SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange
Act of 1934
(Amendment No. ______)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
COMMUNITY FINANCIAL CORP.
(Name of Registrant as Specified in Its Charter)
(Name of Person Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
1) Title of each class of securities to which transaction applies:
COMMON STOCK, $0.01 PAR VALUE
2) Aggregate number of securities to which transaction applies:
2,147,470
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
$15.04 CASH PER SHARE, WHICH IS THE ESTIMATED AMOUNT OF PER
SHARE MERGER CONSIDERATION TO BE PAID IN THE TRANSACTION.
4) Proposed maximum aggregate value of transaction: $32,297,949
5) Total fee paid: $6,460
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
PRELIMINARY PROXY MATERIALS
[Community Financial Corp. letterhead]
________________, 2001
Dear Shareholder:
You are cordially invited to attend a Special Meeting of
Shareholders of Community Financial Corp. (the "Company") to be held at 501
East Main Street, Olney, Illinois 62450-2295, on __________, ___________,
2001 at 2:00 p.m., local time, to consider and vote upon a proposal to
approve an Agreement of Affiliation and Merger, dated as of March 30, 2001,
as amended by that certain Amendment No. 1 to Agreement of Affiliation and
Merger, dated as of March 30, 2001 (as amended, the "Agreement"), pursuant
to which the Company will be acquired by First Financial Corporation, an
Indiana corporation registered as a bank holding company under the Bank
Holding Company Act of 1956, as amended ("First Financial"), by means of a
merger of FFC Merger Corp, an Indiana corporation and wholly owned
subsidiary of First Financial, with and into the Company, which will result
in the Company becoming a wholly-owned subsidiary of First Financial. Upon
the closing of the merger, (a) each share of the Company's common stock
issued and outstanding at the effective time of the merger (other than
shares as to which dissenters' rights of appraisal are perfected under
applicable law) will be converted into the right to receive a cash payment
based upon a formula contained in the Agreement, currently estimated to be
$15.04 per share (the "Merger Consideration"), and (b) each option to
acquire common stock with an exercise price less than the Merger
Consideration will be converted into the right to receive the difference
between the Merger Consideration and the exercise price of the option
multiplied by the number of shares covered by the option, under such terms
and conditions as are described in detail in the enclosed Proxy Statement.
As a result of the merger, you will no longer own any shares of common stock
of the Company or any successor to the Company. The Agreement of Affiliation
and Merger and Amendment No. 1 to Agreement of Affiliation and Merger are
attached as Annex A and Annex B, respectively, to the enclosed Proxy
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Statement.
THE BOARD OF DIRECTORS OF THE COMPANY CAREFULLY CONSIDERED AND
UNANIMOUSLY APPROVED THE AGREEMENT AS BEING IN THE BEST INTEREST OF THE
COMPANY AND ITS SHAREHOLDERS. THE BOARD OF DIRECTORS OF THE COMPANY
UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE PROPOSAL TO APPROVE THE
AGREEMENT. AN ABSTENTION OR FAILURE TO VOTE IS THE EQUIVALENT OF VOTING
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AGAINST THE PROPOSED ACQUISITION.
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Your vote is important, regardless of the number of shares you own.
ON BEHALF OF THE BOARD OF DIRECTORS, WE URGE YOU TO SIGN, DATE AND RETURN
THE ENCLOSED PROXY CARD AS SOON AS POSSIBLE, EVEN IF YOU CURRENTLY PLAN TO
ATTEND THE SPECIAL MEETING. This will NOT prevent you from voting in person,
but will assure that your vote is counted if you are unable to attend the
Special Meeting.
The investment banking firm Professional Bank Services, Inc. has
issued its written opinion, dated as of the date hereof, to the Board of
Directors regarding the fairness of the proposed merger from a financial
perspective. A copy of the opinion is attached as Annex C to the enclosed
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Proxy Statement.
Sincerely,
Wayne H. Benson
President
** PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME **
PRELIMINARY PROXY MATERIALS
APPROVAL OF THE AGREEMENT BY THE HOLDERS OF AT LEAST TWO-THIRDS OF
THE OUTSTANDING SHARES OF THE COMPANY'S COMMON STOCK IS A CONDITION TO THE
CONSUMMATION OF THE PROPOSED MERGER. ACCORDINGLY, IT IS IMPORTANT THAT YOUR
SHARES BE REPRESENTED AT THE SPECIAL MEETING, WHETHER OR NOT YOU ATTEND THE
SPECIAL MEETING IN PERSON. WHETHER OR NOT YOU INTEND TO ATTEND THE SPECIAL
MEETING, PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS
POSSIBLE. IF YOU LATER DECIDE TO ATTEND THE SPECIAL MEETING AND VOTE IN
PERSON, OR IF YOU WISH TO REVOKE YOUR PROXY FOR ANY REASON PRIOR TO THE VOTE
AT THE SPECIAL MEETING, YOU MAY DO SO AND YOUR PROXY WILL HAVE NO FURTHER
EFFECT.
PRELIMINARY PROXY MATERIALS
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COMMUNITY FINANCIAL CORP.
240 E. CHESTNUT STREET
OLNEY, ILLINOIS 62450-2295
(618) 395-8676
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON __________, 2001
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NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the
"Special Meeting") of Community Financial Corp. (the "Company") will be held
at 501 East Main Street, Olney, Illinois 62450-2295, on ____________,
__________, 2001 at 2:00 p.m., local time, for the purpose of considering
and acting upon the following proposals:
1. The approval of an Agreement of Affiliation and Merger, dated as of
March 30, 2001, as amended by that certain Amendment No. 1 to Agreement
of Affiliation and Merger, dated as of March 30, 2001 (as amended, the
"Agreement"), by and among First Financial Corporation, an Indiana
corporation registered as a bank holding company under the Bank Holding
Company Act of 1956, as amended ("First Financial"), FFC Merger Corp,
an Indiana corporation and wholly owned subsidiary of First Financial,
and the Company, pursuant to which: (a) the Company will be acquired
by First Financial by means of a merger of FFC Merger Corp with and
into the Company with the Company as the surviving corporation (the
"Merger"); (b) each share of the Company's common stock, $0.01 par
value per share (the "Common Stock"), issued and outstanding at the
effective time of the Merger (other than shares with respect to which
dissenters' rights of appraisal are perfected under applicable law)
will be converted into the right to receive a cash payment based upon
a formula contained in the Agreement, currently estimated to be
$15.04 (the "Merger Consideration"); and (c) each option to acquire
Common Stock with an exercise price less than the Merger Consideration
will be converted into the right to receive the difference between the
Merger Consideration and the exercise price of the option multiplied
by the number of shares covered by the option, under such terms and
conditions as are described in detail in the enclosed Proxy Statement.
The Agreement of Affiliation and Merger and Amendment No. 1 to
Agreement of Affiliation and Merger are attached as Annex A and
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Annex B, respectively, to the enclosed Proxy Statement.
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2. The transaction of such other matters as may properly come before
the Special Meeting or any adjournment or postponement thereof.
Enclosed are the following items relating to the Special Meeting
and the Merger: (1) Proxy Statement; (2) proxy card; and (3) a pre-addressed
return envelope for the proxy card.
Any action may be taken on any of the foregoing proposals at the
Special Meeting on the date specified above or on any date or dates to
which, by original or later adjournment, the Special Meeting may be
adjourned. The Board of Directors has fixed the close of business on
_________, 2001 as the record date for determination of the shareholders
entitled to notice of and to vote at the Special Meeting or any adjournments
thereof.
Pursuant to Sections 11.65 and 11.70 of the Illinois Business
Corporation Act of 1983, as amended, each holder of the Company's Common
Stock will have the right to dissent from the Merger and to demand a
determination of the fair value of such shareholder's shares in the event
the Agreement is approved and the Merger consummated. For a summary of such
dissenters' rights and the procedures required to perfect such dissenters'
rights, see "Terms of the Proposed Merger -- Dissenters' Rights" in the
enclosed Proxy Statement.
PRELIMINARY PROXY MATERIALS
You are requested to complete and sign the enclosed proxy card
which is solicited by the Board of Directors and to mail it promptly in the
enclosed envelope. The proxy may be revoked at any time prior to the vote at
the Special Meeting by following the procedures set forth in the enclosed
Proxy Statement. Failure to return the enclosed proxy card or to vote at the
Special Meeting will have the same effect as a vote against the Merger.
By order of the Board of Directors
Olney, Illinois
__________, 2001
PRELIMINARY PROXY MATERIALS
COMMUNITY FINANCIAL CORP.
240 E. CHESTNUT STREET
OLNEY, ILLINOIS 62450-2295
(618) 395-8676
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PROXY STATEMENT
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SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON __________, 2001
INTRODUCTION
This Proxy Statement is furnished in connection with the
solicitation of proxies by the Board of Directors of Community Financial
Corp. (the "Company") to be used at a Special Meeting of Shareholders (the
"Special Meeting") to be held at 501 East Main Street, Olney, Illinois
62450-2295, on __________, __________, 2001 at 2:00 p.m., local time, and at
any adjournment or postponement thereof. At the Special Meeting,
shareholders will be asked to consider and vote upon a proposal to approve
an Agreement of Affiliation and Merger, dated as of March 30, 2001, as
amended by that certain Amendment No. 1 to Agreement of Affiliation and
Merger, dated as of March 30, 2001 (as amended, the "Agreement"), pursuant
to which the Company will be acquired by First Financial Corporation, an
Indiana corporation registered under the Bank Holding Company Act of 1956,
as amended (the "BHCA") ("First Financial"), by means of a merger of FFC
Merger Corp, an Indiana corporation and wholly owned subsidiary of First
Financial ("Merger Corp"), with and into the Company, with the Company as
the surviving corporation (the "Merger"). The Agreement of Affiliation and
Merger and Amendment No. 1 to Agreement of Affiliation and Merger are
attached as Annex A and Annex B, respectively, to the enclosed Proxy
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Statement.
The Agreement provides that, at the effective time of the Merger
(the "Effective Time"), each share of the Company's common stock, $0.01 par
value per share (the "Common Stock"), outstanding immediately prior to the
Effective Time (other than shares the holders of which have perfected
dissenters' rights of appraisal ("Dissenting Shares")) will be cancelled and
converted into the right to receive a cash payment from First Financial
based upon a formula contained in the Agreement, currently estimated to be
$15.04 per share (the "Merger Consideration"). In addition, at the Effective
Time, all outstanding options of the Company which have an exercise price
less than the Merger Consideration as of the Effective Time (the "Options")
will be cancelled and converted into the right to receive the difference
between the Merger Consideration and the exercise price of the Option
multiplied by the number of shares of Common Stock covered by such Option
(the "Option Consideration"). Outstanding options of the Company which have
an exercise price greater than the Merger Consideration will be terminated
or will have expired on or prior to the Effective Time. As a result of the
Merger, shareholders of the Company will no longer hold any shares of Common
Stock of the Company or any successor to the Company.
Only shareholders of record as of the close of business on
__________, 2001 (the "Record Date") are entitled to notice of and to vote
at the Special Meeting. The accompanying Notice of Special Meeting and this
Proxy Statement, together with the enclosed proxy card, are being mailed to
shareholders of record on or about August 21, 2001.
The last sale price for the Common Stock as reported on the Nasdaq
National Market on March 29, 2001, the last business day prior to the
announcement of the signing of the Agreement, was $11.75 per share. The last
reported sale price of the Common Stock on __________, 2001, the latest
practicable date prior to the mailing of this Proxy Statement, was $____ per
share.
THE BOARD OF DIRECTORS BELIEVES THE MERGER IS IN THE BEST INTERESTS
OF THE COMPANY'S SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE
AGREEMENT.
PRELIMINARY PROXY MATERIALS
ALL INFORMATION CONTAINED IN THIS PROXY STATEMENT WITH RESPECT TO
FIRST FINANCIAL AND ITS SUBSIDIARIES AND MERGER CORP HAS BEEN SUPPLIED BY
FIRST FINANCIAL, AND ALL INFORMATION WITH RESPECT TO THE COMPANY AND ITS
SUBSIDIARY HAS BEEN SUPPLIED BY THE COMPANY.
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IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE COMPANY THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES IN ORDER TO ENSURE A QUORUM. AN ADDRESSED
ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED
IN THE UNITED STATES.
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** PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME **
SHAREHOLDERS WILL BE GIVEN DETAILED INSTRUCTIONS FOR
SURRENDERING THEIR STOCK CERTIFICATES AS SOON
AS PRACTICABLE AFTER THE MERGER BECOMES EFFECTIVE.
PRELIMINARY PROXY MATERIALS 2
QUESTIONS AND ANSWERS ABOUT THE MERGER
The following questions and answers highlight the most important
aspects of the merger, but do not cover all of the information in this proxy
statement. You should read this entire proxy statement carefully.
Q: WHAT WILL HAPPEN IN THE MERGER?
A: A wholly owned subsidiary of First Financial will merge with and into
the company. The company will continue as the surviving corporation
and will be a wholly owned subsidiary of First Financial. See "Terms
of the Proposed Merger -- Description of the Merger."
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: If you do not exercise your dissenters' rights, you will receive a
cash payment from First Financial for each share of common stock that
you own immediately prior to the merger. The cash payment is based
upon a formula contained in the merger agreement and is currently
estimated to be $15.04 per share. In addition, each option that you
own with an exercise price less than the per share merger
consideration will be cancelled and you will receive, for each
option, the difference between the per share merger consideration
and the exercise price of the option for each share of common stock
covered by the option. As a result of the merger, you will not
own any shares of common stock or options of the company or any
successor to the company. See "Terms of the Proposed Merger --
Description of the Merger."
Q: WHY IS THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDING THAT I
VOTE TO APPROVE THE MERGER AGREEMENT?
A: The board of directors believes that the merger is in the best
interests of the company and its shareholders. To review the
background of and reasons for the merger in greater detail, see
"Terms of the Proposed Merger -- Background of the Merger" and "Terms
of the Proposed Merger -- Recommendation of the Board of Directors;
Reasons for the Merger."
Q: WHAT ARE THE ADVANTAGES AND DISADVANTAGES OF THE MERGER TO ME?
A: You will receive an immediate cash payment for your shares of
common stock. That cash payment will be taxable to you. You will
not have the opportunity to participate in the company's future
earnings and growth, but you will not bear the risk of any decrease
in the company's stock price.
Q: IS THE MERGER CERTAIN TO OCCUR IF APPROVED BY THE SHAREHOLDERS OF
THE COMPANY?
A: In addition to obtaining shareholder approval and satisfying other
conditions set forth in the merger agreement, the company and First
Financial must receive approval of the merger from the Board of
Governors of the Federal Reserve System. See "Terms of the Proposed
Merger -- Conditions to the Merger."
Q: WHEN AND WHERE IS THE SPECIAL MEETING?
A: The special meeting will be held on __________, __________, 2001 at
2:00 p.m., local time, at 501 East Main Street, Olney, Illinois
62450-2295. See "Meeting Information."
PRELIMINARY PROXY MATERIALS 3
Q: WHO CAN VOTE AT THE SPECIAL MEETING?
A: You may vote at the special meeting if you own shares of common stock
of the company at the close of business on ________, 2001.
Q: HOW MANY VOTES ARE REQUIRED TO APPROVE THE MERGER AGREEMENT?
A: Approval of the merger agreement requires the affirmative vote of the
holders of at least two-thirds of the outstanding shares of common
stock. See "Terms of the Proposed Merger -- Vote Required."
Q: WHAT RIGHTS DO I HAVE IF I OPPOSE THE MERGER?
A: Under Illinois law, you are entitled to dissenters' rights. If you
do not vote in favor of the merger and you properly elect to
exercise your dissenters' rights as described under "Terms of the
Proposed Merger -- Dissenters' Rights," you may receive the "fair
value" of your shares of common stock. The fair value could be
equal to, less than or more than the per share merger
consideration.
Q: WHAT DO I NEED TO DO NOW IF I WANT TO APPROVE THE MERGER?
A: Please complete and sign the enclosed proxy card and mail it in the
enclosed envelope as soon as possible so that your shares will be
represented at the special meeting.
Q: WHAT DO I DO IF I WANT TO CHANGE MY VOTE?
A: Send in a later-dated, signed proxy card to the secretary of the
company before the special meeting or attend the special meeting in
person, revoke your proxy and vote your shares. See "Meeting
Information."
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the merger is completed, we will mail you written
instructions explaining how to obtain the merger consideration and
the option consideration. Please do not send in your stock
certificates with your proxy. See "Terms of the Proposed Merger --
Exchange of Stock Certificates and Settlement of Options."
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you have any questions about the matters addressed in this proxy
statement or if you need additional copies of this proxy statement,
you should contact:
Community Financial Corp.
240 E. Chestnut Street
Olney, Illinois 62450-2295
Attention: Deb Keller
Telephone: (618) 395-8676
PRELIMINARY PROXY MATERIALS 4
TABLE OF CONTENTS
SUMMARY.................................................6
SELECTED CONSOLIDATED FINANCIAL DATA...................12
MEETING INFORMATION....................................14
Date, Time and Place.............................14
Voting Rights....................................14
Solicitation of Proxies..........................14
TERMS OF THE PROPOSED MERGER...........................15
General..........................................15
Background of the Merger.........................15
Description of the Merger........................16
Vote Required....................................17
Recommendation of the Board of Directors;
Reasons for the Merger........................ 17
Opinion of Financial Advisor.....................18
ESOP Trustee.....................................22
ESOP Fairness Opinion............................22
Conditions to the Merger.........................23
Interests of Certain Persons in the Merger.......24
Effect on Employees and Certain Employee
Benefit Plans..................................25
Exchange of Stock Certificates and Settlement
of Options.....................................25
Dissenters' Rights...............................26
Effective Time...................................27
Material Federal Income Tax Consequences.........27
No Solicitation..................................28
Conduct of Business Pending the Merger...........28
Representations and Warranties...................30
Termination of the Agreement.....................31
Waiver and Amendment.............................32
Expenses.........................................32
Accounting Treatment.............................32
Regulatory Approvals.............................32
COMMUNITY FINANCIAL CORP...............................33
General..........................................33
Market Areas.....................................33
Competition......................................34
Employees........................................34
FIRST FINANCIAL CORPORATION............................34
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS..................35
General..........................................35
Forward-Looking Statements.......................35
Comparison of Financial Condition at March 31,
2001 and December 31, 2000.....................35
Comparison of Operating Results for the Three
Months Ended March 31, 2001 and 2000...........36
Comparison of Financial Condition at December
31, 2000 and 1999..............................37
Comparison of Operating Results for the Years
Ended December 31, 2000 and 1999...............38
Liquidity and Capital Resources..................40
STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL
OWNERS...............................................41
SHAREHOLDER PROPOSALS..................................42
ANNEXES
Annex A - Agreement of Affiliation
and Merger.....................................A-1
Annex B - Amendment No. 1 to
Agreement of Affiliation and Merger............B-1
Annex C - Opinion of Professional
Bank Services, Inc.............................C-1
Annex D - Opinion of Lakeshore Valuation
Group, L.L.C...................................D-1
Annex E - Dissenters' Rights Statute.............E-1
PRELIMINARY PROXY MATERIALS 5
SUMMARY
The following is a brief summary of certain information regarding
the proposed Merger and related information contained elsewhere in this
Proxy Statement. This summary does not purport to be complete and is
qualified in its entirety by reference to the more detailed information
contained elsewhere in this Proxy Statement and in the annexes to this Proxy
Statement. Each shareholder is urged to read this Proxy Statement and the
annexes to this Proxy Statement in their entirety before casting his or her
vote.
DESCRIPTION OF THE MERGER
The Agreement provides for the acquisition of the Company by First
Financial by means of the Merger. Following the closing of the Merger,
shareholders of the Company will receive, for each share of Common Stock
that they owned immediately prior to the Merger, a cash payment from First
Financial based upon a formula contained in the Agreement, currently
estimated to be $15.04 per share. The Merger Consideration is based upon a
formula set forth in the Agreement and described under "Terms of the
Proposed Merger -- Description of the Merger." In addition, each Option with
an exercise price less than the Merger Consideration as of the Effective
Time will be cancelled and the holders of the Options will receive, for each
Option, the difference between the Merger Consideration and the exercise
price of the Option for each share of Common Stock covered by such Option.
Outstanding options of the Company which have an exercise price greater than
the Merger Consideration will be terminated or will have expired on or prior
to the Effective Time. Following the Merger, shareholders of the Company
will no longer own any shares of Common Stock of the Company or any
successor to the Company. As a result of the Merger, the Company will become
a wholly owned subsidiary of First Financial. Community Bank and Trust, N.A.
("CB&T") will remain a wholly owned subsidiary of the Company. The Agreement
has been approved and adopted by the Board of Directors of the Company,
First Financial and Merger Corp. See "Terms of the Proposed Merger --
Description of the Merger."
The Merger Consideration and Option Consideration were determined
in arms'-length negotiations between the Company and First Financial. For a
general discussion of these negotiations and the factors considered by the
Board of Directors of the Company in evaluating the Merger, see "Terms of
the Proposed Merger -- Background of the Merger" and "Terms of the Proposed
Merger -- Recommendation of the Board of Directors; Reasons for the Merger."
INFORMATION RELATING TO THE SPECIAL MEETING
The Special Meeting of Shareholders will be held on __________,
__________, 2001 at 2:00 p.m., local time, at 501 East Main Street, Olney,
Illinois 62450-2295. At the Special Meeting, shareholders will be asked to
consider and vote upon a proposal to approve the Agreement pursuant to which
the Company will be acquired by First Financial by means of the Merger. Only
shareholders of record as of the close of business on __________, 2001 (the
"Record Date") are entitled to receive notice of and to vote at the Special
Meeting. See "Meeting Information."
VOTE REQUIRED
Approval of the Agreement requires the affirmative vote of the
holders of at least two-thirds of the outstanding shares of Common Stock.
Each shareholder is entitled to one vote per share of Common Stock held as
of the Record Date. As of the Record Date, the Company had 2,147,470 shares
of Common Stock issued and outstanding held of record by approximately ____
shareholders.
RECOMMENDATION OF THE BOARD OF DIRECTORS; REASONS FOR THE MERGER
The Board of Directors of the Company has unanimously approved the
Agreement and determined that the Merger is in the best interests of the
Company and its shareholders. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
THAT SHAREHOLDERS VOTE "FOR" THE PROPOSAL TO APPROVE THE AGREEMENT. In
determining that
PRELIMINARY PROXY MATERIALS 6
the Merger is in the best interests of the Company's shareholders, the Board
of Directors considered the following factors:
o The value being offered to the Company's shareholders by First
Financial in relation to the market value, book value and
earnings per share of the Common Stock during a period prior
to announcement of the Merger;
o The future business prospects for the Company;
o The financial terms of other recent comparable business
combinations;
o The solicitation and negotiation process preceding the
Agreement;
o The value of the consideration to be received by the
shareholders in relation to anticipated returns to
shareholders through continued operation as an independent
entity; and
o An opinion from the Company's financial advisor that the
terms of the Merger are fair to the Company's shareholders
from a financial point of view.
See "Terms of the Proposed Merger -- Recommendation of the Board of
Directors; Reasons for the Merger."
OPINION OF FINANCIAL ADVISOR
The Board of Directors retained Professional Bank Services, Inc.
("PBS") to render financial advisory services to the Company. The Board of
Directors requested that PBS render its opinion with respect to the
fairness, from a financial perspective, to the Company's shareholders of the
consideration to be received in the Merger. PBS rendered its oral opinion to
the Board of Directors on March 26, 2001. In its opinion, PBS concluded
that, from a financial perspective, the consideration to be offered in the
Merger was fair to the shareholders of the Company. A written opinion has
been delivered as of the date of this Proxy Statement. The written opinion
sets forth a description of the assumptions made and matters considered by
PBS and contains certain limitations and qualifications. A copy of the
written opinion is attached as Annex C to this Proxy Statement, and the
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description in this Proxy Statement is qualified in its entirety by
reference to the attached opinion. For additional information, see "Terms of
the Proposed Merger -- Opinion of Financial Advisor" and the opinion
attached hereto as Annex C.
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ESOP TRUSTEE
The Agreement requires the Company to appoint an independent
special trustee for the Employee Stock Ownership Plan of the Company (the
"ESOP") to act as a fiduciary on behalf of the participants in the ESOP.
Among other things, the Agreement provides that the independent special
trustee shall implement a procedure for soliciting instructions from
participants in the ESOP with respect to how to vote the shares of Common
Stock allocated to their ESOP accounts.
On June 21, 2001, the Company entered into a Trustee Agreement with
First Bankers Trust Company, N.A. ("First Bankers"), whereby First Bankers
became the independent special trustee of the ESOP. For its services to the
ESOP in connection with this transaction, First Bankers will receive a fee
of $35,000 plus additional service fees for solicitation of voting
instructions from participants in the ESOP, and will be reimbursed for its
reasonable out-of-pocket expenses, including the fees of its legal counsel.
The fees and expenses of First Bankers are payable by the Company and are
not contingent upon the closing of the Merger.
See "Terms of the Proposed Merger -- ESOP Trustee."
PRELIMINARY PROXY MATERIALS 7
ESOP FAIRNESS OPINION
First Bankers has retained an independent financial advisor,
Lakeshore Valuation Group, L.L.C. ("Lakeshore"), to render an opinion as to
whether (a) the purchase price to be paid for the shares of the Common Stock
owned by the ESOP is at least equal to fair market value as of the close of
the transaction and (b) the terms and conditions of the Merger are fair to
the ESOP and the ESOP participants from a financial point of view. Lakeshore
rendered its opinion to First Bankers as of the date of this Proxy
Statement. The written opinion sets forth a description of the assumptions
made and matters considered by Lakeshore and contains certain limitations
and qualifications. A copy of the written opinion is attached as Annex D to
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this Proxy Statement, and the description in this Proxy Statement is
qualified in its entirety by reference to the attached opinion. For
additional information, see "Terms of the Proposed Merger -- ESOP Fairness
Opinion" and the opinion attached hereto as Annex D.
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The opinions of Lakeshore are for the sole benefit of the special
trustee of the ESOP and should not be relied upon by the other shareholders
of the Company in determining whether the purchase price to be paid for
their shares of Common Stock is at least equal to the fair market value of
their shares as of the close of the transaction, whether the terms and
conditions of the Merger are fair to them from a financial point of view or
whether or not they should vote for the proposal to approve the Agreement.
CONDITIONS TO THE MERGER
The Agreement includes a number of conditions which must be
satisfied before the Merger may be consummated, including the approval of
the Agreement by the required vote of the Company's shareholders and the
approval of the Board of Governors of the Federal Reserve System (the
"Federal Reserve"), upon terms and conditions satisfactory to First
Financial. The required applications regarding the Merger have been filed
with the Federal Reserve. There can be no assurance that the approval of the
Federal Reserve will be granted or as to the timing of such approval.
If the shareholders do not approve the Agreement, the Merger cannot
be consummated. While no definitive plans have been formulated as to what
course of action would be pursued in the event shareholder or regulatory
approval is not obtained, the Board of Directors presently intends to
continue the operation of the Company as an independent entity.
The material conditions to the Merger are more fully described in
other sections of this Proxy Statement. See "Terms of the Proposed Merger --
Conditions to the Merger."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of the Company's Board of Directors and its
officers and employees have interests in the Merger in addition to their
interests as shareholders of the Company generally.
Wayne H. Benson, the President and Chief Executive Officer of the
Company, is a party to an employment agreement with CB&T and the Company
that provides for a severance payment upon the termination of his employment
following a change in control of CB&T or the Company. It is currently
anticipated that Mr. Benson will receive a severance payment under his
current employment agreement in the amount of $468,638.04.
As a result of the Merger, each holder of an Option will receive the
Option Consideration. Wayne H. Benson, Douglas W. Tompson, Brad A. Jones,
Michael F. Bauman and Roger A. Charleston are expected to receive an
aggregate of $73,951.55, $50,651.75, $18,994.89, $18,994.89 and $18,994.89,
respectively, in exchange for their Options.
PRELIMINARY PROXY MATERIALS 8
Upon consummation of the Merger, a portion of the total purchase
price for the acquisition of the Company will be placed in the ESOP.
Thereafter, the assets of the ESOP will be distributed to participants in
the ESOP in accordance with the terms of the plan. Wayne H. Benson and
Douglas W. Tompson are expected to receive ESOP distributions of
approximately $191,396 and $200,428, respectively, in exchange for their
interests in the ESOP.
Following the Merger, First Financial will be liable for the
obligations of the Company and CB&T under certain Supplemental Executive
Retirement Agreements between CB&T and each of Douglas W. Tompson, Wayne H.
Benson and Shirley B. Kessler.
The Agreement also contains provisions for the maintenance of
directors' and officers' liability insurance. See "Terms of the Proposed
Merger -- Interests of Certain Persons in the Merger."
EXCHANGE OF STOCK CERTIFICATES
It is currently anticipated that Terre Haute First National Bank
will serve as exchange agent (the "Exchange Agent") to receive stock
certificates of the Company and to send cash payments to the shareholders of
the Company. Promptly following the closing date of the Merger (the "Closing
Date"), the Exchange Agent will send a form of letter of transmittal
("Letter of Transmittal") to each shareholder which will describe the
procedures for surrendering stock certificate(s) in exchange for the Merger
Consideration. Upon receipt of the certificate(s) and properly completed
Letters of Transmittal, the Exchange Agent will make the appropriate cash
payment within 20 business days. The Exchange Agent also will send a Letter
of Transmittal to each holder of an Option which will describe the
procedures for obtaining the Option Consideration for such Option. See
"Terms of the Proposed Merger -- Exchange of Stock Certificates and
Settlement of Options."
PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME.
DISSENTERS' RIGHTS
Under Illinois law, dissenters' rights of appraisal are available
to shareholders of the Company who comply with the statutory procedures for
requesting appraisal in connection with the Merger. AMONG OTHER
REQUIREMENTS, SHAREHOLDERS DESIRING TO EXERCISE THEIR RIGHTS OF APPRAISAL
MUST MAKE A WRITTEN DEMAND FOR APPRAISAL PRIOR TO THE SHAREHOLDER VOTE ON
THE AGREEMENT. A VOTE AGAINST THE MERGER WILL NOT CONSTITUTE A WRITTEN
DEMAND. SHAREHOLDERS WHO RETURN AN EXECUTED BLANK PROXY WILL BE DEEMED TO
HAVE VOTED IN FAVOR OF THE AGREEMENT AND TO HAVE WAIVED THEIR DISSENTERS'
RIGHTS OF APPRAISAL. See "Terms of the Proposed Merger -- Dissenters'
Rights."
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
All shareholders should read carefully the discussion in "Terms of
the Proposed Merger -- Material Federal Income Tax Consequences" and other
sections of this Proxy Statement. Shareholders are urged to consult their
own tax advisors as to the specific consequences to them of the Merger under
applicable tax laws.
The receipt of cash by a shareholder of the Company in exchange for
shares of Common Stock pursuant to the Merger will be a taxable transaction
to such shareholder for federal income tax purposes. In general, a
shareholder who receives cash in the Merger in exchange for shares of Common
Stock will recognize gain or loss equal to the difference, if any, between
(a) the Merger Consideration and (b) the shareholder's tax basis in such
shares of Common Stock. See "Terms of the Proposed Merger -- Material
Federal Income Tax Consequences."
PRELIMINARY PROXY MATERIALS 9
NO SOLICITATION
The Agreement contains provisions that may have the effect of
discouraging competing offers to acquire or merge with the Company. The
Agreement provides that the Company and CB&T will not permit any of their
respective officers, directors, employees, agents or representatives to hold
discussions with or provide any information to any person in connection with
any proposal for the acquisition of all or any substantial portion of the
business, assets, shares of Common Stock or other securities of the Company
or CB&T, or any merger of the Company or CB&T with any person. The Company
is obligated to promptly inform First Financial of its receipt of any such
proposal and the substance of such proposal. See "Terms of the Proposed
Merger -- No Solicitation."
TERMINATION OF THE AGREEMENT
The Agreement may be terminated at any time before the closing of
the Merger (the "Closing"), whether before or after approval by the
shareholders of the Company, in a number of circumstances, including the
following (the term "Party" shall mean the Company and CB&T, on the one
hand, and First Financial and Merger Corp, on the other hand, and the term
"Parties" shall mean the Company, CB&T, First Financial and Merger Corp):
o at the election of either Party if the Closing shall not have
occurred on or before September 30, 2001;
o by either Party if the shareholders of the Company do not
approve the Agreement;
o by the respective Boards of Directors of the Parties upon
mutual agreement;
o by the non-breaching Party if there is a breach of the
Agreement by the other Party which could reasonably be
expected to have a material adverse effect;
o by either Party upon a determination that the Merger has
become inadvisable as a result of a claim against the
other Party relating to the Merger or a claim which is
likely to have a material adverse effect; or
o by First Financial upon a determination that a material
adverse change with respect to the Company has occurred.
For additional information, see "Terms of the Proposed Merger --
Termination of the Agreement."
ACCOUNTING TREATMENT
The Merger and the transactions contemplated thereby will be
accounted for under the purchase method of accounting as required by
Accounting Principles Board Opinion No. 16 Business Combinations. See "Terms
of the Proposed Merger -- Accounting Treatment."
BUSINESS OF COMMUNITY FINANCIAL CORP.
The Company is registered with the Federal Reserve as a bank
holding company under the BHCA. The Company has one wholly owned bank
subsidiary, CB&T, headquartered in Illinois. The Company's principal
business is overseeing the business of its wholly owned bank subsidiary and
investing its assets. At March 31, 2001, the Company had total assets of
$219.1 million, total deposits of $177.4 million and shareholders' equity of
$33.0 million. Subsequent to this date, American Bank of Illinois in
Highland ("American") was sold. At
PRELIMINARY PROXY MATERIALS 10
March 31, 2001, American had total assets of $32.6 million, total deposits
of $29.4 million and shareholders' equity of $3.1 million.
On February 28, 2001, the Company completed the sale of two of its
banking subsidiaries: The Egyptian State Bank in Carrier Mills, Illinois
("Egyptian") and MidAmerica Bank of St. Clair County in O'Fallon, Illinois
("MidAmerica"). Egyptian was purchased by Midwest Community Bancshares, Inc.
of Marion, Illinois for $4.2 million and MidAmerica was purchased by First
National Bank of St. Louis for $3.7 million. On April 20, 2001, the Company
completed the sale of American to First Mid-Illinois Bank & Trust, N.A. for
$3.7 million.
The Company's executive offices are located at 240 E. Chestnut
Street, Olney, Illinois 62450-2295, and its main telephone number is (618)
395-8676.
