SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
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240.14a-12
HOME LOAN FINANCIAL CORPORATION
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(Name of Registrant as Specified in Its Charter)
_________________________________________________________________________
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pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
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HOME LOAN FINANCIAL CORPORATION
401 MAIN STREET
COSHOCTON, OHIO 43812-1580
(740) 622-0444
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
A Special Meeting of Shareholders (the "Special Meeting") of Home Loan
Financial Corporation, an Ohio corporation ("HLFC"), will be held at Coshocton
Town and County Club, 925 Cambridge Road, Coshocton, Ohio 43812, on August 26,
2005, at 10:00 a.m., local time, for the following purposes, which are more
completely set forth in the accompanying Proxy Statement:
1. To consider and vote upon a proposal to amend HLFC's Articles of
Incorporation to effect a 1-for-600 reverse stock split, followed
immediately by an amendment to HLFC's Articles of Incorporation to
effect a 600-for-1 forward stock split of HLFC's common shares
(collectively, the "Stock Splits"). As a result of the Stock Splits,
(a) each shareholder owning fewer than 600 common shares of HLFC
immediately before the Stock Splits will receive $20.75 in cash,
without interest, for each HLFC common share owned by such
shareholder immediately prior to the Stock Splits and will no longer
be a shareholder of HLFC; and (b) each HLFC common share held by a
shareholder owning 600 or more common shares of HLFC immediately
prior to the effective time of the Stock Splits will continue to
represent one common share of HLFC after completion of the Stock
Splits. The proposed amendments to HLFC's Articles of Incorporation
are attached as Exhibits B and C to the accompanying Proxy
Statement; and
2. To transact such other business as may properly come before the
Special Meeting or any adjournment thereof.
Only HLFC shareholders of record as of the close of business on July 15,
2005, will be entitled to notice of, and to vote at, the Special Meeting and any
adjournment thereof.
To assure that a quorum is present at the Special Meeting, please date,
sign and promptly return the enclosed proxy whether or not you expect to attend
the Special Meeting. A postage-prepaid envelope is enclosed for your
convenience.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE STOCK SPLITS, PASSED UPON THE
MERITS OR FAIRNESS OF THE STOCK SPLITS, OR PASSED UPON THE ADEQUACY OR ACCURACY
OF THE DISCLOSURE IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
HLFC'S BOARD OF DIRECTORS CAREFULLY CONSIDERED THE TERMS OF THE PROPOSED
STOCK SPLITS, HAS DETERMINED THAT THE STOCK SPLITS ARE FAIR TO, AND IN THE BEST
INTERESTS OF, HLFC AND ITS SHAREHOLDERS, AND UNANIMOUSLY RECOMMENDS THAT YOU
VOTE "FOR" THE APPROVAL OF THE STOCK SPLITS.
By Order of the Board of Directors,
/s/ Robert C. Hamilton
Coshocton, Ohio Robert C. Hamilton
July 19, 2005 Chairman
HOME LOAN FINANCIAL CORPORATION
401 MAIN STREET
COSHOCTON, OHIO 43812-1580
(740) 622-0444
PROXY STATEMENT
GENERAL INFORMATION
This Proxy Statement provides information about a proposal to amend the
Articles of Incorporation, as amended (the "Articles"), of Home Loan Financial
Corporation ("HLFC", "we" or "us") to effect a 1-for-600 reverse stock split,
followed immediately by a 600-for-1 forward stock split (together these are
referred to as the "Stock Splits") of HLFC's common shares, no par value per
share ("HLFC shares" or "shares"). If the Stock Splits are completed:
- Each shareholder owning fewer than 600 HLFC shares immediately
before the Stock Splits will receive $20.75 in cash, without
interest, in exchange for each share owned immediately prior to the
Stock Splits and will no longer be a shareholder of HLFC; and
- Each share held by a shareholder owning 600 or more HLFC shares will
continue to represent one HLFC share after the Stock Splits.
The proposed amendments to HLFC's Articles to accomplish the Stock Splits
are attached as Exhibits B and C to this Proxy Statement.
We cannot complete the Stock Splits unless the holders of at least 849,958
shares, which is a majority of the outstanding HLFC shares, approve the Stock
Splits. The executive officers and directors of HLFC, who together own
approximately 23.74% of the HLFC shares outstanding on July 15, 2005 (the
"Record Date"), have indicated they will vote in favor of the Stock Splits. The
Board of Directors has scheduled a Special Meeting of Shareholders of HLFC (the
"Special Meeting") to vote upon the Stock Splits. The date, time and place of
the Special Meeting are as follows:
August 26, 2005
Coshocton Town and County Club
925 Cambridge Road
Coshocton, Ohio 43812
(740) 622-0444
We urge you to read this Proxy Statement carefully and in its entirety,
including the attached Exhibits. This Proxy Statement is first being mailed to
HLFC's shareholders on or about July 21, 2005.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE STOCK SPLITS, PASSED UPON THE
MERITS OR FAIRNESS OF THE STOCK SPLITS, OR PASSED UPON THE ADEQUACY OR ACCURACY
OF THE DISCLOSURE IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY HLFC.
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SUMMARY TERM SHEET
The following is a summary of the material terms of the Stock Splits.
While this summary describes what we believe are the most material terms and
conditions of the Stock Splits, this Proxy Statement contains a more detailed
description of these terms and conditions. We urge you to carefully review, in
their entirety, this Proxy Statement, the attached Exhibits and the documents
incorporated by reference before voting.
INFORMATION ABOUT THE STOCK SPLITS
The Stock Splits will consist of the following steps:
- A 1-for-600 reverse stock split of HLFC shares will occur on the
date that the Ohio Secretary of State accepts for filing
certificates of amendment to our Articles (the "Effective Date"). As
a result:
- Each record holder of less than 600 HLFC shares immediately
before the reverse stock split will receive cash in the amount
of $20.75, without interest, for each share held immediately
before the reverse stock split and will no longer be a
shareholder of HLFC; and
- Each record holder of 600 or more HLFC shares immediately
prior to the reverse stock split will receive a fractional
share for each common share held immediately before the
reverse stock split. Fractional shares held by holders of more
than 600 shares on the Effective Date will not be purchased by
HLFC and holders of 600 or more shares will not be entitled to
receive any cash payment from HLFC.
- After the reverse stock split is complete, each holder of 600 or
more HLFC shares immediately before the reverse stock split will
participate in the forward stock split, which will result in the
holder owning the same number of shares after the forward stock
split as the holder did immediately before the reverse stock split.
- If you are a record holder who holds less than 600 HLFC shares but
do not want to be cashed out in the Stock Splits, you may remain a
HLFC shareholder by purchasing a sufficient number of HLFC shares,
to the extent available, in the open market far enough in advance of
the Stock Splits so that you hold at least 600 HLFC shares on the
Effective Date. Conversely, if you are a record holder and want to
be cashed out in the Stock Splits, you may do so by selling a
sufficient number of HLFC shares in the open market far enough in
advance of the Stock Splits so that you hold less than 600 shares on
the Effective Date.
- If you hold HLFC shares in "street name" through a nominee (such as
a broker or a bank), the effect of the Stock Splits on your HLFC
shares may be different than for record holders. HLFC intends for
the Stock Splits to be effected at the registered shareholder level.
This means that we look at the number of shares registered in the
name that appears on HLFC's record shareholder list. If your shares
are held in street name, they are registered in the name of a
nominee and not in your name. If that nominee holds 600 or more
total shares for itself or other beneficial owners, you will not be
cashed out even if you beneficially own fewer than 600 shares.
Shareholders holding shares in street name should contact their
nominee to determine how the Stock Splits will affect them.
- If you hold less than 600 shares through a nominee but that
nominee holds more than 600 shares in the aggregate and you
wish to ensure that you are cashed out in the Stock Splits,
you may transfer your HLFC shares out of street name and into
a record account with HLFC far enough in advance that the
transfer is complete prior to the Effective Date.
- If your nominee holds less than 600 shares of HLFC and you
wish to continue as a HLFC shareholder after the Stock Splits,
you may acquire additional HLFC shares, if available, in
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your street name account in the open market far enough in
advance that the acquisition is complete prior to the
Effective Date.
Please see the sections of this Proxy Statement entitled "Special Factors
- - Effects of the Stock Splits" and "Stock Splits Proposal - Summary and
Structure" for more information on the structure of the Stock Splits.
PURPOSE OF AND REASONS FOR THE STOCK SPLITS
- The Stock Splits are intended to reduce the number of record holders
of HLFC shares below 300 and enable us to terminate the registration
of, or deregister, our shares under the Securities Exchange Act of
1934, as amended (the "Exchange Act"). Deregistration would suspend
HLFC's duty to file periodic reports and proxy statements with the
Securities and Exchange Commission (the "SEC") and, as a result,
HLFC would no longer be a public reporting company. HLFC will,
however, continue to be subject to the general anti-fraud provisions
of federal and applicable state securities laws and federal and
state banking laws applicable to HLFC and its wholly-owned
subsidiary, The Home Loan Savings Bank ("Home Loan").
- We estimate annual cost savings of approximately $200,000 per fiscal
year as a result of the deregistration of our shares and the related
suspension of periodic reporting requirements, including the
provisions of the Sarbanes-Oxley Act of 2002, as amended (the
"Sarbanes-Oxley Act") and the elimination of costs associated with
being listed on the Nasdaq National Market ("Nasdaq") as well as the
reallocation of approximately $65,000 of personnel expense to other
areas of operations.
- The Stock Splits constitute the most expeditious, efficient, cost
effective and fair method to convert HLFC from a public reporting
company to a non-public, non-reporting company compared to other
alternatives considered by the HLFC Board of Directors.
Please see the sections of this Proxy Statement entitled "Special Factors
- - Purpose of and Reasons for the Stock Splits" and "Special Factors - Effects of
the Stock Splits" for more information on the principal reasons for the Stock
Splits.
FAIRNESS OF THE STOCK SPLITS
- The Board of Directors believes that the Stock Splits are in HLFC's
best interests and are both substantively and procedurally fair to
the affiliated and unaffiliated holders of HLFC shares, including
those holders whose shares will be cashed out in the Stock Splits
("Cashed Out Holders") and those who will remain holders of HLFC
shares after the Stock Splits ("Continuing Holders"). The factors
the Board considered in determining the fairness of the Stock Splits
are described in greater detail in this Proxy Statement.
- The Board has set $20.75 per share (the "Cash Out Price") as the
cash consideration to be paid by HLFC to holders of less than 600
HLFC shares instead of issuing those shareholders fractional shares
(i.e., less than one whole share) in connection with the reverse
stock split. The Board made this determination in good faith and
received a fairness opinion regarding the Cash Out Price (the
"Fairness Opinion") prepared by Keller & Company, Inc. ("Keller &
Company"), an independent financial advisor. The Fairness Opinion
was delivered to the Board to assist the Board in establishing the
terms and conditions of the Stock Splits. The full text of the
Fairness Opinion, dated April 12, 2005, is attached to this Proxy
Statement as Exhibit A. The Fairness Opinion is also available for
inspection and copying at HLFC's principal executive offices located
at 401 Main Street, Coshocton, Ohio 43812-1580.
- The Fairness Opinion states that, based upon and subject to the
factors and assumptions set forth therein as of April 12, 2005, the
Cash Out Price is fair, from a financial point of view, to both the
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Cashed Out Holders and the Continuing Holders. We urge you to read
the Fairness Opinion in its entirety.
- Keller & Company provided the Fairness Opinion for the Board in
connection with its consideration of the Stock Splits. The Fairness
Opinion is not a recommendation as to how you should vote with
respect to the Stock Splits.
Please see the sections of this Proxy Statement entitled "Special Factors
- - Fairness of the Stock Splits," "Opinion of Keller & Company," "Stock Splits
Proposal - Background of the Stock Splits" and "Stock Splits Proposal -
Recommendation of the Board" for more information regarding the fairness of the
Stock Splits.
ADVANTAGES OF THE STOCK SPLITS
- By completing the Stock Splits, deregistering our shares and
suspending our periodic reporting obligations under the Exchange
Act, we expect to realize recurring annual cost savings of
approximately $200,000. In addition, we expect to realize
non-recurring savings in the 2006 fiscal year of approximately
$34,200 for consulting fees that will be required for HLFC to comply
with the internal controls audit requirements of Section 404 of the
Sarbanes-Oxley Act. Deregistration will eliminate the significant
amount of time and effort previously required of our management to
prepare and review the reports required to be filed under the
Exchange Act. We estimate that personnel costs of approximately
$65,000 per year relate to public company reporting and compliance.
- The Stock Splits provide Cashed Out Holders with an opportunity to
liquidate their HLFC shares at a premium without paying brokerage
commissions or other transaction fees.
- The Stock Splits will not impact affiliated holders of HLFC shares
differently than unaffiliated holders of our shares on the basis of
affiliate status. The sole determining factor as to whether a
shareholder will remain a shareholder of HLFC after the Stock Splits
is the number of shares held immediately prior to the Stock Splits.
- The Stock Splits will have minimum effect on the Continuing Holders'
relative voting power. An estimated 109,000 shares, which is only
6.4% of the 1,699,913 outstanding HLFC shares, will be eliminated as
a result of the Stock Splits, and the relative percentage ownership
of the Continuing Holders will be approximately the same as it was
prior to the Stock Splits. For example, the executive officers and
directors of HLFC and Home Loan currently beneficially own or have
the right to acquire in the next 60 days through the exercise of
options approximately 23.66% of the outstanding HLFC shares, and
will beneficially own approximately 25.28% of the outstanding HLFC
shares following the Stock Splits.
- The Stock Splits will provide an effective use of HLFC's excess
capital. Over the past eight years, HLFC has repurchased shares in
the open market in order to leverage its excess capital. The limited
trading volume in our shares, however, has reduced the efficacy of
repurchases as a capital management tool. The Stock Splits will
enable HLFC to use a large portion of excess capital to reduce
outstanding shares, increasing the value of HLFC's shares through
the anticipated improvement in return on equity and earnings per
share and the potential for increased dividends as a result of fewer
outstanding shares.
Please see the section of the Proxy Statement entitled "Special Factors -
Fairness of the Stock Splits" for a more detailed discussion of the foregoing.
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DISADVANTAGES OF THE STOCK SPLITS
- Upon deregistration of our shares, our duty to file periodic reports
with the SEC will be suspended. Information regarding our operations
and financial results that is currently available to the general
public and our investors will not be readily available after
deregistration. Investors seeking information about us will have to
contact us directly to receive such information and we may elect not
to provide investors with requested information that we are not
required by law to provide.
- After the completion of the Stock Splits, our shares will no longer
be listed on Nasdaq and the liquidity of our shares may be reduced.
In addition to reduced liquidity, the lack of publicly available
financial and other information about HLFC may cause a decrease in
the price at which HLFC shares trade.
- Following the Stock Splits, Cashed Out Holders will have no further
financial interest in HLFC and will not have the opportunity to
participate in the potential appreciation in the value of, or the
payment of dividends on, HLFC shares.
- After completion of the Stock Splits and the subsequent
deregistration of our shares, HLFC will no longer be subject to the
liability provisions of the Exchange Act that apply to public
companies or the provisions of the Sarbanes-Oxley Act, including the
requirement that HLFC's chief executive officer and chief financial
officer certify the accuracy of the financial statements contained
in HLFC's Exchange Act filings.
Please see the section of the Proxy Statement entitled "Special Factors -
Disadvantages of the Stock Splits" for a more detailed discussion of the
foregoing.
VOTING INFORMATION
The Stock Splits require the approval of a majority of the outstanding
HLFC shares entitled to vote at the Special Meeting. As of the close of business
on the Record Date, there were 1,699,913 HLFC shares outstanding and entitled to
vote at the Special Meeting, of which 849,957 are required to approve the Stock
Splits. The executive officers and directors of HLFC who have indicated they
will vote in favor of the Stock Splits together own approximately 23.11% of the
HLFC shares outstanding and entitled to vote at the meeting.
Please see the section of the Proxy Statement entitled "Meeting and Voting
Information" for more information.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
- HLFC will not recognize any gain, loss or deduction for federal
income tax purposes as a result of the Stock Splits.
- Continuing Holders will not recognize any gain or loss for federal
income tax purposes. Cashed Out Holders will generally recognize a
gain or loss for federal income tax purposes equal to the difference
between the $20.75 Cash Out Price per share and the shareholder's
per share tax basis in the HLFC shares that are exchanged for cash.
Please see the section of this Proxy Statement entitled "Stock Splits
Proposal - Material Federal Income Tax Consequences" for more information on the
tax consequences of the Stock Splits.
5
UNAVAILABILITY OF APPRAISAL OR DISSENTERS' RIGHTS
A shareholder of HLFC does not have the right under Ohio law or HLFC's
Articles or Code of Regulations (the "Regulations") to demand the appraised
value of the shareholder's HLFC shares or any other dissenters' rights whether
or not the shareholder votes in favor of the Stock Splits.
Please see the section of this Proxy Statement entitled "Stock Splits
Proposal - Unavailability of Appraisal or Dissenters' Rights" for more
information.
TERMINATION OF STOCK SPLITS
The Board may, in its discretion, withdraw the Stock Splits from the
agenda of the Special Meeting prior to any vote on the proposal if it believes
it is HLFC's best interests to do so. Although the Board presently believes that
the Stock Splits are in HLFC's best interests and has unanimously recommended a
vote for the Stock Splits, the Board nonetheless believes that it is prudent to
recognize that circumstances could possibly change prior to the Effective Date
such that it might not be appropriate or desirable to effect the Stock Splits.
Please see the section of this Proxy Statement entitled "Stock Splits
Proposal - Termination of Stock Splits" for more information.
ESCHEAT LAWS
All cash amounts payable to Cashed Out Holders that remain unclaimed will
be subject to applicable state laws regarding abandoned property.
Please see the section of this Proxy Statement entitled "Stock Splits
Proposal - Escheat Laws" for more information.
CAUTIONARY NOTICE REGARDING
FORWARD-LOOKING STATEMENTS
When used in this Proxy Statement the words or phrases "will likely
result," "are expected to," "will continue," "anticipate," "estimate," "project"
or similar expressions are intended to identify "forward-looking statements."
