented to the board its opinion that the merger
consideration was fair from a financial point of view. The merger agreement was
approved by the FSF board on May 14, 2004 and the merger agreement was executed
that day by the parties.
RECOMMENDATION OF THE FSF BOARD OF DIRECTORS AND REASONS FOR THE MERGER
The FSF board has unanimously approved the merger agreement and unanimously
recommends that FSF shareholders vote "FOR" approval and adoption of the merger
agreement.
The FSF board has determined that the merger is fair to, and in the best
interests of, FSF and its shareholders. In approving the merger agreement, the
FSF board consulted with KBW with respect to the financial aspects and fairness
of the merger from a financial point of view and with its legal counsel as to
its legal duties and the terms of the merger agreement. In arriving at its
determination, the FSF board also considered a number of factors, including the
following:
o The board's familiarity with and review of information concerning the
business, results of operations, financial condition, competitive
position and future prospects of FSF;
o The current and prospective environment in which FSF operates,
including national, regional and local economic conditions, the
competitive environment for banks and other financial institutions
generally and the increased regulatory burdens on financial
institutions generally and the trend toward consolidation in the
banking industry and in the financial services industry;
o The financial presentation of KBW and the opinion of KBW that, as of
the date of such opinion, the merger consideration of $35.00 in cash
per share was fair, from a financial point of view, to the holders of
FSF common stock (see " -- Opinion of Keefe, Bruyette & Woods, Inc.,"
on page __);
o The historical market prices of the FSF common stock and the fact that
the per share merger consideration represented a 16% premium over the
average per share closing prices of the FSF common stock during the
19-week period immediately preceding the merger announcement (see
"Market for Common Stock and Dividends" on page __);
13
o Results that could be expected to be obtained by FSF if it continued
to operate independently, and the likely benefits to shareholders of
such course, as compared with the value of the merger consideration
being offered by MidCountry;
o The fact that the consideration to be received in the merger is cash,
thus eliminating any uncertainty in valuing the merger consideration
to be received by FSF shareholders, and that this consideration would
result in a fully-taxable transaction to FSF shareholders;
o KBW's assessment that it currently was unlikely that another acquiror
had both the willingness and the financial capability to offer to
acquire FSF at a price which was higher than that being offered by
MidCountry;
o The terms and conditions of the merger agreement, including the
parties' respective representations, warranties, covenants and other
agreements, the conditions to closing, a provision which permits FSF's
board of directors, in the exercise of its fiduciary duties, under
certain conditions, to furnish information to, or engage in
negotiations with, a third party which has submitted an unsolicited
proposal to acquire FSF and a provision providing for FSF's payment of
a termination fee to MidCountry if the merger agreement is terminated
under certain conditions;
o The effects of the merger on FSF's depositors and customers and the
communities served by FSF which was deemed to be favorable given that
they would be served by a geographically diversified organization
which had greater resources than FSF; and
o The effects of the merger on FSF's employees, including the prospects
for employment with a large, growing organization such as MidCountry
and the severance and other benefits agreed to be provided by
MidCountry to employees whose employment was terminated in connection
with the merger.
The discussion and factors considered by the FSF board is not intended to
be exhaustive, but includes all material factors considered. In approving the
merger agreement, the FSF board did not assign any specific or relative weights
to any of the foregoing factors and individual directors may have weighted
factors differently.
OPINION OF KEEFE, BRUYETTE & WOODS, INC.
On May 13, 2003, KBW was retained by FSF to evaluate FSF's strategic
alternatives as part of a shareholder enhancement program and to evaluate any
specific proposals that might be received regarding an acquisition of FSF. KBW,
as part of its investment banking business, is regularly engaged in the
evaluation of businesses and securities in connection with mergers and
acquisitions, negotiated underwritings, and distributions of listed and unlisted
securities. KBW is familiar with the market for common stocks of publicly traded
banks, thrifts and bank and thrift holding companies. The FSF Board selected KBW
on the basis of the firm's reputation and its experience and expertise in
transactions similar to the merger.
Pursuant to its engagement, KBW was asked to render an opinion as to the
fairness, from a financial point of view, of the merger consideration to
shareholders of FSF. KBW delivered its opinion to the FSF Board that, as of May
14, 2004, the merger consideration was fair, from a financial point of view, to
the shareholders of FSF. No limitations were imposed by the FSF Board upon KBW
with respect to the investigations made or procedures followed by it in
rendering its opinion. KBW has consented to the inclusion herein of the summary
of its opinion to the FSF Board and to the reference to the entire opinion
14
attached hereto as Appendix B.
THE FULL TEXT OF THE OPINION OF KBW, WHICH IS ATTACHED AS APPENDIX B TO
THIS PROXY STATEMENT, SETS FORTH CERTAIN ASSUMPTIONS MADE, MATTERS CONSIDERED
AND LIMITATIONS ON THE REVIEW UNDERTAKEN BY KBW, AND SHOULD BE READ IN ITS
ENTIRETY. THE SUMMARY OF THE OPINION OF KBW SET FORTH IN THIS PROXY STATEMENT IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE OPINION.
In rendering its opinion, KBW (i) reviewed the merger agreement, (ii)
reviewed FSF's annual reports, proxy statements and Forms 10-K for the prior
three fiscal years of September 30, 2003, 2002 and 2001 and Forms 10-Q for the
quarters ended December 31, 2003 and March 31, 2004 and certain other internal
financial analysis considered relevant, (iii) discussed with senior management
of FSF the current position and prospective outlook for FSF, (iv) discussed with
senior management of MidCountry their operations, financial performance and
future plans and prospects, (v) considered historical quotations, levels of
activity and prices of recorded transactions in FSF's common stock, (vi)
reviewed financial and stock market data of other thrifts in a comparable asset
range to FSF, (vii) reviewed MidCountry's audited financial statements for the
fiscal year ended September 30, 2003 and unaudited financial statements as of
December 31, 2003, (viii) reviewed certain recent business combinations with
thrifts as the acquired company, which KBW deemed comparable in whole or in
part, (ix) performed other analyses which KBW considered appropriate.
SUMMARY OF MARKETING EFFORTS. In rendering its opinion, KBW considered the
results of the strategic marketing efforts of FSF by KBW and the process
previously undertaken by FSF to find a strategic partner. During the marketing
of the institution, the following steps were taken by KBW to find a strategic
partner for FSF:
o 42 financial institutions were contacted regarding a potential
strategic partnership with FSF;
o 23 financial institutions executed confidentiality agreements and
received a confidential investor memorandum; and
o 2 financial institutions submitted a non-binding indication of
interest for FSF.
The following are the reasons why the potential strategic partners
identified by KBW did not affect a strategic partnership with FSF:
o 9 institutions declined the strategic opportunity without citing
specific reasons;
o 6 institutions declined the strategic opportunity because of the FSF
market area;
o 3 institutions declined the opportunity because they were in the
process of pursuing other strategic opportunities;
o 3 institutions declined the strategic opportunity because FSF did not
meet its size criteria;
o 1 institution submitted a non-binding indication of interest that did
not ultimately translate into the execution of a definitive agreement
for reasons described in the "Background of the Merger" section of the
Proxy Statement.
The marketing effort of FSF demonstrated that an extensive fiduciary
process in finding a potential strategic partner was undertaken and that the
marketing process had, in the opinion of KBW, served as an appropriate market
test to determine the change of control valuation for FSF. While no assurance
can be given that all potential strategic partners were identified and contacted
during the marketing process, the results of the extensive marketing effort
indicated that, as of the date of the opinion, the consideration received by FSF
in the merger was fair from a financial point of view.
ANALYSIS OF RECENT COMPARABLE ACQUISITION TRANSACTIONS. In rendering its
opinion, KBW analyzed pending acquisitions of thrift institutions, including
those transactions deemed comparable to the
15
merger. KBW compared the acquisition price relative to four industry-accepted
ratios: deal to book value, deal price to tangible book value, deal price to
last twelve months' earnings, and premium to core deposits. Therefore, the
analysis included a comparison of the median, high and low of the above ratios
for pending and completed acquisitions, based on the following comparable group:
(1) all institutions in the comparable group were thrift institutions; (2) all
transactions in the comparable group were either announced or completed in after
January 1, 2003; and (3) all selling institutions in the peer group had an asset
size between $200 and $900 million. As a result of these transaction criteria,
the following selling bank institutions were used in analyzing comparable
transactions:
ACQUIRING INSTITUTION: SELLING INSTITUTION:
- --------------------- -------------------
First Community Corp. DutchFork Bancshares, Inc.
WesBanco Inc. Western Ohio Financial Corp
Provident Bancorp Inc. Warwick Community Bancorp
SouthTrust Corp. FloridaFirst Bancorp, Inc.
MB Financial Inc. First SecurityFed Financial
First Commonwealth Financial GA Financial Inc.
FirstBank NW Corp. Oregon Trail Financial Corp.
Northwest Bancorp (MHC) First Bell Bancorp
Washington Federal, Inc. United S&L Bank
UnionBanCal Corp. Monterey Bay Bancorp, Inc.
IBERIABANK Corp. Acadiana Bancshares, Inc.
Boston Bank of Commerce Family Savings Bank, FSB
First Niagara Financial Group Finger Lakes Bancorp, Inc.
No company or transaction used as a comparison in this analysis is
identical to FSF, MidCountry, or the merger. Accordingly, an analysis of the
results of the foregoing is not mathematical; rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies and other factors that could affect the public
trading value of the companies to which they are being compared.
16
The information in the following table summarizes the material information
analyzed by KBW with respect to the merger. The summary does not purport to be a
complete description of the analysis performed by KBW in rendering its opinion.
Selecting portions of KBW's analysis or isolating certain aspects of the
comparable transactions without considering all analyses and factors could
create an incomplete or potentially misleading view of the evaluation process.
------------------ ------------------- ---------------- ---------------
Price to Price to last Core
Price to Tangible 12 months Deposit
Book Ratio (%) Book Ratio (%) earnings (x) Premium (%)
------------------ ------------------- ---------------- ---------------
- -----------------------------------------------------------------------------------------------------------------------------
Low Value 111.5 111.6 10.9x 4.0
Medium Value 157.0 158.9 19.2x 14.4
High Value 198.4 205.0 25.0x 30.3
- -----------------------------------------------------------------------------------------------------------------------------
------------------ ------------------- ---------------- ---------------
Price to Price to last Core
Price to Tangible 12 months Deposit
Book Ratio (%) Book Ratio (%) earnings (x) Premium (%)
------------------ ------------------- ---------------- ---------------
- -----------------------------------------------------------------------------------------------------------------------------
$35.00 MidCountry Offer 164.4 181.0 14.7 16.5
- -----------------------------------------------------------------------------------------------------------------------------
DISCOUNTED DIVIDEND ANALYSIS. KBW performed a discounted dividend
analysis to estimate a range of present values per share of FSF common stock.
This range was determined by adding (1) the present value, which is a
representation of the current value of a sum that is to be received some time in
the future, of the estimated future dividends that FSF could generate through
Year 5 of their current business plan (as provided to KBW) and (2) the present
value of the terminal value, which is a representation of the ongoing value of
an entity at a specified time in the future of FSF common stock.
In calculating estimated future dividends, KBW assumed a constant cash
dividend payout of approximately 54% of estimated future earnings, which is
consistent with FSF's current cash dividend payout ratio. In calculating a
terminal value of FSF common stock, KBW applied a range of price to earnings
multiples of 12.0x - 16.0x to year 5 forecasted earnings. The terminal valuation
of 12.0x - 16.0x forecasted year five earnings was initially based upon FSF's
average price to earnings ratio of 11.8x trailing earnings during the 1999 -
2004 period through May 12, 2004. KBW then extended the potential range upwards
to 16.0x forecasted year five earnings to evaluate a potential valuation
increase. In performing this analysis, KBW relied on FSF management guidance for
potential future earnings. The combined dividend stream and terminal value were
then discounted back to arrive at a present value. KBW used a discount range of
9.3% to 13.3% in terms of the cost of FSF's equity capital. This range was based
off an 11.3% discount rate as provided by Ibbotsons Associates, Inc. for a
composite of small capitalization financial institutions. Ibbotsons Associates,
Inc. is a recognized authority on cost of capital analysis and derives discount
rates for various industries based on industry type, size and liquidity. The
results of KBW's analysis are set forth in the following table:
17
12.0x 13.0x 14.0x 15.0x 16.0x
------------------ ------------------- ------------------- ------------------- -------------------
12.3% $26.22 $27.93 $29.64 $31.34 $33.05
11.8% $26.73 $28.48 $30.22 $31.97 $33.72
11.3% $27.25 $29.04 $30.83 $32.61 $34.40
10.8% $27.79 $29.62 $31.45 $33.27 $35.10
10.3% $28.34 $30.21 $32.08 $33.95 $35.82
Based on the above analyses, KBW concluded that the consideration was fair,
from a financial point of view, to shareholders. This summary does not purport
to be a complete description of the analysis performed by KBW and should not be
construed independent of the other information considered by KBW in rendering
its opinion. Selecting portions of KBW's analysis or isolating certain aspects
of the comparable transactions without considering all analysis and factors,
could create an incomplete or potentially misleading view of the evaluation
process.
In rendering its opinion, KBW assumed and relied upon the accuracy and
completeness of the financial information provided to it by FSF and MidCountry.
In its review, with the consent of the FSF Board, KBW did not undertake any
independent verification of the information provided to it, nor did it make any
independent appraisal or evaluation of the assets or liabilities and potential
or contingent liabilities of FSF or MidCountry.
The fairness opinion of KBW is limited to the fairness as of its date, from
a financial point of view, of the consideration to be paid in the merger and
does not address the underlying business decision to effect the merger (or
alternatives thereto) nor does it constitute a recommendation to any stockholder
of FSF as to how such stockholder should vote with respect to the merger.
Furthermore, KBW expresses no opinion as to the price or trading range at
which shares of the pro forma entity will trade following the consummation of
the merger.
KBW is a nationally recognized investment banking firm and is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, leveraged buyouts, negotiated underwritings, secondary
distributions of listed and unlisted securities and private placements.
In preparing its analysis, KBW made numerous assumptions with respect to
industry performance, business and economic conditions and other matters, many
of which are beyond the control of KBW and FSF. The analyses performed by KBW
are not necessarily indicative of actual values or future results, which may be
significantly more or less favorable than suggested by such analyses and do not
purport to be appraisals or reflect the prices at which a business may be sold.
KBW will receive a fee of $867,000 (1.0% of the announced deal value) for
services rendered in connection with advising and issuing a fairness opinion
regarding the merger. As of the date of the proxy statement, KBW has received
$50,000 of such fee, the remainder of the fee is due upon closing of the merger.
18
TREATMENT OF STOCK OPTIONS AND RESTRICTED STOCK
Immediately prior to the effective time of the merger, each outstanding and
unexercised option to purchase shares of FSF common stock issued under the FSF
stock option plans, whether or not then vested and exercisable, will be
terminated. Each holder will be entitled to receive in consideration for the
termination of such option a cash payment from FSF at the closing in an amount
equal to the difference between the merger consideration and the per share
exercise price of the option, multiplied by the number of shares covered by the
option, less any required tax withholdings.
Immediately prior to the effective time of the merger, each unvested
restricted share of FSF common stock granted under the FSF restricted stock plan
which is outstanding immediately prior to the effective time of the merger shall
become fully vested and, at the effective time, will be converted into the
merger consideration.
SURRENDER OF STOCK CERTIFICATES; PAYMENT FOR SHARES
MidCountry and FSF have agreed to appoint ______________, as exchange agent
for the benefit of the holders of shares of FSF common stock in connection with
the merger. At or prior to the effective time of the merger, MidCountry will
deliver to the exchange agent an amount of cash equal to the aggregate merger
consideration.
No later than five days after the effective time of the merger, MidCountry
shall cause the exchange agent to mail to each holder of record of shares of FSF
common stock a letter of transmittal disclosing the procedure for exchanging
certificates representing shares of FSF common stock for the merger
consideration. After the effective time, each holder of a certificate
representing shares of issued and outstanding FSF common stock (except for
shares held by holders who have perfected dissenters' rights of appraisal and
certain shares held by FSF or MidCountry) will, upon surrender to the exchange
agent of a certificate for exchange together with a properly completed letter of
transmittal, be entitled to receive the per share merger consideration in cash,
without interest, multiplied by the number of shares of FSF common stock
represented by the certificate and the certificate so surrendered will be
cancelled. No interest will be paid or accrued on the merger consideration upon
the surrender of any certificate for the benefit of the holder of the
certificate.
Any portion of cash delivered to the exchange agent by MidCountry that
remains unclaimed by the former shareholders of FSF for six months after the
effective time will be delivered to MidCountry. Any shareholders of FSF who have
not exchanged their certificates as of that date may look only to MidCountry for
payment of the merger consideration. However, neither MidCountry nor any other
entity or person shall be liable to any holder of shares of FSF common stock for
any consideration paid to a public official in accordance with applicable
abandoned property, escheat or similar laws.
YOU SHOULD NOT SUBMIT SHARE CERTIFICATES FOR FSF COMMON STOCK UNTIL YOU
HAVE RECEIVED WRITTEN INSTRUCTIONS TO DO SO.
FINANCING THE TRANSACTION
Based on 2,348,034 shares of FSF common stock currently outstanding,
the aggregate amount of consideration to be paid to FSF's shareholders will be
approximately $82.2 million. This amount would increase by an additional $8.8
million if all options to purchase 251,751 shares of FSF common stock which are
currently outstanding were exercised prior to the effective time of the merger.
MidCountry has represented and warranted in the merger agreement that it will
take all necessary actions to raise whatever kind and amount of additional
capital is required to consummate the merger. In accordance with the merger
agreement, MidCountry has agreed it will complete the financing on or before
December 31, 2004.
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BOARD OF DIRECTORS' COVENANT TO RECOMMEND THE MERGER AGREEMENT
The board of directors of FSF unanimously recommends that the FSF
shareholders vote FOR the approval and adoption of the merger agreement. The
board of directors believes that the terms of the merger are fair to, and in
these best interests of, the shareholders of FSF.
NO SOLICITATION
FSF and any of its subsidiaries or any of their respective directors,
officers, employees, agents or representatives shall not solicit or initiate any
proposals or offers from any person, or discuss or negotiate with any person or
entity, for any acquisition or purchase of all or a substantial portion of the
assets of, or a substantial equity interest in, FSF or any of its subsidiaries
or any business combination with FSF or any of its subsidiaries. FSF may enter
into discussions regarding any of these transactions if any person or entity
makes an unsolicited proposal and the FSF board of directors determines, after
consultation with its legal counsel, it must commence discussions as required by
the good faith exercise of its fiduciary duties to the FSF shareholders. FSF is
required to immediately notify MidCountry if any such proposal or inquiry is
received.
In the event FSF receives a superior proposal, FSF shall immediately notify
MidCountry of the terms of such proposal and shall give MidCountry three
calendar days in which to consider any proposed changes to the merger
consideration, prior to FSF taking any action with respect to such superior
proposal.
CONDITIONS TO THE MERGER
Completion of the merger depends on the satisfaction or waiver of a number
of conditions, including the following:
o The representations and warranties of each of MidCountry and FSF in
the merger agreement that are qualified as to materiality or knowledge
must be true and correct and any such representations and warranties
that are not so qualified must be true and correct in all material
respects, in each case as of the date of the merger agreement and as
of the closing date of the merger;
o Shareholders of FSF must approve the merger agreement in accordance
with applicable law and all other corporate proceedings required to
have been taken shall have been done;
o MidCountry and FSF must receive all required regulatory approvals to
complete the transactions contemplated by the merger agreement and any
required waiting periods shall have passed;
o Neither party shall be subject to any order, decree or injunction
which enjoins or prohibits the completion of the transactions
contemplated by the merger agreement;
o MidCountry and FSF must have performed in all material respects their
respective obligations required to be performed under the merger
agreement at or prior to the closing of the merger;
o Certain payments have been made to grantor trusts in connection with
the termination of various benefit plans;
20
o Certain executive officers of FSF have entered into new employment and
consulting agreements with MidCountry;
o The receipt by FSF of a certificate from the escrow agent to the
effect that an amount equal to aggregate merger consideration has been
deposited with it; and
o the receipt of various closing certificates and legal opinions.
Unless prohibited by law, either MidCountry or FSF could elect to waive any
of the conditions for its benefit that have not been satisfied and complete the
merger anyway. The parties cannot be certain whether or when any of the
conditions to the merger will be satisfied or waived where permissible, or that
the merger will be completed.
REPRESENTATIONS AND WARRANTIES OF FSF AND MIDCOUNTRY
FSF, MidCountry and MidCountry Interim Corp. II each have made
representations and warranties to the other with respect to (among other
things):
o capital structure;
o corporate organization, standing and authority;
o corporate authority and power to enter into the merger agreement and
to complete the transactions contemplated by the merger agreement;
o organization, standing and authority of their subsidiaries;
o undisclosed liabilities and material changes;
o regulatory approvals;
o absence of any conflicts between the terms of the merger agreement and
their respective governing documents, applicable law and their
respective material contracts;
o minute books;
o insurance of deposit accounts;
o accuracy of information regarding it included in this proxy statement;
o allowance for loan losses;
o pending or threatened legal proceedings; and
o regulatory reports and records.
FSF has also made additional representations and warranties to MidCountry
with respect to:
o ownership of subsidiaries;
o securities filings;
o title to properties;
o environmental matters;
o loans;
o tax matters;
o employees, compensation and benefits;
o certain contracts;
o brokers and finders;
o repurchase agreements and derivatives;
o related party transactions;
o state takeover laws; and
o labor relations.
21
In addition, MidCountry has represented and warranted in the merger
agreement that it will take all necessary actions to raise whatever kind and
amount of additional capital is required to consummate the merger.
CONDUCT PENDING THE MERGER
The merger agreement contains covenants of FSF and MidCountry pending the
completion of the merger, including covenants regarding the conduct of FSF's
business. These covenants are briefly described below.
FSF has agreed that it will, and will cause its subsidiaries to, conduct
its business in the ordinary course in substantially the same manner as
previously conducted. FSF has agreed to give MidCountry and its representatives
reasonable access to its facilities during normal business hours. FSF has
further agreed that, except as expressly contemplated or permitted by the merger
agreement, prior to the effective time of the merger, it will not, and will not
permit any of its subsidiaries to, do any of the following without the prior
written consent of MidCountry:
o Form or acquire any new subsidiary;
o Engage in any new activity or expand any existing activities;
o Issue any additional shares of its capital stock, except upon the
exercise of options;
o Declare or pay any additional dividend or distribution on any shares
of FSF capital stock other than the regularly scheduled quarterly
dividends of $0.35 per share;
o Issue, grant or authorize any additional options or rights or effect
any recapitalization, reclassification, stock dividend, stock split or
similar change in capitalization;
o Amend its governing documents;
o Impose or permit a lien or similar encumbrance or any shares of stock
held by it in any FSF subsidiary;
o Merge with or acquire control of any other entity or liquidate or sell
any of its assets other than in the ordinary course of business;
o Fail to comply in any material respect with any laws or regulations
applicable to it;
o Except as previously disclosed, pay or increase any bonuses, salaries
or other compensation to any directors, officers or employees except
in the ordinary course of business or in accordance with existing
compensation plans;
o Except as required by law, adopt, substantially modify, terminate or
increase benefits under any FSF employee benefit plan;
o Enter into any material contract not in the ordinary course of
business;
o Make any material change to its lending, investment or asset liability
management policies;
22
o Change its methods of accounting except as may be required by
generally accepted accounting principles;
o Make any capital investment exceeding $100,000 or aggregate capital
investments in excess of $500,000;
o Agree to borrow money other than deposits or advances from the Federal
Home Loan Bank of Des Moines or Federal Reserve Bank other than in the
ordinary course;
o Take any action which would or could reasonably be expected to cause
the merger not to constitute a reorganization under the Internal
Revenue Code or result in the inaccuracy of any representation;
o Dispose of any material assets other than in the ordinary course of
business; or
o Agree to do any of the foregoing.