CB&T conducts its business through its main office in Olney,
Illinois and its five branch offices in Olney, Lawrenceville, Fairfield,
Newton and Charleston, Illinois. CB&T's primary market area consists of
Richland, Jasper, Lawrence and Wayne Counties and the eastern two-thirds of
Coles County, Illinois, and each of CB&T's offices is located in the county
seat of those counties.
For additional information, see "Community Financial Corp."
BUSINESS OF FIRST FINANCIAL CORPORATION
First Financial became a multi-bank holding company in 1984. It
serves as the holding company of Terre Haute First National Bank; The Morris
Plan Company of Terre Haute, Inc.; First State Bank; First Citizens State
Bank; First Farmers State Bank; First Parke State Bank; First Ridge Farm
State Bank; First National Bank of Marshall; First Crawford State Bank;
First Financial Reinsurance Company, Ltd.; and Forrest Sherer, Inc. At March
31, 2001, on a consolidated basis, First Financial reported total assets of
$2.0 billion, total deposits of $1.3 billion and shareholders' equity of
$202.5 million.
First Financial, which is headquartered in Terre Haute, Indiana,
offers a wide variety of financial services, including commercial and
consumer lending, lease financing, trust account services and depositor
services, through its subsidiaries. Terre Haute First National Bank is the
largest bank in Vigo County, Indiana. It operates twelve full service
banking branches within the county. It also has a main office in downtown
Terre Haute and an operations center in southern Terre Haute.
First Financial operates 37 branches in west-central Indiana and
east-central Illinois. First Financial's primary source of revenue is
derived from loans to customers, primarily middle-income individuals, and
investment activities.
The executive offices of First Financial are located at One First
Financial Plaza, Terre Haute, Indiana 47807, and its main telephone number
is (812) 238-6000.
For additional information, see "First Financial Corporation."
BUSINESS OF MERGER CORP
Merger Corp is an Indiana corporation and a wholly owned subsidiary
of First Financial. Merger Corp has conducted no business operations and was
formed solely to consummate the Merger.
The executive offices of Merger Corp are located at One First
Financial Plaza, Terre Haute, Indiana 47807, and its main telephone number
is (812) 238-6000.
PRELIMINARY PROXY MATERIALS 11
SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents selected consolidated financial
information for the Company at the dates and for the periods indicated. The
balance sheet data and income statement data as of and for the five years
ended December 31, 2000 are taken from the audited consolidated financial
statements of the Company. The balance sheet data and income statement data
as of and for the three months ended March 31, 2001 and 2000 are taken from
the unaudited consolidated financial statements of the Company. This data
includes all adjustments which are, in the opinion of management, necessary
for a fair presentation and of a normal recurring nature. Results for the
three months ended March 31, 2001 do not necessarily indicate results for
the entire year. You should read this financial data in conjunction with the
consolidated financial statements of the Company, and the related notes,
filed with the Securities and Exchange Commission.
The following table also presents certain summary unaudited pro
forma combined consolidated financial information for the Company giving
effect to the sale of American which occurred on April 20, 2001. The balance
sheet data gives effect to the sale of American as if it occurred on March
31, 2001. The income statement data gives effect to the sale of American as
if it occurred on the first day of each period presented. You should read
this financial data in conjunction with the consolidated financial
statements of the Company, and the related notes, filed with the Securities
and Exchange Commission. The unaudited pro forma combined consolidated
financial information may not be indicative of the results of operations
that actually would have occurred if the sale of American had occurred on
the dates assumed above or the results of operations that may be achieved in
the future.
PRELIMINARY PROXY MATERIALS 12
AS OF OR FOR THE QUARTER ENDED AS OF OR FOR THE YEAR ENDED
MARCH 31, DECEMBER 31,
------------------------------------ -----------------------------------------------
2001 2000 2000 1999 1998
---- ---- ---- ---- ----
ACTUAL(1) PRO FORMA ACTUAL PRO FORMA (DOLLARS IN THOUSANDS)
--------- --------- ------ ---------
FINANCIAL CONDITION DATA (END OF PERIOD):
Assets .................................. $219,066 $190,009 $302,576 $277,697 $185,766 $309,919 $309,840
Loans receivable, net.................... 138,540 114,458 177,963 171,542 113,316 179,467 157,207
Cash and cash equivalents................ 22,951 24,409 13,038 20,443 17,949 15,655 22,902
Investments securities:
Securities available for sale......... 37,108 33,403 43,445 57,073 35,394 43,771 52,102
Securities held to maturity........... 859 859 17,742 909 909 16,921
Mortgage-backed securities:
Securities available for sale......... 10,301 10,301 32,719 10,909 10,612 34,341 42,797
Securities held to maturity........... -- -- 322 -- -- 338 442
Deposits................................. 177,431 148,060 230,167 232,785 142,236 225,170 223,933
Total shareholders' equity............... 33,002 33,494 34,175 34,890 33,181 33,826 35,266
OPERATING DATA:
Interest income.......................... $ 3,888 $ 3,278 $ 5,455 $ 21,855 $ 15,010 $ 21,689 $ 22,231
Interest expense......................... 2,178 1,881 3,040 12,536 8,941 12,296 12,815
Net interest income...................... 1,710 1,397 2,415 9,319 6,069 9,393 9,416
Provision for loan losses................ 49 49 185 3,438 2,706 707 441
Net interest income after provision for
loan losses........................... 1,661 1,348 2,230 5,881 3,363 8,686 8,975
Other income............................. 427 305 628 1,966 1,312 2,289 1,681
Other expense............................ 1,682 1,377 2,397 9,852 6,364 9,322 8,880
Income (loss) before income taxes........ 406 276 461 (2,005) (1,689) 1,653 1,758
Income tax provision (benefit)........... 141 89 147 (529) (496) 523 521
Net income (loss)........................ (2,251)(2) (1,659)(3) 314 (1,476) (1,193) 1,130 1,237
PERFORMANCE RATIOS:
Return on average assets................. -1.05% -0.98% 0.41% -0.49% -0.57% 0.36% 0.40%
Return on average equity................. -7.79 -5.30 3.74 -4.11 -3.31 3.26 3.43
Interest rate spread..................... 2.19 2.79 2.83 2.54 2.36 2.88 2.79
Net yield on interest-earning assets..... 3.53 3.55 3.34 3.25 3.23 3.19 3.18
Ratio of average interest-earning
assets to average interest-bearing
liabilities........................... 129.82 117.27 111.63 116.26 120.08 107.38 109.02
ASSET QUALITY RATIOS:
Nonperforming assets to total assets..... 0.83% 0.92% 0.40% 0.93% 0.82% 0.34% 0.53%
Nonperforming loans to total loans....... 1.07 1.23 0.54 1.21 1.00 0.44 0.75
Allowance for loan losses to total
loans................................. 1.23 1.25 0.94 1.44 1.38 0.87 1.24
Allowance for loan losses to
nonperforming loans................... 114.68 101.05 174.66 118.38 137.72 198.49 164.78
Provision for loan losses to total
loans................................. 0.03 0.04 0.10 1.98 2.36 0.39 0.28
Net charge-offs to average loans......... 0.13 0.16 0.03 1.40 1.79 0.65 0.25
CAPITAL RATIOS:
Stockholders' equity to total assets..... 15.06% 17.60% 11.29% 12.56% 18.00% 10.91% 11.38%
Average stockholders' equity to
average assets........................ 13.43 18.43 10.97 11.36 17.17 11.09 11.54
PER SHARE DATA:
Basic earnings (loss) per share.......... $ (1.05) $ (0.85) $ 0.15 $ (0.67) $ (0.54) $ 0.53 $ 0.57
Dividends per share...................... 0.00 0.00 0.00 0.00 0.00 0.25 0.25
Book value per share..................... 15.37 15.60 15.24 16.25 15.45 15.28 15.73
AS OF OR FOR THE YEAR ENDED
DECEMBER 31,
---------------------------
1997 1996
---- ----
(DOLLARS IN THOUSANDS)
FINANCIAL CONDITION DATA (END OF PERIOD):
Assets .................................. $304,265 $185,799
Loans receivable, net.................... 162,318 122,307
Cash and cash equivalents................ 26,724 12,618
Investments securities:
Securities available for sale......... 57,283 13,990
Securities held to maturity........... 18,318 3,362
Mortgage-backed securities:
Securities available for sale......... 23,895 28,319
Securities held to maturity........... 891 --
Deposits................................. 218,915 139,100
Total shareholders' equity............... 35,727 34,082
OPERATING DATA:
Interest income.......................... $ 17,008 $ 13,875
Interest expense......................... 8,670 6,728
Net interest income...................... 8,338 7,147
Provision for loan losses................ 236 10
Net interest income after provision for
loan losses........................... 8,102 7,137
Other income............................. 1,129 777
Other expense............................ 7,152 6,798
Income (loss) before income taxes........ 2,077 1,116
Income tax provision (benefit)........... 675 343
Net income (loss)........................ 1,402 773
PERFORMANCE RATIOS:
Return on average assets................. 0.62% 0.42%
Return on average equity................. 4.02 2.15
Interest rate spread..................... 3.05 3.17
Net yield on interest-earning assets..... 3.80 4.03
Ratio of average interest-earning
assets to average interest-bearing
liabilities........................... 119.04 122.58
ASSET QUALITY RATIOS:
Nonperforming assets to total assets..... 0.81% 0.27%
Nonperforming loans to total loans....... 1.29 0.36
Allowance for loan losses to total
loans................................. 1.18 1.23
Allowance for loan losses to
nonperforming loans................... 0.91 339.29
Provision for loan losses to total
loans................................. 0.15 0.01
Net charge-offs to average loans......... 0.19 --
CAPITAL RATIOS:
Stockholders' equity to total assets..... 11.74% 18.34%
Average stockholders' equity to
average assets........................ 15.33 19.19
PER SHARE DATA:
Basic earnings (loss) per share.......... $ 0.62 $ 0.33
Dividends per share...................... 0.25 0.25
Book value per share..................... 15.13 14.28
<FN>
- ---------------------------
(1) Includes the results of the sale of Egyptian and MidAmerica on February 28, 2001.
(2) Adjusted to reflect loss on sale of affiliated banks of approximately $2,516,000.
(3) Adjusted to reflect loss on sale of affiliated banks of approximately $1,849,000.
PRELIMINARY PROXY MATERIALS 13
MEETING INFORMATION
DATE, TIME AND PLACE
The Special Meeting will be held on __________, __________, 2001 at
2:00 p.m., local time, at 501 East Main Street, Olney, Illinois.
VOTING RIGHTS
The securities entitled to vote at the Special Meeting consist of
the Common Stock. Shareholders of record as of the close of business on the
Record Date are entitled to one vote for each share of Common Stock then
held. As of the Record Date, the Company had 2,147,470 shares of Common
Stock issued and outstanding. At that date, such shares were held of record
by approximately ____ shareholders.
The presence, either in person or by proxy, of at least one-third
of the outstanding Common Stock is required for a quorum. For purposes of
determining whether a quorum is present at the meeting, abstentions and
broker "non-votes" will be treated as present and entitled to vote. For
purposes of determining whether the Agreement is approved, abstentions and
broker "non-votes" will not be deemed to be a vote cast and, therefore, will
have the effect of a vote against the Agreement. APPROVAL OF THE AGREEMENT
REQUIRES THE AFFIRMATIVE VOTE OF THE HOLDERS OF AT LEAST TWO-THIRDS OF THE
OUTSTANDING SHARES OF COMMON STOCK.
SHARES OF THE COMMON STOCK REPRESENTED BY PROPERLY EXECUTED PROXIES
WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS INDICATED ON THE PROXIES
OR, IF NO INSTRUCTIONS ARE INDICATED, WILL BE VOTED "FOR" THE PROPOSAL TO
APPROVE THE AGREEMENT. The proxy confers discretionary authority on the
persons named therein to vote with respect to matters incident to the
conduct of the Special Meeting. If any other business is presented at the
Special Meeting or any adjournment or postponement thereof, properly
executed proxies will be voted by those named therein in accordance with
their best judgment. In the event there are insufficient votes represented,
in person or by proxy, at the Special Meeting to approve the Agreement, the
persons named as proxies may vote for one or more adjournments of the
Special Meeting to permit solicitation of additional proxies; provided,
however, that no proxy which is voted against the Agreement will be voted in
favor of such adjournment.
Shareholders who execute proxies will retain the right to revoke
their proxies at any time before the Special Meeting. A shareholder may
revoke a proxy by filing a written notice of revocation with, or delivering
a duly executed proxy bearing a later date to, the Secretary of the Company
at the Company's main office address at any time before the Special Meeting.
Shareholders also may revoke proxies by delivering a duly executed proxy
bearing a later date to an Inspector of Election at the Special Meeting or
by attending the Special Meeting and casting a contrary vote. The presence
of a shareholder at the Special Meeting alone will not automatically revoke
the shareholder's proxy.
SOLICITATION OF PROXIES
The Company will bear the cost of the solicitation of proxies.
Proxies will be solicited by mail. In addition to solicitations by mail,
proxies also may be solicited by officers and regular employees of the
Company and CB&T personally or by telephone, but such persons will not be
specifically compensated for such services. Brokerage houses, custodians,
nominees and fiduciaries will be requested to forward the soliciting
material to the beneficial owners of stock held of record by such persons
and will be reimbursed for their reasonable expenses incurred in connection
therewith.
PRELIMINARY PROXY MATERIALS 14
TERMS OF THE PROPOSED MERGER
THE FOLLOWING IS A DESCRIPTION OF THE MATERIAL TERMS OF THE
AGREEMENT. THIS DESCRIPTION DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO THE AGREEMENT OF AFFILIATION AND MERGER AND
AMENDMENT NO. 1 TO AGREEMENT OF AFFILIATION AND MERGER WHICH ARE ATTACHED
HERETO AS ANNEX A AND ANNEX B, RESPECTIVELY.
------- -------
GENERAL
On March 30, 2001, the Company, First Financial and Merger Corp
entered into the Agreement of Affiliation and Merger. Subsequent to entering
into the Agreement of Affiliation and Merger, the Company, First Financial
and Merger Corp entered into Amendment No. 1 to Agreement of Affiliation and
Merger for purposes of restructuring the transaction to provide certain tax
benefits to the shareholders of the Company. Pursuant to the Agreement,
subject to the satisfaction or waiver of certain conditions precedent,
including receipt of all required regulatory approvals, the approval by the
shareholders and the satisfaction or waiver of a number of other conditions,
each outstanding share of the Company's Common Stock (other than Dissenting
Shares) will be converted into the right to receive a cash payment based
upon a formula contained in the Agreement, currently estimated to be $15.04.
In addition, each outstanding Option with an exercise price less than the
Merger Consideration as of the Effective Time will be cancelled and the
holders of the Options will receive, for each Option, the difference between
the Merger Consideration and the exercise price of the Option, multiplied by
the number of shares covered by such Option. Outstanding options of the
Company which have an exercise price greater than the Merger Consideration
will be terminated or will have expired on or prior to the Effective Time.
See "-- Description of the Merger."
The aggregate purchase price to be paid by First Financial for the
Common Stock and the Options in the Merger is approximately $32.6 million.
First Financial has represented that it will have the financial capability
at the Effective Time of the Merger to pay for the shares of Common Stock
and the Options pursuant to the Agreement.
APPROVAL OF THE AGREEMENT REQUIRES THE AFFIRMATIVE VOTE OF THE
HOLDERS OF AT LEAST TWO-THIRDS OF ALL VOTES ENTITLED TO BE CAST BY THE
HOLDERS OF THE COMMON STOCK.
BACKGROUND OF THE MERGER
In October 1999, the Company contracted with PBS to evaluate
strategic alternatives to enhance shareholder value. As a result, PBS and
the Company's management prepared a detailed Strategic Plan to maximize the
value of the Company. As a result of the Company losing a contested vote for
the election of directors and the determination that the current objectives
of the Strategic Plan were no longer attainable, in May 2000, the Company
engaged Investment Bank Services, Inc. ("IBS"), a wholly owned subsidiary of
PBS, to explore the possible sale of the Company. In May and June of 2000,
IBS contacted a total of thirty financial institutions, as well as certain
individuals, which IBS believed might have an interest in acquiring the
Company. Thirteen financial institutions, including First Financial, and two
individuals were sent a Confidential Financial Information Package
concerning the Company and were requested to submit preliminary indications
of interest regarding a potential combination with the Company by late June
of 2000. Two indications of interest regarding a potential acquisition of
the entire Company were submitted to IBS. One preliminary indication of
interest, from an individual, was for a price which IBS and the Board of
Directors of the Company determined was in the best interests of the Company
and its shareholders to continue to pursue. This individual was invited to
do due diligence by the Company in July of 2000. Upon the completion of a
short due diligence, this indication of interest was withdrawn.
Several of the institutions contacted by IBS expressed informal
interest in pursuing an acquisition of one or more of the Company's
subsidiaries but not the entire company. First Financial and one other
financial institution submitted indications of interest regarding the
acquisition of the Company's subsidiary, CB&T. Of
PRELIMINARY PROXY MATERIALS 15
these two indications of interest received, First Financial's was the
highest and First Financial was also the only institution which indicated a
willingness to pursue an acquisition of the shares of the entire Company
conditioned upon the sale of the Company's three smaller subsidiary banks.
Due to this and other strategic considerations, the Company's Board of
Directors and IBS determined it was in the best interest of the Company and
its shareholders to pursue the sale of the Company's other subsidiary banks.
Seventeen preliminary indications of interest regarding the acquisition of
one or more of the Company's smaller subsidiaries were solicited from
interested financial institutions contacted by IBS. On February 28, 2001,
the Company completed the sale of two subsidiary banks: Egyptian and
Mid-America. In addition, on April 20, 2001, the Company completed the sale
of American.
From May 2000 through March 2001, the Company and First Financial
had several discussions concerning the possible purchase price for the
Company's Common Stock. It was ultimately agreed that First Financial would
acquire the Common Stock for a purchase price based upon the formula
contained in the Agreement.
At a regular meeting of the Board of Directors on March 26, 2001,
an oral fairness opinion of PBS with respect to the consideration to be
received by the Company's shareholders was delivered to the Board of
Directors. In its opinion, PBS concluded that the consideration to be
received by the Company's shareholders was fair and equitable from a
financial perspective. A written opinion has been delivered as of the date
of this Proxy Statement. A copy of the written fairness opinion, which
includes a summary of the assumptions made and information analyzed in
deriving the fairness opinion, is attached hereto as Annex C.
-------
On March 30, 2001, the Company and First Financial executed the
Agreement of Affiliation and Merger which was subsequently amended by
Amendment No. 1 to Agreement of Affiliation and Merger, dated as of June 26,
2001.
DESCRIPTION OF THE MERGER
Subject to the terms of the Agreement, First Financial will acquire
the Company through the Merger in accordance with the Agreement and
applicable provisions of Illinois law. Merger Corp shall merge with and into
the Company, with the Company as the surviving corporation. As a result of
the Merger, the Company will be a wholly owned subsidiary of First
Financial. CB&T will remain a wholly owned subsidiary of the Company. The
Merger will become effective and the separate corporate existence of Merger
Corp shall cease at the Effective Time. Each share of Common Stock
outstanding immediately prior to the Effective Time (other than Dissenting
Shares) shall, by virtue of the Merger and without any further action by the
holder thereof, be cancelled and converted into and represent the right to
receive the Merger Consideration.
The Merger Consideration is estimated by PBS to be $15.04 per share
based upon the following formula set forth in the Agreement: (a) the
Aggregate Purchase Price (defined in the Agreement as (i) $19,500,000
(subject to adjustment to reflect any recovery on certain loans of CB&T),
plus (ii) the proceeds from the sale of American, MidAmerica and Egyptian,
plus (iii) the amount of cash held by the Company, plus (iv) proceeds which
are receivable from certain requested income tax refunds, plus (v) the
principal balance of certain loans, plus (vi) the fair market value of
securities held by the Company, minus (vii) expenses incurred by the Company
in connection with the termination of the Company's ESOP, minus (viii) any
liabilities of the Company), minus (b) the aggregate amount to be paid to
holders of Options, minus (c) the aggregate amount to be paid to the
Company's ESOP, divided by (d) 2,147,470, which is the number of shares of
Common Stock which will be outstanding at the Effective Time. THE MERGER
CONSIDERATION OF $15.04 PER SHARE IS ONLY AN ESTIMATE. THE ACTUAL AMOUNT OF
CASH PAYABLE PER SHARE OF THE COMPANY'S COMMON STOCK MAY BE MORE OR LESS
THAN THIS ESTIMATED AMOUNT. THE ACTUAL AMOUNT PAYABLE PER SHARE OF THE
COMPANY'S COMMON STOCK WILL BE BASED SOLELY ON THE ABOVE-MENTIONED FORMULA
DETERMINED AS OF THE CLOSING DATE.
In addition, at the Effective Time, each Option will be cancelled,
and each holder thereof will receive, for each Option, the difference
between the Merger Consideration and the exercise price of such Option. At the
PRELIMINARY PROXY MATERIALS 16
Effective Time, there will be 154,340 Options outstanding. The Company
has agreed, as a condition to the closing of the Merger, that all
outstanding options of the Company which have an exercise price greater than
the Merger Consideration will be terminated or will have expired on or prior
to the Effective Time.
In addition, upon consummation of the Merger, a portion of the
total purchase price for the acquisition of the Company will be placed in
the ESOP. The amount to be placed in the ESOP will be (a)(i) an amount equal
to 64,059 (which is the number of shares of Common Stock which would have
been outstanding and held by the ESOP if the ESOP had not been terminated in
December 2000), multiplied by (ii) the Merger Consideration less $10.3437
(which is the total amount of debt retired by the ESOP of $662,605.48
divided by 64,059), plus (b) 64,059, multiplied by (i) the amount of taxes
relating to the ESOP required to be paid by the Company, divided by (ii)
2,365,869 (which is the total of outstanding shares of Common Stock plus
154,340 shares subject to Options plus 64,059 shares which would have been
held by the ESOP). Pursuant to the Agreement, on or prior to the Effective
Time, the Company is required to pay all fees and taxes relating to the
termination of the ESOP in December 2000.
VOTE REQUIRED
Under Illinois law, approval of the Agreement requires the
affirmative vote of the holders of at least two-thirds of the outstanding
shares of Common Stock of the Company. As of the Record Date, the Company
had 2,147,470 shares of Common Stock issued and outstanding. At that date,
such shares were held of record by approximately ____ shareholders.
RECOMMENDATION OF THE BOARD OF DIRECTORS; REASONS FOR THE MERGER
THE BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE MERGER
IS IN THE BEST INTEREST OF THE COMPANY AND ITS SHAREHOLDERS AND UNANIMOUSLY
RECOMMENDS A VOTE "FOR" THE PROPOSAL TO APPROVE THE AGREEMENT. In
determining that the Merger is in the best interest of the Company's
shareholders, the Board of Directors, in consultation with its legal and
financial advisors, considered numerous factors, including, but not limited
to, the following:
o THE VALUE BEING OFFERED TO THE COMPANY'S SHAREHOLDERS BY
FIRST FINANCIAL IN RELATION TO THE MARKET VALUE, BOOK
VALUE AND EARNINGS PER SHARE OF THE COMMON STOCK DURING A
PERIOD PRIOR TO ANNOUNCEMENT OF THE MERGER. The Board of
Directors believes that the Merger Consideration to be
received by shareholders will provide the Company's
shareholders with an immediate premium for their shares.
o THE FUTURE BUSINESS PROSPECTS FOR THE COMPANY. Based on
the competitive environment for financial institutions
generally and for bank holding companies whose principal
origin was a savings and loan association, the Board of
Directors believes that the future business prospects for
the Company as an independent bank holding company are
unfavorable.
o THE FINANCIAL TERMS OF OTHER RECENT COMPARABLE BUSINESS
COMBINATIONS. The Board of Directors believes that the
financial terms of the Merger, adjusted for performance
levels of the Company, are comparable to the financial
terms of other recent business combinations in the
financial services industry for comparably situated
institutions.
o THE SOLICITATION AND NEGOTIATION PROCESS PRECEDING THE
AGREEMENT. The terms of the Merger reflect extensive
arms'-length negotiations between the parties after a
thorough canvass of the market. The Board of Directors
believes that the financial institutions most likely to
bid on the Company were identified and given an
opportunity to express their interest in an affiliation.
PRELIMINARY PROXY MATERIALS 17
o THE VALUE OF THE MERGER CONSIDERATION IN RELATION TO
ANTICIPATED RETURNS TO SHAREHOLDERS THROUGH CONTINUED
OPERATION AS AN INDEPENDENT ENTITY.
o THE OPINION OF THE COMPANY'S FINANCIAL ADVISOR THAT THE
CONSIDERATION TO BE RECEIVED BY THE COMPANY'S SHAREHOLDERS
IS FAIR AND EQUITABLE TO SUCH SHAREHOLDERS FROM A
FINANCIAL PERSPECTIVE. In determining whether to enter
into the Agreement, the Board of Directors received an
oral opinion prior to its vote from its financial advisor
that the Merger Consideration was fair and equitable to
shareholders from a financial perspective. A written
opinion has been delivered as of the date of this Proxy
Statement. A copy of the written fairness opinion is
attached hereto as Annex C.
-------
In its deliberations, the Board of Directors discussed a variety of
other matters related to the Merger but believes that the foregoing factors
represent the material factors considered in the Board's collective
determination that the Merger is in the best interest of the Company's
shareholders. The Board of Directors did not quantify or otherwise attempt
to assign relative weights to the factors considered in making its
determination and does not believe that any single factor discussed above
was given greater weight than any other factor. Having considered all of the
foregoing, however, the Board of Directors determined that the Merger is in
the best interest of shareholders and unanimously recommends that
shareholders vote for the proposal to approve the Agreement.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS
OF THE COMPANY VOTE "FOR" THE PROPOSAL TO APPROVE THE AGREEMENT.
OPINION OF FINANCIAL ADVISOR
PBS was engaged by the Company to advise the Company's Board of
Directors as to the fairness of the consideration, from a financial
perspective, to be paid by First Financial to the Company's shareholders as
set forth in the Agreement.
PBS is a bank consulting firm with offices in Louisville,
Nashville, Orlando, and Washington, D.C. As part of its investment banking
business, PBS is regularly engaged in reviewing the fairness of financial
institution acquisition transactions from a financial perspective and in the
valuation of financial institutions and other businesses and their
securities in connection with mergers, acquisitions, estate settlements and
other transactions. Neither PBS nor any of its affiliates has a material
financial interest in the Company or First Financial. PBS was selected to
advise the Company's Board of Directors based upon its familiarity with
Illinois financial institutions and knowledge of the banking industry as a
whole.
PBS performed certain analyses described herein and presented the
range of values for the Company resulting from such analyses to the Board of
Directors of the Company in connection with its advice as to the fairness of
the consideration to be paid by First Financial.
An oral fairness opinion of PBS was delivered to the Board of
Directors of the Company on March 26, 2001 at a regular meeting of the Board
of Directors. In addition, a written fairness opinion has been delivered as
of the date of this Proxy Statement. A copy of the fairness opinion, which
includes a summary of the assumptions made and information analyzed in
deriving the fairness opinion, is attached as Annex C to this Proxy
-------
Statement and should be read in its entirety.
In arriving at its fairness opinion, PBS reviewed certain publicly
available business and financial information relating to the Company and
First Financial. PBS considered certain financial data of the Company and
First Financial, compared that data with similar data for certain other
publicly traded banks, thrifts and bank holding companies and considered the
financial terms of certain other comparable financial institution
transactions in the States of Illinois, Indiana, Iowa, Kansas, Kentucky,
Michigan, Minnesota, Missouri,
PRELIMINARY PROXY MATERIALS 18
Nebraska, North Dakota, Ohio, South Dakota and Wisconsin (the "Midwest
Region") that have recently been effected. PBS also considered such other
information, financial studies, analyses and investigations and financial,
economic and market criteria that it deemed relevant. In connection with its
review, PBS did not independently verify the foregoing information and
relied on such information as being complete and accurate in all material
respects. Financial forecasts prepared by PBS were based on assumptions
believed by PBS to be reasonable and to reflect currently available
information. PBS did not make an independent evaluation or appraisal of the
assets of the Company or First Financial.
As part of preparing this fairness opinion, PBS took into
consideration the results of contacts made with other financial institutions
and individuals by IBS, a wholly owned subsidiary of PBS, which was engaged
by the Company in May of 2000 to explore the possible sale of the Company.
In May and June of 2000, IBS contacted a total of thirty financial
institutions, as well as certain individuals, which IBS believed might have
an interest in acquiring the Company. Thirteen financial institutions and
two individuals were sent a Confidential Financial Information Package
concerning the Company and were requested to submit preliminary indications
of interest regarding a potential combination with the Company by late June
of 2000. Two indications of interest regarding a potential acquisition of
the entire Company were submitted to IBS. One preliminary indication of
interest, from an individual, was for a price which IBS and the Board of
Directors of the Company determined was in the best interests of the Company
and its shareholders to continue to pursue. This individual was invited to
do due diligence by the Company in July of 2000. Upon the completion of a
short due diligence, this indication was withdrawn.
Several of the institutions contacted by IBS expressed informal
interest in pursuing an acquisition of one or more of the Company's
subsidiaries but not the entire Company. First Financial and one other
financial institution submitted indications of interest regarding the
acquisition of CB&T. Of these two indications received, First Financial's
was the highest and First Financial was also the only institution which
indicated a willingness to pursue an acquisition of the shares of the entire
Company conditioned upon the sale of the Company's three smaller subsidiary
banks. At this time, the Company's Board of Directors and IBS determined it
was in the best interest of the Company and its shareholders to pursue the
sale of the Company's other subsidiary banks. Seventeen preliminary
indications of interest regarding the acquisition of one or more of the
Company's smaller subsidiaries were solicited from interested financial
institutions contacted by IBS. On February 28, 2001, the Company completed
the sale of two subsidiary banks: Egyptian and Mid-America. In addition, on
April 20, 2001, the Company completed the sale of American.
For purposes of this fairness opinion, PBS performed a review and
analysis of the historic performance of the Company and CB&T, including: (i)
December 31, 1998, March 31, 1999, June 30, 1999, September 30, 1999,
December 31, 1999, March 31, 2000, June 30, 2000, September 30, 2000 and
December 31, 2000 Forms 10-Q and 10-K filed with the Securities and Exchange
Commission by the Company; (ii) December 31, 1999 and 2000 Uniform Bank
Performance Report of the Company and CB&T; (iii) December 31, 1998, March
31, 1999, June 30, 1999, September 30, 1999, December 31, 1999, March 31,
2000, June 30, 2000, September 30, 2000 and December 31, 2000 Consolidated
Reports of Condition and Income filed by CB&T; (iv) quarter end and year end
classified and problem loan listings; and (v) quarter end and year end loan
loss reserve analysis. PBS has reviewed and tabulated statistical data
regarding the loan portfolio, securities portfolio and other performance
ratios and statistics. Financial projections were prepared and analyzed as
well as other financial studies, analyses and investigations as deemed
relevant for the purposes of the opinion. In the review of the
aforementioned information, PBS took into account its assessment of general
market and financial conditions, its experience in other transactions and
its knowledge of the banking industry generally.
In connection with rendering the fairness opinion and preparing its
written and oral presentation to the Company's Board of Directors, PBS
performed a variety of financial analyses, including those summarized
herein. The summary does not purport to be a complete description of the
analyses performed by PBS in this regard. The preparation of a fairness
opinion involves various determinations as to the most appropriate and
relevant methods of financial analysis and the application of these methods
to the particular circumstances and, therefore, such an opinion is not
readily susceptible to summary description. Accordingly, notwithstanding the
PRELIMINARY PROXY MATERIALS 19
separate factors summarized below, PBS believes that its analyses must be
considered as a whole and that selecting portions of its analyses and of the
factors considered by it, without considering all analyses and factors,
could create an incomplete view of the evaluation process underlying its
opinion. In performing its analyses, PBS made numerous assumptions with
respect to industry performance, business and economic conditions and other
matters, many of which are beyond the Company's or First Financial's
control. The analyses performed by PBS are not necessarily indicative of
actual values or future results, which may be significantly more or less
favorable than suggested by such analyses. In addition, analyses relating to
the values of businesses do not purport to be appraisals or to reflect the
process by which businesses actually may be sold.
Acquisition Comparison Analysis: In performing this analysis, PBS
-------------------------------
reviewed all bank and thrift acquisition transactions in the Midwest Region
since 1995 where the consideration paid was cash. There were 316 financial
institution cash acquisition transactions in the Midwest Region announced
since 1995 for which detailed financial information was available. The
purpose of the analysis was to obtain an evaluation range based on these
Midwest Region cash acquisition transactions. Median multiples of earnings
and book value implied by the comparable transactions were utilized in
obtaining a range for the acquisition value of the Company. In addition to
reviewing recent Midwest Region financial institution transactions, PBS
performed separate comparable analyses for acquisitions of institutions
which, like the Company, had an equity-to-asset ratio between 11.00% and
12.00%; had a return on average equity ("ROAE") below 6.00%; had total
assets between $100.0 million - $200.0 million; were headquartered in the
State of Illinois; and were cash transactions which were effected in the
Midwest Region that have been announced since January 1, 2000.
The median values for the 316 Midwest Region cash acquisitions
expressed as multiples of both book value and earnings were 1.60X and
16.89X, respectively. The median multiples of book value and earnings for
cash acquisitions of Midwest Region institutions which, like the Company,
had an equity-to-asset ratio between 11.00% and 12.00% were 1.49X and
15.52X, respectively. For Midwest Region cash acquisitions of institutions
with a ROAE below 6.00%, the median multiples of book value and earnings
were 1.33X and 30.43X, respectively. For cash acquisitions of Midwest Region
institutions with assets between $100.0 million - $200.0 million, the median
multiples were 1.57X and 14.78X, respectively. The median multiples of book
value and earnings for cash acquisitions of Midwest Region institutions
headquartered in the state of Illinois were 1.54X and 17.03X, respectively.
The median multiples of book value and earnings for cash acquisitions of
Midwest Region institutions since January 1, 2000 were 1.47X and 17.36X,
respectively.
In the proposed acquisition, Company shareholders will receive cash
equal to $19.5 million for CB&T as well as additional cash consideration
equal to the net value of all other assets held by the Company, on a parent
company only basis, at the Effective Time. Based on this formula, total cash
consideration is expected to equal approximately $32.9 million for all of
the Company's common shares and Options outstanding, or approximately $15.04
per common share subject to adjustment as further defined in the Agreement.
The $15.04 per Company common share represents a multiple of the Company's
March 31, 2001 adjusted book value and a multiple of the Company's 2000
adjusted earnings of 1.03X and 25.96X, respectively.
