AMENDED AND RESTATED
OFFER TO PURCHASE FOR CASH
By
CHESTER BANCORP, INC.
OF UP TO 100,000 SHARES OF ITS COMMON STOCK
FOR A PURCHASE PRICE OF $22.00 NET PER SHARE
The offer to purchase expires at 5:00 p.m., Eastern daylight time, on
May 16, 2003, unless the offer is extended.
This Amended and Restated Offer to Purchase amends and restates the Offer to
Purchase dated April 11, 2003 previously furnished to shareholders.
Chester Bancorp, Inc. is offering to purchase up to 100,000 shares of
its common stock. We are offering to purchase these shares at $22.00 per share
in cash. This price represents a $1.00 premium over the price reported on the
NASDAQ SmallCap Market on April 1, 2003. If you are a record shareholder and you
tender your shares directly to us, you will not incur any sales commissions or
other charges. If you hold shares or tender shares through a broker or bank, you
should consult with the broker or bank to determine whether transaction costs
are applicable.
We intend to deregister our common stock with the Securities and
Exchange Commission and become a private company if, after completion of the
tender offer, we have fewer than 300 shareholders of record. This means we will
no longer file periodic reports with the SEC, including, among other things,
Forms 10-K and Forms 10-Q.
If you have questions regarding this tender offer or need additional
copies of any of the tender offer documents, you should contact Michael W. Welge
at (618) 826-5038. You may also contact your own broker, dealer, commercial bank
or trust company for assistance concerning this tender offer.
No person has been authorized to make any recommendation on our behalf
as to whether shareholders should tender shares pursuant to this tender offer,
except for the recommendation of our Board and Michael W. Welge as set forth in
the letter of Michael W. Welge to shareholders dated April 11, 2003 which is
made by him personally and on behalf of the Board of Directors. No other person
has been authorized to give any information or to make any representations in
connection with this tender offer other than those contained in this Offer to
Purchase or in the related Letter of Transmittal. If given or made, the
recommendation and the other information and representations must not be relied
upon as having been authorized by us.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved this transaction, passed upon the merits
or fairness of this transaction or passed upon the adequacy or accuracy of the
disclosure in this Offer to Purchase. Any representation to the contrary is a
criminal offense.
May 2, 2003
IMPORTANT
If you wish to participate in this tender offer, there are a number of
methods by which you can tender your shares, depending upon your situation.
o If you hold physical certificates evidencing the shares,
complete and sign the enclosed Letter of Transmittal in
accordance with its instructions, and mail or deliver it and
any of the other required documents to us at the address set
forth below.
o If you are a beneficial owner who owns shares registered in
the name of a broker, dealer, bank, trust company or other
nominee, you should contact such person and also contact us,
at the telephone number set forth below, if you desire to
tender your shares.
Chester Bancorp, Inc.
1112 State Street
P.O. Box 327
Chester, IL 62233
(618) 826-5038
For more information regarding the procedure for tendering shares, see "THE
TENDER OFFER--Procedure for Tendering Shares."
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This Offer to Purchase and the documents that we have incorporated by
reference contain certain forward-looking statements and information relating to
Chester Bancorp, Inc. that are based on the beliefs of our management as well as
assumptions made by and information currently available to our management.
Throughout this Offer to Purchase and these other documents, the words
"anticipates," "believes," "estimates," "expects," "plans," "intends" and
similar expressions, as they relate to us or our management, are intended to
identify forward-looking statements. Such statements reflect our current views
with respect to future events and are subject to certain risks, uncertainties
and assumptions. In addition to factors that may be described in this Offer to
Purchase and these other documents, the statements are based on many assumptions
and factors, including economic conditions, performance of financial markets,
adequacy of loan loss reserves, competition, rapid fluctuations in interest
rates and changes in the legislative and regulatory environments. Should one or
more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary from those described as
anticipated, believed, estimated or expected in this Offer to Purchase or the
documents incorporated herein.
SUMMARY OF TERMS
The following is a summary of the terms of the tender offer we are
making and of certain additional information relating to the tender offer. This
summary is not intended to be complete and is qualified in its entirety by
reference to the more detailed information appearing or incorporated by
reference elsewhere in this Offer to Purchase. We encourage you to read this
Offer to Purchase, as well as the information that we have incorporated by
reference, in their entireties before making a decision to tender your shares to
us. All references to "we," "us" or the "Company" in this Offer to Purchase mean
Chester Bancorp, Inc.
o The purchase price we are offering is $22.00 per share. This
price represents a $1.00 premium over the price reported on
the NASDAQ SmallCap Market as of April 1, 2003. See "THE
TENDER OFFER--Terms of the Tender Offer."
o The tender offer is being made for up to 100,000 shares of our
common stock. Please see "THE TENDER OFFER--Terms of the
Tender Offer" for an explanation of how to determine the
number of shares you own beneficially.
o If you are a record shareholder and you tender your shares
directly to us, you will not incur any sales commissions or
other charges. If you hold shares or tender shares through a
broker or bank, you should consult with the broker or bank to
determine whether transaction costs are applicable. See "THE
TENDER OFFER--Purchase and Payment."
o Our Board has determined that the terms of the tender offer
are fair to, and in the best interests of, our shareholders.
See "SPECIAL FACTORS--Fairness Determination by Our Board.
o We intend to deregister our common stock with the Securities
and Exchange Commission and become a private company if, after
completion of the tender offer, we have fewer than 300
shareholders of record. This means we will no longer file
periodic reports with the SEC, including, among other things,
Form 10-K and Form 10-Q. See "SPECIAL FACTORS--Effects of the
Offer."
o If we continue to have more than 300 shareholders of record
after this tender offer, we may take further action to reduce
the number of shareholders to allow us to become a private
company. See "SPECIAL FACTORS--Possibility of Second Step
Transaction."
o Our common stock currently is listed on the NASDAQ SmallCap
Market. However, we have been informed that our common stock
will no longer be traded on such market due to our failure to
meet liquidity requirements. If we become a private company,
it is likely that there will be less of a market for our
common stock, and this may affect the price at which remaining
shareholders may be able to sell their shares. See "SPECIAL
FACTORS--Effects of the Tender Offer."
o The purchase price will be paid to you in cash. A check for
the purchase price of your shares will be mailed to you
promptly following the expiration of the offering period.
1
We will not pay any interest on the purchase price during the
period between when your shares are tendered and the date you
receive your payment. See "THE TENDER OFFER--Purchase and
Payment."
o The tender offer will end at 5:00 p.m., Eastern Daylight Time,
on May 16, 2003, unless we decide to extend it. In order for
your tender to be accepted by us, the we must receive your
tender offer documents prior to this time. We will make a
public announcement if we decide to extend the tender offer.
See "THE TENDER OFFER--Expiration and Extension of the Tender
Offer; Amendment."
o You may withdraw your tender at any time up until the
expiration of the tender offer. See "THE TENDER
OFFER--Withdrawal Rights."
o The sale of your shares will be subject to federal income tax
and be taxable for state and local income tax purposes as
well. See "SPECIAL FACTORS--Federal Income Tax
Considerations."
o You are not required to tender your shares. You may elect to
continue to hold your shares and retain your rights as a
shareholder, including the right to vote your shares and to
receive dividends that are declared by our Board. See "THE
TENDER OFFER--Terms of the Tender Offer."
o If more than 100,000 shares are tendered, all shares tendered
will be purchased on a pro rata basis except for "odd lots"
(holders of less than 100 shares) which will be purchased on a
priority basis.