The merger agreement also contains covenants relating to, among other
things:
o The preparation and distribution of the proxy statement to be sent to
shareholders of FSF in connection with the solicitation of their
approval and adoption of the merger agreement;
o The preparation and filing of all required regulatory applications and
notices;
o The provision by MidCountry of certain employee benefits;
o The delivery by the parties to each other of financial statements and
reports filed by them with regulatory authorities;
o MidCountry's access to information concerning FSF and the
confidentiality of the information;
o The termination of the FSF ESOP;
o The accrual of merger-related expenses prior to the closing date;
o Possible adjustment to FSF's financial or accounting records
immediately prior to the effective time of the merger to conform to
those of MidCountry including adjustments to its loan loss reserves;
o Publicity regarding the transaction;
o Continued director and officer liability coverage and indemnification;
and
o The formation of an advisory board.
MidCountry has also agreed in the merger agreement that it will take all
necessary actions to raise the additional capital necessary to consummate the
merger and that such financing will be completed on or before December 31, 2004.
23
EXTENSION, WAIVER AND AMENDMENT OF THE MERGER AGREEMENT
At any time prior to the effective time of the merger (and whether before
or after approval of the merger by FSF's shareholders), MidCountry and FSF may,
to the extent permitted by law:
o Extend the time for performance of any of the obligations of the other
party under the merger agreement;
o Waive any inaccuracies in the representations and warranties contained
in the merger agreement or in any document delivered pursuant to the
merger agreement;
o Waive compliance with, or modify or supplement any agreements or
conditions contained in the merger agreement; or
o Amend any provision of the merger agreement.
However, after the approval of the merger by the shareholders of FSF,
MidCountry and FSF may not, without further approval of the shareholders of FSF,
extend, waive or amend any provision of the merger agreement which reduces or
changes the form of the merger consideration.
TERMINATION OF THE MERGER AGREEMENT
The merger agreement may be terminated at any time (even after approval of
the merger by the FSF shareholders) as follows:
o By mutual written consent of the parties;
o By MidCountry or FSF if the other party materially breaches any of its
representations, warranties, covenants or agreements under the merger
agreement or in the event of an inaccuracy of a representation or
warranty of the other party which inaccuracy would provide the
terminating party with the ability to refuse to consummate the merger
under the standards set forth in the merger agreement, provided that
the terminating party is not then in breach of the merger agreement;
o By MidCountry or FSF if any of the conditions precedent to the
obligations of the other party to complete the merger cannot be
satisfied or fulfilled prior to the closing date and the party giving
the notice is not in material breach of any of its representations,
warranties, covenants or undertakings;
o By MidCountry or FSF if any of the applications for prior approval are
denied and the time period for appeals and requests for
reconsideration has expired;
o By MidCountry or FSF if the shareholders of FSF do not approve the
merger agreement at a duly held meeting;
o By MidCountry or FSF if the merger is not completed by March 31, 2005
and the party giving the notice is not in material breach of any of
its representations, warranties, covenants or undertakings;
24
o By MidCountry if FSF enters into an agreement to be acquired by, or
merge or combine with, a third party in connection with a superior
proposal; or
o By FSF if it receives a superior proposal that it determines in good
faith and after consultation with counsel, its fiduciary duties
require that such superior proposal be accepted, after compliance with
the provisions set forth in the merger agreement.
TERMINATION FEE AND EXPENSES
MidCountry must raise additional capital in order to complete a merger. If
the merger agreement is terminated due to MidCountry's failure to satisfy its
covenant to complete its capital raising by December 31, 2004, MidCountry would
be obligated to pay FSF a termination fee in the amount of $1,700,000.
FSF will be obligated to pay MidCountry a fee of $1,700,000 if:
o MidCountry terminates the merger agreement as a result of FSF having
entered into an agreement to be acquired by, or merge or combine with,
a third party in connection with a superior proposal; or
o FSF terminates the merger agreement if, as a result of a superior
proposal, the Board of Directors of FSF determines, in good faith and
in consultation with counsel, that its fiduciary duties require that
such superior proposal be accepted; or
o Either party terminates the merger agreement as a result of the
shareholders of FSF not having approved the merger agreement at a duly
held meeting of the shareholders of FSF, and before the date of the
FSF shareholders' meeting, a superior proposal shall have been
publicly announced, and if within 12 months of the date of such
termination of the merger agreement, FSF or any of its subsidiaries
executes any definitive agreement with respect to, or consummates, any
superior proposal.
Concurrent with the execution of the merger agreement, each party deposited
$1,700,000 with a third party escrow agent. Such funds would be used to make any
required payment of a termination fee in the circumstances described above.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
When you are considering the recommendation of FSF's board of directors
with respect to approving the merger agreement and the merger, you should be
aware that FSF directors and executive officers have interests in the merger as
individuals which are in addition to, or different from, their interests as
shareholders of FSF. The FSF board of directors was aware of these factors and
considered them, among other matters, in approving the merger agreement and the
merger. These interests are described below.
EMPLOYMENT AGREEMENTS. Under the merger agreement, MidCountry agreed to
honor various contractual obligations which have been entered into by FSF and or
its subsidiaries and some of their executive officers, including three
employment agreements between Messrs. Glas, Loban and Burgart. Pursuant to the
terms of their respective employment agreements, each of these officers will be
entitled to receive a change in control severance payment resulting from their
termination of employment with First Federal following the merger. Such payments
are estimated to be $1,540,000, $1,360,000 and $800,000, respectively, assuming
the merger is completed in 2004. Such payment will be reduced if necessary to
25
comply with limitations under Section 280G of the Code. In connection with the
receipt of their payments, each officer will enter into a termination and
release agreement with FSF.
EMPLOYMENT AND CONSULTING AGREEMENTS. Upon consummation of the merger,
Messrs. Glas, Loban and Burgart will enter into employment and consulting
agreements with MidCountry.
DONALD A. GLAS. Mr. Glas's new employment and consulting agreement has a
term of 36 months. Mr. Glas will remain as Senior Executive Officer of First
Federal for 90 days from the closing date of the merger at a prorated salary of
$277,200 per annum. The 90 day transition period may be extended for an
additional 90 day period upon not less than 30 days notice before the end of the
transition period. At the end of the 90 day transition period and ending three
years from the closing date of the merger, Mr. Glas will serve as a consultant
to MidCountry Bank at a fee of $40,000 per year.
During the term of the new employment and consulting agreement, Mr. Glas
and his spouse may participate in the group medical insurance plan of MidCountry
Bank. The new employment and consulting agreement has a non-competition and
non-solicitation provision for the term of the agreement. Mr. Glas will receive
$442,000 payable on the closing date of the merger.
If MidCountry Bank terminates Mr. Glas without cause (as defined in the
employment and consulting agreement) or if Mr. Glas terminates his employment
for Good Reason (as defined in the employment and consulting agreement) or upon
the death or disability of Mr. Glas with not less than 120 days prior notice,
Mr. Glas shall be entitled to his base salary and any employee benefits through
the date of termination, accrued and unused vacation pay, the non-competition
and non-solicitation payment of $442,000, and the remaining payment of the
prorated base salary of $277,200.
GEORGE B. LOBAN. Mr. Loban's new employment and consulting agreement with
MidCountry is substantially the same as Mr. Glas's agreement with MidCountry
with the exception that Mr. Loban's non- competition and non-solicitation
payment will be $50,000.
RICHARD H. BURGART. Mr. Burgart's new employment and consulting agreement
with MidCountry is substantially the same as Mr. Glas's agreement with
MidCountry with the following exceptions:
o Mr. Burgart's base salary will be $194,256.
o Mr. Burgart's non-competition and non-solicitation payment will be
$282,000.
SALARY CONTINUATION AGREEMENTS. First Federal maintains an insured
executive salary continuation plan which will be terminated effective as of the
merger. Pursuant to the terms of the merger agreement, by the closing of the
merger, First Federal must establish one or more grantor trusts and deposit
assets into such trusts in an amount equal to the amount earned and
nonforfeitable by each of Messrs. Glas, Loban and Burgart as of the closing of
the merger.
The benefits payable to each such participant by First Federal upon
termination of the plan as of the closing date are estimated as follows:
NAME PAYMENT
George B. Loban $330,000
Donald A. Glas $330,000
Richard H. Burgart $180,000
26
STOCK OPTION PLAN AND RESTRICTED STOCK PLAN. The merger agreement provides
that immediately prior to the effective time of the merger, each outstanding and
unexercised option to acquire shares of FSF common stock will be terminated and
the holder thereof will be entitled to receive a cash payment therefor from FSF
at closing in an amount equal to the difference between the per share merger
consideration and the per share exercise price of the option multiplied by the
number of shares covered by the option, less any applicable tax withholdings.
Immediately prior to the effective time of the merger, each unvested share of
restricted stock will vest and at the effective time, will be converted into the
merger consideration. See " -- Treatment of Stock Options and Restricted Stock"
on page __.
The following table sets forth the number of options, including unvested
options which were held by the directors and executive officers of FSF as of the
date of this proxy statement as well as the payments that will be received in
cancellation of such options (assuming such options are not exercised prior to
the effective date of the merger) before deducting any applicable withholding
taxes.
PAYMENT AT
COMPLETION OF
MERGER ON
NUMBER OF CANCELLATION
NAME STOCK OPTIONS OF OPTIONS
- ---- ------------- -------------
Richard H. Burgart 35,493 $ 582,162
Roger R. Stearns 5,750 $ 104,481
James J. Caturia 7,775 $ 156,118
Jerome R. Dempsey 5,750 $ 104,481
Donald A. Glas 62,286 $1,085,469
Sever B. Knutson 5,750 $ 104,481
George B. Loban 76,747 $1,454,224
TOTAL 199,551 $3,591,418
EMPLOYEE STOCK OWNERSHIP PLAN. Pursuant to the terms of the First Federal
Employee Stock Ownership Plan, or ESOP, in the event of a "change in control,"
which is defined in the ESOP in a manner which would include the merger, the
ESOP will be terminated and any unvested benefits thereunder shall vest
immediately. As soon as practicable after the effective time of the merger, the
account balances in the ESOP shall be distributed to participants and
beneficiaries in accordance with applicable law and the ESOP. In connection with
the termination of the ESOP, prior to any final distribution to participants,
any unallocated amounts in the ESOP will be allocated to the accounts of
participating FSF employees in accordance with applicable law and the ESOP. As
of January 1, 2004, the ESOP held 7,643 unallocated shares of FSF common stock
in the suspense account and the loan from FSF to the ESOP was completely repaid.
INDEMNIFICATION AND INSURANCE. The merger agreement provides that after the
effective time, MidCountry shall indemnify and hold harmless each present and
former director, officer and employee of FSF and subsidiaries for all actions or
omissions taken by them prior to the effective time of the merger to the same
extent as the indemnification provided by the articles of incorporation and
bylaws of FSF as of the date of execution of the merger agreement.
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In addition, the merger agreement provides that MidCountry will purchase
directors' and officers' liability insurance coverage to provide FSF's directors
and officers with coverage for three years following the effective time of the
merger, substantially the same as the existing coverage under the directors' and
officers' liability insurance coverage currently maintained by FSF.
ADVISORY BOARD. As of the effective time of the merger, MidCountry shall
appoint Donald A. Glas, George B. Loban and Richard H. Burgart to an Advisory
Board of MidCountry Bank for a term of at least three years.
Other than as set forth above, no director or executive officer of FSF has
any direct or indirect material interest in the merger, except insofar as
ownership of FSF common stock might be deemed such an interest.
EMPLOYEE BENEFITS MATTERS
The merger agreement contains agreements of the parties with respect to
various employee matters, which are briefly described below.
PARTICIPATION IN MIDCOUNTRY'S EMPLOYEE BENEFIT PLANS. As soon as
practicable after the merger, MidCountry will determine whether to terminate or
maintain separately the existing employee benefit plans of FSF (other than the
ESOP which will be terminated). First Federal employees who continue as
employees of MidCountry Bank will be entitled to participate in all MidCountry
employee benefit plans as of the first entry date on or after the effective
time.
MidCountry will cause the applicable benefits plans of MidCountry or its
affiliates:
o Not to treat any employee of FSF or its subsidiaries as a "new"
employee for purposes of exclusion from any benefit plan for a
pre-existing medical condition;
o To treat service rendered to FSF or any of its subsidiaries as service
rendered to MidCountry for purposes of eligibility to participate,
vesting and for other appropriate benefits, including applicability of
minimum waiting periods for participation, but not for benefit
accrual; and
o Give credit for accrued but unused sick time as of the effective time
up to a maximum of 90 days.
OUTSTANDING FSF AGREEMENTS. Following the merger, MidCountry and its
affiliates will honor, in accordance with their terms, all written employment,
benefits, options and other compensation agreements disclosed by FSF to
MidCountry.
MERGER REGULATORY APPROVALS AND NOTICES
Completion of the merger is subject to the prior receipt of the approval
the Office of Thrift Supervision. Pursuant to the merger agreement, FSF will
merge with and into MidCountry Interim Corp. II. In addition, the parties
currently intend to merge Bayside Bank with and into First Federal. The
foregoing mergers are subject to the prior approval of the Office of Thrift
Supervision under the Home Owners' Loan Act and the Bank Merger Act. MidCountry
has filed all required applications with the Office of Thrift Supervision to
obtain prior approval for the mergers. In reviewing applications under the Home
Owners' Loan Act and the Bank Merger Act, the Office of Thrift Supervision
considers:
28
o the financial and managerial resources and future prospects of the
merging and resulting institutions;
o the effectiveness of both institutions in combating money laundering
activities; and
o the convenience and needs of the community served.
The Office of Thrift Supervision may not approve a transaction:
o that would result in a monopoly or would be in furtherance of any
combination, conspiracy or attempt to monopolize the business of
banking in any part of the United States; or
o if its effect in any section of the United States may be to
substantially lessen competition, or tend to create a monopoly, or
which in any other manner would be in restraint of trade, unless the
probable effects of the transaction in meeting the convenience and
needs of the community clearly outweigh the anti-competitive effects
of the transaction.
Under the Community Reinvestment Act of 1977, as amended, the Office of
Thrift Supervision must also take into account the record of performance of each
of the merging banks in meeting the credit needs of the entire community,
including low and moderate income neighborhoods served by each institution. The
regulations of the Office of Thrift Supervision also require the publication of
notice and the opportunity for public comments relating to the application for
approval. The Office of Thrift Supervision may hold formal or informal meetings,
if deemed appropriate, to consider these comments. Any such comments or meetings
could prolong the period during which the application is subject to review by
the Office of Thrift Supervision.
Any transaction approved by the Office of Thrift Supervision may not be
completed until 30 days after the date of the approval, during which time the
U.S. Department of Justice may challenge such transaction on antitrust grounds.
With the concurrence of the Office of Thrift Supervision and the U.S. Department
of Justice, the Office of Thrift Supervision may reduce the waiting period to no
less than 15 days after its approval.
STATUS OF APPROVALS AND NOTICES. MidCountry and FSF have filed all required
applications and notices with applicable regulatory authorities in connection
with the merger. MidCountry and FSF cannot predict, however, whether or when all
required regulatory approvals, consents or waivers will be obtained, what
conditions they might include, or whether they will be received on a timely
basis.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a general summary of the material United States
federal income tax consequences of the merger. This discussion is based upon the
Internal Revenue Code of 1986, as amended, final and temporary regulations
promulgated by the United States Treasury Department, judicial authorities and
current rulings and administrative practice of the Internal Revenue Service, as
currently in effect, all of which are subject to change at any time, possibly
with retroactive effect. This discussion assumes that FSF common stock is held
as a capital asset by each holder and does not address all aspects of federal
income taxation that might be relevant to particular holders of FSF common stock
in light of their status or personal investment circumstances, such as foreign
persons, dealers in securities, regulated investment companies, life insurance
companies, other financial institutions, tax-exempt organizations, pass-through
entities, taxpayers who hold FSF common stock as part of a "straddle," "hedge"
or "conversion transaction" or who
29
have a "functional currency" other than United States dollars or individual
persons who have received FSF common stock as compensation or otherwise in
connection with the performance of services. Further, this discussion does not
address state, local or foreign tax consequences of the merger.
For United States federal income tax purposes, the merger will be treated
as an acquisition by MidCountry of all the outstanding stock of FSF. Each holder
of shares of FSF common stock will be treated as exchanging such shares for
cash.
The receipt of cash in exchange for shares of FSF common stock will be a
taxable transaction for federal income tax purposes. Each holder's gain or loss
per share will be equal to the difference between the per share cash
consideration and the holder's adjusted tax basis per share in FSF common stock.
A holder's gain or loss from the exchange will be a capital gain or loss. This
gain or loss will be long-term if the holder has held FSF common stock for more
than 12 months prior to the merger. Under current law, net long-term capital
gains of individuals are subject to a maximum federal income tax rate of 15%,
whereas the maximum federal income tax rate on ordinary income and net
short-term capital gains (i.e., gain on capital assets held for not more than
twelve months) of an individual is currently 35% (not taking into account any
phase-out of tax benefits such as personal exemptions and certain itemized
deductions). For corporations, capital gains and ordinary income are taxed at
the same maximum rate of 35%. Capital losses are currently deductible only to
the extent of capital gains plus, in the case of taxpayers other than
corporations, $3,000 of ordinary income ($1,500 in the case of married
individuals filing separate returns). In the case of individuals and other
non-corporation taxpayers, capital losses that are not currently deductible may
be carried forward to other years, subject to certain limitations. In the case
of corporations, capital losses that are not currently deductible may generally
be carried back to each of the three years preceding the loss year and forward
to each of the five years succeeding the loss year, subject to certain
limitations.
A holder of FSF common stock may be subject to backup withholding at the
rate of 28% with respect to payments of cash consideration received pursuant to
the merger, unless the holder (a) provides a correct taxpayer identification
number, or TIN, in the manner required or (b) is a corporation or other exempt
recipient and, when required, demonstrates this fact. To prevent the possibility
of backup federal income tax withholding, each holder must provide the
disbursing agent with his, her or its correct TIN by completing a Form W-9 or
Substitute Form W-9. A holder of FSF common stock who does not provide the
disbursing agent with his, her or its correct TIN may be subject to penalties
imposed by the Internal Revenue Service, as well as backup withholding. Any
amount withheld will be creditable against the holder's federal income tax
liability. FSF (or its agent) will report to the holders of FSF common stock and
the Internal Revenue Service the amount of any "reportable payments," as defined
in Section 3406 of the Internal Revenue Code, and the amount of tax, if any,
withheld with respect thereto.
The foregoing discussion is for general information only and is not a
complete description of all of the potential tax consequences that may occur as
a result of the merger. Regardless of your particular situation, you should
consult your own tax advisor regarding the federal tax consequences of the
merger to you, as well as the tax consequences of the merger to you arising
under the laws of any state, local or other jurisdiction, domestic or foreign.
ACCOUNTING TREATMENT
The merger will be accounted for under the purchase method of accounting
under accounting principles generally accepted in the United States of America.
Under this method, FSF's assets and liabilities as of the date of the merger
will be recorded at their respective fair values and added to those of
MidCountry. Any difference between the purchase price for FSF and the fair value
of the identifiable net assets acquired (including core deposit intangibles)
will be recorded as goodwill. In accordance with Financial Accounting
30
Standards Board Statement No. 142, "Goodwill and Other Intangible Assets,"
issued in July 2001, the goodwill resulting from the merger will not be
amortized to expense, but will be subject to at least an annual assessment of
impairment by applying a fair value test. In addition, any core deposit
intangibles recorded by MidCountry in connection with the merger will be
amortized to expense in accordance with the new rules. The financial statements
of MidCountry issued after the merger will reflect the results attributable to
the acquired operations of FSF beginning on the date of completion of the
merger.
SUPPORT AGREEMENTS
In connection with the execution of the merger agreement, each director and
executive officer of FSF entered into a support agreement with MidCountry in the
form attached as Annex D to the merger agreement. Under these agreements, these
individuals agreed to vote all of their shares of FSF common stock (excluding
shares held in a fiduciary capacity except on behalf of relatives by blood or
marriage) in favor of the merger of FSF and against the approval of any other
agreement providing for the acquisition of FSF or all or substantially all of
its assets. Those individuals who serve as directors of FSF are not and could
not be contractually bound to abrogate their fiduciary duties as directors of
FSF. Accordingly, while each FSF director is contractually bound to vote as a
FSF stockholder in favor of the merger, his fiduciary duties as a director
nevertheless require him to act in his capacity as a director in the best
interest of FSF when considering the merger. Pursuant to these agreements, these
individuals also agreed not to transfer their shares of FSF common stock prior
to the special meeting of shareholders of FSF called to approve and adopt the
merger agreement, except for transfers in limited circumstances. These
agreements will remain in effect until the earlier of the effective time of the
merger or the termination of the merger agreement in accordance with its terms.
DISSENTERS' RIGHTS OF APPRAISAL
Under the Minnesota Statutes, any holder of FSF common stock who does not
wish to accept the merger consideration may dissent from the merger and elect to
have the fair value of such shareholder's shares of FSF common stock judicially
determined and paid to such shareholder in cash, together with a fair rate of
interest, if any, provided that such shareholder complies with the provisions of
Section 302A.473.
The following discussion is not a complete statement of the law pertaining
to appraisal rights under the Minnesota Statutes and is qualified in its
entirety by the full text of the applicable provisions of the Minnesota Statutes
which are provided as Appendix C to this proxy statement.
Any shareholder who wishes to exercise such appraisal rights or who wishes
to preserve the right to do so should review carefully the following discussion
and Appendix C to this proxy statement. Failure to comply with these procedures
timely and properly will result in the loss of appraisal rights. Moreover,
because of the complexity of the procedures for exercising the right to seek
appraisal of the FSF common stock, FSF recommends that shareholders who consider
exercising such rights should seek the advice of counsel.
Any holder of common stock wishing to exercise the right to dissent from
the merger and demand appraisal must satisfy each of the following conditions:
o File with FSF a written notice of intent to demand the fair value of
his shares prior to the taking of the vote on the merger at the
special meeting;
31
o If the shareholder's shares are owned of record by another party, the
beneficial owner may assent dissenters' rights provided it also
submits to FSF the written consent of this record holder at the time
of or prior to giving notice of intent to dissent;
o Not vote the holder's shares of FSF common stock in favor of the
merger agreement at the special meeting; a proxy which does not
contain voting instructions will, unless revoked, be voted in favor of
the merger agreement; therefore, a shareholder who votes by proxy and
who wishes to exercise appraisal rights must vote against the merger
agreement or abstain from voting on the merger agreement;
o Continuously hold such shares from the record date for this meeting
through the effective time of the merger; a shareholder who is the
holder of shares of common stock on the record date but who thereafter
transfers such shares prior to the effective time of the merger will
lose any right to appraisal in respect of such shares.
Neither voting (in person or by proxy) against, abstaining from voting on
or failing to vote on the proposal to approve the merger agreement will
constitute a written demand for payment within the meaning of Section 302A.473.
The written notice of intent to demand payment of the value of the shareholder's
shares must be in addition to and separate from any such proxy or vote.
Only shareholders as of the record date for this special meeting are
entitled to assert appraisal rights for the shares of common stock beneficially
owned by them. A record holder such as a broker who holds shares as nominee for
several beneficial owners may exercise appraisal rights with respect to the
shares held for one or more beneficial owners while not exercising such rights
with respect to the shares held for one or more other beneficial owners; in such
case, the written demand should set forth the number of shares as to which
appraisal is sought and the name and address of each beneficial owner on whose
behalf the shareholder dissents. A beneficial owner of shares who is not the
record shareholder may assert dissenters' rights with respect to such shares as
long as the beneficial owner submits to FSF at the time of or before he asserts
rights a written consent of the shareholder of record.
A shareholder who elects to exercise appraisal rights pursuant to Section
302A.471 should mail or deliver a written notice of intent to demand payment to:
Richard H. Burgart, Secretary, FSF Financial Corporation, 201 Main Street South,
Hutchinson, Minnesota 55350.
Assuming the agreement is approved by shareholders, after the special
meeting, FSF or the surviving corporation must send a notice to each shareholder
of FSF who has given notice of intent to seek appraisal of his or her shares and
who has not voted in favor of the merger agreement. This notice must contain:
o the address to which a demand for payment and certificates for such
shareholder's shares must be sent in order to receive payment;
o the deadline for receipt of the demand and certificates which will be
30 days after the notice is given;
o a form to be used to certify the date on which the shareholder or the
beneficial owner on whose behalf the shareholder dissents, acquired
the shares and to demand payment; and
o a copy of Sections 302A.471 and 302A.473 of the Minnesota Statutes and
a brief description of the procedures to be followed under these
sections.