Utilizing the valuation multiples of the proposed transaction, PBS
calculated the proposed transaction's percentile rankings with respect to
the above Midwest Region comparable transactions group. Compared to all
Midwest Region institution transactions where the consideration paid was
cash, the proposed acquisition value ranks in the 2nd percentile as a
multiple of book value and in the 79th percentile as a multiple of earnings.
Compared to Midwest Region cash transactions where the acquired institution
had an equity-to-asset ratio between 11.00% and 12.00%, the acquisition
value ranks in the 0th percentile as a multiple of book value and in the
95th percentile as a multiple of earnings. For Midwest Region cash
transactions where the acquired institution had a ROAE below 6.00%, the
acquisition value ranks in the 8th percentile as a multiple of book value
and in the 22nd percentile as a multiple of earnings. For Midwest Region
cash acquisitions where the acquired institution had between $100.0 million
- - $200.0 million in assets, the acquisition value ranks in the 3rd
percentile as a multiple of book value and in the 80th percentile as a
multiple of earnings. For Midwest Region
PRELIMINARY PROXY MATERIALS 20
cash transactions where the seller was headquartered in the state of
Illinois, the acquisition value ranks in the 6th percentile as a multiple of
book value and in the 74th percentile as a multiple of earnings. For Midwest
Region cash transactions effected since January 1, 2000, the acquisition
value ranks in the 7th percentile as a multiple of book value and in the
79th percentile as a multiple of earnings.
Adjusted Net Asset Value Analysis: PBS reviewed the Company's
---------------------------------
balance sheet data to determine the amount of material adjustments required
to the stockholders' equity of the Company based on differences between the
market value of the Company's assets and their value reflected on the
Company's financial statements. A review of CB&T's financial statements
indicates no goodwill. In addition, due to the consummation of the sale of
the Company's three small subsidiaries, the Company no longer has goodwill
on its financial statements. PBS determined that three adjustments were
warranted. Equity was decreased by $3.16 million to reflect the after tax
impact of loans on non-accrual which are expected to result in material
losses. Equity was increased by $1,000 to reflect the after tax depreciation
in CB&T's held to maturity securities portfolio. PBS also reflected a value
of the non-interest bearing demand deposits of approximately $2,046,000. The
aggregate adjusted net asset value of the Company was determined to be
$33,458,000 or $14.14 per adjusted Company common share.
Discounted Earnings Analysis: A dividend discount analysis was
----------------------------
performed by PBS pursuant to which a range of values of the Company was
determined by adding (i) the present value of estimated future dividend
streams that the Company could generate over a five-year period and (ii) the
present value of the "terminal value" of the Company's earnings at the end
of the fifth year. The "terminal value" of the Company's earnings at the end
of the five-year period was determined by applying a multiple of 17.36 times
the projected terminal year's ending net income. The 17.36 multiple
represents the median price paid as a multiple of earnings for all Midwest
financial institution cash transactions since January 1, 2000.
Dividend streams and terminal values were discounted to present
values using a discount rate of 13%. This rate reflects assumptions
regarding the required rate of return of holders or buyers of financial
institution common stock. The aggregate value of the Company, determined by
adding the present value of the total cash flows, was $22,800,000 or $9.64
per adjusted common share. In addition, using the five-year projection as a
base, a twenty-year projection was prepared assuming an annual asset growth
rate of 4.0%, and assuming return on assets increase to 1.00%, by year 6.
Dividends were assumed to equal 40% of income in years 1 through 5 and then
increase to 90.0% of net income per year for the remainder of the analysis.
This long-term projection resulted in an aggregate value of $17,760,000 or
$7.51 per adjusted Company common share.
Specific Acquisition Analysis: PBS valued the Company based on an
-----------------------------
acquisition analysis assuming a "break-even" earnings scenario to an
acquiror as to price, current interest rates and amortization of the premium
paid. Based on this analysis, an acquiring institution would pay in
aggregate $28,123,000, or $11.87 per adjusted share, assuming they were
willing to accept no impact to their net income in the initial year. This
analysis was based on a funding cost of 7.50% adjusted for taxes,
amortization of the acquisition premium over 15 years and adjusted 2000
earnings of $1,371,000. The analysis was repeated assuming a potential
acquiror would attain non-interest expense reductions of 10% in the
transaction. Based on this analysis, an acquiring institution would pay in
aggregate $34,737,000 or $14.68 per adjusted Company common share.
Due to the sensitivity to earnings dilution of most active
acquirors, PBS weighted the overall earnings derived methods more heavily in
its analysis in determining the fairness of the proposed transaction, from a
financial perspective. PBS also weighted the liquidation value more heavily
in its opinion due to the likelihood of a liquidation of the Company or an
extremely lengthy and costly turnaround process in the event the Agreement
was not executed. The average aggregate and adjusted per share values of the
Company excluding the Market Comparison Method derived Book Value Methods
equal to $26.515 million and $11.21, respectively. The median aggregate and
adjusted per share values of the Company excluding the Market Comparison
Method derived Book Value Methods equal to $23.576 million and $9.97,
respectively. In addition, PBS also took into consideration the following
factors in its determination of the fairness of the proposed transaction
from a financial perspective:
PRELIMINARY PROXY MATERIALS 21
o The Company and CB&T had stated losses of $1,476,000 and $531,000,
respectively, for the year ending December 31, 2000.
o The Company's asset quality is suspect and the Company has continued
to raise regulatory concerns.
o The per share consideration to be received by Company shareholders
represents a premium of 28% over the Company's March 29, 2001 closing
market price of $11.75, as quoted on NASDAQ.
o On a status quo stand-alone basis the Company's and CB&T's performance
has continued to deteriorate since year-end 1997.
The fairness opinion is directed only to the question of whether
the consideration to be received by the Company's shareholders under the
Agreement is fair and equitable from a financial perspective and does not
constitute a recommendation to any Company shareholder to vote in favor of
the affiliation. No limitations were imposed on PBS regarding the scope of
its investigation or otherwise by the Company.
Based on the results of the various analyses described above, PBS
concluded that the consideration to be received by the Company's
shareholders under the Agreement is fair and equitable from a financial
perspective to the shareholders of CB&T.
PBS and IBS will receive total fees equal to approximately $320,000
for all services performed in connection with the sale of the Company and
the rendering of the fairness opinion. In addition, the Company has agreed
to indemnify PBS and IBS and its directors, officers and employees from
liability in connection with the transaction, and to hold PBS and IBS
harmless from any losses, actions, claims, damages, expenses or liabilities
related to any of PBS' or IBS' acts or decisions made in good faith and in
the best interest of the Company.
ESOP TRUSTEE
The Agreement requires the Company to appoint an independent
special trustee for the ESOP to act as a fiduciary on behalf of the
participants in the ESOP. Among other things, the Agreement provides that
the independent special trustee shall implement a procedure for soliciting
instructions from participants in the ESOP with respect to how to vote the
shares of Common Stock allocated to their ESOP accounts.
On June 21, 2001, the Company entered into a Trustee Agreement with
First Bankers, whereby First Bankers became the independent special trustee
of the ESOP. For its services to the ESOP in connection with this
transaction, First Bankers will receive a fee of $35,000 plus additional
service fees for solicitation of voting instructions from participants in
the ESOP, and will be reimbursed for its reasonable out-of-pocket expenses,
including the fees of its legal counsel. The fees and expenses of First
Bankers are payable by the Company and are not contingent upon the closing
of the Merger.
ESOP FAIRNESS OPINION
First Bankers retained Lakeshore to render an opinion as to whether
the purchase price to be paid for the shares of the Common Stock owned by
the ESOP is at least equal to fair market value as of the close of the
transaction and whether the terms and conditions of the Merger are fair to
the ESOP and the ESOP participants from a financial point of view.
In arriving at its fairness opinion, Lakeshore reviewed, among
other things, (i) the Agreement, (ii) certain of the Company's public
reports filed with the Securities and Exchange Commission, (iii) the
Company's and CB&T's financial statements and (iv) certain other financial
and operating information with
PRELIMINARY PROXY MATERIALS 22
respect to the Company and CB&T. In addition, Lakeshore had discussions
with the management of the Company and undertook such other studies,
analyses and investigations as it deemed appropriate.
Based on its review, Lakeshore determined that (a) the purchase
price to be paid for the shares of the Common Stock owned by the ESOP is at
least equal to fair market value as of the close of the transaction and (b)
the terms and conditions of the Merger are fair to the ESOP and the ESOP
participants from a financial point of view.
For its services related to this transaction, the Company has
agreed to pay Lakeshore a fee in the amount of $15,000 and will reimburse
Lakeshore for its reasonable out-of-pocket expenses. The fee payable to
Lakeshore is not contingent upon the consummation of the Merger.
A copy of the fairness opinion, which includes a summary of the
assumptions made and the information analyzed in deriving the fairness
opinion, is attached as Annex D to this Proxy Statement and should be read
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in its entirety.
The opinions of Lakeshore are for the sole benefit of the special
trustee of the ESOP and should not be relied upon by the other shareholders
of the Company in determining whether the purchase price to be paid for
their shares of the Common Stock is at least equal to the fair market value
of their shares as of the close of the transaction, whether the terms and
conditions of the Merger are fair to them from a financial point of view or
whether or not they should vote for the proposal to approve the Agreement.
CONDITIONS TO THE MERGER
The obligations of the Company, First Financial and Merger Corp to
consummate the Merger are subject to the satisfaction of a number of
conditions, upon terms and conditions satisfactory to First Financial, on or
before Closing, including the following:
o the Company's shareholders shall have approved the Agreement;
o the parties shall have received all requisite regulatory
approvals, consents, orders and clearances required by
law for the Merger;
o the representations and warranties of each Party as set
forth in the Agreement shall be true, accurate and
complete and each Party shall have in all material
respects fulfilled or complied with each of its covenants
under the Agreement; and
o each party shall have received each of the closing
documents required to be received from the other Party
pursuant to the Agreement.
The obligations of First Financial also are contingent upon the
following:
o except for the Options, the termination or expiration of
all options, warrants, commitments, calls, puts,
agreements, understandings, arrangements or other rights
relating to the Common Stock shall have expired or been
terminated;
o receipt by the trustee of the Company's ESOP of a fairness
opinion from an independent financial advisor dated not
later than the mailing date of the mailing of this proxy
and updated as of the Effective Time;
PRELIMINARY PROXY MATERIALS 23
o First Financial shall have agreed to the amount of the
Company's potential tax liabilities in connection with the
Company's receipt of (a) proceeds from the sale of
American, MidAmerica and Egyptian and (b) proceeds from
certain income tax refunds;
o First Financial shall have received waivers from each of
the Company's and CB&T's directors of each director's
right to seek reimbursement for any indemnification
claims; and
o First Financial shall be satisfied with the terms and
conditions of all requisite regulatory approvals,
consents, orders and clearances required for the Merger.
Pursuant to the Agreement, any Party to the Agreement may in writing
waive the obligations to it of any other Party to the Agreement. Additionally,
the Agreement may be amended in writing by all the parties to the Agreement.
See "-- Waiver and Agreement."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of the Boards of Directors and management of the
Company and CB&T may be deemed to have certain interests in the Merger in
addition to their interests as shareholders of the Company generally. The
Board of Directors of the Company was aware of these interests and
considered them, among other matters, in unanimously approving the Agreement
and the transactions contemplated thereby.
CHANGE IN CONTROL PAYMENT. Wayne H. Benson is party to an
employment agreement with CB&T and the Company that provides for a severance
payment upon the termination of his employment following a change in control
of CB&T or the Company. Such payment will equal the difference between (i)
2.99 times Mr. Benson's "base amount," as defined in Section 280G(b)(3) of
the Internal Revenue Code and (ii) the sum of any other parachute payments,
as defined in Section 280G(b)(2) of the Internal Revenue Code, that he
received on account of the change in control. It is currently anticipated
that Mr. Benson will be entitled to a severance payment under his current
employment agreement in the amount of $468,638.04.
STOCK OPTIONS. Pursuant to the Agreement, at the Effective Time,
each holder of an Option will receive, in consideration for his or her
agreement to surrender such Option, the Option Consideration. The amount
each director and executive officer of the Company is expected to receive in
exchange for the cancellation of his Options outstanding as of the Record
Date is as follows:
NUMBER OF SHARES NET REALIZABLE
UNDERLYING VALUE OF ISSUED
NAME POSITION OPTIONS OPTIONS
---- -------- ---------------- ---------------
Wayne H. Benson President and Chief Executive Officer 38,617 $ 73,951.55
Douglas W. Tompson Chief Financial Officer 26,450 $ 50,651.75
Brad A. Jones Director 9,919 $ 18,994.89
Michael F. Bauman Director 9,919 $ 18,994.89
Roger A. Charleston Director 9,919 $ 18,994.89
EMPLOYEE STOCK OWNERSHIP PLAN. Upon consummation of the Merger, a
portion of the total purchase price for the acquisition of the Company will
be placed in the ESOP. Thereafter, the assets of the ESOP will be
distributed to participants in the ESOP in accordance with the terms of the
plan. Wayne H. Benson and Douglas W. Tompson are expected to receive ESOP
distributions of approximately $191,396 and $200,428, respectively, in
exchange for their interests in the ESOP.
PRELIMINARY PROXY MATERIALS 24
SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENTS. Following the Merger,
First Financial will be liable for the obligations of the Company and CB&T
under certain Supplemental Executive Retirement Agreements ("SERAs") between
CB&T and each of Douglas W. Tompson, Wayne H. Benson and Shirley B. Kessler
(collectively, the "Executives"). Pursuant to the terms of the SERAs, each
year CB&T credits an account for each Executive with the amount, if any, by
which (a) the sum of any annual additions allocated to the Executive's
account under the ESOP and any other tax-qualified, defined contribution
plan maintained by CB&T or the Company exceeds (b) the limit imposed on
annual additions by Internal Revenue Code Section 415 and any regulations
thereunder. In addition, if the limitation imposed by Section 415 of the
Internal Revenue Code reduces the benefit that the Executive accrues under
any defined benefit pension plan maintained by CB&T, CB&T, as soon as
practicable after the close of the plan year in which said reduction occurs,
contributes to the Executive's account an amount equal to the present value
of such reduction.
In accordance with the terms of the SERAs, upon an Executive's
termination of employment with the Company or CB&T, for reasons other than
death or removal for "just cause," CB&T is required to pay the balance of
the Executive's account to the Executive in 10 substantially equal annual
installments. In the event that the Executive dies before all benefit
payments have been made to him or her, CB&T will pay the Executive's
beneficiary (or estate, if he has no beneficiary) a lump sum payment within
60 days following the Executive's death, in an amount equal to the balance
of the Executive's account. In the event of a change in control (as defined
in the SERAs), the balance in the Executive's account becomes due and
payable to the Executive in one lump sum payment within 10 days following
such change in control.
DIRECTORS' AND OFFICERS' LIABILITY INSURANCE. The Agreement also
contains provisions for the maintenance of directors' and officers'
liability insurance. Under the terms of the Agreement, First Financial will
allow the Company and/or the Bank to extend the Company's current directors'
and officers' liability insurance coverage for three years from the
Effective Time with respect to certain matters occurring prior to the
Effective Time.
EFFECT ON EMPLOYEES AND CERTAIN EMPLOYEE BENEFIT PLANS
Each employee of the Company who becomes an employee of First
Financial or its subsidiaries after the Effective Time ("Continuing
Employees") will be eligible to participate in employee benefit plans of
First Financial which are substantially similar in coverage and benefits to
those available to similarly situated employees of First Financial if such
employees meet the eligibility requirements for such plans. Continuing
Employees will be given service credit for all of their service with the
Company for purposes of (a) eligibility under First Financial's employee
welfare benefit plans and (b) eligibility and vesting, but not for purposes
of benefit accrual or contributions, under First Financial's pension plan,
stock ownership plan and 401(k) plan. Continuing Employees and/or covered
dependents will not be subject to pre-existing conditions exclusions to the
extent permitted by such plans. Until such time as the Continuing Employees
become participants of First Financial's employee benefit plans as provided
under the Agreement, those employees will remain covered by the Company's
welfare benefit plans.
Following the Closing of the Merger, the Company's 401(k) plan will
be merged with First Financial's 401(k) plan, subject to the receipt of a
determination letter from the Internal Revenue Service that such merger will
not affect the tax-qualified status of either plan.
EXCHANGE OF STOCK CERTIFICATES AND SETTLEMENT OF OPTIONS
It is currently anticipated that Terre Haute First National Bank
will act as Exchange Agent to make payment of the Merger Consideration and
the Option Consideration. In order to receive payment of the Merger
Consideration and/or Option Consideration, each holder must surrender the
certificate for such shares of Common Stock or the certificate for the
Option, as the case may be, together with a duly executed letter of
transmittal (which the Exchange Agent will mail promptly after the Effective
Time to each holder of record of a certificate or certificates which,
immediately prior to the Effective Time, represented issued and outstanding
PRELIMINARY PROXY MATERIALS 25
shares of Common Stock or Options). On or before the Effective Time, First
Financial shall cause to be deposited with the Exchange Agent an amount of
immediately available funds equal to the aggregate Merger Consideration and
the aggregate Option Consideration. The Exchange Agent shall distribute the
Merger Consideration and Option Consideration to former shareholders and
optionholders of the Company within 20 business days following receipt of a
properly executed letter of transmittal and the required certificate or
certificates. The Exchange Agent will not deliver the Merger Consideration
or Option Consideration until the holder surrenders his or her certificates
representing such shares or Options or an appropriate affidavit of loss and
indemnity agreement and/or bond, as First Financial may require. If a
shareholder requests payment for shares of Common Stock in a name other than
that on the certificate for such shares is registered, then the certificate
must be properly endorsed in proper form for transfer and that the person
requesting such payment shall (a) pay the Exchange Agent any transfer or
other taxes required by reason of the payment to a person other than the
registered holder of the certificate or (b) establish to the satisfaction of
the Exchange Agent that such tax has been paid or is not payable. After the
Effective Time, there shall be no transfers on the stock transfer books of
the Company of the shares of Common Stock outstanding immediately prior to
the Effective Time and any such shares presented for transfer after the
Effective Time shall be cancelled and exchanged for the Merger
Consideration. No interest shall accrue on the Merger Consideration or the
Option Consideration after the Effective Time.
DISSENTERS' RIGHTS
Each holder of the Company's Common Stock has the right to dissent
from the Merger and receive the fair value of such shares of the Company's
Common Stock in cash if the shareholder follows the procedures set forth in
the Illinois Business Corporation Act of 1983, as amended (the "IBCA"),
included as Annex E hereto and the material provisions of which are
-------
summarized below. Pursuant to the IBCA, if a holder of the Company's Common
Stock dissents the Company, as the surviving corporation, will pay to such
shareholder the fair value of such shareholder's shares of the Company's
Common Stock, exclusive of any appreciation or depreciation in anticipation
of the Merger, as of immediately before the consummation of the Merger.
However, a dissenting shareholder must (a) file with the Company a written
demand for payment for his or her shares if the Merger is consummated prior
to the vote being taken and (b) not vote in favor of the Merger. The
Exchange Agent will include notice of the Effective Date in its letter to
all shareholders of the Company notifying them of the procedures to exchange
their shares for the cash payment due to such shareholders pursuant to the
Agreement. Such letter shall be sent promptly following the Effective Date.
Within 10 days after the shareholders' vote is effective or 30 days after
the shareholder delivers to the Company the written demand for payment,
whichever is later, the Company shall send each shareholder who has
delivered a written demand for payment a statement setting forth the opinion
of the Company as to the estimated fair value of the shares, the Company's
latest balance sheet as of the end of a fiscal year ended not earlier than
16 months before the delivery of the statement, together with the statement
of income for that year and the latest available interim financial
statements, and a commitment to pay for the shares of the dissenting
shareholder at the estimated fair value thereof upon transmittal to the
Company of the certificate or certificates, or other evidence of ownership,
with respect to the shares. A VOTE AGAINST THE MERGER, WHETHER BY PROXY OR
IN PERSON, WILL NOT, BY ITSELF, BE REGARDED AS A WRITTEN DEMAND FOR PAYMENT
FOR PURPOSES OF ASSERTING DISSENTERS' RIGHTS.
Upon consummation of the Merger, the Company shall pay to each
dissenter who transmits to the Exchange Agent the certificate or other
evidence of ownership of the shares the amount the Company estimates to be
the fair value of the shares, plus accrued interest, accompanied by a
written explanation of how the interest was calculated. Upon payment of the
agreed value, the dissenting shareholder shall cease to have any interest in
such shares or in the Company.
If the dissenting shareholder does not agree with the opinion of
the Company as to the estimated fair value of the shares or the amount of
interest due, the dissenting shareholder must, within 30 days from the
delivery of the Company's statement of value, notify the Company in writing
of the shareholder's estimated fair value and interest due and demand
payment for the difference between the shareholder's estimate of fair value
and interest due and the amount of the payment by the Company. If, within 60
days from delivery to the
PRELIMINARY PROXY MATERIALS 26
Company of the shareholder notification of estimate of fair value of
shares and interest due, the Company and the dissenting shareholder have not
agreed in writing upon the fair value of the shares and interest due, the
Company shall either pay the difference in value demanded by the
shareholder, with interest, or file a petition in the circuit court of the
county in which either the registered office or the principal office of the
Company is located, requesting the court to determine the fair value of the
shares and interest due. The "fair value" determined by the court may be
more or less than the amount offered to the Company's shareholders under the
Agreement. The judgment shall be payable only upon, and simultaneously with,
the surrender to the Company of the certificate or certificates representing
said shares of the Company Common Stock. Upon the payment of the judgment,
the dissenting shareholder shall cease to have any interest in such shares
or in the Company.
THE FOREGOING SUMMARY OF THE PROVISIONS REGARDING DISSENTERS'
RIGHTS UNDER THE IBCA IS QUALIFIED IN ITS ENTIRETY BY THE COMPLETE TEXT OF
THE IBCA WHICH IS ATTACHED HERETO AS ANNEX E.
-------
Shareholders who are interested in perfecting dissenters' rights
pursuant to the IBCA in connection with the Merger should consult with their
counsel for advice as to the procedures required to be followed.
PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME.
EFFECTIVE TIME
The Effective Time shall be upon the issuance of a Certificate of
Merger by the Secretary of State of the State of Illinois and the Secretary
of State of the State of Indiana, which the parties will use their best
efforts to cause to occur on the Closing Date. Assuming that the Agreement
is approved by the Company's shareholders, the Merger will remain subject to
a number of conditions, including the receipt of required regulatory
approvals. See "-- Regulatory Approvals."
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of the material United States
federal income tax consequences to a shareholder of the Company
participating in the Merger. The discussion does not purport to be a
complete analysis of all potential tax considerations or consequences that
may be relevant to particular shareholders of the Company (including foreign
persons and persons who are not citizens or residents of the United States,
insurance companies, tax-exempt entities, financial institutions or broker
dealers, retirement plans, dealers in securities, persons who acquired their
shares of Common Stock pursuant to the exercise of employee stock options or
otherwise as compensation, and persons who hold their shares of Common Stock
as part of a "straddle," "hedge" or "conversion transaction subject to
special treatment under federal income tax laws.") The following discussion
assumes that all Company shares are held as capital assets in the hands of
Company shareholders.
The statements in this discussion are based on current provisions
of the Internal Revenue Code of 1986, as amended (the "Code"), existing,
temporary, and currently proposed Treasury Regulations promulgated under the
Code, the legislative history of the Code, existing administrative rulings
and practices of the Internal Revenue Service (the "Service"), and judicial
decisions. No assurance can be given that future legislative, judicial or
administrative actions or decisions, which may be retroactive in effect,
will not affect the accuracy of any statements in this Registration
Statement with respect to the transactions contemplated prior to the
effective date of such changes.
EACH SHAREHOLDER OF THE COMPANY SHOULD CONSULT HIS OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE MERGER,
INCLUDING THE FEDERAL, STATE, LOCAL FOREIGN, AND OTHER TAX CONSEQUENCES OF
SUCH MERGER, AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
For federal income tax purposes, the receipt of cash by a
shareholder of the Company in exchange for shares of the Common Stock
pursuant to the Merger will constitute a taxable transaction to such
shareholder. In
PRELIMINARY PROXY MATERIALS 27
general, a shareholder who receives cash in the Merger in exchange for
such shareholder's shares of Common Stock will recognize gain or loss equal
to the difference, if any, between (a) the sum of the cash payment of
approximately $15.04 per share received from First Financial in exchange for
the shares of the Common Stock and (b) the shareholder's tax basis in such
Common Stock. Gain or loss will be calculated separately for each block of
Company shares purchased by First Financial. Such capital gain or loss will
be treated as long-term capital gain or loss if the tendering Company
shareholder has held such shares for more than 12 months at the time of such
purchase. Long-term capital gain realized by a non-corporate taxpayer is
taxed at a maximum federal rate of 20 percent. Capital losses not offset by
capital gains may be deducted against a non-corporate taxpayer's ordinary
income only up to a maximum annual amount of $3,000. Unused capital losses
may be carried forward indefinitely by non-corporate taxpayers. All net
capital gain of a corporate taxpayer is subject to tax at ordinary corporate
rates. A corporate taxpayer can deduct capital losses only to the extent of
capital gains, with unused losses being carried back three years and forward
five years.
INFORMATION REPORTING AND BACKUP WITHHOLDING. First Financial will
report to tendering Company shareholders and to the Service the amount paid
for the Company shares.
The cash payments due to the holders of the Common Stock upon the
exchange thereof pursuant to the Merger (other than certain exempt entities
and persons, such as corporations) will be subject to a backup withholding
tax at the rate of 31% unless certain requirements are met. Generally, the
Exchange Agent will be required to deduct and withhold the tax in the
following circumstances: (a) the shareholder fails to furnish a taxpayer
identification number ("TIN") to the Exchange Agent or fails to certify
under penalty of perjury that such TIN is correct; (b) the Service notifies
the Exchange Agent that the TIN furnished by the shareholder is incorrect;
(c) the Service notifies the Exchange Agent that the shareholder has failed
to report interest, dividends or original issue discount in the past; or (d)
there has been a failure by the shareholder to certify under penalty of
perjury that such shareholder is not subject to the backup withholding tax.
Any amounts withheld by the Exchange Agent in collection of the backup
withholding tax will reduce the federal income tax liability of the
shareholders from whom such tax was withheld.
NO SOLICITATION
The Agreement contains certain provisions that may have the effect
of discouraging competing offers to acquire or merge with the Company. The
Agreement provides that the Company and its subsidiary will not permit any
of their respective officers, directors, employees or agents to hold
discussions with or provide any information to any person in connection with
any proposal for the acquisition of all or any substantial portion of the
business, assets, shares of Common Stock or other securities of the Company
or CB&T, or any merger of the Company or CB&T with any person. The Company
is obligated to promptly inform First Financial of its receipt of any such
proposal and the substance of such proposal.
CONDUCT OF BUSINESS PENDING THE MERGER
The Company has agreed that it will conduct its business in the
ordinary course and preserve its business intact. Among other things, the
Agreement provides that the Company will not, without the prior written
consent of First Financial,
o (a) make any changes in, authorize the issuance of,
encumber, make any shareholder distributions with respect
to, redeem, grant a security interest in or right to
acquire its capital stock; or (b) merge or sell
substantially all of the assets of the Company or CB&T, or
enter into any agreement or commitment relative to the
foregoing;
o purchase, sell or combine any assets, real estate or
securities or assume any liabilities of another bank
holding company, bank, corporation or other entity, except
in the ordinary course of business necessary to manage its
investment portfolio;
PRELIMINARY PROXY MATERIALS 28
o make any loan or commitment to lend money, issue any
letter of credit or accept any deposit or subject any of
the Company's properties or assets to any encumbrance,
except in the ordinary course of business in accordance
with its existing banking practices;
o change any Company officer's or employee's compensation or
terms of employment; renew, change or create any employee
benefit plan, employment agreement, stock option plan or
bonus agreements, or change the level of benefits or
payments under any of the foregoing, or increase or
decrease any severance or termination of pay benefits, or
any other fringe or employee benefits, other than as
required by law;
o hire or employ any new or additional employees of the Company
or CB&T, except those which are reasonably necessary for the
proper operation of its business;
o amend, modify or restate Community's or CB&T's Articles of
Incorporation or By-Laws from those in effect on the
date of this Agreement;
o fail to maintain, in accordance with past practices, the
Company's or CB&T's reserve for loan and lease losses in
accordance with safe, sound and prudent banking practices;
o fail to accrue, pay, discharge and satisfy all debts,
liabilities, obligations and expenses as such may come due;
o open, close, move or, in any material respect, expand,
diminish, renovate, alter or change any of the Company's
or CB&T's offices or branches;
o pay or commit to pay any management or consulting or other
similar type of fees; or
o enter into any agreement requiring payments in excess of
$10,000.
Under the Agreement, the Company also agreed that it will:
o maintain current levels of insurance;
o permit First Financial access to its properties, facilities,
operations, books and records as necessary to become familiar
with the Company;
o deliver to First Financial monthly unaudited consolidated
balance sheets and profit and loss statements, CB&T's call
reports for each quarterly period before the Effective
Time and all other financial reports or statements
submitted by the Company or CB&T;
o cooperate with First Financial to terminate the Company's
tax-qualified employee benefit plans;
o appoint an independent fiduciary to act solely on behalf
of the Company's ESOP and 401(k) Plans (together, the
"Plans") and the participants and beneficiaries thereunder
to:
(a) implement a voting procedure so that the
participants under the Plans and their
beneficiaries may vote the shares of
Common Stock allocated to their accounts
with respect to the Merger; and
(b) provide (1) written notice regarding the
existence of and provisions for such voting
procedures and (2) a copy of this Proxy
Statement;
PRELIMINARY PROXY MATERIALS 29
o obtain a written opinion from an independent financial advisor
to the Special Trustee of the ESOP stating that (a) the
consideration given to the ESOP in the Merger in exchange
for the shares of Common Stock will constitute no less than
"adequate consideration" as defined in Section 3(18)
of Employee Retirement Income Security Act of 1974 ("ERISA")
and (b) that the terms and conditions of the Merger are fair
to the ESOP and its participants from a financial point of
view. In addition, prior to the distribution of any ESOP
accounts in connection with the termination of the ESOP, the
Company shall obtain a determination letter from the Internal
Revenue Service that the termination will not affect the
tax-qualified status of the ESOP;
o except as required by law, not issue any press release or
make any public announcements regarding the Merger and the
transactions contemplated thereby;
o pay all legal, accounting and investment banking fees of
the Company relating to the Merger and the transfer, in
December 2000, of Common Stock by the Company ESOP to the
Company.
Prior to the Effective Time, the Company also has agreed to:
(a) pay to the Special Trustee of the Company's ESOP an
amount equal to the amount to be placed in the ESOP
pursuant to the Agreement; and
(b) file certain federal tax returns related to the
Company's employee benefit plans and pay all
taxes for calendar years 2000 and 2001.
The Company also has agreed that it will cause CB&T to:
o accrue for and pay all salary termination expenses associated
with the termination of CB&T's and the Company's employment
agreements; and
o prior to the Effective Time, make an additional provision
to CB&T's allowance for loan loss reserve in an amount as
requested by First Financial.
Under the Agreement, among other things, First Financial agreed to:
o be primarily responsible for the preparation of and costs
associated with filing CB&T regulatory applications
required for the Merger; and
o offer the same employee benefits available to First
Financial's employees to the Continuing Employees after
the Effective Time (See "Effect on Employees and Certain
Employee Benefit Plans" for a more detailed discussion).
In addition, First Financial and Merger Corp agreed to assume and
be jointly and severally liable for each of the Company's and CB&T's rights
and obligations under certain supplemental retirement agreements between
CB&T and each of Douglas W. Tompson, Wayne H. Benson and Shirley B. Kessler.
REPRESENTATIONS AND WARRANTIES
The Agreement contains extensive representations and warranties by
the Company and First Financial. These include the usual representations and
warranties made in connection with business combinations of nonaffiliated
entities. See the "Representations and Warranties of Community" and
"Representation and Warranties of First Financial" sections in the
Agreement. However, the Company made additional
PRELIMINARY PROXY MATERIALS 30
representations and warranties to First Financial which included, among
other things, representations and warranties as to the following:
o the absence of material adverse changes and the conduct of
the Company and CB&T since December 31, 2000;
o the absence of shareholder rights and other anti-takeover
mechanisms not already disclosed to First Financial;
o obligations to brokers and finders;
o the documents, including financial statements and other
reports, filed by the Company and CB&T with the applicable
regulatory authorities including the Federal Reserve, Federal
Deposit Insurance Corporation ("FDIC"), state regulatory
agencies, self-regulatory organizations and the Securities
Exchange Commission;
o the accuracy of the information supplied by the Company in
its disclosure to First Financial;
o FDIC deposit insurance;
o the Company's capital structure;
o the absence of liabilities not disclosed with respect to the
Company's sale of MidAmerica, Egyptian and American;
o the absence of the right of third parties to acquire the
capital stock or assets of the Company of CB&T;
o the Company's Board of Directors having been informed by a
financial adviser that the terms of the Merger are fair to
the Company's shareholders; and
o agreements with regulatory agencies.
TERMINATION OF THE AGREEMENT
The Agreement provides that either Party may terminate the
Agreement upon written notice to the other Party if:
o the Merger has not been consummated by September 30, 2001;
o the Company's shareholders do not approve the Agreement and
the Merger by the requisite vote;
o the respective Boards of Directors of the Company and First
Financial mutually agree to terminate the Agreement;
o a Party misrepresents information or breaches a warranty
or a covenant of the Agreement which may have a material
adverse effect on such Party's business, assets,
capitalization, financial condition or results of
operations; or
o a Party determines that the Merger has become inadvisable
or impracticable due to the commencement or threat of any
claim, litigation or proceeding against it, the other
Party, or any director or officer of either Party (a)
relating to the Agreement or the Merger or (b) which is
likely to have a material adverse effect on such the other
Party's business, assets, capitalization, financial
condition or results of operations.
First Financial may also terminate the Agreement prior to the
Effective Time if:
o First Financial determines that any item, event or
information provided by the Company under the Agreement,
or that First Financial becomes aware of, has had or could
be expected to have a material adverse effect on the
Company's business, assets, capitalization, financial
condition or results of operations;
PRELIMINARY PROXY MATERIALS 31
o the Company misrepresents the number of issued and
outstanding shares of Common Stock or options to purchase
shares of capital stock of the Company or CB&T, regardless
of the materiality of any such inaccuracy;
o the Company fails to comply with any covenant in the
Agreement which could reasonably be expected to have a
material adverse effect on the economic value of the
Merger to First Financial;
o there has been a material adverse change in the Company's
business, assets, capitalization, financial condition or
results of operations since December 31, 2000, other than
as allowed by the Agreement or resulting primarily by
reason of changes in banking laws, the general level of
interest rates or changes in economic, financial or market
conditions affecting the banking industry generally in the
Company's market area; or
o the Company's Board of Directors withdraws or modifies its
approval and recommendation of the Agreement in any manner
adverse to First Financial.