SPECIAL FACTORS
BACKGROUND AND PURPOSE OF TENDER OFFER
The Board has proposed the tender offer for the following purposes:
o To give shareholders an opportunity to sell their stock above
the current market price without, in many cases, incurring any
sales commissions;
o To allow us to become a private company in order to relieve us
of the administrative burdens of being an SEC-reporting
company; and
o To enhance our operational flexibility by permitting the
Company to focus on long-term business strategies that are
designed to fulfill the needs of our subsidiaries and their
customers.
Chester Bancorp, Inc. became a public company in 1996 in connection
with its mutual-to-stock conversion. The common stock of the Company has always
been very thinly traded and a controlling interest in the Company has always
been held by the officers and directors of the Company.
Outside of these principal shareholders, there are approximately 450
holders of record of our common stock. Since many shares are held in street name
by brokers, dealers, banks, trust companies
2
and other nominees, the number of beneficial owners of our common stock exceeds
the number of holders of record. The majority of these holders own fewer than
500 shares, with many owning 100 or fewer shares. Because so much of our common
stock is owned by a few large shareholders who have held their shares as
long-term investments, there is a very limited trading market for our common
stock.
The limited trading market for our common stock is evidenced by an
average daily trading volume as reported on the Nasdaq SmallCap Market year to
date through April 1, 2003 of only a few trades during this three-month period.
On the vast majority of trading days, no shares were traded.
On March 11, 2003, Nasdaq informed the Company that it believed that
the Company did not meet the minimum public float requirements and that Nasdaq
was reviewing the Company's eligibility for continued listing on the Nasdaq
SmallCap Market. Therefore, we expect that after the Nasdaq SmallCap Market
completes the delisting process, price quotes for our common stock will not be
reported. Consequently, accurate and timely pricing information for our common
stock is likely to become less available at that time, and this may further
limit the market for our common stock in the future. Although the possible
de-listing by Nasdaq is not the only reason we are seeking to become private, as
noted below, such notice has accelerated our consideration of a going private
transaction.
The combination of these factors has, and will continue to, seriously
erode the primary benefit that our shareholders receive from having a publicly
traded security, which is the ability to buy and sell their stock in a liquid
market in which accurate and timely pricing information is readily available. In
addition, the Company has not historically needed to avail itself of the public
capital markets in order to meet its capital needs. We have not made any public
offering of our common stock or any other equity or debt securities since our
organization in 1996, nor have we used our common stock as consideration for any
acquisitions. We do not anticipate issuing additional shares of our common stock
in the future in either public or private transactions. Therefore, the Company
derives little, if any, benefit from being a public company.
Notwithstanding the limited utility to the Company and our shareholders
provided by our status as a public company, compliance with SEC reporting and
proxy solicitation requirements diverts time from our senior management and
financial and accounting staffs. Management feels that the time these
individuals spend on SEC compliance activities could be more productively spent
on other business matters that bear a more direct relationship to our operations
and profitability. We believe that becoming a private company will enhance our
operating flexibility and allow management more time to focus upon the
long-range business needs of our customers.
As a result of the discontinuance of our listing on the Nasdaq SmallCap
Market, our senior management began to discuss the question of whether it would
be possible to provide an attractive liquidity event for a majority of our
shareholders and take steps to eliminate the need for the Company to continue to
comply with SEC reporting and proxy rules and their related burdens and
expenses. The Company's Chairman, Michael W. Welge, and Chief Executive Officer,
Edward K. Collins, held several informal discussions on these matters among
themselves and outside legal counsel during March 2003.
On March 11, 2003, a special meeting of our Board was convened in order
to discuss these matters and consider a possible course of action. All Board
Members were present at the meeting. Outside legal counsel was also present to
advise the Board on structure, timing and other matters related to alternatives
being considered. The Board took note of the fact that the number of shares of
3
our common stock in the hands of the public is very small and this has resulted
in our common stock being thinly traded. The Board also determined that the
discontinuance of our Nasdaq SmallCap Market listing would probably result in a
further reduction in the trading activity for our common stock. As a result, the
Board concluded that there was not a truly active trading market for our common
stock and that the market that existed provided only limited liquidity to our
shareholders. The Board also noted that the Company has never availed itself of
the public capital market by way of a stock offering and that it was unlikely
they would do so in the future. The Board also discussed the significant expense
incurred by the Company to comply with the SEC reporting requirements relating
to public companies. The Board estimates that this additional expense amounts to
approximately $100,000 per year in additional legal, accounting, printing and
management expenses. The Board also noted that the majority of the shares of
Company common stock are held by a small number of shareholders and that many of
the remaining shareholders hold 100 or fewer shares. The Board discussed its
alternatives and fiduciary duties with legal counsel and decided that the
Company should consider the possibility of a going private transaction.
Over the course of subsequent meetings, held on March 13, 2003, and
March 25, 2003, at which all Board members were present, the Board held further
discussions regarding a potential going private transaction, including
alternative ways to structure such a transaction.
On April 2, 2003, the Board again met with legal counsel regarding the
proposed going private transaction. At that meeting, and based on the
discussions held by the Board up to that time, the Board concluded that the
transaction should be structured as a tender offer. Members of the Board asked
questions of counsel regarding its analysis of structure and alternative methods
for going private. After discussion with legal counsel, the Board selected and
approved the tender offer of up to 100,000 shares at an offer price of $22.00
per share. The Board selected the $22.00 price because it represents a $1.00
premium over the recent market price of $21.00. The Board noted the very low
volume in the past year, the decline in the U.S. stock market generally, and the
fact that the directors have all previously sold shares back to the Company at
$20.00 or lower.
On April 30, 2003 the Board met to discuss the going private
transaction. At that meeting, the Board decided to expand and extend the tender
offer to cover all shares owned by each shareholder and remove the 500 share
limit. Because of the removal of the 500 share limit, the Board decided to limit
the total number of shares to be purchased in the offer to 100,000.
Numerous numbers of share amounts were discussed and the 100,000 amount
was selected for two reasons. First, based on a review of the shareholder
records, this would be an adequate amount of shares to accept all tenders if
most of the 500 share or less shareholders tender their shares, and if most of
such shareholders did tender, then the Company would be below the 300
shareholder threshold for privatization. Second, the Company wanted to offer all
shareholders some liquidity, even those owning more than 500 shares, so an
aggregate number of shares was selected which could provide the opportunity for
liquidity for all shareholders while not placing a large burden on the capital
of the Company. The Board again reviewed the reasons for proceeding with the
tender offer and the fairness of the purchase price. After additional
discussion, the Board approved the tender offer pursuant to the terms and
subject to the conditions set forth in this Offer to Purchase and the related
Letter of Transmittal.
4
EFFECTS OF THE TENDER OFFER
We believe the tender offer will have a number of positive effects,
including (i) providing management with more time and flexibility to focus on
long-term business strategies that the Board believes are in the best interests
of our shareholders, (ii) improving our competitive position by reducing public
disclosure available to competitors, and (iii) reducing administrative burdens
associated with being a public company. However, the tender offer will have
certain effects, of which you should be aware, that may be detrimental to
tendering and continuing shareholders.
Tendering Shareholders Will Forego Potential Benefits of Stock
Ownership. After consummation of the tender offer, shareholders who tender their
shares will not have the opportunity to vote their shares or participate in the
potential growth of our future earnings and the value of our common stock unless
they again purchase shares. Conversely, after completion of the tender offer,
shareholders who tender their shares will not face the risk of losses generated
by the Company's operations or any decrease in the value of our common stock.