32
In order to be entitled to receive the fair value of the shares, a dissenting
shareholder must demand payment and deposit certificated shares by the deadline
but the dissenter retains all other rights as a shareholder until the merger
takes effect if it has not already.
After the later of the effectiveness of the merger or the receipt by the
surviving corporation of the demand for payment, the surviving corporation will
remit to each dissenting shareholder who has fully complied with the demand
procedures, the amount that the surviving corporation estimates to be the fair
value of the shares plus interest along with the following:
o the corporation's balance sheet and income statement for a fiscal year
ending not more than 16 months before the effective date of the
merger, together with the latest available interim financial
statements;
o an estimate by the corporation of the fair value of the shares and a
brief description of the method used to reach the estimate and;
o a copy of Sections 302A.471 and 302A.473 of the Minnesota statutes and
a brief description of the procedure to be used in demanding
supplemental payment.
The surviving corporation may withhold payment of the fair value from any
person who was not a shareholder on the date of first public announcement of the
execution of the merger agreement. If such a dissenting shareholder has
otherwise complied with the requirements of the statutes, the surviving
corporation must send the materials referenced above along with a statement of
the reason for withholding payment and an offer to pay the dissenters the amount
the surviving corporation has estimated to be the fair value of the shares if
the dissenter agrees to accept that amount in full satisfaction. The dissenter
may decline the offer and demand payment but failure to do so entitles the
dissenter only to the amount offered.
If the surviving corporation fails to remit payment within 60 days of the
deposit of certificates, it must return all deposited certificates. However, it
may again give notice and require deposit of certificates at a later date.
If the dissenter believes the amount paid to it by the surviving
corporation is less than the fair value of the shares plus interest, the
dissenter may give written notice to the surviving corporation of the
dissenter's own estimate of the fair value of the shares plus interest within 30
days after the surviving corporation mails the remittance and demand payment of
the difference. Otherwise, a dissenter is only entitled to the amount remitted
by the surviving corporation.
If the surviving corporation receives a demand for supplemental payment, it
must, within 60 days after receiving the demand, either pay to the dissenter the
amount of demand or amount otherwise negotiated, or may file a petition in the
county in which the registered office of the surviving corporation is located
requesting the court to determine the value of the shares of common stock. The
petition must name as parties all dissenters who have demanded payment of
additional amounts and who have not already reached an agreement with the
surviving corporation. The surviving corporation must serve all parties with a
summons and a copy of the petition although nonresident dissenters may be served
by registered or certified mail or by publication.
The court may appoint appraisers to receive evidence on and recommend the
fair value of the shares. The court shall determine the shareholders who have
complied with the requirements of the law. and shall determine the value of the
stock of the shareholders entitled to payment therefor. A dissenter is entitled
to judgment in cash for the amount for which the fair value of the shares as
determined by the court, plus
33
interest, exceeds the amount, if any, remitted to it already by the surviving
corporation, but will not be liable to the surviving corporation for the amount,
if any, by which the amount already sent to it exceeds the court- determined
fair value.
The court will determine the costs and expenses of the proceeding include
the compensation and expenses of any appraisers and will generally assess those
costs and expenses against the surviving corporation. However, the court may
assess part or all of those costs and expenses against a dissenter whose action
in demanding payment is found to be arbitrary, vexatious or not in good faith.
If the court finds that the corporation has failed to comply substantially with
the dissenters' rights provisions, the court may assess all fees and expenses of
any experts and attorneys it deems equitable. These fees and expenses may also
be assessed against a person who has acted arbitrarily, vexatiously, or not in
good faith in bringing the proceedings and awarded to the party injured by the
action.
Shareholders considering seeking appraisal should be aware that the fair
value of their shares as determined under those procedures could be more than,
the same as or less than the merger consideration they would receive pursuant to
the merger agreement if they did not seek appraisal of their shares.
Failure to comply strictly with all of the procedures set forth in the
Minnesota Statutes will result in the loss of a shareholder's statutory
appraisal rights. Consequently, any shareholder wishing to exercise appraisal
rights is urged to consult legal counsel before attempting to exercise such
rights.
MARKET FOR COMMON STOCK AND DIVIDENDS
The FSF common stock currently is traded on the Nasdaq National Market
under the symbol "FFHH."
As of the record date, there were ____________ shares of FSF common stock
outstanding, which were held by approximately __________ holders of record. Such
numbers of shareholders do not reflect the number of individuals or
institutional investors holding stock in nominee name through banks, brokerage
firms and others.
34
The following table sets forth during the periods indicated the high and
low bid prices of the FSF common stock as reported on the Nasdaq National Market
and the dividends declared per share of FSF common stock.
MARKET PRICE
FISCAL YEAR ENDED DIVIDENDS
SEPTEMBER 30, DECLARED
2004 HIGH LOW PER SHARE
- ----------------- ------- ---------- ---------
First Quarter $32.38 $28.52 $0.30
Second Quarter $33.00 $29.31 $0.30
Third Quarter $34.85 $28.04 $0.35
Fourth Quarter (through
_______, 2004)
FISCAL YEAR ENDED
SEPTEMBER 30,
2003
- -----------------
First Quarter $24.40 $19.20 $0.30
Second Quarter $24.80 $22.23 $0.30
Third Quarter $28.88 $24.07 $0.30
Fourth Quarter $32.09 $29.00 $0.30
FISCAL YEAR ENDED
SEPTEMBER 30,
2002
- -----------------
First Quarter $18.40 $15.77 $0.25
Second Quarter $19.78 $16.86 $0.25
Third Quarter $23.21 $18.94 $0.25
Fourth Quarter $22.21 $18.65 $0.25
On May 13, 2004, the most recent trading day prior to the announcement of
the execution of the merger agreement, the closing per share sale price of the
FSF common stock was $28.40 and on ________________, 2004, the last trading day
before the printing of this proxy statement, the closing per share sale price of
the FSF common stock was $__________.
35
CERTAIN BENEFICIAL OWNERS OF FSF COMMON STOCK
The following table sets forth the beneficial ownership of the FSF
common stock as of the record date, and certain other information with respect
to (i) the only persons or entities, including any "group" as that term is used
in Section 13(d)(3) of the Securities Exchange Act of 1934, who or which was
known to FSF to be the beneficial owner of more than 5% of the issued and
outstanding FSF common stock on the record date, (ii) each director of FSF,
(iii) certain executive officers of FSF, and (iv) all directors and executive
officers of FSF as a group. Unless otherwise indicated, the address of each such
beneficial owner is 201 Main Street South, Hutchison, Minnesota 55350.
AMOUNT AND NATURE OF PERCENT OF SHARES OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP COMMON STOCK OUTSTANDING
Richard H. Burgart 92,429 (1) (1)
Roger R. Stearns 50,314 (2)(7)
James J. Caturia 17,525 (3)(7)
Jerome R. Dempsey 10,100 (4)
Donald A. Glas 175,220 (5)
Sever B. Knutson 48,362 (6)(7)
George B. Loban 150,326 (8)
All directors and officers of the Company
as a group (7 persons) 544,276
<FN>
- ---------------
(1) Includes 31,582 shares held by the spouse of Mr. Burgart and 25 shares held
by each of his two sons and one daughter of Mr. Burgart, which Mr. Burgart
may be deemed to beneficially own.
(2) Includes 9,000 shares held by Stearns Foundation, Inc. and 9,940 shares
held by Stearnswood, Inc. of which Mr. Stearns is an officer and director,
which Mr. Stearns may be deemed to beneficially own.
(3) Includes 2,163 shares in the individual retirement account of the spouse of
Mr. Caturia, which Mr. Caturia may be deemed to beneficially own.
(4) Includes 500 shares held by the spouse of Mr. Dempsey, which Mr. Dempsey
may be deemed to beneficially own.
(5) Includes 38,206 shares owned by the spouse of Mr. Glas and 1,000 shares
held by the daughter of Mr. Glas, which Mr. Glas may be deemed to
beneficially own.
(6) Includes 46,862 shares owned by the spouse of Mr. Knutson, which Mr.
Knutson may be deemed to beneficially own.
(7) Excludes 310,656 shares of Common Stock held under the ESOP for which such
individual serves as a member of the ESOP Committee and ESOP Trust. Such
individual disclaims beneficial ownership with respect to shares held in a
fiduciary capacity.
(8) Includes 2,800 shares held by the son of Mr. Loban, 2,800 shares held by
the daughter of Mr. Loban, and 39,087 shares held by the spouse of Mr.
Loban, which Mr. Loban may be deemed to beneficially own.
</FN>
36
SHAREHOLDER PROPOSALS FOR THE 2005 ANNUAL MEETING
Any proposal which a shareholder wishes to have included in the proxy
materials of FSF relating to the next annual meeting of shareholders of FSF,
which will only be held if the merger is not consummated prior thereto, must
have been received at the principal executive offices of FSF, 201 Main Street
South, Hutchinson, Minnesota 55350, Attention: Richard H. Burgart, Secretary, no
later than August 31, 2004. In the event an annual meeting is held and the date
of such meeting is more than 30 days later than the date of last year's annual
meeting, FSF will publish a new deadline under cover of Form 8-K or its Forms
10-Q or Form 10-K.
Shareholder proposals which are not submitted for inclusion in FSF's proxy
materials pursuant to Rule 14a-8 of the Securities Exchange Act of 1934 may be
brought before an annual meeting pursuant to FSF's Bylaws, if submitted, at the
address set forth above, no later than November 21, 2004.
CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING STATEMENTS
This proxy statement and the documents incorporated by reference into this
proxy statement contain forward-looking statements and information with respect
to the financial condition, results of operations, plans, objectives, future
performance, business and other matters relating to FSF or the merger that are
based on the beliefs of, as well as assumptions made by and information
currently available to, FSF's management. When used in this proxy statement, the
words "anticipate," "believe," "estimate," "expect" and "intend" and words or
phrases of similar import are intended to identify forward-looking statements.
These statements reflect the current view of FSF with respect to future events
and are subject to risks, uncertainties and assumptions that include, without
limitation, the risk factors set forth in FSF's Annual Report on Form 10-K and
other filings with the Securities and Exchange Commission, the risk that the
merger will not be completed and risks associated with competitive factors,
general economic conditions, geographic credit concentration, customer
relations, interest rate volatility, governmental regulation and supervision,
technological changes, changes in consumer spending and savings habits, defaults
in the repayment of loans, changes in volume of loan originations, and changes
in industry practices. Should any one or more of these risks or uncertainties
materialize, or should any underlying assumptions prove incorrect, actual
results may vary materially from those described in this proxy statement as
anticipated, believed, estimated, expected or intended.
WHERE YOU CAN FIND MORE INFORMATION
FSF files annual, quarterly and current reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
any reports, proxy statements or other information filed by FSF at the
Commission's public reference room in Washington, D.C., which is located at the
following address: Public Reference Room, Judiciary Plaza, Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549.
You can request copies of these documents, upon payment of a duplicating
fee, by writing to the Commission. Please call the Commission at 1-800-SEC-0330
for further information on the operation of the Commission's public reference
rooms. FSF's Commission filings are also available to the public from document
retrieval services and at the Commission's Internet website
(http://www.sec.gov).
37
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
MIDCOUNTRY FINANCIAL CORP.,
MIDCOUNTRY INTERIM CORP. II
AND
FSF FINANCIAL CORP.
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I DEFINITIONS.............................................................1
1.1 Definitions.....................................................1
1.2 Terms Defined Elsewhere.........................................6
ARTICLE II THE MERGER.............................................................6
2.1 Merger..........................................................6
2.2 Filing; Plan of Merger..........................................7
2.3 Effective Time..................................................7
2.4 Closing.........................................................7
2.5 Effect of Merger................................................7
2.6 Further Assurances..............................................8
2.7 Merger Consideration............................................8
2.8 Conversion of Shares............................................8
2.9 Stock Options, Warrants and Other Similar Rights................9
2.10 Procedure for Payment of Merger Consideration..................10
2.11 Dissenting Shareholders........................................10
2.12 Merger of Subsidiaries.........................................11
ARTICLE III REPRESENTATIONS AND WARRANTIES OF FSF................................11
3.1 Capital Structure..............................................11
3.2 Organization, Standing and Authority...........................11
3.3 Ownership of Subsidiaries......................................12
3.4 Organization, Standing and Authority of the Subsidiaries.......12
3.5 Authorized and Effective Agreement.............................12
3.6 Securities Filings; Financial Statements; Statements True......13
3.7 Minute Books...................................................14
3.8 Adverse Change.................................................14
3.9 Absence of Undisclosed Liabilities.............................14
3.10 Properties.....................................................14
3.11 Environmental Matters..........................................15
3.12 Loans; Allowance for Loan Losses...............................16
i
3.13 Tax Matters....................................................16
3.14 Employees; Compensation; Benefit Plans.........................17
3.15 Certain Contracts..............................................21
3.16 Legal Proceedings; Regulatory Approvals........................22
3.17 Compliance with Laws; Filings..................................22
3.18 Brokers and Finders............................................22
3.19 Repurchase Agreements; Derivatives.............................23
3.20 Deposit Accounts...............................................23
3.21 Related Party Transactions.....................................23
3.22 Certain Information............................................23
3.23 Regulatory Matters.............................................24
3.24 State Takeover Laws............................................24
3.25 Labor Relations................................................24
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF MIDCOUNTRY AND INTERIM..............24
4.1 Capital Structure of MidCountry................................25
4.2 Organization, Standing and Authority of MidCountry.............25
4.3 Authorized and Effective Agreement.............................25
4.4 Organization, Standing and Authority of MidCountry
Subsidiaries.................................................26
4.5 Certain Information............................................26
4.6 Regulatory Matters.............................................26
4.7 Financial Ability..............................................26
4.8 Minute Books...................................................27
4.9 Adverse Change.................................................27
4.10 Absence of Undisclosed Liabilities.............................27
4.11 Allowance for Loan Losses......................................27
4.12 Legal Proceedings; Regulatory Approvals........................28
4.13 Compliance with Laws; Filings..................................28
4.14 Deposit Accounts...............................................28
ARTICLE V COVENANTS..............................................................29
5.1 FSF Shareholder Meeting........................................29
ii
5.2 Proxy Statement................................................29
5.3 Plan of Merger.................................................29
5.4 Additional Acts................................................29
5.5 Best Efforts...................................................30
5.6 Certain Accounting Matters.....................................30
5.7 Access to Information..........................................30
5.8 Press Releases.................................................31
5.9 Forbearances of FSF............................................31
5.10 Employment and Consulting Agreements...........................33
5.11 Section 401(k) Plan; ESOP; Other Employee Benefits.............34
5.12 Directors and Officers Protection..............................36
5.13 Forbearances of MidCountry.....................................36
5.14 Reports........................................................37
5.15 Capital Raising................................................37
5.16 Advisory Board.................................................37
5.17 Support Agreements.............................................37
5.18 Pre-Closing Escrow Agreement...................................38
5.19 Superior Proposal..............................................38
ARTICLE VI CONDITIONS PRECEDENT..................................................38
6.1 Conditions Precedent - MidCountry and FSF......................38
6.2 Conditions Precedent - FSF.....................................39
6.3 Conditions Precedent - MidCountry..............................41
ARTICLE VII TERMINATION, DEFAULT, WAIVER AND AMENDMENT...........................42
7.1 Termination....................................................42
7.2 Effect of Termination..........................................43
7.3 Survival of Representations, Warranties and Covenants..........44
7.4 Waiver.........................................................44
7.5 Amendment or Supplement........................................44
ARTICLE VIII MISCELLANEOUS.......................................................44
8.1 Expenses.......................................................44
iii
8.2 Entire Agreement...............................................45
8.3 No Assignment..................................................45
8.4 Notices........................................................46
8.5 Specific Performance...........................................47
8.6 Captions.......................................................47
8.7 Counterparts...................................................47
8.8 Governing Law..................................................47
ANNEXES
Annex A Articles of Merger and Plan of Merger between
FSF and Interim
Annex B Subsidiary Plan of Merger between Bayside Bank
and First Federal
Annexes C-1 through C-6 Employment and Consulting Agreements with
Officers
Annex D Form of Support Agreement
Annex E Form of Pre-Closing Escrow Agreement
iv
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER ("Agreement"), dated as of May 14,
2004, is by and between MidCountry Financial Corp., a Georgia corporation
("MidCountry"), MidCountry Interim Corp. II, a Minnesota corporation
("Interim"), and FSF Financial Corp., a Minnesota corporation ("FSF").
R E C I T A L S:
----------------
The Boards of Directors of MidCountry, Interim and FSF are of the
opinion that the transactions described herein are in the best interests of the
parties and their respective shareholders. This Agreement provides for the
merger of Interim with and into FSF (the "Merger"), with FSF being the surviving
corporation of the merger pursuant to a plan of merger (the "Plan of Merger")
substantially in the form attached as Annex A hereto. At the effective time of
such Merger, the outstanding shares of capital stock of FSF will be converted
into the right to receive the Merger Consideration set forth in Article II of
this Agreement. As a result of the Merger, FSF will become a wholly-owned
subsidiary of MidCountry and the wholly-owned subsidiaries of FSF will continue
to conduct their business and operations. The transactions described in this
Agreement are subject to the approvals of the shareholders of FSF, the Office of
Thrift Supervision, and the satisfaction of certain other conditions described
in this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, covenants and agreements herein contained, and
intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions
-----------
When used herein, the capitalized terms set forth below shall have the
following meanings:
"Affiliate" means, with respect to any Person, any Person, who directly
or indirectly, through one or more intermediaries, controls or is controlled by,
or is under common control with such Person and, without limiting the generality
of the foregoing, includes any executive officer or director of such Person.
"Articles of Merger" shall mean the Articles of Merger required to be
filed with the office of the Secretary of State of Minnesota, as provided in
Section 302A.615 of the MBCA.
"Business Day" shall mean all days other than Saturdays, Sundays and
Federal Reserve holidays.
A-1
"CERCLA" shall mean the Comprehensive Environmental Response
Compensation and Liability Act, as amended (42 U.S.C. 9601 et seq.).
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Commission" shall mean the Securities and Exchange Commission.
"CRA" shall mean the Community Reinvestment Act of 1977, as amended.
"Disclosed" shall mean disclosed in the FSF Disclosure Memorandum,
referencing the Section number herein pursuant to which such disclosure is being
made.
"Environmental Claim" means any notice from any governmental authority
or third party alleging potential liability (including, without limitation,
potential liability for investigatory costs, cleanup or remediation costs,
governmental response costs, natural resources damages, property damages,
personal injuries or penalties) arising out of, based upon, or resulting from a
violation of the Environmental Laws or the presence or release into the
environment of any Hazardous Substances.
"Environmental Laws" means all applicable federal, state and local laws
and regulations relating to pollution or protection of human health or the
environment (including ambient air, surface water, ground water, land surface,
or subsurface strata) and which are administered, interpreted, or enforced by
the United States Environmental Protection Agency and state and local agencies
with jurisdiction over pollution or protection of the environment, including
without limitation CERCLA, the Resource Conservation and Recovery Act, as
amended, 42 U.S.C. 6901 et seq., and other laws and regulations relating to
emissions, discharges, releases, or threatened releases of any Hazardous
Substances, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport, or handling of any Hazardous
Substances.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"Escrow Agent" shall mean the third party, FDIC-insured bank with at
least $50 million in capital selected by MidCountry, with the consent of FSF,
which consent shall not be unreasonably withheld, to perform the duties provided
in Section 2.10 of this Agreement.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"FDIC" shall mean the Federal Deposit Insurance Corporation.
"Federal Reserve Board" shall mean the Board of Governors of the
Federal Reserve System.
A-2
"Financial Advisor" shall mean Keefe, Bruyette & Woods, Inc.
"Financial Statements" shall mean (a) with respect to MidCountry, (i)
the consolidated balance sheet (including related notes and schedules, if any)
of MidCountry as of September 30, 2003 and 2002, and the related consolidated
statements of income, shareholders' equity and cash flows (including related
notes and schedules, if any) for each of the two years ended September 30, 2003
and 2002 and (ii) the consolidated balance sheets of MidCountry (including
related notes and schedules, if any) and the related consolidated statements of
income, shareholders' equity and cash flows (including related notes and
schedules, if any) prepared by MidCountry with respect to periods ended
subsequent to September 30, 2003, and (b) with respect to FSF, (i) the
consolidated statements of financial condition (including related notes and
schedules, if any) of FSF as of September 30, 2003, September 30, 2002 and
September 30, 2001, and the related consolidated statements of income and
retained earnings, and cash flows (including related notes and schedules, if
any) for each of the three years ended September 30, 2003, September 30, 2002
and September 30, 2001 as filed by FSF in Securities Documents and (ii) the
consolidated statements of financial condition of FSF (including related notes
and schedules, if any) and the related consolidated statements of income and
retained earnings, and cash flows (including related notes and schedules, if
any) included in Securities Documents filed by FSF with respect to periods ended
subsequent to September 30, 2003.
"FSF Common Stock" shall mean the shares of voting common stock, par
value $.10 per share, of FSF.
"FSF Disclosure Memorandum" shall mean the written information in one
or more documents, each of which is entitled "FSF Disclosure Memorandum" and
delivered on or before the date of this Agreement by FSF to MidCountry, and
describing in reasonable detail the matters contained therein. Each disclosure
made therein shall be in existence on the date of this Agreement and shall
specifically reference each Section of this Agreement under which such
disclosure is made. Information disclosed with respect to one Section shall not
be deemed to be disclosed for purposes of any other Section not specifically
referenced. Inclusion of a given item in the FSF Disclosure Memorandum shall not
be deemed to be a conclusion or admission that such item (or any other item) is
material or has a Material Adverse Effect.
"FSF ESOP" shall mean the First Federal fsb Employee Stock Ownership
Plan.
"FSF Subsidiaries" shall mean First Federal fsb, and Insurance Planners
of Hutchinson, Inc., their respective subsidiaries, and all other Subsidiaries
of FSF as of the date hereof and any corporation, bank, savings association, or
other organization acquired as a Subsidiary of FSF after the date hereof and
held as a Subsidiary by FSF at the Effective Time.
"GAAP" shall mean generally accepted accounting principles applicable
to financial institutions and their holding companies, as in effect at the
relevant date.
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"Hazardous Substances" means any substance or material (i) identified
in CERCLA; (ii) determined to be toxic, a pollutant or a contaminant under any
applicable federal, state or local statute, law, ordinance, rule or regulation,
including but not limited to petroleum products; (iii) asbestos; (iv) radon; (v)
poly-chlorinated biphiphenyls and (vi) such other materials, substances or waste
which are otherwise dangerous, hazardous, harmful to human health or the
environment.
"HOLA" shall mean the Federal Home Owners' Loan Act, as amended.
"IRS" shall mean the Internal Revenue Service.
"Material Adverse Effect" on MidCountry or FSF shall mean an event,
fact, change, or occurrence which, individually or together with any other
event, fact, change or occurrence, (i) has a material adverse effect on the
financial condition, results of operations or business of MidCountry and the
MidCountry Subsidiaries taken as a whole, or FSF and the FSF Subsidiaries taken
as a whole, or (ii) materially impairs the ability of MidCountry or FSF to
perform its obligations under this Agreement or to consummate the Merger and the
other transactions contemplated by this Agreement; provided that "Material
Adverse Effect" shall not be deemed to include the impact of (a) any event,
change, occurrence or state of facts relating to or arising from the
announcement of this Agreement or the actions and omissions of MidCountry or FSF
taken with the prior written consent of the other in contemplation of the
transactions contemplated hereby, (b) the direct effects of compliance with this
Agreement on the operating performance of the parties, including expenses
incurred by the parties in consummating the transactions contemplated by this
Agreement or relating to any litigation arising as a result of the Merger, (c)
changes in laws and regulations or interpretations thereof by governmental
authorities generally applicable to depository institutions and their holding
companies (including, without limitation, changes in state and federal tax law
and changes in deposit insurance assessment rates and special assessments with
respect thereto), (d) changes in GAAP or regulatory accounting principles
generally applicable to financial institutions and their holding companies, (e)
changes in interest rates and (f) any event, change, fact or occurrence relating
to or arising from the United States or local economy or financial or securities
markets in general.