WAIVER AND AMENDMENT
The conditions of the Agreement which may be waived may only be
waived by notice to the other Party waiving such condition. The Agreement
may be amended or modified by the Parties only by a written agreement signed
by the Parties.
EXPENSES
The Agreement provides that each Party shall bear and pay all
expenses incurred by it in connection with the transactions contemplated by
the Agreement. However, First Financial will bear the cost of obtaining the
necessary banking regulatory approvals and the Company will bear the cost of
sending out this Proxy Statement.
ACCOUNTING TREATMENT
The Merger and the transactions contemplated thereby will be accounted
for under the purchase method of accounting as required by Accounting
Principles Board Opinion No. 16 Business Combinations.
REGULATORY APPROVALS
Consummation of the Merger is subject to the receipt of all
regulatory approvals required for the completion of the Merger, including
the approval of the Federal Reserve, upon terms and conditions satisfactory
to First Financial. The required applications regarding the Merger have been
filed with the Federal Reserve. There can be no assurance that the approval
of the Federal Reserve will be granted or as to the timing of such approval.
PRELIMINARY PROXY MATERIALS 32
COMMUNITY FINANCIAL CORP.
GENERAL
COMMUNITY FINANCIAL CORP. The Company is registered with the
Federal Reserve as a bank holding company under the BHCA. The Company wholly
owns one bank subsidiary, CB&T, headquartered in Illinois.
The Company's principal business is overseeing the business of its
wholly owned bank subsidiary and investing its assets. The Company's
subsidiary accepts deposits from the general public and invests those funds
in loans in their market areas and in investment securities and mortgage-
backed securities. At March 31, 2001, the Company had total assets of $219.1
million, total deposits of $177.4 million and shareholders' equity of $33.0
million. Subsequent to this date, American was sold. At March 31, 2001,
American had total assets of $32.6 million, total deposits of $29.4 million
and shareholders' equity of $3.1 million.
On February 28, 2001, the Company completed the sale of two of its
subsidiaries: Egyptian and MidAmerica. Egyptian was purchased by Midwest
Community Bancshares, Inc. of Marion, Illinois for $4.2 million and
MidAmerica was purchased by First National Bank of St. Louis for $3.7
million. On April 20, 2001, the Company completed the sale of American to
First Mid-Illinois Bank & Trust, N.A. for $3.7 million.
The Company's executive offices are located at 240 E. Chestnut
Street, Olney, Illinois 62450-2295, and its main telephone number is
(618) 395-8676.
CB&T. CB&T is a national bank operating through six offices serving
Richland, Coles, Jasper, Lawrence and Wayne and contiguous counties in
Southeastern Illinois. CB&T was chartered in 1883 as Olney Building and Loan
Association. In 1961, CB&T changed its name to Olney Savings and Loan
Association. CB&T expanded its branch office network through a series of
acquisitions of other financial institutions, acquiring its Lawrenceville
and Fairfield offices in 1983, its Charleston office in 1989 and its Newton
office in 1990. CB&T became an Illinois state savings bank in July 1992, at
which time it adopted the title Community Bank & Trust, sb, and converted to
a federally chartered mutual savings bank under the name Community Bank &
Trust, fsb in February 1995. In June 1995, CB&T became a national bank and
adopted its present name. At March 31, 2001, CB&T had total assets of $176.5
million and total deposits of $148.1 million.
CB&T's deposits are insured by the Savings Association Insurance
Fund ("SAIF") of the FDIC up to the applicable limits for each depositor.
CB&T is subject to comprehensive examination, supervision and regulation by
the Office of the Comptroller of the Currency ("OCC"). This regulation is
intended primarily for the protection of depositors.
MARKET AREAS
CB&T conducts its business through its main office in Olney,
Illinois and its five branch offices in Olney, Lawrenceville, Fairfield,
Newton and Charleston, Illinois. CB&T's primary market area consists of
Richland, Jasper, Lawrence and Wayne Counties and the eastern two-thirds of
Coles County, Illinois, and each of CB&T's offices is located in the county
seat of those counties. CB&T also has loan and deposit customers in Clay,
Crawford, Cumberland, Edwards, Effingham, White and Wabash Counties,
Illinois, which are contiguous to its primary market area. A significant
percentage of CB&T's lending activities are conducted in its primary market
area.
CB&T's market area is largely rural, with the exception of
Charleston which is home to a university. The main industry in CB&T's market
area is agriculture, with most of the farms being relatively small and
family owned. The local economy also is dependent on light industry. Major
employers in the area include Prairie Farms, Golden Rule Insurance, Ruckers
Wholesale, Trim Masters Inc., Airtex, Grain Systems, Inc., Trailmobile,
Wal-Mart Stores and Distribution Center, and Eastern Illinois University.
Oil production has been
PRELIMINARY PROXY MATERIALS 33
present in CB&T's market area since the 1920s, but production has been
significantly reduced. However, related businesses still exist in the area.
COMPETITION
The Company faces strong competition both in originating real
estate, agriculture, automobile, consumer and other loans and in attracting
deposits. The Company competes for real estate and other loans principally
on the basis of interest rates, the types of loans it originates and the
quality of services it provides to borrowers. Its competition in originating
real estate loans comes primarily from savings institutions, commercial
banks and mortgage bankers making loans secured by real estate located in
the Company's market area. Commercial banks, credit unions and finance
companies provide vigorous competition in consumer lending. Competition may
increase as a result of the continuing reduction of restrictions on the
interstate operations of financial institutions.
CB&T attracts all its deposits through its branch offices primarily
from the communities in which those branch offices are located.
Consequently, competition for deposits is principally from other savings
institutions, commercial banks, credit unions and brokers in these
communities. CB&T competes for deposits and loans by offering a variety of
deposit accounts at competitive rates, a wide array of loan products,
convenient business hours and branch locations, a commitment to outstanding
customer service and a well-trained staff. In addition, CB&T has developed
strong relationships with local businesses, realtors and the public in
general.
EMPLOYEES
As of March 31, 2001, the Company and its subsidiary had 61
full-time and 10 part-time employees, none of whom were represented by a
collective bargaining agreement, and management considers relationships with
employees to be good.
FIRST FINANCIAL CORPORATION
First Financial became a multi-bank holding company in 1984. It
serves as the holding company of Terre Haute First National Bank; The Morris
Plan Company of Terre Haute, Inc.; First State Bank; First Citizens State
Bank; First Farmers State Bank; First Parke State Bank; First Ridge Farm
State Bank; First National Bank of Marshall; First Crawford State Bank;
First Financial Reinsurance Company, Ltd.; and Forrest Sherer, Inc. At March
31, 2001, on a consolidated basis, First Financial reported total assets of
$2.0 billion, total deposits of $1.3 billion and shareholders' equity of
$202.5 million.
First Financial, which is headquartered in Terre Haute, Indiana,
offers a wide variety of financial services, including commercial and
consumer lending, lease financing, trust account services and depositor
services. Terre Haute First National Bank is the largest bank in Vigo
County, Indiana. It operates twelve full service banking branches within the
county. It also has a main office in downtown Terre Haute and an operations
center in southern Terre Haute.
First Financial operates 37 branches in west-central Indiana and
east-central Illinois. First Financial's primary source of revenue is
derived from loans to customers, primarily middle-income individuals, and
investment activities.
The executive offices of First Financial are located at One First
Financial Plaza, Terre Haute, Indiana 47807, and its main telephone number
is (812) 238-6000.
PRELIMINARY PROXY MATERIALS 34
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company's net income is dependent primarily on its net interest
income. Net interest income is determined by (a) the difference between
yields earned on interest-earning assets (loans, mortgage-backed and related
securities portfolio) and rates paid on interest-bearing liabilities
("interest rate spread") and (b) the relative amounts of interest-earning
assets and interest-bearing liabilities. The Company's interest rate spread
is affected by regulatory, economic and competitive factors that influence
interest rates, loan demand and deposit flows. To a lesser extent, the
Company's net income also is affected by the level of general and
administrative expenses and the level of other income, which primarily
consists of service charges and other fees.
The operations of the Company are significantly affected by
prevailing economic conditions, competition and the monetary, fiscal and
regulatory policies of governmental agencies. Lending activities are
influenced by the demand for and supply of housing, competition among
lenders, the level of interest rates and the availability of funds. Deposit
flows and costs of funds are influenced by prevailing market rates of
interest, primarily on competing investments, account maturities and the
levels of personal income and savings in the Company's market area.
FORWARD-LOOKING STATEMENTS
When used in this proxy, the words or phrases "will likely result,"
"are expected to," "will continue," "is anticipated," "estimate," "project"
or similar expressions are intended to identify "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
Such statements are subject to certain risks and uncertainties including
changes in economic conditions in the Company's market area, changes in
policies by regulatory agencies, fluctuations in interest rates, demand for
loans in the Company's market area, and competition that could cause actual
results to differ materially from historical earnings and those presently
anticipated or projected. Shareholders should not place undue reliance on
any such forward-looking statements, which speak only as of the date made.
The factors listed above could affect the Company's financial performance
and could cause the Company's actual results for future periods to differ
materially from any opinions or statements expressed with respect to future
periods in any current statements.
The Company does not undertake, and specifically disclaims any
obligation, to publicly release the result of any revisions which may be
made to any forward-looking statements to reflect events or circumstances
after the date of such statements or to reflect the occurrence of
anticipated or unanticipated events.
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2001 AND DECEMBER 31, 2000
The Company's financial condition decreased during the period as
reflected by a decrease in total assets of $58.6 million, or 21.1% from
$277.7 million at December 31, 2000 to $219.1 million at March 31, 2001. The
decrease was primarily due to the sales of Egyptian, which reduced assets by
$39.1 million, and MidAmerica, which reduced assets by $29.8 million, on
February 28, 2001. After restating the December 31, 2000 financial statement
to remove the effects of the February 28, 2001 sale of these subsidiaries,
the Company's financial position remained unchanged as total assets
increased, net of sale proceeds of $7.9 million, by $2.6 million, or 1.2%
from $216.5 million at December 31, 2000 (restated) to $219.1 million at
March 31, 2001.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2001
AND 2000
NET INCOME. The Company reported a net loss of $2.3 million for the
three months ended March 31, 2001, as compared to net income of $314,000 for
the three months ended March 31, 2000. This represents a decrease of $2.6
million which was primarily due to the loss on the sale of the subsidiaries
of $2.4 million and associated expenses.
PRELIMINARY PROXY MATERIALS 35
NET INTEREST INCOME. Net interest income decreased $180,000, or
9.5% from $1.9 million for the three months ended March 31, 2000 to $1.7
million for the three months ended March 31, 2001.
INTEREST INCOME. Interest income decreased by $473,000, or 10.8%
from $4.4 million at March 31, 2000 to $3.9 million at March 31, 2001.
Interest income on loans decreased by $149,000, or 4.7% from $3.1 million
for the three months ended March 31, 2000 to $3.0 million for the three
months ended March 31, 2001. The decrease was due to a volume decrease as
the balance of loans decreased $8.1 million, or 5.5% from $148.4 million for
the quarter ended March 31, 2000 (restated) to $140.3 million for the
quarter ending March 31, 2001 (restated). The decrease in interest income on
the investment portfolio of $324,000 (restated), or 27.2% was due to the
reduction of the investment portfolio.
INTEREST EXPENSE. Interest expense decreased $293,000, or 11.9%
from $2.5 million for the three months ended March 31, 2000 to $2.2 million
for the three months ended March 31, 2001. Interest expense on deposits
increased by $175,000, or 9.3% from $1.9 million for the three months ended
March 31, 2000 to $2.1 million for the three months ended March 31, 2001.
The increase was due to a volume increase as the balance of deposits
increased $5.8 million, or 3.4% from $171.6 million for the quarter ended
March 31, 2000 (restated) to $177.4 million for the quarter ending March 31,
2001 (restated). Interest on borrowings decreased by $468,000, or 79.9% from
$586,000 for the three months ended March 31, 2000 to $118,000 for the three
months ended March 31, 2001. The primary reason for the decrease was due to
the reduction in borrowings from $30.1 million at March 31, 2000 to $5.0
million at March 31, 2001.
PROVISION FOR LOAN LOSSES. The Company established provisions for
loan losses of $49,000 and $64,000 for the three months ended March 31, 2001
and 2000, respectively. The Company's provisions for loan losses for the
three months ended March 31, 2001, were made to maintain the allowance for
loan losses at an adequate level during that period. While the Company's
management believes that the allowance for loan losses is adequate at the
present time, it makes no assurance that the allowance for loan losses will
be adequate to cover any losses on non-performing assets in the future.
NONINTEREST INCOME (LOSS). Noninterest income was a loss of $2.1
million for the three months ended March 31, 2001 as compared to a gain of
$507,000 for the three months ended March 31, 2000. The reduction of
noninterest income was primarily due to the $2.4 million loss from the sale
of the subsidiaries. The loss was primarily the result of writing off the
unamortized balance of goodwill. After removing the activity relating to the
sale of the subsidiaries, the restated noninterest income decreased by
$105,000, or 19.7% from $532,000 at March 31, 2000 to $427,000 at March 31,
2001. Of the decrease, service fees decreased $85,000, or 19.5% from
$435,000 for the three months ended March 31, 2000 to $350,000 for the three
months ended March 31, 2001 as the result of decreased loan volume during
the periods.
NONINTEREST EXPENSE. Noninterest expense decreased by $164,000, or
8.9% from $1.8 million for the three months ended March 31, 2000 to $1.7
million for the three months ended March 31, 2001. Of the decrease, salaries
and employee benefits decreased $251,000, or 27.1% from $927,000 for the
three months ended March 31, 2000 to $676,000 for the three months ended
March 31, 2001 primarily as a result of the ESOP being terminated after
December, 2000 and the final MRP allocation was made in 2000. In addition,
data processing fees increased $40,000, or 42.1% from $95,000 for the three
months ended March 31, 2000 to $135,000 for the three months ended March 31,
2001 due to conversion related expenses.
INCOME TAX EXPENSE. The Company's income tax expense was estimated
at $141,000 and $173,000 for the three months ended March 31, 2001 and 2000,
respectively. The losses from the sale of the subsidiaries are considered
capital losses and do not reduce income from operations for income tax
purposes.
PRELIMINARY PROXY MATERIALS 36
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 2000 AND 1999
The Company's financial condition decreased during the 2000 period
as reflected by a decrease in total assets of $32.2 million from $309.9
million at December 31, 1999 to $277.7 million at December 31, 2000. The
Company's strategic plan was to reduce the $36.0 million of short term
borrowing that was reported at December 31, 1999, due to the rising cost to
carry this type of liability. To achieve this goal, the Company reduced the
short term borrowings by applying the proceeds from the principle reduction
of the investment portfolio, tightened its lending requirements and actively
seeking deposit growth.
The Company's cash and cash equivalents increased $4.7 million, or
29.9% from $15.7 million at December 31, 1999 to $20.4 million at December
31, 2000. The increase is primarily the result of securities sold late in
December 2000 with a portion of the proceeds applied to eliminate the
balance of short term borrowings and the remainder was invested in the first
quarter of 2001.
The Company's investment securities decreased by $4.2 million, or
6.8%, from $62.2 million at December 31, 1999 to $58.0 million at December
31, 2000 as a result of securities being called or maturing. The decrease
was used primarily to fund the reduction in short term borrowing. The
Company's mortgage-backed and related securities decreased by $23.8 million,
or 68.6%, from $34.7 million at December 31, 1999 to $10.9 million at
December 31, 2000. The decrease is the result of principal payback, sales
and maturities. The decrease was used primarily to fund the reduction in
short term borrowing. Securities held to maturity and mortgage-backed and
related securities held to maturity reflect a decrease as a result of the
Company's affiliates, Egyptian and Saline County Bank, being merged in May
2000 into one bank charter with Egyptian being the survivor. As a result of
this merger, the securities held to maturity portfolio totaling $16.1
million and the mortgage-backed and related securities held to maturity
portfolio totaling $319,000 at May 2000 were reclassified as securities
available for sale and mortgage-backed and related securities available for
sale. At December 31, 2000, the Company's portfolio of investment securities
and mortgage-backed and related securities classified as available for sale
pursuant to Statement of Financial Accounting Standards ("SFAS") No. 115,
decreased capital by $303,000 (net of taxes) as a result of a decrease in
the market value.
The Company's net loans receivable decreased $8.0 million, or 4.5%
from $179.5 million at December 31, 1999 to $171.5 million at December 31,
2000. The decrease was primarily due to automobile loans decreasing $8.3
million, or 24.1% from $34.4 million at December 31, 1999 to $26.1 million
at December 31, 2000. The Company relaxed the aggressive approach used in
prior years based on the increased competition for automobile loans and
redirected the proceeds to retire outstanding borrowings. Real estate loans
decreased by $3.0 million, or 2.4 % from $123.4 million at December 31, 1999
to $120.4 million at December 31, 2000 as competition for real estate loans
increased. Agriculture loans increased $2.0 million, or 22.2% from $9.0
million at December 31, 1999 to $11.0 million at December 31, 2000 and
commercial loans increased $2.6 million, or 45.6% from $5.7 million at
December 31, 1999 to $8.3 million at December 31, 2000. The reduction and
restructuring of the loan portfolio increased the weighted average interest
rate on loans by 5 basis points from 8.57% at December 31, 1999 to 8.62% at
December 31, 2000. The allowance for loan and lease losses increased
$900,000, or 56.2%, from $1.6 million at December 31, 1999 to $2.5 million
at December 31, 2000. The increase in the allowance for loan and lease loss
reserves was based on the quarterly analysis that additional reserves were
needed. The review process applies different risk ratings to the
concentrations of credit within the total loan portfolio. In addition, the
process takes into consideration the effect that changing economic
conditions has had on individual credits in the past, present and future.
The increase in the allowance for loan and lease loss reserve was the result
of identifying a need to add to the reserves.
Deposits increased by $7.6 million, or 3.4% from $225.2 million at
December 31, 1999 to $232.8 million at December 31, 2000. The increase was
due to non-interest demand deposits increasing $3.4 million, or 23.6% from
$14.4 million at December 31, 1999 to $17.8 million at December 31, 2000,
money market deposits increasing $3.6 million, or 17.6% from $20.5 million
at December 31, 1999 to $24.1 million at December 31, 2000 and time deposits
increased by $4.1 million, or 3.0% from $136.3 million at December 31, 1999
to $140.4
PRELIMINARY PROXY MATERIALS 37
million at December 31, 2000 while interest bearing demand deposits
decreased $1.2 million, or 4.3% from $27.7 million at December 31, 1999 to
$26.5 million at December 31, 2000 and passbook savings decreased by $2.3
million, or 8.8% from $26.2 million at December 31, 1999 to $23.9 million at
December 31, 2000. The weighted average cost of deposits increased by 72
basis points from 4.21% for the year ended December 31, 1999 to 4.93% for
the year ended December 31, 2000.
The Company's repurchase agreements decreased by $4.1 million, or
59.4%, from $6.9 million at December 31, 1999 to $2.8 million at December
31, 2000. The repurchase program was introduced in 1996 to attract large
depositors. The FDIC does not insure these liabilities. The Company's
Federal Home Loan Bank advances decreased $36.0 million, or 85.7%, from
$42.0 million at December 31, 1999 to $6.0 million at December 31, 2000.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
NET INCOME. The Company reported a net loss of $1.5 million for the
year ended December 31, 2000, as compared to net income of $1.1 million for
the year ended December 31, 1999. This represents a decrease of $2.6
million, or 236.4%. The decrease in net income was primarily due to (on a
pre-tax basis) the provision for loan losses increasing $2.7 million, or
385.7% from $707,000 for the year ended December 31, 1999 to $3.4 million
for the year ended December 31, 2000. The increase in the provision for loan
losses was primarily due to a commercial loan write-off of $1.7 million. The
U.S. Department of Justice has attempted to seize certain assets of a
customer which secured a loan, due to the customer's admitted involvement in
a Ponzi scheme. In addition, the results of the quarterly review of the
allowance for loan and lease losses identified the need to add $900,000 to
the reserves due to changing economic conditions and the impact higher
interest rates have had on certain credits to bring the allowance for loan
and lease losses into compliance with the Company's policies.
NET INTEREST INCOME. Net interest income decreased by $74,000, or
0.8%, from $9.4 million for the year ended December 31, 1999 to $9.3 million
for the year ended December 31, 2000. The decrease in net interest income
reflects an increase in interest income of $166,000, or 0.8%, from $21.7
million for the year ended December 31, 1999 to $21.9 million for the year
ended December 31, 2000. The increase was primarily due to the average yield
on interest earning assets increasing 27 basis points from 7.36% for the
year ended December 31, 1999 to 7.63% for the year ended December 31, 2000.
The cost of interest-bearing liabilities increased by $240,000, or 2.0%,
from $12.3 million for the year ended December 31, 1999 to $12.5 million for
the year ended December 31, 2000. The increase was due to an increase in the
average cost of liabilities of 61 basis points, from 4.48% for the year
ended December 31, 1999 to 5.09% for the year ended December 31, 2000.
INTEREST INCOME. Interest income was $21.9 million for the year ended
December 31, 2000, as compared to $21.7 million for the year ended December
31, 1999, representing an increase of $166,000, or 0.8%. The increase was
primarily due to an increase of 27 basis points in rates on average earning
assets from 7.36% for the year ended December 31, 1999 to 7.63% for the year
ended December 31, 2000 in connection with a volume decrease of $8.2 million
or 2.8%, from $294.6 million for the year ended December 31, 1999 to $286.4
million for the year ended December 31, 2000. Interest on loans increased by
$870,000, or 5.9%, from $14.6 million for the year ended December 31, 1999
to $15.5 million for the year ended December 31, 2000. This is due primarily
to a volume increase of $9.1 million, or 5.3%, in the average balance of
(net) loans receivable from $171.0 million at December 31, 1999 to $180.1
million at December 31, 2000. Interest income on mortgage-backed and related
securities decreased $538,000, or 20.6% from $2.6 million for the year ended
December 31,1999 to $2.1 million for the year ended December 31, 2000,
primarily due to a volume decrease in the average balance of $8.9 million or
22.1% from $40.3 million for the year ended December 31, 1999 to $31.4 million
for the year ended December 31, 2000. Interest on investments and interest-
bearing deposits decreased by $166,000, or 3.7%, from $4.4 million for the year
ended December 31, 1999 to $4.3 million for the year ended December 31, 2000.
The decrease was primarily the result of a volume decrease in the average
balance of investment securities decreasing $5.7 million, or 8.5%, from
$66.8 million for the year ended December 31, 1999 to $61.1 million for the
year ended December 31, 2000. In addition, the average balance of cash and
cash
PRELIMINARY PROXY MATERIALS 38
equivalents experienced a volume decrease of $2.3 million, or 14.2%, from
$16.2 million for the year ended December 31, 1999 to $13.9 million for the
year ended December 31, 2000.
INTEREST EXPENSE. Interest expense, which consists primarily of
interest on deposits, increased by $240,000, or 2.0%, from $12.3 million for
the year ended December 31, 1999 to $12.5 million for the year ended
December 31, 2000. Interest on deposits increased by $1.2 million, or 12.8%,
from $9.4 million for the year ended December 31, 1999 to $10.6 million for
the year ended December 31, 2000. The increase is primarily due to a rate
increase of 72 basis points, from 4.21% for the year ended December 31, 1999
to 4.93% for the year ended December 31, 2000. In addition, interest on
other borrowed funds decreased $900,000 or 31.3%, from $2.9 million for the
year ended December 31, 1999 to $2.0 million for the year ended December 31,
2000.
PROVISION FOR LOAN LOSSES. The Company established provisions for
loan losses of $3.4 million and $707,000 for the year ended December 31,
2000 and 1999, respectively. Of the $3.4 million, $1.7 million was for a
commercial loan charge off which involved a customer who was indicted by the
United States for his admitted involvement in a Ponzi scheme. The assets
seized by the U.S. Department of Justice included commercial real estate,
vehicles and inventory that were pledged as security for a commercial loan.
The Company and its attorneys are working with the federal prosecutor in
locating, securing and liquidating the assets used to secure the loan. The
projected recovery of any part of the charged off loan is indeterminable at
this time. In addition, the quarterly analysis of the allowance for loan and
lease loss reserves indicated that additional reserves were needed. The
review process applies different risk ratings to the concentrations of
credit within the total loan portfolio. In addition, the process takes into
consideration the effect that changing economic conditions has had on
individual credits in the past, present and future. The increase in the
provision for loan losses was the result of identifying a need to add to the
reserves. Net charge offs to average loans was 1.40% and .65% for the
periods ending December 31, 2000 and 1999, respectively. Provisions for loan
losses to total loans was 1.98% and .39% for the periods ending December 31,
2000 and 1999, respectively.
NON-INTEREST INCOME. Non-interest income decreased by $323,000, or
14.1%, from $2.3 million for the year ended December 31, 1999 to $2.0
million for the year ended December 31, 2000. The decrease is primarily due
to an increase in the net loss realized on the sale of securities and
mortgage-backed securities of $301,000, or 1584.2% from a loss of $19,000
for the year ended December 31, 1999 to a loss of $320,000 for the year
ended December 31, 2000.
NON-INTEREST EXPENSE. Non-interest expense increased by $530,000 or
5.7%, from $9.3 million for the year ended December 31, 1999 to $9.9 million
for the year ended December 31, 2000. The increase was due primarily to
professional fees increasing $559,000 or 168.4%, from $332,000 for the year
ended December 31, 1999 to $891,000 for the year ended December 31, 2000.
The change in professional fees consisted of legal fees increasing $275,000,
or 277.8% from $99,000 for the year ended December 31, 1999 to $374,000 for
the year ended December 31, 2000 due to additional costs involved in a proxy
contest and the negotiations to sell one or more of the Company's
affiliates. Accounting and auditing costs increased $129,000, or 97.7% from
$132,000 for the year ended December 31, 1999 to $261,000 for the year ended
December 31, 2000 due to the additional accounting requirements requested by
potential acquirers. Other professional fees increased $155,000, or 153.5%
from $101,000 for the year ended December 31, 1999 to $256,000 for the year
ended December 31, 2000 as a result of increased charges due to the proxy
contest and additional costs involved in the potential sale of one or more
of the Company's affiliates.
INCOME TAX EXPENSE. The Company's income tax expense (benefit) was
($529,000) and $523,000 for the years ended December 31, 2000 and 1999,
respectively, which resulted in an effective income tax rate of 26.38% and
31.64%, respectively.
PRELIMINARY PROXY MATERIALS 39
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds are deposits and proceeds
from maturing mortgage-backed and related securities, principal and interest
payments on loans, and mortgage-backed and related securities. While
maturities and scheduled amortization of mortgage-backed and related
securities and loans are a predictable source of funds, deposit flows and
mortgage payments are greatly influenced by general interest rates, economic
conditions, competition and other factors.
The primary investing activity of the Company is the purchase of
investment securities. Other investing activities include origination of
loans and purchases of mortgage-backed and related securities. The primary
financing activity of the Company is accepting savings deposits and
obtaining short-term borrowings through FHLB advances.
The Company has other sources of liquidity if there is a need for
funds. The Company has a portfolio of unpledged investment securities and
mortgage-backed and related securities with an aggregate market value of
$19.4 million at March 31, 2001 classified as available for sale. Another
source of liquidity is the Bank's ability to obtain advances from the FHLB
of Chicago. In addition, the Company maintains a significant portion of its
investments in interest-bearing deposits at other financial institutions
that would be available if needed.
The Company anticipates that it will have sufficient funds
available to meet commitments outstanding and to meet loan demand. As of
March 31, 2001, the Company's ratios of Tier I capital to adjusted total
assets was 12.7%, as compared to the required level of 3.0%. The risk-based
capital ratio at that date was 23.9%, as compared to the requirement of
8.0%.
PRELIMINARY PROXY MATERIALS 40
STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth information regarding the shares of
Common Stock beneficially owned as of ________________, 2001 by each of the
Company's directors and executive officers, all of the directors and
executive officers as a group and each person known to own five percent or
more of the Common Stock.
SHARES OF COMMON STOCK PERCENT
BENEFICIALLY OWNED (1) OF CLASS (2)
---------------------- ------------
Community Financial Corp. Employee 99,022 (3) 4.6%
Stock Ownership Plan ("ESOP")
240 E. Chestnut Street
Olney, Illinois 62450-2295
Wellington Management Company, LLP 155,500 (4) 7.2
75 State Street
Boston, Massachusetts 02109
First Financial Fund, Inc. 155,500 (5) 7.2
Gateway Center Three
100 Mulberry Street, 9th Floor
Newark, New Jersey 07102-7503
Joseph Stilwell 200,000 (6) 9.3
26 Broadway, 23rd Floor
New York, New York 10004
Michael F. Bauman 19,925 (7) .9
Wayne H. Benson 76,640 (8) 3.6
Roger A. Charleston 39,393 (9) 1.8
James W. Foley 100 *
Roger L. Haberer 8,606 (10) .4
Brad A. Jones 23,785 1.1
Michael B. Nadler 9,100 .4
Barrett R. Rochman 112,290 (11) 5.2
Douglas W. Tompson 53,191 (12) 2.5
All directors and executive officers as a group 343,030 16.0
(9 persons)
<FN>
- ---------
(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 has voting or investment power with
respect to such Common Stock or has a right to acquire beneficial
ownership of such Common Stock at any time within sixty days of
______________, 2001. As used herein, "voting power" is the power to
vote or direct the voting of shares, and "investment power" is the
power to dispose or direct the disposition of shares. Except as
otherwise noted, ownership is direct, and the named individuals and
group exercise sole voting and investment power over the shares of the
Common Stock. Amounts shown include 9,919, 38,617, 9,919, 5,290, 9,919,
26,450 and 100,114 shares which may be acquired by Mr. Bauman, Mr.
Benson, Mr. Charleston, Mr. Haberer, Mr. Jones, Mr. Tompson and by all
directors and executive officers of the Company as a group,
respectively, upon the exercise of options exercisable within sixty
days of _____________, 2001.
(2) The percentage calculations are based upon 2,147,470 shares of
Common Stock issued and outstanding on ______________, 2001.
(3) All allocated shares in the ESOP are voted in accordance with the
instructions of the participating employees. Allocated shares for which
no instructions have been received are voted by the trustee in the
manner directed by the Company's Board of Directors, and in the absence
of such direction from the Company's Board of Directors, the ESOP
PRELIMINARY PROXY MATERIALS 41
trustee would have sole discretion as to the voting of such shares. As
of ______________, 2001, there were 99,022 allocated shares and no
unallocated shares held by the ESOP.
(4) The information provided herein is based upon an amendment to Schedule
13G, dated February 13, 2001. The Schedule 13G/A reported shared
dispositive power with respect to all 155,500 shares reported as
beneficially owned.
(5) The information provided herein is based upon an Amendment No. 10 to
Schedule 13G, dated February 12, 2001. The Schedule 13G/A reported sole
voting power and shared dispositive power with respect to all 155,500
shares reported as beneficially owned.
(6) The information provided herein is based upon an Amendment No. 3 to
Schedule 13D, dated April 16, 2001, filed jointly by Joseph Stilwell,
Stilwell Value Partners III, L.P., Stilwell Associates, L.P. and
Stilwell Value LLC (collectively, the "Group"). The Schedule 13D
reported that each member of the Group shared voting and investment
power with respect to all 200,000 shares reported as beneficially
owned.
(7) Includes 290 shares owned by Mr. Bauman's spouse.
(8) Includes 3,350 shares owned by Mr. Benson's spouse, 10,574 shares
allocated to Mr. Benson's account under the ESOP and 2,222 shares held
in the Company's 401(k) Thrift Plan.
(9) Includes 3,230 shares owned by Mr. Charleston's spouse.
(10) Includes 500 shares owned by Mr. Haberer's spouse.
(11) Includes 6,340 shares owned by Mr. Rochman's spouse, 15,350 shares
owned by The Boo Rochman Charitable Corp and 1,500 shares owned by the
Rochman Family Investment.
(12) Includes 11,073 shares allocated to Mr. Tompson's account under the
ESOP and 978 shares held in the Company's 401(k) Thrift Plan.
* Less than one percent.
SHAREHOLDER PROPOSALS
If the Merger is not consummated, the Company plans to hold its
2001 Annual Meeting of Shareholders on __________, 2001. If the Merger is
not consummated before such date, any shareholder who wishes to present a
proposal for inclusion in the proxy materials for the Company's 2001 Annual
Meeting of Shareholders must have submitted such proposal to the Company at
240 E. Chestnut Street, Olney, Illinois 62450-2295 by not later than
__________, 2001. Any such proposals are subject to the requirements of the
proxy rules adopted under the Securities Exchange Act of 1934, as amended.
Under the Company's Articles of Incorporation, a shareholder
proposal which does not appear in the proxy materials may be considered at a
meeting of shareholders only if notice of the proposal is submitted in
writing to the Secretary of the Company at the address stated in the above
paragraph no less than 30 days nor more than 60 days prior to the date of
such meeting; provided, however, that if less than forty days' notice of the
meeting is given to shareholders, such written notice shall be delivered or
mailed, as prescribed, to the Secretary of the Company not later than the
close of business on the tenth day following the day on which notice of the
meeting was mailed to shareholders. If the Merger is not consummated prior
to _________, 2001, in order to be considered at the Annual Meeting, a
shareholder proposal must have been delivered or mailed to the Company's
Secretary no later than ________, 2001.
PRELIMINARY PROXY MATERIALS 42
ANNEX A
-------
AGREEMENT OF AFFILIATION AND MERGER
THIS AGREEMENT OF AFFILIATION AND MERGER ("Agreement") is made and
entered into effective as of the 30th day of March, 2001, by and between
FIRST FINANCIAL CORPORATION ("FIRST FINANCIAL"), FFC MERGER CORP ("MERGER
CORP"), and COMMUNITY FINANCIAL CORP. ("COMMUNITY").