Such statements are subject to certain risks and uncertainties which could cause
actual results to differ materially from results presently anticipated or
projected. HLFC cautions you not to place undue reliance on any such
forward-looking statements, which speak only as of the date made. HLFC advises
readers that HLFC's actual results may differ materially from any opinions or
statements expressed with respect to future periods in any current statements in
this Proxy Statement or in our other filings with the SEC. Please see the
section of this Proxy Statement entitled "Available Information."
6
QUESTIONS AND ANSWERS
Q: What is the date, time and place of the Special Meeting?
A: The Special Meeting will be held on August 26, 2005, at 10:00 a.m. local
time at Coshocton Town and County Club, 925 Cambridge Road, Coshocton,
Ohio 43812.
Q: What is the proposal?
A: We are proposing that our shareholders approve a reverse 1-for-600 stock
split followed immediately by a forward 600-for-1 stock split of our
outstanding shares, which is accomplished through the amendment of our
Articles.
The purpose of the Stock Splits is to allow us to suspend our
SEC-reporting obligations (referred to as "going private") by reducing the
number of our shareholders of record to fewer than 300. This will relieve
us of the costs typically associated with the preparation and filing of
reports and other documents with the SEC.
Q: What will I receive in the Stock Splits?
A: If you are the registered owner of fewer than 600 HLFC shares on the date
of the reverse stock split, you will receive $20.75 in cash from us for
each pre-split share you own. If you are the registered owner of 600 or
more shares on the date of the Stock Splits, you will not receive any cash
payment for your shares and will continue to hold the same number of
shares as you did before the Stock Splits.
Q: Why is 600 shares the "cutoff" number for determining which shareholders
will be cashed out and which shareholders will remain as shareholders of
HLFC?
A: We estimate that a 600 share "cutoff" will result in approximately 200
shareholders of record. This will permit us to deregister with the SEC and
will provide a "cushion" to help ensure that the record number of
shareholders does not increase again to over 300 in the foreseeable
future.
Q: May I buy additional shares in order to remain a shareholder of HLFC?
A: Yes. As long as you are able to acquire a sufficient number of shares so
that you are the registered owner of 600 or more shares prior to the
Effective Date, your HLFC shares will not be cashed out in the Stock
Splits.
Q: What if I hold my shares in "street name"?
A: The Stock Splits will be affected at the record holder level. You will not
be cashed out, even if you beneficially own fewer than 600 shares, if your
nominee holds 600 or more shares in its name. If you hold shares in
"street name," you should talk to your broker, nominee or agent to
determine how the Stock Splits will affect you.
Q: What is the recommendation of our Board of Directors regarding the
proposal?
A: Our Board of Directors has determined that the Stock Splits are advisable
and in the best interests of HLFC's shareholders. Our Board has approved
the Stock Splits and unanimously recommends that you vote "FOR" the
amendments to the Articles so the Stock Splits may be affected.
7
Q: When are the Stock Splits expected to be completed?
A: If the proposed amendments to our Articles are approved at the Special
Meeting, we expect the Stock Splits to be completed as soon as practicable
thereafter. We need to file the amendments with the Ohio Secretary of
State for the Stock Splits to become effective.
Q: What if the proposed Stock Splits are not completed?
A: The proposed Stock Splits will not be completed if the holders of a
majority of HLFC's outstanding shares do not vote to adopt the proposed
amendments to our Articles. If the Stock Splits are not completed, we will
continue our current operations, and we will continue to be subject to the
reporting requirements of the SEC.
Q: Who is entitled to vote at the Special Meeting?
A: Holders of record of HLFC shares on the Record Date, July 15, 2005, are
entitled to vote at the Special Meeting. Each of our shareholders is
entitled to one vote for each share owned on the Record Date.
Q: What vote is required for our shareholders to approve the Stock Splits?
A: The holders of a majority of the outstanding shares entitled to vote at
the Special Meeting must vote "FOR" the Stock Splits.
Q: What happens if I do not return my proxy card?
A: Unless you vote in person, a failure to return your proxy card will have
the same effect as voting against the Stock Splits.
Q: What do I need to do now?
A: After carefully reading and considering the information contained in this
Proxy Statement, please vote your HLFC shares as soon as possible. You may
vote your shares by returning the enclosed proxy or by voting in person at
the Special Meeting. This Proxy Statement includes detailed information on
how to cast your vote. If your shares are held by a broker, your broker
will vote your shares only if you provide instructions to your broker on
how to vote. You should instruct your broker on how to vote your shares
using the voting instruction card provided by your broker.
Q: Can I change my vote after I have mailed my proxy card?
A: Yes. You can change your vote at any time before your proxy is voted at
the Special Meeting by following the procedures outlined in this Proxy
Statement.
Q: Will I have appraisal or dissenters' rights in connection with the Stock
Splits?
A: No. Under Ohio law, you do not have appraisal or any other dissenters'
rights whether or not you vote for the Stock Splits.
Q: Should I send in my share certificates now?
A: No. If the Stock Splits are approved, our transfer agent will send you
written instructions for exchanging your share certificates.
8
Q: What are the tax consequences of the Stock Splits to me?
A: If you receive cash in the Stock Splits because you are the registered
owner of fewer than 600 HLFC shares, you will generally recognize gain or
loss in an amount determined by the difference between the $20.75 cash you
receive for each share and your adjusted tax basis per share in your
surrendered shares. There will be no tax consequences to you if you are
the registered owner of more than 600 HLFC shares or if your shares are
registered in the name of a nominee that owns more than 600 HLFC shares.
Q: Who can help answer my questions?
A: If you have questions about the Stock Splits, you should contact Robert C.
Hamilton or Preston W. Bair at (740) 622-0444.
9
TABLE OF CONTENTS
SUMMARY TERM SHEET................................................................ 2
Information About the Stock Splits............................................. 2
Purpose of and Reasons for the Stock Splits.................................... 3
Fairness of the Stock Splits................................................... 3
Advantages of the Stock Splits................................................. 4
Disadvantages of the Stock Splits.............................................. 5
Voting Information............................................................. 5
Material Federal Income Tax Consequences....................................... 5
Unavailability of Appraisal or Dissenters' Rights.............................. 6
Termination of Stock Splits.................................................... 6
Escheat Laws................................................................... 6
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS............................ 6
QUESTIONS AND ANSWERS............................................................. 7
SPECIAL FACTORS................................................................... 12
Purpose of and Reasons for the Stock Splits.................................... 12
Effects of the Stock Splits.................................................... 14
Alternatives to the Stock Splits............................................... 17
Fairness of the Stock Splits................................................... 18
Disadvantages of the Stock Splits.............................................. 21
Conclusion..................................................................... 22
STOCK SPLITS PROPOSAL............................................................. 23
Background of the Stock Splits................................................. 23
Summary and Structure.......................................................... 25
Recommendation of the Board.................................................... 27
Material Federal Income Tax Consequences....................................... 27
Unavailability of Appraisal or Dissenters' Rights.............................. 29
Share Certificates............................................................. 29
Termination of Stock Splits.................................................... 29
Escheat Laws................................................................... 30
Regulatory Approvals........................................................... 30
OPINION OF KELLER & COMPANY....................................................... 30
Public Comparables Analysis.................................................... 32
Review of HLFC Market Performance.............................................. 33
Conclusion..................................................................... 33
Engagement of Keller & Company................................................. 33
MEETING AND VOTING INFORMATION.................................................... 33
Time and Place................................................................. 33
Revoking Your Proxy............................................................ 34
Record Date.................................................................... 34
Quorum and Required Vote....................................................... 34
Solicitation and Costs......................................................... 34
INFORMATION ABOUT HLFC............................................................ 35
Business of HLFC and Home Loan................................................. 35
Management of HLFC............................................................. 35
Interest of Certain Persons in Matters to be Acted Upon........................ 37
Market Price and Dividend Information.......................................... 38
10
HLFC Share Repurchase Information.............................................. 39
FINANCIAL INFORMATION............................................................. 39
Summary Historical Financial Information....................................... 39
Pro Forma Financial Information................................................ 40
AVAILABLE INFORMATION............................................................. 46
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE................................... 46
PROPOSALS OF SHAREHOLDERS AND OTHER MATTERS....................................... 47
EXHIBIT A - FAIRNESS OPINION
EXHIBIT B - FORM OF REVERSE STOCK SPLIT AMENDMENT
EXHIBIT C - FORM OF FORWARD STOCK SPLIT AMENDMENT
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SPECIAL FACTORS
PURPOSE OF AND REASONS FOR THE STOCK SPLITS
The purpose of the reverse stock split is to terminate HLFC's status as a
public reporting company with the SEC. As a result of the reverse stock split
and the repurchase of the resulting fractional shares from holders of fewer than
600 shares, we expect to have approximately 200 record holders of HLFC shares,
which would enable us to terminate the registration of our shares under the
Exchange Act. If the Stock Splits are completed, we intend to file with the SEC
to deregister the HLFC shares. Upon deregistration, HLFC shares would no longer
be quoted on the Nasdaq and trades in our shares would only be possible through
privately negotiated transactions or, if HLFC qualifies, in the Pink Sheets(R)
(a centralized quotation services that collect and publish market maker quotes
for securities ) or on the Over-the-Counter Bulletin Board (the "OTCBB").
The forward stock split is not necessary for HLFC to reduce the number of
holders of HLFC shares and deregister the shares with the SEC. The Board,
however, feels it is in the best interest of HLFC and our shareholders to effect
the 600-for-1 forward split immediately after the reverse stock split. Without
the forward split, HLFC shares would have an unusually high per share value,
which would tend to further decrease the liquidity of HLFC shares.
Reduced Costs and Expenses. We incur both direct and indirect costs to
comply with the filing and reporting requirements imposed on us as a public
reporting company. As described below, these costs include, among other things,
management's time spent preparing and reviewing our public filings and legal and
accounting fees associated with the preparation and review of such filings.
Since our initial public offering in 1998, we have incurred increasing costs as
a result of being a public company. Since the passage of the Sarbanes-Oxley Act
in 2002, in particular, our public company expenses have increased significantly
and continue to do so.
When the Sarbanes-Oxley Act was adopted, we realized that we would incur
additional expenses as a result. We did not choose to deregister in 2002,
however, because much of the Act had yet to be implemented and the extent of the
increased costs was then unknown. Our compliance costs have increased due
primarily to the implementation of the Sarbanes-Oxley Act and related SEC and
Nasdaq rules, and we expect these costs to increase further in the future. Of
particular concern is the pending internal control audit requirement imposed by
Section 404 of the Sarbanes-Oxley Act, which is effective for HLFC in the 2007
fiscal year, which begins July 1, 2006. Although we have already begun
preparations to comply with Section 404, we have asked our external auditors and
consultants to stop all Section 404 work pending the outcome of this Special
Meeting. If the Stock Splits are not completed, we expect that our preparations
to comply with Section 404 will result in additional one-time expenses, and
significant increases in our annual audit expenses going forward. For smaller
publicly traded companies, such as HLFC, these costs represent a larger portion
of our revenues than for larger public companies.
Not all of our reporting costs will be eliminated by deregistration,
however. We will continue to comply with all federal and state reporting
requirements applicable to HLFC as a savings and loan holding company and to
Home Loan as an Ohio savings bank. Also, we currently intend to continue to
provide our shareholders with annual audited financial statements and proxy
statements, although we are not required to do so. If provided, these documents
may not be as detailed or as extensive as those required of a public reporting
company.
The Board believes that by deregistering our shares and suspending HLFC's
periodic reporting obligations under the Exchange Act, we will realize recurring
annual cost savings of approximately $200,000 in fees and expenses that we have
historically incurred and additional expenses we expect to incur, including fees
and expenses for compliance with the Sarbanes-Oxley Act and associated
regulations and compliance with requirements imposed on us by Nasdaq, as well as
the reallocation of approximately $65,000 of personnel expense to other areas of
operation. These estimated cost savings are described in greater detail below.
12
Estimated Annual Cost Savings:
Historical costs:
Legal fees $ 30,000
Audit fees $ 21,000
Nasdaq listing fees $ 24,500
Internal personnel costs $ 65,000*
Printing, mailing and filing costs $ 8,500
Director and officer liability insurance $ 2,500
---------
Total historical costs $ 151,500
---------
Additional expected annual costs:
Section 404 audit and consulting fees $ 65,000
Internal personnel costs $ 50,000
---------
Total additional costs $ 115,000
---------
Total estimated annual cost savings $ 266,500*
=========
- ----------
* Estimated personnel costs of approximately $65,000 will be reallocated to
other areas of operations.
These estimated annual cost savings reflect, among other things: (i) a
reduction in audit and related fees; (ii) a reduction in legal fees related to
securities law compliance and compliance with Nasdaq requirements; (iii) the
elimination of filing costs and expenses associated with electronically filing
periodic reports and other documents (such as proxy statements) with the SEC on
its EDGAR database; (iv) the lower printing and mailing costs attributable to
the reduction in the number of shareholders and the reduced disclosure
requirements; (v) the reduction in management time spent on compliance and
disclosure matters attributable to our Exchange Act filings; (vi) the lower risk
of liability that is associated with non-reporting company status and the
expected decrease in premiums for directors' and officers' liability insurance;
(vii) the audit savings and internal personal savings due to HLFC not being
subject to the public company provisions of the Sarbanes-Oxley Act; (viii) the
elimination of annual Nasdaq listing fees; (ix) the savings in fees charged by
Registrar and Transfer Company, HLFC's transfer agent (the "Transfer Agent"),
that are expected because of the reduction in the number of shareholder accounts
to be handled by the Transfer Agent; and (x) a reduction in direct miscellaneous
clerical and other expenses.
In addition to the estimated annual cost savings, completion of the Stock
Splits and deregistration of our shares would also result in one-time cost
savings of approximately $34,200 because we would not incur additional
consulting fees relating to the new internal control audit requirements imposed
by Section 404 of the Sarbanes-Oxley Act. Implementing Section 404 of the
Sarbanes-Oxley Act would require compliance planning, assessment, documentation
and testing, and a significant investment of time by the management and
employees of HLFC and Home Loan.
The annual and non-recurring cost savings set forth above are only
estimates. The actual savings we realize from going private may be higher or
lower than these estimates. The estimates are based upon the (i) actual costs to
us of the services and disbursements in each of the categories listed above that
were reflected in our recent financial statements and (ii) allocation to each
category of management's estimates of the portion of the expenses and
disbursements believed to be solely or primarily attributable to our public
reporting company status. In some instances, these cost savings expectations
were based on verifiable assumptions. For example, our auditing fees will be
reduced if we cease to be a public reporting company due to the elimination of
fees for interim services. In addition, the costs associated with retaining
legal counsel to assist us in complying with the Exchange Act reporting
requirements will be eliminated if we no longer file reports with the SEC.
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Operational Flexibility. Another reason for the Stock Splits is the
operational flexibility that deregistration would provide. The Board believes
that ceasing to be a public reporting company would enable management to focus
more on HLFC's long-term growth without the burden of SEC reporting requirements
and other aspects of being a public company.
Conclusion. In light of the foregoing, the Board believes the benefits
HLFC receives from maintaining its status as a public reporting company is
substantially outweighed by the associated costs and expenses. The Board
believes that it is in HLFC's best interests to eliminate the administrative
burden and costs associated with maintaining its status as a public reporting
company.
EFFECTS OF THE STOCK SPLITS
The primary effect of the Stock Splits will be to reduce the number of
record holders of HLFC shares from approximately 690 to approximately 200.
Because we will have less than 300 record holders of HLFC shares, we will be
able, and intend, to deregister our shares with the SEC under the Exchange Act.
After deregistration, HLFC shares will no longer be quoted on the Nasdaq. The
suspension of our reporting obligations under the Exchange Act and the
elimination of our Nasdaq listing will further reduce the existing limited
trading market for HLFC shares. After the deregistration of our shares, we will
no longer be subject to the liability provisions of the Exchange Act that apply
to public companies or the provisions of the Sarbanes-Oxley Act, including the
requirement that HLFC's officers certify the accuracy of HLFC's financial
statements.
Discussed below are some additional effects of the Stock Splits on certain
persons or groups.
Effects on Cashed Out Holders. Upon completion of the Stock Splits, Cashed
Out Holders (i.e., holders of less than 600 HLFC shares immediately before the
completion of the Stock Splits):
- Will have their HLFC shares cancelled in exchange for the Cash Out
Price instead of selling their shares at a time and for a price of
their choosing;
- Instead of receiving a fractional share, will receive cash, in a
taxable transaction, equal to $20.75 for each HLFC share held
immediately before the Stock Splits;
- Will receive the Cash Out Price without paying brokerage commissions
or other transaction fees;
- Will no longer be a shareholder of HLFC and will not be able to
participate in HLFC's future earnings or growth; and
- Will receive no interest on cash payments owed to them by HLFC as a
result of the Stock Splits.
For a discussion of the federal income tax consequences of the Stock
Splits, please see the section of this Proxy Statement entitled "Stock Splits
Proposal - Material Federal Income Tax Consequences."
If you hold HLFC shares in "street name" through a nominee (such as a
broker or bank), the Stock Splits may not affect you the same as they do record
holders. HLFC intends for the Stock Splits to be affected at the record holder
level. This means that if your nominee owns of record more than 600 shares, you
will not be cashed out even if you beneficially own less than 600 shares.
Shareholders holding shares in street name should contact their nominee to
determine how the Stock Splits will affect them.
If you hold less than 600 HLFC shares, and you prefer to remain a HLFC
shareholder after the Stock Splits, you may do so by taking one of the following
actions far enough in advance so that it is complete prior to the Effective
Date:
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- Purchase a sufficient number of additional shares, if available, on
the open market and have them registered in your name and
consolidated with your current record account, if you are a record
holder, so that you hold at least 600 HLFC shares in your record
account immediately before the Effective Date;
- If your nominee owns more than 600 HLFC shares immediately prior to
the Effective Date, you are not required to take any action to
remain a shareholder of HLFC if you continue to hold your HLFC
shares through your nominee on the Effective Date. If your nominee
owns less than 600 HLFC shares, you may acquire additional shares in
your street name account, if available, in the open market. Due to
the limited market in HLFC shares, there is no assurance that you
will be able to purchase enough shares to remain a shareholder of
HLFC. You should contact your nominee to determine how the Stock
Splits will affect you.