Certain Effects of Deregistration of the Common Stock. If the tender
offer results in the number of our shareholders of record falling below 300, we
will be eligible to deregister our common stock with the SEC and intend to do
so. Once our common stock is deregistered, we will no longer file current and
periodic reports with the SEC, including Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q and Current Reports on Form 8-K. We also will no longer be
subject to the proxy requirements of the Securities Exchange Act of 1934 (the
"Exchange Act"). As a result, the amount of information we provide to
shareholders after deregistration may be less than the amount currently
supplied. However, the Company will continue to be subject to extensive
regulation as a financial institution and it will continue to file consolidated
and parent company only financial statements (Forms FRY-9C and FRY-9LP) on a
quarterly basis with the Federal Reserve Board. In addition, the Company's
subsidiary national banks will file reports of condition and income on Form
FFIEC 041 (Call Reports) with the Office of the Comptroller of the Currency.
Because these reports are publicly available, remaining shareholders will
continue to have access to a substantial amount of financial information
regarding the Company.
As mentioned above, after any deregistration under the Exchange Act, we
will no longer be subject to SEC rules relating to the solicitation of
shareholder proxies. Therefore, our Board will not be required to provide any
particular information to shareholders at the time it solicits proxies for
annual or special meetings of the shareholders and will not be required to
include shareholder proposals in proxy materials, if any, that are sent to
shareholders. We still plan, however, to supply continuing shareholders with an
annual report containing audited financial statements after each year end, but
we will not be bound by any of the SEC disclosure requirements to which we are
currently subject.
Following deregistration, our directors, executive officers and persons
owning more than 10% of our outstanding shares will no longer be subject to the
reporting and short-swing profit provisions of Section 16 of the Exchange Act.
While these affiliates will benefit from not being subject to Section 16, they
will be unable to rely on Rule 144 under the Securities Act of 1933 in order to
sell their shares because the Company will no longer file reports with the SEC.
It is unlikely that we will voluntarily make the necessary information public in
order to allow these persons to sell shares under Rule 144 and, therefore, the
ability of these persons to sell their shares following deregistration may be
more limited than it is currently.
5
While the Company will no longer be subject to SEC reporting
requirements if the common stock is deregistered, the Company and its affiliates
will remain subject to rules and regulations regarding fraud. This will mean,
among other things, that they cannot trade in the common stock on the basis of
material, nonpublic information.
Once the Company stops filing reports with the SEC, our common stock
will be ineligible for quotation on the Nasdaq SmallCap Market. A possible
effect of this is a further reduction in the liquidity of our common stock.
While price quotations for our common stock may continue to be reported after
deregistration in less formal reporting systems such as the Pink Sheets
Electronic Quotation Service, we cannot assure you this will happen or, even if
it does happen, that an active market will exist for you to sell your shares.
However, because the current amount of trading activity in our common stock is
so limited, there may be no practical difference for most shareholders who do
not tender. In addition, regardless of whether we become a private company as a
result of this tender offer, it is currently proposed that Nasdaq will delist
our common stock from the Nasdaq SmallCap Market because we currently do not
meet and do not expect that we will meet the listing requirements of the Nasdaq
SmallCap Market. Therefore, our common stock may be quoted only in the Pink
Sheets Electronic Quotations Service regardless of whether the Company goes
private. To the extent that our common stock is quoted in over-the-counter
services such as the Pink Sheets Electronic Quotation Service, the Company will
cooperate to facilitate such quotations.
Effects of Reduced Number of Unaffiliated Shareholders. The extent of
the public market for our common stock following the tender offer will depend on
the number of holders remaining at that time, the interest in maintaining a
market in the common stock on the part of securities firms and other factors.
Even if we remain a public company after the tender offer, it is expected that
the number of shares held by unaffiliated shareholders will be reduced
substantially. An issue of securities with a small public float (that is, shares
outstanding not held by affiliates of the issuing company) may trade at lower
prices than would a comparable issue of securities with a greater public float.
Accordingly, the market price for shares of our common stock may be adversely
affected to the extent that the amount of shares purchased pursuant to the
tender offer reduces the public float. The reduced public float also may have
the effect of causing the trading prices of our common stock to be more
volatile. In addition, the fact that there will be less public information about
the Company after deregistration may further reduce the market for the common
stock.
Following the tender offer, we intend to occasionally purchase
additional shares of our common stock in the open market or in privately
negotiated transactions. Any future purchases would provide liquidity for the
remaining shareholders and further reduce the number of shares that might
otherwise trade publicly and may further reduce the number of holders and
liquidity of our common stock.
Effect on Proportionate Interests. All shares of our common stock
acquired in the tender offer will be retired, which will reduce the number of
shares outstanding. As a group, the executive officers and directors owned
266,430 shares of our common stock representing approximately 30% of the shares
outstanding prior to this tender offer. None of the executive officers and
directors of the Company will tender any shares in the tender offer. Assuming
all 100,000 shares eligible for this tender offer are purchased, the
proportionate ownership percentage of these persons will increase to
approximately 34% of the outstanding shares. The proportionate ownership of
unaffiliated shareholders, as a group, will correspondingly decrease to
approximately 66% as a result of the tender offer. Accordingly, the tender offer
will result in further concentration of ownership of our common stock in the
hands of our controlling shareholders and executive officers and directors.
6
Effect on the Company's Business. Aside from ceasing to be an
SEC-reporting company if it becomes eligible to do so, the completion of the
tender offer is not expected to have a material impact on the conduct of our
business. As a private company, management will have more flexibility to focus
on long-term business strategies. We will continue to operate community-oriented
banks focused on serving the needs of customers in our market areas and to
compete nationwide in niche products, including credit card issuing, transaction
processing and certain loan products. No changes in our executive officers or
Board are anticipated to result from the tender offer, regardless of the number
of shares tendered and regardless of whether the common stock is deregistered.
Payment for shares tendered in this tender offer will not affect the status of
the Company's banking subsidiaries as well capitalized under applicable banking
regulations.
Tax Effects on the Tender Offer. If you tender your shares in the
tender offer, the receipt of cash by you in exchange for your shares will be a
taxable transaction for United States federal income tax purposes. Subject to
limited exceptions, generally, a shareholder who participates in the tender
offer will recognize a capital gain or loss equal to the difference between the
amount of cash received and the holder's tax basis in the shares sold. Any
capital gain or loss generally will constitute a long-term capital gain or loss
if the holding period for the holder's shares sold is greater than one year as
of the date of sale and a short-term capital gain or loss if the holding period
is one year or less as of the date of sale. Neither the Company nor any
non-tendering shareholder will incur any federal income tax liability as a
direct result of the completion of the tender offer. See "SPECIAL FACTORS -
Federal Income Tax Considerations."
FAIRNESS DETERMINATION BY OUR BOARD
For the reasons discussed below, the Board has unanimously approved the
tender offer and has determined that the tender offer is fair to, and in the
best interests of, the affiliated and unaffiliated shareholders of the Company.
The Board and Michael W. Welge make a recommendation to shareholders regarding
whether to tender or refrain from tendering the shares held by them in the
letter of Michael W. Welge to shareholders dated April 11, 2003, which letter
contains our recommendation and the recommendation of Michael W. Welge
personally and on behalf of the Board. Each shareholder must make its, his or
her own decision regarding whether to tender shares.
Factors Supporting Fairness of Tender Offer. In reaching its determination
regarding the fairness of the tender offer, the Board relied on, among other
things, its knowledge of the Company's business as well as the following
factors, each of which, in the view of our directors, supported this
determination:
o the opportunity provided by the tender offer to our
shareholders to sell their shares in an otherwise illiquid
market in an expedient manner and without, in most cases, the
payment of sales commissions or other brokerage fees;
o the voluntary nature of the tender offer which allows
individual shareholders to decide whether to tender their
shares or remain as a shareholder;
o the price per share being offered represents a $1.00 premium
over the last sale price of $21.00 reported on the Nasdaq
SmallCap Market as of April 1, 2003 and a premium over the
recent and average historical market price of the shares.