W I T N E S S E T H:
-------------------
WHEREAS, First Financial is an Indiana corporation registered as a bank
holding company under the federal Bank Holding Company Act of 1956, as
amended ("BHC Act"), with its principal office located in Terre Haute, Vigo
County, Indiana; and
WHEREAS, Merger Corp is an Indiana corporation with its principal
office located in Terre Haute, Vigo County, Indiana and is a wholly-owned
subsidiary of First Financial; and
WHEREAS, Community is an Illinois corporation registered as a bank
holding company under the BHC Act, with its principal office located in
Olney, Richland County, Illinois, and is the sole shareholder of Community
Bank and Trust, N.A., a national banking association ("Bank"), and American
Bank of Illinois in Highland, an Illinois state banking institution
organized and existing under the laws of the State of Illinois; and
WHEREAS, it is the desire of First Financial and Community to affiliate
through a corporate reorganization whereby Community will be merged with and
into Merger Corp; and
WHEREAS, a majority of the entire Board of Directors of each of First
Financial, Merger Corp and Community have approved this Agreement,
authorized its execution and designated this Agreement a plan of
reorganization and a plan of merger.
NOW, THEREFORE, in consideration of the foregoing premises, the
representations, warranties, covenants and agreements herein contained and
other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, First Financial, Merger Corp and Community hereby
make this Agreement and prescribe the terms and conditions of the
affiliation of First Financial and Community and the mode of carrying such
merger into effect as follows:
SECTION 1
THE MERGER
----------
1.01. General Description. Upon the terms and subject to the conditions
-------------------
of this Agreement, at the Effective Time (as defined in Section 10 hereof),
----------
Community shall be merged with and into and under the Articles of
Incorporation of Merger Corp ("Merger"). Merger Corp shall survive the
Merger ("Surviving Corporation") and shall continue its corporate existence
under the laws of the State of Indiana pursuant to the provisions of and
with the effect provided
PRELIMINARY PROXY MATERIALS A-1
in the Indiana Business Corporation Law, as amended. Upon consummation
of the Merger, Bank shall become a wholly-owned subsidiary of Merger Corp.
1.02. Name, Officers and Management. The name of the Surviving
-----------------------------
Corporation shall be "FFC Merger Corp." Its principal office shall be
located at One First Financial Plaza, Terre Haute, Indiana 47807. The
officers of Merger Corp serving at the Effective Time shall continue to
serve as the officers of the Surviving Corporation, until such time as their
successors shall have been duly elected and have been qualified. The
directors of Community shall cease to be directors of Community as of the
Effective Time and shall not become directors of Merger Corp or First
Financial after the Effective Time. The directors of Merger Corp as of the
Effective Time shall remain the directors of the Surviving Corporation,
until such time as their successors have been duly elected and have been
qualified.
1.03. Capital Structure. The capital of the Surviving Corporation shall
-----------------
be not less than the capital of Merger Corp immediately prior to the Effective
Time.
1.04. Articles of Incorporation and By-Laws. The Articles of
-------------------------------------
Incorporation and By-Laws of Merger Corp in existence at the Effective Time
shall remain the Articles of Incorporation and By-Laws of the Surviving
Corporation following the Effective Time, until such Articles of
Incorporation and By-Laws shall be further amended as provided by applicable
law.
1.05. Assets and Liabilities. At the Effective Time, the title to all
----------------------
assets, real estate and other property owned by Community shall vest in
Merger Corp without reversion or impairment. At the Effective Time, all
liabilities of Community shall be assumed by Merger Corp.
1.06. Additional Actions. If at any time after the Effective Time, Merger
------------------
Corp or First Financial shall consider or be advised that any further deeds,
assignments or assurances in law or any other acts are necessary or
desirable (a) to vest, perfect or confirm, of record or otherwise, in the
Surviving Corporation its right, title or interest in, to or under any of
the rights, properties or assets of Community or the Bank, or (b) otherwise
carry out the purposes of this Agreement, Community and the Bank and their
respective officers and directors shall be deemed to have granted to the
Surviving Corporation an irrevocable power of attorney to execute and
deliver all such deeds, assignments or assurances in law and to do all acts
necessary or proper to vest, perfect or confirm title to and possession of
such rights, properties or assets in the Surviving Corporation and otherwise
to carry on the purposes of this Agreement, and the officers and directors
of the Surviving Corporation are authorized in the name of Community or the
Bank or otherwise to take any and all such action.
PRELIMINARY PROXY MATERIALS A-2
SECTION 2
MERGER CONSIDERATION
--------------------
2.01. Conversion of Shares. Each share of Community's common stock
--------------------
issued and outstanding immediately prior to the Effective Time, other than
shares held by shareholders who have exercised their dissenter's rights as
set forth in Section 3 ("Dissenting Shares"), shall, by virtue of the Merger
---------
and without any action on the part of the holder thereof, be converted into
and represent the right to receive the consideration payable as set forth
below to the holder of record thereof, without any interest thereon, upon
surrender of the certificate representing such common stock.
2.02. Consideration. (a) As consideration for the Merger, shareholders
-------------
of Community, other than those shareholders who have exercised their
dissenter's rights as set forth in Section 3, will be entitled to receive in
---------
cash for each share of Community common stock they own an amount equal to:
(i) the Aggregate Purchase Price (as defined in Section 2.02(b),
---------------
and as may be amended or modified by Section 2.02(c)) minus (A) the
---------------
aggregate amount to be paid to the Community ESOP pursuant to
Section 2.02(e), and (B) minus the aggregate amount to be paid to
---------------
the holders of record as of the Effective Time of the outstanding
"in the money" options of Community (as defined in Section 2.02(f))
---------------
pursuant to Section 2.02(f),
---------------
(ii) divided by 2,147,470 (which is the number of shares of
Community common stock which will be outstanding as of the
Effective Time).
(b) First Financial shall pay an aggregate purchase price (the
"Aggregate Purchase Price") equal to the sum of the following, less an
amount equal to the fees and expenses incurred by Community pursuant to
Section 6.13(b), which amount shall not exceed $25,000 (if the actual amount
- ---------------
incurred by Community pursuant to Section 6.13(b) exceeds $25,000, the
---------------
amount in excess of $25,000 shall be borne by the Bank), and less any
liabilities of Community (computed on a parent company only basis):
(i) $19,500,000;
(ii) the proceeds realized by Community on an after-tax basis
(in an amount agreed to by First Financial, Community, and the
independent auditors of First Financial) from the sale of American
Bank of Illinois in Highland, MidAmerica Bank of St. Clair County
and The Egyptian State Bank;
(iii) the amount of cash held by Community on a parent company
only basis (other than amounts included pursuant to some other
section of this Section 2.02(b));
---------------
PRELIMINARY PROXY MATERIALS A-3
(iv) the amounts receivable by Community pursuant to requests
for refunds of income taxes paid (in an amount agreed to by First
Financial, Community, and the independent auditors of First
Financial);
(v) an amount equal to the principal balance of the loans
identified on Schedules 2.02(b)(v)(1) and (2) of the Disclosure
-------------------------------
Schedule (as identified in Section 4 hereof) which has been placed
---------
on the parent company only financial statements of Community and
for which the Bank, as of the Effective Time, will have a $300,000
reserve allocated within its general loan loss reserve for the
credits set forth on Schedule 2.02(b)(v)(1) of the Disclosure
----------------------
Schedule; and
(vi) an amount equal to the fair market value of securities held
by Community on a parent company only basis.
(c) If at the Effective Time the Bank has realized on its financial
records a recovery (in an amount agreed to by First Financial, Community,
and the independent auditors of First Financial) on those loans identified
in Schedule 2.02(c) of the Disclosure Schedule, then the amount set forth in
----------------
Section 2.02(b)(i) shall be increased by the amount of the recovery,
- ------------------
determined in accordance with this section of the Agreement; provided,
however, that in no event shall such increase in the amount set forth in
Section 2.02(b)(i) exceed $500,000.
- ------------------
(d) For purposes of Section 2.02(e) and Section 2.02(f), the Per Share
--------------- ---------------
Merger Consideration shall be determined by dividing:
(i) the sum of (A) the Aggregate Purchase Price, (B) the amount
of proceeds which would be realized by Community if the "in the
money" options to purchase shares of Community common stock"
were exercised, and (C) the amount of the retired ESOP debt of
$662,605.48, by
(ii) 2,365,869.
The number in Section 2.02(d)(ii) is the sum of 2,147,470 (which is the
-------------------
number of shares of Community common stock outstanding), 154,340 (which is
the number of "in the money" Community options to purchase shares of
Community common stock outstanding) and 64,059 (which is the number of
shares of Community common stock held by Community as treasury stock which
would have been outstanding if the Community ESOP had not been terminated).
(e) Of the total Aggregate Purchase Price to be received by Community,
an amount equal to:
(i) (A) 64,059, multiplied by (B) the Per Share Merger
Consideration less $10.3437, plus
PRELIMINARY PROXY MATERIALS A-4
(ii) (A) 64,059, multiplied by (B) the quotient of (1) the taxes
(and any applicable interest or penalties) required to be paid by
Community in accordance with the provisions of Section 6.12(b), and
---------------
(2) 2,365,869,
will be placed in the Employee Stock Ownership Plan of Community.
The amount of $10.3437 which is subtracted from the Per Share Merger
Consideration in Section 2.02(e)(i)(B) for this purpose is the quotient of
---------------------
the amount of the retired ESOP debt divided by the number of shares of
Community common stock held by Community as treasury stock which would have
been outstanding if the Community ESOP had not been terminated, or
$662,605.48 divided by 64,059.
The number in Section 2.02(e)(ii)(B)(2) is the sum of 2,147,470 (which is
-------------------------
the number of shares of Community common stock outstanding), 154,340 (which
is the number of "in the money" Community options to purchase shares of
Community common stock outstanding) and 64,059 (which is the number of
shares of Community common stock held by Community as treasury stock which
would have been outstanding if the Community ESOP had not been terminated).
(f) Each outstanding "in the money option" of Community shall be
canceled and exchanged for an amount of the total Aggregate Purchase Price
to be received by Community equal to the Per Share Merger Consideration less
the exercise price of such option. For purposes of this Agreement, an
outstanding "in the money" option of Community shall be defined as an option
with an exercise price less than the Per Share Merger Consideration. As of
the date of this Agreement there are, and as of the Effective Time there
will be, 154,340 outstanding "in the money" options of Community.
2.03. Distribution of Cash. (a) Promptly following the Effective Time,
--------------------
First Financial shall mail to each Community shareholder a letter of
transmittal providing instructions as to the transmittal to First Financial
of certificates formerly representing shares of Community common stock and
the payment of cash in exchange therefor pursuant to the terms of this
Agreement.
(b) Following the Effective Time, First Financial shall distribute cash
payments, without interest, for shares of Community (other than Dissenting
Shares) to each shareholder of Community at the Effective Time within twenty
(20) business days following receipt by First Financial of the shareholder's
certificate(s) formerly representing such shareholder's shares of Community
common stock together with a properly completed and executed letter of
transmittal, all in form and substance reasonably satisfactory to the
Surviving Corporation and First Financial.
(c) Following the Effective Time, stock certificates formerly
representing Community common stock (other than Dissenting Shares) held by
shareholders of Community shall be deemed to evidence only the right to
receive cash, without interest thereon, pursuant to Section 2.01 and
------------
Section 2.02 hereof.
- ------------
PRELIMINARY PROXY MATERIALS A-5
(d) At or after the Effective Time, there shall be no transfers on the
stock transfer books of Community of any shares of the common stock of
Community. First Financial shall be entitled to rely upon the stock transfer
books of Community to establish the persons entitled to receive any cash
payment pursuant to this Agreement, which books shall be conclusive with
respect to the ownership of shares of Community common stock.
(e) With respect to any certificate for shares of Community common
stock which has been lost, stolen or destroyed, First Financial shall be
authorized to pay cash pursuant to Section 2.01 and Section 2.02 hereof to
------------ ------------
the registered owner of such certificate upon First Financial's (i) receipt
of an agreement to indemnify First Financial against loss from such lost,
stolen or destroyed certificate, an affidavit of lost, stolen or destroyed
stock certificate and a bond, all in form and substance reasonably
satisfactory to First Financial, and upon compliance by the shareholder of
Community with all other reasonable requirements of First Financial in
connection with such lost, stolen or destroyed stock certificates.
SECTION 3
DISSENTING SHARES
-----------------
Shareholders of Community who properly exercise and perfect statutory
dissenters' rights shall have the rights accorded to dissenting shareholders
under Article 11 of the Illinois Business Corporations Act of 1983, as
amended.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF COMMUNITY
-------------------------------------------
Community hereby represents and warrants to First Financial and Merger
Corp with respect to itself and Bank, as its wholly-owned subsidiary, as
follows:
4.01. Organization and Authority. Community is a corporation duly
--------------------------
organized, validly existing and in good standing under the laws of the State
of Illinois. Bank is a national banking association duly organized, validly
existing and in good standing under the laws of the United States of
America. Community and Bank have full power and authority (corporate and
otherwise) to own and lease their properties as presently owned and leased
and to conduct their respective business in the manner and by the means
utilized as of the date hereof. Except as set forth in the Disclosure
Schedule (for purposes of this Agreement, "Disclosure Schedule" shall mean
the schedules referencing the applicable provisions of this Agreement which
are attached hereto and made a part of this Agreement), Community's only
subsidiaries are the Bank and American Bank of Illinois in Highland (located
in Highland and Pocahontas, Illinois), and it has no other subsidiaries and
owns no voting stock or equity securities of any corporation, partnership,
association or other entity, except for stock held by the Bank in the
Federal Home Loan Bank of Chicago and the Federal Reserve Bank of St. Louis.
Bank has no subsidiaries. Bank is subject to primary regulatory supervision
and examination by the Office of the Comptroller of the Currency. Community
has one class of stock registered pursuant to Section 12 of the Securities
Exchange Act of 1934, as amended ("1934 Act"), and is subject to the
PRELIMINARY PROXY MATERIALS A-6
reporting requirements of the 1934 Act. Community has entered into a binding
agreement to sell the stock which it owns of American Bank of Illinois in
Highland.
4.02. Authorization. (a) Community has the requisite corporate power
-------------
and authority to enter into this Agreement and to perform its obligations
hereunder, subject to the fulfillment of the conditions precedent set forth
in Section 8.02(e) and (f) hereof. This Agreement and its execution and
-----------------------
delivery by Community have been duly authorized and approved by the Board of
Directors of Community and, assuming due execution and delivery by First
Financial, constitutes a valid and binding obligation of Community, subject
to the fulfillment of the conditions precedent set forth in Section 8.02
------------
hereof, and is enforceable in accordance with its terms, except to the
extent limited by general principles of equity and public policy and by
bankruptcy, insolvency, fraudulent transfer, reorganization, liquidation,
moratorium, readjustment of debt or other laws of general application
relating to or affecting the enforcement of creditors' rights.
(b) Neither the execution of this Agreement nor consummation of the
Merger contemplated hereby: (i) conflicts with or violates Community's
Certificate of Incorporation or By-Laws; (ii) conflicts with or violates any
local, state, federal or foreign law, statute, ordinance, rule or regulation
(provided that the approvals of or filings with applicable government
regulatory agencies or authorities required for consummation of the Merger
are obtained) or any court or administrative judgment, order, injunction,
writ or decree; (iii) conflicts with, results in a breach of or constitutes
a default under any note, bond, indenture, mortgage, deed of trust, license,
lease, contract, agreement, arrangement, commitment or other instrument to
which Community or Bank is a party or by which Community or Bank is subject
or bound; (iv) results in the creation of or gives any person, corporation
or entity the right to create any lien, charge, claim, encumbrance or
security interest, or results in the creation of any other rights or claims
of any other party (other than First Financial) or any other adverse
interest, upon any right, property or asset of Community or Bank; or (v)
terminates or gives any person, corporation or entity the right to
terminate, accelerate, amend, modify or refuse to perform under any note,
bond, indenture, mortgage, agreement, contract, lease, license, arrangement,
deed of trust, commitment or other instrument to which Community or Bank is
bound or with respect to which Community or Bank is to perform any duties or
obligations or receive any rights or benefits.
(c) Other than in connection or in compliance with the provisions of
the applicable federal and state banking, securities, and corporation
statutes, all as amended, and the rules and regulations promulgated
thereunder, no notice to, filing with, exemption by or consent,
authorization or approval of any governmental agency or body is necessary
for consummation of the Merger by Community or Bank.
4.03. Capitalization. (a) The authorized capital stock of Community as
--------------
of the date hereof consists, and at the Effective Time will consist, of
1,000,000 shares of preferred stock, $0.01 par value per share, none of
which is issued or outstanding, and 7,000,000 shares of common stock, $0.01
par value per share. As of the date hereof, and at the Effective Time,
2,147,470 shares of the common stock of Community are and will be issued and
outstanding (such issued and outstanding shares are referred to herein as
"Community Common Stock"). Such issued and outstanding shares of Community
Common Stock have been duly and validly authorized by all necessary
corporate action of Community, are validly issued, fully paid and
PRELIMINARY PROXY MATERIALS A-7
nonassessable and have not been issued in violation of any pre-emptive
rights of any present or former Community shareholder. Community has no
common stock authorized, issued or outstanding other than as described in
this Section 4.03(a) and has no intention or obligation to authorize or
---------------
issue any other capital stock or any additional shares of Community Common
Stock. On a consolidated basis as of December 31, 2000, Community had total
capital of approximately $34,890,653, which consisted of common stock of
$26,450, capital surplus of $19,378,177 and undivided profits of
$15,486,026, including unrealized gains or losses on available-for-sale
securities. Each share of Community Common Stock is entitled to one vote per
share. A description of the Community Common Stock is contained in the
Certificate of Incorporation of Community, as amended, as set forth in the
Disclosure Schedule pursuant to Section 4.04 hereof.
------------
(b) The authorized capital stock of Bank as of the date hereof
consists, and at the Effective Time will consist, of 1,000,000 shares of
common stock, $4.00 par value per share, all of which shares are issued and
outstanding (such issued and outstanding shares are referred to herein as
"Bank Common Stock"). Such issued and outstanding shares of Bank Common
Stock have been duly and validly authorized by all necessary corporate
action of Bank, are validly issued, fully paid and nonassessable, and have
not been issued in violation of any pre-emptive rights of any present or
former Bank shareholder. All of the issued and outstanding shares of common
stock of Bank are owned by Community free and clear of all liens, pledges,
charges, claims, encumbrances, restrictions, security interests, options and
pre-emptive rights and of all other rights or claims of any other person,
corporation or entity with respect thereto. Bank has no capital stock
authorized, issued or outstanding other than as described in this
Section 4.03(b) and has no intention or obligation to authorize or issue any
- ---------------
other capital stock or any additional shares of Bank Common Stock. On a
consolidated basis as of December 31, 2000, Bank had total capital of
approximately $19,454,534, which consisted of common stock of $4,000,000,
capital surplus of $8,691,900 and undivided profits of $6,762,634, including
unrealized gains or losses on available-for-sale securities. Each share of
Bank Common Stock is entitled to one vote per share. A description of the
Bank Common Stock is contained in the Articles of Incorporation of Bank, as
amended, as set forth in the Disclosure Schedule pursuant to Section 4.04
------------
hereof.
(c) Except as set forth in Schedule 4.03(c) of the Disclosure Schedule,
----------------
there are no options, warrants, commitments, calls, puts, agreements,
understandings, arrangements or subscription rights relating to any shares
of Community Common Stock, or any securities convertible into or
representing the right to purchase or otherwise acquire any common stock or
debt securities of Community, by which Community is or may become bound.
Community does not have any outstanding contractual or other obligation to
repurchase, redeem or otherwise acquire any of the issued and outstanding
shares of Community Common Stock.
(d) There are no options, warrants, commitments, calls, puts,
agreements, understandings, arrangements or subscription rights relating to
any shares of Bank Common Stock, or any securities convertible into or
representing the right to purchase or otherwise acquire any common stock or
debt securities of Bank, by which Bank is or may become bound. Bank does not
have any outstanding contractual or other obligation to repurchase, redeem
or otherwise acquire any of the issued and outstanding shares of Bank Common
Stock.
PRELIMINARY PROXY MATERIALS A-8
(e) Except as set forth in the Disclosure Schedule, Community has no
knowledge of any person or entity which beneficially owns 5% or more of its
outstanding shares of common stock.
4.04. Organizational Documents. The respective Articles of
------------------------
Incorporation and By-Laws of Community, and the Articles of Association and
By-Laws of Bank, representing true, accurate and complete copies of such
corporate documents in effect as of the date of this Agreement, have been
delivered to First Financial and are included in the Disclosure Schedule.
4.05. Compliance with Law. (a) Except as set forth in Schedule 4.05 of
------------------- -------------
the Disclosure Schedule, none of Community, Bank, nor the fiduciaries of any
Community Plans (as defined in Section 4.14(a)), have engaged in any
activity nor taken or omitted to take any action which has resulted or could
result in the violation of any local, state, federal or foreign law,
statute, regulation, rule, ordinance, order, restriction or requirement, nor
are they in violation of any order, injunction, judgment, writ or decree of
any court or government agency or body. Community and Bank possess and hold
all licenses, franchises, permits, certificates and other authorizations
necessary for the continued conduct of their business without interference
or interruption, and such licenses, franchises, permits, certificates and
authorizations are transferable (to the extent required) to First Financial
or Merger Corp at the Effective Time without any restrictions or limitations
thereon or the need to obtain any consents of government agencies or other
third parties other than as set forth in this Agreement. The Bank has
received no inquiries from any regulatory agency or government authority
relating to its compliance with the Bank Secrecy Act, the Truth-in-Lending
Act or the Community Reinvestment Act or any laws with respect to the
protection of the environment or the rules and regulations promulgated
thereunder.
(b) All agreements, understandings and commitments with, and all orders
and directives of, all government regulatory agencies or authorities with
respect to the financial condition, results of operations, business, assets
or capital of Community or Bank which presently are binding upon or require
action by, or at any time during the last five (5) years have been binding
upon or have required action by, Community or Bank are set forth in the
Disclosure Schedule, and all correspondence, communications and commitments
related thereto have been made available to First Financial. Except as set
forth in Schedule 4.05 of the Disclosure Schedule, there are no uncured
-------------
violations, or violations with respect to which refunds or restitutions may
be required, cited in any examination report of Community or Bank as a
result of an examination by any regulatory agency or body, or set forth in
any accountant's or auditor's report to Community or Bank.
(c) All of the existing offices and branches of Community and Bank have
been legally authorized and established in accordance with all applicable
federal, state and local laws, statutes, regulations, rules, ordinances,
orders, restrictions and requirements. Bank has no approved but unopened
offices or branches.
4.06. Accuracy of Statements Made and Materials Provided to First
-----------------------------------------------------------
Financial. Except as set forth in Schedule 4.06 of the Disclosure Schedule;
- --------- -------------
PRELIMINARY PROXY MATERIALS A-9
(a) No representation, warranty or other statement made, or any
information provided, by or on behalf of Community or Bank in this Agreement
or the Disclosure Schedule (and any update thereto), and no written report,
statement, list, certificate, materials or other information furnished or to
be furnished by or on behalf of Community or Bank to First Financial through
and including the Effective Time in connection with this Agreement, the
Merger contemplated hereby, or First Financial's due diligence investigation
or confidential review of Community and the Bank or otherwise (including,
without limitation, any written information which has been or shall be
supplied by Community or Bank with respect to its financial condition,
results of operations, business, assets, capital or directors and officers
for inclusion in the proxy statement relating to the Merger), contains or
shall contain (in the case of information relating to the proxy statement at
the time it is mailed to Community's shareholders) any untrue statement of
material fact or omits or shall omit to state a material fact necessary to
make the statements contained herein or therein, in light of the
circumstances in which they are made, not false or misleading.
(b) No materials or information provided by or on behalf of Community
or Bank to First Financial for use by First Financial or Merger Corp in any
filing with any state or federal regulatory agency or authority shall (i)
contain any untrue or misleading statement of material fact, or (ii) omit to
state a material fact necessary to make the statements contained therein, in
light of the circumstances in which they are made, not false or misleading.
4.07. Litigation and Pending Proceedings. (a) Except as set forth in
----------------------------------
the Disclosure Schedule, there are no claims, actions, suits, proceedings,
arbitrations or investigations pending or, to the best knowledge of
Community and Bank after due inquiry, threatened in any court or before any
government agency or authority, arbitration panel or otherwise (nor does
Community or Bank have any knowledge of a basis for any claim, action, suit,
proceeding, litigation, arbitration or investigation) against, by or
affecting Community or Bank.
(b) Except as set forth in the Disclosure Schedule, neither Community
nor Bank is: (i) subject to any outstanding judgment, order, writ,
injunction or decree of any court, arbitration panel or governmental agency
or authority; (ii) presently charged with or, to the best knowledge of
Community or Bank after due inquiry, under governmental investigation with
respect to any actual or alleged violations of any law, statute, rule,
regulation or ordinance; or (iii) the subject of any pending or, to the best
knowledge of Community and Bank after due inquiry, threatened proceeding by
any government regulatory agency or authority having jurisdiction over its
respective business, assets, capital, properties or operations.
4.08. Financial Statements and Reports. Community has delivered to First
--------------------------------
Financial copies of the following financial statements and reports of
Community and Bank, including the notes thereto (collectively, the
"Community Financial Statements"):
(a) Consolidated Balance Sheets and the related Consolidated Statements
of Income and Consolidated Statements of Changes in Shareholders' Equity of
Community as of and for the years ended December 31, 2000, 1999 and 1998;
(b) Consolidated Statements of Cash Flows of Community for the years
ended December 31, 2000, 1999, and 1998;
PRELIMINARY PROXY MATERIALS A-10
(c) Consolidated Statements of Changes in Financial Position of
Community for the years ended December 31, 2000 and 1999;
(d) Reports of Condition and Income ("Call Reports") for Bank as of
the close of business on December 31, 2000, 1999, 1998; and
(e) Financial Statements of Community on Form FRY-9LP and Form FRY-9C
filed with the Board of Governors of the Federal Reserve System at the close
of business on December 31, 2000 and 1999.
Except as set forth in Schedule 4.08 of the Disclosure Schedule, the
-------------
Community Financial Statements are true, accurate and complete in all
material respects and present fairly the consolidated financial position of
Community and Bank as of and at the dates shown and the consolidated results
of operations for the periods covered thereby. The Community Financial
Statements described in clauses (a), (b) and (c) above for completed fiscal
years are audited financial statements and have been prepared in conformance
with generally accepted accounting principles applied on a consistent basis,
except as may otherwise be indicated in any accountants' notes or reports
with respect to such financial statements. The Community Financial
Statements do not include any assets, liabilities or obligations or omit to
state any assets, liabilities or obligations, (whether absolute, accrued,
contingent or otherwise), or any other facts which inclusion or omission
would render any of the Community Financial Statements false, misleading or
inaccurate in any material respect.
4.09. Properties, Contracts, Employees and Other Agreements. (a) Set
-----------------------------------------------------
forth in the Disclosure Schedule is a true, accurate and complete copy of the
following:
(i) A brief description and the location of all real property owned by
Community or Bank and the principal buildings and structures
located thereon, together with a legal description of such real
property and a title insurance policy or abstract opinion insuring
the same, and each lease of real property to which Community or
Bank is a party, identifying the parties thereto, the annual rental
payable, the expiration date of the lease and a brief description
of the property covered;
(ii) All conditional sales contracts or other title retention agreements
relating to Community or Bank and agreements for the purchase of
federal funds;
(iii) All agreements, contracts, leases, licenses, lines of credit,
understandings, commitments or obligations of Community or Bank
which individually or in the aggregate:
(A) involve payment or receipt by Community or Bank (other than as
disbursements of loan proceeds to customers, loan payments by
customers or customer deposits) of more than $10,000;
(B) involve payments based on profits of Community or Bank;
PRELIMINARY PROXY MATERIALS A-11
(C) relate to the purchase of goods, products, supplies or services
in excess of $10,000;
(D) were not made in the ordinary course of business; or
(E) may not be terminated without penalty within one (1) year from
the date of this Agreement;
(iv) The name and current annual salary of each director, officer and
employee of Community or Bank whose current annual salary is in
excess of $50,000, and the profit sharing, bonus or other form of
compensation (other than basic salary) paid or payable by Community
or Bank to or for the benefit of each such person for the year
ended December 31, 2000 and 1999, and any employment, severance or
deferred compensation agreement or arrangement with respect to each
such person; and
(v) A brief description (with reference to any applicable contractual
provisions) of any obligations or liabilities (whether absolute,
accrued, contingent or otherwise) of Community or Bank related to
American Bank of Illinois in Highland, MidAmerica Bank of St. Clair
County, or The Egyptian State Bank which will continue or arise at
or exist subsequent to consummation of the sale by Community of the
stock which it now owns or owned in the past of American Bank of
Illinois in Highland, MidAmerica Bank of St. Clair County, or The
Egyptian State Bank
(b) Community and Bank have, prior to the date of this Agreement,
provided or given access to First Financial to the files and documentation
of all borrowers of Bank, or persons or entities that are or may become
obligated to Bank under an existing letter of credit, line of credit, loan
transaction, loan agreement, promissory note or other commitment of Bank, in
excess of $10,000 individually or in the aggregate, whether in principal,
interest or otherwise, and including all guarantors of such indebtedness.
(c) Each of the agreements, contracts, commitments, leases, instruments
and documents set forth in the Disclosure Schedule relating to this Section
-------
4.09 is valid and enforceable in accordance with its terms, except to the
- ----
extent limited by general principles of equity and public policy or by
bankruptcy, insolvency, fraudulent transfer, readjustment of debt or other
laws of general application relative to or affecting the enforcement of
creditor's rights. Community and Bank are, and to their respective best
knowledge after due inquiry, all other parties thereto are, in material
compliance with the provisions thereof, and Community and Bank are not, and
to their respective best knowledge after due inquiry, no other party thereto
is, in default in the performance, observance or fulfillment of any material
obligation, covenant or provision contained therein. None of the foregoing
requires the consent of any party to its assignment in connection with the
Merger contemplated by this Agreement. Other than as disclosed pursuant to
this Section 4.09, to the best knowledge of Community and Bank after due
------------
inquiry, no circumstances exist resulting from transactions effected or to
be effected, from events
PRELIMINARY PROXY MATERIALS A-12
which have occurred or may occur or from any action taken or omitted to
be taken which could reasonably be expected to result in the creation of any
agreement, contract, obligation, commitment, arrangement, lease or document
described in or contemplated by this Section 4.09.
------------
(d) Neither Community nor Bank is, to the best knowledge of Community
and Bank after due inquiry, in default under or in breach of, or alleged to
be in default under or in breach of, any loan or credit agreement,
conditional sales contract or other title retention agreement, security
agreement, bond, indenture, mortgage, license, contract, lease, commitment
or any other instrument, agreement or obligation.
4.10. Absence of Undisclosed Liabilities. Except as provided in the
----------------------------------
Community Financial Statements and in the Disclosure Schedule, except for
unfunded loan commitments and obligations on letters of credit to customers
of Bank, except for trade payables incurred in the ordinary course of
Community's and Bank's business (for purposes of this Section 4, all
---------
references to ordinary course of business shall be deemed to be Community's
and Bank's ordinary course of business), and except for the Merger
contemplated by this Agreement, neither Community nor Bank has, nor will
have at the Effective Time, any obligation, agreement, contract, commitment,
liability, lease or license which exceeds $10,000 individually, or any
obligation, agreement, contract, commitment, liability, lease or license
made outside of the ordinary course of business, nor does there exist any
circumstances resulting from transactions effected or events occurring on or
prior to the date of this Agreement or from any action omitted to be taken
during such period which could reasonably be expected to result in any such
obligation, agreement, contract, commitment, liability, lease or license.
4.11. Title to Assets. Except as described in this Section 4.11: (a)
--------------- ------------
Community and Bank have good and marketable title in fee simple absolute to
all real property (including, without limitation, all real property used as
bank premises and all other real estate owned) which is reflected in the
Community Financial Statements as of December 31, 2000; good and marketable
title to all personal property reflected in the Community Financial
Statements as of December 31, 2000, other than personal property disposed of
in the ordinary course of business since December 31, 2000; good and
marketable title to or right to use by valid and enforceable lease or
contract all other properties and assets (whether real or personal, tangible
or intangible) which Community and Bank purport to own or which Community or
Bank uses in its business; good and marketable title to, or right to use by
terms of a valid and enforceable lease or contract, all other property used
in their respective businesses; and good and marketable title to all
property and assets acquired and not disposed of or leased since December
31, 2000. All of such properties and assets are owned by Community or Bank
free and clear of all land or conditional sales contracts, mortgages, liens,
pledges, restrictions, security interests, charges, claims, rights of third
parties or encumbrances of any nature except: (i) as set forth in the
Disclosure Schedule; (ii) as specifically noted in reasonable detail in the
Community Financial Statements; (iii) statutory liens for taxes not yet
delinquent or being contested in good faith by appropriate proceedings; (iv)
pledges or liens required to be granted in connection with the acceptance of
government deposits or granted in connection with repurchase or reverse
repurchase agreements; and (v) easements, encumbrances and liens of record,
imperfections of title and other limitations which are not material in
amounts to Community on a consolidated basis and which do not materially
detract from the value or materially interfere with the present or
contemplated use of
PRELIMINARY PROXY MATERIALS A-13
any of the properties subject thereto or otherwise materially impair the use
thereof for the purposes for which they are held or used. All real property
owned or leased by Community or Bank is in compliance with all applicable
zoning and land use laws.
(b) Community, Bank, and all current or former direct or indirect
subsidiaries of Community or Bank have conducted their respective business
in compliance with all federal, state, county and municipal laws, statutes,
regulations, rules, ordinances, orders, directives, restrictions and
requirements relating to, without limitation, responsible property transfer,
underground storage tanks, petroleum products, air pollutants, water
pollutants or storm water or process waste water or otherwise relating to
the environment or toxic or hazardous substances or to the manufacturing,
recycling, handling, processing, distribution, use, generation, treatment,
storage, disposal or transport of any hazardous or toxic substances or
petroleum products (including polychlorinated biphenyls, whether contained
or uncontained, and asbestos-containing materials, whether friable or not),
including, without limitation, the Federal Solid Waste Disposal Act, the
Hazardous and Solid Waste Amendments, the Federal Clean Air Act, the Federal
Clean Water Act, the Occupational Health and Safety Act, the Federal
Resource Conservation and Recovery Act, the Toxic Substances Control Act,
the Federal Comprehensive Environmental Response, Compensation and Liability
Act of 1980 and the Superfund Amendments and Reauthorization Act of 1986,
all as amended, and regulations of the Environmental Protection Agency, the
Nuclear Regulatory Agency, the Army Corp of Engineers, the Department of
Interior, the United States Fish and Wildlife Service and any state
department of natural resources or state environmental protection agency now
or at any time thereafter in effect (collectively, "Environmental Laws").