- If applicable, consolidate accounts in which you hold an interest so
that you hold at least 600 HLFC shares in one record account
immediately before the Stock Splits.
If you are a Cashed Out Holder, you will receive a letter of transmittal
from us as soon as practicable after the Stock Splits are completed. The letter
of transmittal will contain instructions on how to surrender your existing share
certificate(s) to the Transfer Agent for your cash payment. You will not receive
your cash payment until you surrender your outstanding share certificate(s) to
the Transfer Agent, along with a completed and executed copy of the letter of
transmittal. DO NOT SEND YOUR SHARE CERTIFICATE(S) IN WITH YOUR PROXY. PLEASE
WAIT UNTIL YOU RECEIVE YOUR LETTER OF TRANSMITTAL TO SURRENDER YOUR SHARE
CERTIFICATE(S) TO THE TRANSFER AGENT.
Effects on Continuing Holders. If the Stock Splits are completed,
Continuing Holders (i.e., holders of 600 or more HLFC shares immediately before
the Stock Splits):
- Will hold the same number of shares before and after the Stock
Splits;
- Will not receive cash for any portion of their HLFC shares;
- Will likely experience a further reduction in liquidity of HLFC
shares;
- Will not experience a significant increase in their respective
ownership percentages of HLFC shares; and
- Will have less access to information about HLFC.
Upon the termination of the registration of our shares under the Exchange
Act, HLFC shares will no longer be eligible for trading or quotation on any
securities market or quotation system, except the Pink Sheets(R) or OTCBB. In
order for HLFC shares to be quoted in the Pink Sheets(R) or the OTCBB, one or
more broker-dealers would need to act as market maker and sponsor our shares.
Although we anticipate that a broker-dealer will sponsor our shares in the Pink
Sheets(R) or on the OTCBB, there can be no assurance that any broker-dealer will
be willing to act as a market maker in our shares after the Stock Splits.
If you hold 600 or more HLFC shares and you prefer to be completely cashed
out in connection with the Stock Splits, you may do so by selling enough HLFC
shares in the open market so that you hold less than 600 HLFC shares as of the
Effective Date. Due to the limited market for HLFC shares, there is no assurance
that you will be able to sell enough shares to reduce your holdings to less than
600 HLFC shares. If you hold HLFC shares in "street name," you should contact
your nominee (such as your broker or bank) to determine how the Stock Splits
will affect you. If your nominee owns 600 or more HLFC shares, you can ensure
you are cashed out by transferring your HLFC shares into a record account with
HLFC far enough in advance that the transfer is complete prior to the Effective
Date.
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If you are a Continuing Holder with a share certificate representing your
HLFC shares, your share certificate will continue to evidence ownership of the
same number of HLFC shares as is set forth on the face of the certificate.
Effects on HLFC. We intend to apply to the SEC to deregister our shares as
soon as practicable after completion of the Stock Splits. Upon deregistration of
our shares, our duty to file periodic reports with the SEC will be suspended for
as long as we have fewer than 300 record shareholders and we will no longer be a
public reporting company. In addition, we will be relieved of the obligation to
comply with the requirements of the proxy rules under Section 14 of the Exchange
Act. However, we will continue to be subject to the general anti-fraud
provisions of federal and applicable state securities laws and we will also
continue to be subject to regulation by the Office of Thrift Supervision of the
Department of the Treasury (the "OTS"), the Federal Deposit Insurance
Corporation (the "FDIC"), and the Ohio Division of Financial Institutions (the
"Ohio Division") as applicable to savings and loan holding companies and Ohio
savings banks.
We currently intend to continue to provide annual audited financial
statements and proxy statements to our shareholders, although there is no
requirement that we do so. If provided, these documents may not be as detailed
or extensive as the information we currently file with the SEC and deliver to
shareholders and our financial statements may not be accompanied by management's
discussion and analysis in the same detail. It will be more difficult for our
shareholders to obtain information about us.
As a result of the deregistration of our shares, we estimate that we will
save approximately $200,000 in annual costs associated with being a public
company, as well as a reallocation to other aspects of our operations of
approximately $65,000 of personnel expense for time currently spent by
management and employees associated with our SEC reporting activities.
Additionally, we anticipate a one time cost savings of $34,200 in expenses to
comply with the internal controls audit requirements of Section 404 of the
Sarbanes-Oxley Act. These anticipated savings are discussed under the heading
"Purpose of and Reasons for the Stock Splits - Reduced Costs and Expenses"
above.
Although we will no longer be a public reporting company, we expect our
business and operations, and the business and operations of Home Loan, to
continue as they are presently conducted. The executive officers and directors
of HLFC and Home Loan will not change due to the Stock Splits. Home Loan's
deposits will continue to be insured by the FDIC and we will continue to be
regulated by the same bank regulatory agencies. HLFC expects to realize time and
cost savings as a result of terminating its public company status, and intends
to invest those savings in other areas of its and Home Loan's business
operations. Other than as described in this Proxy Statement, neither HLFC, Home
Loan nor their management has any current plans or proposals to do any of the
following: effect any extraordinary corporate transaction (such as a merger,
reorganization or liquidation); sell or transfer any material amount of HLFC or
Home Loan assets; change the composition of the Board or management of HLFC or
Home Loan; change materially HLFC's indebtedness or capitalization; change
HLFC's dividend policy; or otherwise effect any material change in HLFC's
corporate structure or business.
Currently, we have no plans to issue HLFC shares after the Stock Splits,
other than pursuant to HLFC's 1998 Stock Option and Incentive Plan (the "Option
Plan"), but we reserve the right to do so at any time and from time to time at
such prices and on such terms as the Board determines to be in HLFC's best
interests. If, in the future, the Board determines that the adoption of a new
stock option plan would be beneficial to HLFC, it may, in its discretion, adopt
such a plan without shareholder approval. The exercise of options granted under
any newly adopted plan would reduce the ownership percentage of HLFC's
shareholders at the time. Holders of HLFC shares currently do not have, and will
not have, any preemptive or other preferential rights to purchase any equity
securities that we may issue in the future, unless such rights are specifically
granted to such holders.
16
After the Stock Splits are completed, we may, from time to time,
repurchase HLFC shares in privately negotiated sales or other transactions.
Whether or not we purchase shares in the future will depend on a number of
factors, including HLFC's financial condition, operating results and available
capital at the time.
Effects on Rights of HLFC Shares. The rights associated with HLFC shares
will be unaffected by the Stock Splits, and there will be no changes with
respect to dividend, voting, liquidation or other rights associated with the
shares. The HLFC Shares acquired by HLFC in the Stock Splits will be held in
HLFC's treasury.
Effect on ESOP. Because the HLFC shares will no longer be traded or quoted
on the Nasdaq or any other established securities market, HLFC's Employee Stock
Ownership Plan (the "ESOP") will be required to obtain annual appraisals to
value the HLFC shares owned by the ESOP. In addition, under the terms of the
ESOP, the participants in the ESOP will have a "put right" which permits a
participant to require HLFC to repurchase the participant's ESOP shares when
they are distributed to the participant.
Effects on HLFC's Executive Officers, Directors and Affiliates. If we
complete the Stock Splits and deregister, our affiliates, consisting of our
executive officers, directors and any shareholders who own more than 10% of HLFC
shares, will be relieved from complying with the stock ownership reporting
requirements and "short swing profit" trading restrictions under Section 16 of
the Exchange Act, as well as many of the provisions of the Sarbanes-Oxley Act.
Our affiliates will also lose the ability to dispose of their HLFC shares
pursuant to Rule 144 under the Securities Act of 1933, as amended (the
"Securities Act").
As is more thoroughly discussed under the heading "Information About HLFC
- - Interests of Certain Persons in Matters to be Acted Upon," we expect that upon
the completion of the Stock Splits, our executive officers and directors will
own approximately 25.28% of the then outstanding HLFC shares, as compared to
approximately 23.66% of the shares outstanding immediately prior to the Stock
Splits.
ALTERNATIVES TO THE STOCK SPLITS
In making its determination to proceed with the Stock Splits, the Board
considered the feasibility of the alternative transactions described below. The
Board did not investigate the potential costs of the transactions listed below
because it determined that they either had no certainty of sufficiently reducing
the number of HLFC's shareholders or had other features, such as triggering
dissenters' rights, which could possibly add to the expense and the uncertainty
of the transaction.
Issuer Tender Offer. The Board considered the feasibility of an issuer
tender offer to repurchase HLFC shares. The primary disadvantage of this type of
transaction is that, due to its voluntary nature, we would have no assurance
that enough HLFC shares would be tendered to sufficiently reduce the number of
HLFC's shareholders. In addition, the rules governing tender offers require
equal treatment of all shareholders, including pro rata acceptance of offers
from shareholders. These requirements make it difficult to ensure that we would
be able to reduce the number of record holders of HLFC shares enough to permit
us to deregister the HLFC shares, potentially resulting in our incurring the
expense of repurchasing numerous shares and still being unable to deregister. As
a result of these disadvantages, the Board determined not to pursue this
alternative.
Odd-Lot Tender Offer. Another option considered by the Board was an
odd-lot tender offer. In an odd-lot tender offer we would offer to repurchase,
at a designated price per share, HLFC shares held by any holder of less than 100
shares. Unlike general tender offers, which require HLFC to permit all
shareholders to participate equally, there is an exception for tender offers to
holders of less than 100 shares. However, even if all holders of less than 100
HLFC shares participated in the tender, we still could not sufficiently reduce
our number of shareholders to enable us to deregister. As a result, the Board
rejected this alternative.
Traditional Stock Repurchase Program. The Board also considered a plan
whereby HLFC would periodically repurchase HLFC shares on the open market at
market prices. The Board rejected this type of
17
transaction since repurchasing enough shares in this manner to enable us to
deregister our shares would likely take an extended period of time, have no
assurance of success and be of undeterminable cost.
Reorganization Through A Cash Out Merger. The alternative available to the
Board which was most similar to the Stock Splits was coordinating a merger with
a shell corporation and reissuing stock to the shareholders of the newly merged
entity. The share exchange would be such that shareholders owning less than 600
HLFC shares prior to the merger would be cashed out, and shareholders owning
more than 600 shares would become shareholders in the newly merged entity. The
Board of Directors concluded that the Stock Splits were a better alternative
since they do not require the formation of a new entity, allow HLFC to avoid the
regulatory issues and approvals associated with the merger of HLFC into another
corporation and do not trigger dissenters' rights as a cash out merger would.
Sale of HLFC. The Board recognized that a sale of HLFC was an available
option, but the Board is attempting to achieve the limited goal of eliminating
our public company expenses. A sale of HLFC would go well beyond achieving this
limited purpose. Our focus on serving our community and our local customer base
has enabled us to grow steadily and increase shareholder value. The Board does
not believe that it is time to abandon this model and is instead seeking to
reduce costs and the burden of being a public company to enable us to further
pursue this focus and remain independent.
Maintaining the Status Quo. The Board considered maintaining the status
quo. In that case, we would continue to incur the expenses of being a public
reporting company without enjoying the benefits traditionally associated with
public company status. The Board believes that maintaining the status quo is not
in the best interests of HLFC and its shareholders and rejected this
alternative.
FAIRNESS OF THE STOCK SPLITS
The Board believes that the Stock Splits are substantively and
procedurally fair to affiliated and unaffiliated shareholders, including Cashed
Out Holders and Continuing Holders. After consideration of all aspects of the
Stock Splits, as described below, the directors unanimously approved the Stock
Splits. Except for such approval, we are not aware that any of HLFC's executive
officers, directors or affiliates has made a recommendation either in support of
or opposed to the Stock Splits.
Affiliated and unaffiliated shareholders will be treated equally in the
Stock Splits. The only factor affecting whether a shareholder will be cashed out
or will remain a shareholder of HLFC is the number of shares held by the
shareholder. As a result, the Stock Splits are not structured so that approval
of at least a majority of unaffiliated shareholders is required. In determining
not to seek such approval, the Board was aware that HLFC's executive officers
and directors, who together own currently approximately 23.42% of the HLFC
shares outstanding and entitled to vote at the Special Meeting, have indicated
that they will vote in favor of the Stock Splits.
In determining the fairness of the Stock Splits, the Board chose not to
form a special committee of the Board to evaluate the Stock Splits. The Board is
comprised primarily of independent directors and, although all of the directors
own HLFC shares, the 600 share threshold was determined without regard to their
share ownership. As this was the sole potential conflict of interest and the
directors will be treated identically to all other shareholders in the Stock
Splits, the Board did not feel that the additional protections that may be
afforded by an independent committee would be significant. Accordingly, no
independent committee of the Board has reviewed the fairness of the Stock
Splits.
Additionally, the Board chose to not retain an unaffiliated representative
to act solely on behalf of the shareholders for the purpose of negotiating the
terms of the Stock Splits or preparing a report covering the fairness of the
Stock Splits. We have not made any provision in connection with the Stock Splits
to grant unaffiliated shareholders access to our corporate files or to obtain
counsel or appraisal services at our expense. The Board views (i) the Fairness
Opinion, (ii) the need to obtain the affirmative vote of the holders of at least
a
18
majority of the outstanding HLFC Shares, and (iii) the other matters discussed
in this Proxy Statement as affording adequate procedural safeguards to
unaffiliated shareholders without the extraordinary expense of multiple
financial or legal advisors. With respect to unaffiliated shareholders' access
to our corporate files, the Board determined that this Proxy Statement, together
with our other filings with the SEC, provide adequate information for
unaffiliated shareholders to make an informed decision with respect to the Stock
Splits. The Board also considered the fact that under Ohio law, subject to
certain conditions, shareholders have the right to review our relevant books and
records.
The Board determined that the steps discussed above would be costly and
would not provide any meaningful additional benefits, and did not feel they were
necessary to ensure the fairness of the Stock Splits. The Board noted the fact
that the financial advisor engaged by HLFC considered and rendered its opinion
as to the fairness of the Cash Out Price, from a financial point of view, to
HLFC's shareholders.
In determining the fairness of the Stock Splits, the Board considered the
factors discussed below. The Board believes that the Stock Splits are
substantively fair to HLFC's shareholders in light of these factors, taken
together with the disadvantages also discussed below. The Board did not assign
specific weight to the following factors in a formulaic fashion, but did place
special emphasis on the significant cost and time savings we expect HLFC to
realize from deregistration of our shares and the opportunity for unaffiliated
holders of HLFC Shares to sell their shares at a premium, without brokerage fees
or commissions.
Significant Cost and Time Savings. By deregistering the HLFC shares and
suspending our reporting obligations under the Exchange Act, we expect to
realize recurring annual cost savings of approximately $200,000 and
non-recurring savings of approximately $34,200 in consulting fees that we would
otherwise expect to incur due to compliance with the internal controls audit
requirements of Section 404 of the Sarbanes-Oxley Act. In addition, we will be
able to reallocate personnel to other areas of operations. We estimate that
approximately $65,000 of our annual personnel expense is for time previously
spent by our management to prepare and review our reports required to be filed
with the SEC under the Exchange Act. Please see the section entitled "Special
Factors - Reasons for the Stock Splits" for more information about these cost
savings.
The Cash Out Price of $20.75 per HLFC share represents (i) a discount of
3.4% over the average closing price of HLFC shares over the 60 trading days
prior to and including February 22, 2005, which was $21.49 per share, (ii) a
premium of 5.8% over the average closing price of HLFC shares over the 30
trading days prior to and including March 22, 2005, which was $19.61 per share,
and (iii) a premium of 14.64% over the closing price of HLFC shares on April 12,
2005, which was $18.10 per share.
The Board reviewed the proposal made by Keller & Company that $20.75 per
share be established as the Cash Out Price. In reviewing this proposal, the
Board took into consideration that, historically, the market for HLFC shares has
not been very liquid. Over the past few years, the liquidity of HLFC shares has
steadily decreased, as evidenced by an average trading volume in fiscal 2004 of
only 441 shares per day, down from 1,817 shares per day in fiscal 2001.
The Board, in the exercise of its business judgment, approved $20.75 as
the Cash Out Price for the HLFC shares because it represented fair consideration
at a premium to the current and historical market prices of our shares without
being so high as to be unfair to the Continuing Holders. The Board determined
that the Stock Splits are fair in part because they provide Cashed Out Holders
with an opportunity to liquidate their HLFC shares without paying brokerage
commissions or other transaction fees.
While performing its analysis for the Fairness Opinion, Keller & Company
selected the valuation analyses it deemed most relevant based on its knowledge
of HLFC and HLFC's expressed intent to continue as an operating entity and not
liquidate. Please see the section entitled "Opinion of Keller & Company" for a
discussion of these analyses.
19
Net Book Value. The Board believes that HLFC's net book value per share
does not properly reflect our earnings stream and cash flow, two factors it
considers critical for a meaningful valuation of the HLFC shares. Net book value
is based upon the historical cost of a company's assets and ignores the value of
a company as a going concern. The value of items such as a positive business
reputation, a trained workforce and established customer accounts are ignored in
computing net book value. The Board believes that the proper valuation of HLFC
should be based on our historical and prospective operating performance and
Keller & Company's analysis was based upon this premise. As set forth in greater
detail in the section of this Proxy Statement entitled "Financial Information -
Summary Historical Financial Information," our book value per share as of March
31, 2005 was $13.49. The Board believes that the valuation of HLFC shares, as
determined by Keller & Company, as well as the market price of our shares on
April 12, 2005 ($18.10 per share), are significantly greater than our book value
per share.
Liquidation Value. In determining the fairness of the Cash Out Price, the
Board did not assign any weight to HLFC's liquidation value. Because most of
HLFC's (and Home Loan's) assets are financial assets, their book values
generally approximate fair market value. If Home Loan's assets were sold in an
orderly liquidation, some of Home Loan's loans and deposits may be sold at a
slight premium over book value and others may be sold at a discount. However,
because the liquidation of a financial institution is a complex process
involving significant regulatory procedures and approvals, any premium received
would not be material considering the costs associated with a liquidation.