"MBCA" shall mean the Minnesota Business Corporation Act, as amended.
"MidCountry Common Stock" shall mean the shares of voting common stock,
no par value, of MidCountry.
"MidCountry Disclosure Memorandum" shall mean the written information
in one or more documents, each of which is entitled "MidCountry Disclosure
Memorandum" and delivered on or before the date of this Agreement by MidCountry
to FSF, and describing in reasonable detail the matters contained therein. Each
disclosure made therein shall be in existence on the date of this Agreement and
shall specifically reference each Section of this Agreement under which such
disclosure is made. Information disclosed with respect to one Section shall not
be deemed to be disclosed for purposes of any other Section not specifically
referenced. Inclusion of a given item
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in the MidCountry Disclosure memorandum shall not be deemed to be a conclusion
or admission that such item (or any other item) is material or has a Material
Adverse Effect.
"MidCountry Subsidiaries" shall mean Bayside Bank, Heights Finance
Corporation, and their respective subsidiaries as of the date hereof and any
corporation, bank, savings associations or other organization acquired as a
Subsidiary of MidCountry after the date hereof and held as a Subsidiary by
MidCountry at the Effective Time.
"OTS" shall mean the Office of Thrift Supervision.
"Proxy Statement" shall mean the proxy statement, together with any
supplements thereto, to be sent to shareholders of FSF to solicit their votes in
connection with a proposal to approve this Agreement and the Plan of Merger.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Securities Documents" shall mean all reports, proxy statements,
registration statements and all similar documents filed, or required to be
filed, pursuant to the Securities Laws, including but not limited to periodic
and other reports filed pursuant to Section 13 of the Exchange Act.
"Securities Laws" shall mean the Securities Act; the Exchange Act; the
Investment Company Act of 1940, as amended; the Investment Advisers Act of 1940,
as amended; the Trust Indenture Act of 1939, as amended; and the rules and
regulations of the Commission promulgated thereunder.
"Stock Option" shall mean, collectively, any option granted under the
Stock Option Plans, outstanding and unexercised on the date hereof to acquire
shares of FSF Common Stock, aggregating 250,751 shares.
"Stock Option Plans" shall mean the First Federal fsb Management Stock
Plan, the FSF Financial Corp. 1994 Stock Option Plan, the FSF Financial Corp.
1998 Stock Compensation Plan, and the FSF Financial Corp. 2003 Stock
Compensation Plan.
"Subsidiaries" shall mean all those corporations, associations, or
other business entities of which the entity in question either owns or controls
50% or more of the outstanding equity securities either directly or through an
unbroken chain of entities as to each of which 50% or more of the outstanding
equity securities is owned directly or indirectly by its parent (in determining
whether one entity owns or controls 50% or more of the outstanding equity
securities of another, equity securities owned or controlled in a fiduciary
capacity shall be deemed owned and controlled by the beneficial owner).
"Superior Proposal" means a bona fide written acquisition proposal or
offer to acquire or purchase all or substantially all of the assets or equity
interest in FSF which the FSF Board of
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Directors concludes in good faith to be more favorable from a financial point of
view to its shareholders than the Merger and the other transactions contemplated
hereby, (1) after receiving the advice of the Financial Advisor, (2) after
taking into account the likelihood of consummation of such transaction on the
terms set forth therein (as compared to, and with due regard for, the terms
herein) and (3) after taking into account all legal (with the advice of outside
counsel), financial (including the financing terms of any such proposal),
regulatory and other aspects of such proposal and any other relevant factors
permitted under applicable law.
"TILA" shall mean the Truth in Lending Act, as amended.
1.2 Terms Defined Elsewhere
-----------------------
The capitalized terms set forth below are defined in the following
sections:
Agreement Introduction
Closing Section 2.4
Closing Date Section 2.4
Constituent Corporations Section 2.1
Dissenting Shareholders Section 2.11
Effective Time Section 2.3
Employer Entity Section 5.11
Financing Section 4.7
FSF Introduction
Interim Introduction
Merger Recitals
Merger Consideration Section 2.7
MidCountry Introduction
PBGC Section 3.14(b)(iv)
Plan Section 3.14(b)(i)
Plan of Merger Recitals
Pre-Closing Escrow Agreement Section 5.18
Rights Section 2.9
Subsidiary Plan of Merger Section 2.12
Surviving Corporation Section 2.1(a)
ARTICLE II
THE MERGER
2.1 Merger
------
FSF and Interim are constituent corporations (the "Constituent
Corporations") to the Merger as contemplated by the MBCA. Upon the terms and
subject to the conditions set forth in this Agreement and in accordance with the
MBCA, at the Effective Time:
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(a) Interim shall be merged with and into FSF in accordance with the
applicable provisions of the MBCA, with FSF being the surviving corporate entity
(hereinafter sometimes referred to as the "Surviving Corporation") and a wholly
owned subsidiary of MidCountry.
(b) The separate existence of Interim shall cease and the Merger shall
in all respects have the effect provided in Section 2.5.
(c) The Articles of Incorporation of FSF at the Effective Time shall
become the Articles of Incorporation of the Surviving Corporation.
(d) The Bylaws of FSF at the Effective Time shall become the Bylaws of
the Surviving Corporation.
2.2 Filing; Plan of Merger
----------------------
The Merger shall not become effective unless this Agreement and the
Plan of Merger are duly approved by shareholders holding at least a majority of
the shares of FSF Common Stock. As promptly as practicable following the
satisfaction or, if permissible, waiver of the conditions specified in Article
VI and provided that this Agreement has not been terminated pursuant to Article
VII, the Constituent Corporations will cause the Articles of Merger to be
executed and filed with the Secretary of State of Minnesota, as provided in
Section 302A.615 of the MBCA. The Plan of Merger is incorporated herein by
reference, and adoption of this Agreement by the Boards of Directors of the
Constituent Corporations and approval by the shareholders of FSF shall
constitute adoption and approval of the Plan of Merger.
2.3 Effective Time
--------------
The Merger shall be effective on the day and at the time specified in
the Articles of Merger as filed as provided in Section 2.2 (herein sometimes
referred to as the "Effective Time").
2.4 Closing
-------
The closing of the transactions contemplated by this Agreement (the
"Closing") shall take place at the offices of FSF in Hutchinson, Minnesota, at
10:00 a.m. local time on a date designated by MidCountry that is within five
Business Days following the satisfaction of the conditions to Closing set forth
in Article VI (other than the delivery of certificates, opinions and other
instruments and documents to be delivered at the Closing), or such later date,
time or place as the parties may otherwise agree (the "Closing Date").
2.5 Effect of Merger
----------------
From and after the Effective Time, the separate existence of Interim
shall cease, and the Surviving Corporation shall thereupon and thereafter, to
the extent consistent with its Articles of
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Incorporation, possess all of the rights, privileges, immunities and franchises,
of a public as well as a private nature, of each of the Constituent
Corporations; and all property, real, personal and mixed, and all debts due on
whatever account, and all other choses in action, and each and every other
interest of or belonging to or due to each of the Constituent Corporations shall
be taken and deemed to be transferred to and vested in the Surviving Corporation
without further act or deed; and the title to any real estate or any interest
therein vested in either of the Constituent Corporations shall not revert or be
in any way impaired by reason of the Merger. The Surviving Corporation shall
thenceforth be responsible for all the liabilities, obligations and penalties of
each of the Constituent Corporations; and any claim, existing action or
proceeding, civil or criminal, pending by or against either of the Constituent
Corporations may be prosecuted as if the Merger had not taken place, or the
Surviving Corporation may be substituted in its place; and any judgment rendered
against either of the Constituent Corporations may be enforced against the
Surviving Corporation. Neither the rights of creditors nor any liens upon the
property of either of the Constituent Corporations shall be impaired by reason
of the Merger.
2.6 Further Assurances
------------------
If, at any time after the Effective Time, the Surviving Corporation
shall consider or be advised that any further deeds, assignments or assurances
in law or any other actions are necessary, desirable or proper to vest, perfect
or confirm of record or otherwise, in the Surviving Corporation, the title to
any property or rights of the Constituent Corporations acquired or to be
acquired by reason of, or as a result of, the Merger, the Constituent
Corporations agree that such Constituent Corporations and their proper officers
and directors shall and will execute and deliver all such proper deeds,
assignments and assurances in law and do all things necessary, desirable or
proper to vest, perfect or confirm title to such property or rights in the
Surviving Corporation and otherwise to carry out the purpose of this Agreement,
and that the proper officers and directors of the Surviving Corporation are
fully authorized and directed in the name of the Constituent Corporations or
otherwise to take any and all such actions.
2.7 Merger Consideration
--------------------
As used herein, the term "Merger Consideration" shall mean $35.00 in
cash for each share of FSF Common Stock issued and outstanding as of the
Effective Time.
2.8 Conversion of Shares
--------------------
At the Effective Time, by virtue of the Merger and without any action
on the part of MidCountry, Interim or FSF or the shareholders of any of the
foregoing, the shares of the parties to this Agreement shall be converted as
follows:
(a) Each share of FSF Common Stock issued and outstanding immediately
prior to the Effective Time (other than shares the holders of which have
perfected dissenters' rights of appraisal in accordance with Section 302A.471 of
the MBCA) shall be converted into and shall
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represent the right to receive, upon surrender of the certificate representing
such share of FSF Common Stock (as provided in Section 2.10 below), the Merger
Consideration.
(b) Each share of MidCountry Common Stock issued and outstanding
immediately prior to the Effective Time shall continue to be issued and
outstanding.
(c) Each share of common stock of Interim issued and outstanding
immediately prior to the Effective Time shall be converted into one fully paid
and non-assessable share of the common stock of Surviving Corporation.
(d) Until surrendered, each outstanding certificate which prior to the
Effective Time represented one or more shares of FSF Common Stock (subject to
dissenters' rights under the MBCA) shall be deemed upon the Effective Time for
all purposes to represent only the right to receive the Merger Consideration. No
interest will be paid or accrued on the Merger Consideration upon the surrender
of the certificate or certificates representing shares of FSF Common Stock. With
respect to any certificate for FSF Common Stock that has been lost or destroyed,
MidCountry shall pay the Merger Consideration attributable to such certificate
upon receipt of a surety bond or other adequate indemnity as required in
accordance with MidCountry's standard policy, and evidence reasonably
satisfactory to MidCountry of ownership of the shares represented thereby. After
the Effective Time, no transfer of the shares of FSF Common Stock outstanding
immediately prior to the Effective Time shall be made on the stock transfer
books of the Surviving Corporation.
2.9 Stock Options, Warrants and Other Similar Rights
------------------------------------------------
Immediately prior to the Effective Time, FSF shall pay in exchange for
each outstanding stock option, pursuant to which a person is or may be entitled
to be issued any shares of FSF Common Stock, an amount in cash equal to the
difference between the exercise price of such option and $35.00, such that from
and after the Effective Time, there shall be no outstanding stock options,
warrants, conversion rights or other rights of any nature pursuant to which a
person is or may be entitled to be issued any shares of stock of FSF or to be
paid any sum of money or other valuable consideration in exchange therefore (a
"Right"). Any unvested shares of restricted FSF Common Stock at or immediately
prior to the Effective Time shall become earned and nonforfeitable and
distributed in the form of FSF Common Stock without restrictions immediately
prior to the Effective Time. Each such share shall be converted into the Merger
Consideration at the Effective Time. In effecting the termination and
cancellation of such rights, FSF shall use its best efforts to obtain from any
person or persons such consents, waivers, approvals and authorizations as it
deems necessary or advisable.
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2.10 Procedure for Payment of Merger Consideration
---------------------------------------------
(a) Immediately prior to the Effective Time, MidCountry will deposit
with the Escrow Agent cash in the amount of the Merger Consideration for each
share of FSF Common Stock issued and outstanding at the Effective Time.
(b) Within five days after the Effective Time, MidCountry shall cause
the Escrow Agent to mail a letter of transmittal, with instructions for its use,
to shareholders of FSF Common Stock, immediately prior to the Effective Time, to
use in surrendering the certificates which represent such shares to the Escrow
Agent in exchange for the Merger Consideration to which such shareholder is
entitled according to Section 2.8 of this Agreement. Upon proper surrender of
such certificates or other evidence of ownership, together with such letter of
transmittal duly executed and completed in accordance with the instructions
thereto, MidCountry shall cause, within three Business Days, the transfer to the
person entitled thereto the Merger Consideration for each share of FSF Common
Stock owned. The Escrow Agent shall not be obligated to deliver the
consideration to which any former holder of FSF Common Stock is entitled as a
result of the Merger until such holder surrenders his or her certificate or
certificates representing the shares of FSF Common Stock for exchange as
provided in this Section 2.10 or, if a certificate issued to any such holder has
been lost, destroyed, or stolen, or otherwise is missing, upon such holder,
posting, if required by the Surviving Corporation, a lost instruments indemnity
bond in form, substance and amount reasonably satisfactory to the Escrow Agent
and MidCountry, and such other documentation as the Escrow Agent and MidCountry
reasonably shall require.
(c) The Escrow Agent shall hold the funds delivered to it but for which
the certificates formerly representing shares of FSF Common Stock have not been
surrendered for a period of six months after the Effective Time after which
MidCountry may request the Escrow Agent to deliver to it any remaining funds,
and thereafter, such holders will be entitled to look only to MidCountry for
payment thereof.
2.11 Dissenting Shareholders
-----------------------
Any holder of shares of FSF Common Stock who perfects such holder's
dissenters' rights of appraisal in accordance with and as contemplated by
section 302A.471 of the MBCA (collectively, the "Dissenting Shareholders") shall
be entitled to receive the value of such shares in cash as determined pursuant
to such provision of the MBCA; provided, that no such payment shall be made to
any Dissenting Shareholder unless and until such Dissenting Shareholder has
complied with the applicable provisions of the MBCA and has surrendered to
MidCountry the certificate or certificates representing shares of FSF Common
Stock for which payment is being made. In the event that after the Effective
Time a Dissenting Shareholder of FSF fails to perfect, or effectively withdraws
or loses, such holder's right to appraisal and of payment for such holder's
shares, MidCountry shall issue and deliver the consideration to which such
holder of shares of FSF Common Stock is entitled under Section 2.8 (without
interest) upon surrender by such holder of the certificate or certificates
representing shares of FSF Common Stock held by such holder.
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2.12 Merger of Subsidiaries
----------------------
In the event that MidCountry shall request, FSF shall take such
actions, and shall cause the FSF Subsidiaries to take such actions, as may be
required in order to effect, at the Effective Time, the merger of one or more of
the FSF Subsidiaries with, in each case, one of the MidCountry Subsidiaries,
including, without limitation, the execution and delivery of a subsidiary plan
of merger (the "Subsidiary Plan of Merger"), substantially in the form attached
hereto as Annex B.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF FSF
Except as Disclosed, FSF represents and warrants to MidCountry as
follows (the representations and warranties herein of FSF are made subject to
the applicable standard set forth in Section 6.3(a), and no such representation
or warranty shall be deemed to be inaccurate unless the inaccuracy would permit
MidCountry to refuse to consummate the Merger under such applicable standard):
3.1 Capital Structure
-----------------
The authorized capital stock of FSF consists of 10,000,000 shares of
FSF Common Stock, par value $0.10 per share, and 5,000,000 shares of FSF
preferred stock, no par value. As of the date hereof, 2,345,234 shares of FSF
Common Stock are issued and outstanding and no more than 2,595,985 shares of FSF
Common Stock will be issued and outstanding immediately prior to the Effective
Time (as a result of the exercise of outstanding options), and no shares of FSF
preferred stock are outstanding. No other classes of capital stock of FSF,
common or preferred, are authorized, issued or outstanding. All outstanding
shares of FSF Common Stock have been duly authorized and are validly issued,
fully paid and nonassessable. No shares of capital stock have been reserved for
any purpose, except for shares of FSF Common Stock reserved in connection with
the Stock Option Plans. FSF has granted options to acquire 250,751 shares of FSF
Common Stock under the Stock Option Plans, which options remain outstanding as
of the date hereof. Except as set forth in this Section 3.1, there are no Rights
authorized, issued or outstanding with respect to, nor are there any agreements,
understandings or commitments relating to the right of any FSF shareholder to
own, to vote or to dispose of, the capital stock of FSF. Holders of FSF Common
Stock do not have preemptive rights.
3.2 Organization, Standing and Authority
------------------------------------
FSF is a corporation organized, validly existing and in good standing
under the laws of the State of Minnesota, with full corporate power and
authority to carry on its business as now conducted and to own, lease and
operate its properties and assets. FSF is not required to be qualified to do
business in any other state of the United States or foreign jurisdiction.
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3.3 Ownership of Subsidiaries
-------------------------
Section 3.3 of the FSF Disclosure Memorandum lists all of the FSF
Subsidiaries and, with respect to each, its jurisdiction of organization,
jurisdictions in which it is qualified or otherwise licensed to conduct
business, the number of shares or ownership interests owned by FSF (directly or
indirectly), the percentage ownership interest so owned by FSF and its business
activities. The outstanding shares of capital stock or other equity interests of
the FSF Subsidiaries are validly issued and outstanding, fully paid and
nonassessable, and all such shares are directly or indirectly owned by FSF free
and clear of all liens, claims and encumbrances or preemptive rights of any
person. No rights are authorized, issued or outstanding with respect to the
capital stock or other equity interests of the FSF Subsidiaries, and there are
no agreements, understandings or commitments relating to the right of FSF to
own, to vote or to dispose of said interests. None of the shares of capital
stock or other equity interests of the FSF Subsidiaries have been issued in
violation of the preemptive rights of any person. Section 3.3 of the FSF
Disclosure Memorandum also lists all shares of capital stock or other securities
or ownership interests of any corporation, partnership, joint venture, or other
organization (other than the FSF Subsidiaries) owned directly or indirectly by
FSF.
3.4 Organization, Standing and Authority of the Subsidiaries
--------------------------------------------------------
Each FSF Subsidiary which is a depository institution is a federally
chartered savings bank with its deposits insured to applicable limits by the
FDIC. Each of the FSF Subsidiaries is validly existing and in good standing
under the laws of its jurisdiction of organization. Each of the FSF Subsidiaries
has full power and authority to carry on its business as now conducted, and, to
the knowledge of FSF, is duly qualified to do business in each jurisdiction
Disclosed with respect to it. To the knowledge of FSF, no FSF Subsidiary is
required to be qualified to do business in any other state of the United States
or foreign jurisdiction, or is engaged in any type of activities that have not
been Disclosed.
3.5 Authorized and Effective Agreement
----------------------------------
(a) FSF has all requisite corporate power and authority to enter into
and (subject to receipt of all necessary governmental approvals and the receipt
of approval of the FSF shareholders of this Agreement and the Plan of Merger) to
perform all of its obligations under this Agreement and the Plan of Merger. The
execution and delivery of this Agreement and the Plan of Merger, and
consummation of the transactions contemplated hereby and thereby, have been duly
and validly authorized by all necessary corporate action, except, in the case of
this Agreement and the Plan of Merger, the approval of the FSF shareholders
pursuant to and to the extent required by applicable law. This Agreement and the
Plan of Merger constitute legal, valid and binding obligations of FSF, and each
is enforceable against FSF in accordance with its terms, in each such case
subject to (i) bankruptcy, fraudulent transfer, insolvency, moratorium,
reorganization, conservatorship, receivership, or other similar laws from time
to time in effect relating to or affecting the enforcement of the rights of
creditors of FDIC-insured institutions or the
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enforcement of creditors' rights generally; and (ii) general principles of
equity (whether applied in a court of law or in equity).
(b) Neither the execution and delivery of this Agreement or the Plan of
Merger, nor consummation of the transactions contemplated hereby or thereby, nor
compliance by FSF with any of the provisions hereof or thereof, shall (i)
conflict with or result in a breach of any provision of the Articles of
Incorporation or Bylaws of FSF or any FSF Subsidiary, (ii) to the knowledge of
FSF, constitute or result in a breach of any term, condition or provision of, or
constitute a default under, or give rise to any right of termination,
cancellation or acceleration with respect to, or result in the creation of any
lien, charge or encumbrance upon any property or asset of FSF or any FSF
Subsidiary pursuant to, any note, bond, mortgage, indenture, license, permit,
contract, agreement or other instrument or obligation, or (iii) subject to
receipt of all required governmental approvals, violate any order, writ,
injunction, decree, statute, rule or regulation applicable to FSF or any FSF
Subsidiary.
(c) Other than consents or approvals required from, or notices to,
regulatory authorities as provided in Section 5.4(b), no notice to, filing with,
or consent of, any public body or authority is necessary for the consummation by
FSF of the Merger and the other transactions contemplated in this Agreement.
3.6 Securities Filings; Financial Statements; Statements True
---------------------------------------------------------
(a) FSF has timely filed all Securities Documents required by the
Securities Laws to be filed since September 30, 2000. FSF has Disclosed or made
available to MidCountry a true and complete copy of each Securities Document
filed by FSF with the Commission after September 30, 2000 and prior to the date
hereof, which are all of the Securities Documents that FSF was required to file
during such period. As of their respective dates of filing (or if amended or
superseded by a filing prior to the date hereof, on the date of such filing),
such Securities Documents complied with the Securities Laws as then in effect,
and did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(b) The Financial Statements of FSF fairly present or will fairly
present, as the case may be, the consolidated financial position of FSF and the
FSF Subsidiaries as of the dates indicated and the consolidated statements of
income and retained earnings, changes in shareholders' equity and statements of
cash flows for the periods then ended (subject, in the case of unaudited interim
statements, to the absence of notes and to normal year-end adjustments that are
not material in amount or effect) in conformity with GAAP applied on a
consistent basis.
(c) No statement, certificate, instrument or other writing furnished or
to be furnished hereunder by FSF or any FSF Subsidiary to MidCountry contains or
will contain any untrue
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statement of a material fact or will omit to state a material fact necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
3.7 Minute Books
------------
The minute books of FSF and each of the FSF Subsidiaries contain or
will contain at Closing accurate records of all meetings and other corporate
actions of their respective shareholders and Boards of Directors (including
committees of the Board of Directors), and the signatures contained therein are
the true signatures of the persons whose signatures they purport to be.
3.8 Adverse Change
--------------
Since September 30, 2003, FSF and the FSF Subsidiaries have not
incurred any liability, whether accrued, absolute or contingent, except as
disclosed in the most recent FSF Financial Statements, or except as disclosed in
Securities Documents filed prior to the date hereof, or entered into any
transactions with Affiliates, in each case other than in the ordinary course of
business consistent with past practices, nor has there been any change or any
fact or event involving a prospective change in the business, financial
condition, results of operations or business prospects of FSF or any of the FSF
Subsidiaries that has had or is reasonably likely to have a Material Adverse
Effect on FSF taken as a whole.
3.9 Absence of Undisclosed Liabilities
----------------------------------
All liabilities (including contingent liabilities) of FSF and the FSF
Subsidiaries are disclosed in the most recent Financial Statements of FSF or are
normally recurring business obligations incurred in the ordinary course of its
business since the date of FSF's most recent Financial Statements.
3.10 Properties
----------
(a) FSF and the FSF Subsidiaries have good and marketable title, free
and clear of all liens, encumbrances, charges, defaults or equitable interests,
to all of the properties and assets, real and personal, tangible and intangible,
reflected on the consolidated balance sheet included in the Financial Statements
of FSF as of September 30, 2003 or acquired after such date, except for (i)
liens for current taxes not yet due and payable, (ii) pledges to secure deposits
and other liens incurred in the ordinary course of banking business, (iii) such
imperfections of title, easements and encumbrances, if any, as are not material
in character, amount or extent, (iv) dispositions and encumbrances for adequate
consideration in the ordinary course of business, or (v) matters otherwise
reflected in the consolidated financial statements of FSF.
(b) All leases and licenses pursuant to which FSF or any FSF
Subsidiary, as lessee or licensee, leases or licenses rights to real or personal
property are valid and enforceable against
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FSF or the FSF Subsidiary in accordance with their respective terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, receivership, conservatorship, moratorium or other laws
affecting the enforceability of creditors' rights generally and except for
general principles of equity (whether applied in a court of law or in equity).