Although the
7
historical price has at times exceeded $22.00 per share, very
few shares have actually traded at such prices. Based on
available trading information, over 90% of the shares traded
during the 12 month period ending March 31, 2003 were traded
at prices below $22.00. During March 2003, of the total of
1,100 shares that were traded during the month, no shares were
traded at over $21.00. The offer price is also a premium of
1.44 times the net book value at December 31, 2002 of $15.29;
o the Company will continue to provide annual audited financial
information to continuing shareholders and quarterly financial
information provided to banking regulators will continue to be
publicly available;
o there has not been an active trading market for the shares and
even though the Company or its affiliates may occasionally
purchase additional shares on the open market or in privately
negotiated transactions in the future as they deem advisable,
no active market is expected to develop; and
o the Company's largest shareholders, which are the directors
and executive officers, intend to continue the business of the
Company as a going concern, which eliminated consideration of
a sale or liquidation of the Company. Because of the financial
nature of a bank's primary assets and the many other readily
available bank holding company specific indicators of value
such as the bank's total assets, total loans, total deposits,
and interest rate spread, the Board did not place much, if
any, significance on going concern value and liquidation value
when determining the fairness of the tender offer.
o The $22.00 tender offer price is in excess of the price that
the Company repurchased shares during the past two years. See
"INFORMATION ABOUT THE COMPANY - Recent Stock Purchases."
The Board also considered the following factors, which it considered to
be negative, in its consideration of the fairness of the tender offer:
o tendering shareholders will cease to participate in our future
earnings or growth, if any, or benefit from increases, if any,
in the value of our common stock;
o the amount of information we provide to shareholders after
deregistration with the SEC will be less than the amount
currently supplied;
o the relatively low trading volume of our stock may decrease
further as a result of the tender offer, which may reduce
liquidity and market value for continuing shareholders, if
price information is no longer reported on the Nasdaq SmallCap
Market and the Company is no longer subject to the Exchange
Act;
o the tender offer was not structured to require the approval of
at least a majority of the Company's unaffiliated
shareholders;
o no unaffiliated representative was appointed to act solely on
behalf of the unaffiliated shareholders for purposes of
negotiating the terms of the tender offer; and
8
o none of the directors of the Company would be considered
unaffiliated and, therefore, the tender offer was not approved
by independent directors.
In determining that the tender offer is fair to our shareholders, the
Board considered the above factors as a whole and did not assign specific or
relative weights to any of them. However, the Board did take note that the
market for our common stock has long behaved similarly to that of a private
company rather than a public company. As a result, the Board believes that
taking the Company private would have no practical effect for most shareholders,
as the liquidity of their common stock was very limited in either case.
Each member of our Board is also a shareholder of over 1% of our
outstanding shares. See "INFORMATION ABOUT THE COMPANY -- Beneficial Ownership
of Our Common Stock." As a result, the Board did not appoint a committee of
disinterested directors or retain an unaffiliated representative to negotiate
the terms of the tender offer. Because of the lack of a committee of
disinterested directors, the Board had a heightened awareness of its fiduciary
duty to all shareholders, including those choosing to tender and those choosing
not to tender, when determining the fairness of the tender offer. However, you
should be aware that the fairness of the tender offer has not been passed upon
by an independent committee of the Board or an independent third party. Because
of the very small size of the offer, the Board determined that the engagement of
a shareholder representative was not practical or possible.
In addition, the Board believes that the tender offer is procedurally
fair because its voluntary nature allows shareholders to decide individually
whether or not to tender their shares. As a result, those shareholders who wish
to sell their stock based on their personal financial situation, personal risk
tolerance or personal view of the Company may do so. Conversely, those whose
personal financial situation, personal risk tolerance and personal view of the
Company cause them to wish to retain their stock may do so, and they will have a
proportionately greater stake in any potential future appreciation in the value
of their shares.
THE BOARD HAS APPROVED THIS TENDER OFFER AND EACH OF THE BOARD AND
MICHAEL W. WELGE, INDIVIDUALLY, BELIEVES IT IS FAIR TO THE AFFILIATED AND
UNAFFILIATED SHAREHOLDERS, AND THE BOARD AND MICHAEL W. WELGE, PERSONALLY AND ON
BEHALF OF THE BOARD, ARE MAKING A RECOMMENDATION TO SHAREHOLDERS AS TO WHETHER A
SHAREHOLDER SHOULD PARTICIPATE IN THIS TENDER OFFER, AS SET OUT IN THE LETTER OF
MICHAEL W. WELGE TO SHAREHOLDERS DATED APRIL 11, 2003 ACCOMPANYING THIS OFFER TO
PURCHASE
The Company did not seek a fairness opinion from an independent third
party. Shareholders should be advised that the Board determination regarding
fairness had not been subject to independent review.
FAIRNESS DETERMINATION BY AFFILIATES
Michael W. Welge is considered an "affiliate" of the Company due to his
position in senior management of the Company, the number of shares of the
Company's stock he owns and his position as the Chairman of the Board of
Directors, all of which give him effective control of the Company. Mr. Welge
reviewed the same information regarding the offer that the Board reviewed and
considered the same factors as the Board of Directors. Mr. Welge adopted the
analysis of the Board of Directors and has separately determined that the offer
is fair to affiliated and unaffiliated shareholders.
9
INTENTIONS OF INSIDERS
The executive officers and directors of the Company do not intend to
tender shares held by them in the tender offer. In addition, except for the
recommendation of Michael W. Welge in his letter to shareholders dated April 11,
2003, none of the executive officers, directors or other affiliates have made a
recommendation either in support of or opposed to the tender offer.
POSSIBILITY OF SECOND-STEP TRANSACTION
If the tender offer does not result in the Company having fewer than
300 record holders, thus preventing the Company from deregistering its common
stock, the Company, in its discretion, may consummate a second-step transaction
in which shares of common stock not purchased in this tender offer would be
exchanged for cash. A second-step transaction may be subject to shareholder
approval, but may be conducted on an involuntary basis. Since executive officers
and directors of the Company control approximately 30% (or 38% including the
exercise of options which are exercisable within 60 days) of the outstanding
common stock, it is likely that a second-step transaction, if proposed, would be
approved by the required shareholder vote because each of the directors would
vote for such transaction and it is expected that their relatives who are also
shareholders would vote consistently with such directors. Based on a review of
the shareholder records, the Company believes that a large portion of shares are
held by directors or their family members or close personal acquaintances. In
the event a second-step transaction takes place, you may not have dissenters'
rights in such transaction.
ALTERNATIVES CONSIDERED
In the course of its discussions, the Board considered several
alternatives to effect a going private transaction. Ultimately, the Board
selected the tender offer because it was viewed by the Board as a fair method to
reduce the record shareholder base to below 300 persons and to accomplish the
primary purposes of the tender offer discussed above under "Background and
Purpose of Tender Offer." Since many of our shareholders hold 100 or fewer
shares, a tender offer is an efficient means of reducing the total number of
record shareholders to below 300. This will limit the amount of capital that we
will need to devote to purchasing shares in order to become a private company
and is consistent with our goal of reducing our costs. In addition, the Board
thought the tender offer would provide an economical means for the small
shareholders to sell their shares without incurring any brokerage expenses and
is consistent with our purpose of providing our shareholders with an attractive
liquidity opportunity. Finally, the Board took note of the voluntary nature of
the tender and concluded that this was a fair way of proceeding since all
shareholders can individually elect to tender or to retain their shares.
The Board also considered making a complete buy-out tender offer to all
shareholders for all their shares, using a separately formed entity. This
alternative was rejected primarily because it would be potentially more costly
than the tender offer. The cost of a complete buy-out of all shares at $22.00
per share could be as much as $20,000,000. Therefore, the general tender offer
was not viewed as being consistent with our purpose of reducing operating costs.