Going Concern Value. The Board did not assign any weight to the valuation
of HLFC Shares as a going concern. Going concern value generally consists of a
company's net book value plus the value attached to the company continuing to
operate, both of which are typically considered in a company's market price. The
Board considered the fact that HLFC's market price exceeds net book value and
the fact that the Cash Out Price reflects a premium of 15% over the closing
trading price of HLFC Shares on April 12, 2005. The Board did not obtain a going
concern valuation because such a valuation is costly.
Equal Treatment of Affiliated and Unaffiliated Holders of HLFC Shares. The
stock splits will not affect holders of HLFC shares differently on the basis of
affiliate status. The sole determining factor in whether a shareholder will be a
Cashed Out Holder or Continuing Holder as a result of the Stock Splits is the
number of HLFC shares held by the shareholder immediately prior to the Stock
Splits. Please see the section entitled "Stock Splits Proposal - Summary and
Structure" for more information.
Minimum Effect on Voting Power. The Stock Splits will have minimum effect
on the voting power of HLFC's shareholders. The HLFC shares are the only voting
shares of HLFC and will continue to be the only voting shares after the Stock
Splits. The voting and other rights of HLFC shares will not be affected by the
Stock Splits. The only effect of the Stock Splits on HLFC's voting power will be
a slight change in the overall ownership percentage of the Continuing Holders.
No Material Change in Ownership Percentage of Executive Officers and
Directors. Since only an estimated 109,000 out of 1,699,913 outstanding HLFC
shares will be eliminated as a result of the Stock Splits, the percentage
ownership of the Continuing Holders will be approximately the same as it was
prior to the Stock Splits. For example, the executive officers and directors of
HLFC and Home Loan currently beneficially own approximately 23.66% of the
outstanding HLFC shares, and will beneficially own approximately 25.28% of the
outstanding HLFC shares following the Stock Splits. All of HLFC's directors and
executive officers currently have over 600 shares, except Mr. Conidi, and will
remain shareholders of HLFC after completion of the Stock Splits. Please see the
section entitled "Information About HLFC - Interest of Certain Persons in
Matters to be Acted Upon."
Potential Ability to Control Decision to Remain a Holder of or Liquidate
HLFC Shares. Another factor considered by the Board in determining the fairness
of the Stock Splits to holders of HLFC shares is that current holders of fewer
than 600 shares can remain HLFC shareholders by acquiring additional shares so
that they own at least 600 HLFC shares immediately before the Effective Date.
Conversely, shareholders that own 600 or
20
more HLFC shares who desire to liquidate their shares in connection with the
Stock Splits at the premium price offered can reduce their holdings to less than
600 HLFC shares by selling shares prior to the Effective Date. The Board did not
place undue emphasis on this factor due to the limited trading market for the
HLFC shares. Please see the section entitled "Special Factors - Effects of the
Stock Splits."
Purchase Prices Paid for Repurchases of HLFC Shares. Prices paid by HLFC
in past repurchases of HLFC Shares were not given any weight because the Board
determined that the going private transaction should be priced at a premium to
current market value. Past repurchases have been made at the fair market value
of HLFC's Shares at the time of the repurchase.
Other Factors. Although potentially relevant to a determination of
fairness of the Stock Splits, the factors listed below are, for the reasons
given, not applicable to HLFC, and were not considered by the Board for this
reason.
- Firm Offers. No firm offers to purchase HLFC have been made during
the past two calendar years or during the current calendar year. We
have not received any firm offers to purchase HLFC and the Board did
not seek out any such offers. The Board believes that a sale of HLFC
is not in our best interests or the best interests of our
shareholders, customers, employees or community at this time.
- Prior Public Offerings. We have not made any underwritten public
offering of our shares or any other securities since our initial
public offering in 1998.
- Merger, Consolidation or Other Extraordinary Transaction. We have
not engaged in a merger or consolidation with another company or in
any other extraordinary transaction, such as the sale or other
transfer of all, or a substantial part, of our assets, during the
past two calendar years or during the current calendar year.
- Securities Purchases. There have not been any purchases of our
shares that would enable the holder to exercise control of HLFC.
DISADVANTAGES OF THE STOCK SPLITS
Potential Reduction of Market for HLFC Shares. After the completion of the
Stock Splits and the deregistration of our shares, we will no longer be listed
on the Nasdaq. As a result, we anticipate that the public market for HLFC shares
may be reduced. The Board, however, considered that potential trades in HLFC
shares could be facilitated by a market maker in the Pink Sheets(R) or OTCBB
following deregistration. Please see the section entitled "Special Factors -
Effects of the Stock Splits."
Possible Decline in Price of the HLFC Shares. After the completion of the
Stock Splits, the liquidity of our shares may be reduced. In addition, the lack
of publicly available financial and other information about HLFC and the
diminished opportunity for HLFC's shareholders to monitor HLFC's management due
to the reduced availability of public information may cause the Continuing
Holders to experience a decrease in the price at which they may sell their
shares. Please see "Special Factors - Fairness of the Stock Splits -
Disadvantages of the Stock Splits - Potential Reduction of Market for HLFC
Shares" and "Special Factors - Fairness of the Stock Splits - Disadvantages of
the Stock Splits - Termination of Publicly Available Information about HLFC."
Termination of Publicly Available Information About HLFC. After
deregistration of HLFC shares under the Exchange Act, information regarding our
operations and financial results that is currently available to the general
public and our investors will not be readily available after deregistration, and
investors seeking information about us will have to contact us directly to
receive such information. We may or may not provide investors with requested
information that we are not required by law to provide. The Stock Splits will
not affect
21
the right of the Continuing Holders under Ohio law to obtain certain information
from HLFC. Under Ohio law, a shareholder has the right to make a written request
to inspect certain books and records for any purpose reasonably related to the
person's interest as a shareholder. The Board believes that the overall benefits
to HLFC of no longer being a public reporting company substantially outweigh the
disadvantages associated with a lack of publicly available information about
HLFC. Please see the section entitled "Special Factors - Effects of the Stock
Splits."
Sarbanes-Oxley Act and Other Reporting and Disclosure Provisions Will No
Longer Apply to HLFC. After the completion of the Stock Splits and the
deregistration of our shares, we will no longer be subject to the provisions of
the Sarbanes-Oxley Act or the liability provisions of the Exchange Act that
apply to public companies, including the requirement that the chief executive
officer and the chief financial officer certify the accuracy of the financial
statements contained in our Exchange Act filings.
HLFC Will No Longer Have the Potential Benefits Normally Associated with
Public Reporting Company Status. Another potential disadvantage of the Stock
Splits is that we will no longer have the benefits normally associated with
being a public reporting company, such as better access to the capital markets
for issuances of securities. We would still have access to capital markets, but
if we were to conduct an offering of HLFC shares or other securities we would
have to again become a reporting company, and the expenses that we are seeking
to eliminate would then be reinstated. We believe that the cost savings of
deregistration outweigh the drawbacks of losing more ready access to the capital
markets. We have historically had excess capital and have not needed to obtain
financing through public offerings. We have not issued HLFC shares or any other
securities in a public offering since our initial public offering in 1998, and
we do not presently foresee any need to do so.
Another advantage of being a public company is using company stock, as
opposed to cash or other consideration, to effect acquisitions. The
opportunities for companies our size to acquire other businesses using stock are
limited. We have not previously completed an acquisition using stock and, given
the limited opportunities for such acquisitions, it is uncertain that would be
able to do so in the future.
Cashed Out Holders will not Participate in Future Increases in Value of
HLFC Shares or Payments of Dividends. Following the Stock Splits, Cashed Out
Holders will have no further financial interest in HLFC and will not have the
opportunity to participate in the potential appreciation in the value of, or the
payment of dividends on, HLFC shares.
CONCLUSION
The Board believes that all of the factors mentioned above, both favorable
and unfavorable, when viewed together support a conclusion that the Stock Splits
are fair to all HLFC shareholders, including the Cashed Out Holders and
Continuing Holders.
22
STOCK SPLITS PROPOSAL
BACKGROUND OF THE STOCK SPLITS
HLFC became an SEC reporting company in 1998 in connection with the mutual
to stock conversion of Home Loan. The conversion was governed by OTS
regulations. One of the most significant features of the OTS conversion
regulations was the process to determine how much stock would be offered in the
conversion. HLFC, like many companies which converted in the 1990's, was
required to raise more capital than would have been desirable had the Board been
able to choose the amount of capital to raise. Other aspects of the OTS
regulations which affected HLFC's early existence as a public company included
the requirement that converted companies remain Exchange Act reporting companies
for at least three years after conversion and the OTS limitations on stock
repurchases during the first three years following conversion. As a result of
these regulations, HLFC had excess capital, it could not fully utilize stock
repurchases as a mechanism for managing its excess capital, and it had to remain
a public company until at least 2001.
The 2001 fiscal year was the first year in which deregistering was an
option for HLFC. Up to that time, the costs of being a public company had been
relatively stable from year to year and HLFC was hopeful that it would have the
opportunity to grow through acquisitions and that it would be beneficial to have
a publicly traded stock as acquisition currency. HLFC intended to utilize stock
repurchases and capital distributions as the principal means of deploying its
excess capital. HLFC paid a special dividend of $4.00 in 1999. HLFC has
continually pursued share repurchases, but the declining trading volume has
reduced the efficacy of repurchases as a capital management tool. HLFC's excess
capital also meant that the easier access to the capital markets available to
public companies was not a meaningful advantage to HLFC. It was becoming more
apparent to the Board that HLFC was not realizing the benefits of being a public
company, while it continued to incur the expense. Management and the Board began
to informally discuss the benefits and disadvantages of remaining a publicly
traded company.
The passage of the Sarbanes-Oxley Act in 2002 ushered in a wave of
corporate reforms that have increased HLFC's expense as a public company without
enhancing, from an operations perspective, the benefits of being a public
company. In anticipation of the adoption of the regulations implementing the
Sarbanes-Oxley Act, the Board became concerned about the additional expenses
HLFC would incur in complying with the new regulations. So, in early 2003, the
Board asked outside legal counsel, Vorys, Sater, Seymour and Pease LLP, to
discuss with the Board the implications of the Sarbanes-Oxley Act, including the
option of going private.
On April 8, 2003, legal counsel from Vorys, Sater met with the Board and
discussed the anticipated changes that would result from the Sarbanes-Oxley Act,
their effect on HLFC and required compliance dates. Legal counsel also outlined
the advantages and disadvantages of deregistering with the SEC, and the Board
discussed at that time the feasibility of going private. However, since all of
the ramifications of the Sarbanes-Oxley Act were not yet known, the Board
decided to remain a reporting company while it continued to assess the impact of
Sarbanes-Oxley.
As the regulations implementing the Sarbanes-Oxley Act were put into place
in 2003 and 2004, HLFC's legal and professional fees increased in the 2003 and
2004 fiscal years, with the expense of complying with the internal control audit
requirements of Section 404 yet to be a factor. As a result, the issue of
remaining a public company began to take on greater significance for HLFC.
In anticipation of the original compliance date of 2005 for Section 404 of
the Sarbanes-Oxley Act, management contacted a public accounting firm with
Section 404 expertise to request a proposal regarding the costs of implementing
an internal control structure to comply with Section 404. In April 2004, the
public accounting firm provided management with an estimate for outside
professional fees of $71,000 to document and implement a compliant internal
control structure, contingent upon performance of a substantial amount of the
work by HLFC's internal personnel.
23
On June 8, 2004, the Board requested that management once again
investigate the option of going private in light of the additional expense that
would be incurred in order to comply with Section 404. Since the stock
conversion in 1998, the Board had achieved meaningful success in growing HLFC
and increasing shareholder value, despite some of the limitations it
encountered. Because the Board believes that future growth and further
enhancement of shareholder value remain viable prospects for HLFC, it appeared
that it remained in the best interests of a majority of HLFC's shareholders for
HLFC to remain independent, but not as a public company. In the meantime, the
Audit Committee authorized the public accounting firm to begin its work for
documenting and implementing compliant internal controls. Between September 2004
and December 2004, when Section 404 work by the firm was halted pending the
outcome of this Special Meeting, HLFC spent approximately $36,800 for those
services.
During the period from July through November 2004, Mr. Robert Hamilton
discussed the possibility of going private with HLFC's internal and external
auditors. These discussions included estimates for HLFC's ongoing compliance
costs as a public versus private company. Then, HLFC's Audit Committee met with
HLFC's auditor to discuss various audit and accounting issues, including Section
404 compliance. The auditor estimated that adding Section 404 attestation
procedures to the annual audit process would likely cause our annual audit costs
to increase approximately $50,000 per year.
In December 2004, Mr. Robert Hamilton requested detailed information from
legal counsel regarding the going private process. In January 2005, legal
counsel provided management with an analysis of the advantages and disadvantages
of deregistering and an outline of different methods for going private including
a reverse stock split, merger and self-tender offer.
As part of the information gathering process, on February 21, 2005, Mr.
Robert Hamilton, Mr. Bair and Mr. Conidi attended a seminar regarding
shareholder reduction strategies. Then, on March 1, 2005, Mr. Hamilton and Mr.
Bair attended a going private seminar sponsored by the Ohio Bankers League.
After each of these seminars, Mr. Hamilton and Mr. Bair reviewed the materials
provided and discussed their views regarding HLFC going private and
deregistering. Because Mr. Hamilton and Mr. Bair both believed that going
private was in the best interests of the shareholders and HLFC, Mr. Hamilton
began to have informal discussions with several of the directors regarding the
implications of going private.
At a meeting on March 8, 2005, which was attended by all directors, Mr.
Hamilton reported on the seminars he and Mr. Bair had attended. Then, Mr. Bair
discussed with the Board the anticipated costs associated with HLFC's ongoing
compliance with the Exchange Act rules and regulations, particularly the
increased compliance requirements of Sarbanes-Oxley. Management estimated the
annual costs for complying with Section 404 of the Sarbanes-Oxley Act would be
$115,000, plus an additional $34,200 in fiscal year 2006 for implementation and
execution of a plan for compliance, in addition to HLFC's historical expenses
associated with being a public company. The Board also discussed the advantages
and disadvantages of being a private company. Management recommended that HLFC
go private based on management's assessment of the costs to remain a public
company versus the likely benefits of remaining a public company. Legal counsel
participated by telephone and addressed the benefits and disadvantages of
deregistering and alternative methods for going private. The methods discussed
included a reverse stock split, a cash out merger and forms of tender offers.
The Board discussed all of this information with management and legal counsel,
including the effects on shareholders who would be eliminated in the
transaction. The Board also reviewed the current composition of our shareholders
and number of shares issued and outstanding, and began to analyze the possible
costs associated with a going private transaction. The Board instructed Mr.
Hamilton to hire an independent financial advisor to obtain a fairness opinion,
continue to refine the financial analysis of the cost of remaining public
compared to going private, and assist legal counsel in drafting a proxy
statement.
At a regular Board meeting on April 12, 2005, with all directors in
attendance, Mr. Michael Keller of Keller & Company presented the Fairness
Opinion. Mr. Keller discussed with the Board Keller & Company's valuation
analysis with respect to HLFC shares. It presented the Board with information
regarding (i) trading history, including volume and prices, of the HLFC shares,
and (ii) a review of the market performance and
24
trading history of companies comparable to HLFC. Mr. Keller stated that the
current trading price of HLFC shares as a multiple of earnings was slightly
below its peers, but as a percent of book value per share was above the level of
its peers. The Board discussed the pros and cons of paying a premium above the
current trading price. After presenting the relevant financial information,
Keller & Company advised the Board that, in its opinion, a per share purchase
price of $20.75 per HLFC share in lieu of issuing fractional shares to Cashed
Out Holders would be fair to all of our shareholders. The information presented
to the Board by Keller & Company regarding its financial analysis is described
more fully under the heading "Opinion of Keller & Company."
Next, legal counsel and Mr. Keller addressed questions the Board had,
including the effect of being private on future acquisitions, the methods for
valuing shares after going private, and the change in liquidity resulting from a
going private transaction.
Finally, Mr. Hamilton and Mr. Bair presented to the Board their analysis
of HLFC's shareholder list and their determination and recommendation of a split
ratio of 1-for-600. Management believed this ratio balanced the Board's goals of
reducing the number of shareholders to a level comfortably below the 300
shareholder threshold at which reporting obligations would be reinstated, while
minimizing the number of shareholders who would be cashed out. The Board
reviewed analyses prepared by management regarding the anticipated financial
impact of the Stock Splits. Specifically, the Board considered the total number
of HLFC shares which would be exchanged for cash in the Stock Splits and
considered its resulting impact on our financial condition. The Board then
discussed the fairness of the price to be paid in light of, among other factors,
the historical trading price of the shares, our going concern value, liquidation
value and net book value and the impact of the Stock Splits on the relative
voting power of HLFC's shareholders. The Board also discussed the desirability
of a forward split immediately following the reverse split to avoid an unusually
high per share value for HLFC shares after the completion of the reverse split.
The Board determined that a subsequent forward split was desirable. After
further discussion, the Board authorized management to pursue the going-private
transaction, including asking legal counsel to draft the required proxy
statement for review and approval of the Board at its next meeting.
In advance of the next Board meeting, management submitted a draft of the
Proxy Statement to the directors. At the meeting on May 10, 2005, the Board
discussed the Proxy Statement, the structure of the Stock Splits and the
fairness of the transaction to all shareholders. Legal counsel was available by
telephone to answer questions from the directors. After further consideration
and deliberation, the Board unanimously approved the Stock Splits with a $20.75
price per share to be paid to Cashed Out Holders and recommended the approval of
the Stock Splits by HLFC's shareholders.
SUMMARY AND STRUCTURE
The Board has authorized and recommends that you approve the Stock Splits.
The Stock Splits consist of two steps. First, we will conduct a 1-for-600
reverse stock split of the HLFC shares. In the reverse split, (i) any holder of
600 or more HLFC shares immediately before the reverse stock split will receive
approximately .00167 shares for each HLFC share then owned and (ii) holders of
less than 600 HLFC shares will have their shares cancelled and will receive
$20.75 in cash for each HLFC share owned immediately prior to the reverse split.