3.11 Environmental Matters
---------------------
(a) FSF and the FSF Subsidiaries are and at all times have been in
compliance with all Environmental Laws. Neither FSF nor any FSF Subsidiary has
received any communication alleging that FSF or an FSF Subsidiary is not in such
compliance, and there are no present circumstances that would prevent or
interfere with the continuation of such compliance.
(b) There are no pending Environmental Claims, neither FSF nor any FSF
Subsidiary has received notice of any pending Environmental Claims, and, to the
knowledge of FSF, there are no conditions or facts existing which might
reasonably be expected to result in legal, administrative, arbitral or other
proceedings asserting Environmental Claims or other claims, causes of action or
governmental investigations of any nature seeking to impose, or that could
result in the imposition of, any liability arising under any Environmental Laws
upon (i) FSF or any FSF Subsidiary, (ii) any person or entity whose liability
for any Environmental Claim FSF or any FSF Subsidiary has or may have retained
or assumed, either contractually or by operation of law, (iii) any real or
personal property owned or leased by FSF or any FSF Subsidiary, or any real or
personal property which FSF or any FSF Subsidiary has or is judged to have
managed or supervised or participated in the management of, or (iv) any real or
personal property in which FSF or any FSF Subsidiary holds a security interest
securing a loan recorded on the books of FSF or any FSF Subsidiary. Neither FSF
nor any FSF Subsidiary is subject to any agreement, order, judgment, decree or
memorandum by or with any court, governmental authority, regulatory agency or
third party imposing any liability under any Environmental Laws.
(c) To the knowledge of FSF, FSF and the FSF Subsidiaries are in
compliance with all recommendations contained in any environmental audits,
analyses and surveys received by FSF relating to all real and personal property
owned or leased by FSF or any FSF Subsidiary and all real and personal property
of which FSF or any FSF Subsidiary has or is judged to have managed or
supervised or participated in the management of.
(d) To the knowledge of FSF, there are no past or present actions,
activities, circumstances, conditions, events or incidents that could reasonably
form the basis of any Environmental Claim, or other claim or action or
governmental investigation that could result in the imposition of any liability
arising under any Environmental Laws, against FSF or any FSF Subsidiary or
against any person or entity whose liability for any Environmental Claim FSF or
any FSF Subsidiary has or may have retained or assumed, either contractually or
by operation of law.
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3.12 Loans; Allowance for Loan Losses
--------------------------------
(a) All of the loans on the books of FSF and the FSF Subsidiaries are
valid and properly documented and were made in the ordinary course of business,
and the security therefor, if any, is properly perfected. Neither the terms of
such loans, nor any of the loan documentation, nor the manner in which such
loans have been administered and serviced, nor FSF's procedures and practices of
approving or rejecting loan applications, violates any federal, state or local
law, rule, regulation or ordinance applicable thereto, including, without
limitation, the TILA, Regulations O and Z of the Federal Reserve Board, the CRA,
the Equal Credit Opportunity Act, as amended, and state laws, rules and
regulations relating to consumer protection, installment sales and usury.
(b) The allowances for loan losses reflected on the consolidated
balance sheets included in the Financial Statements of FSF are, in the
reasonable good faith judgment of management of FSF, adequate as of their
respective dates under the requirements of GAAP and applicable regulatory
requirements and guidelines.
3.13 Tax Matters
-----------
(a) FSF and the FSF Subsidiaries and each of their predecessors have
timely filed (or requests for extensions have been timely filed and any such
extensions either are pending or have been granted and have not expired) all
federal, state and local (and, if applicable, foreign) tax returns required by
applicable law to be filed by them (including, without limitation, estimated tax
returns, income tax returns, information returns, and withholding and employment
tax returns) and have paid, or where payment is not required to have been made,
have set up an adequate reserve or accrual for the payment of, all taxes
required to be paid in respect of the periods covered by such returns and, as of
the Effective Time, will have paid, or where payment is not required to have
been made, will have set up an adequate reserve or accrual for the payment of,
all taxes for any subsequent periods ending on or prior to the Effective Time.
FSF and the FSF Subsidiaries have paid, or where payment is not required to have
been made have set up an adequate reserve or accrual for payment of, all taxes
required to be paid or accrued for the preceding or current fiscal year for
which a return is not yet due.
(b) All federal, state and local (and, if applicable, foreign) tax
returns filed by FSF and the FSF Subsidiaries are complete and accurate. Neither
FSF nor any FSF Subsidiary is delinquent in the payment of any tax, assessment
or governmental charge. No deficiencies for any tax, assessment or governmental
charge have been proposed, asserted or assessed (tentatively or otherwise)
against FSF or any FSF Subsidiary which have not been settled and paid. There
are currently no agreements in effect with respect to FSF or any FSF Subsidiary
to extend the period of limitations for the assessment or collection of any tax.
No audit examination or deficiency or refund litigation with respect to such
returns is pending.
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(c) Deferred taxes have been provided for in accordance with GAAP
consistently applied.
(d) Neither FSF nor any of the FSF Subsidiaries is a party to any tax
allocation or sharing agreement or has been a member of an affiliated group
filing a consolidated federal income tax return (other than a group the common
parent of which was FSF or a FSF subsidiary) or has any liability for taxes of
any person (other than FSF and the FSF Subsidiaries) under Treasury Regulation
Section 1.1502-6 (or any similar provision of state, local or foreign law) as a
transferee or successor or by contract or otherwise.
(e) Each of FSF and the FSF Subsidiaries is in compliance with, and its
records contain all information and documents (including properly completed IRS
Forms W-9) necessary to comply with, all applicable information reporting and
tax withholding requirements under federal, state, and local tax laws, and such
records identify with specificity all accounts subject to backup withholding
under Section 3406 of the Code.
(f) Neither FSF nor any of the FSF Subsidiaries has made any payments,
is obligated to make any payments, or is a party to any contract that could
obligate it to make any payments that would be disallowed as a deduction under
Section 280G or 162(m) of the Code.
3.14 Employees; Compensation; Benefit Plans
--------------------------------------
(a) Compensation. FSF has Disclosed a complete and correct list of the
------------
name, age, position, rate of compensation and any incentive compensation
arrangements, bonuses or commissions or fringe or other benefits, whether
payable in cash or in kind, of each director, shareholder, independent
contractor, consultant and agent of FSF and of each FSF Subsidiary and each
other person (in each case other than as an employee) to whom FSF or any FSF
Subsidiary pays or provides, or has an obligation, agreement (written or
unwritten), policy or practice of paying or providing, retirement, health,
welfare or other benefits of any kind or description whatsoever.
(b) Employee Benefit Plans.
----------------------
(i) FSF has Disclosed an accurate and complete list of all
Plans, as defined below, contributed to, maintained or sponsored by
FSF or any FSF Subsidiary, to which FSF or any FSF Subsidiary is
obligated to contribute or has any liability or potential liability,
whether direct or indirect, including all Plans contributed to,
maintained or sponsored by each member of the controlled group of
corporations, within the meaning of Sections 414(b), 414(c), 414(m)
and 414(o) of the Code, of which FSF or any FSF Subsidiary is a
member. For purposes of this Agreement, the term "Plan" shall mean a
plan, arrangement, agreement or program described in the foregoing
provisions of this Section 3.14(b)(i) and which is: (A) a
profit-sharing, deferred compensation, bonus, stock option, stock
purchase, pension, retainer, consulting, retirement, severance,
welfare or
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incentive plan, agreement or arrangement, whether or not funded and
whether or not terminated (only if such Plan has assets or
liabilities), (B) an employment agreement, (C) a personnel policy or
fringe benefit plan, policy, program or arrangement providing for
benefits or perquisites to current or former employees, officers,
directors or agents, whether or not funded, and whether or not
terminated, including, without limitation, benefits relating to
automobiles, clubs, vacation, child care, parenting, sabbatical, sick
leave, severance, medical, dental, hospitalization, life insurance and
other types of insurance, or (D) any other employee benefit plan as
defined in Section 3(3) of ERISA, whether or not funded and whether or
not terminated.
(ii) Neither FSF nor any FSF Subsidiary contributes to, has an
obligation to contribute to or otherwise has any liability or
potential liability with respect to (A) any multiemployer plan as
defined in Section 3(37) of ERISA, (B) any plan of the type described
in Sections 4063 and 4064 of ERISA or in Section 413 of the Code (and
regulations promulgated thereunder), or (C) any plan which provides
health, life insurance, accident or other "welfare-type" benefits to
current or future retirees or former employees or directors, their
spouses or dependents, other than in accordance with Section 4980B of
the Code or applicable state continuation coverage law.
(iii) None of the Plans obligates FSF or any FSF Subsidiary to
pay separation, severance, termination or similar-type benefits solely
as a result of any transaction contemplated by this Agreement or
solely as a result of a "change in control," as such term is used in
Section 280G of the Code (and regulations promulgated thereunder).
(iv) Each Plan, and all related trusts, insurance contracts
and funds, has been maintained, funded and administered in compliance
in all material respects with its own terms and in compliance in all
material respects with all applicable laws and regulations, including
but not limited to ERISA and the Code. No actions, suits, claims,
complaints, charges, proceedings, hearings, examinations,
investigations, audits or demands with respect to the Plans (other
than routine claims for benefits) are pending or threatened, and there
are no facts which could give rise to or be expected to give rise to
any actions, suits, claims, complaints, charges, proceedings,
hearings, examinations, investigations, audits or demands. No Plan
that is subject to the funding requirements of Section 412 of the Code
or Section 302 of ERISA has incurred any "accumulated funding
deficiency" as such term is defined in such Sections of ERISA and the
Code, whether or not waived, and each Plan has always fully met the
funding standards required under Title I of ERISA and Section 412 of
the Code. No liability to the Pension Benefit Guaranty Corporation
("PBGC") (except for routine payment of premiums) has been or is
expected to be incurred with respect to any Plan that is subject to
Title IV of ERISA, no reportable event (as such term is defined in
Section 4043 of ERISA) has occurred with respect to any such Plan, and
the PBGC has not commenced or threatened the termination of any Plan.
None of the assets of FSF or any FSF Subsidiary is the subject of any
lien arising under Section 302(f) of ERISA or Section 412(n) of the
Code, neither FSF nor any FSF Subsidiary has been
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required to post any security pursuant to Section 307 of ERISA or
Section 401(a)(29) of the Code, and there are no facts which could be
expected to give rise to such lien or such posting of security. No
event has occurred and no condition exists that would subject FSF or
any FSF Subsidiary to any tax under Sections 4971, 4972, 4976, 4977 or
4979 of the Code or to a fine or penalty under Section 502(c) of
ERISA.
(v) Each Plan that is intended to be qualified under Section
401(a) of the Code, and each trust (if any) forming a part thereof,
has received a favorable determination letter from the IRS as to the
qualification under the Code of such Plan and the tax exempt status of
such related trust, and nothing has occurred since the date of such
determination letter that could adversely affect the qualification of
such Plan or the tax exempt status of such related trust.
(vi) No underfunded "defined benefit plan" (as such term is
defined in Section 3(35) of ERISA) has been, during the five years
preceding the Closing Date, transferred out of the controlled group of
corporations (within the meaning of Sections 414(b), (c), (m) and (o)
of the Code) of which FSF or any FSF Subsidiary is a member or was a
member during such five-year period.
(vii) As of September 30, 2003, the fair market value of the
assets of each Plan that is a tax qualified defined benefit plan
equaled or exceeded, and as of the Closing Date will equal or exceed,
the present value of all vested and nonvested liabilities thereunder
determined in accordance with reasonable actuarial methods, factors
and assumptions applicable to a defined benefit plan on an ongoing
basis. With respect to each Plan that is subject to the funding
requirements of Section 412 of the Code and Section 302 of ERISA, all
required contributions for all periods ending prior to or as of the
Closing Date (including periods from the first day of the then-current
plan year to the Closing Date and including all quarterly
contributions required in accordance with Section 412(m) of the Code)
shall have been made. With respect to each other Plan, all required
payments, premiums, contributions, reimbursements or accruals for all
periods ending prior to or as of the Closing Date shall have been
made. As of September 30, 2003, no tax qualified Plan has any unfunded
liabilities. The FSF ESOP has no unpaid debt in connection with the
acquisition of shares of FSF Common Stock, and there is no suspense
account maintained under the FSF ESOP.
(viii) No prohibited transaction (which shall mean any
transaction prohibited by Section 406 of ERISA and not exempt under
Section 408 of ERISA or Section 4975 of the Code, whether by
statutory, class or individual exemption) has occurred with respect to
any Plan which would result in the imposition, directly or indirectly,
of any excise tax, penalty or other liability under Section 4975 of
the Code or Section 409 or 502(i) of ERISA. Neither FSF nor, to the
best knowledge of FSF, any FSF Subsidiary, any trustee, administrator
or other fiduciary of any Plan, or any agent of any of the foregoing
has engaged in any transaction or acted or failed to act in a manner
that could subject FSF or
A-19
any FSF Subsidiary to any liability for breach of fiduciary duty under
ERISA or any other applicable law.
(ix) With respect to each Plan, all reports and information
required to be filed with any government agency or distributed to Plan
participants and their beneficiaries have been duly and timely filed
or distributed.
(x) FSF and each FSF Subsidiary has been and is presently in
compliance with all of the requirements of Section 4980B of the Code.
(xi) Neither FSF nor any FSF Subsidiary has a liability as of
September 30, 2003 under any Plan that, to the extent disclosure is
required under GAAP, is not reflected on the consolidated balance
sheet included in the Financial Statements of FSF as of September 30,
2003 or otherwise Disclosed.
(xii) Neither the consideration nor implementation of the
transactions contemplated under this Agreement will increase (A) FSF's
or any FSF Subsidiary's obligation to make contributions or any other
payments to fund benefits accrued under the Plans as of the date of
this Agreement or (B) the benefits accrued or payable with respect to
any participant under the Plans (except to the extent benefits may be
deemed increased by accelerated vesting, accelerated allocation of
previously unallocated Plan assets or by the conversion of all stock
options in accordance with Section 2.9 hereof).
(xiii) With respect to each Plan, FSF has Disclosed or made
available to MidCountry, true, complete and correct copies of (A) all
documents pursuant to which the Plans are maintained, funded and
administered, including summary plan descriptions, (B) the three most
recent annual reports (Form 5500 series) filed with the IRS (with
attachments), (C) the three most recent actuarial reports, if any, (D)
the three most recent financial statements, (E) all governmental
filings for the last three years, including, without limitation,
excise tax returns and reportable events filings, and (F) all
governmental rulings, determinations, and opinions (and pending
requests for governmental rulings, determinations, and opinions)
during the past three years.
(xiv) Each of the Plans as applied to FSF and any FSF
Subsidiary may be amended or terminated at any time by action of FSF's
Board of Directors, or such FSF's Subsidiary's Board of Directors, as
the case may be, or a committee of such Board of Directors or duly
authorized officer, in each case subject to the terms of the Plan and
compliance with applicable laws and regulations (and limited, in the
case of multiemployer plans, to termination of the participation of
FSF or a FSF Subsidiary thereunder).
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3.15 Certain Contracts
-----------------
(a) Neither FSF nor any FSF Subsidiary is a party to, is bound or
affected by, or receives benefits under (i) any agreement, arrangement or
commitment, written or oral, the default of which would have a Material Adverse
Effect, whether or not made in the ordinary course of business (other than loans
or loan commitments made or certificates or deposits received in the ordinary
course of the banking business) outstanding on the date hereof, or any agreement
restricting its business activities, including, without limitation, agreements
or memoranda of understanding with regulatory authorities, (ii) any agreement,
indenture or other instrument, written or oral, relating to the borrowing of
money by FSF or any FSF Subsidiary or the guarantee by FSF or any FSF Subsidiary
of any such obligation, which cannot be terminated within less than 30 days
after the Closing Date by FSF or any FSF Subsidiary (without payment of any
penalty or cost, except with respect to Federal Home Loan Bank advances), (iii)
any agreement, arrangement or commitment, written or oral, relating to the
employment of a consultant, independent contractor or agent, or the employment,
election or retention in office of any present or former director or officer,
which cannot be terminated within less than 30 days after the Closing Date by
FSF or any FSF Subsidiary (without payment of any penalty or cost), or that
provides benefits which are contingent, or the application of which is altered,
upon the occurrence of a transaction involving FSF of the nature contemplated by
this Agreement, or (iv) any agreement or plan, written or oral, including any
stock option plan, stock appreciation rights plan, restricted stock plan or
stock purchase plan, any of the benefits of which will be increased, or the
vesting of the benefits of which will be accelerated, by the occurrence of any
of the transactions contemplated by this Agreement or the value of any of the
benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement. Each matter Disclosed pursuant to this Section
3.15(a) is in full force and effect as of the date hereof.
(b) Neither FSF nor any FSF Subsidiary is in default under any material
agreement, commitment, arrangement, lease, insurance policy, or other
instrument, whether entered into in the ordinary course of business or otherwise
and whether written or oral, and there has not occurred any event that, with the
lapse of time or giving of notice or both, would constitute such a default.
A-21
3.16 Legal Proceedings; Regulatory Approvals
---------------------------------------
There are no actions, suits, claims, governmental investigations or
proceedings instituted, pending or, to the knowledge of FSF, threatened against
FSF or any FSF Subsidiary or against any asset, interest, plan or right of FSF
or any FSF Subsidiary, or, to the knowledge of FSF, against any officer,
director or employee of any of them in their capacity as such. There are no
actions, suits or proceedings instituted, pending or, to the knowledge of FSF,
threatened against any present or former director or officer of FSF or any FSF
Subsidiary that would reasonably be expected to give rise to a claim against FSF
or any FSF Subsidiary for indemnification. There are no actual or, to the
knowledge of FSF, threatened actions, suits or proceedings which present a claim
to restrain or prohibit the transactions contemplated herein. To the knowledge
of FSF, no fact or condition relating to FSF or any FSF Subsidiary exists
(including, without limitation, noncompliance with the CRA) that would prevent
FSF or MidCountry from obtaining all of the federal and state regulatory
approvals contemplated herein.
3.17 Compliance with Laws; Filings
-----------------------------
Each of FSF and each FSF Subsidiary is in compliance with all statutes
and regulations (including, but not limited to, the CRA, the TILA and
regulations promulgated thereunder, and other consumer banking laws), and has
obtained and maintained all permits, licenses and registrations applicable to
the conduct of its business, and neither FSF nor any FSF Subsidiary has received
notification that has not lapsed, been withdrawn or abandoned by any agency or
department of federal, state or local government (i) asserting a violation or
possible violation of any such statute or regulation, (ii) threatening to revoke
any permit, license, registration, or other government authorization, or (iii)
restricting or in any way limiting its operations (other than general regulatory
restrictions applicable to similarly-situated federal savings banks and their
holding companies generally). Neither FSF nor any FSF Subsidiary is subject to
any regulatory or supervisory cease and desist order, agreement, directive,
memorandum of understanding or commitment, and none of them has received any
communication requesting that it enter into any of the foregoing. Since
September 30, 2000, FSF and each of the FSF Subsidiaries has filed all reports,
registrations, notices and statements, and any amendments thereto, that it was
required to file with federal and state regulatory authorities, including,
without limitation, the OTS, Commission, FDIC, Federal Reserve Board and
applicable state regulators. Each such report, registration, notice and
statement, and each amendment thereto, complied with applicable legal
requirements.
3.18 Brokers and Finders
-------------------
Neither FSF nor any FSF Subsidiary, nor any of their respective
officers, directors or employees, has employed any broker, finder or financial
advisor or incurred any liability for any fees or commissions in connection with
the transactions contemplated herein, or in the Plan of Merger, except for an
obligation to the Financial Advisor, the nature and extent of which has been
Disclosed, for investment banking services, and except for fees to accountants
and lawyers.
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3.19 Repurchase Agreements; Derivatives
----------------------------------
(a) With respect to all agreements currently outstanding pursuant to
which FSF or any FSF Subsidiary has purchased securities subject to an agreement
to resell, FSF or the FSF Subsidiary has a valid, perfected first lien or
security interest in the securities or other collateral securing such agreement,
and the value of such collateral equals or exceeds the amount of the debt
secured thereby. With respect to all agreements currently outstanding pursuant
to which FSF or any FSF Subsidiary has sold securities subject to an agreement
to repurchase, neither FSF nor the FSF Subsidiary has pledged collateral having
a value at the time of entering into such pledge in excess of the amount of the
debt secured thereby. Neither FSF nor any FSF Subsidiary has pledged collateral
having a value at the time of entering into such pledge in excess of the amount
required under any interest rate swap or other similar agreement currently
outstanding.
(b) Neither FSF nor any FSF Subsidiary is a party to or has agreed to
enter into an exchange-traded or over-the-counter swap, forward, future, option,
cap, floor, or collar financial contract, or any other interest rate or foreign
currency protection contract not included on its balance sheets in the Financial
Statements, which is a financial derivative contract (including various
combinations thereof), except for options and forwards entered into in the
ordinary course of its mortgage lending business, liquidity management and
interest rate risk management, in each case consistent with past practice and
current policy.
3.20 Deposit Accounts
----------------
The deposit accounts of the FSF Subsidiaries that are depository
institutions are insured by the FDIC to the maximum extent permitted by federal
law, and the FSF Subsidiaries have paid all premiums and assessments and filed
all reports required to have been paid or filed under all rules and regulations
applicable to the FDIC.
3.21 Related Party Transactions
--------------------------
FSF has Disclosed all existing transactions, investments and loans,
including loan guarantees existing as of the date hereof, to which FSF or any
FSF Subsidiary is a party with any director, executive officer or 5% shareholder
of FSF or any person, corporation, or enterprise controlling, controlled by or
under common control with any of the foregoing. All such transactions,
investments and loans are on terms no less favorable to FSF than could be
obtained from unrelated parties.
3.22 Certain Information
-------------------
When the Proxy Statement is mailed, and at the time of the meeting of
shareholders of FSF to vote on the Plan of Merger, the Proxy Statement and all
amendments or supplements thereto, with respect to all information set forth
therein provided by FSF, (i) shall comply with the
A-23
applicable provisions of the Securities Laws, and (ii) shall not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements contained therein, in
light of the circumstances in which they were made, not misleading.
3.23 Regulatory Matters
------------------
Neither FSF nor any FSF Subsidiary has taken or agreed to take any
action which would or could reasonably be expected to materially impede or delay
receipt of any consents of regulatory authorities referred to in Section 5.4(b).
3.24 State Takeover Laws
-------------------
FSF and each FSF Subsidiary have taken all necessary action to exempt
the transactions contemplated by this Agreement from any applicable moratorium,
fair price, business combination, control share or other anti-takeover laws, and
no such laws shall be activated or applied as a result of such transactions.
3.25 Labor Relations
---------------
Neither FSF nor any FSF Subsidiary is the subject of any claim or
allegation that it has committed an unfair labor practice (within the meaning of
the National Labor Relations Act or comparable state law) or seeking to compel
it to bargain with any labor organization as to wages or conditions of
employment, nor is FSF or any FSF Subsidiary party to any collective bargaining
agreement. There is no strike or other labor dispute involving FSF or any FSF
Subsidiary, pending or threatened, or to the knowledge of FSF, is there any
activity involving any employees of FSF or any FSF Subsidiary seeking to certify
a collective bargaining unit or engaging in any other organization activity.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF MIDCOUNTRY AND INTERIM
MidCountry and Interim represent and warrant to FSF as follows (the
representations and warranties herein of MidCountry and Interim are made subject
to the applicable standard set forth in Section 6.2(a), and no such
representation or warranty shall be deemed to be inaccurate unless the
inaccuracy would permit FSF to refuse to consummate the Merger under such
applicable standard):
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4.1 Capital Structure of MidCountry
-------------------------------
The authorized capital stock of MidCountry consists of 50,000,000
shares of MidCountry Common Stock, no par value per share, and 25,000,000 shares
of MidCountry Preferred Stock. All outstanding shares of MidCountry capital
stock have been duly authorized and are validly issued, fully paid and
nonassessable.