There are no pending or, to the best knowledge of Community and Bank after
due inquiry, threatened claims, actions or proceedings by any local
municipality, sewage district or other governmental entity against
Community, Bank, or any current or former direct or indirect subsidiaries of
Community or Bank with respect to the Environmental Laws, and there is no
reasonable basis or grounds for any such claim, action or proceeding. No
environmental clearances or other governmental approvals relating to
environmental matters are required for the conduct of the business of
Community or Bank or the consummation of the Merger contemplated hereby.
Neither Community, Bank, nor any current or former direct or indirect
subsidiaries of Community or Bank is the owner, and has not been in the
chain of title or the operator or lessee, of any property on which any
substances have been used, stored, deposited, treated, recycled or disposed
of, which substances if known to be present on, at or under such property
would require clean-up, removal or any other remedial action under any
Environmental Law. Community and Bank owns, operates, leases and controls,
and has owned, operated, leased and controlled, all real property in
compliance with the Environmental Laws. Neither Community, Bank, nor any
current or former direct or indirect subsidiaries of Community or Bank has
any liability for any clean-up or remediation under any of the Environmental
Laws with respect to any real property.
4.12. Loans and Investments. Except as set forth in Schedule 4.12 of the
--------------------- -------------
Disclosure Schedule:
(a) There is no loan by Community or Bank in excess of $10,000 that has
been classified by bank regulatory examiners or management as "Other Loans
Specially Mentioned," "Substandard," "Doubtful" or "Loss" or in excess of
$10,000 that has been identified by
PRELIMINARY PROXY MATERIALS A-14
accountants or auditors (internal or external) as having a significant
risk of uncollectability. The most recent loan watch list of Bank and a list
of all loans in excess of $10,000 which Bank has determined to be thirty
(30) days or more past due with respect to principal or interest payments or
has placed on nonaccrual status are set forth in the Disclosure Schedule.
(b) All loans reflected in the Community Financial Statements as of
December 31, 2000 and which have been made, extended, renewed, restructured,
approved, amended or acquired since December 31, 2000: (i) have been made
for good, valuable and adequate consideration in the ordinary course of
business; (ii) constitute the legal, valid and binding obligation of the
obligor and any guarantor named therein, except to the extent limited by
general principles of equity and public policy or by bankruptcy, insolvency,
fraudulent transfer, reorganization, liquidation, moratorium, readjustment
of debt or other laws of general application relative to or affecting the
enforcement of creditors' rights; (iii) are evidenced by notes, instruments
or other evidences of indebtedness which are true, genuine and what they
purport to be; and (iv) are secured, to the extent that Community or Bank
has a security interest in collateral or a mortgage securing such loans, by
perfected security interests or recorded mortgages naming Bank as the
secured party or mortgagee (unless by written agreement to the contrary).
(c) The reserves, the allowance for possible loan and lease losses and
the carrying value for real estate owned which are shown on the Community
Financial Statements are adequate in all material respects under the
requirements of generally accepted accounting principles applied on a
consistent basis to provide for possible losses on items for which reserves
were made, on loans and leases outstanding and real estate owned as of the
respective dates.
(d) None of the investments reflected in the Community Financial
Statements as of and for the period ended December 31, 2000 and none of the
investments made by Community or Bank since December 31, 2000 are subject to
any restriction, whether contractual or statutory, which materially impairs
the ability of Community or Bank to dispose freely of such investment at any
time. Neither Community nor Bank is a party to any repurchase agreements
with respect to securities.
(e) Set forth in the Disclosure Schedule is a true, accurate and
complete list of all loans in which Bank has any participation interest or
which have been made with or through another financial institution on a
recourse basis against Bank.
(f) Except as set forth in the Disclosure Schedule, and except for
customer deposits and ordinary trade payables, neither Community nor Bank
has, nor will they have at the Effective Time, any indebtedness for borrowed
money.
4.13. Shareholder Rights Plan and Anti-takeover Mechanisms. Except as
----------------------------------------------------
otherwise provided in the Disclosure Schedule, Community has no shareholder
rights plan or any other plan, program or agreement involving, restricting,
prohibiting or discouraging a change in control or merger of Community or
which may be considered an anti-takeover mechanism.
4.14. Employee Benefit Plans. Except as set forth in Schedule
----------------------
4.14(a) - (g) of the Disclosure Schedule:
PRELIMINARY PROXY MATERIALS A-15
(a) With respect to the employee benefit plans, as defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), sponsored or otherwise maintained by Community or Bank, whether
written or oral; in which Community or Bank participates as a participating
employer; to which Community or Bank contributes; with respect to which
Community or Bank acts as administrator, custodian, trustee or fiduciary;
and including any such plans which have been terminated, merged into another
plan, frozen or discontinued; with respect to which Community or Bank may
have any liability (whether absolute, accrued, contingent or otherwise),
(collectively, "Community Plans"): (i) all such Community Plans have, on a
continuous basis since their adoption, been, in all material respects,
maintained in compliance with the requirements prescribed by all applicable
statutes, orders and governmental rules or regulations, including, without
limitation, ERISA, the Internal Revenue Code (the "Code"), and the
Department of Labor ("Department") and Treasury Regulations promulgated
thereunder; (ii) all Community Plans intended to constitute tax-qualified
plans under Section 401(a) of the Code have complied since their adoption or
have been timely amended to comply in all material respects with all
applicable requirements of the Code and the Treasury Regulations promulgated
thereunder, and favorable determination letters have been timely received
from the Internal Revenue Service ("Service") (or the remedial amendment
period has not expired) with respect to each such Community Plan stating
that each, in its current form (or at the time of its disposition if it has
been terminated, merged, frozen or discontinued), is qualified under and
satisfies all applicable provisions of the Code and Treasury Regulations;
(iii) no Community Plan (or its related trust) holds any stock or other
securities of Community or any related or affiliated person or entity; (iv)
neither Community nor Bank has any liability to the Department or the
Service with respect to any Community Plan; (v) Community has not engaged in
any transaction that may subject Community or the Bank, or any Community
Plan, to a civil penalty imposed by Section 502 of ERISA; (vi) no non-exempt
prohibited transaction (as defined in Section 406 of ERISA or as defined in
Section 4975(c) of the Code) has occurred with respect to any Community
Plan; (vii) each Community Plan subject to ERISA or intended to be qualified
under Section 401(a) of the Code has been and, if applicable, is being
operated in all material respects in accordance with the applicable
provisions of ERISA and the Code and the Department and Treasury Regulations
promulgated thereunder; (viii) no participant or beneficiary or
non-participating employee has been denied any benefit due or to become due
under any Community Plan or has been misled as to his or her rights under
any Community Plan; (ix) all obligations required to be performed by
Community or Bank under any provision of any Community Plan have been
performed by them in all material respects and they are not in default under
or in violation of, in any material respect, any provision of any Community
Plan; (x) no event has occurred which would constitute grounds for an
enforcement action by any party under Part 5 of Title I of ERISA under any
Community Plan; (xi) there are no actions, suits, proceedings or claims
pending (other than routine claims for benefits) or, to the best knowledge
of Community and Bank after due inquiry, threatened, against Community,
Bank, any Community Plan or the assets of any Community Plan; and (xii) with
respect to any Community Plan sponsored, participated in or contributed to
by Community or Bank, or with respect to which Community or Bank is
responsible for complying with the reporting and disclosure requirements of
ERISA or the Code, there has been no violation of the reporting and
disclosure requirements imposed either under ERISA or the Code for which a
penalty has been or may be imposed.
PRELIMINARY PROXY MATERIALS A-16
(b) With regard to any Community Plan intended to be qualified under
Section 401(a) of the Code, no director, officer, employee or agent of
Community or Bank has engaged in any action or failed to act in such a
manner that, as a result of such action or failure to act, the Service could
revoke or deny that plan's qualification under Section 401(a) of the Code,
the exemption under Section 501(a) of the Code for any trust related to such
plan, or the status of such plan as an "employee stock ownership plan"
described in Section 4975(e)(7) of the Code.
(c) Community has provided to First Financial true, accurate and
complete copies and, in the case of any plan or program which has not been
reduced to writing, a summary of all of the following (including all plans
and programs which have been terminated): (i) pension, retirement,
profit-sharing, savings, stock purchase, stock bonus, stock ownership, stock
option and stock appreciation right plans and all amendments thereto and all
summary plan descriptions thereof (including any modifications thereto);
(ii) all employment, deferred compensation (whether funded or unfunded),
salary continuation, consulting, bonus, severance and collective bargaining
agreements, arrangements or understandings; (iii) all executive and other
incentive compensation plans, programs and agreements; (iv) all group
insurance and health insurance contracts, policies or plans; (v) all other
incentive, welfare or employee benefit plans, understandings, arrangements
or agreements, maintained or sponsored, participated in, or contributed to
by Community or Bank for its current or former directors, officers or
employees; and (vi) all reports to any government department or agency filed
within the preceding three years by Community or Bank with respect to any
Community Plan.
(d) No current or former director, officer or employee of Community or
Bank is entitled to or may become entitled to any benefit under any welfare
benefit plans (as defined in Section 3(1) of ERISA) after termination of
employment with Community or Bank, except that such individuals may be
entitled to continue their group health care coverage pursuant to Section
4980B of the Code if they pay the cost of such coverage pursuant to the
applicable requirements of the Code with respect thereto.
(e) No Community Plan is, and neither Community nor the Bank has any
liability with respect to any plan that is (i) a defined benefit pension
plan subject to Title IV of ERISA, (ii) a pension plan subject to Section
302 of ERISA or Section 412 of the Code, or (iii) a multi-employer pension
plan (as that term is defined in Sections 4001(a)(3) and 3(37) of ERISA).
(f) With respect to any group health plan (as defined in Section 607(1)
of ERISA) sponsored or maintained by Community or Bank, in which Community
or Bank participates as a participating employer or to which Community or
Bank contributes, no director, officer, employee or agent of Community or
Bank has engaged in any action or failed to act in such a manner that, as a
result of such action or failure to act, would cause a tax to be imposed on
Community or Bank under Code Section 4980B(a). With respect to all such
plans, all applicable provisions of Section 4980B of the Code and Section
601 of ERISA have been complied with in all material respects by Community
and Bank.
(g) There are no collective bargaining, employment, management,
consulting, deferred compensation, reimbursement, indemnity, retirement,
early retirement, severance or
PRELIMINARY PROXY MATERIALS A-17
similar plans or agreements, commitments or understandings, or any
employee benefit or retirement plan or agreement, binding upon Community or
Bank and no such agreement, commitment, understanding or plan is under
discussion or negotiation by management with any employee or group of
employees, any member of management or any other person.
4.15. Obligations to Employees. All obligations and liabilities of and
------------------------
all payments by Community and Bank, and all Community Plans, whether arising
by operation of law, by contract or by past custom, for payments to trusts
or other funds, to any government agency or authority or to any present or
former director, officer, employee or agent (or his or her heirs, legatees
or legal representatives) have been and are being paid to the extent
required by applicable law or by the plan, trust, contract or past custom or
practice, and adequate actuarial accruals and reserves for such payments
have been and are being made by Community and Bank in accordance with
generally accepted accounting principles and applicable law applied on a
consistent basis and actuarial methods with respect to the following: (a)
withholding taxes, unemployment compensation or social security benefits;
(b) all pension, profit-sharing, savings, stock purchase, stock bonus, stock
ownership, stock option and stock appreciation rights plans and agreements;
(c) all employment, deferred compensation (whether funded or unfunded),
salary continuation, consulting, retirement, early retirement, severance,
reimbursement, bonus or collective bargaining plans and agreements; (d) all
executive and other incentive compensation plans, programs, or agreements;
(e) all group insurance and health contracts, policies and plans; and (f)
all other incentive, welfare, retirement or employee benefit plans or
agreements maintained or sponsored, participated in, or contributed to by
Community or Bank for its current or former directors, officers, employees
and agents, including, without limitation, all liabilities and obligations
to the Community Plans (as defined in Section 4.14(a) hereof). All
obligations and liabilities of Community and Bank, whether arising by
operation of law, by contract or by past custom or practice, for all other
forms of compensation which are or may be payable to their current or former
directors, officers, employees or agents or to any Community Plan have been
and are being paid to the extent required by applicable law or by the plan
or contract, and adequate actuarial accruals and reserves for payment
therefor have been and are being made by Community and Bank in accordance
with generally accepted accounting and actuarial principles applied on a
consistent basis. All accruals and reserves referred to in this Section 4.15
are correctly and accurately reflected and accounted for in all material
respects in the Community Financial Statements and the books, statements and
records of Community and Bank.
4.16. Taxes, Returns and Reports. Except as set forth in the Disclosure
--------------------------
Schedule, Community has since January 1, 1995 (a) duly and timely filed all
federal, state, local and foreign tax returns of every type and kind
required to be filed, and each such return is true, accurate and complete in
all material respects; (b) paid or otherwise adequately reserved in
accordance with generally accepted accounting principles for all taxes,
assessments and other governmental charges due or claimed to be due upon it
and Bank or any of their income, properties or assets; and (c) not requested
an extension of time for any such payments (which extension is still in
force). Community has established, and shall establish in the Subsequent
Community Financial Statements, in accordance with generally accepted
accounting principles, a reserve for taxes in the Community Financial
Statements adequate to cover all of Community's and Bank's tax liabilities
(including, without limitation, income taxes, payroll taxes and withholding,
and franchise fees) for the periods then ending. Neither Community nor Bank
has,
PRELIMINARY PROXY MATERIALS A-18
nor will either of them have, any liability for taxes of any nature for
or with respect to the operation of their respective businesses, including
the business of any subsidiary, or ownership of their assets, including the
assets of any subsidiary, from the date hereof up to and including the
Effective Time, except to the extent set forth in the Subsequent Community
Financial Statements (as hereinafter defined) or as accrued or reserved for
on the books and records of Community. Neither Community nor Bank is
currently under audit by any state or federal taxing authority. No federal,
state or local tax returns of Community have been audited by any taxing
authority during the past five (5) years.
4.17. Deposit Insurance. The deposits of Bank are insured by the FDIC
-----------------
in accordance with the Federal Deposit Insurance Act, as amended, to the
fullest extent provided by applicable law and Community and Bank have paid
or properly reserved or accrued for all current premiums and assessments
with respect to such deposit insurance.
4.18. Insurance. Set forth in the Disclosure Schedule is a list and
---------
brief description of all policies of insurance (including, without
limitation, bankers' blanket bond, directors' and officers' liability
insurance, property and casualty insurance, group health or hospitalization
insurance and insurance providing benefits for employees) owned or held by
Community or Bank on the date hereof or with respect to which Community or
Bank pays any premiums. Each such policy is in full force and effect and all
premiums due thereon have been paid when due, and a true, accurate and
complete copy thereof has been made available to First Financial prior to
the date hereof.
4.19. Books and Records. The books and records of Community and Bank
-----------------
are complete and correct and accurately reflect the basis for the financial
condition, results of operations, business, assets and capital of Community
and Bank set forth in the Community Financial Statements.
4.20. Broker's, Finder's or Other Fees. Except as set forth in the
--------------------------------
Disclosure Schedule and except for reasonable fees of Community's attorneys
and accountants, all of which shall be paid by Community prior to the
Effective Time, no agent, broker or other person acting on behalf of
Community or Bank or under any authority of Community or Bank is or shall be
entitled to any commission, broker's or finder's fee or any other form of
compensation or payment from any of the parties hereto relating to this
Agreement and the Merger contemplated hereby.
4.21. Disclosure Schedule and Documents. All written data, documents,
---------------------------------
materials and information referred to in this Agreement and delivered by
Community or Bank pursuant to or in connection with the Disclosure Schedule
are true, accurate and complete in all material respects as of the date
hereof and with respect to such items delivered subsequent to the date
hereof or with any update to the Disclosure Schedule, will be true, accurate
and complete in all material respects on the date of delivery thereof.
4.22. Interim Events. Except as set forth in Schedule 4.22 of the
-------------- -------------
Disclosure Schedule and except as otherwise required or permitted hereunder,
since December 31, 2000, neither Community nor Bank has, other than in
the ordinary course of business:
PRELIMINARY PROXY MATERIALS A-19
(a) Suffered any changes having an adverse impact on the financial
condition, results of operations, business, assets or capital of Community
or Bank in excess of $10,000 individually or in the aggregate;
(b) Suffered any damage, destruction or loss to any of its properties,
not fully paid by insurance proceeds, in excess of $5,000 individually or in
the aggregate;
(c) Declared, distributed or paid any dividend or other distribution
to its shareholders;
(d) Repurchased, redeemed or otherwise acquired shares of its common
stock, issued any shares of its common stock or stock appreciation rights or
sold or agreed to issue or sell any shares of its common stock or any right
to purchase or acquire any such stock or any security convertible into such
stock or taken any action to reclassify, recapitalize or split its stock;
(e) Granted or agreed to grant any increase in benefits payable or to
become payable under any pension, retirement, profit sharing, health, bonus,
insurance or other welfare benefit plan or agreement to employees, officers
or directors of Community or Bank except pursuant to the express terms
thereof;
(f) Increased the salary of any director, officer or employee or
entered into any employment contract, indemnity agreement or understanding
with any officer or employee or installed any employee welfare, pension,
retirement, stock option, stock appreciation, stock dividend, profit sharing
or other similar plan or arrangement;
(g) Leased, sold or otherwise disposed of any of its assets except as
contemplated by Section 2.02(c) or in the ordinary course of business or
---------------
leased, purchased or otherwise acquired from third parties any assets except
in the ordinary course of business;
(h) Except for the Merger contemplated by this Agreement, merged,
consolidated or sold shares of its common stock, agreed to merge or
consolidate with or into any third party, agreed to sell any shares of its
common stock or acquired or agreed to acquire any stock, equity interest,
assets or business of any third party;
(i) Incurred, assumed or guaranteed any obligation or liability
(whether absolute, accrued, contingent or otherwise) other than obligations
and liabilities incurred in the ordinary course of business;
(j) Mortgaged, pledged or subjected to a lien, security interest,
option or other encumbrance any of its assets except for tax and other liens
which arise by operation of law and with respect to which payment is not
past due and except for pledges or liens: (i) required to be granted in
connection with acceptance by Community or Bank of government deposits; or
(ii) granted in connection with repurchase or reverse repurchase agreements;
(k) Except as set forth in the Disclosure Schedule, canceled, released
or compromised any loan, debt, obligation, claim or receivable other than in
the ordinary course of business;
PRELIMINARY PROXY MATERIALS A-20
(l) Entered into any transaction, contract or commitment other than
in the ordinary course of business;
(m) Agreed to enter into any transaction for the borrowing or loaning
of monies, other than in the ordinary course of its lending business; or
(n) Conducted its business in any manner other than substantially as it
was being conducted through December 31, 2000.
4.23. Regulatory Filings. Community has filed and will continue to file
------------------
in a timely manner all required filings with the Securities and Exchange
Commission ("SEC"), as required by applicable law, including, but not
limited to, all reports on Form 8-K, Form 10-K and Form 10-Q and proxy
statements, and with all federal and state regulatory agencies and
authorities as required by applicable law. All such filings with the SEC and
with all other federal and state regulatory agencies by Community, Bank, and
all current or former direct or indirect subsidiaries of Community or Bank
were and will be true, accurate and complete as of the dates of the filings
and have been complied or will comply in all respects as to form with the
applicable requirements and prepared in conformity with generally accepted
regulatory accounting principles applied on a consistent basis, and no such
filing contained or will contain any untrue statement of a material fact or
omitted to state a material fact necessary in order to make the statements,
at the time and in light of the circumstances under which they were made,
not false or misleading.
4.24. Contracts. Neither Community nor Bank is in default under or in
---------
breach of or, to the best knowledge of Community and Bank after due inquiry,
alleged to be in default under or in breach of, any loan or credit
agreement, conditional sales contract or other title retention agreement,
security agreement, bond, indenture, mortgage, license, contract, lease,
commitment or any other instrument or obligation.
4.25. No Third Party Options. There are no agreements, options,
----------------------
commitments or rights with, of or to any third party to acquire any shares
of capital stock or assets of Community or Bank.
4.26. Indemnification Agreements. Except as set forth in Schedule
-------------------------- --------
4.26 of the Disclosure Schedule:
- ----
(a) Neither Community nor Bank is a party to any indemnification,
indemnity or reimbursement agreement, contract, commitment or understanding
to indemnify any present or former director, officer, employee, fiduciary of
any Community Plan, shareholder or agent against liability or hold the same
harmless from liability.
(b) No claims have been made against or filed with Community or Bank
nor have, to the best knowledge of Community and Bank after due inquiry, any
claims been threatened against Community or Bank, nor is Community or Bank
aware after due inquiry of any facts or circumstances which may create the
basis for a claim, for indemnification against liability or for reimbursement
of any costs or expenses incurred in connection with any legal or regulatory
PRELIMINARY PROXY MATERIALS A-21
proceeding by any present or former director, officer, shareholder, employee
or agent of Community or Bank.
4.27. Shareholder Approval. The affirmative vote of the holders of
--------------------
two-thirds of the Community Common Stock (which are issued and outstanding
on the record date relating to the meeting of shareholders) is required
for shareholder approval of this Agreement and the Merger.
4.28. Trust Administration. The Bank has properly administered all
--------------------
accounts for which it acts as a fiduciary (under ERISA or otherwise) or
agent, custodian, personal representative, guardian, conservator or
investment adviser or investment manager in accordance with the terms of the
governing documents and applicable state and federal law. Neither Community,
the Bank nor any director, officer or employee of Community or the Bank
acting on behalf of the Bank has committed any breach of trust or other
violation of applicable law or regulation with regard to any such fiduciary
or agency account, and the accountings for each such fiduciary or agency
account are true and correct in all material respects and accurately reflect
the assets of such fiduciary or agency account.
4.29. Absence of Changes. Except as set forth in Schedule 4.29 of the
------------------ -------------
Disclosure Schedule, since December 31, 2000 there has not been any change
in the financial condition, the results of operations or the business of
Community or the Bank which would have a material adverse effect on
Community or the Bank.
4.30. Sale of Subsidiary Banks. Except as set forth in Schedule 4.30 of
------------------------ -------------
the Disclosure Schedule, upon consummation of the sale by Community of the
stock it holds of American Bank of Illinois in Highland, MidAmerica Bank of
St. Clair County, and The Egyptian State Bank (the "Sold Banks"), Community
shall have no liability or obligation (whether absolute, accrued, contingent
or otherwise) to any individual or entity, with respect to the sale of the
stock of the Sold Banks or with respect in any way to the Sold Banks. After
due inquiry, Community is not aware of any set of facts which could be
expected to give rise to such liabilities or obligations.
4.31. Opinion of Financial Advisor. The Board of Directors of Community,
----------------------------
at a duly constituted and held meeting at which a quorum was present
throughout, has been informed orally by a reputable financial advisor
experienced in transactions such as the Merger that the terms of the Merger
are fair to the shareholders of Community from a financial point of view.
4.32. Regulatory Matters. Neither Community nor the Bank has taken or
------------------
agreed to take any action or has any knowledge of any fact or circumstance
that would materially impede or delay receipt of any regulatory approval
required for consummation of the transactions contemplated by this
Agreement.
4.33. Representations and Warranties at the Effective Time. All
----------------------------------------------------
representations and warranties of Community and Bank contained herein shall
be true, accurate and complete in all material respects on and as of the
Effective Time as though made or given at such time.
4.34. Nonsurvival of Representations and Warranties. The
---------------------------------------------
representations and warranties of Community and Bank contained in this
Agreement shall expire at the Effective
PRELIMINARY PROXY MATERIALS A-22
Time, and thereafter Community and Bank, and all directors, officers and
employees of Community and Bank shall have no further liability with
respect thereto, except for fraud or except as otherwise provided by law,
whether statutory, common law or otherwise.
SECTION 5
REPRESENTATIONS AND WARRANTIES OF FIRST FINANCIAL
-------------------------------------------------
First Financial represents and warrants to Community as follows:
5.01. Organization and Authority. First Financial is a corporation duly
--------------------------
organized and validly existing under the laws of the State of Indiana and
has full power and authority (corporate and otherwise) to own and lease its
properties as presently owned and leased and to conduct its business in the
manner and by the means utilized as of the date hereof.
5.02. Authorization. First Financial has the requisite corporate power
-------------
and authority to enter into this Agreement and to carry out its obligations
hereunder, subject to the fulfillment of the conditions precedent set forth
in Section 8.01 hereof. This Agreement and its execution and delivery by
------------
First Financial have been duly authorized by the Board of Directors of First
Financial. This Agreement constitutes a valid and binding obligation of
First Financial, subject to the conditions precedent set forth in Section 8.01
------------
hereof, and is enforceable in accordance with its terms, except to the
extent limited by general principles of equity and public policy and by
bankruptcy, insolvency, reorganization, liquidation, moratorium,
readjustment of debt or other laws of general application relating to or
affecting the enforcement of creditors' rights.
(b) Neither the execution of this Agreement nor consummation of the
Merger contemplated hereby: (i) conflicts with or violates First Financial's
Articles of Incorporation or By-Laws; (ii) conflicts with or violates in any
material respect any local, state, federal or foreign law, statute,
ordinance, rule or regulation (provided that the approvals of or filings
with applicable government regulatory agencies or authorities required for
consummation of the Merger are obtained) or any court or administrative
judgment, order, injunction, writ or decree; or (iii) conflicts with,
results in a breach of or constitutes a material default under any note,
bond, indenture, mortgage, deed of trust, license, contract, lease,
agreement, arrangement, commitment or other instrument to which First
Financial is subject or bound and which is material to First Financial on a
consolidated basis.
(c) Other than in connection or in compliance with applicable federal
and state banking, securities and corporation statutes, all as amended, and
the rules and regulations promulgated thereunder, no notice to, filing with,
exemption by or consent, authorization or approval of any governmental
agency or body is necessary for the consummation by First Financial of the
Merger contemplated by this Agreement.
5.03. Litigation and Pending Proceedings. There are no claims, actions,
----------------------------------
suits, proceedings, investigations or arbitrations pending or, to the best
knowledge of First Financial after due inquiry by the officers of First
Financial, threatened in any court or before any government agency or
authority, arbitration panel or otherwise (nor does First Financial have any
PRELIMINARY PROXY MATERIALS A-23
knowledge of a basis for any claim, action, suit, proceeding, litigation,
investigation or arbitration) against, by or affecting First Financial which
would reasonably be expected to prevent the performance of this Agreement,
declare the same unlawful or cause the rescission hereof.
5.04. Accuracy of Statements Made to Community. No representation,
----------------------------------------
warranty or other statement made, or any information provided, by First
Financial in this Agreement, and no written report, statement, list,
certificate, materials or other information furnished or to be furnished by
First Financial to Community through and including the Effective Time in
connection with this Agreement or the Merger contemplated hereby, contains
or shall contain (in the case of information relating to the proxy statement
at the time it is mailed to Community's shareholders) any untrue or
misleading statement of material fact or omits or shall omit to state a
material fact necessary to make the statements contained herein or therein,
in light of the circumstances in which they are made, not false or
misleading.
5.05. Representations and Warranties at the Effective Date. All
----------------------------------------------------
representations and warranties of First Financial contained herein shall be
true, accurate and complete in all material respects on and as of the
Effective Time as though made or given at such time.
5.06. Nonsurvival of Representations and Warranties. The
---------------------------------------------
representations and warranties of First Financial contained in this
Agreement shall expire at the Effective Time and, thereafter, neither First
Financial nor its directors, officers and employees shall have any further
liability with respect thereto, except for fraud or except as otherwise
provided by law, whether statutory, common law or otherwise.
5.07. Shareholder Approval. Approval by First Financial's shareholders
--------------------
of the Merger or any other actions contemplated by this Agreement is not
required.
SECTION 6
COVENANTS OF COMMUNITY
----------------------
Community covenants and agrees with First Financial and Merger Corp as
follows:
6.01. Shareholder Approval. Community will submit this Agreement to its
--------------------
shareholders for approval at a meeting to be called and held in accordance
with applicable law and the Articles of Incorporation of Community at the
earliest practicable date. The Board of Directors of Community will
recommend to Community's shareholders that such shareholders approve this
Agreement and the Merger contemplated hereby and will solicit proxies voting
in favor of this Agreement from Community's shareholders.
6.02. Other Approvals. (a) Community will proceed expeditiously,
---------------
cooperate fully and use its best efforts to assist First Financial in
procuring upon reasonable terms and conditions all consents, authorizations,
approvals, registrations and certificates, in completing all filings and
applications and in satisfying all other requirements prescribed by law
which are necessary for consummation of the Merger on the terms and
conditions provided in this Agreement at the earliest possible reasonable
date.
PRELIMINARY PROXY MATERIALS A-24
(b) Community will use commercially reasonable efforts to obtain any
required third party consents to agreements, contracts, commitments, leases,
instruments and documents described in the Disclosure Schedule pursuant to
Section 4.
- ---------
(c) Community will cooperate with First Financial in and shall take all
necessary action to effectuate the disposition of the Community Plans, as
provided in Section 6.13 hereof. Community shall pay all costs and expenses
------------
associated with such dispositions.
6.03. Conduct of Business. (a) Except as set forth in the Disclosure
-------------------
Schedule, on and after the date of this Agreement and until the Effective
Time or until this Agreement will be terminated as herein provided,
Community will not, without the prior written consent of First Financial:
(i) make any changes in its capital stock accounts (including,
without limitation, any stock split, stock dividend,
recapitalization or reclassification);
(ii) authorize a class of stock or issue, or authorize the
issuance of, securities other than or in addition to the
issued and outstanding common stock as set forth in
Section 4.03 hereof;
------------
(iii) distribute or pay any dividends on its shares of common
stock, or authorize a stock split, or make any other
distribution to its shareholders;
(iv) redeem any of its outstanding shares of common stock;
(v) merge, combine or consolidate or effect a share exchange
with or sell its assets or any of its securities to any
other person, corporation or entity or enter into any
other similar transaction not in the ordinary course of
business;
(vi) purchase any assets or securities or assume any liabilities
of another bank holding company, bank, corporation or other
entity, except in the ordinary course of business necessary
to manage its investment portfolio;
(vii) make any loan or commitment to lend money, issue any letter
of credit or accept any deposit, except in the ordinary
course of business in accordance with its existing banking
practices;
(viii) except for the disposition in the ordinary course of
business of other real estate owned and except for the sale
by Community of the stock it holds of American Bank of
Illinois in Highland, MidAmerica Bank of St. Clair County,
and The Egyptian State Bank, acquire or dispose of any real
or personal property or fixed asset constituting a capital
investment in excess of $10,000 individually or $25,000 in
the aggregate;
PRELIMINARY PROXY MATERIALS A-25
(ix) subject any of its properties or assets to a mortgage, lien,
claim, charge, option, restriction, security interest or
encumbrance, except for tax and other liens which arise by
operation of law and with respect to which payment is not
past due and except for pledges or liens: (i) required to
be granted in connection with acceptance by Community of
government deposits; or (ii) granted in connection with
repurchase or reverse repurchase agreements;
(x) promote to a new position or increase the rate of
compensation or enter into any agreement to promote to a
new position or increase the rate of compensation, of any
director, officer or employee of Community or Bank;
(xi) execute, create, institute, modify, amend, terminate (except
with respect to any amendments to the Community Plans
required by law, rule or regulation) or engage in any
transaction with any pension, retirement, savings, stock
purchase, stock bonus, stock ownership, stock option, stock
appreciation or depreciation right or profit sharing plans;
any employment, deferred compensation, consulting, bonus or
collective bargaining agreement; any group insurance or
health contract or policy; or any other incentive,
retirement, welfare or employee welfare benefit plan,
agreement or understanding for current or former directors,
officers or employees of Community or Bank; or change the
level of benefits or payments under any of the foregoing
or increase or decrease any severance or termination of
pay benefits or any other fringe or employee benefits
other than as required by law or regulatory authorities
or the terms of any of the foregoing;
(xii) modify, amend or institute new employment policies or
practices, or enter into, renew or extend any employment,
indemnity, reimbursement, consulting, compensation or
severance agreements with respect to any present or former
directors, officers or employees of Community or Bank;
(xiii) hire or employ any new or additional employees of Community
or Bank, except those which are reasonably necessary for the
proper operation of its business;
(xiv) elect or appoint any officers or directors of Community or
Bank who are not presently serving in such capacities;
(xv) amend, modify or restate Community's or Bank's Articles of
Incorporation or By-Laws from those in effect on the date
of this Agreement and as delivered to First Financial
hereunder;
PRELIMINARY PROXY MATERIALS A-26
(xvi) give, dispose of, sell, convey or transfer; assign,
hypothecate, pledge or encumber; or grant a security
interest in or option to or right to acquire any shares
of common stock or substantially all of the assets of
Community or Bank, or enter into any agreement or
commitment relative to the foregoing;
(xvii) fail to continue to make additions to in accordance with
past practices and to otherwise maintain in all respects
Community's or Bank's reserve for loan and lease losses, or
any other reserve account, in accordance with safe, sound,
and prudent banking practices and in accordance with
generally accepted accounting principles applied on a
consistent basis;
(xviii) fail to accrue, pay, discharge and satisfy all debts,
liabilities, obligations and expenses, including, but not
limited to, trade payables, incurred in the regular and
ordinary course of business as such debts, liabilities,
obligations and expenses become due;
(xix) issue, or authorize the issuance of, any securities
convertible into or exchangeable for any shares of the
capital stock of Community or Bank;
(xx) except for obligations disclosed within this Agreement, FHLB
daily advances utilized for the purpose of Community's and
the Bank's cash management, or in Schedule 6.03(a)(xx) of
--------------------
the Disclosure Statement, trade payables and similar
liabilities and obligations incurred in the ordinary course
of business and the payment, discharge or satisfaction in
the ordinary course of business of liabilities reflected in
the Community Financial Statements or the Subsequent
Community Financial Statements, borrow any money or incur
any indebtedness including, without limitation, through the
issuance of debentures, or incur any liability or
obligation (whether absolute, accrued, contingent or
otherwise), in an aggregate amount exceeding $10,000;
(xxi) open, close, move or, in any material respect, expand,
diminish, renovate, alter or change any of its offices or
branches;
(xxii) pay or commit to pay any management or consulting or other
similar type of fees; or
(xxiii) enter into any contract, agreement, lease, commitment,
understanding, arrangement or transaction or incur any
liability or obligation (other than as contemplated by
Section 6.03(a)(vii) hereof and legal, accounting and fees
--------------------
related to the Merger) requiring payments by Community
which exceed $10,000, whether individually or in the
aggregate, or that is not a trade payable or incurred in
the ordinary course of business.
PRELIMINARY PROXY MATERIALS A-27
(b) Community will maintain, or cause to be maintained, in full
force and effect, insurance on its and the Bank's assets, properties and
operations, fidelity coverage and directors' and officers' liability
insurance in such amounts and with regard to such liabilities and hazards as
are currently insured by Community and/or the Bank as of the date of this
Agreement.