The reverse split will be followed immediately by a 600-for-1 forward stock
split of the HLFC shares. The Stock Splits will take effect on the Effective
Date (the date the Ohio Secretary of State accepts for filing certificates of
amendment to our Articles). The proposed amendments to our Articles are attached
to this Proxy Statement as Exhibits B and C and are incorporated herein by
reference. Generally, the effect of the Stock Splits can be illustrated by the
following examples:
25
Hypothetical Scenario Result
- --------------------- ------
Shareholder A holds 300 Shareholder A's 300 shares will be converted into the right to receive
HLFC shares in a single $6,225 in cash (300 x $20.75). If Shareholder A wanted to continue to be
record account and holds no a shareholder after the Stock Splits, he could purchase an additional 300
other HLFC shares. HLFC shares far enough in advance of the Stock Splits so that the
purchase is complete by the Effective Date.
Shareholder B holds 300 HLFC intends for the Stock Splits to be effected at the record holder
HLFC shares in a brokerage level. As a result, HLFC will look at the aggregate number of HLFC
account and holds no other shares owned by the broker for itself and on behalf of all other street
shares. name owners. Shareholders holding shares in street name should contact
their broker to determine how the Stock Splits will affect them. If the
total number of shares owned by the broker is greater than 600 shares,
Shareholder B's ownership will not be effected and she will continue to
hold 300 HLFC shares. If, in the aggregate, the broker owns less than 600
HLFC shares, Shareholder B will be entitled to receive $6,225 in cash
(300 x $20.75).
Shareholder C holds 625 Shareholder C's ownership will not be affected and he will continue to
HLFC shares in a single hold 625 HLFC shares after the Stock Splits.
record account and holds no
other shares.
Shareholder D holds 350 After the Stock Splits, Shareholder D will continue to hold 700 HLFC
shares in each of two shares.
separate record accounts for
a total of 700 HLFC shares.
Shareholder D holds no other
HLFC shares.
Husband and Wife each hold Shares held in joint accounts will not be added to shares held individually
350 HLFC shares in separate in determining whether a shareholder will remain a shareholder after the
record accounts and hold 350 Stock Splits. In this situation, Husband and Wife will each be entitled to
shares jointly in another receive $7,262.50 for the shares held in their individual record accounts
record account. They own (350 x $20.75). Further, they will be entitled to receive $7,262.50 for the
no other HLFC Shares. HLFC shares held in their joint account. Husband and Wife will hold no
HLFC shares after the Stock Splits. If Husband and Wife wished to
continue to be shareholders after the Stock Splits, they could transfer a
sufficient number of shares from one account into another so that at least
600 HLFC shares are held in one account prior to the Effective Date.
The Board has set the Cash Out Price at $20.75 per HLFC share held
immediately prior to the Stock Splits. The Board made this determination in good
faith, based upon the Fairness Opinion and other factors the Board deemed
relevant. Please see the sections entitled "Special Factors - Purpose of and
Reasons for the Stock Splits," "Special Factors - Fairness of the Stock Splits"
"Opinion of Keller & Company" and "Stock Splits Proposal - Background of the
Stock Splits." HLFC currently estimates that Cashed Out Holders will receive
payment for their HLFC shares within approximately two to three weeks after the
certificate is tendered.
At least a majority of the HLFC shares outstanding and entitled to vote at
the Special Meeting must approve the Stock Splits before they can be completed.
The executive officers and directors of HLFC and Home Loan, who together own
approximately 23.42% of the HLFC shares outstanding and entitled to vote at the
Special Meeting, have indicated that they will vote in favor of the Stock Splits
proposal.
26
The Stock Splits are considered a "going-private" transaction as defined
in Rule 13e-3 promulgated under the Exchange Act because they are intended to
terminate the registration of HLFC shares and suspend HLFC's filing and
reporting obligations under the Exchange Act. In connection with the Stock
Splits, we have filed, as required by the Exchange Act, a Rule 13e-3 Transaction
Statement on Schedule 13E-3 (the "Schedule 13E-3") with the SEC. Please see the
section entitled "Available Information."
The Board may, in its discretion, withdraw the Stock Splits from the
agenda of the Special meeting prior to a vote being taken if it determines that
the Stock Splits, for any reason, are not then in the best interests of HLFC.
Reasons the Board may withdraw the Stock Splits proposal include: any change in
the nature of the shareholdings of HLFC prior to the Effective Date which would
result in us being unable to reduce the number of record holders of HLFC shares
to below 300 as a result of the Stock Splits or that would enable us to
deregister without effecting the Stock Splits; any change in the number of
shares that will be exchanged for cash in connection with the Stock Splits that
would substantially increase the cost of the Stock Splits from what is currently
anticipated; and any adverse change in our financial condition. Please see the
section entitled "Stock Splits Proposal - Termination of Stock Splits"
RECOMMENDATION OF THE BOARD
The Board has determined that the Stock Splits are in the best interests
of HLFC and its shareholders and are fair to HLFC's shareholders. The Board
unanimously recommends that the shareholders vote "FOR" the approval of the
Stock Splits.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
We have summarized below the material federal income tax consequences to
HLFC and to holders of HLFC shares resulting from the Stock Splits. This summary
is based on the provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), the Treasury Department Regulations (the "Treasury Regulations") issued
pursuant thereto, and published rulings and court decisions in effect as of the
date hereof, all of which are subject to change. Some changes may have
retroactive effect. No assurance can be given that possible changes in such laws
or interpretations, including amendments to the Code, applicable statutes,
Treasury Regulations and proposed Treasury Regulations or changes in judicial or
administrative rulings will not adversely affect this summary. This summary is
not binding on the Internal Revenue Service.
This summary does not address all aspects of the possible federal income
tax consequences of the Stock Splits and is not intended as tax advice to any
person or entity. In particular, this summary does not consider the individual
investment circumstances of holders of HLFC shares, nor does it consider the
particular rules applicable to special categories of holders (such as tax exempt
entities, life insurance companies, regulated investment companies and foreign
taxpayers) or holders who hold, have held, or will hold, HLFC shares as part of
a straddle, hedging or conversion transaction. In addition, this summary does
not address any consequences of the Stock Splits under any state, local or
foreign tax laws.
This summary assumes that you are one of the following: (i) a citizen or
resident of the United States, (ii) a domestic corporation, (iii) an estate, the
income of which is subject to United States federal income tax regardless of its
source, or (iv) a trust, if a United States court can exercise primary
supervision over the trust's administration and one or more United States
persons are authorized to control all substantial decisions of the trust. This
summary also assumes that you have held and will continue to hold your HLFC
shares as capital assets for federal income tax purposes.
YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR FEDERAL, STATE,
LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES APPLICABLE TO YOUR SPECIFIC
CIRCUMSTANCES.
27
Federal Income Tax Consequences to HLFC. We believe that the Stock Splits
will be treated as a tax-free "recapitalization" for federal income tax
purposes. This treatment will result in no material federal income tax
consequences to HLFC.
Federal Income Tax Consequences to Continuing Holders Not Receiving Cash.
If you (i) continue to hold HLFC shares directly immediately after the Stock
Splits and (ii) you receive no cash as a result of the Stock Splits, you will
not recognize any gain or loss in the Stock Splits, and you will have the same
adjusted tax basis and holding period in your HLFC shares as you had in such
shares immediately prior to the Stock Splits.
Federal Income Tax Consequences to Cashed Out Holders Retaining None of
their HLFC Shares. If you receive cash in exchange for your HLFC shares as a
result of the Stock Splits, your tax consequence will depend on whether, in
addition to receiving cash, a person or entity related to you (as determined by
the Code) continues to hold HLFC shares immediately after the Stock Splits.
If you receive cash, do not continue to hold directly any HLFC shares and
are not related to any person or entity who or which continues to hold HLFC
shares, you will recognize capital gain or loss equal to the difference between
the cash you receive for your HLFC shares and your aggregate adjusted tax basis
in such HLFC shares.
If you receive cash, do not continue to directly hold any HLFC shares, but
are related to a person or entity who or which continues to hold HLFC shares,
you may be treated as owning constructively the HLFC shares owned by such
related person or entity, which may cause your receipt of cash in exchange for
your HLFC shares to be treated (i) first, as ordinary taxable dividend income to
the extent of your ratable share of HLFC's undistributed earnings and profits,
(ii) second, as a tax-free return of capital to the extent of your aggregate
adjusted tax basis in your HLFC shares, and (iii) then, the remainder as capital
gain. IF YOU ARE RELATED TO A PERSON OR ENTITY WHO OR WHICH WILL CONTINUE TO
HOLD HLFC SHARES AFTER THE STOCK SPLITS, YOU SHOULD CONSULT WITH YOUR OWN TAX
ADVISOR TO DETERMINE YOUR PARTICULAR TAX CONSEQUENCES.
Capital Gain and Loss. For individuals, net capital gain (defined
generally as your total capital gains in excess of capital losses for the year)
recognized upon the sale of capital assets that have been held for more than 12
months generally will be subject to tax at a rate not to exceed 15%. Net capital
gain recognized from the sale of capital assets that have been held for 12
months or less will continue to be subject to tax at ordinary income tax rates.
Capital gain recognized by a corporate taxpayer will continue to be subject to
tax at the ordinary income tax rates applicable to corporations. There are
limitations on the deductibility of capital losses.
Special Rate for Certain Dividends. In general, dividends are taxed at
ordinary income rates. However, you may qualify for a 15% rate of tax on any
cash received in the Stock Splits that is treated as a dividend as described
above, if (i) you are an individual or other non-corporate stockholder; (ii) you
have held the HLFC shares with respect to which the dividend was received for
more than 60 days during the 120-day period beginning 60 days before the
ex-dividend date, as determined under the Code; and (iii) you were not obligated
during such period (pursuant to a short sale or otherwise) to make related
payments with respect to positions in substantially similar or related property.
YOU SHOULD CONSULT WITH YOUR TAX ADVISOR REGARDING YOUR ELIGIBILITY FOR SUCH
LOWER TAX RATES ON DIVIDEND INCOME.
Backup Withholding. Holders of HLFC shares will be required to provide
their social security or other taxpayer identification numbers (or, in some
instances, additional information) to the Transfer Agent in connection with the
Stock Splits to avoid backup withholding requirements that might otherwise
apply. The letter of transmittal will require each holder of HLFC shares to
deliver such information when the Share certificates are surrendered following
the Effective Date of the Stock Splits. Failure to provide the required
information may result in backup withholding.
28
UNAVAILABILITY OF APPRAISAL OR DISSENTERS' RIGHTS
No appraisal or dissenters' rights are available under Ohio law or under
HLFC's Articles or Regulations to holders of HLFC shares who do not vote in
favor of the Stock Splits. Other rights or actions may exist under Ohio law or
federal and state securities laws for shareholders who can demonstrate that they
have been damaged by the Stock Splits.
SHARE CERTIFICATES
We have appointed the Transfer Agent to act as exchange agent to carry out
the exchange of share certificates held by Cashed Out Holders for cash. On the
Effective Date, all share certificates evidencing ownership of HLFC shares held
by Cashed Out Holders shall be deemed cancelled without further action by either
the Cashed Out Holders or HLFC. Thereafter, such certificates, rather than
representing an ownership interest in HLFC, will represent only the right to
receive cash in the amount of $20.75 per HLFC share upon their surrender. The
shares acquired by HLFC in connection with of the Stock Splits will be held in
HLFC's treasury.
The Transfer Agent will furnish Cashed Out Holders with the necessary
materials and instructions to surrender their HLFC share certificate(s) promptly
following the Effective Date. The letter of transmittal will explain how the
certificates are to be surrendered for cash. Cashed Out Holders must complete
and sign the letter of transmittal and return it with their certificate(s) to
the Transfer Agent as instructed before they can receive cash payment for their
HLFC shares. DO NOT SEND YOUR CERTIFICATES TO US, AND DO NOT SEND THEM TO THE
TRANSFER AGENT UNTIL YOU HAVE RECEIVED A TRANSMITTAL LETTER AND FOLLOWED THE
INSTRUCTIONS THEREIN.
No service charges will be payable by Cashed Out Holders in connection
with the exchange of certificates or the payment of cash in lieu of issuing
fractional shares. HLFC will pay all administrative expenses of the Stock
Splits.
TERMINATION OF STOCK SPLITS
Although we are requesting your approval of the Stock Splits, the Board
may, in its discretion, withdraw the Stock Splits from the agenda of the Special
Meeting prior to any vote being taken. Although the Board presently believes
that the Stock Splits are in HLFC's best interests and has recommended a vote
for the Stock Splits, the Board nonetheless believes that it is prudent to
recognize that circumstances could possibly change prior to the Special Meeting
such that it might not be appropriate or desirable to effect the Stock Splits at
that time. Such reasons include, among other things:
- Any change in the nature of the HLFC's shareholdings which would
result in us being unable to reduce the number of record holders of
HLFC shares to below 300 as a result of the Stock Splits;
- Any change in the number of our record holders that would enable us
to deregister the HLFC shares under the Exchange Act without
effecting the Stock Splits;
- Any change in the number of HLFC shares that will be exchanged for
cash in connection with the Stock Splits that would substantially
increase the cost and expense of the Stock Splits from what is
currently anticipated; or
- Any adverse change in our financial condition that would render the
Stock Splits inadvisable.
If the Board decides to withdraw the Stock Splits from the agenda of the
Special Meeting, the Board will promptly notify our shareholders of the decision
by mail and by announcement at the Special Meeting.
29
ESCHEAT LAWS
The unclaimed property and escheat laws of each state provide that under
circumstances defined in that state's statutes, holders of unclaimed or
abandoned property must surrender that property to the state. Cashed Out Holders
whose addresses are unknown to HLFC, or who do not return their share
certificates and request payment of the Cash Out Price, generally will have a
period of time from the Effective Date in which to claim the cash payment to
which they are entitled. For example, with respect to Cashed Out Holders whose
last known addresses as shown by the records of HLFC, are in Ohio the period is
five years. Following the expiration of that five-year period, the relevant
provisions the Ohio Revised Code would likely cause the cash payments to escheat
to the State of Ohio. For Cashed Out Holders who reside in other states or whose
last known addresses, as shown by the records of HLFC, are in states other than
Ohio, such states may have abandoned property laws which call for such state to
obtain either (i) custodial possession of property that has been unclaimed until
the owner reclaims it or (ii) escheat of such property to the state. Under the
laws of such other jurisdictions, the "holding period" or the time period which
must elapse before the property is deemed to be abandoned may be shorter or
longer than five years. If HLFC does not have an address for a Cashed Out
Holder, then the unclaimed cash payment would be turned over to the State of
Ohio in accordance with its escheat laws.
REGULATORY APPROVALS
HLFC is not aware of any material governmental or regulatory approval
required for completion of the Stock Splits, other than compliance with the
relevant federal and state securities laws and Ohio corporate laws.
OPINION OF KELLER & COMPANY
The Board retained Keller & Company to provide the Fairness Opinion. On
April 12, 2005, Keller & Company delivered the Fairness Opinion to the Board.
The Fairness Opinion states that, based upon and subject to the factors and
assumptions set forth therein, the Repurchase Price to be paid to Cashed Out
Holders pursuant to the Stock Splits is fair from a financial point of view as
of April 12, 2005. Keller & Company also presented to the Board a summary of the
analyses described below.
The Fairness Opinion was prepared for use by the Board and was directed
only to the fairness from a financial point of view, as of the date thereof, of
the Repurchase Price. Keller & Company was not involved in structuring the Stock
Splits and its opinion does not compare the relative merits of the Stock Splits
with those of any other transaction or business strategy which were or might
have been available to or considered by HLFC or the Board as alternatives to the
Stock Splits and does not address the underlying business decision by the Board
to proceed with or effect the Stock Splits. The Fairness Opinion is directed to
the Board in its evaluation of the Stock Splits and does not constitute a
recommendation to the Board as to how it should vote on the Stock Splits or to
any shareholder as to how such shareholder should vote at the Special Meeting.
In furnishing the Fairness Opinion, Keller& Company did not admit that it is an
expert within the meaning of the term "expert" as used in the Securities Act of
nor did it admit that its opinion serves as a report or valuation within the
meaning of the Securities Act.
THE FULL TEXT OF THE FAIRNESS OPINION IS ATTACHED AS EXHIBIT A TO THIS
PROXY STATEMENT AND IS INCORPORATED HEREIN BY REFERENCE. SHAREHOLDERS ARE URGED
TO READ THE FAIRNESS OPINION CAREFULLY AND IN ITS ENTIRETY FOR A DISCUSSION OF
THE PROCEDURES FOLLOWED, ASSUMPTIONS MADE, OTHER MATTERS CONSIDERED AND LIMITS
OF THE REVIEW BY KELLER & COMPANY IN CONNECTION WITH THE FAIRNESS OPINION.
The Board selected Keller & Company as its financial advisor because it is
a recognized financial institutions consulting firm that has substantial
experience in the financial institutions industry and is knowledgeable and
familiar with the operations of HLFC and its business. As part of its business,
Keller & Company is regularly engaged in the valuation of businesses and
securities in connection with mergers,
30
acquisitions, underwritings, sales and distributions of listed and unlisted
securities, private placements and valuation for corporate and other purposes,
particularly those of financial institutions and financial institution holding
companies.
Keller & Company has served as consultant to HLFC in the past, assisting
HLFC in various projects, including the completion of HLFC's conversion
appraisal in March 1998 and its three-year business plan. During the past two
years, Keller has assisted Home Loan in the completion of a branch application,
compensation review, policy review and a loan review, resulting in total fees of
$5,980.
In rendering the Fairness Opinion, Keller & Company reviewed the terms of
the Stock Splits and also reviewed financial and other information that was
publicly available. Keller & Company also reviewed certain publicly available
operational, financial and stock market data relating to selected public
companies and conducted other financial studies, analyses and investigations as
Keller & Company deemed necessary or appropriate for purposes of rendering the
Fairness Opinion, as more fully set forth therein. No limitations were imposed
by the Board of HLFC upon Keller & Company with respect to the investigations
made or procedures followed by it in rendering its opinion. The Board requested
Keller & Company to advise it on a price to be paid to Cashed Out Holders.