4.2 Organization, Standing and Authority of MidCountry
--------------------------------------------------
(a) MidCountry is a corporation duly organized, validly existing and in
good standing under the laws of the State of Georgia, with full corporate power
and authority to carry on its business as now conducted and to own, lease and
operate its assets, and is duly qualified to do business in the states of the
United States and foreign jurisdictions where its ownership or leasing of
property or the conduct of its business requires such qualification. MidCountry
and each company controlling it is registered as a savings and loan holding
company under Section 10 of HOLA. Neither MidCountry nor any company controlling
it holds any investment or engages in any activity not permissible for a savings
and loan holding company under Section 10 of HOLA.
(b) Interim is a corporation, duly organized, validly existing and in
good standing under the laws of the State of Minnesota.
4.3 Authorized and Effective Agreement
----------------------------------
(a) MidCountry and Interim have all requisite corporate power and
authority to enter into, deliver and (subject to receipt of all necessary
government approvals) perform all of its obligations under this Agreement and
the Plan of Merger. The execution and delivery of this Agreement and the Plan of
Merger and consummation of the transactions contemplated hereby have been duly
and validly authorized by all necessary corporate action in respect thereof on
the part of MidCountry and Interim. This Agreement and the Plan of Merger
attached hereto constitute legal, valid and binding obligations of MidCountry
and Interim, and each is enforceable against MidCountry and Interim in
accordance with its terms, in each case subject to (i) bankruptcy, insolvency,
moratorium, reorganization, conservatorship, receivership or other similar laws
in effect from time to time relating to or affecting the enforcement of the
rights of creditors; and (ii) general principles of equity.
(b) Neither the execution and delivery of this Agreement or the Plan of
Merger, nor consummation of the transactions contemplated hereby, nor compliance
by MidCountry and Interim with any of the provisions hereof or thereof shall (i)
conflict with or result in a breach of any provision of the Articles of
Incorporation or Bylaws of MidCountry or any MidCountry Subsidiary, (ii)
constitute or result in a breach of any term, condition or provision of, or
constitute a default under, or give rise to any right of termination,
cancellation or acceleration with respect to, or result in the creation of any
lien, charge or encumbrance upon any property or asset of MidCountry or any
MidCountry Subsidiary pursuant to, any note, bond, mortgage, indenture,
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license, agreement or other instrument or obligation, or (iii) violate any
order, writ, injunction, decree, statute, rule or regulation applicable to
MidCountry or any MidCountry Subsidiary.
(c) Other than consents or approvals required from, or notices to,
regulatory authorities as provided in Section 5.4(b), no notice to, filing with,
or consent of, any public body or authority is necessary for the consummation by
MidCountry or Interim of the Merger and the other transactions contemplated in
this Agreement.
4.4 Organization, Standing and Authority of MidCountry Subsidiaries
---------------------------------------------------------------
Each of the MidCountry Subsidiaries is duly organized, validly existing
and in good standing under the laws of the jurisdiction in which it is
organized. MidCountry owns, directly or indirectly, all of the issued and
outstanding shares of capital stock of each of the MidCountry Subsidiaries. Each
of the MidCountry Subsidiaries (i) has full power and authority to carry on its
business as now conducted and to own, lease and operate its assets, and (ii) is
duly qualified to do business in the states of the United States and foreign
jurisdictions where its ownership or leasing of property or the conduct of its
business requires such qualification. Each MidCountry Subsidiary is only engaged
in activities permissible for subsidiaries of savings and loan holding companies
under Section 10 of HOLA.
4.5 Certain Information
-------------------
When the Proxy Statement is mailed, and at all times subsequent to such
mailing up to and including the time of the meeting of shareholders of FSF to
vote on the Merger, the Proxy Statement and all amendments or supplements
thereto, with respect to all information set forth therein relating to
MidCountry, (i) shall comply with the applicable provisions of the Securities
Laws, and (ii) shall not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements contained therein, in light of the circumstances in which they were
made, not misleading.
4.6 Regulatory Matters
------------------
Neither MidCountry nor any MidCountry Subsidiary has taken or agreed to
take any action which would or could reasonably be expected to impede or delay
receipt of any consents of regulatory authorities referred to in Section 5.4(b).
4.7 Financial Ability
-----------------
(a) Immediately prior to the Effective Time, MidCountry will have
adequate financial resources and cash available to consummate the transactions
contemplated by this Agreement and the Plan of Merger.
(b) Section 4.7 of the MidCountry Disclosure Memorandum contains a
complete and accurate description of the financing arrangements to be used by
MidCountry to complete the
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transactions contemplated by this Agreement (the "Financing"). The Financing is
sufficient in amount and nature for MidCountry to obtain all required regulatory
approvals.
4.8 Minute Books
------------
The minute books of MidCountry and each of the MidCountry Subsidiaries
contain or will contain at Closing accurate records of all meetings and other
corporate actions of their respective shareholders and Boards of Directors
(including committees of the Board of Directors), and the signatures contained
therein are the true signatures of the persons whose signatures they purport to
be.
4.9 Adverse Change
--------------
Since September 30, 2003, MidCountry and the MidCountry Subsidiaries
have not incurred any liability, whether accrued, absolute or contingent, except
as disclosed in the most recent MidCountry Financial Statements, or entered into
any transactions with Affiliates, in each case other than in the ordinary course
of business consistent with past practices, nor has there been any adverse
change or any fact or event involving a prospective adverse change in the
business, financial condition, results of operations or business prospects of
MidCountry or any of the MidCountry Subsidiaries.
4.10 Absence of Undisclosed Liabilities
----------------------------------
All liabilities (including contingent liabilities) of MidCountry and
the MidCountry Subsidiaries are disclosed in the most recent Financial
Statements of MidCountry or are normally recurring business obligations incurred
in the ordinary course of its business since the date of MidCountry's most
recent Financial Statements.
4.11 Allowance for Loan Losses
-------------------------
The allowances for loan losses reflected on the consolidated balance
sheets included in the Financial Statements of MidCountry are adequate as of
their respective dates under the requirements of GAAP and applicable regulatory
requirements and guidelines.
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4.12 Legal Proceedings; Regulatory Approvals
---------------------------------------
There are no actions, suits, claims, governmental investigations or
proceedings instituted, pending or, to the knowledge of MidCountry, threatened
against MidCountry or any MidCountry Subsidiary or against any asset, interest,
plan or right of MidCountry or any MidCountry Subsidiary, or, to the knowledge
of MidCountry, against any officer, director or employee of any of them in their
capacity as such. There are no actions, suits or proceedings instituted, pending
or, to the knowledge of MidCountry, threatened against any present or former
director or officer of MidCountry or any MidCountry Subsidiary that would
reasonably be expected to give rise to a claim against MidCountry or any
MidCountry Subsidiary for indemnification. There are no actual or, to the
knowledge of MidCountry, threatened actions, suits or proceedings which present
a claim to restrain or prohibit the transactions contemplated herein. To the
knowledge of MidCountry, no fact or condition relating to MidCountry or any
MidCountry Subsidiary exists (including, without limitation, noncompliance with
the CRA) that would prevent FSF or MidCountry from obtaining all of the federal
and state regulatory approvals contemplated herein.
4.13 Compliance with Laws; Filings
-----------------------------
Each of MidCountry and each MidCountry Subsidiary is in compliance with
all statutes and regulations (including, but not limited to, the CRA, the TILA
and regulations promulgated thereunder, and other consumer banking laws), and
has obtained and maintained all permits, licenses and registrations applicable
to the conduct of its business, and neither MidCountry nor any MidCountry
Subsidiary has received notification that has not lapsed, been withdrawn or
abandoned by any agency or department of federal, state or local government (i)
asserting a violation or possible violation of any such statute or regulation,
(ii) threatening to revoke any permit, license, registration, or other
government authorization, or (iii) restricting or in any way limiting its
operations. Neither MidCountry nor any MidCountry Subsidiary is subject to any
regulatory or supervisory cease and desist order, agreement, directive,
memorandum of understanding or commitment, and none of them has received any
communication requesting that it enter into any of the foregoing. Since
September 30, 1999, MidCountry and each of the MidCountry Subsidiaries has filed
all reports, registrations, notices and statements, and any amendments thereto,
that it was required to file with federal and state regulatory authorities,
including, without limitation, the OTS, Commission, FDIC, Federal Reserve Board
and applicable state regulators. Each such report, registration, notice and
statement, and each amendment thereto, complied with applicable legal
requirements.
4.14 Deposit Accounts
----------------
The deposit accounts of the MidCountry Subsidiaries that are depository
institutions are insured by the FDIC to the maximum extent permitted by federal
law, and the MidCountry Subsidiaries have paid all premiums and assessments and
filed all reports required to have been paid or filed under all rules and
regulations applicable to the FDIC.
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ARTICLE V
COVENANTS
5.1 FSF Shareholder Meeting
-----------------------
The Board of Directors of FSF agrees that it shall, at the time the
Proxy Statement is mailed to the shareholders of FSF, recommend that FSF's
shareholders vote for such approval; provided, that the Board of Directors of
FSF may withdraw or refuse to make such recommendation only if the Board of
Directors shall determine in good faith that such recommendation should not be
made in light of its fiduciary duty to FSF's shareholders after (i) consultation
with legal counsel or (ii) either (A) the withdrawal by the Financial Advisor of
its opinion referred to in Section 3.27 or (B) the delivery to the Board of
Directors of written advice from the Financial Advisor that the Merger
Consideration is either not fair or inadequate to the FSF shareholders from a
financial point of view.
5.2 Proxy Statement
---------------
FSF shall file a preliminary Proxy Statement with the Commission within
15 days after receipt by FSF of reasonable assurance that MidCountry has
obtained commitments, in a form reasonably acceptable to FSF, for at least 50%
of the Financing. FSF agrees to hold the meeting of FSF shareholders for the
purpose of approving this Agreement and the Plan of Merger within 60 days of
receipt of clearance from the Commission of the Proxy Statement. FSF shall use
their reasonable best efforts to cause the Proxy Statement to be approved by the
Commission for mailing to the FSF shareholders, and such Proxy Statement shall,
on the date of mailing, conform in all material respects to the requirements of
the Securities Laws and the applicable rules and regulations of the Commission
thereunder. FSF shall cause the Proxy Statement to be mailed to shareholders in
accordance with all applicable notice requirements under the Securities Laws and
the MBCA.
5.3 Plan of Merger
--------------
At the Effective Time, the Merger shall be effected in accordance with
the Plan of Merger. In connection therewith, MidCountry acknowledges that it (i)
has adopted the Plan of Merger, and (ii) will pay or cause to be paid when due
the Merger Consideration.
5.4 Additional Acts
---------------
(a) FSF agrees to take such actions requested by MidCountry as may be reasonably
necessary to modify the structure of, or to substitute parties to (so long as
such substitute is MidCountry or a MidCountry Subsidiary) the transactions
contemplated hereby, provided that such modifications do not change the Merger
Consideration or abrogate the covenants and other agreements contained in this
Agreement, including, without limitation, the covenant not to take
A-29
any action that would delay or impair the prospects of completing the Merger
pursuant to this Agreement and the Plan of Merger.
(b) As promptly as practicable after the date hereof but in no event more than
30 days from the date of this Agreement, MidCountry and FSF shall submit notice
or applications for prior approval of the transactions contemplated herein to
the OTS and any other federal, state or local government agency, department or
body to which notice is required or from which approval is required for
consummation of the Merger and the other transactions contemplated hereby. FSF
and MidCountry each represents and warrants to the other that all information
included (or submitted for inclusion) concerning it, its respective
Subsidiaries, and any of its respective directors, officers and shareholders,
shall be true, correct and complete in all material respects as of the date
presented.
5.5 Best Efforts
------------
Each of MidCountry and FSF shall use, and shall cause each of their
respective Subsidiaries to use, its best efforts in good faith to (i) furnish
such information as may be required in connection with and otherwise cooperate
in the preparation and filing of the documents referred to in Sections 5.2 and
5.4 or elsewhere herein, and (ii) take or cause to be taken all action necessary
or desirable on its part to fulfill the conditions in Article VI, and to
consummate the transactions herein contemplated at the earliest possible date.
Neither MidCountry nor FSF shall take, or cause, or to the best of its ability
permit to be taken, any action that would substantially delay or impair the
prospects of completing the Merger pursuant to this Agreement and the Plan of
Merger.
5.6 Certain Accounting Matters
--------------------------
FSF shall cooperate with MidCountry concerning accounting and financial
matters necessary or appropriate to facilitate the Merger (taking into account
MidCountry's policies, practices and procedures), including, without limitation,
issues arising in connection with record keeping, loan classification, valuation
adjustments, levels of loan loss reserves and other accounting practices;
provided, that any action taken pursuant to this Section 5.6 shall be in
accordance with GAAP and all regulations applicable to FSF, shall not be deemed
to constitute or result in the breach of any representation or warranty of FSF
contained in this Agreement and shall not be taken until such time as all of the
conditions to MidCountry's obligations to close have been satisfied or waived.
5.7 Access to Information
---------------------
FSF and MidCountry will each keep the other advised of all material
developments relevant to its business and the businesses of its Subsidiaries,
and to consummation of the Merger, and each shall provide to the other, upon
request, reasonable details of any such development. Upon reasonable notice, FSF
shall afford to representatives of MidCountry reasonable access,
A-30
during normal business hours during the period prior to the Effective Time, to
all of the properties, books, contracts, commitments and records of FSF and the
FSF Subsidiaries and, during such period, shall make available all information
concerning their businesses as may be reasonably requested. No investigation
pursuant to this Section 5.7 shall affect or be deemed to modify any
representation or warranty made by, or the conditions to the obligations
hereunder of, either party hereto. Each party hereto shall, and shall cause each
of its directors, officers, attorneys and advisors to, maintain the
confidentiality of all information obtained hereunder which is not otherwise
publicly disclosed by the other party, said undertakings with respect to
confidentiality to survive any termination of this Agreement pursuant to Section
7.1. In the event of the termination of this Agreement, each party shall return
to the other party upon request all confidential information previously
furnished in connection with the transactions contemplated by this Agreement.
5.8 Press Releases
--------------
MidCountry and FSF shall mutually agree as to the form and substance of
any press release related to this Agreement and the Plan of Merger or the
transactions contemplated hereby and thereby, and consult with each other as to
the form and substance of other public disclosures related thereto; provided,
that nothing contained herein shall prohibit either party, following
notification to the other party, from making any disclosure which in the opinion
of its counsel is required by law.
5.9 Forbearances of FSF
-------------------
Except with the prior written consent of MidCountry (which consent
shall not be unreasonably withheld) or as set forth in the FSF Disclosure
Memorandum, between the date hereof and the Effective Time, FSF shall not, and
shall cause each of the FSF Subsidiaries not to:
(a) carry on its business other than in the usual, regular and ordinary
course in substantially the same manner as heretofore conducted, or establish or
acquire any new Subsidiary or engage in any new type of activity or expand any
existing activities;
(b) declare, set aside, make or pay any dividend or other distribution
in respect of its capital stock, other than regularly scheduled quarterly
dividends of $0.35 per share of FSF Common Stock payable on record dates and in
amounts consistent with past practices;
(c) issue any shares of its capital stock (including treasury shares)
except pursuant to the exercise of any Rights;
(d) issue, grant or authorize any Rights or effect any
recapitalization, reclassification, stock dividend, stock split or like change
in capitalization;
(e) amend its Articles of Incorporation or Bylaws;
A-31
(f) impose or permit imposition, of any lien, charge or encumbrance on
any share of stock held by it in any FSF Subsidiary, or permit any such lien,
charge or encumbrance to exist; or waive or release any material right or cancel
or compromise any debt or claim, in each case other than in the ordinary course
of business;
(g) merge with any other entity or permit any other entity to merge
into it, or consolidate with any other entity; acquire control over any other
entity; or liquidate, sell or otherwise dispose of any assets or acquire any
assets other than in the ordinary course of its business consistent with past
practices;
(h) fail to comply in any material respect with any laws, regulations,
ordinances or governmental actions applicable to it and to the conduct of its
business;
(i) except as Disclosed, increase the rate of compensation of any of
its directors, officers or employees (excluding increases in compensation
resulting from the exercise of compensatory stock options outstanding as of the
date of this Agreement), or pay or agree to pay any bonus to, or provide any new
employee benefit or incentive to, any of its directors, officers or employees,
except for increases or payments made in the ordinary course of business
consistent with past practice pursuant to plans or arrangements in effect on the
date hereof;
(j) enter into or substantially modify (except as may be required by
applicable law or regulation) any pension, retirement, stock option, stock
purchase, stock appreciation right, savings, profit sharing, deferred
compensation, consulting, bonus, group insurance or other employee benefit,
incentive or welfare contract, plan or arrangement, or any trust agreement
related thereto, in respect of any of its directors, officers or other
employees; provided, however, that this Section 5.9(j) shall not prevent renewal
of any of the foregoing consistent with past practice;
(k) solicit or encourage inquiries or proposals with respect to,
furnish any information relating to, or participate in any negotiations or
discussions concerning, any acquisition or purchase of all or a substantial
portion of the assets of, or a substantial equity interest in, FSF or any FSF
Subsidiary or any business combination with FSF or any FSF Subsidiary other than
as contemplated by this Agreement; or authorize any officer, director, agent or
affiliate of FSF or any FSF Subsidiary to do any of the above; or fail to notify
MidCountry immediately if any such inquiries or proposals are received, any such
information is requested or required, or any such negotiations or discussions
are sought to be initiated; provided, that this subsection (k) shall not apply
to furnishing information, negotiations or discussions following an unsolicited
offer if, as a result of such offer, the Board of Directors of FSF determines,
after consultation with its legal counsel that it should take such actions in
light of its fiduciary duty to the FSF shareholders;
(l) enter into (i) any material agreement, arrangement or commitment
not made in the ordinary course of business, (ii) any material agreement,
indenture or other instrument not made in the ordinary course of business
relating to the borrowing of money by FSF or a FSF Subsidiary or
A-32
guarantee by FSF or a FSF Subsidiary of any obligation, (iii) any agreement,
arrangement or commitment relating to the employment or severance of a
consultant or the employment, severance, election or retention in office of any
present or former director, officer or employee (this clause shall not apply to
the election of directors by shareholders or the reappointment of officers in
the normal course), or (iv) any contract, agreement or understanding with a
labor union;
(m) change its lending, investment or asset liability management
policies in any material respect, except as may be required by applicable law,
regulation, or directives, and except that after approval of the Agreement and
the Plan of Merger by its shareholders and after receipt of the requisite
regulatory approvals for the transactions contemplated by this Agreement and the
Plan of Merger, FSF shall cooperate in good faith with MidCountry to adopt
policies, practices and procedures consistent with those utilized by MidCountry
and in accordance with GAAP and all applicable regulations, effective on or
before the Closing Date;
(n) change its methods of accounting in effect at September 30, 2003,
except as required by changes in GAAP concurred in by MidCountry, which
concurrence shall not be unreasonably withheld, or change any of its methods of
reporting income and deductions for federal income tax purposes from those
employed in the preparation of its federal income tax returns for the year ended
September 30, 2003, except as required by changes in law or regulation;
(o) incur any commitments for capital expenditures or obligation to
make capital expenditures in excess of $100,000, for any one expenditure, or
$500,000 in the aggregate;
(p) incur any indebtedness other than deposits from customers,
wholesale deposits or advances from the Federal Home Loan Bank of Des Moines or
Federal Reserve Bank, in each case in the ordinary course of business;
(q) take any action which would or could reasonably be expected to (i)
cause the Merger not to constitute a reorganization under Section 368 of the
Code as determined by MidCountry, (ii) result in any inaccuracy of a
representation or warranty herein which would allow for a termination of this
Agreement, or (iii) cause any of the conditions precedent to the transactions
contemplated by this Agreement to fail to be satisfied;
(r) dispose of any material assets other than in the ordinary course of
business; or
(s) agree to do any of the foregoing.
5.10 Employment and Consulting Agreements
------------------------------------
MidCountry (or its specified MidCountry Subsidiary) agrees to enter
into employment and consulting agreements as of the Effective Time with certain
executives of FSF substantially in the forms attached respectively as Annexes
B-1 through B-9.
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5.11 Section 401(k) Plan; ESOP; Other Employee Benefits
--------------------------------------------------
(a) Each employee of FSF at the Effective Time who becomes an employee
immediately following the Effective Time of MidCountry or a MidCountry
Subsidiary ("Employer Entity") shall be eligible to participate in MidCountry's
401(k) plan (subject to MidCountry's right to terminate such plan). For purposes
of administering MidCountry's 401(k) plan, service with FSF and the FSF
Subsidiaries shall be deemed to be service with MidCountry or the MidCountry
Subsidiaries for participation and vesting purposes, but not for purposes of
benefit accrual.
(b) (i) Each participant in the FSF ESOP not fully vested will become
fully vested in his or her FSF ESOP account as of the Effective Time. As
soon as practicable after the execution of this Agreement, FSF and
MidCountry will cooperate to cause the FSF ESOP to be amended and other
action taken, in a manner reasonably acceptable to FSF and MidCountry, to
provide that the FSF ESOP will terminate upon the Effective Time. Between
the date hereof and the Effective Time, FSF or a FSF Subsidiary shall make
contributions to the FSF ESOP in accordance with the provisions of the FSF
ESOP and consistent with past practice. FSF and MidCountry agree that,
subject to the conditions described herein, as soon as practicable after
the Effective Time, participants in the FSF ESOP shall be entitled at their
election to have the assets in their FSF ESOP accounts either distributed
to them in a lump sum or rolled over to another tax-qualified plan
(including the MidCountry 401(k) plan to the extent permitted by such plan)
or individual retirement account.
(ii) The actions relating to termination of the FSF ESOP will be
adopted conditional upon the consummation of the Merger and upon receiving
a favorable determination letter from the IRS with regard to the continued
qualification of the FSF ESOP. FSF and MidCountry will cooperate in FSF
submitting appropriate requests for any such determination letter to the
IRS and will use their best efforts to seek the issuance of such letter as
soon as practicable following the date hereof. FSF and MidCountry will
adopt such additional amendments to the FSF ESOP as may be required by the
IRS as a condition to granting such determination letter, provided that
such amendments do not (i) substantially change the terms outlined herein,
(ii) have a Material Adverse Effect on FSF or (iii) result in an additional
material liability to MidCountry.
(iii) As of and following the Effective Time, MidCountry shall cause
the FSF ESOP to be maintained for the exclusive benefit of employees and
other persons who were participants or beneficiaries therein prior to the
Effective Time, and shall proceed with termination of the FSF ESOP through
distribution of its assets in accordance with its terms (subject to the
amendments described herein and as otherwise may be required to comply with
applicable law or to obtain a favorable determination from the IRS as to
the continuing qualified status of the FSF ESOP); provided, however, that
no such termination
A-34
distributions from the FSF ESOP shall occur after the Effective Time until a
favorable determination letter has been received from the IRS.
(c) Each employee of FSF at the Effective Time who becomes an employee
immediately following the Effective Time of an Employer Entity shall be eligible
to participate in the group hospitalization, medical, dental, life, disability
and other welfare benefit plans and programs available to employees of the
Employer Entity, subject to the terms of such plans and programs; provided, that
service with FSF shall be deemed to be service with the Employer Entity for the
purpose of determining eligibility to participate and vesting (if applicable) in
such welfare plans and programs, but not for the purpose of computing benefits,
if any, determined in whole or in part with reference to service under any
defined benefit Plan, but prior service credit will be given for computing
benefits under any health, welfare, vacation or similar Plan. Coverage under the
group health plans of FSF and the FSF Subsidiaries will be deemed "creditable
coverage" within the meaning of ERISA Section 701(c) for purposes of any
preexisting condition limitation which may apply under any group health plan
maintained by an Employer Entity; provided, however, that no coverage prior to a
"significant break in coverage" as defined in ERISA Section 701(c)(2) shall be
counted as "creditable coverage."
(d) MidCountry agrees to honor all employment agreements, severance
agreements and deferred compensation agreements, that FSF and the FSF
Subsidiaries have with their current and former employees and directors and
which have been Disclosed to MidCountry pursuant to this Agreement, except to
the extent any such agreements shall be superseded or terminated at the Closing
or following the Closing Date.
(e) Not later than the Closing Date, First Federal fsb shall establish
one or more irrevocable grantor trusts each for the benefit of Don Glas, George
Loban and Richard Burgart and deposit such assets into such respective trusts
equal to the amount earned and non-forfeitable by each such person as of the
Closing Date with such trust assets to be paid out in accordance with the terms
of the respective salary continuation agreements as set forth in the FSF
Disclosure Memorandum.