Another alternative that was considered was a reverse stock split. In a
reverse stock split, each outstanding share would be converted into less than
one whole share. For example, in a 1-for-100
10
share reverse split, each 100 shares would be converted into 1 share and a
shareholder owning only 90 shares before the reverse split would receive 0.90 of
a share, which would be paid out in cash in lieu of such fractional shares. A
reverse stock split was believed by the Board to be more costly and time
consuming than a tender offer because it requires the filing and review of a
proxy statement by the SEC for a shareholder meeting to consider an amendment to
our articles of incorporation. The Board estimated these meeting costs to be at
least $1,000 more than the costs of this tender offer. In addition, the reverse
stock split would require cash payments be made to any shareholder who has a
fractional share as a result of the reverse stock split. Therefore, payments
could be made to shareholders who continue to own shares after the reverse stock
split. The Board estimated that a reverse stock split could require thousands of
dollars of payments for cash in lieu of fractional shares for those shareholders
owning more than the minimum number of shares required to remain a shareholder
after the reverse stock split. These additional costs would not further
facilitate the completion of a going private transaction. In addition, the Board
observed that a reverse stock split would not be voluntary, as shareholders
holding less than one whole share after the reverse stock split would be forced
to accept a cash payment whether or not they desired to remain as shareholders.
While the Company does not currently meet the listing requirements of
the Nasdaq SmallCap Market, the Board acknowledged that it is within its power
to cause the Company to meet these listing requirements. The Board determined
that meeting the Nasdaq listing requirements may not significantly increase the
liquidity in the market for the Company's common stock and would not accomplish
our strategic objectives.
FEDERAL INCOME TAX CONSIDERATIONS
If you tender your shares in the tender offer, the receipt of cash by
you in exchange for your shares will be a taxable transaction for United States
federal income tax purposes. Subject to limited exceptions, particularly if less
than all of a shareholders shares are accepted, generally, a shareholder who
participates in the tender offer will recognize a capital gain or loss equal to
the difference between the amount of cash received and the holder's tax basis in
the shares sold. Any capital gain or loss generally will constitute a long-term
capital gain or loss if the holding period for the holder's shares sold is
greater than one year as of the date of the sale and a short-term capital gain
or loss if the holding period is one year or less as of the date of sale. This
general description is subject to an exception based on constructive ownership
rules which treats persons as owning any shares that are owned (actually and in
some cases constructively) by related individuals and entities as well as shares
that the person has the right to acquire by exercise of an option or by
conversion or exchange of a security.
Neither the Company nor any non-tendering shareholder will incur any
federal income tax liability as a direct result of completion of the tender
offer.
The discussion set forth above is included for United States taxpayers.
You are urged to consult your tax advisor to determine the particular tax
consequences to you of the tender offer, including the applicability and effect
of state, local and foreign tax laws.
THE TENDER OFFER
TERMS OF THE TENDER OFFER
We are offering to purchase for cash up to 100,000 shares of our
common. Properly tendered
11
shares will be purchased at $22.00 per share, which is a $1.00 premium over the
last price reported on the Nasdaq SmallCap Market on April 1, 2003. A proper
tender will include receipt of a properly executed letter of transmittal.
Payment for properly tendered shares will be made promptly following the
termination of the offering period.
Participation in the tender offer is entirely voluntary. You may choose
to continue to hold your shares and retain your rights as a shareholder,
including the right to vote your shares and receive dividends that are declared
by our Board.
Only shares properly tendered and not properly withdrawn will be
purchased. However, because of the "odd lot" priority and proration, all of the
shares tendered will not be purchased if more than the number of shares we seek
are properly tendered. All shares tendered and not purchased pursuant to the
offer because of proration will be returned to the tendering shareholders at our
expense promptly following the expiration of the offer. In the event of an
oversubscription of the offer, shares tendered will be subject to proration,
except for Odd Lots (as defined below).
PRIORITY OF PURCHASES
If more than 100,000 shares have been properly tendered, we will
purchase properly tendered shares on the basis set forth below:
o First, we will purchase all shares tendered by any Odd Lot
Holder (as defined below); and
o Second, after the purchase of all of the shares properly
tendered by Odd Lot Holders, we will purchase all other shares
tendered on a pro rata basis.
Therefore, all of the shares that a shareholder tenders in the offer may not be
purchased.
ODD LOTS
The term "Odd Lots" means all shares tendered by any person (an "Odd
Lot Holder") who owned beneficially or of record a total of fewer than 100
shares. Odd Lots will be accepted for payment before any proration of the
purchase of other tendered shares. This preference is not available to partial
tenders or to beneficial or record holders of an aggregate of 100 or more
shares, even if these holders have separate accounts or certificates
representing fewer than 100 shares.
PRORATION
If proration of tendered shares is required, we will determine the proration
factor promptly following the expiration of the offer. Proration for each
shareholder tendering shares, other than Odd Lot Holders, will be based on the
ratio of the number of shares tendered by the shareholder to the total number of
shares tendered by all shareholders, other than Odd Lot Holders. The preliminary
results of any proration will be announced by press release promptly after the
expiration of the offer. After the expiration of the offer, shareholders may
also obtain preliminary proration information from the Company.
The number of shares that we will purchase from a shareholder pursuant to the
offer may affect the United States federal income tax consequences to the
shareholder of the purchase and, therefore, may be relevant to a shareholder's
decision whether or not to tender shares.
12
CONDITIONS OF THE TENDER OFFER
The tender offer is not conditioned on the receipt of tenders for any
minimum number of shares. In addition, there are no other conditions precedent
to our purchasing properly tendered shares. The Company is irrevocably bound to
buy up to 100,000 shares properly tendered, subject to applicable pro-ration as
described above.
EXPIRATION AND EXTENSION OF THE TENDER OFFER; AMENDMENT
The expiration date of the tender offer is May 16, 2003, unless
extended to such later date at our discretion. Your tender offer documents must
be received by us no later than 5:00 p.m., Eastern Daylight Time, on the
expiration date, or on any date thereafter to which the tender offer is
extended.
We reserve the right, in our sole discretion, to extend the period of
time during which the tender offer is open and thereby delay acceptance for
payment of, and payment for, shares. We can extend the tender offer by making a
public announcement of the extension. Promptly following the expiration date, we
will accept or payment and pay for, and thereby purchase, shares properly
tendered and not withdrawn before the expiration date.
Subject to compliance with applicable law, we further reserve the
right, in our sole discretion, to amend the tender offer in any respect.
Amendments to the tender offer may be made at any time and from time to time
effected by public announcement. In the case of an extension, we will make such
announcement no later than 9:00 a.m., Eastern Daylight Time, on the business day
before the last previously scheduled or announced expiration date. A business
day means any day other than a Saturday, Sunday or United States federal holiday
and begins at 12:01 a.m. and ends at 12:00 midnight, Eastern Daylight Time. Any
period measured in business days includes the first day of the period.
We will disseminate any such public announcement promptly to
shareholders in a manner reasonably designed to inform shareholders of the
change. Except as required by applicable law, we have no obligation to publish,
advertise or otherwise communicate any such public announcement other than by
issuing a press release.
PROCEDURE FOR TENDERING SHARES
Record Holders. If you wish to tender the shares for which you are the
record holder, you should complete and sign a Letter of Transmittal according to
its instructions and mail or deliver it, together with the certificates for your
shares, any required signature guarantee, and any other required documents, in
the enclosed envelope to the Company at:
Chester Bancorp, Inc.
1112 State Street
P. O. Box 327
Chester, IL 62233
prior to 5:00 p.m. Eastern Daylight Time, on May 16, 2003.