Keller & Company assumed and relied upon, without independent
verification, the accuracy and completeness of all financial and other
information that was publicly available. Keller & Company further relied upon
the assurances of HLFC's management that they are unaware of any facts that
would make the information provided to it incomplete or misleading.
Keller & Company was not requested to make, and did not make, an
independent evaluation or appraisal of the assets, properties, facilities or
liabilities (contingent or otherwise) of HLFC, and was not furnished with any
such appraisals or evaluations. Keller & Company's opinion is necessarily based
upon financial, economic, market and other conditions and circumstances existing
and disclosed to Keller & Company on the date of the Fairness Opinion.
Subsequent developments may affect the conclusions reached in the Fairness
Opinion, and Keller & Company has no obligation to update, revise or reaffirm
the Fairness Opinion.
In preparing the Fairness Opinion, Keller & Company conducted the
following two principal analysis: (i) a comparison of HLFC with certain
publicly-traded companies deemed comparable to HLFC, and (ii) a review of the
historical and current market performance of the HLFC shares on the Nasdaq.
Keller & Company discussed HLFC's current financial position and recent
earnings performance with senior management and discussed and reviewed local
economic conditions and growth trends. Keller & Company gave consideration to
historical pricing quotations for HLFC and trading activity in the stock and
identified a comparable group of publicly traded thrift institutions based on
asset size, geographic location and financial characteristics that were similar
to HLFC. Keller & Company assumed and relied upon the accuracy and completeness
of all the financial information, analyses and other information that was
publicly-available and did not verify the accuracy of completeness of this
information.
No company used in any analysis as a comparison is identical to HLFC, and
they all differ in various ways. As a result, Keller & Company applied its
experience and professional judgment in making such analyses. Accordingly, an
analysis of the results is not mathematical; rather it involves complex
considerations and judgments concerning differences in financial
characteristics, performance characteristics and trading value of the comparable
companies to which HLFC is being compared. The preparation of a fairness opinion
is a complex process and is not necessarily susceptible to partial analyses or
summary description. In arriving at the Fairness Opinion, Keller & Company
considered the results of all of its analyses as a whole and did not attribute
any particular weight to any analysis or factor considered by it. Keller &
Company believes that the summary provided and the analyses described above must
be considered as a whole and that selecting portions of these analyses, without
considering all of them, would create an incomplete view of the process
underlying its
31
analyses and opinion. In addition, Keller & Company may have given various
analyses and factors more or less weight than other analyses and factors and may
have deemed various assumptions more or less probable than other assumptions,
therefore the range of valuations resulting from any particular analysis
described above should not be taken to be Keller & Company's view of the actual
value of HLFC.
The following is a summary of the material financial analyses performed by
Keller & Company in connection with the preparation of the Fairness Opinion.
These summaries of financial analyses alone do not constitute a complete
description of the financial analyses Keller & Company employed in reaching its
conclusions. The order of analyses described does not represent relative
importance or weight given to those analyses by Keller & Company. Some of the
summaries of the financial analyses include information presented in tabular
format. The tables must be read together with the full text of each summary and
are alone not a complete description of Keller & Company's financial analyses.
Except as otherwise noted, the following quantitative information, to the extent
that it is based on market data, is based on market data as it existed on or
before April 12, 2005, and is not necessarily indicative of current market
conditions.
PUBLIC COMPARABLES ANALYSIS
In rendering its opinion, Keller & Company analyzed the pricing ratios of
certain comparable thrift institutions and thrift holding companies. The
analysis included a comparison of such key financial ratios as return on average
assets, return on average equity, and equity to assets, and such key pricing
ratios as price relative to book value, latest twelve months earnings and
assets. Keller & Company reviewed and compared selected financial and stock
market information, ratios and multiples of HLFC to corresponding financial and
stock market information, ratios and multiples for a group of nine selected
publicly-traded Midwest thrift institutions or thrift holding companies set
forth below:
Community Investors Bancorp - Ohio Peoples Ohio Financial - Ohio
First Niles Financial Inc. - Ohio Peoples-Sidney Financial Corp. - Ohio
Logansport Financial Corp. - Indiana Perpetual Federal Savings Bank - Ohio
LSB Financial Corp. - Indiana River Valley Bancorp - Iowa
Northern Savings & Loan Co. - Ohio
The key pricing ratios for the comparable group, all Ohio publicly-traded
thrifts and all publicly-traded Midwest thrifts, are shown in the following
table:
Pricing Ratios (1)
Trading Group Price to Book Price to Earnings Price to Assets
- ------------------------------- ------------- ----------------- ---------------
Comparable Group 116.67% 15.6X 13.98%
Publicly-Traded Ohio Thrifts 132.56% 20.8X 14.62%
Publicly-Traded Midwest Thrifts 120.63% 20.0X 12.60%
- ----------
(1) The pricing ratios include any pending merger/acquisition transactions for
the listed institution but not for the comparable group.
The Cash Out Price of $20.75 per share represents a premium of 14.64%
above HLFC's current trading price of $18.10 and represents a price to book
ratio of 153.93%, a price to earnings multiple of 23.06 and a price
32
to asset ratio of 21.88%, with all of these ratios well in excess of the
comparable group, all publicly-traded Ohio thrifts and all publicly-traded
Midwest thrifts.
Keller & Company considered the comparable group comparison and analysis
as the most appropriate basis for evaluating the fairness from a financial point
of view of the Cash Out Price. Keller & Company reviewed each of the pricing
ratios for the comparable group relative to HLFC's corresponding ratios based on
the recent price prior to the Stock Splits and then subsequent to the Stock
Splits, based on the Cash Out Price.
Based on the previous pricing ratio comparison analyses and given that the
Cash Out Price to be paid to Cashed Out Holders pursuant to the Stock Splits
indicates a 14.64% premium above the current trading price of HLFC, Keller &
Company concluded that the Cash Out Price was fair from a financial point of
view.
REVIEW OF HLFC MARKET PERFORMANCE
Keller & Company reviewed the trading prices of HLFC's shares for the
period of January 1, 2004, through April 12, 2005, as quoted by Nasdaq. Recent
pricing for HLFC's shares has indicated a decreasing trend with HLFC shares
closing at $18.10 per share at April 12, 2005, and, more recently, $16.10 as of
May 9, 2005. The pricing trend for HLFC combined with recent pricing level of
HLFC at April 12, 2005, further indicates the fairness of the Cash Out Price of
$20.75, which reflects a current premium of 15% over the closing price of the
shares on April 12, 2005, and a premium of 53.9 % over HLFC's book value per
share at March 31, 2005.
CONCLUSION
Based upon the foregoing analyses and the assumptions and limitations set
forth in full in the text of the Fairness Opinion, Keller & Company is of the
opinion that, as of the date of the Fairness Opinion, the Cash Out Price of
$20.75 per Common Share to be paid by HLFC to the Cashed Out Holders in the
Stock Splits is fair from a financial point of view.
ENGAGEMENT OF KELLER & COMPANY
HLFC has agreed to pay Keller & Company a fee of approximately $3,500 and
to reimburse Keller & Company for its reasonable out-of-pocket expenses related
to its engagement whether or not the Stock Splits are consummated. No
compensation received or to be received by Keller & Company is based on or is
contingent on the results of Keller & Company's engagement. There are no other
current arrangements to compensate Keller & Company, its affiliates or
unaffiliated representatives for any services rendered to HLFC, its executive
officers, directors or affiliates. Keller & Company has previously provided
financial institutions consulting services to HLFC and Home Loan. None of Keller
& Company's employees who worked on the engagement has any known financial
interest in the assets or equity of HLFC or the outcome of the engagement.
MEETING AND VOTING INFORMATION
Each properly executed proxy received prior to the Special Meeting and not
revoked will be voted as directed by the shareholder or, in the absence of
specific instructions to the contrary, will be voted "FOR" the approval of the
Stock Splits.
TIME AND PLACE
The Special Meeting will be held on August 26, 2005, at 10:00 a.m., local
time, at Coshocton Town and County Club, 925 Cambridge Road, Coshocton, Ohio
43812.
33
REVOKING YOUR PROXY
Without affecting any vote previously taken, you may revoke your proxy by
either (i) submitting a later dated proxy or a written revocation which is
received by HLFC before the proxy is exercised or (ii) by attending the Special
Meeting and voting in person or giving notice of revocation in open meeting
before the proxy is exercised. Attending the Special Meeting will not, by
itself, revoke a proxy.
RECORD DATE
Only HLFC shareholders of record at the close of business on the Record
Date are entitled to vote at the Special Meeting. Each shareholder will be
entitled to cast one vote for each HLFC share then owned. According to HLFC's
records, as of the Record Date there were 1,699,913 votes entitled to be cast at
the Special Meeting.
QUORUM AND REQUIRED VOTE
The presence at the Special Meeting in person or by proxy of the holders
of at least a majority of the issued and outstanding HLFC shares as of the
Record Date is necessary to establish a quorum to conduct business at the
Special Meeting.
Each HLFC shareholder is entitled to cast one vote for each HLFC share
owned on the Record Date. Under Ohio law and HLFC's Articles and Regulations,
the affirmative vote of at least a majority of the issued and outstanding HLFC
shares as of the Record Date is necessary to approve the Stock Splits. The
executive officers and directors of HLFC, who together own approximately 23.42%
of the voting power of the HLFC shares outstanding and entitled to vote at the
meeting, have indicated they will vote in favor of the Stock Splits.
Shareholders holding HLFC shares in "street name" should review the
information provided to them by their nominee (such as a broker or bank). This
information will describe the procedures to follow to instruct the nominee how
to vote the street name shares and how to revoke previously given instructions.
The proposal to approve the Stock Splits is a "non-discretionary" item, meaning
that nominees cannot vote HLFC shares in their discretion on behalf of a client
if the client has not given them voting instructions. Shares held in street name
that are not voted by brokerage firms or other nominees are referred to as
"broker non-votes."
Broker non-votes and abstentions are counted toward the establishment of a
quorum for the Special Meeting. However, because the affirmative vote of a
majority of the outstanding HLFC shares is necessary to approve the Stock
Splits, broker non-votes and abstentions will have the same effect as a vote
"AGAINST" the proposal to approve the Stock Splits. The Board urges you to
complete, date and sign the enclosed proxy and to return it promptly in the
enclosed postage prepaid envelope so that a quorum can be assured for the
Special Meeting and your HLFC shares can be voted as you wish.
SOLICITATION AND COSTS
The enclosed proxy is solicited on behalf of the Board. HLFC has engaged
The Altman Group to assist in the solicitation of proxies for the Special
Meeting at a fee of $5,000, plus reimbursement of all out of pocket expenses. In
addition, proxies may be solicited by the directors, officers and other
employees of HLFC and Home Loan, in person or by telephone, telegraph, mail,
facsimile or electronic mail only for use at the Special Meeting. HLFC will bear
the costs of preparing, assembling, printing and mailing this Proxy Statement
and the enclosed proxy and all other costs of the Board's solicitation of
proxies for the Special Meeting. Brokerage houses, banks and other nominees,
fiduciaries, and custodians nominally holding HLFC shares as of the Record Date
will be requested to forward proxy soliciting material to the beneficial owners
of such HLFC shares, and we will reimburse them for their reasonable expenses.
34
We estimate that the repurchase of fractional HLFC shares from Cashed Out
Holders in connection with the Stock Splits will cost approximately $2,262,000.
We intend to finance the Stock Splits by using cash and short-term investments.
The following is an estimate of the expenses we expect to incur in
connection with the Stock Splits and the solicitation of proxies for the Special
Meeting. Final costs may be higher or lower than the estimates shown below.
ITEM APPROXIMATE COST
---- ----------------
Legal fees $ 32,500
Keller & Company fees $ 3,000
Accounting fees $ 8,000
Filing fees $ 2,500
Proxy solicitor $ 5,000
Printing, mailing and other costs $ 15,000
-------------
Total $ 66,000
=============
Based on the estimated cost savings as a result of HLFC deregistering its
shares, HLFC will recoup the expense of the Stock Splits in less than one year.
INFORMATION ABOUT HLFC
BUSINESS OF HLFC AND HOME LOAN
HLFC is a savings and loan holding company incorporated in the State of
Ohio. HLFC owns all of the common shares issued by Home Loan upon its conversion
to stock form in March 1998.
Home Loan has conducted business in Coshocton, Ohio since it was
incorporated in 1882 as an Ohio savings and loan association under the name "The
Home Building Loan and Savings Company." In 1996, Home Loan adopted its present
name. The Bank became a savings bank on July 1, 2004.
The principal business of Home Loan is the origination of mortgage loans
secured by one- to four-family residential and nonresidential real estate in its
primary market area. Home Loan also originates commercial loans and various
types of consumer credits. For liquidity and interest rate risk management
purposes, Home Loan invests in interest-bearing deposits in other financial
institutions and U.S. Treasury and agency securities, mortgage-backed securities
and other investments permitted by applicable law. Funds for lending and other
investment activities are obtained primarily from savings deposits, principal
repayments on loans, maturities of securities and borrowings from the Federal
Home Loan Bank.
HLFC is subject to regulation and examination by the OTS and the SEC. Home
Loan is subject to supervision and regulation by the Ohio Division and the FDIC.
HLFC's principal offices are located at 401 Main Street, Coshocton, Ohio
43812, and HLFC's phone number at that address is (740) 622-0444.
MANAGEMENT OF HLFC
Board of Directors. There are six members of HLFC's Board of Directors.
Information regarding HLFC's current directors is set forth below.
35
- Neal J. Caldwell, age 60, has practiced veterinary medicine in
Coshocton, Ohio, since 1972 and was an owner of Coshocton Veterinary
Clinic from 1972 until 2003. Currently, Mr. Caldwell owns a
veterinary consulting practice, which he started in January 2004.
- Douglas L. Randles, age 60, is the President of L.W. Randles Cheese,
Inc., located in Warsaw, Ohio. Mr. Randles has been employed by L.W.
Randles Cheese since 1969.
- Kyle R. Hamilton, age 34, has been employed by Home Loan since 1993.
Currently, he is the Vice President of HLFC and the Executive Vice
President and a director of Home Loan, positions he has held since
October 2002. Mr. Kyle Hamilton also serves as the President of Home
Loan Financial Services, Inc., a wholly-owned subsidiary of HLFC
that sells life insurance and other investment products, a position
he has held since September 2001. Previously, Mr. Kyle Hamilton
served as Vice President and Director of Loan Administration of Home
Loan from October 1998 until October 2002. Mr. Kyle Hamilton is the
son of Robert C. Hamilton.
- Robert C. Hamilton, age 62, was employed by Home Loan in 1981 as the
Secretary, Treasurer and managing officer and has served as the
President of Home Loan since 1983. Mr. Robert Hamilton has worked in
banking for over 40 years. Mr. Robert Hamilton is the father of Kyle
R. Hamilton.
- Robert D. Mauch, age 54, a Certified Public Accountant, has provided
accounting, payroll and tax counseling services through Robert D.
Mauch, CPA, Inc., located in Coshocton, Ohio, since 1988.
- Marion M. Sutton, age 61, has served as Chairman of the Board of
Jones Metal Products Company in West Lafayette, Ohio since 2001.
Previously, she served as Vice Chairman of Jones Metal from 1995 to
2001.
The Board has determined that, except for Messrs. Robert Hamilton
and Kyle Hamilton, each director is an "independent director" under applicable
Nasdaq rules.
Executive Officers. The following persons are executive officers of
HLFC and Home Loan:
- Preston W. Bair, age 42, serves as the Secretary, Treasurer and
Chief Financial Officer of HLFC. Mr. Bair has served as Secretary
and Treasurer of Home Loan since 1994. Prior to 1994, Mr. Bair, a
Certified Public Accountant, was a shareholder of Brott Mardis &
Co., an accounting firm located in Akron.
- Thomas R. Conidi, age 43, serves as the Vice President of HLFC. Mr.
Conidi has served as Vice President since 2004. Prior to joining
HLFC, Mr. Conidi served as President of Ohio Heritage Bancorp, Inc.
and as Vice President/Chief Financial Officer of Ohio Heritage Bank,
positions he had held since 1997. From 1994 to 1997, Mr. Conidi was
Vice President of Lending with Bank One in Coshocton and prior to
1994 Mr. Conidi was Vice President of Retail Banking with Bank One
in Coshocton and Dover, Ohio.
Each director and executive officer is a United States citizen and
may be contacted at HLFC's address at 401 Main Street, Coshocton, Ohio
43812-1580, and the phone number at that address is (740) 622-0444.
To HLFC's knowledge, none of HLFC's executive officers or directors
has been convicted in a criminal proceeding during the past five years
(excluding traffic violations or similar misdemeanors) or has been a party to
any judicial or administrative proceeding during the past five years (except for
matters that were dismissed without sanction or settlement) that resulted in a
judgment, decree or final order enjoining the person from future violations of,
or prohibiting activities subject to, federal or state securities laws, or a
finding of any violation of federal or state securities laws.
36
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
Information regarding HLFC shares beneficially owned by the executive
officers and directors of HLFC and Home Loan is set forth in the table below.
The Stock Splits will not impact affiliated holders of HLFC shares differently
from unaffiliated holders of HLFC Shares on the basis of affiliate status. The
executive officers and directors of HLFC and Home Loan will receive no extra or
special benefit not shared on a pro rata basis by all other holders of HLFC
shares. If the Stock Splits are implemented, the executive officers and
directors of HLFC and Home Loan will not benefit by any material increase in
their percentage ownership of HLFC shares. Please see the sections entitled
"Special Factors - Fairness of the Stock Splits."
Share Ownership of Directors and Executive Officers. The following table
provides certain information regarding the number of HLFC Shares beneficially
owned by HLFC's directors and executive officers as of April 15, 2005, and the
anticipated ownership percentage of such persons after the Stock Splits:
Percent of Percent of
outstanding shares outstanding common
Number of before shares after
Name (1) shares owned (2) Stock Splits Stock Splits
-------- ---------------- ------------ ------------
Neal J. Caldwell 49,737 (3) 2.93% 3.13%
Kyle R. Hamilton 49,625 (4) 2.92% 3.12%
Robert C. Hamilton 148,928 (5) 8.76% 9.36%
Robert D. Mauch 44,575 (6) 2.62% 2.80%
Douglas L. Randles 50,341 (7) 2.96% 3.16%
Marion M. Sutton 3,000 (8) 0.08% 0.19%
Preston W. Bair 57,089 (9) 3.36% 3.59%
Thomas R. Conidi 218 0.01% 0.01%
Current directors and
executive officers of
HLFC as a group
(8 people) 403,513 (10) 23.66% 25.28%
- ------------
(1) Each of the persons listed in this table may be contacted at the address
of HLFC.