(f) Notwithstanding anything to the contrary contained in this
Agreement, in no event shall FSF, MidCountry, the Surviving Corporation, or any
Subsidiary of the foregoing take any action or make any payments that would
result, either individually or in the aggregate, in the payment of a "parachute
payment" within the meaning of Code Section 280G to an employee or former
employee of FSF or a Subsidiary of FSF or that would result, either individually
or in the aggregate, in payments to such individuals that would be nondeductible
pursuant to Code Section 162(m). FSF and MidCountry shall use commercially
reasonable efforts to resolve matters relating to any of the foregoing.
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5.12 Directors and Officers Protection
---------------------------------
MidCountry or a MidCountry Subsidiary shall provide and keep in force
for a period of three years after the Effective Time directors' and officers'
liability insurance providing coverage to directors and officers of FSF for acts
or omissions occurring prior to the Effective Time. Such insurance shall provide
at least the same coverage and amounts as contained in FSF's policy on the date
hereof; provided, that in no event shall the annual premium on such policy
exceed 175% of the annual premium payments on FSF's policy in effect as of the
date hereof (the "Maximum Amount"). If the amount of the premiums necessary to
maintain or procure such insurance coverage exceeds the Maximum Amount,
MidCountry shall use its best efforts to maintain the most advantageous policies
of directors' and officers' liability insurance obtainable for a premium equal
to the Maximum Amount. Notwithstanding the foregoing, MidCountry further agrees
to indemnify all individuals who are or have been officers, directors or
employees of FSF or any FSF Subsidiary prior to the Effective Time from any acts
or omissions in such capacities prior to the Effective Time, to the extent that
such indemnification is provided pursuant to the Articles of Incorporation or
Bylaws of FSF on the date hereof and is permitted under the MBCA. If MidCountry
or the MidCountry Subsidiary maintaining the insurance provided for in this
Section 5.12 or any successors or assigns shall consolidate with or merge into
any other entity and shall not be the continuing or surviving entity of the
consolidation or merger, or shall transfer all or substantially all of its
assets to any entity, MidCountry agrees that proper provision shall be made so
that the successor or assign of MidCountry or the MidCountry Subsidiary shall
assume the obligations in this Section 5.12. This Section 5.12 is intended for
the benefit of and shall be enforceable by each indemnified officer and director
and their respective heirs and representatives.
5.13 Forbearances of MidCountry
--------------------------
Except with the prior written consent of FSF, neither MidCountry nor
any MidCountry Subsidiary shall take any action which would or might be expected
to (i) cause the business combination contemplated hereby not to constitute a
reorganization under Section 368 of the Code; (ii) result in any inaccuracy of a
representation or warranty herein which would allow for termination of this
Agreement; (iii) cause any of the conditions precedent to the transactions
contemplated by this Agreement to fail to be satisfied; or (iv) fail to comply
in any material respect with any laws, regulations, ordinances or governmental
actions applicable to it and to the conduct of its business.
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5.14 Reports
-------
Each of FSF and MidCountry shall file (and shall cause the FSF
Subsidiaries and the MidCountry Subsidiaries, respectively, to file), between
the date of this Agreement and the Effective Time, all reports required to be
filed by it with the Commission and any other regulatory authorities having
jurisdiction over such party, and shall deliver to MidCountry or FSF, as the
case may be, copies of all such reports promptly after the same are filed. If
financial statements are contained in any such reports filed with the
Commission, such financial statements will fairly present the consolidated
financial position of the entity filing such statements as of the dates
indicated and the consolidated results of operations, changes in shareholders'
equity, and cash flows for the periods then ended in accordance with GAAP
(subject in the case of interim financial statements to the absence of notes and
to normal year-end adjustments that are not material). As of their respective
dates, such reports filed with the Commission will comply in all material
respects with the Securities Laws and will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. Any financial statements contained
in any other reports to a regulatory authority other than the Commission shall
be prepared in accordance with requirements applicable to such reports.
5.15 Capital Raising
---------------
On or before December 31, 2004, MidCountry will complete the Financing.
As promptly as practicable after the date hereof, MidCountry shall proceed to
take all necessary actions to complete the Financing and to raise whatever kind
and amount of additional capital as may be required to consummate the
transactions contemplated by this Agreement. The disclosure document provided to
prospective investors in connection with the Financing (i) shall comply with the
applicable provisions of the Securities Laws, and (ii) shall not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements contained therein, in
light of the circumstances in which they were made, not misleading.
5.16 Advisory Board
--------------
As of the Effective Time of the Merger, MidCountry shall appoint
Messrs. Glas, Loban, and Burgart to an Advisory Board to MidCountry Bank for a
term of at least three years.
5.17 Support Agreements
------------------
Within ten (10) calendar days of the date of this Agreement, FSF shall
use its best efforts to cause each of the directors of FSF to execute and
deliver to MidCountry a Support Agreement substantially in the form of Annex D
to this Agreement. -------
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5.18 Pre-Closing Escrow Agreement
----------------------------
On the date of this Agreement, MidCountry and FSF shall execute and
deliver an Escrow Agreement substantially in the form attached hereto as Annex E
(the "Pre-Closing Escrow Agreement"), and each party shall deposit with the
escrow agent named therein $1,700,000 in immediately available funds, to be
disbursed as provided in the Pre-Closing Escrow Agreement.
5.19 Superior Proposal
-----------------
In the event FSF receives a Superior Proposal, FSF shall immediately
notify MidCountry of the terms of such Superior Proposal and shall give
MidCountry three (3) calendar days in which to consider any proposed changes to
the Merger Consideration, prior to FSF taking any action with respect to such
Superior Proposal.
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions Precedent - MidCountry and FSF
-----------------------------------------
The respective obligations of MidCountry and FSF to effect the
transactions contemplated by this Agreement shall be subject to satisfaction or
waiver of the following conditions at or prior to the Effective Time:
(a) All corporate action necessary to authorize the execution, delivery
and performance of this Agreement and the Plan of Merger, and consummation of
the transactions contemplated hereby and thereby, shall have been duly and
validly taken, including, without limitation, the approval by the shareholders
of FSF of the Agreement and the Plan of Merger;
(b) The parties shall have received all regulatory approvals required
in connection with the transactions contemplated by this Agreement and the Plan
of Merger, all notice periods and waiting periods with respect to such approvals
shall have passed and all such approvals shall be in effect; and
(c) None of MidCountry, any of the MidCountry Subsidiaries, FSF or any
of the FSF Subsidiaries shall be subject to any order, decree or injunction of a
court or agency of competent jurisdiction which enjoins or prohibits
consummation of the transactions contemplated by this Agreement.
(d) FSF and MidCountry shall have received Employment Agreements
substantially in the form of Annex C-1, C-2 and C-3 executed by MidCountry Bank
and Employment and Consulting Agreements substantially in the form of Annex C-4,
C-5 and C-6 executed by MidCountry Bank. Further, the payments detailed at
Section 5.05 of such Annex C-4, C-5 and C-6 for the benefit of Don Glas, George
Loban and Richard Burgart, respectively, shall have been
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made by MidCountry Bank or to the respective grantor trusts detailed at Section
5.11(e) of the Agreement.
6.2 Conditions Precedent - FSF
--------------------------
The obligations of FSF to effect the transactions contemplated by this
Agreement shall be subject to the satisfaction of the following additional
conditions at or prior to the Effective Time, unless waived by FSF pursuant to
Section 7.4:
(a) All representations and warranties of MidCountry shall be evaluated
as of the date of this Agreement and as of the Effective Time as though made on
and as of the Effective Time (or on the date designated in the case of any
representation and warranty which specifically relates to an earlier date),
except as otherwise contemplated by this Agreement or consented to in writing by
FSF. The representations and warranties of MidCountry set forth in Sections 4.1,
4.2 (except as relates to qualification), 4.3(a), 4.3(b)(i) and 4.4 (except as
relates to qualification) shall be true and correct in all material respects
(except for inaccuracies which are de minimis in amount). There shall not exist
inaccuracies in the representations and warranties of MidCountry set forth in
this Agreement (including the representations and warranties set forth in
Sections 4.1, 4.2, 4.3(a), 4.3(b)(i) and 4.4) such that the aggregate effect of
such inaccuracies has, or is reasonably likely to have, a Material Adverse
Effect on MidCountry;
(b) MidCountry shall have performed in all material respects all
obligations and complied in all material respects with all covenants required by
this Agreement;
(c) MidCountry shall have delivered to FSF a certificate, dated the
Closing Date and signed by its President and Chief Executive Officer or an
Executive Vice President, to the effect that the conditions set forth in
Sections 6.1(a), 6.1(b), 6.1(c), 6.1(d), 6.2(a) and 6.2(b) hereof, to the extent
applicable to MidCountry, have been satisfied and that there are no actions,
suits, claims, governmental investigations or procedures instituted, pending or,
to the best of such officer's knowledge, threatened that reasonably may be
expected to have a Material Adverse Effect on MidCountry or that present a claim
to restrain or prohibit the transactions contemplated herein or in the Plan of
Merger;
(d) Legal Opinion. MidCountry shall have delivered to FSF an opinion of
--------------
Womble Carlyle Sandridge & Rice, PLLC, counsel to MidCountry, dated as of the
Closing Date, addressed to and in form and substance satisfactory to FSF, to the
effect that:
(i) MidCountry is a corporation duly organized and validly
existing and in good standing under the laws of the State of Georgia
with corporate power and authority to conduct its business of which
such counsel has actual knowledge without any independent
investigation and to own and use its assets of which such counsel has
actual knowledge without any independent investigation. Each
MidCountry Subsidiary which is a depository institution is a federally
chartered savings bank with its deposits insured to
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applicable limits by the FDIC. Each MidCountry Subsidiary is validly
existing and in good standing under the laws of its jurisdiction of
organization with corporate power and authority to conduct its
business and to own its assets.
(ii) The execution, delivery and performance by MidCountry
and Interim of the Agreement and the consummation of the transactions
contemplated herein, including the Merger, have been duly and validly
authorized by all necessary corporate and shareholder action in
respect thereof on the part of MidCountry and Interim.
(iii) The execution, delivery and performance by MidCountry
and Interim of the Agreement and consummation of the transactions
contemplated therein do not violate or contravene any provision of the
Articles of Incorporation or Bylaws of MidCountry or Interim or result
in any breach of, or default or acceleration under any mortgage,
agreement, lease, indenture, or other instrument, order, judgment or
decree to which MidCountry or Interim is a party or by which they are
bound.
(iv) The Agreement has been duly and validly executed and
delivered by MidCountry and Interim (and assuming the Agreement is a
binding obligation of FSF) constitutes a valid and binding agreement
of MidCountry and Interim enforceable in accordance with its terms,
subject as to enforceability to applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally and subject to the application of
equitable principles and judicial discretion.
Such counsel shall be entitled to rely upon certificates of
officers of MidCountry and upon certificates of public officials as to all
factual matters relevant to such opinion, which certificate shall be in form and
substance reasonably satisfactory to such counsel. In addition, such opinion
shall contain such assumptions, qualifications and limitations as are customary
for transactions such as those contemplated by this Agreement.
(e) FSF shall have received a certificate from the Escrow Agent to the
effect that an amount equal to the aggregate Merger Consideration has been
deposited by MidCountry with it in immediately available funds; and
(f) FSF shall have paid all amounts due under existing employment
agreements between FSF, First Federal fsb and Donald A. Glas, George B. Loban,
and Richard H. Burgart, respectively, the obligations to pay which are
occasioned by the transactions contemplated by this Agreement and which shall
not exceed $3,681,575 in the aggregate, provided the Closing occurs in 2004, or
as such amount may be adjusted if the Closing occurs in 2005.
(g) First Federal fsb shall satisfy its obligations as set forth at
Section 5.11(e) herein.
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6.3 Conditions Precedent - MidCountry
---------------------------------
The obligations of MidCountry to effect the transactions contemplated
by this Agreement shall be subject to satisfaction of the following additional
conditions at or prior to the Effective Time, unless waived by MidCountry
pursuant to Section 7.4:
(a) All representations and warranties of FSF shall be evaluated as of
the date of this Agreement and as of the Effective Time as though made on and as
of the Effective Time (or on the date designated in the case of any
representation and warranty which specifically relates to an earlier date),
except as otherwise contemplated by this Agreement or consented to in writing by
MidCountry. The representations and warranties of FSF set forth in Sections 3.1,
3.2 (except the last sentence thereof), 3.3, 3.4 (except the last sentence
thereof), 3.5(a), 3.5(b)(i), 3.23 and 3.24 shall be true and correct in all
material respects (except for inaccuracies which are de minimis in amount).
There shall not exist inaccuracies in the representations and warranties of FSF
set forth in this Agreement (including the representations and warranties set
forth in the Sections designated in the preceding sentence) such that the effect
of such inaccuracies individually or in the aggregate has, or is reasonably
likely to have, a Material Adverse Effect on FSF and the FSF Subsidiaries taken
as a whole;
(b) No regulatory approval shall have imposed any condition or
requirement which, in the reasonable opinion of the Board of Directors of
MidCountry, would so materially adversely affect the business or economic
benefits to MidCountry of the transactions contemplated by this Agreement as to
render consummation of such transactions inadvisable or unduly burdensome;
(c) FSF shall have performed in all material respects all obligations
and complied in all material respects with all covenants required by this
Agreement;
(d) FSF shall have delivered to MidCountry a certificate, dated the
Closing Date and signed by its Chief Executive Officer or President, to the
effect that the conditions set forth in Sections 6.1(a), 6.1(c), 6.3(a) and
6.3(c) hereof, to the extent applicable to FSF, have been satisfied and that
there are no actions, suits, claims, governmental investigations or procedures
instituted, pending or, to the best of such officer's knowledge, threatened that
reasonably may be expected to have a Material Adverse Effect on FSF or that
present a claim to restrain or prohibit the transactions contemplated herein or
in the Plan of Merger;
(e) Legal Opinion. FSF shall have delivered to MidCountry an opinion of
--------------
Malizia Spidi & Fisch, P.C., counsel to FSF, dated as of the Closing Date,
addressed to and in form and substance satisfactory to MidCountry, to the effect
that:
(i) FSF is a corporation duly organized, validly existing and
in good standing under the laws of the State of Minnesota with
corporate power and authority to conduct its business of which such
counsel has actual knowledge without any independent investigation and
to own its assets of which such counsel has actual knowledge without
A-41
any independent investigation. Each FSF Subsidiary which is a
depository institution is a federally chartered savings bank with its
deposits insured to applicable limits by the FDIC. Each of the FSF
Subsidiaries is validly existing and in good standing under the laws of
its jurisdiction of organization with corporate power and authority to
conduct its business and to own its assets.
(ii) The Agreement has been duly and validly authorized,
executed and delivered on behalf of FSF by duly authorized officers or
representatives thereof, and (assuming this Agreement is a binding
obligation of MidCountry and Interim) constitutes a valid and binding
obligation of FSF enforceable in accordance with its terms, subject as
to enforceability to applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of creditors'
rights generally and subject to the application of equitable principles
and judicial discretion.
(iii) The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated herein,
including the Merger, have been duly and validly authorized by all
necessary corporate action in respect thereof on the part of FSF.
(iv) The execution, delivery and performance by FSF of the
Agreement does not violate or contravene any provision of the Articles
of Incorporation or Bylaws of FSF or result in any breach of, or
default or acceleration under any mortgage, agreement, lease,
indenture, or other instrument, order, judgment or decree to which FSF
is a party or by which they are bound.
Such counsel shall be entitled to rely upon certificates of
offices of FSF and upon certificates of public officials as to all factual
matters relevant to such opinion, which certificate shall be in form and
substance reasonably satisfactory to such counsel. In addition, such opinion
shall contain such assumptions, qualifications and limitations as are customary
for transactions such as those contemplated by this Agreement.
ARTICLE VII
TERMINATION, DEFAULT, WAIVER AND AMENDMENT
7.1 Termination
-----------
This Agreement may be terminated:
(a) At any time prior to the Effective Time, by the written, mutual
consent of the Boards of Directors of the parties hereto.
(b) At any time prior to the Effective Time, by either party provided
such party is not then in breach (i) in the event of a material breach by the
other party of any covenant or agreement
A-42
contained in this Agreement, or (ii) in the event of an inaccuracy of any
representation or warranty of the other party contained in this Agreement, which
inaccuracy would provide the nonbreaching party the ability to refuse to
consummate the Merger under the applicable standard set forth in Section 6.2(a)
hereof in the case of FSF and Section 6.3(a) hereof in the case of MidCountry;
and, in the case of (i) or (ii), if such breach or inaccuracy has not been cured
by the earlier of thirty days following written notice of such breach to the
party committing such breach or the Effective Time.
(c) At any time prior to the Effective Time, by either party hereto in
writing, if any of the conditions precedent to the obligations of the other
party to consummate the transactions contemplated hereby cannot be satisfied or
fulfilled prior to the Closing Date, and the party giving the notice is not in
material breach of any of its representations, warranties, covenants or
undertakings herein.
(d) At any time, by either party hereto in writing, if any of the
applications for prior approval referred to in Section 5.4 hereof are denied,
and the time period for appeals and requests for reconsideration has run.
(e) At any time, by either party hereto in writing, if the shareholders
of FSF do not approve the Agreement and the Plan of Merger by reason of the
failure to obtain the required vote at a duly held meeting of the shareholders
of FSF or at any adjournment or postponement thereof.
(f) At any time following March 31, 2005 by either party hereto in
writing, if the Effective Time has not occurred by the close of business on such
date, and the party giving the notice is not in material breach of any of its
representations, warranties, covenants or undertakings herein.
(g) By MidCountry if FSF enters into an agreement to be acquired by, or
merge or combine with, a third party in connection with a Superior Proposal.
(h) By FSF if, as a result of a Superior Proposal, the Board of
Directors of FSF determines, in good faith and in consultation with counsel,
that its fiduciary duties require that such Superior Proposal be accepted, after
compliance with the provisions of Section 5.19 of this Agreement.
7.2 Effect of Termination
---------------------
In the event this Agreement and the Plan of Merger is terminated
pursuant to Section 7.1 hereof, both this Agreement and the Plan of Merger shall
become void and have no effect, except that (i) the provisions hereof relating
to confidentiality and expenses set forth in Sections 5.7 and 8.1 hereof,
respectively, shall survive any such termination and (ii) a termination pursuant
to Section 7.1(b) hereof shall not relieve the breaching party from liability
for a breach of the covenant, agreement, representation or warranty giving rise
to such termination.
A-43
7.3 Survival of Representations, Warranties and Covenants
-----------------------------------------------------
All representations, warranties and covenants in this Agreement or the
Plan of Merger or in any instrument delivered pursuant hereto or thereto shall
expire on, and be terminated and extinguished at, the Effective Time, other than
covenants that by their terms are to be performed after the Effective Time
(including Sections 5.10, 5.11 and 5.12), provided that no such representations,
warranties or covenants shall be deemed to be terminated or extinguished so as
to deprive MidCountry or FSF (or any director, officer or controlling person
thereof) of any defense at law or in equity which otherwise would be available
against the claims of any person, including, without limitation, any shareholder
or former shareholder of either MidCountry or FSF, the aforesaid
representations, warranties and covenants being material inducements to
consummation by MidCountry and FSF of the transactions contemplated herein.
7.4 Waiver
------
Except with respect to any required regulatory approval, each party
hereto, by written instrument signed by an executive officer of such party, may
at any time (whether before or after approval of the Agreement and the Plan of
Merger by the FSF shareholders) extend the time for the performance of any of
the obligations or other acts of the other party hereto and may waive (i) any
inaccuracies of the other party in the representations or warranties contained
in this Agreement, the Plan of Merger or any document delivered pursuant hereto
or thereto, (ii) compliance with any of the covenants, undertakings or
agreements of the other party, or satisfaction of any of the conditions
precedent to its obligations, contained herein or in the Plan of Merger, or
(iii) the performance by the other party of any of its obligations set out
herein or therein; provided that no such extension or waiver, or amendment or
supplement pursuant to this Section 7.4, executed after approval by the FSF
shareholders of this Agreement and the Plan of Merger, shall reduce or change
the form of the Merger Consideration.
7.5 Amendment or Supplement
-----------------------
This Agreement or the Plan of Merger may be amended or supplemented at
any time in writing by mutual agreement of MidCountry and FSF, subject to the
proviso to Section 7.4.
ARTICLE VIII
MISCELLANEOUS
8.1 Expenses
--------
(a) Except as otherwise provided in this Section 8.1, each party hereto
shall bear and pay all costs and expenses incurred by it in connection with the
transactions contemplated by this Agreement, including, without limitation, fees
and expenses of its own financial consultants, accountants and counsel.
A-44
(b) Notwithstanding the provisions of Section 8.1(a) of this Agreement,
if for any reason this Agreement is terminated pursuant to Sections 7.1(b) or
7.1(c) of this Agreement, other than as provided in subparagraphs (c) and (d)
below, the breaching party agrees to pay the other party an amount equal to
$500,000, which sum represents the sole and exclusive compensation for the
non-breaching party's loss as a result of the transactions contemplated by this
Agreement not being consummated.
(c) MidCountry shall pay FSF a fee of $1,700,000 if this Agreement is
terminated pursuant to Section 7.1(b) due to the failure by MidCountry to
satisfy its covenant set forth at Section 5.15 of this Agreement.
(d) FSF shall pay MidCountry a fee of $1,700,000 if: (1) MidCountry
shall terminate this Agreement pursuant to Section 7.1(g); (2) FSF shall
terminate this Agreement pursuant to Section 7.1(h); or (3)(A) either party
shall terminate this Agreement pursuant to Section 7.1(e); and (B) at any time
after the date of this Agreement and at or before the date of the FSF
Shareholders' Meeting, a Superior Proposal shall have been publicly announced or
otherwise publicly communicated to shareholders of FSF; and if (C) within twelve
(12) months of the date of such termination of this Agreement, FSF or any of its
Subsidiaries executes any definitive agreement with respect to, or consummates,
any Superior Proposal.
(e) The payment of expenses provided for in Section 8.1(c) and (d)
above, if necessary, shall be disbursed in accordance with the provisions of the
Pre-Closing Escrow Agreement and such payment shall be the sole and exclusive
remedy for any party receiving payment pursuant to such sections.
8.2 Entire Agreement
----------------
This Agreement, including the documents and other writings referenced
herein or delivered pursuant hereto, contains the entire agreement between the
parties with respect to the transactions contemplated hereunder and thereunder
and supersedes all arrangements or understandings with respect thereto, written
or oral, entered into on or before the date hereof. The terms and conditions of
this Agreement and the MidCountry Option Agreement shall inure to the benefit of
and be binding upon the parties hereto and thereto and their respective
successors. Nothing in this Agreement, expressed or implied, is intended to
confer upon any party, other than the parties hereto and thereto, and their
respective successors, any rights, remedies, obligations or liabilities, except
for the rights of directors and officers of FSF to enforce rights in Sections
5.10, 5.11 and 5.12.
8.3 No Assignment
-------------
Except for a substitution of parties pursuant to Section 5.4(a), none
of the parties hereto may assign any of its rights or obligations under this
Agreement to any other person, except upon the prior written consent of each
other party.
A-45
8.4 Notices
-------
All notices or other communications which are required or permitted
hereunder shall be in writing and sufficient if delivered personally or sent by
nationally recognized overnight express courier or by facsimile transmission,
addressed or directed as follows:
If to FSF:
Mr. Donald A. Glas
Co-Chairman and Chief Executive Officer
FSF Financial Corp.
201 Main Street South
Hutchinson, Minnesota 55350
Telephone: (320) 234-4501
Fax: (320) 234-4542
With a required copy to:
James C. Stewart, Esq.
Malizia Spidi & Fisch, PC
1100 New York Avenue, N.W.
Suite 340 West
Washington, D. C. 20005
Telephone: (202) 434-4671
Fax: (202) 434-4661
If to MidCountry:
Mr. Robert F. Hatcher President and Chief Executive Officer
MidCountry Financial Corp.
P. O. Box 4164
Macon, Georgia 31208
Telephone: (478) 746-8222
Fax: (478) 746-8005
A-46
With a required copy to:
Mr. Richard A. Hills, Jr.