6.04. Preservation of Business. On and after the date of this Agreement
------------------------
and until the Effective Time or until this Agreement is terminated as herein
provided, Community will: (a) carry on its business diligently,
substantially in the manner as is presently being conducted and in the
ordinary course of business; (b) use commercially reasonable efforts to
preserve its business organization intact (except for the sale by Community
of the stock it holds of American Bank of Illinois in Highland, MidAmerica
Bank of St. Clair County, and The Egyptian State Bank), keep available the
services of the present officers and employees and preserve its present
relationships with customers and persons having business dealings with it;
(c) maintain all of the properties and assets that it owns or utilizes in
the operation of its business as currently conducted in good operating
condition and repair, reasonable wear and tear excepted, and maintain
insurance upon such properties and assets in amounts and kinds comparable to
that in effect on the date of this Agreement; (d) maintain its books,
records and accounts in the usual, regular and ordinary manner, on a basis
consistent with prior years and in compliance with all material respects
with all statutes, laws, rules and regulations applicable to them and to the
conduct of its business; and (e) not knowingly do or fail to do anything
which will cause a breach of, or default in, any contract, agreement,
commitment, obligation, understanding, arrangement, lease or license to
which it is a party or by which it is or may be subject or bound which would
reasonably be expected to have a material adverse effect on the financial
condition, results of operations, business, assets, or capital of Community.
6.05. Press Releases. Except as required by law, Community will not
--------------
issue any press or news releases or make any other public announcements or
disclosures relating to the Merger without the prior consent of First
Financial following delivery to First Financial of a final copy of such
press or news release, which consent shall not be unreasonably withheld.
6.06. Disclosure Schedule Update. Community will promptly supplement,
--------------------------
amend and update, upon the occurrence of any change prior to the Effective
Time, and as of the Effective Time, the Disclosure Schedule with respect to
any matters or events hereafter arising which, if in existence or having
occurred as of the date of this Agreement, would have been required to be
set forth or described in the Disclosure Schedule or this Agreement and
including, without limitation, any fact which, if existing or known as of
the date hereof, would have made any of the representations or warranties of
Community or Bank contained herein materially incorrect, untrue or
misleading.
6.07. Information, Access Thereto, Confidentiality. First Financial and
--------------------------------------------
its representatives and agents will, at all times during normal business
hours prior to the Effective Time, have full and continuing access to the
properties, facilities, operations, books and records of Community. First
Financial and its representatives and agents may, prior to the Effective
Time, make or cause to be made such reasonable investigation of the
operations, books, records and properties of Community and Bank and of their
respective financial and legal condition as deemed necessary or advisable to
familiarize themselves with such operations, books, records,
PRELIMINARY PROXY MATERIALS A-28
properties and other matters; provided, however, that such access or
investigation shall not interfere unnecessarily with the normal business
operations of Community. Upon request, Community will furnish First
Financial or its representatives or agents, their attorneys' responses
to external auditors requests for information, management letters received
from their external auditors and such financial, loan and operating data
and other information reasonably requested by First Financial which has
been or is developed by Community, its auditors, accountants or attorneys
(provided with respect to attorneys, such disclosure would not result in
the waiver by Community of any claim of attorney-client privilege), and
will permit First Financial or its representatives or agents to discuss
such information directly with any individual or firm performing auditing
or accounting functions for Community, and such auditors and accountants
will be directed to furnish copies of any reports or financial information
as developed to First Financial or its representatives or agents. No
investigation by First Financial will affect the representations and
warranties made by Community or Bank herein. Any confidential information
or trade secrets received by First Financial or its representatives or
agents in the course of such examination will be treated confidentially,
and any correspondence, memoranda, records, copies, documents and electronic
or other media of any kind containing such confidential information or trade
secrets or both shall be destroyed by First Financial or, at Community's
request, returned to Community in the event this Agreement is terminated
as provided in Section 9 hereof. This Section 6.07 will not require the
--------- ------------
disclosure of any information to First Financial which would be prohibited
by law.
6.08. Subsequent Community Financial Statements. As soon as reasonably
-----------------------------------------
available after the date of this Agreement, Community will deliver to First
Financial the monthly unaudited consolidated balance sheets and profit and
loss statements of Community prepared for its internal use, Bank's Call
Reports for each quarterly period completed prior to the Effective Time, and
all other financial reports or statements submitted by Community or Bank to
regulatory authorities after the date hereof, to the extent permitted by law
(collectively, "Subsequent Community Financial Statements"). The Subsequent
Community Financial Statements will be prepared on a basis consistent with
past accounting practices and generally accepted accounting principles
applied on a consistent basis to the extent applicable and shall present
fairly the financial condition and results of operations as of the dates and
for the periods presented. The Subsequent Community Financial Statements,
including the notes thereto, will not include any assets, liabilities or
obligations or omit to state any assets, liabilities or obligations (whether
absolute, accrued, contingent or otherwise) or any other facts, which
inclusion or omission would render such financial statements inaccurate,
incomplete or misleading in any material respect.
6.9. Employee Benefits. Neither the terms of this Agreement nor the
-----------------
provision of any employee benefits by First Financial to employees of
Community or the Bank will: (a) create any employment contract, agreement or
understanding with or employment rights for, or constitute a commitment or
obligation of employment to, any of the officers or employees of Community
or the Bank; or (b) prohibit or restrict First Financial or its
subsidiaries, whether before or after the Effective Time, from changing,
amending or terminating any employee benefit plans or programs provided to
its employees from time to time.
PRELIMINARY PROXY MATERIALS A-29
6.10. Environmental Reports. If requested by First Financial, Community
---------------------
and Bank will cooperate with an environmental consulting firm designated by
First Financial in connection with the conduct by such firm of a phase one
environmental investigation on all real property owned or leased by
Community as of the date of this Agreement, and any real property acquired
or leased by Community after the date of this Agreement.
6.11. Other Negotiations. On and after the date of this Agreement and
------------------
until the Effective Time or until this Agreement is terminated as herein
provided, except with the prior written approval of First Financial, neither
Community nor Bank shall, and neither Community nor Bank shall permit or
authorize its directors, officers, employees, agents or representatives to,
directly or indirectly, initiate, solicit, encourage or engage in
discussions or negotiations with, or provide information to, any
corporation, association, partnership, person or other entity or group
concerning any merger, consolidation, share exchange, combination, purchase
or sale of substantial assets, sale of shares of common stock (or securities
convertible or exchangeable into or otherwise evidencing, or any agreement
or instrument evidencing the right to acquire, capital stock) or similar
transaction relating to Community or Bank or to which Community or Bank may
become a party (all such transactions are hereinafter referred to as
"Acquisition Transactions"). Community or Bank shall promptly communicate to
First Financial the terms of any proposal or offer which either of them may
receive with respect to an Acquisition Transaction and any request by or
indication of interest on the part of any third party with respect to the
initiation of any Acquisition Transaction or discussions with respect
thereto.
6.12. Payment of Certain Expenses and Taxes. On or prior to the Effective
-------------------------------------
Time, Community shall pay all legal, accounting, and investment banking fees
of Community relating to the Merger and the transfer, in December 2000, of
Community stock by the Community Employee Stock Ownership Plan ("ESOP") to
Community. Prior to the Effective Time, Community shall also take the
following actions:
(a) Special Payment to Community ESOP. Pay to the Special Trustee of
---------------------------------
the Community ESOP an amount equal to the amount to be placed in
the ESOP pursuant to Section 2.02(e) of this Agreement.
---------------
(b) Payment of Taxes. File with the Internal Revenue Service Form 5330,
----------------
Return of Excise Taxes Related to Employee Benefit Plans, for 2000
and 2001 and cause to be paid all taxes (and, to the extent
applicable, any interest and penalties associated with such taxes)
on the basis that the amount produced by the calculation required
in Section 6.12(a) is subject to the tax imposed by Section 4975(a)
of the Code for calendar years 2000 and 2001.
6.13. Disposition of Community Tax-Qualified Plans. Community shall
--------------------------------------------
take all necessary corporate action to effectuate the disposition of the
tax-qualified plans sponsored by them (collectively, "Community Tax-
Qualified Plans") as provided in this Section 6.13 and Section 7.03
------------ ------------
hereof. Such action shall be taken at the expense of Community, in a manner
which satisfies all requirements of applicable law, and is satisfactory to
counsel for FFC.
(a) Participation in Merger Transaction and Merger of Community 401(k)
------------------------------------------------------------------
Plan.
- ----
PRELIMINARY PROXY MATERIALS A-30
(i) In connection with the Merger, Community shall appoint an
independent fiduciary, acceptable to First Financial and its
counsel, which may be the same entity as the Special Trustee
provided for in subsection 6.13(b), and shall be also take
all actions necessary to cause the fiduciaries of the
Community 401(k) Plan to take all of the following actions:
(A) Implement a written confidential pass through voting
procedure pursuant to which the participants under the
Community 401(k) Plan and their beneficiaries may
direct the appointed independent fiduciary regarding
the manner in which the shares of Community common
stock allocated to their Community 401(k) accounts are
to be voted with respect to the Merger; and
(B) Provide the Community 401(k) Plan participants and
their beneficiaries with a written notice regarding
the existence of and provisions for such confidential
pass through voting procedures, as well as the same
written materials to be provided to the shareholders
of Community in connection with the Merger.
(ii) As soon as administratively feasible after the Effective
Time ("Disposition Date"), the Community Financial Corp.
401(k) Plan ("Community 401(k) Plan") shall be merged
with and into the First Financial Corporation Employees'
401(k) Savings Plan ("FFC 401(k) Plan"); provided, however,
that such merger shall be subject to receipt of a
determination letter from the Internal Revenue Service
("Service") to the effect that the merger of the Community
401(k) Plan into the FFC 401(k) Plan will not adversely
affect the tax-qualified status of either plan. First
Financial shall be responsible for obtaining such
determination letter. All account balances maintained under
the Community 401(k) Plan shall become fully vested on the
day on which the Effective Time occurs. From the date of
this Agreement through the Disposition Date, Community may
continue to make contributions to the Community 401(k)
Plan so long as such contributions are comparable in amount
to any past contributions to such plan.
(b) Participation in Merger Transaction and Termination of Community
----------------------------------------------------------------
ESOP. In connection with the Merger, Community shall appoint an independent,
- ----
institutional "Special Trustee" experienced in acting as an independent
employee stock ownership plan trustee and which is acceptable to First
Financial and its counsel, to act as an independent fiduciary solely on
behalf of the Community ESOP and the participants and beneficiaries
thereunder and shall also take all actions necessary to cause the
fiduciaries of the Community ESOP, including the "Special Trustee"
thereunder, to take all of the following actions:
(i) Implement a written confidential pass through voting
procedure pursuant to which the participants under
the Community ESOP and their
PRELIMINARY PROXY MATERIALS A-31
beneficiaries may direct the Special Trustee regarding
the manner in which the shares of Community common stock
allocated to their Community ESOP accounts are to be
voted with respect to the Merger;
(ii) Provide the Community ESOP participants and their
beneficiaries with a written notice regarding the
existence of and provisions for such confidential pass
through voting procedures, as well as the same written
materials to be provided to the shareholders of
Community in connection with the Merger;
(iii) Obtain a written opinion from an independent financial
advisor, which is experienced in acting as a financial
advisor to independent employee stock ownership plan
trustees and which is acceptable to First Financial
and its counsel, to the Special Trustee of the Community
ESOP to the effect that the consideration to be received
by the Community ESOP in the Merger in exchange for the
shares of Community common stock, will (i) constitute
no less than "adequate consideration" as defined in
Section 3(18) of ERISA, and (ii) that the terms and
conditions of the Merger, as they apply to the Community
ESOP, including the disposition of shares of Community
common stock prior to the Merger (taking into account the
actions required to be taken in connection therewith by
Section 6.12) and the disposition of the Community ESOP
------------
in connection therewith, are fair to the Community ESOP
and its participants from a financial point of view.
The contents of the written opinion referred to in the
preceding sentence must be acceptable in form and content
to First Financial and its counsel;
(iv) Take any and all additional actions necessary to satisfy
the requirements of ERISA applicable to the Community ESOP
fiduciaries in connection with the Merger;
(v) Prior to the distribution of any ESOP accounts in connection
with the termination of the Community ESOP, Community shall
have obtained a determination letter from the Service to the
effect that the termination will not affect the tax-
qualified status of the Community ESOP.
(c) First Financial and its counsel shall either draft or review and
shall be supplied with copies of all documents, filings, resolutions,
amendments or other writings prepared by or on behalf of Community in
connection with carrying out any of the provisions of this Section 6.13.
------------
6.14. SEC and Other Reports. Promptly upon its becoming available,
---------------------
furnish to First Financial one (1) copy of each financial statement, report,
notice, or proxy statement sent by Community to its shareholders generally
and of each regular or periodic report, registration statement or prospectus
filed by Community with Nasdaq or the SEC or any successor agency, and of
any order issued by any Governmental Authority in any proceeding to which
Community
PRELIMINARY PROXY MATERIALS A-32
is a party. For purposes of this provision, "Governmental Authority"
shall mean any government (or any political subdivision or jurisdiction
thereof), court, bureau, agency or other governmental entity having or
asserting jurisdiction over Community or any of its business, operations
or properties.
6.15. Adverse Actions. Community shall not knowingly take any action
---------------
that is intended or is reasonably likely to result in (i) any of its
representations and warranties set forth in this Agreement being or becoming
untrue in any respect at any time at or prior to the Effective Time, (ii)
any of the conditions to the Merger set forth in Section 8 not being
---------
satisfied, (iii) a material violation of any provision of this Agreement or
(iv) a delay in the consummation of the Merger except, in each case, as may
be required by applicable law or regulation.
6.16. Termination Expenses. At or prior to the Effective Time the Bank
--------------------
shall accrue for and pay all salary termination expenses associated with the
termination of the Bank's and Community's employment agreements.
6.17. Addition to Loan Loss Reserve. Prior to the Effective Time the Bank
-----------------------------
shall make an additional provision to its allowance for loan loss reserve in
an amount as shall be requested by First Financial.
SECTION 7
COVENANTS OF FIRST FINANCIAL
----------------------------
First Financial covenants and agrees with Community as follows:
7.01. Approvals. (a) First Financial shall have primary responsibility
---------
for the preparation, filing and costs of all bank holding company and bank
regulatory applications required for consummation of the Merger. First
Financial shall provide to Community's counsel copies of all applications
filed and copies of all material written communications with all state and
federal bank regulatory agencies relating to such applications. First
Financial shall proceed expeditiously, cooperate fully and use its best
efforts to procure, upon terms and conditions reasonably acceptable to First
Financial, all consents, authorizations, approvals, registrations and
certificates, to complete all filings and applications and to satisfy all
other requirements prescribed by law which are necessary for consummation of
the Merger on the terms and conditions provided in this Agreement at the
earliest possible reasonable date.
7.02. Press Releases. Except as required by law, First Financial shall
--------------
not issue any press releases or make any other public announcements or
disclosures relating primarily to Community with respect to the Merger
without the prior consent of Community, which consent shall not be
unreasonably withheld.
7.03. Employee Benefit Plans. (a) At such time as First Financial shall
----------------------
determine, in its sole discretion, but in no event later than December 31,
2001, First Financial will make available to the employees of Community who
continue as employees of any subsidiary of First Financial after the
Effective Time and, further, subject to Subsections 7.03(b), (c) and (d)
--------------------------------
hereof,
PRELIMINARY PROXY MATERIALS A-33
substantially the same employee benefits on substantially the same
terms and conditions that First Financial may offer to similarly situated
officers and employees of its banking subsidiaries from time to time. Until
such time as the employees of Community become covered by the First
Financial welfare benefit plans, the employees of Community shall remain
covered by their respective welfare benefit plans, subject to the terms of
such plans.
(b) Subject to the provisions of subsection (c) hereof, years of
service (as defined in the applicable First Financial plan) of an officer or
employee of Community prior to the Effective Time shall be credited,
effective as of the date on which such employees become covered by a
particular First Financial plan, to each such officer or employee eligible
for coverage under Section 7.03(a) hereof for purposes of: (i) eligibility
---------------
under First Financial's employee welfare benefit plans; and (ii) eligibility
and vesting, but not for purposes of benefit accrual or contributions, under
the First Financial Corporation Employees' Pension Plan ("FFC Pension Plan")
under the First Financial Corporation Employee Stock Ownership Plan ("FFC
ESOP") or under the FFC 401(k) Plan. Subject to the provisions of Section
-------
6.13 hereof, those officers and employees of Community who otherwise meet
- ----
the eligibility requirements of the FFC Pension Plan or FFC ESOP, based upon
their age and years of Community service, shall become participants
thereunder on the first plan entry date under the FFC Pension Plan or FFC
ESOP, as the case may be, which coincides with or next follows the Effective
Time. Those officers or employees who do not meet the eligibility
requirements of the FFC Pension Plan, First Financial Corporation 401(k)
Plan or FFC ESOP on such date shall become participants thereunder on the
first plan entry date under the FFC Pension Plan or FFC ESOP, as the case
may be, which coincides with or next follows the date on which such
eligibility requirements are satisfied. Subject to the provisions of Section
6.13 hereof, those officers and employees of Community who otherwise meet
the eligibility requirements of the FFC 401(k) Plan, based upon their age
and years of Community service shall become participants thereunder on the
day immediately following the Disposition Date of such plan. Those officers
or employees who do not meet the eligibility requirements of the FFC 401(k)
Plan on such date shall become participants thereunder on the first plan
entry date under the FFC 401(k) Plan which coincides with or next follows
the date on which such eligibility requirements are satisfied.
(c) No employee of Community serving as of the Effective Time shall
be subject to any pre-existing condition limitation under any of First
Financial's welfare benefit plans if such officer, employee or individual
was not subject to any pre-existing condition limitation under the
corresponding Community welfare benefit plan on the day immediately
preceding the day he becomes a participant in the First Financial welfare
benefit plans pursuant to Section 7.03(a) hereof. If in the sole discretion
---------------
of First Financial it is administratively feasible without unreasonable
efforts or expense, expenses incurred by a Community employee or a Community
employee's covered dependent or spouse under a Community welfare benefit
plan shall be taken into account for purposes of satisfying any applicable
deductible, coinsurance or maximum out-of-pocket provisions under the
corresponding First Financial welfare benefit plan in the year in which such
individuals become participants in the First Financial plan.
(d) Neither the terms of this Agreement nor the provision of any
employee benefits by First Financial or any of its subsidiaries to employees
of Community or Bank shall: (i) create
PRELIMINARY PROXY MATERIALS A-34
any employment contract, agreement or understanding with or employment
rights for, or constitute a commitment or obligation of employment to,
any of the officers or employees of Community or Bank; or (ii) prohibit
or restrict First Financial or its subsidiaries, whether before or after
the Effective Time, from changing, amending or terminating any employee
benefits provided to its employees from time to time.
(e) First Financial shall take any and all actions necessary to
effectuate the disposition of the Community Plans provided by this Section
-------
7.03 and by Section 6.13 hereof.
- ---- ------------
7.04. Adverse Actions. First Financial shall not knowingly take any
---------------
action that is intended or is reasonably likely to result in (i) any of its
representations and warranties set forth in this Agreement being or becoming
untrue in any respect at any time at or prior to the Effective Time, (ii)
any of the conditions to the Merger set forth in Section 8 not being
---------
satisfied, (iii) a material violation of any provision of this Agreement or
(iv) a delay in the consummation of the Merger except, in each case, as may
be required by applicable law or regulation.
7.05. Directors' and Officers' Liability Insurance. First Financial
--------------------------------------------
agrees that either Community or the Bank (as determined by Community), prior
to the Effective Time, may pay the premium necessary to extend for three
years from the Effective Time, Community's current directors' and officers'
liability insurance policy with respect to matters occurring prior to the
Effective Time; provided, however, that the amount of such premium shall not
exceed an amount in the aggregate greater than three times the cost of the
most recent policy of one year.
7.06. Assumption of Supplemental Executive Retirement Agreements.
----------------------------------------------------------
Notwithstanding any other provision herein to the contrary, at the Effective
Time, First Financial and Merger Corp hereby expressly assume and agree to
be jointly and severally liable for the rights and obligations of, among
other things, Community and Bank under those three (3) certain Supplemental
Executive Retirement Agreements identified in this Section 7.06 below and
------------
briefly described on Schedule 4.09(a)(iv) of the Disclosure Schedule to this
--------------------
Agreement:
(i) That certain Supplemental Executive Retirement
Agreement by and between Community Bank & Trust N.A.,
f/k/a/ Community Bank & Trust, fsb and Douglas W. Tompson
dated as of June 22, 1995;
(ii) That certain Supplemental Executive Retirement
Agreement by and between Community Bank & Trust N.A.,
f/k/a/ Community Bank & Trust, fsb and Wayne H. Benson
dated as of June 22, 1995; and
(iii) That certain Supplemental Executive Retirement Agreement
by and between Community Bank & Trust N.A., f/k/a/
Community Bank & Trust, fsb and Shirley B. Kessler dated
as of June 22, 1995.
PRELIMINARY PROXY MATERIALS A-35
SECTION 8
CONDITIONS PRECEDENT TO THE MERGER
----------------------------------
8.01. First Financial. The obligation of First Financial to consummate
---------------
the Merger is subject to the satisfaction and fulfillment of each of the
following conditions on or prior to the Effective Time, unless waived in
writing by First Financial:
(a) Representations and Warranties at Effective Time. Each of the
------------------------------------------------
representations and warranties of Community contained in this Agreement will
be true, accurate and correct in all material respects at and as of the
Effective Time as though such representations and warranties had been made
or given on and as of the Effective Time.
(b) Covenants. Each of the covenants and agreements of Community will
---------
have been fulfilled or complied with in all material respects from the date
of this Agreement through and as of the Effective Time.
(c) Deliveries at Closing. First Financial will have received from
---------------------
Community at the Closing (as hereinafter defined) the items and documents,
in form and content reasonably satisfactory to First Financial, set forth in
Section 11.02(b) hereof.
- ----------------
(d) Regulatory Approvals. The appropriate banking regulators will have
--------------------
authorized and approved the Merger on terms and conditions satisfactory to
First Financial. In addition, all appropriate orders, consents, approvals
and clearances from all other regulatory agencies and governmental
authorities whose orders, consents, approvals or clearances are required by
law for consummation of the Merger contemplated by this Agreement will have
been obtained on terms and conditions satisfactory to First Financial.
(e) Shareholder Approval. The shareholders of Community will have
--------------------
approved and adopted this Agreement as required by applicable law and its
Articles of Incorporation.
(f) Officers' Certificate. Community will have delivered to First
---------------------
Financial a certificate signed by its President and its Secretary, dated as
of the Effective Time, certifying that: (i) all the representations and
warranties of Community are true, accurate and correct in all material
respects on and as of the Effective Time; (ii) all the covenants of
Community have been complied with in all material respects from the date of
this Agreement through and as of the Effective Time; and (iii) Community has
satisfied and fully complied with all conditions necessary to make this
Agreement effective as to them.
(g) Stock Options. Except for the 154,340 outstanding "in the money"
-------------
Community options to purchase shares of Community common stock referenced in
Section 2 of this Agreement, all options, warrants, commitments, calls,
- ---------
puts, agreements, understandings, arrangements or subscription rights
relating to any shares of Community Common Stock, or any securities
convertible into or representing the right to purchase or otherwise acquire
any common stock or debt securities of Community, by which Community is or
may become bound, will have been terminated or expired.
PRELIMINARY PROXY MATERIALS A-36
(h) Adequate Consideration and Fairness Opinion. A written opinion
-------------------------------------------
shall have been delivered to the Special Trustee of the Community ESOP by
its independent financial advisor to the effect specified in Section
-------
6.13(b)(iii). Such opinion shall (i) be in form and substance satisfactory
- ------------
to First Financial and its counsel, (ii) be dated as of a date not later
than the mailing date of the proxy statement-prospectus relating to the
Merger to be mailed to Community's shareholders, and (iii) updated or
confirmed in writing as of the Effective Time.
(i) Amount of Liabilities and Assets. First Financial shall have agreed
--------------------------------
to the amount of the potential tax liabilities of Community and the amounts
contemplated by Sections 2.02(b)(ii) and (iv) for purposes of determining
-----------------------------
the Aggregate Purchase Price in Section 2.02(b), and any amount contemplated
---------------
by Section 2.02(c).
---------------
(j) Director Waivers. First Financial shall have received from each of
----------------
the Directors of Community and the Bank waivers, in form and substance
satisfactory to it, of such individual's rights to seek reimbursement of or
make a claim for the expenses incurred or which may be incurred in
connection with the matters set forth in Schedule 4.26(b) of the Disclosure
---------------
Schedule.
8.02. Community. The obligation of Community to consummate the Merger
---------
is subject to the satisfaction and fulfillment of each of the following
conditions on or prior to the Effective Time, unless waived in writing by
Community:
(a) Representations and Warranties at Effective Time. Each of the
------------------------------------------------
representations and warranties of First Financial contained in this
Agreement will be true, accurate and correct in all material respects on and
as of the Effective Time as though the representations and warranties had
been made or given at and as of the Effective Time.
(b) Covenants. Each of the covenants and agreements of First Financial
---------
will have been fulfilled or complied with in all material respects from the
date of this Agreement through and as of the Effective Time.
(c) Deliveries at Closing. Community will have received from First
---------------------
Financial at the Closing the items and documents, in form and content
reasonably satisfactory to Community, listed in Section 11.02(a) hereof.
----------------
(d) Regulatory Approvals. The appropriate banking regulators will have
--------------------
authorized and approved the Merger. In addition, all appropriate orders,
consents, approvals and clearances from all other regulatory agencies and
governmental authorities whose orders, consents, approvals or clearances are
required by law for consummation of the Merger contemplated by this
Agreement will have been obtained.
(e) Shareholder Approval. The shareholders of Community will have
--------------------
approved and adopted this Agreement as required by applicable law and
Community's Articles of Incorporation.
PRELIMINARY PROXY MATERIALS A-37
(f) Officers' Certificate. First Financial will have delivered to
---------------------
Community a certificate signed by its Chairman or President and its
Secretary, dated as of the Effective Time, certifying that: (i) all the
representations and warranties of First Financial are true, accurate and
correct in all material respects on and as of the Effective Time; (ii) all
the covenants of First Financial have been complied with in all material
respects from the date of this Agreement through and as of the Effective
Time; and (iii) First Financial has satisfied and fully complied with all
conditions necessary to make this Agreement effective as to it.
SECTION 9
TERMINATION OF MERGER
---------------------
9.01. Manner of Termination. This Agreement and the Merger may be
---------------------
terminated at any time prior to the Effective Time by written notice
delivered by First Financial to Community, or by Community to First
Financial, as follows:
(a) By First Financial or Community, if:
(i) the Merger contemplated by this Agreement has not
been consummated by September 30, 2001; or
(ii) the Agreement and the Merger are not approved by the
requisite vote of the shareholders of Community at the
Special Meeting of Shareholders of Community; or
(iii) the respective Boards of Directors of First Financial and
Community mutually agree to terminate this Agreement.
(b) By First Financial if:
(i) First Financial determines in its sole discretion that any
item, event or information set forth in any supplement,
amendment or update to the Disclosure Schedule, or the
results of any environmental report pursuant to
Section 6.10, has had or could be expected to have a
------------
material adverse effect on the business, assets,
capitalization, financial condition or results of operations
of Community; or First Financial otherwise becomes aware
of any item, event or information which it determines in
its sole discretion has had or could be expected to have
a material adverse effect on the business, assets,
capitalization, financial condition or results of operations
of Community (it being understood and acknowledged
by Community that the due diligence review of Community by
First Financial was not complete as of the date of this
Agreement); or
(ii) there has been a misrepresentation or a breach of any
warranty by or on the part of Community in its
representations and warranties set forth in this Agreement
which has had or would be expected to have a material
PRELIMINARY PROXY MATERIALS A-38
adverse effect on the business, assets, capitalization,
financial condition or results of operations of Community;
provided, however, that in the event of any inaccuracy
in the representations and warranties contained in
Section 4.03 hereof relative to the number of issued
------------
and outstanding shares of capital stock or options to
purchase shares of capital stock of Community or Bank,
First Financial will have the absolute right to
terminate this Agreement without regard to the
materiality of any such inaccuracy; or
(iii) there has been a breach of or failure to comply with any
covenant set forth in this Agreement by or on the part of
Community which could reasonably be expected to have a
material adverse effect on the economic value of the Merger
to First Financial; or
(iv) First Financial shall reasonably determine that the Merger
contemplated by this Agreement has become inadvisable or
impracticable by reason of commencement or threat of any
claim, litigation or proceeding against First Financial,
Community, or any director or officer of any of such
entities (A) relating to this Agreement or the Merger, or
(B) which is likely to have a material adverse effect on
the business, assets, capitalization, financial condition
or results of operations of Community; or
(v) there has been a material adverse change in the business,
assets, capitalization, financial condition or results of
operations of Community as of the Effective Time as compared
to that in existence as of December 31, 2000 other than (A)
any change resulting from the action taken by Community
pursuant to Section 6.12 or Section 6.17, (B) any change set
------------ ------------
forth on the Disclosure Schedule as of and delivered as of
the date of this Agreement, or (C) resulting primarily by
reason of changes in banking laws or regulations (or
interpretations thereof), changes in the general level of
interest rates or changes in economic, financial or market
conditions affecting the banking industry generally in
Community's market area; or
(vi) Community's Board of Directors has failed to approve and
recommend this Agreement or the Merger, or has withdrawn or
modified in any manner adverse to First Financial its
approval or recommendation of this Agreement or the Merger
or will have resolved or publicly announced an intention
to do either of the foregoing; or
(vii) the sale by Community for cash of all of the shares of
American Bank of Illinois in Highland, MidAmerica Bank of
St. Clair County, and The Egyptian State Bank has not
consummated by May 30, 2001.
PRELIMINARY PROXY MATERIALS A-39
(c) By Community, if:
(i) there has been a misrepresentation or a breach of any
warranty by or on the part of First Financial in its
representations and warranties set forth in this
Agreement which has had or would be expected to have
a material adverse effect on the business, assets,
capitalization of First Financial; or
(ii) there has been a breach of or failure to comply with any
covenant set forth in this Agreement by or on the part of
First Financial or First Financial which has had or would be
expected to have a material adverse effect on the business,
assets, capitalization, financial condition or results of
operations of First Financial; or
(iii) it shall reasonably determine that the Merger contemplated
by this Agreement has become inadvisable or impracticable
by reason of commencement or threat of any material claim,
litigation or proceeding against First Financial (A)
relating to this Agreement or the Merger, or (B) which is
likely to have a material adverse effect on the business,
assets, capitalization of First Financial.
9.02. Effect of Termination. Upon termination by written notice, this
---------------------
Agreement shall be of no further force or effect, and there shall be no
further obligations or restrictions on future activities on the part of
First Financial, Community and their respective directors, officers,
employees, agents and shareholders, except as provided in compliance with
the confidentiality provisions of this Agreement set forth in Section 6.07
------------
and the payment of expenses set forth in Section 12.10 hereof. Termination
-------------
will not in any way release a breaching party from liability for any willful
breach of this Agreement giving rise to such termination.
SECTION 10
EFFECTIVE TIME OF THE MERGER
----------------------------
Upon the terms and subject to the conditions specified in this
Agreement, the Merger will become effective at the close of business on the
day and at the time specified in the Articles of Merger of Community with
and into Merger Corp as filed with the Indiana and Illinois Secretaries of
State ("Effective Time"). Unless otherwise mutually agreed to by the parties
hereto, the Effective Time will occur on the last business day of the month
following (a) the fulfillment of all conditions precedent to the Merger set
forth in Section 8 of this Agreement and (b) the expiration of all waiting
---------
periods in connection with the bank regulatory applications filed for the
approval of the Merger.
PRELIMINARY PROXY MATERIALS A-40
SECTION 11
CLOSING
-------
11.01. Closing Date and Place. So long as all conditions precedent set
----------------------
forth in Section 8 hereof have been satisfied and fulfilled, the closing of
---------
the Merger ("Closing") will take place on the Effective Time at a location
to be reasonably determined by First Financial.
11.02. Deliveries. (a) At the Closing, First Financial will deliver to
----------
Community the following:
(i) the officers' certificate contemplated by Section 8.02(g)
---------------
hereof;
(ii) copies of all approvals by government regulatory agencies
necessary to consummate the Merger;
(iii) copies of the resolutions of the Board of Directors of First
Financial and Merger Corp certified by the Secretary of
First Financial and Merger Corp, respectively, relative to
the approval of this Agreement and the Merger; and
(iv) such other documents as Community or its legal counsel
may reasonably request.
(b) At the Closing, Community will deliver to First Financial the
following:
(i) an opinion of its legal counsel in the form attached hereto
as Exhibit A and dated as of the Effective Time;
(ii) the officers' certificate contemplated by Section 8.01(f)
---------------
hereof;
(iii) a list of Community's shareholders as of the Effective
Time certified by the President and Secretary of Community;
(iv) copies of the resolutions adopted by the Board of Directors
and shareholders of Community certified by the Secretary of
Community relative to the approval of this Agreement and the
Merger;
(v) such other documents as First Financial or its legal
counsel may reasonably request; and
(vi) the Fairness Opinion required by Sections 8.01(h) and
----------------
8.02(h) hereof; and
-------
PRELIMINARY PROXY MATERIALS A-41
SECTION 12
MISCELLANEOUS
-------------
12.01. Effective Agreement. This Agreement will be binding upon and
-------------------
inure to the benefit of the respective parties hereto and their respective
successors and assigns; provided, however, that this Agreement may not be
assigned by any party hereto without the prior written consent of the other
parties hereto; provided, however, that no such extension, waiver or
amendment agreed to after authorization of this Agreement by the
shareholders of Community will affect the rights of such shareholders in any
manner which is materially adverse to such shareholders. The
representations, warranties, covenants and agreements contained in this
Agreement are for the sole benefit of the parties hereto and their
successors and assigns, and they will not be construed as conferring any
rights on any other persons.
12.02. Waiver; Amendment. (a) The parties hereto may by an instrument
-----------------
in writing: (i) extend the time for the performance of or otherwise amend
any of the covenants, conditions or agreements of the other parties under
this Agreement; (ii) waive any inaccuracies in the representations or
warranties of the other parties contained in this Agreement or in any
document delivered pursuant hereto or thereto; (iii) waive the performance
by the other parties of any of the covenants or agreements to be performed
by it or them under this Agreement; or (iv) waive the satisfaction or
fulfillment of any condition, the nonsatisfaction or nonfulfillment of which
is a condition to the right of the party so waiving to consummate the
Merger. The waiver by any party hereto of a breach of or noncompliance with
any provision of this Agreement will not operate or be construed as a
continuing waiver or a waiver of any other or subsequent breach or
noncompliance hereunder.