(2) All shares are owned directly with sole voting and investment power unless
otherwise indicated by footnote.
(3) Includes 5,000 shares as to which Mr. Caldwell shares voting and
investment power.
(4) Includes 100 shares as to which Mr. Hamilton shares voting and investment
power, 17,065 shares allocated to his ESOP account, and 800 shares that
may be acquired upon the exercise of stock options.
(5) Includes 20,300 shares as to which Mr. Hamilton shares voting and
investment power and 34,940 shares allocated to his ESOP account.
(6) Includes 550 shares as to which Mr. Mauch shares voting and investment
power and 13,663 shares held as Trustee of the Home Loan Financial
Corporation Recognition and Retention Plan (the "RRP").
(7) Includes 16,079 shares as to which Mr. Randles shares voting and
investment power and 3,541 shares that may be acquired upon the exercise
of options.
(8) Includes 1,000 shares that may be acquired upon the exercise of stock
options.
(9) Includes 21,829 shares allocated to Mr. Bair's ESOP account.
37
(10) Includes 5,341 shares that may be acquired upon the exercise of options.
The directors and executive officers of HLFC have not engaged in any
transactions involving HLFC shares in the past 60 days.
Owners of 5% or More of the HLFC Shares. The following table sets forth
certain information regarding the only persons known to HLFC to beneficially own
more than five percent of the outstanding HLFC shares as of April 15, 2005,
other than Mr. Robert Hamilton, and the anticipated ownership percentage after
the Stock Splits:
Percent of common Percent of common
Number of shares outstanding shares outstanding
Name and Address common shares before Stock Splits after Stock Splits
---------------- ------------- ------------------- ------------------
Home Loan Financial Corporation Employee
Stock Ownership Plan
1201 Broadway 254,731 (1) 14.98% 16.01%
Quincy, Illinois 62301
- ----------
(1) First Bankers Trust Company, N.A. is the Trustee for the ESOP. The Trustee
has voting power over shares that have not been allocated to an ESOP
participant and shares that have been allocated to an ESOP participant but
as to which no voting instructions are given by the participant. The
Trustee has limited investment power over all ESOP shares. As of the
Voting Record Date, 181,920 shares have been allocated to the accounts of
ESOP participants and 72,811 shares remained unallocated.
MARKET PRICE AND DIVIDEND INFORMATION
HLFC shares are currently traded on the Nasdaq under the symbol "HLFC."
The following table lists the high and low closing prices and dividend
information for the periods indicated. The last sale of HLFC shares reported on
the Nasdaq on July 18, 2005 was $19.20. Prices in the table do not reflect any
retail mark-ups or mark-downs or commissions.
CASH DIVIDENDS
QUARTER ENDED HIGH CLOSE LOW CLOSE DECLARED
- ------------- ---------- --------- --------
FISCAL 2005
September 30, 2004 $20.970 $19.020 $0.303
December 31, 2004 $21.350 $19.580 $0.195
March 31, 2005 $21.870 $18.250 $0.198
June 30, 2005 $19.990 $14.500 $0.198
FISCAL 2004
September 30, 2003 $17.489 $14.851 $0.275
December 31, 2003 $21.190 $16.500 $0.180
March 31, 2004 $20.550 $18.300 $0.185
June 30, 2004 $21.210 $18.600 $0.190
FISCAL 2003
September 30, 2002 $13.210 $12.850 $0.135
December 31, 2002 $13.910 $12.900 $0.150
March 31, 2003 $14.500 $13.190 $0.160
June 30, 2003 $15.490 $14.000 $0.165
Dividends are paid only when declared by the Board, in its sole
discretion, based on HLFC's financial condition, results of operation, market
conditions and such other factors as it may deem appropriate.
38
If the Stock Splits are completed and we deregister our Shares, HLFC
shares will no longer be quoted on the Nasdaq or be eligible to be traded on any
exchange or automated quotation service operated by a national securities
association, and trades in HLFC shares will only be possible through privately
negotiated transactions, in the Pink Sheets(R) or on the OTCBB.
HLFC SHARE REPURCHASE INFORMATION
The following table provides information regarding repurchases of HLFC
shares by HLFC during the periods indicated.
PRICE RANGE
NUMBER WEIGHTED AVERAGE PRICE
QUARTER ENDED REPURCHASED HIGH LOW PER SHARE
- ------------- ----------- ---- --- ---------
FISCAL 2005
September 30, 2004 8,600 $ 19.65 $ 19.65 $ 19.65
December 31, 2004 0 -- -- --
March 31, 2005 0 -- -- --
June 30, 2005 0 -- -- --
FISCAL 2004
September 30, 2003 0 -- -- --
December 31, 2003 6,238 $ 17.40 $17.175 $ 17.31
March 31, 2004 0 -- -- --
June 30, 2004 13,762 $ 19.70 $ 19.23 $ 19.59
FISCAL 2003
September 30, 2002 20,000 $ 13.05 $ 13.05 $ 13.05
December 31, 2002 19,697 $ 13.22 $ 13.15 $ 13.18
March 31, 2003 0 -- -- --
June 30, 2003 5,000 $ 14.30 $ 14.30 $ 14.30
FINANCIAL INFORMATION
SUMMARY HISTORICAL FINANCIAL INFORMATION
The following summary consolidated financial information was derived from
HLFC's audited consolidated financial statements as of and for each of the years
ended June 30, 2004, 2003 and 2002, and from unaudited consolidated interim
financial statements as of and for the nine months ended March 31, 2005 and
2004. The statement of operations data for the nine months ended March 31, 2005
is not necessarily indicative of results for a full year. This financial
information is only a summary and should be read in conjunction with our
historical financial statements and the accompanying footnotes, which are
incorporated herein by reference into this Proxy Statement. Please see the
section entitled "Incorporation of Certain Documents by Reference."
39
NINE MONTHS ENDED YEAR ENDED
MARCH JUNE 30,
--------------------------- ---------------------------------------------
2005 2004 2004 2003 2002
RESULTS OF OPERATIONS
Interest income $ 7,159,160 $ 7,214,475 $ 9,642,882 $ 9,728,805 $ 9,497,338
Interest expense 2,760,814 2,760,682 3,632,598 3,973,340 4,256,206
------------ ------------ ------------ ------------ ------------
Net interest income 4,398,346 4,453,793 6,010,284 5,755,465 5,241,132
Provision for loan losses 301,000 85,000 351,000 190,000 120,000
------------ ------------ ------------ ------------ ------------
Net interest income after provision 4,097,346 4,368,793 5,659,284 5,565,465 5,121,132
for loan losses
Noninterest income 615,234 548,073 877,747 831,193 431,921
Noninterest expenses 3,027,697 2,856,745 3,776,782 3,559,401 3,290,039
------------ ------------ ------------ ------------ ------------
Income before taxes & extraordinary item 1,684,883 2,060,121 2,760,249 2,837,257 2,263,014
Income tax expense 588,000 705,900 974,821 963,600 787,600
------------ ------------ ------------ ------------ ------------
Net income before extraordinary item 1,096,883 1,354,221 1,785,428 1,873,657 1,475,414
Extraordinary item
------------ ------------ ------------ ------------ ------------
Net income $ 1,096,883 $ 1,354,221 $ 1,785,428 $ 1,873,657 $ 1,475,414
============ ============ ============ ============ ============
FINANCIAL CONDITION
Total assets $160,342,497 $157,520,662 $160,030,272 $147,782,730 $132,281,136
Total deposits 90,202,444 84,086,940 87,853,639 85,953,036 79,773,087
Net loans 131,994,080 130,415,286 131,549,778 121,759,596 111,017,080
Shareholders' equity 22,785,643 22,766,546 22,309,426 21,710,451 20,144,501
Average assets 160,707,643 151,105,753 152,982,315 141,122,614 126,550,761
Average shareholders' equity 22,868,876 22,268,489 22,391,096 20,955,587 19,867,524
KEY FINANCIAL RATIOS
Return on average assets 0.91% 1.19% 1.17% 1.33% 1.17%
Return on average equity 6.40% 8.11% 7.97% 8.94% 7.43%
Dividends paid as a percent 102.64% 74.32% 73.35% 49.44% 48.53%
of net income
PER SHARE DATA
Net income, basic $ 0.68 $ 0.87 $ 1.13 $ 1.25 $ 0.99
Net income, diluted $ 0.67 $ 0.85 $ 1.11 $ 1.21 $ 0.99
Cash dividends declared $ 0.695 $ 0.64 $ 0.83 $ 0.61 $ 0.47
Book value $ 13.49 $ 13.46 $ 13.27 $ 13.14 $ 12.22
HLFC's book value per share, as set forth above, has been derived from
financial statements prepared by HLFC's management relating to the fiscal
periods set forth above. As required by Exchange Act Rule 13a-14(a), HLFC's
Chief Executive Officer and Chief Financial Officer have certified that such
financial statements, and the financial information included in the periodic
reports in which such financial statements appear, fairly present in all
material respects the financial condition, results of operation and cash flows
of HLFC as of, and for, the periods presented in such periodic reports.
PRO FORMA FINANCIAL INFORMATION
We do not expect the Stock Splits or our use of approximately $2,328,000
to complete the Stock Splits (which includes payments to be made to Cashed Out
Holders and professional fees and other expenses related to the transaction) to
have any material adverse effect on our capitalization, liquidity, results of
operations or cash flow. Please see the section entitled "Meeting and Voting
Information - Solicitation and Costs." We expect to finance the Stock Splits
with cash and short-term investments.
40
If the Stock Splits are completed, Cashed Out Holders will receive cash in
the amount of $20.75 per HLFC share held immediately prior to the Stock Splits.
The repurchase of the fractional HLFC shares resulting from the Stock Splits is
estimated to cost approximately $2,262,000 and would reduce the number of record
holders of HLFC shares from approximately 690 to approximately 200.
We expect that, as a result of the Stock Splits and the cashing out of
fractional HLFC shares held by the Cashed Out Holders:
- Our aggregate shareholders' equity will change from
approximately $22,786,000 (as of March 31, 2005) to
approximately $20,458,000; and
- Book value per Common Share would change from $13.49 to
$12.95, assuming the cash out of fractional HLFC shares had
occurred on March 31, 2005.
The following pro forma consolidated information has been derived from
HLFC's financial statements. The financial statements for the year ended June
30, 2004, have been audited by independent certified public accountants. The
financial statements for the quarterly periods ended March 31, 2005 and 2004 are
unaudited. In the opinion of HLFC's management, these quarterly financial
statements have been prepared on the same basis as the audited financial
statements and include all adjustments, consisting only of normal recurring
adjustments, necessary for the fair presentation of the results of these
quarters.
The pro forma consolidated financial statements have been prepared based
upon the assumption that the Stock Splits were completed effective the first day
of the period presented for the income statement and as of the date of the
balance sheet, and all fractional HLFC shares under one whole share are
repurchased. These pro forma consolidated financial statements are not
necessarily indicative of the results that would have occurred had the Stock
Splits actually taken place at the respective time periods specified nor do they
purport to project the results of operations for any future date or period.
Based on information from various external sources, HLFC believes that
approximately 109,000 HLFC shares will be repurchased at $20.75 per share for a
total purchase price of approximately $2,262,000.
The pro forma results are not indicative of future results because HLFC's
public reporting costs for the periods presented include only the historic
public reporting costs and do not include anticipated future costs. Further,
these results exclude $200,000 in estimated annual cost savings due to no longer
being an Exchange Act reporting company.
The unaudited pro forma financial statements should be read in conjunction
with our historical financial statements and the accompanying footnotes, which
are incorporated herein by reference into this Proxy Statement. Please see the
section entitled "Incorporation of Certain Documents by Reference."
41
PRO FORMA CONSOLIDATED BALANCE SHEET
AT JUNE 30, 2004
PRO-FORMA PRO-FORMA
HISTORICAL ADJUSTMENTS COMBINED
ASSETS
Cash and due from banks $ 3,034,819 $ (2,328,000)(1) $ 706,819
Interest bearing deposits 240,366 240,366
------------ -------------- ------------
3,275,185 (2,328,000)(1) 947,185
Investment securities available for sale-at market 7,105,703 7,105,703
Mortgage backed securities available for sale at market 10,321,735 10,321,735
Loans receivable, net 131,549,778 131,549,778
Office premises and equipment at depreciated cost 1,380,927 1,380,927
Federal Home Loan Bank stock-at cost 2,250,700 2,250,700
Accrued interest receivable on loans 610,581 610,581
Accrued interest receivable on mortgage 40,073 40,073
backed securities
Accrued interest receivable on investments 68,487 68,487
and interest bearing deposits
Prepaid expenses and other assets 328,788 328,788
Bank owned life insurance 3,016,864 3,016,864
Prepaid federal income taxes
Deferred federal income taxes 81,451 81,451
------------ -------------- ------------
TOTAL ASSETS $160,030,272 (2,328,000) $157,702,272
============ ============== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 87,853,639 $ 87,853,639
Advances from the Federal Home Loan Bank 48,756,389 48,756,389
Advances by borrowers for taxes and insurance
Accrued interest payable 503,994 503,994
Other liabilities 606,824 606,824
------------ -------------- ------------
TOTAL LIABILITIES 137,720,846 137,720,846
Shareholders' equity
Preferred stock, 500,000 shares authorized,
no par value; no shares issued
Common stock, 9,500,000 shares authorized,
no par value; 2,248,250 shares issued
Additional paid-in capital 14,508,999 (2,262,000)(1) 12,246,999
Retained earnings, restricted 14,722,513 (66,000)(1) 14,656,513
Unearned employee stock ownership plan shares (773,982) (773,982)
Unearned recognition and retention plan shares (189,779) (189,779)
Treasury stock, at cost -566,543 shares at (5,818,102) (5,818,102)
June 30, 2004
Accumulated other comprehensive income, (140,223) (140,223)
unrealized gains on securities designated
as available for sale, net of tax effects
------------ -------------- ------------
TOTAL SHAREHOLDERS' EQUITY 22,309,426 (2,328,000) 19,981,426
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $160,030,272 $ - $157,702,272
============ ============== ============
(1) Represents cash paid for fractional shares and transaction expenses
($2,262,000 and $66,000, respectively), related after-tax reduction in equity.
42
PRO FORMA CONSOLIDATED INCOME STATEMENT
YEAR ENDED JUNE 30, 2004
PRO-FORMA PRO-FORMA
HISTORICAL ADJUSTMENTS COMBINED
INTEREST INCOME
Loans, including fees $8,906,834 $ 8,906,834
Mortgage-backed securities 383,475 383,475
Investment securities 264,629 $(64,000)(1) 200,629
Interest-bearing deposits and other 87,944 87,944
---------- -------- -----------
Total interest income 9,642,882 (64,000) 9,578,882
INTEREST EXPENSE
Deposits 1,734,469 1,734,469
Federal Home Loan Bank advances 1,898,129 1,898,129
---------- -------- -----------
Total interest expense 3,632,598 3,632,598
---------- -------- -----------
Net interest income 6,010,284 (64,000) 5,946,284
Provision for losses on loans 351,000 351,000
---------- -------- -----------
Net interest income after provision 5,659,284 (64,000) 5,595,284
for losses on loans
OTHER INCOME
Service charges and other fees 392,075 392,075
Securities gains, net 114,843 114,843
Net gains on sales of loans 47,930 47,930
Earnings from Coshocton County Title Agency 221,166 221,166
Other operating 101,733 101,733
---------- -------- -----------
Total other income 877,747 877,747
GENERAL, ADMINISTRATIVE AND OTHER EXPENSE
Employee compensation and benefits 2,312,352 2,312,352
Occupancy and equipment 301,917 301,917
Franchise taxes 173,910 173,910
Data processing 244,411 244,411
Other operating 744,192 (20,500)(2) 723,692
---------- -------- -----------
Total general administrative and
other expenses 3,776,782 (20,500) 3,756,282
---------- -------- -----------
Earnings before income taxes 2,760,249 (43,500) 2,716,749
FEDERAL INCOME TAXES
Current 974,821 7,700 982,521
Deferred
---------- -------- -----------
Total federal income taxes 974,821 7,700 982,521
---------- -------- -----------
NET EARNINGS $1,785,428 $(51,200) $ 1,734,228
========== ======== ===========
EARNINGS PER SHARE
Basic $ 1.13 $ 0.05 $ 1.18
Diluted $ 1.11 $ 0.05 $ 1.16
(1) Interest forfeited from using $2,328,000 in short-term investments to fund
the transaction.
(2) Includes $66,000 transaction costs (legal, accounting and other expenses)
related to the reverse stock split. Also includes anticipated cost savings
estimated to be realized as a result of no longer being a public company
totaling $86,500 annually.