Executive Vice President and General Counsel
MidCountry Financial Corp.
Suite 3500, One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309
Telephone: (404) 888-7419
Fax: (404) 870-4874
Any party may by notice change the address to which notice or other
communications to it are to be delivered.
8.5 Specific Performance
--------------------
The parties agree that irreparable harm would occur in the event that
the provisions contained in this Agreement were not performed in accordance with
their specific terms or otherwise breached. It is therefore agreed that the
parties shall be entitled, in addition to its other remedies at law, to specific
performance of this Agreement if the other party shall, without cause, refuse to
consummate the transactions contemplated by this Agreement.
8.6 Captions
--------
The captions contained in this Agreement are for reference only and are
not part of this Agreement.
8.7 Counterparts
------------
This Agreement may be executed in any number of counterparts, and each
such counterpart shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one agreement.
8.8 Governing Law
-------------
This Agreement shall be governed by and construed in accordance with
the laws of the State of Minnesota, without regard to the principles of
conflicts of laws, except to the extent federal law may be applicable.
[remainder of page intentionally left blank]
A-47
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have caused this Agreement to be executed in counterparts by their duly
authorized officers, all as of the day and year first above written.
ATTEST: MIDCOUNTRY FINANCIAL CORP.
By: /s/Richard A. Hills, Jr.
--------------------------------
Richard A. Hills, Jr., Secretary By: /s/ Robert F. Hatcher
--------------------------------
Robert F. Hatcher, President and
Chief Executive Officer
MIDCOUNTRY INTERIM CORP. II
By: /s/Richard A. Hills, Jr.
--------------------------------
Richard A. Hills, Jr., Secretary By: /s/ Robert F. Hatcher
--------------------------------
Robert F. Hatcher, President and
Chief Executive Officer
FSF FINANCIAL CORP.
/s/ Richard H. Burgart /s/ Donald A. Glas
By: ----------------------------- -------------------------------
Richard H. Burgart, Secretary By: Donald A. Glas, Co-Chairman and
Chief Executive Officer
By: /s/ George B. Loban
-------------------------------
George B. Loban, Co-Chairman
and President
A-48
APPENDIX B
KEEFE, BRUYETTE & WOODS
May 14, 2004
Board of Directors
FSF Financial Corporation
201 Main Street South
Hutchinson, MN 55350-2573
Dear Board Members:
You have requested our opinion as an independent investment banking firm
regarding the fairness, from a financial point of view, to the stockholders of
FSF Financial Corporation ("FSF"), of the consideration to be paid to FSF
shareholders in the merger (the "Merger") between FSF and MidCountry Financial
Corporation, a Georgia corporation ("MidCountry"). We have not been requested to
opine as to, and our opinion does not in any manner address, FSF's underlying
business decision to proceed with or effect the Merger.
Pursuant to the Agreement and Plan of Merger, dated May 14, 2004, by and among
FSF and MidCountry (the "Agreement"), at the effective time of the Merger,
MidCountry will acquire all of FSF's issued and outstanding shares of common
stock. FSF shareholders will receive $35.00 in cash per share.
Keefe, Bruyette & Woods, Inc., as part of its investment banking business, is
regularly engaged in the evaluation of businesses and securities in connection
with mergers and acquisitions, negotiated underwritings, and distributions of
listed and unlisted securities. We are familiar with the market for common
stocks of publicly traded banks, savings institutions and bank and savings
institution holding companies.
In connection with this opinion we reviewed certain financial and other business
data supplied to us by FSF, including (i) the Agreement (ii) Annual Reports for
the years ended September 30, 2001, 2002 and 2003 (iii) Proxy Statements for the
years ended September 30, 2001, 2002 and 2003 (iv) unaudited financial
statements for the quarters ended December 31, 2003 and March 31, 2004 (v) and
other information we deemed relevant. We also discussed with senior management
of FSF, the current position and prospective outlook for FSF. We reviewed
financial and stock market data of other savings institutions and the financial
and structural terms of several other recent transactions involving mergers and
acquisitions of savings institutions or proposed changes of control of
comparably situated companies.
Keefe, Bruyette & Woods * 211 Bradenton Ave. * Dublin, OH 43017
614.766.8400 * Fax 614.766.8406
B-1
Board of Directors
FSF Financial Corporation
May 14, 2004
Page 2
For purposes of this opinion we have relied, without independent verification,
on the accuracy and completeness of the material furnished to us by FSF and the
material otherwise made available to us, including information from published
sources, and we have not made any independent effort to verify such data. With
respect to the financial information, including forecasts and asset valuations
we received from FSF, we assumed (with your consent) that they had been
reasonably prepared reflecting the best currently available estimates and
judgment of FSF's management. In addition, we have not made or obtained any
independent appraisals or evaluations of the assets or liabilities, and
potential and/or contingent liabilities of FSF. We have further relied on the
assurances of management of FSF that they are not aware of any facts that would
make such information inaccurate or misleading. We express no opinion on matters
of a legal, regulatory, tax or accounting nature or the ability of the Merger,
as set forth in the Agreement, to be consummated.
In rendering our opinion, we have assumed that in the course of obtaining the
necessary approvals for the Merger, no restrictions or conditions will be
imposed that would have a material adverse effect on the contemplated benefits
of the Merger to MidCountry or the ability to consummate the Merger. Our opinion
is based on the market, economic and other relevant considerations as they exist
and can be evaluated on the date hereof.
Consistent with the engagement letter with you, we have acted as financial
advisor to FSF in connection with the Merger and will receive a fee for such
services. In addition, FSF has agreed to indemnify us for certain liabilities
arising out of our engagement by FSF in connection with the Merger.
Based upon and subject to the foregoing, as outlined in the foregoing paragraphs
and based on such other matters as we considered relevant, it is our opinion
that as of the date hereof, the consideration to be paid by MidCountry in the
Merger is fair, from a financial point of view, to the stockholders of FSF.
This opinion may not, however, be summarized, excerpted from or otherwise
publicly referred to without our prior written consent, although this opinion
may be included in its entirety in the proxy statement of FSF used to solicit
stockholder approval of the Merger. It is understood that this letter is
directed to the Board of Directors of FSF in its consideration of the Agreement,
and is not intended to be and does not constitute a recommendation to any
stockholder as to how such stockholder should vote with respect to the Merger.
Very truly yours,
Keefe, Bruyette, & Woods, Inc.
B-2
APPENDIX C
SECTIONS 302A.471 AND 302A.473 OF THE MINNESOTA STATUTES
RELATING TO DISSENTERS' RIGHTS
302.A471 RIGHTS OF DISSENTING SHAREHOLDERS.
Subdivision 1. ACTIONS CREATING RIGHTS. A shareholder of a corporation
may dissent from, and obtain payment for the fair value of the shareholder's
shares in the event of, any of the following corporate actions:
(a) an amendment of the articles that materially and adversely affects
the rights or preferences of the shares of the dissenting shareholder in that
it:
1. alters or abolishes a preferential right of the shares;
2. creates, alters, or abolishes a right in respect of the redemption
of the shares, including a provision respecting a sinking fund for the
redemption or repurchase of the shares;
3. alters or abolishes a preemptive right of the holder of the shares
to acquire shares, securities other than shares, or rights to purchase shares or
securities other than shares;
4. excludes or limits the right of a shareholder to vote on a matter,
or to cumulate votes, except as the right may be excluded or limited through the
authorization or issuance of securities of an existing or new class or series
with similar or different voting rights; except that an amendment to the
articles of an issuing public corporation that provides that section 302A.671
does not apply to a control share acquisition does not give rise to the right to
obtain payment under this section;
(b) a sale, lease, transfer, or other disposition of all or
substantially all of the property and assets of the corporation, but not
including a transaction permitted without shareholder approval in section
302A.661, subdivision 1, or a disposition in dissolution described in section
302A.725, subdivision 2, or a disposition pursuant to an order of a court, or a
disposition for cash on terms requiring that all or substantially all of the net
proceeds of disposition be distributed to the shareholders in accordance with
their respective interests within one year after the date of disposition;
(c) a plan of merger, whether under this chapter or under chapter 322B,
to which the corporation is a constituent organization, except as provided in
subdivision 3, and except for a plan of merger adopted under section 302A.626;
(d) a plan of exchange, whether under this chapter or under chapter
322B, to which the corporation is a party as the corporation whose shares will
be acquired by the acquiring corporation, except as provided in subdivision 3;
or
C-1
(e) any other corporate action taken pursuant to a shareholder vote with
respect to which the articles, the bylaws, or a resolution approved by the board
directs that dissenting shareholders may obtain payment for their shares.
Subdivision. 2. BENEFICIAL OWNERS. (a) A shareholder shall not assert
dissenters' rights as to less than all of the shares registered in the name of
the shareholder, unless the shareholder dissents with respect to all the shares
that are beneficially owned by another person but registered in the name of the
shareholder and discloses the name and address of each beneficial owner on whose
behalf the shareholder dissents. In that event, the rights of the dissenter
shall be determined as if the shares as to which the shareholder has dissented
and the other shares were registered in the names of different shareholders.
(b) A beneficial owner of shares who is not the shareholder may assert
dissenters' rights with respect to shares held on behalf of the beneficial
owner, and shall be treated as a dissenting shareholder under the terms of this
section and section 302A.473, if the beneficial owner submits to the corporation
at the time of or before the assertion of the rights a written consent of the
shareholder.
Subdivision. 3. RIGHTS NOT TO APPLY. (a) Unless the articles, the bylaws,
or a resolution approved by the board otherwise provide, the right to obtain
payment under this section does not apply to a shareholder of (1) the surviving
corporation in a merger with respect to shares of the shareholder that are not
entitled to be voted on the merger and are not canceled or exchanged in the
merger or (2) the corporation whose shares will be acquired by the acquiring
corporation in a plan of exchange with respect to shares of the shareholder that
are not entitled to be voted on the plan of exchange and are not exchanged in
the plan of exchange.
(b) If a date is fixed according to section 302A.445, subdivision 1, for
the determination of shareholders entitled to receive notice of and to vote on
an action described in subdivision 1, only shareholders as of the date fixed,
and beneficial owners as of the date fixed who hold through shareholders, as
provided in subdivision 2, may exercise dissenters' rights.
Subdivision. 4. OTHER RIGHTS. The shareholders of a corporation who have a
right under this section to obtain payment for their shares do not have a right
at law or in equity to have a corporate action described in subdivision 1 set
aside or rescinded, except when the corporate action is fraudulent with regard
to the complaining shareholder or the corporation.
302A.473 PROCEDURES FOR ASSERTING DISSENTERS' RIGHTS.
Subdivision 1. DEFINITIONS. (a) For purposes of this section, the terms
defined in this subdivision have the meanings given them.
(b) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action referred to in section 302A.471, subdivision 1 or the
successor by merger of that issuer.
C-2
(c) "Fair value of the shares" means the value of the shares of a
corporation immediately before the effective date of the corporate action
referred to in section 302A.471, subdivision 1.
(d) "Interest" means interest commencing five days afer the effective date
of the corporate action referred to in section 302A.471, subdivision 1, up to
and including the date of payment, calculated at the rate provided in section
549.09 for interest on verdicts and judgments.
Subd. 2. NOTICE OF ACTION. If a corporation calls a shareholder meeting at
which any action described in section 302A.471, subdivision 1 is to be voted
upon, the notice of the meeting shall inform each shareholder of the right to
dissent and shall include a copy of section 302A.471 and this section and a
brief description of the procedure to be followed under these sections.
Subd. 3. NOTICE OF DISSENT. If the proposed action must be approved by the
shareholders, a shareholder who is entitled to dissent under section 302A.471
and who wishes to exercise dissenters' rights must file with the corporation
before the vote on the proposed action a written notice of intent to demand the
fair value of the shares owned by the shareholder and must not vote the shares
in favor of the proposed action.
Subd. 4. NOTICE OF PROCEDURE; DEPOSIT OF SHARES. (a) After the proposed
action has been approved by the board and, if necessary, the shareholders, the
corporation shall send to all shareholders who have complied with subdivision 3
and to all shareholders entitled to dissent if no shareholder vote was required,
a notice that contains:
(1) the address to which a demand for payment and certificates of
certificated shares must be sent in order to obtain payment and the date by
which they must be received;
(2) any restrictions on transfer of uncertificated shares that will apply
after the demand for payment is received;
(3) a form to be used to certify the date on which the shareholder, or the
beneficial owner on whose behalf the shareholder dissents, acquired the shares
or an interest in them and to demand payment; and
(4) a copy of section 302A.471 and this section and a brief description of
the procedures to be followed under these sections.
(b) In order to receive the fair value of the shares, a dissenting
shareholder must demand payment and deposit certificated shares or comply with
any restrictions on transfer of uncertificated shares within 30 days after the
notice required by paragraph (a) was given, but the dissenter retains all other
rights of a shareholder until the proposed action takes effect.
Subd. 5 PAYMENT; RETURN OF SHARES. (a) After the corporate action takes
effect, or after the corporation receives a valid demand for payment, whichever
is later, the corporation shall remit to each dissenting shareholder who has
complied with subdivisions 3 and 4 the amount the corporation estimates to be
the fair value of the shares, plus interest, accompanied by:
C-3
(1) the corporation's closing balance sheet and statement of income for the
fiscal year ending not more than 16 months before the effective date of the
corporate action, together with the latest available interim financial
statements;
(2) an estimate by the corporation of the fair value of the shares and a
brief description of the method used to reach the estimate; and
(3) a copy of section 302A.471 and this section and a brief description of
the procedure to be followed in demanding supplemental payment.
(b) The corporation may withhold the remittance described in paragraph (a)
from a person who was not a shareholder on the date the action dissented from
was first announced to the public or who is dissenting on behalf of a person who
was not a beneficial owner on that date. If the dissenter has complied with
subdivisions 3 and 4, the corporation shall forward to the dissenter the
materials described in paragraph (a), a statement of the reason for withholding
the remittance, and an offer to pay to the dissenter the amount listed in the
materials if the dissenter agrees to accept the amount in full satisfaction. The
dissenter may decline the offer and demand payment under subdivision 6. Failure
to do so entitles the dissenter only to the amount offered. If the dissenter
makes demand, subdivisions 7 and 8 apply.
(c) If the corporation fails to remit payment within 60 days of the deposit
of certificates or the imposition of transfer restrictions on uncertificated
shares, it shall return all deposited certificates and cancel all transfer
restrictions. However, the corporation may again give notice under subdivision 4
and require deposit or restrict transfer at a later time.
Subd. 6. SUPPLEMENTAL PAYMENT; DEMAND. If a dissenter believes that the
amount remitted under subdivision 5 is less than the fair value of the shares
plus interest, the dissenter may give written notice to the corporation of the
dissenter's own estimate of the fair value of the shares, plus interest, within
30 days after the corporation mails the remittance under subdivision 5, and
demand payment of the difference. Otherwise, a dissenter is entitled only to the
amount remitted by the corporation.
Subd. 7. PETITION; DETERMINATION. If the corporation receives a demand
under subdivision 6, it shall, within 60 days after receiving the demand, either
pay to the dissenter the amount demanded or agreed to by the dissenter after
discussion with the corporation or file in court a petition requesting that the
court determine the fair value of the shares, plus interest. The petition shall
be filed in the county in which the registered office of the corporation is
located, except that a surviving foreign corporation that receives a demand
relating to the shares of a constituent domestic corporation shall file the
petition in the county in this state in which the last registered office of the
constituent corporation was located. The petition shall name as parties all
dissenters who have demanded payment under subdivision 6 and who have not
reached agreement with the corporation. The corporation shall, after filing the
petition, serve all parties with a summons and copy of the petition under the
rules of civil procedure. Nonresidents of this state may be served by registered
or certified mail or by publication as provided by law. Except as otherwise
provided, the rules of civil procedure apply to this proceeding. The
jurisdiction of the court is plenary and exclusive. The court may appoint
appraisers, with powers and authorities the court deems proper, to receive
evidence on and recommend the amount of the fair value of the shares.
C-4
The court shall determine whether the shareholder or shareholders in question
have fully complied with the requirements of this section, and shall determine
the fair value of the shares, taking into account any and all factors the court
finds relevant, computed by any method or combination of methods that the court,
in its discretion, sees fit to use, whether or not used by the corporation or by
a dissenter. The fair value of the shares as determined by the court is binding
on all shareholders, wherever located. A dissenter is entitled to judgment in
cash for the amount by which the fair value of the shares as determined by the
court, plus interest, exceeds the amount, if any, remitted under subdivision 5,
but shall not be liable to the corporation for the amount, if any, by which the
amount, if any, remitted to the dissenter under subdivision 5 exceeds the fair
value of the shares as determined by the court, plus interest.
Subd. 8. COSTS; FEES; EXPENSES. (a) The court shall determine the costs and
expenses of a proceeding under subdivision 7, including the reasonable expenses
and compensation of any appraisers appointed by the court, and shall assess
those costs and expenses against the corporation, except that the court may
assess part or all of those costs and expenses against a dissenter whose action
in demanding payment under subdivision 6 is found to be arbitrary, vexatious, or
not in good faith.
(b) If the court finds that the corporation has failed to comply
substantially with this section, the court may assess all fees and expenses of
any experts or attorneys as the court deems equitable. These fees and expenses
may also be assessed against a person who has acted arbitrarily, vexatiously, or
not in good faith in bringing the proceeding, and may be awarded to a party
injured by those actions.
(c) The court may award, in its discretion, fees and expenses to an
attorney for the dissenters out of the amount awarded to the dissenters, if any.
C-5
FSF FINANCIAL CORP.
201 MAIN STREET SOUTH
HUTCHINSON, MINNESOTA 55350
SPECIAL MEETING OF SHAREHOLDERS (_______________, 2004)
THIS PROXY IS SOLICTED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints the Board of Directors of FSF Financial Corp.
("FSF"), or its designee, with full powers of substitution, to act as attorneys
and proxies for the undersigned, to vote all shares of common stock of FSF which
the undersigned is entitled to vote at the Special Meeting of Shareholders (the
"Meeting"), to be held at the Victorian Inn, 1000 Highway 7 West, Hutchinson,
Minnesota, on __________, ____________, 2004 at __:__ _.m., local time, and at
any and all adjournments thereof, as follows:
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS
SIGNED PROXY WILL BE VOTED FOR THE PROPOSITION STATED. IF ANY OTHER BUSINESS IS
PRESENTED AT THE MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED IN THIS PROXY
IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO
OTHER BUSINESS TO BE PRESENTED AT THE MEETING.
FOR AGAINST ABSTAIN
--- ------- -------
1. Proposal to approve and adopt an Agreement and Plan of Merger, dated
May 14, 2004, by and among MidCountry Financial Corp. ("MidCountry),
MidCountry Interim II ("Interim") and FSF Financial Corp. ("FSF"),
pursuant to which, among other things, (i) Interim, a newly-formed subsidiary
of MidCountry will merge with and into FSF and (ii) upon consummation of the
merger, each outstanding share of FSF common stock (other than dissenting
shares) will be converted into the right to receive $35.00 in cash, without
interest. [ ] [ ] [ ]
2. Any other matter which may properly come before the Meeting or any
adjournment thereof in the discretion of the proxy holder.
The Board of Directors recommends a vote "FOR" the above proposition.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
Should the undersigned be present and elects to vote at the Meeting, or at
any adjournments thereof, and after notification to the Secretary of FSF at the
Meeting of the shareholder's decision to terminate this proxy, the power of said
attorneys and proxies shall be deemed terminated and of no further force and
effect. The undersigned may also revoke this proxy by filing a subsequently
dated proxy or by notifying the Secretary of FSF of his or her decision to
terminate this proxy.
The undersigned acknowledges receipt from FSF prior to the execution of
this proxy of a Notice of Special Meeting and a Proxy Statement dated
____________, 2004.
Please check here if you
Dated: ____________________, 2004 [ ] plan to attend the Meeting.
___________________________________ ________________________________
SIGNATURE OF SHAREHOLDER SIGNATURE OF SHAREHOLDER
___________________________________ ________________________________
PRINT NAME OF SHAREHOLDER PRINT NAME OF SHAREHOLDER
Please sign exactly as your name appears on this form of proxy. When signing as
attorney, executor, administrator, trustee, or guardian, please give your full
title. If shares are held jointly, each holder should sign.
PLEASE COMPLETE, DATE, SIGN, AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
INTERNET AND TELEPHONE VOTING INSTRUCTIONS: You can vote by telephone or
internet! Available 24 hours a day 7 days a week! Instead of mailing your proxy,
you may choose one of the two voting methods outlined below to vote your proxy.
Have proxy card in hand when you call.
TO VOTE USING THE TELEPHONE: Call toll free 1-___-___-____ from a touch tone
telephone. There is NO CHARGE for this call. Enter your 14 digit CONTROL NUMBER
and 5 digit PIN NUMBER located at the bottom of this proxy and then listen for
voting instructions.
INTERNET VOTING INSTRUCTIONS: Go to the following web site
www.computershare.com/us/proxy - Enter your 14 digit CONTROL NUMBER and 5 digit
PIN NUMBER located at the bottom of this proxy and then follow the voting
instructions on the screen. If you vote by telephone or the internet, please DO
NOT mail back this proxy card.
PROXY CARD FOR EMPLOYEE STOCK OWNERSHIP PLAN
- --------------------------------------------------------------------------------
FSF FINANCIAL CORP.
201 MAIN STREET SOUTH
HUTCHINSON, MINNESOTA 55350
- --------------------------------------------------------------------------------
SPECIAL MEETING OF SHAREHOLDERS
_______________, 2004
- --------------------------------------------------------------------------------
The undersigned hereby appoints the Board of Directors of FSF Financial
Corp. ("FSF"), or its designee, with full powers of substitution, to act as
attorneys and proxies for the undersigned, to vote all shares of common stock of
FSF which the undersigned is entitled to vote at the Special Meeting of
Shareholders (the "Meeting"), to be held at the Victorian Inn, 1000 Highway 7
West, Hutchinson, Minnesota, on __________, ____________, 2004 at __:__ _.m.,
local time, and at any and all adjournments thereof, as follows:
FOR AGAINST ABSTAIN
--- ------- -------
1. Proposal to approve and adopt an Agreement and Plan of Merger, dated
May 14, 2004, by and among MidCountry Financial Corp. ("MidCountry),
MidCountry Interim II ("Interim") and FSF Financial Corp. ("FSF"),
pursuant to which, among other things, (i) Interim, a newly-formed
subsidiary of MidCountry will merge with and into FSF and (ii) upon
consummation of the merger, each outstanding share of FSF common stock
(other than dissenting shares) will be converted into the right to receive
$35.00 in cash, without interest. [ ] [ ] [ ]
2. Any other matter which may properly come before the Meeting or any
adjournment thereof in the discretion of the proxy holder.
The Board of Directors recommends a vote "FOR" the above proposition.
- --------------------------------------------------------------------------------
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS
SIGNED PROXY WILL BE VOTED FOR THE PROPOSITION STATED. IF ANY OTHER BUSINESS IS
PRESENTED AT THE MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED IN THIS PROXY
IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO
OTHER BUSINESS TO BE PRESENTED AT THE MEETING.
- --------------------------------------------------------------------------------
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
Should the undersigned be present and elects to vote at the Meeting, or at
any adjournments thereof, and after notification to the Secretary of FSF at the
Meeting of the shareholder's decision to terminate this proxy, the power of said
attorneys and proxies shall be deemed terminated and of no further force and
effect. The undersigned may also revoke this proxy by filing a subsequently
dated proxy or by notifying the Secretary of FSF of his or her decision to
terminate this proxy.
The undersigned acknowledges receipt from FSF prior to the execution of
this proxy of a Notice of Special Meeting and a Proxy Statement dated
____________, 2004.
Please check here if you
Dated: ____________________, 2004 [ ] plan to attend the Meeting.
___________________________________ ________________________________
SIGNATURE OF SHAREHOLDER SIGNATURE OF SHAREHOLDER
___________________________________ ________________________________
PRINT NAME OF SHAREHOLDER PRINT NAME OF SHAREHOLDER
Please sign exactly as your name appears on this form of proxy. When signing as
attorney, executor, administrator, trustee, or guardian, please give your full
title. If shares are held jointly, each holder should sign.
PLEASE COMPLETE, DATE, SIGN, AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.