(b) This Agreement may be amended, modified or supplemented only by a
written agreement executed by the parties hereto.
12.03. Notices. All notices, requests and other communications
-------
hereunder will be in writing (which will include telecopier communication)
and will be deemed to have been duly given if delivered by hand and
receipted for, sent by certified United States Mail, return receipt
requested, first class postage pre-paid, delivered by overnight express
receipted delivery service or telecopied if confirmed immediately thereafter
by also mailing a copy of such notice, request or other communication by
certified United States Mail, return receipt requested, with first class
postage pre-paid as follows:
PRELIMINARY PROXY MATERIALS A-42
If to First Financial: with a copy to (which will not
constitute notice):
First Financial Corporation Krieg DeVault Alexander & Capehart
One First Financial Plaza One Indiana Square, Suite 2800
PO Box 540 Indianapolis, Indiana 46204-2017
Terre Haute, Indiana 447807 ATTN: John W. Tanselle, Esq.
ATTN: Michael A. Carty, CFO and Telephone:(317) 238-6216
Secretary Telecopier: (317) 636-1507
Telephone: (812) 238-6264
Telecopier: (812) 238-6140
If to Community: with a copy to (which will not
constitute notice):
Community Financial Corp. Thompson Coburn LLP
240 E. Chestnut Street One Firstar Plaza
Olney, Illinois 62450-2295 St. Louis, Missouri 63101
ATTN: Wayne H. Benson, President ATTN: Gerard K. Sandweg, Jr.
Telephone: (618) 395-8676 Telephone: (314) 552-6104
Telecopier: (618) 392-4619 Telecopier: (314) 552-7104
or such substituted address or person as any of them have given to the other
in writing. All such notices, requests or other communications will be
effective: (a) if delivered by hand, when delivered; (b) if mailed in the
manner provided herein, five (5) business days after deposit with the United
States Postal Service; (c) if delivered by overnight express delivery
service, on the next business day after deposit with such service; and (d)
if by telecopier, on the next business day if also confirmed by mail in the
manner provided herein.
12.04. Headings. The headings in this Agreement have been inserted
--------
solely for ease of reference and should not be considered in the interpretation
or construction of this Agreement.
12.05. Severability. In case any one or more of the provisions
------------
contained herein will, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or
unenforceability will not affect any other provision of this Agreement, but
this Agreement will be construed as if such invalid, illegal or
unenforceable provision or provisions had never been contained herein.
12.06. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which will be an original, but such counterparts will
together constitute one and the same instrument.
12.07. Governing Law. This Agreement will be governed by and construed
-------------
in accordance with the laws of the State of Indiana and applicable federal
laws, without regard to principles of conflicts of law.
PRELIMINARY PROXY MATERIALS A-43
12.08. Entire Agreement. This Agreement and the Exhibits hereto
----------------
supersede all other prior or contemporaneous understandings, commitments,
representations, negotiations or agreements, whether oral or written, among
the parties hereto relating to the Merger or matters contemplated herein and
constitute the entire agreement between the parties hereto, except as
otherwise provided herein. Upon the execution of this Agreement by all the
parties hereto, any and all other prior writings of either party relating to
the Merger will terminate and will be rendered of no further force or
effect. The parties hereto agree that each party and its counsel reviewed
and revised this Agreement and that the normal rule of construction to the
effect that any ambiguities are to be resolved against the drafting party
will not be employed in the interpretation of this Agreement or any
amendments or exhibits hereto.
12.09. Survival of Representations, Warranties or Covenants. Except as
----------------------------------------------------
set forth in the following sentence, none of the representations, warranties
or covenants of the parties will survive the Effective Time or the earlier
termination of this Agreement, and thereafter First Financial, Merger Corp,
Community, and all the respective directors, officers and employees of First
Financial, Merger Corp and Community will have no further liability with
respect thereto, except for fraud or except as otherwise provided by law,
whether statutory, common law or otherwise. The covenants contained in
Sections 6.07 (regarding confidentiality), 9.02, 12.08, 12.09 and 12.10
- -----------------------------------------------------------------------
shall survive termination of this Agreement. The covenants contained in
Sections 6.07 (regarding confidentiality), 12.08, 12.09 and 12.10 shall
- -----------------------------------------------------------------
survive the Effective Time.
12.10. Expenses. Each party to this Agreement shall pay its own expenses
--------
incidental to the Merger contemplated hereby.
12.11. Certain References. Whenever in this Agreement a singular word is
------------------
used, it also will include the plural wherever required by the context and
vice-versa. Except expressly stated otherwise, all references in this
Agreement to periods of days shall be construed to refer to calendar, not
business, days. The term "business day" will mean any day except Saturday
and Sunday when Terre Haute First National Bank in Terre Haute, Indiana, the
lead bank of First Financial, is open for the transaction of business.
12.12. Disclosure Schedule. The Disclosure Schedule attached hereto is
-------------------
intended to be and hereby is specifically made a part of this Agreement.
PRELIMINARY PROXY MATERIALS A-44
IN WITNESS WHEREOF, First Financial, Merger Corp and Community have
made and entered into this Agreement as of the day and year first above
written and have caused this Agreement to be executed, attested in
counterparts and delivered by their duly authorized officers.
FIRST FINANCIAL CORPORATION
By: /s/ Donald E. Smith
---------------------------------------
Donald E. Smith, Chairman of the Board
and President
/s/ Michael A. Carty
- ---------------------------
Michael A. Carty, Secretary
FFC MERGER CORP
By: /s/ Donald E. Smith
---------------------------------------
Donald E. Smith, Chairman of the Board
and President
/s/ Michael A. Carty
- ---------------------------
Michael A. Carty, Secretary
COMMUNITY FINANCIAL CORP.
By: /s/ Wayne H. Benson
---------------------------------------
Wayne H. Benson, President
/s/ Steve Walser
- ---------------------------
Steve Walser, Secretary
PRELIMINARY PROXY MATERIALS A-45
ANNEX B
-------
AMENDMENT NO. 1 TO AGREEMENT OF AFFILIATION AND MERGER
------------------------------------------------------
THIS AMENDMENT NO. 1 ("Amendment") to the Agreement of Affiliation and
Merger ("Agreement") dated and effective as of the 30th day of March, 2001,
by and between First Financial Corporation ("First Financial"), FFC Merger
Corp ("Merger Corp"), and Community Financial Corp. ("Community") is made
and entered into this 26th day of June, 2001 by and among First Financial,
Merger Corp and Community.
RECITALS
--------
1. The Agreement provides that Community will merge with and into
Merger Corp and that Merger Corp will survive the Merger.
2. First Financial, Merger Corp and Community desire to amend the
Agreement to provide that Merger Corp will be merged with and into Community
and that Community will survive the Merger.
3. The Agreement provides in Section 12.02(b) that it may only be
amended, modified or supplemented by the written agreement of First
Financial, Merger Corp and Community.
4. First Financial, Merger Corp and Community wish to amend, modify, and
supplement the Agreement as provided herein.
NOW, THEREFORE, the Agreement is hereby amended, as of the date written
above, as follows:
1. The Preamble of the Agreement is hereby amended to read as follows:
W I T N E S S E T H:
-------------------
WHEREAS, First Financial is an Indiana corporation registered as a bank
holding company under the federal Bank Holding Company Act of 1956, as
amended ("BHC Act"), with its principal office located in Terre Haute, Vigo
County, Indiana; and
WHEREAS, Merger Corp is an Indiana corporation with its principal
office located in Terre Haute, Vigo County, Indiana and is a wholly-owned
subsidiary of First Financial; and
WHEREAS, Community is an Illinois corporation registered as a bank
holding company under the BHC Act, with its principal office located in
Olney, Richland County, Illinois, and is the sole shareholder of Community
Bank and Trust, N.A., a national banking association ("Bank"); and
WHEREAS, it is the desire of First Financial and Community to affiliate
through a corporate reorganization whereby Merger Corp will be merged with
and into Community; and
PRELIMINARY PROXY MATERIALS B-1
WHEREAS, a majority of the entire Board of Directors of each of First
Financial, Merger Corp and Community have approved this Agreement,
authorized its execution and designated this Agreement a plan of
reorganization and a plan of merger.
NOW, THEREFORE, in consideration of the foregoing premises, the
representations, warranties, covenants and agreements herein contained and
other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, First Financial, Merger Corp and Community hereby
make this Agreement and prescribe the terms and conditions of the
affiliation of First Financial and Community and the mode of carrying such
merger into effect as follows:
2. Section 1 is hereby amended to read as follows:
SECTION 1
THE MERGER
----------
1.01. General Description. Upon the terms and subject to the conditions
-------------------
of this Agreement, at the Effective Time (as defined in Section 10 hereof),
----------
Merger Corp shall be merged with and into Community ("Merger"). Community
shall survive the Merger ("Surviving Corporation") and shall continue its
corporate existence under the laws of the State of Illinois pursuant to the
provisions of and with the effect provided in the Illinois Business
Corporations Act of 1983, as amended, as a wholly-owned subsidiary of First
Financial.
1.02. Name, Officers and Management. The name of the Surviving
-----------------------------
Corporation shall be "FFC Merger Corp." The officers of Merger Corp serving
at the Effective Time shall become and serve as the officers of the
Surviving Corporation, until such time as their successors shall have been
duly elected and have been qualified. The directors of Merger Corp as of the
Effective Time shall become and serve as the directors of the Surviving
Corporation, until such time as their successors have been duly elected and
have been qualified. The directors and officers of Community shall cease to
be directors and officers of Community as of the Effective Time and shall
not become directors or officers of the Surviving Corporation or First
Financial after the Effective Time.
1.03. Capital Structure. The capital of the Surviving Corporation shall
-----------------
be not less than the capital of Community immediately prior to the Effective
Time.
1.04. Articles of Incorporation and By-Laws. In connection with the
-------------------------------------
Merger, the Articles of Incorporation of Community shall be amended and
restated in the form attached as Exhibit A. The Articles of Incorporation
attached hereto as Exhibit A and the By-Laws of Merger Corp in existence at
the Effective Time shall become the Articles of Incorporation and By-Laws of
the Surviving Corporation following the Effective Time, until such Articles
of Incorporation and By-Laws shall be further amended as provided by
applicable law.
PRELIMINARY PROXY MATERIALS B-2
1.05. Assets and Liabilities. At the Effective Time, the title to all
----------------------
assets, real estate and other property owned by Merger Corp shall vest in
Community without reversion or impairment. At the Effective Time, all
liabilities of Merger Corp shall be assumed by Community.
1.06. Additional Actions. If at any time after the Effective Time, Merger
------------------
Corp or First Financial shall consider or be advised that any further deeds,
assignments or assurances in law or any other acts are necessary or
desirable (a) to vest, perfect or confirm, of record or otherwise, in the
Surviving Corporation its right, title or interest in, to or under any of
the rights, properties or assets of Community or the Bank, or (b) otherwise
carry out the purposes of this Agreement, Community and the Bank and their
respective officers and directors shall be deemed to have granted to the
Surviving Corporation an irrevocable power of attorney to execute and
deliver all such deeds, assignments or assurances in law and to do all acts
necessary or proper to vest, perfect or confirm title to and possession of
such rights, properties or assets in the Surviving Corporation and otherwise
to carry on the purposes of this Agreement, and the officers and directors
of the Surviving Corporation are authorized in the name of Community or the
Bank or otherwise to take any and all such action.
3. Capitalized terms not otherwise defined in this Amendment shall have the
meanings ascribed to them in the Agreement.
4. Except as amended hereby, the Agreement shall continue in full force and
effect in accordance with its terms.
[THE REST OF THIS PAGE INTENTIONALLY LEFT BLANK]
PRELIMINARY PROXY MATERIALS B-3
IN WITNESS WHEREOF, First Financial, Merger Corp and Community have
made and entered into this Amendment as of the day and year first above
written and have caused this Amendment to be executed in counterparts by
their duly authorized officers.
FIRST FINANCIAL CORPORATION
By: /s/ Donald E. Smith
---------------------------------------
Donald E. Smith, Chairman of the Board
and President
/s/ Michael A. Carty
- --------------------------------
Michael A. Carty, Secretary
FFC MERGER CORP
By: /s/ Donald E. Smith
---------------------------------------
Donald E. Smith, Chairman of the Board
and President
/s/ Michael A. Carty
- --------------------------------
Michael A. Carty, Secretary
COMMUNITY FINANCIAL CORP.
By: /s/ Wayne H. Benson
---------------------------------------
Wayne H. Benson, President
/s/ Steve Walser
- --------------------------------
Steve Walser, Secretary
PRELIMINARY PROXY MATERIALS B-4
ANNEX C
-------
Board of Directors
Community Financial Corp
240 East Chestnut Street
Olney, Illinois 62450
Dear Members of the Board:
You have requested our opinion as investment bankers as to
the fairness, from a financial perspective, to the common shareholders of
Community Financial Corp, Olney, Illinois (the "Company") of the proposed
acquisition of the Company by First Financial Corporation, Terre Haute,
Indiana ("THFF"). In the proposed acquisition, Company shareholders will
receive cash equal to $19.5 million for Community Bank and Trust, National
Association (the "Bank") as well as additional cash consideration equal to
the net value of all other assets held by the Company, on a parent company
only basis, at the effective time. Based on this formula, total cash
consideration is expected to equal approximately $32.9 million for all of
the Company's common shares and options outstanding or approximately $15.04
per common share subject to adjustment as further defined in the Agreement
of Affiliation and Merger between THFF and the Company (the "Agreement").
Professional Bank Services, Inc. ("PBS") is a bank consulting firm
and as part of its investment banking business is continually engaged in
reviewing the fairness, from a financial perspective, of bank acquisition
transactions and in the valuation of banks and other businesses and their
securities in connection with mergers, acquisitions, estate settlements and
other purposes. We are independent with respect to the parties of the
proposed transaction.
For purposes of this opinion, PBS performed a review and
analysis of the historic performance of the Company including: (i) December
31, 1998, March 31, 1999, June 30, 1999, September 30, 1999, December 31,
1999, March 31, 2000, June 30, 2000, September 30, 2000 and December 31,
2000 forms 10Q and 10K filed with the SEC by the Company; (ii) December 31,
1999 and 2000 Uniform Bank Performance Report of the Company and the Bank;
(iii) quarter end and year end classified and problem loan listings; and
(iv) quarter end and year end loan loss reserve analysis. We have reviewed
and tabulated statistical data regarding the loan portfolio, securities
portfolio and other performance ratios and statistics. Financial projections
were prepared and analyzed as well as other financial studies, analyses and
investigations as deemed relevant for the purposes of this opinion. In
review of the aforementioned information, we have taken into account our
assessment of general market and financial conditions, our experience in
other transactions, and our knowledge of the banking industry generally. We
have also taken into consideration other indications of interest received by
the Company.
We have not compiled, reviewed or audited the financial statements
of the Company or THFF, nor have we independently verified any of the
information reviewed; we have relied upon such information as being complete
and accurate in all material respects. We have not made independent
evaluation of the assets of the Company or THFF.
Based on the foregoing and all other factors deemed relevant, it is
our opinion as investment bankers, that, as of the date hereof, the
consideration proposed to be received by the shareholders of the Company
under the Agreement is fair and equitable from a financial perspective.
Very truly yours,
Professional Bank Services, Inc.
PRELIMINARY PROXY MATERIALS C-1
ANNEX D
-------
DRAFT OPINION
August 1, 2001
First Bankers Trust Company as
Trustee of the Community Financial Corp.
Employee Stock Ownership Plan
c/o Mr. Norman Rosson
First Bankers Trust Company
225 West Washington Street
Suite 2200
Chicago, IL 60606
Dear Ladies & Gentlemen:
Lakeshore Valuation Group, L.L.C. ("Lakeshore") was retained by First
Bankers Trust Company, as Trustee of the Community Financial Corp. Employee
Stock Ownership Plan (the "Trustee"), to determine, among other things,
whether the transaction described below is fair to the ESOP from a financial
point of view.
Specifically, you have asked us to determine 1) whether the purchase price
to be paid for the shares of Community Financial Corp. (the "Company") stock
owned by the Community Financial Corp. Employee Stock Ownership Plan (the
"Plan") is at least equal to fair market value as of the close of the
transaction for the purposes of the definition of "adequate consideration"
as set forth in Section 3 (18) of ERISA, and 2) that the terms and
conditions of the proposed merger of FFC Merger Corp with and into the
Company (the "Proposed Merger"), as they apply to the Plan, including the
disposition of shares of Company stock, prior to the Proposed Merger (taking
into account the actions required to be taken in connection therewith by
Section 6.12 of the Merger Agreement) and the disposition of Company stock
in connection therewith, are fair to the Plan and Plan participants from a
financial point of view.
In arriving at our opinion, we reviewed and analyzed the Agreement of
Affiliation and Merger entered into on the 30th day in March 2001, amended
the 26th day of June 2001, by and between First Financial Corporation
("First Financial"), FFC Merger Corp and the Company. We understand the
terms of the consideration or Aggregate Purchase Price to be as follows:
o $19,500,000;
o The proceeds received by the Company on an after tax basis
from the sale of American Bank of Illinois in Highland,
MidAmerica Bank of St. Clair County and the Egyptian
State Bank;
o The amount of cash held by the Company on a parent company
only basis;
o The amounts receivable by the Company pursuant to requests
for refunds of income taxes paid;
o An amount equal to the principal balances on the loans
identified on the Disclosure Schedule which have been placed
on the parent Company only financial statements and for which
Community Bank and Trust ("CBT") will have a $300,000 reserve
allocated;
o An amount equal to the fair market value of the securities
held by the Company on a parent company only basis;
PRELIMINARY PROXY MATERIALS D-1
o Less the fees and expenses incurred by the Company pursuant
to Section 6.13(b) which shall not exceed $25,000;
o And less any liabilities of the Company on a parent company
only basis.
In conjunction with this Opinion, we have made such reviews, analyses, and
inquiries, as we deemed necessary and appropriate under the circumstances.
Among other things we have reviewed the following:
o The Company 10KSB filed with the Securities and Exchange
Commission ("SEC") on April 2, 2001;
o The Company 10KSB/A filed with the SEC on April 30, 2001;
o The Company 10QSB filed with the SEC on May 21, 2001;
o The Company 8K filed with the SEC on March 14, 2001;
o The CBT internally prepared consolidating Income Statements
and Balance Sheets for the quarters ending March 31, 1997
through June 30, 2001;
o The Uniform Bank Performance Report for CBT for the period
ending December 31, 2000;
o The CBT Statement of Financial Condition for the five month
period ending May 31, 2001;
o The CBT Asset/Liability Committee Reports for the periods
ending December 31, 1999, December 31, 2000 and May 31, 2001;
o The Consolidated Reports of Condition and Income for CBT
filed with the Federal Reserve for the fiscal periods ending
December 31, 1999, December 31, 2000 and June 30, 2001;
o The CBT Interest Earning Asset Summary by Branch Location as
of June 30, 2001;
o The CBT Budget for 2001;
o The CBT Monthly Statement of Cash Flow from September 30,
1999 through June 30, 2001;
o The securities portfolio listing as of June 30, 2001; and
o Market pricing through July 31, 2001.
We have also reviewed and analyzed the financial and operating information
with respect to the business, operations and prospects of the Company
furnished to us by the Company. In addition, we have had discussions with
the management of the Company concerning the business, operations, assets,
financial conditions and prospects of the Company, and we have undertaken
such other studies, analyses and investigations as we deemed appropriate.
In arriving at our opinion, we have assumed and relied upon the accuracy and
completeness of the financial and other information used by us without
assuming any responsibility for independent verification of such
information, including information provided by the Company, its advisors,
and other external sources of market, industry, and Company data. We have,
however, exercised independent judgment and have not relied upon information
that we consider inaccurate or unreliable. We have further relied upon the
assurances of management of the Company that they are not aware of any facts
that would make such information inaccurate or misleading. We have also
placed reliance on the material provided by management and outside parties,
and
PRELIMINARY PROXY MATERIALS D-2
have made assumptions regarding certain important matters, including
Title, Contingent Liabilities, Information, Financial Condition, Regulations
and Licenses. These assumptions and limiting conditions are detailed on
attachments hereto, and are hereby incorporated in this opinion.
We have assumed that the financial projections of the Company have been
reasonably prepared on a basis reflecting the best currently available
estimates and judgments of the management of the Company. In arriving at our
opinion, we have conducted a limited physical inspection of the properties
and facilities of the Company but we have not made or obtained any
evaluations or appraisals of the assets or liabilities of the Company.
Based upon and subject to the foregoing, we are of the opinion, as of the
date hereof, that the purchase price to be paid for the shares of Company
stock owned by the Plan is at least equal to fair market value as of the
close of the transaction for the purposes of the definition of "adequate
consideration" as set forth in Section 3 (18) of ERISA, and that the terms
and conditions of the Proposed Merger, as they apply to the Plan, including
the disposition of shares of Company stock, prior to the Proposed Merger
(taking into account the actions required to be taken in connection
therewith by Section 6.12 of the Merger Agreement) and the disposition of
Company stock in connection therewith, are fair to the Plan and Plan
participants from a financial point of view.
This opinion is solely for the use and benefit of the Trustee. This opinion
may not be summarized, excerpted from, or otherwise publicly referred to
without prior explicit written consent, which will not unreasonably be
withheld. However, this opinion may be included in any filing required to be
made by the Company with the SEC in connection with the Proposed Merger and
in materials delivered to the Company's stockholders that are a part of such
filings, provided that any such description or inclusion shall be subject to
our prior review and approval, which approval shall not be unreasonably
withheld.
Lakeshore and its employees have no present or prospective interest in the
property that is the subject of this Opinion, and also have no personal
interest or bias with respect to the parties involved. Further, Lakeshore's
compensation is not contingent on an action or event resulting from the
analyses, opinions, or conclusions in, or the use of, this Opinion.
Regards,
Lakeshore Valuation Group, L.L.C.
By_______________________
Its______________________
Attachments
PRELIMINARY PROXY MATERIALS D-3
ANNEX E
-------
Following is the text of the dissenters' rights provisions set
forth at Sections 11.65 and 11.70, respectively, of the Illinois Business
Corporation Act of 1983, as amended:
SECTION 11.65. RIGHT TO DISSENT. (a) A shareholder of a corporation is
entitled to dissent from, and obtain payment for his or her shares in the
event of any of the following corporate actions: (1) consummation of a plan
of merger or consolidation or a plan of share exchange to which the
corporation is a party if (i) shareholder authorization is required for the
merger or consolidation or the share exchange by Section 11.20 or the
articles of incorporation or (ii) the corporation is a subsidiary that is
merged with its parent or another subsidiary under Section 11.30; (2)
consummation of sale, lease or exchange of all, or substantially all, of the
property and assets of the corporation other than in the usual and regular
course of business; (3) an amendment of the articles of incorporation that
materially and adversely affects rights in respect of a dissenter's shares
because it: (i) alters or abolishes a preferential right of such shares;
(ii) alters or abolishes a right in respect of redemption, including a
provision respecting a sinking fund for the redemption or repurchase, of
such shares; (iii) in the case of a corporation incorporated prior to
January 1, 1982, limits or eliminates cumulative voting rights with respect
to such shares; or (4) any other corporate action taken pursuant to a
shareholder vote if the articles of incorporation, by-laws, or a resolution
of the board of directors provide that shareholders are entitled to dissent
and obtain payment for their shares in accordance with the procedures set
forth in Section 11.70 or as may be otherwise provided in the articles,
by-laws or resolution.
(b) A shareholder entitled to dissent and obtain payment for his or
her shares under this Section may not challenge the corporate action
creating his or her entitlement unless the action is fraudulent with respect
to the shareholder or the corporation or constitutes a breach of a fiduciary
duty owed to the shareholder.
(c) A record owner of shares may assert dissenters' rights as to
fewer than all the shares recorded in such person's name only if such person
dissents with respect to all shares beneficially owned by any one person and
notifies the corporation in writing of the name and address of each person
on whose behalf the record owner asserts dissenters' rights. The rights of a
partial dissenter are determined as if the shares as to which dissent is
made and the other shares were recorded in the names of different
shareholders. A beneficial owner of shares who is not the record owner may
assert dissenters' rights as to shares held on such person's behalf only if
the beneficial owner submits to the corporation the record owner's written
consent to the dissent before or at the same time the beneficial owner
asserts dissenters' rights.
SECTION 11.70. PROCEDURE TO DISSENT. (a) If the corporate action giving
rise to the right to dissent is to be approved at a meeting of shareholders,
the notice of meeting shall inform the shareholders of their right to
dissent and the procedure to dissent. If, prior to the meeting, the
corporation furnishes to the shareholders material information with respect
to the transaction that will objectively enable a shareholder to vote on the
transaction and to determine whether or not to exercise dissenters' rights,
a shareholder may assert dissenter' rights only if the shareholder delivers
to the corporation before the vote is taken a written demand for payment for
his or her shares if the proposed action is consummated, and the shareholder
does not vote in favor of the proposed action.
(b) If the corporate action giving rise to the right to dissent is
not to be approved at a meeting of shareholders, the notice to shareholders
describing the action taken under Section 11.30 or Section 7.10 shall inform
the shareholders of their right to dissent and the procedure to dissent. If,
prior to or concurrently with the notice, the corporation furnishes to the
shareholders material information with respect to the transaction that will
objectively enable a shareholder to determine whether or not to exercise
dissenters' rights, a shareholder may assert dissenter's rights only if he
or she delivers to the corporation within 30 days from the date of mailing
the notice a written demand for payment for his or her shares.
(c) Within 10 days after the date on which the corporate action
giving rise to the right to dissent is effective or 30 days after the
shareholder delivers to the corporation the written demand for payment,
whichever
PRELIMINARY PROXY MATERIALS E-1
is later, the corporation shall send each shareholder who has delivered
a written demand for payment a statement setting forth the opinion of the
corporation as to the estimated fair value of the shares, the corporation's
latest balance sheet as of the end of a fiscal year ending not earlier than
16 months before the delivery of the statement, together with the statement
of income for that year and the latest available interim financial
statements, and either a commitment to pay for the shares of the dissenting
shareholder at the estimated fair value thereof upon transmittal to the
corporation of the certificate or certificates, or other evidence of
ownership, with respect to the shares, or instructions to the dissenting
shareholder to sell his or her shares within 10 days after delivery of the
corporation's statement to the shareholder. The corporation may instruct the
shareholder to sell only if there is a public market for the shares at which
the shares may be readily sold. If the shareholder does not sell within that
10 day period after being so instructed by the corporation, for purposes of
this Section the shareholder shall be deemed to have sold his or her shares
at the average closing price of the shares, if listed on a national
exchange, or the average of the bid and asked price with respect to the
shares quoted by a principal market maker, if not listed on a national
exchange, during that 10 day period.
(d) A shareholder who makes written demand for payment under this
Section retains all other rights of a shareholder until those rights are
cancelled or modified by the consummation of the proposed corporate action.
Upon consummation of that action, the corporation shall pay to each
dissenter who transmits to the corporation the certificate or other evidence
of ownership of the shares the amount the corporation estimates to be the
fair value of the shares, plus accrued interest, accompanied by a written
explanation of how the interest was calculated.
(e) If the shareholder does not agree with the opinion of the
corporation as to the estimated fair value of the shares or the amount of
interest due, the shareholder, within 30 days from the delivery of the
corporation's statement of value, shall notify the corporation in writing of
the shareholder's estimated fair value and amount of interest due and demand
payment for the difference between the shareholder's estimate of fair value
and interest due and the amount of the payment by the corporation or the
proceeds of sale by the shareholder, whichever is applicable because of the
procedure for which the corporation opted pursuant to subsection (c).
(f) If, within 60 days from delivery to the corporation of the
shareholder notification of estimate of fair value of the shares and
interest due, the corporation and the dissenting shareholder have not agreed
in writing upon the fair value of the shares and interest due, the
corporation shall either pay the difference in value demanded by the
shareholder, with interest, or file a petition in the circuit court of the
county in which either the registered office or the principal office of the
corporation is located, requesting the court to determine the fair value of
the shares and interest due. The corporation shall make all dissenters,
whether or not residents of this State, whose demands remain unsettled
parties to the proceeding as an action against their shares and all parties
shall be served with a copy of the petition. Nonresidents may be served by
registered or certified mail or by publication as provided by law. Failure
of the corporation to commence an action pursuant to this Section shall not
limit or affect the right of the dissenting shareholders to otherwise
commence an action as permitted by law.
(g) The jurisdiction of the court in which the proceeding is
commenced under subsection (f) by a corporation is plenary and exclusive.
The court may appoint one or more persons as appraisers to receive evidence
and recommend decision on the question of fair value. The appraisers have
the power described in the order appointing them, or in any amendment to it.
(h) Each dissenter made a party to the proceeding is entitled to
judgment for the amount, if any, by which the court finds that the fair
value of his or her shares, plus interest, exceeds the amount paid by the
corporation or the proceeds of sale by the shareholder, whichever amount is
applicable.
(i) The court, in a proceeding commenced under subsection (f),
shall determine all costs of the proceeding, including the reasonable
compensation and expenses of the appraisers, if any, appointed by the court
under subsection (g), but shall exclude the fees and expenses of counsel and
experts for the respective parties. If the fair value of the shares as
determined by the court materially exceeds the amount which the corporation
estimated to be the fair value of the shares or if no estimate was made in
accordance with subsection
PRELIMINARY PROXY MATERIALS E-2
(c), then all or any part of the costs may be assessed against the
corporation. If the amount which any dissenter estimated to be the fair
value of the shares materially exceeds the fair value of the shares as
determined by the court, then all or any part of the costs may be assessed
against that dissenter. The court may also assess the fees and expenses of
counsel and experts for the respective parties, in amounts the court finds
equitable, as follows:
(1) Against the corporation and in favor of any or all
dissenters if the court finds that the corporation did not
substantially comply with the requirements of subsections (a), (b),
(c), (d), or (f).
(2) Against either the corporation or a dissenter and in
favor of any other party if the court finds that the party against
whom the fees and expenses are assessed acted arbitrarily,
vexatiously, or not in good faith with respect to the rights
provided by this Section.
If the court finds that the services of counsel for any dissenter
were of substantial benefit to other dissenters similarly situated and that
the fees for those services should not be assessed against the corporation,
the court may award to that counsel reasonable fees to be paid out of the
amounts awarded to the dissenters who are benefited. Except as otherwise
provided in this Section, the practice, procedure, judgment and costs shall
be governed by the Code of Civil Procedure.
(j) As used in this Section:
(1) "Fair value," with respect to a dissenter's shares,
means the value of the shares immediately before the consummation
of the corporate action to which the dissenter objects excluding
any appreciation or depreciation in anticipation of the corporate
action, unless exclusion would be inequitable.
(2) "Interest" means interest from the effective date of
the corporate action until the date of payment, at the average rate
currently paid by the corporation on its principal bank loans or,
if none, at a rate that is fair and equitable under all the
circumstances.
PRELIMINARY PROXY MATERIALS E-3
COMMUNITY FINANCIAL CORP.
240 E. CHESTNUT STREET
OLNEY, ILLINOIS 62450-2295
For the Special Meeting of Shareholders to be held _________, 2001
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned shareholder(s) of COMMUNITY FINANCIAL CORP. (the
"Company") does hereby nominate, constitute and appoint __________ and
__________ and each of them (with full power to act alone), true and lawful
proxies and attorneys-in-fact, with full power of substitution, for the
undersigned and in the name, place and stead of the undersigned to vote all
of the shares of common stock, $0.01 par value (the "Common Stock"), of the
Company standing in the name of the undersigned on its books at the close of
business on _________, 2001 at the Special Meeting of Shareholders to be
held at 501 East Main Street, Olney, Illinois 62450-2295, on ________, 2001,
at 2:00 p.m., local time, and at any adjournments or postponements thereof,
with all of the powers the undersigned would possess if personally present,
as follows:
1. To consider and vote upon the approval of the Affiliation and Merger
Agreement, dated as of March 30, 2001, as amended by that certain
Amendment No. 1 to Agreement of Affiliation and Merger, dated as of
March 30, 2001 (as amended, the "Agreement"), pursuant to which the
Company will be acquired by First Financial Corporation ("First
Financial") by means of a merger of FFC Merger Corp, a wholly owned
subsidiary of First Financial, with and into the Company with the
Company as the surviving corporation. Upon consummation of the merger,
each share of Common Stock owned immediately prior to the merger
will be converted into the right to receive a cash payment based upon
a formula set forth in the Agreement, currently estimated to be $15.04
(the "Merger Consideration"). In addition, each holder of an option to
acquire Common Stock with an exercise price of less than the Merger
Consideration will be entitled to receive, for each option, the
difference between the Merger Consideration and the exercise price of
the option multiplied by the number of shares covered by the option,
as set forth in detail in the accompanying Proxy Statement.
/ / FOR / / AGAINST / / ABSTAIN
2. To transact such other business as may properly come before the Special
Meeting or any adjournments or postponements thereof.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR"
APPROVAL OF THE AGREEMENT.
The undersigned hereby revokes any other proxies to vote at such
meeting and hereby ratifies and confirms all that the proxies and attorneys-
in-fact, or each of them, appointed hereunder may lawfully do by virtue
hereof. Said proxies and attorneys-in-fact, without limiting their general
authority, are specifically authorized to vote in accordance with their best
judgment with respect to all matters incident to the conduct of the Special
Meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER(S). IF NO DIRECTION IS GIVEN
HEREIN, THIS PROXY WILL BE VOTED "FOR" THE PROPOSAL LISTED ABOVE.
PLEASE PROMPTLY COMPLETE, DATE, SIGN AND MAIL THIS PROXY.
RETURN USING THE ENVELOPE PROVIDED.
COMMUNITY FINANCIAL CORP. SPECIAL MEETING
Check appropriate box
Indicate changes below:
Address Change? / /
Name Change? / /
No. of shares of Common Stock:___________________
_________________________________________________
Date_______________________________________, 2001
_________________________________________________
Date_______________________________________, 2001
WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN,
PLEASE GIVE YOUR FULL TITLE. IF MORE THAN ONE PERSON HOLDS THE POWER TO VOTE
THE SAME SHARES, ALL MUST SIGN. ALL JOINT OWNERS MUST SIGN. THE UNDERSIGNED
HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING AND THE PROXY
STATEMENT (WITH ALL ENCLOSURES AND ATTACHMENTS), DATED _______, 2001,
RELATING TO THE SPECIAL MEETING.
PRELIMINARY PROXY MATERIALS