43
PRO FORMA CONSOLIDATED BALANCE SHEET
NINE MONTHS ENDED MARCH 31, 2005
(UNAUDITED)
PRO-FORMA PRO-FORMA
HISTORICAL ADJUSTMENTS COMBINED
ASSETS
Cash and due from banks $ 2,795,962 $(2,328,000)(1) $ 467,962
Interest bearing deposits 155,232 155,232
------------ ----------- ------------
2,951,194 $(2,328,000) 623,194
Certificates of deposits
Investment securities available for sale-at market 7,202,346 7,202,346
Mortgage backed securities available for sale at market 9,122,682 9,122,682
Loans receivable, net 131,994,080 131,994,080
Office premises and equipment at 2,154,418 2,154,418
depreciated cost
Federal Home Loan Bank stock-at cost 2,324,500 2,324,500
Accrued interest receivable on loans 645,962 645,962
Accrued interest receivable on mortgage 35,368 35,368
backed securities
Accrued interest receivable on investments 65,635 65,635
and interest bearing deposits
Prepaid expenses and other assets 731,342 731,342
Bank owned life insurance 3,114,970 3,114,970
Prepaid federal income taxes
Deferred federal income taxes
------------ ----------- ------------
TOTAL ASSETS $160,342,497 $(2,328,000) $158,014,497
============ =========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits 90,202,444 90,202,444
Advances from the Federal Home Loan Bank 46,210,451 46,210,451
Advances by borrowers for taxes and insurance
Accrued interest payable 567,885 567,885
Other liabilities 576,074 576,074
------------ ----------- ------------
TOTAL LIABILITIES 137,556,854 137,556,854
Shareholders' equity
Preferred stock, 500,000 shares authorized, -- --
no par value; no shares issued
Common stock, 9,500,000 shares authorized, -- --
no par value; 2,248,250 shares issued
Additional paid-in capital 14,704,892 (2,262,000)(1) 12,442,892
Retained earnings, restricted 14,632,708 (66,000)(1) 14,566,708
Unearned employee stock ownership plan shares (554,375) (554,375)
Unearned recognition and retention plan shares (171,279) (171,279)
Treasury stock, at cost - 559,343 shares at March 31, 2005 (5,799,467) (5,799,467)
Accumulated other comprehensive income, (26,836) (26,836)
unrealized gains on securities designated
as available for sale, net of tax effects
------------ ----------- ------------
TOTAL SHAREHOLDERS' EQUITY 22,785,643 (2,328,000) 20,457,643
------------ ----------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $160,342,497 $ -- $158,014,497
============ =========== ============
(1) Represents cash paid for fractional shares and transaction expenses
($2,262,000 and $66,000, respectively), related after-tax reduction in equity.
44
PRO FORMA CONSOLIDATED INCOME STATEMENT
MARCH 31, 2005
(UNAUDITED)
PRO-FORMA PRO-FORMA
NINE MONTHS ENDED MARCH 31, 2005 HISTORICAL ADJUSTMENTS COMBINED
INTEREST INCOME
Loans $6,592,183 $ 6,592,183
Mortgage-backed securities 336,217 336,217
Investment securities 156,905 $ (48,000)(1) 108,905
Federal Home Loan Stock 73,855 73,855
Interest-bearing deposits and other 0.00 0.00
---------- ----------- -------------
Total interest income 7,159,160 7,111,160
INTEREST EXPENSE
Deposits 1,324,349 1,324,349
Borrowings 1,436,465 1,436,465
---------- ----------- -------------
Total interest expense 2,760,814 2,760,814
---------- ----------- -------------
Net interest income 4,398,346 (48,000) 4,350,341
Provision for losses on loans 301,000 301,000
---------- ----------- -------------
Net interest income after provision 4,097,346 (48,000) 4,049,346
for losses on loans
OTHER INCOME
Other operating 615,234 615,234
---------- -------------
Total other income 615,234 615,234
GENERAL, ADMINISTRATIVE AND OTHER EXPENSE
Employee compensation and benefits 1,860,817 1,860,817
Occupancy and equipment 253,126 253,126
Franchise taxes 137,432 137,432
Data processing 201,526 201,526
Other operating 574,796 1,000(2) 575,796
---------- ----------- -------------
Total general administrative and 3,027,697 1,000 3,028,697
other expenses
Earnings before income taxes 1,684,883 (49,000) 1,635,883
FEDERAL INCOME TAXES
Current 588,000 5,800 593,800
Deferred
---------- ----------- -------------
Total federal income taxes 588,000 5,800 593,800
---------- ----------- -------------
NET EARNINGS $1,096,883 (54,800) $ 1,042,083
========== =========== =============
EARNINGS PER SHARE
Basic $ 0.68 $ 0.01 $ 0.69
Diluted $ 0.67 $ 0.02 $ 0.69
(1) Interest forfeited from using $2,328,000 in short-term investments to fund
the transaction.
(2) Includes $66,000 transaction costs (legal, accounting and other expenses)
related to the reverse stock split. Also includes anticipated cost savings
estimated to be realized as a result of no longer being a public company
totaling $65,000 for the nine month period.
45
AVAILABLE INFORMATION
The Stock Splits will constitute a "going-private" transaction for
purposes of Rule 13e-3 of the Exchange Act. As a result, HLFC has filed the
Schedule 13E-3 which contains additional information about HLFC. Copies of the
Schedule 13E-3 are available for inspection and copying at HLFC's principal
executive offices during regular business hours by any interested shareholder of
HLFC, or a representative who has been so designated in writing, and may be
inspected and copied, or obtained by mail, by written request addressed to Home
Loan Financial Corporation, 401 Main Street, Coshocton, Ohio 43812.
HLFC is currently subject to the information requirements of the Exchange
Act and files periodic reports, proxy statements and other information with the
SEC relating to its business, financial and other matters. Copies of such
reports, proxy statements and other information, as well as the Schedule 13E-3,
may be copied (at prescribed rates) at the public reference facilities
maintained by the SEC at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549. For further information concerning the SEC's public
reference rooms, you may call the SEC at 1-800-SEC-0330. Some of this
information may also be accessed on the World Wide Web through the SEC's
internet address at "www.sec.gov."
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
In our filings with the SEC, information is sometimes incorporated by
reference. This means that we are referring you to information that we have
filed separately with the SEC. The information incorporated by reference should
be considered part of this Proxy Statement, except for any information
superseded by information contained directly in this Proxy Statement.
This Proxy Statement incorporates by reference the following documents
that we have previously filed with the SEC, copies of which are being delivered
to you with this Proxy Statement. They contain important information about HLFC
and its financial condition.
- Our Annual Report on Form 10-KSB for the year ended June 30, 2004,
as amended; and
- Our Quarterly Report on Form 10-QSB for the quarter ended March 31,
2005.
We will provide, without charge, upon the written or oral request of any
person to whom this Proxy Statement is delivered, by first class mail or other
equally prompt means within one business day of receipt of such request, a copy
of any and all information that has been incorporated by reference, without
exhibits unless such exhibits are also incorporated by reference in this Proxy
Statement. You may obtain a copy of these documents and any amendments thereto
by written request addressed to Home Loan Financial Corporation, 401 Main
Street, Coshocton, Ohio 43812.
46
PROPOSALS OF SHAREHOLDERS AND OTHER MATTERS
Shareholders of HLFC desiring to submit proposals to be considered for
inclusion in HLFC's Proxy Statement and form of Proxy (the "Proxy Materials")
for the 2005 Annual Meeting of Shareholders (the "2005 Annual Meeting") must
provide their proposals by certain deadlines. To be included in the Proxy
Materials, a shareholder proposal must have been received by HLFC by May 10,
2005. If a shareholder intends to present a proposal at the 2005 Annual Meeting
and the proposal was not included in the Proxy Materials, HLFC's management
proxies for the 2005 Annual Meeting will be entitled to vote on such proposal in
their discretion, despite the exclusion of any discussion of the matter in the
Proxy Materials, if the proposal is not received by HLFC before July 27, 2005.
The Board is not aware of other matters that are likely to be brought
before the Special Meeting. However, in the event that any other matters
properly come before the Special Meeting, the persons named in the enclosed
Proxy are expected to vote the HLFC Shares represented thereby on such matters
in accordance with their best judgment.
By Order of the Board of Directors,
/s/ Robert C. Hamilton
Coshocton, Ohio Robert C. Hamilton
July 19, 2005 Chairman
47
EXHIBIT A
FAIRNESS OPINION
KELLER & COMPANY, INC.
FINANCIAL INSTITUTION CONSULTANTS
INVESTMENT AND FINANCIAL ADVISORS
555 METRO PLACE NORTH
SUITE 524
DUBLIN, OHIO 43017
(614) 766-1426 (614) 766-1459 FAX
keller@ee.net
April 12, 2005
Board of Directors
Home Loan Financial Corp.
401 Main Street
Coshocton, Ohio 43812
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view to the shareholders of Home Loan Financial Corporation ("HLFC"), of the
proposed price per share for HLFC stock to be paid to shareholders in connection
with the Reverse/Forward Stock Split ("Split") as defined below and set forth in
the proxy material and to be sent to certain shareholders.
As more fully described in the proxy material to be sent to shareholders, HLFC
will conduct a Split, resulting in an exchange of one share for each 600 shares
of HLFC. Any shareholder with less than 600 shares of HLFC will receive cash
based on a price per share of $20.75. Upon completion of the reverse stock
split, HLFC will then complete a forward stock split issuing 600 shares of HLFC
for each current share of HLFC.
Keller & Company, Inc. ("Keller"), as part of its bank consulting and advisory
business, is regularly engaged in the valuation of financial institutions and
their securities in connection with the underwritings and distributions of
listed and unlisted securities and with mergers and acquisitions and other
corporate transactions. In connection with this opinion, we have reviewed, among
other things: (i) proxy material; (ii) Annual Reports for the years ended June
30, 2002, 2003, and 2004; (iii) Form 10-Q for the quarters ended September 30,
and December 31, 2003 and 2004 and March 31, 2005; (iv) certain
publicly-available financial statements of HLFC as of December 31, 2003 and
2004, and other historical financial information provided by HLFC that we deemed
relevant; and (v) such other information, financial studies, analyses and
investigations and financial, economic and market criteria as we considered
relevant. We reviewed historical returns and the current and historical market
prices and trading volumes of HLFC's common stock and the historical and
projected earnings and other operating data of
48
Board of Directors
HLFC Financial Corp.
April 12, 2005
Page 2
HLFC and the current and future capitalization of HLFC. We considered the
current market environment in general and the banking environment in particular
as well as the market trend for thrift stocks in 2004 and 2005.
In arriving at its opinion, Keller considered financial information and trends
for HLFC, the current market prices of a selected peer group of similar
publicly-traded thrift institutions and holding companies and the terms,
conditions and premiums paid on other similar transactions.
During the completion of our review, we have assumed and relied upon the
accuracy and completeness of all the financial information, analyses and other
information that was publicly-available or otherwise furnished to, reviewed by
or discussed with us, and we do not assume any responsibility or liability for
independently verifying the accuracy or completeness thereof. We did not make an
independent evaluation or appraisal of the specific assets, the collateral
securing assets or the liabilities (contingent or otherwise) of HLFC or any of
its subsidiaries, or the collectability of any such assets, nor have we been
furnished with any such evaluations or appraisals. We did not make an
independent evaluation of the adequacy of the allowance for loan losses of HLFC
nor have we reviewed any individual credit files relating to HLFC and, we have
assumed that the respective allowances for loan losses for HLFC is adequate to
cover such losses. We have also assumed that there has been no material change
in HLFC's assets, financial condition, results of operations, business since the
date of the most recent financial statements made available to us. Our opinion
is necessarily based upon information available to us, and financial, stock,
market and other conditions and circumstances existing, as of the date hereof.
The opinion of Keller is directed to the Board of Directors of HLFC in
connection with its Split and does not constitute a recommendation to any
stockholder of HLFC as to how a stockholder should vote at any meeting of
stockholders called to consider and vote upon the Split. The opinion of Keller
is not to be quoted or referred to, in whole or in part, in any proxy material
or in any other document, nor shall this opinion be used for any other purposes,
without Keller's prior written consent provided; however, that we hereby consent
to the inclusion of this opinion as an annex to HLFC's proxy material and to the
references to this opinion therein.
Based upon and subject to the foregoing, it is our opinion, as of the date
hereof, that the price per share of $20.75 for HLFC stock used in the Split of
HLFC is fair, from a financial point of view.
Very truly yours,
/s/ Keller & Company, Inc.
KELLER & COMPANY, INC.
49
EXHIBIT B
FORM OF
REVERSE STOCK SPLIT
AMENDMENT
Article FOURTH of the Articles of Incorporation, as amended, of Home Loan
Financial Corporation is hereby amended and replaced in its entirety as follows:
FOURTH: (A) The authorized shares of the corporation shall be ten million
(10,000,000), nine million five hundred thousand (9,500,000) of which shall be
common shares, each without par value, and five hundred thousand (500,000) of
which shall be preferred shares, each without par value. The directors of the
corporation may adopt an amendment to the Articles of Incorporation of the
corporation in respect of any unissued or treasury shares of any class and
thereby fix or change: the division of such shares into series and the
designation and authorized number of each series; the dividend rate; the dates
of payment of dividends and the dates from which they are cumulative; the
liquidation price; the redemption rights and price; the sinking fund
requirements; the conversion rights; and the restrictions on the issuance of
shares of any class or series.
(B) Effective at the date and time this amendment to the Articles of
Incorporation to amend and replace this Article FOURTH is accepted by the
Secretary of State of the State of Ohio (the "Effective Time"), each six hundred
(600) of the corporation's common shares then issued and outstanding shall be
automatically converted into one fully-paid and non-assessable common share (the
"Reverse Stock Split"). In lieu of the issuance of any fractional common shares
or scrip that would otherwise result from the Reverse Stock Split to holders who
held less than six hundred (600) common shares immediately before the Effective
Time ("Cashed Out Holders"), each Cashed Out Holder shall be entitled to receive
the amount of Twenty Dollars and Seventy-Five Cents ($20.75) in cash for each
common share held immediately prior to the Effective Time. Upon the completion
of the Reverse Stock Split, cashed out holders shall cease to be shareholders of
the corporation. Holders who held six hundred (600) or more common shares
immediately prior to the Effective Time shall be issued fractional common
shares. This subsection (B) of this Article FOURTH shall affect only issued and
outstanding shares of the corporation and shall not affect the total authorized
number of shares.
(C) This Article FOURTH shall not change the stated capital or paid-in
surplus referable to the common shares, if any.
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EXHIBIT C
FORM OF
FORWARD STOCK SPLIT
AMENDMENT
Article FOURTH of the Articles of Incorporation, as amended, of Home Loan
Financial Corporation is hereby amended and replaced in its entirety as follows:
FOURTH: (A) The authorized shares of the corporation shall be ten million
(10,000,000), nine million five hundred thousand (9,500,000) of which shall be
common shares, each without par value, and five hundred thousand (500,000) of
which shall be preferred shares, each without par value. The directors of the
corporation may adopt an amendment to the Articles of Incorporation of the
corporation in respect of any unissued or treasury shares of any class and
thereby fix or change: the division of such shares into series and the
designation and authorized number of each series; the dividend rate; the dates
of payment of dividends and the dates from which they are cumulative; the
liquidation price; the redemption rights and price; the sinking fund
requirements; the conversion rights; and the restrictions on the issuance of
shares of any class or series.
(B) Effective at the date and time this amendment to the Articles of
Incorporation to amend and replace this Article FOURTH is accepted by the
Secretary of State of the State of Ohio (the "Effective Time"), each share of
the corporation's common shares then issued and outstanding shall be
automatically converted into six hundred (600) fully paid and non-assessable
common shares (the "Forward Stock Split"). This subsection (B) of this Article
FOURTH shall affect only issued and outstanding shares of the corporation and
shall not affect the total authorized number of shares.
(C) This Article FOURTH shall not change the stated capital or paid-in
surplus referable to the common shares, if any.
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REVOCABLE PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
HOME LOAN FINANCIAL CORPORATION
HOME LOAN FINANCIAL CORPORATION SPECIAL MEETING OF SHAREHOLDERS
AUGUST 26, 2005
IMPORTANT
PLEASE COMPLETE BOTH SIDES OF THE PROXY CARD.
SIGN, DATE AND RETURN THE ATTACHED PROXY CARD IN THE POSTAGE
PAID ENVELOPE AS SOON AS POSSIBLE. YOUR VOTE IS IMPORTANT,
REGARDLESS OF THE NUMBER OF SHARES THAT YOU OWN.
The undersigned shareholder of Home Loan Financial Corporation ("HLFC")
hereby constitutes and appoints Robert C. Hamilton and Neal J. Caldwell as the
Proxy or Proxies of the undersigned with full power of substitution and
resubstitution, to vote at the Special Meeting of Shareholders of HLFC to be
held at Coshocton Town and Country Club, on August 26, 2005, at 10:00 a.m.,
local time (the "Special Meeting"), all of the shares of HLFC which the
undersigned is entitled to vote at the Special Meeting, or at any adjournment
thereof, on each of the following proposals, all of which are described in the
accompanying Proxy Statement:
1. The amendment of HLFC's Articles of Incorporation to effect a 1-for-600
reverse stock split, followed immediately by a 600-for-1 forward stock
split of HLFC's common shares (collectively, the "Stock Splits"). As a
result of the Stock Splits, (a) each shareholder owning fewer than 600
common shares of HLFC immediately before the Stock Splits will receive
$20.75 in cash, without interest, for each HLFC common share owned by such
shareholder immediately prior to the Stock Splits and will no longer be a
shareholder of HLFC; and (b) each HLFC common share held by a shareholder
owning 600 or more common shares of HLFC immediately prior to the
effective time of the Stock Splits will continue to represent one common
share of HLFC after completion of the Stock Splits.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. In their discretion, upon such other business as may properly come before
the Special Meeting or any adjournments thereof.
IMPORTANT: PLEASE SIGN AND DATE THIS PROXY ON THE REVERSE SIDE.
Your Board of Directors recommends a vote "FOR" the approval of the
amendments to HLFC's Articles of Incorporation to effect the Stock Splits.
This Proxy, when properly executed, will be voted in the manner directed
herein by the undersigned shareholder. Unless otherwise specified, the shares
will be voted FOR the approval of the amendments to HLFC's Articles of
Incorporation to effect the Stock Splits.
All Proxies previously given by the undersigned are hereby revoked.
Receipt of the Notice of the Special Meeting of Shareholders of HLFC and of the
accompanying Proxy Statement is hereby acknowledged.
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Please sign exactly as your name appears above. When signing as attorney,
executor, administrator, trustee, guardian or agent, please give your full
title. If share are held jointly, each holder should sign.
____________________________ ______________________________
Signature Signature
Dated: _______________, 2005 Dated: _________________, 2005
PLEASE SIGN, DATE AND RETURN THIS PROXY PROMPTLY IN THE ENCLOSED ENVELOPE. NO
POSTAGE IS REQUIRED FOR MAILING IN THE U.S.A.
53