13
No signature guarantee is required as long as the Letter of Transmittal
is signed by the record holder of the tendered shares (including any participant
in The Depository Trust Company, which is a securities depository ("DTC"), whose
name appears on a security position listing as the owner of the shares) unless
such holder has completed either the box captioned "Special Delivery
Instructions" or the box captioned "Special Payment Instructions" on the Letter
of Transmittal. Likewise, no signature guarantee is required for shares tendered
for the account of a bank, broker, dealer, credit union, savings association or
other financial institution that is a member of an approved signature guarantee
medallion program (an "eligible guarantor institution"). Otherwise, the
signature on the Letter of Transmittal must be guaranteed by an eligible
guarantor institution in accordance with the instructions in the Letter of
Transmittal.
If a certificate for shares is registered in the name of a person other
than the person executing the Letter of Transmittal, or if payment is to be made
to a person other than the record holder, then the certificate must be endorsed
on its reverse side or it must be accompanied by an appropriate stock power, in
either case signed exactly as the name of the record holder appears on the
certificate, with the signature guaranteed by an eligible guarantor institution.
Beneficial Holders. If your shares are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee, you should
contact that institution if you desire to tender your shares. If your shares are
held by a broker, dealer, bank or other institution, or you wish to tender
shares through such an institution, you should consult with them to determine
whether they will impose transaction costs on the tender of your shares.
Guaranteed Delivery. If you cannot deliver your share certificates or
other required documents to the Company before the expiration date of the tender
offer, you may tender your shares by using the guaranteed delivery procedure. To
tender your shares by this method, you must complete and sign the Notice of
Guaranteed Delivery in the form we have provided with this document, and deliver
it to the Company before the expiration date of the tender offer. The Notice of
Guaranteed Delivery must be guaranteed by a broker-dealer, commercial bank,
trust company or other eligible guarantor institution. For your tender to be
effective, the certificates for your shares along with a properly completed and
signed Letter of Transmittal (or an agent's message) and any other documents
required by the Letter of Transmittal, must be received by the Company within
three business days of expiration of the tender offer.
Method of Delivery. The method of delivery of all documents, including
certificates for shares, the Letter of Transmittal and any other required
documents, is at the election and risk of the tendering shareholder. In all
cases, sufficient time should be allowed to assure timely delivery of documents.
If delivery is by mail, we recommend that you use registered mail and request a
return receipt.
The Company will set up a separate account at DTC for purposes of this
tender offer. Participants in DTC may make delivery of tendered shares by
causing DTC to transfer the shares into the Company's account. Even if shares
are delivered in this manner, DTC participants will need to complete and sign a
Letter of Transmittal and deliver it to the Company by the expiration date. DTC
participants can use an "agents message" as a substitute for a Letter of
Transmittal. An agents message is a message transmitted by DTC to the Company
which states that DTC has received an express acknowledgment from a DTC
participant tendering the shares that such participant has received the Letter
of Transmittal and agrees to be bound by its terms and that we may enforce that
agreement against the participant.
14
Tax Identification Information. Make sure you provide the Company with
your Tax Identification Number (TIN). For individuals the TIN is your Social
Security Number and for companies the TIN will be your Federal Employer
Identification Number. If you fail to do this, your sale proceeds from the
tender of your shares will be subject to 30% United States federal income tax
backup withholding. You should provide this information by completing the
substitute Form W-9 included in the Letter of Transmittal. If you are tendering
through your broker, bank or other nominee holder, there is a separate
substitute Form W-9 included for this purpose. Foreign shareholders must submit
a properly completed Form W-8, which may be obtained from the Company, in order
to prevent backup withholding. In general, backup withholding does not apply to
corporations or to foreign shareholders subject to 30%, or lower treaty rate,
withholding on gross payments received pursuant to the tender offer. Please
consult your own tax advisor regarding your qualification for exemption from
backup withholding and the procedure for obtaining any applicable exemption. In
addition, foreign shareholders are urged to consult their tax advisors regarding
the application of United States federal income tax withholding, including
eligibility for a reduction of, or an exemption from, withholding tax, and the
refund procedure.
REJECTION; DETERMINATION OF VALIDITY
We reserve the absolute right to reject any or all tenders of any
shares that we determine are not in proper form or are not eligible to
participate in this tender offer or the acceptance for payment of or payment for
which we determine may be unlawful. We also reserve the absolute right to waive
any defect or irregularity in any tender of shares, and our interpretation of
the terms of the tender offer will be final and binding on all parties. No
tender of shares will be deemed to have been properly made until all defects or
irregularities have been cured by the tendering shareholder or waived by us. All
questions as to the number of shares to be accepted and the validity, form,
eligibility (including time of receipt) and acceptance for payment of any tender
of shares will be determined by us, in our sole discretion, and our
determination will be final and binding on all parties. Neither we nor any other
person will be under any duty to give notification of any defects or
irregularities in any tender or will incur any liability for failure to give any
such notification.
REPRESENTATIONS OF TENDERING SHAREHOLDERS
A tender of shares by you will be treated as a representation by you
that (i) you are the beneficial owner of the shares, and (ii) you hold a net
long position in our common stock equal to the number of tendered shares. You
are also deemed to represent that you own the tendered shares free and clear of
any liens or other encumbrances and have the authority to sell the tendered
shares to us. It is a violation of federal securities laws for anyone to tender
shares unless, at the time of tender and at the expiration date (including any
extensions), the tendering person (1) has a net long position equal to or
greater than the number of shares tendered and (2) will deliver, or cause to be
delivered, the shares in accordance with the terms of the tender offer. You must
also agree to complete any additional documents that we request in order to
complete the sale of your shares to us.
LOST OR DESTROYED CERTIFICATES
If you have lost, misplaced or destroyed your certificates for all or
part of your shares, please call the Company at (618) 826-5038 for instructions
on submitting a lost share affidavit and a fee for a surety bond in lieu of
submitting the lost, misplaced or destroyed certificates.
15
NO DISSENTERS' RIGHTS
Whether or not you tender your shares, dissenters' rights are not
available in this tender offer.
ABSENCE OF SHAREHOLDER VOTE
The tender offer is not subject to shareholder vote.
WITHDRAWAL RIGHTS
You may withdraw shares you have tendered at any time before the
expiration date or any extension thereof. Shares may also be withdrawn if we
have not accepted the shares for payment by June 9, 2003 (40 business days
following commencement of the tender offer).
In order to effectively withdraw your tender, you will need to provide
the Company with a written or facsimile (confirmed by telephone) notice of
withdrawal. A notice of withdrawal must state (1) the name of the withdrawing
shareholder, (2) the total number of shares tendered and (3) the name in which
the shares are registered. If the certificates for the shares to be withdrawn
have been delivered to the Company (either physically or by deposit in its DTC
account), then you must also include the serial numbers for certificates in your
notice of withdrawal and your signature on the notice of withdrawal must be
guaranteed by an eligible guarantor institution, unless such shares have been
tendered for the account of an eligible guarantor institution.
All questions about the form and validity (including the time of
receipt) of any notice of withdrawal will be determined by us, in our sole
discretion, and our determination will be final and binding. Neither we nor
anyone else has any duty to give notification of any defects or irregularities
in any notice of withdrawal or be liable for failure to give any such
notification.
Withdrawals may not be rescinded, and any shares properly withdrawn
will thereafter be deemed not properly tendered for purposes of the tender offer
unless the withdrawn shares are properly re-tendered before the expiration date.
PURCHASE AND PAYMENT
Promptly following the expiration date, we will accept for payment and
pay for, and thereby purchase, shares properly tendered and not withdrawn before
the expiration date. When we accept your shares for payment, we will have
entered into a binding agreement with you on the terms and conditions described
in this Offer to Purchase. Under the Letter of Transmittal, you will waive any
right to be notified of our acceptance of your tender. We will pay for the
shares purchased by sending payment to the tendering shareholders. Under no
circumstances will we pay interest on the purchase price to be paid regardless
of any delay in making such payment.
We will pay all share transfer taxes, if any, payable on the transfer
to us of shares purchased under the tender offer. If, however, payment of the
purchase price is to be made to any person other than the record holder, or if
tendered certificates are registered in the name of any person other than the
person signing the Letter of Transmittal, the amount of all share transfer
taxes, if any (whether imposed on the record holder or the other person),
payable on account of the transfer to the person will be deducted from the
purchase price unless satisfactory evidence of the payment of the share transfer
taxes, or exemption therefrom, is submitted.
16
If you are a record shareholder and you tender your shares directly to
us, you will not incur any sales commissions or other charges. If you hold
shares or tender shares through a broker or bank, you should consult with the
broker or bank to determine whether transaction costs are applicable.
Certificates for all shares tendered and not purchased will be returned
to the tendering shareholder at our expense promptly after the expiration date
or termination of the tender offer.
SOURCE AND AMOUNT OF FUNDS
The total number of shares that may be sold by shareholders pursuant to
this tender offer is 100,000. Assuming all of these shareholders elect to
participate in the tender offer and the 100,000 shares tendered are purchased at
the offer price of $22.00 per share, the total cost to us of purchasing these
shares would be $2,200,000. This amount does not include our expenses associated
with the tender offer, which are estimated to be approximately $50,000, as set
forth below under "Fees and Expenses."
We intend to pay for all validly tendered shares, as well as for the
costs and expenses of this tender offer, with cash on hand and through dividends
from subsidiaries, if necessary.
FEES AND EXPENSES
We will be responsible for paying all expenses associated with the
tender offer. We estimate that our total expenses associated with the tender
offer will be $50,178, consisting of the following:
<Table>
Legal Fees $ 45,000
Accounting Fees 3,000
Printing and Mailing 2,000
SEC Filing Fee 178
----------
Total Estimated Expense $ 50,178
==========
</Table>
Tenders may also be solicited by directors, officers and employees of
the Company in person, by telephone or through other forms of communication, but
such persons will not receive any additional compensation for such solicitation.
The Company will not pay any fees or commissions to any broker, dealer
or other person for soliciting tenders of shares pursuant to the Offer to
Purchase. The Company will, upon request, reimburse brokers, dealers, commercial
banks and trust companies for reasonable and customary handling and mailing
expenses incurred by them in forwarding materials relating to the Offer to
Purchase to their customers.
INFORMATION ABOUT THE COMPANY
MARKET PRICE AND DIVIDEND INFORMATION
Our common stock is currently quoted by the Nasdaq SmallCap Market
under the symbol "CNBA." The table below shows the range of high and low sales
prices for our common stock in this market for each quarter during the past two
years and the most recent quarter. The table below also shows dividends per
share paid by us during this period. Our fiscal year end is December 31.
17
As of April 1, 2003, the closing price reported on the NASDAQ SmallCap
Market was $21.00 per share. As of Aril 1, 2003, we had 893,322 shares of common
stock outstanding and approximately 450 holders of record, as defined by Rule
12g5-1 under the Exchange Act. Our ability to pay dividends depends on the
ability of our subsidiaries to pay dividends to us. Under federal and state
banking regulations, the subsidiary banks may not pay dividends on their capital
stock if regulatory capital would thereby be reduced below applicable minimum
capital requirements. In addition, the subsidiary banks are required to give
prior notice to the banking regulators of any proposed declaration of dividends
to us.
The following table sets forth the high and low closing prices as
reported by Nasdaq SmallCap Market and dividends paid per share of common stock
for the period indicated.
<Table>
<Caption>
Dividends
Quarter ended High Low paid
- ------------------------ ---------- ---------- ----------
March 31, 2001 $ 17.500 $ 16.620 $ .12
June 30, 2001 $ 17.500 $ 16.500 $ .13
September 30, 2001 $ 22.000 $ 16.500 $ .14
December 31, 2001 $ 20.000 $ 17.250 $ .14
March 31, 2002 $ 19.750 $ 18.550 $ .15
June 30, 2002 $ 22.490 $ 19.000 $ .15
September 30, 2002 $ 22.650 $ 20.000 $ .17
December 31, 2002 $ 24.000 $ 20.250 $ .17
March 31, 2003 $ 23.750 $ 20.000 $ .18
</Table>
Payment of dividends on the common stock is subject to determination
and declaration by the Board of Directors and will depend upon a number of
factors, including capital requirements, regulatory limitations on the payment
of dividends, Chester Bancorp's results of operations and financial condition,
tax considerations, and general economic conditions. No assurance can be given
that dividends will be declared or, if declared, what the amount of dividends
will be, or whether such dividends will continue.
RECENT STOCK REPURCHASES
The Company has conducted various private and open-market stock
repurchases during the past two years. The following table sets forth the date,
price, and number of shares for such purchases.
<Table>
<Caption>
TRADE NUMBER
DATE OF SHARES PRICE
- -------------- ---------- ----------
4/23/01 3,700 16.7500
5/11/01 1,700 16.6250
5/24/01 1,000 16.7500
6/12/01 5,400 17.0000
6/15/01 2,000 17.0600
7/10/01 273,206 17.9003
7/10/01 10 17.7500
8/16/01 1,300 17.7500
9/17/01 6,600 17.9000
</Table>
18
<Table>
9/21/01 8,000 17.8200
10/16/01 2,600 17.9000
4/11/02 742 18.8500
7/10/02 93,200 20.0000
8/5/02 1,100 20.2500
2/13/03 1,745 20.0000
2/13/03 10,911 20.000
2/21/03 800 21.1600
2/21/03 100 21.4200
</Table>
In addition, on February 21, 2003, Michael W. Welge, the Chairman,
President and Chief Financial Officer and a Director of the Company purchased
200 shares of common stock at a price of $21.14 per share and 200 shares of
common stock at a price of $20.97 per share.
MANAGEMENT INFORMATION
Following is a list of our directors and executive officers, together
with their ages and principal occupations. Unless otherwise indicated, all
persons listed below have held the positions described as principal occupation
for at least five years. Each director and executive officer is a citizen of the
United States. No director or executive officer has been convicted in a criminal
proceeding during the past five years, nor has any director or executive officer
been a party to any judicial or administrative proceeding during the past five
years that resulted in a judgment, decree or final order enjoining such 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.
Michael W. Welge, 62, is Chairman of the Board of Directors, President
and Chief Financial Officer. He has responsibility for various management
functions, including financial management and investment portfolio management,
determination of all employee compensation and employment decisions. Mr. Welge
has been employed for the past 41 years at Gilster-Mary Lee Corporation where he
currently serves as its Executive Vice President, Secretary and Treasurer. He
has been active in civic affairs as a past President of both the Chester Chamber
of Commerce and the Chester School Board, an Alderman of the City Council of
Chester for 20 years and the President and a director of several local
corporations and clubs.
Edward K. Collins, 58, is Secretary, Treasurer and Chief Executive
Officer of the Corporation and has been Chief Executive Officer of Chester
National Bank since January 1995. He is responsible for Chester National Bank's
supervisions and performance of operations and lending. Prior to his employment
at Chester National Bank, Mr. Collins was Executive Vice President and Senior
Loan Officer of Union Bank of Illinois from August 1991 to December 1994 and was
President, Chief Executive Officer and a Director of First National Bank &
Trust, Syracuse, Nebraska, from August 1988 to August 1991. Mr. Collins is a
member of the Board of Directors of the Chester Chamber of Commerce.
Carl H. Welge, 59, has been employed for 13 years at Gilster-Mary Lee
Corporation and currently serves as Accounts Receivable Supervisor. He is a
member of the Memorial Hospital Board of Directors and a member of the Friends
of Chester Public Library.
19
John R. Beck, M.D., 68, is a self-employed physician. He is a member of
the Hospital staff of Memorial Hospital, Chester, Illinois, and a director of
Home Health Care.
James C. McDonald, 73, retired after being employed for over 40 years
at the U.S. Postal Service. He is a Trustee of the Presbyterian Church, Sparta,
Illinois, and is a member of the Sparta Building Commission and the Sparta
Senior Citizen Board.
Thomas E. Welch, Jr.,63, was employed as an officer of Chester National
Bank since 1990 when Heritage Federal was acquired by Chester National Bank. Mr.
Welch retired from employment as the Senior Vice President and Compliance
Officer for Chester National Bank and manager of the Sparta branch in March of
2000.
BENEFICIAL OWNERSHIP OF OUR COMMON STOCK
The following table sets forth the beneficial ownership of our common
stock by each of our directors and executive officers, by all executive officers
and directors as a group and by each person known to our management to be the
beneficial owner of more than 5% of our common stock. Unless otherwise noted,
the named shareholders have sole investment and voting power with respect to all
shares listed, as of December 31, 2002.
<Table>
<Caption>
Name and Address of Amount and Nature of Percent of
Beneficial Owner* Beneficial Ownership(1)(2) Class
- -------------------------------------- ---------------------------- ----------
Chester National Bank Employee Stock 171,294(3) 19.11%
Ownership Plan and Trust
Michael W. Welge 199,128(3)(4) 21.04
John R. Beck, M.D. 61,359 6.76%
James C. McDonald 29,553 3.26%
Thomas E. Welch, Jr. 15,389(3) 1.72%
Carl H. Welge 17,031 1.88%
Edward K. Collins 76,717(3) 8.10%
All Executive Officers and Directors 399,177 38.78%
as a Group (6 persons)
</Table>
* All business addresses are 1112 State Street, Chester, Illinois 62233.
(1) In accordance with Rule 13d-3 under the Exchange Act, a person is deemed to
be the beneficial owner, for purposes of this table, of any shares of Common
Stock if he or she has voting or investment power with respect to such security.
The table includes shares owned by spouses, other immediate
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family members in trust, shares held in retirement accounts or funds for the
benefit of the named individuals, and other forms of ownership, over which
shares the persons named in the table may possess voting and/or investment
power.
(2) Includes the following shares which are not presently owned but could be
acquired by such persons within 60 days after December 31, 2002, upon exercise
of employee stock options or director non-qualified stock options: 50,007 shares
for each of Mr. M. Welge and Mr. Collins; and 10,911 shares for each of Messrs.
Beck, McDonald and C. Welge.
(3) Shares held in accounts under the Corporation's ESOP, as to which the
holders have voting power but not investment power, are included as follows: Mr.
Collins, 5,482 shares, Mr. M. Welge, 3,015 shares, and Mr. Welch, 1,597 shares.
(4) Includes 93,221 shares over which Mr. M. Welge has sole voting and
investment power, 52,885 shares over which Mr. M. Welge has shared investment
and voting power, options to acquire 50,007 shares and 3,015 shares held in the
ESOP.
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SUMMARY FINANCIAL INFORMATION
The following tables set forth certain summary historical consolidated
financial information for the Company and its subsidiaries. The historical
financial information for the fiscal years 2001 and 2002 has been derived from,
and should be read in conjunction with, the audited consolidated financial
statements of the Company and its subsidiaries as reported in our annual report
on Form 10-K for the fiscal year ended December 31, 2002. The summary financial
information should be read in conjunction with, and is qualified in its entirety
by a reference to, the audited financial statements and the related notes
thereto from which it has been derived. Copies of the reports may be inspected
or obtained from the SEC in the manner specified below under "Where You Can Find
More Information."
CHESTER BANCORP, INC. AND SUBSIDIARIES
SUMMARY CONSOLIDATED STATEMENTS OF OPERATIONS
<Table>
<Caption>
Years Ended December 31, 2002 and
2001 (in thousands) 2002 2001
- ---------------------------------- ---------- ----------
Total interest income $ 5,456 $ 7,342
Total interest expense 2,465 4,014
Net interest income 2,991 3,328
Provision for loan losses -- --
Total noninterest income 378 386
Total noninterest expense 2,158 2,305
Total income tax expense 206 393
Net income 1,005 1,016
Basic earnings per common share 1.26 1.00
Diluted earnings per common share 1.16 0.97
Stockholders' equity per share 15.29 15.28
(book value per share)
Ratio of earnings to fixed charges 1.49 1.35
</Table>
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CHESTER BANCORP, INC. AND SUBSIDIARIES
SUMMARY CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<Table>
<Caption>
December 31, 2002 and 2001
(in thousands) 2002 2001
- ---------------------------------------------- ---------- ----------
ASSETS
Total cash and cash equivalents $ 29,950 $ 21,018
Total investment securities 38,804 36,205
Loans (net of allowance for loan losses) 36,209 41,688
Less: Allowance for loan losses 575 591
Net loans 35,634 41,097
Premises and equipment, net 1,405 1,528
Other assets 557 479
Total assets $ 113,849 $ 111,761
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Total deposits $ 94,847 $ 91,414
Federal Home Loan Bank advances 5,000 5,000
Other borrowings and liabilities 291 400
Total liabilities 100,139 96,813
Total stockholders' equity 13,710 14,948
Total liabilities and stockholders' equity $ 113,849 $ 111,761
========== ==========
</Table>
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Exchange Act
and in accordance with that act we file reports, proxy statements and other
information with the SEC relating to our business, financial condition and other
matters. Certain information as of particular dates concerning our directors and
officers, their remuneration, options granted to them, the principal holders of
our securities and any material interest of these persons in transactions with
us is filed with the SEC. We have also filed a Transaction Statement on Schedule
13E-3 with the SEC, which includes certain additional information relating to
the tender offer. These reports, as well as the other material, may be inspected
and copies may be obtained at the SEC's public reference facilities at 450 Fifth
Street, N.W., Washington, D.C. Copies of this material may be obtained by mail,
upon payment of the SEC's customary fees, from the SEC's Public Reference
Section at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC
at 1-(800)-SEC-0330 for further information on the public reference room.
23
Our SEC filings are also available to the public from commercial document
retrieval services and at the website maintained by the SEC at "www.sec.gov."
No provision will be made by us in connection with the tender offer to
grant shareholders access to our corporate files or to obtain counsel or
appraisal services at our expense.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" information into this
Offer to Purchase, which means that we can disclose important information to you
by referring you to another document filed by the Company with the SEC under the
Exchange Act. The information incorporated by reference is deemed to be part of
this Offer to Purchase, except for any information superseded by information in
this Offer to Purchase. The Company has filed its annual report on Form 10-K for
the year ended December 31, 2002 with the SEC (File No. 000-21167), and this
report is incorporated by reference into this Offer to Purchase.
Questions concerning this tender offer or the tender procedures and
requests for assistance may be directed to us at the telephone number listed
below. Additional copies of this Offer to Purchase, the Letter of Transmittal or
any other tender offer materials may be obtained from us. You may also contact
your broker, dealer, bank, trust company or other nominee for assistance
concerning the tender offer. The Letter of Transmittal, certificates for shares
and any other required documents should be sent or delivered by the shareholder
or the shareholder's broker, dealer, bank, trust company or other nominee to us
at the address listed below.
CHESTER BANCORP, INC.
1112 STATE STREET
P.O. BOX 327
CHESTER, IL 62233
(618) 826-5038
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