SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-12
Security Financial Bancorp, Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required.
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
Common stock, par value $0.01 per share
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(2) Aggregate number of securities to which transaction applies:
2,042,110
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
$24.00
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(4) Proposed maximum aggregate value of transaction:
$49,010,640
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(5) Total fee paid:
$3,965
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/X/ 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:
N/A
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(2) Form, Schedule or Registration Statement No.:
N/A
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(3) Filing Party:
N/A
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(4) Date Filed:
N/A
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[Security Financial Logo]
May 8, 2003
Dear Stockholder:
You are cordially invited to attend a special meeting of the stockholders
of Security Financial Bancorp, Inc., the holding company for Security Federal
Bank & Trust. The meeting will be held at Security Financial's main office
located at 9321 Wicker Avenue, St. John, Indiana on Tuesday, June 10, 2003, at
9:00 a.m., Central time.
At the special meeting, you will be asked to approve a merger agreement by
and among Security Financial and Standard Bancshares, Inc. Upon completion of
the merger, you will be entitled to receive a cash payment of $24.00 for each
share of Security Financial stock that you own.
The completion of the merger is subject to certain conditions, including
the approval of the merger agreement by the affirmative vote of a majority of
the outstanding shares of Security Financial common stock. We urge you to read
the attached proxy statement carefully. It describes the merger agreement in
detail and includes a copy of the merger agreement as Appendix A.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
RECOMMENDS THAT YOU VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT BECAUSE THE
BOARD BELIEVES IT TO BE IN THE BEST INTERESTS OF THE SECURITY FINANCIAL
STOCKHOLDERS.
YOUR VOTE IS VERY IMPORTANT
Whether or not you plan to attend the special meeting, please complete,
date and sign the enclosed proxy card and return it promptly in the postage-paid
envelope provided.
On behalf of the board of directors, I thank you for your prompt attention
to this important matter.
Sincerely,
/s/ John P. Hyland
John P. Hyland
PRESIDENT AND CHIEF EXECUTIVE OFFICER
SECURITY FINANCIAL BANCORP, INC.
9321 WICKER AVENUE
ST. JOHN, INDIANA 46373
(219) 365-4344
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 10, 2003
A special meeting of stockholders of Security Financial Bancorp, Inc.
will held at Security Financial's main office located at 9321 Wicker Avenue, St.
John, Indiana on Tuesday, June 10, 2003 at 9:00 a.m., Central time, for the
following purposes:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Reorganization, dated February 6, 2003, by and
among Security Financial, Standard Bancshares, Inc. and Standard
Acquisition Corporation. Upon completion of the merger, you will be
entitled to receive $24.00 in cash for each share of Security
Financial common stock that you own. A copy of the merger agreement is
included as Appendix A to the accompanying proxy statement.
2. To transact any other business as may properly come before the
meeting, including adjourning the special meeting to permit, if
necessary, further solicitation of proxies or any adjournment thereof.
The board of directors is not aware of any such other business.
Only stockholders of record at the close of business on April 25, 2003 are
entitled to vote at the meeting or any adjournments or postponements of the
meeting.
Remember, if your shares are held in the name of a broker, only your broker
can vote your shares on the merger agreement and only after receiving your
instructions. Please contact the person responsible for your account and
instruct him/her to execute a proxy card on your behalf. You should also sign,
date and mail your instruction card at your earliest convenience.
By Order of the Board of Directors
/s/ Philip T. Rueth
St. John, Indiana Philip T. Rueth
May 8, 2003 Corporate Secretary
THE BOARD OF DIRECTORS OF SECURITY FINANCIAL UNANIMOUSLY RECOMMENDS THAT YOU
VOTE "FOR" THE APPROVAL OF THE MERGER AGREEMENT. WHETHER OR NOT YOU PLAN TO
ATTEND THE MEETING, PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY IN
THE ACCOMPANYING PRE-ADDRESSED POSTAGE-PAID ENVELOPE.
TABLE OF CONTENTS
Page
----
QUESTIONS AND ANSWERS ABOUT THE MERGER................................................................1
SUMMARY TERM SHEET....................................................................................3
THE SPECIAL MEETING
Place, Date and Time............................................................................10
Purpose of the Meeting..........................................................................10
Who Can Vote at the Meeting; Record Date........................................................10
Quorum and Vote Required........................................................................10
Shares Held by Directors and Officers of Security Financial; Voting Agreements..................10
Voting by Proxy.................................................................................11
Revocability of Proxies.........................................................................11
Participants in Security Federal Bank & Trust's ESOP and 401(k) Plan............................11
THE MERGER
The Parties to the Merger.......................................................................12
Form of the Merger..............................................................................12
Treatment of Security Financial Stock Options...................................................13
Treatment of Security Financial Stock Awards....................................................13
Procedures for Surrendering Your Certificates...................................................13
Material Federal Income Tax Consequences of the Merger..........................................14
Background of the Merger........................................................................14
Security Financial's Reasons for the Merger.....................................................18
Opinion of Security Financial's Financial Advisor...............................................19
Interests of Directors and Officers in the Merger that Are Different From Your Interests........25
Approvals Needed to Complete the Merger.........................................................28
Financing the Merger............................................................................29
Accounting Treatment of the Merger..............................................................29
Dissenters' Appraisal Rights....................................................................29
THE MERGER AGREEMENT
When Will the Merger Be Completed...............................................................32
Conditions to Completing the Merger.............................................................33
Other Provisions of the Merger Agreement........................................................35
STOCK OWNERSHIP......................................................................................38
STOCKHOLDER PROPOSALS AND NOMINATIONS................................................................41
SOLICITATION OF PROXIES..............................................................................41
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WHERE YOU CAN FIND MORE INFORMATION..................................................................41
APPENDIX A Agreement and Plan of Reorganization, dated February 6, 2003 by and among Security
Financial Bancorp, Inc., Standard Bancshares, Inc. and Standard Acquisition
Corporation (exhibits omitted)
APPENDIX B Fairness Opinion of Howe Barnes Investments, Inc.
APPENDIX C Section 262 of the Delaware General Corporation Law
ii
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QUESTIONS AND ANSWERS ABOUT THE MERGER
WHAT AM I BEING ASKED TO VOTE ON AND HOW DOES MY BOARD RECOMMEND THAT I VOTE?
You are being asked to vote FOR the adoption of the Agreement and Plan of
Reorganization dated as of February 6, 2003 providing for the merger of Security
Financial with and into a wholly owned subsidiary of Standard Bancshares. The
Security Financial board of directors has determined that the proposed merger is
in the best interests of Security Financial stockholders, has approved the
merger agreement and recommends that Security Financial stockholders vote FOR
the adoption of the merger agreement.
WHAT VOTE IS REQUIRED TO ADOPT THE MERGER AGREEMENT?
The adoption of the merger agreement requires the affirmative vote of at
least a majority of the outstanding shares of Security Financial common stock.
WHAT WILL I RECEIVE IN THE MERGER?
Under the merger agreement, each share of Security Financial common stock
you own will be converted into the right to receive $24.00 in cash.
HOW DO I EXCHANGE MY SECURITY FINANCIAL STOCK CERTIFICATES?
You will receive instructions on where and how to surrender your Security
Financial stock certificates from the paying agent, Registrar and Transfer
Company, after the merger is completed. IN ANY EVENT, YOU SHOULD NOT FORWARD
YOUR SECURITY FINANCIAL STOCK CERTIFICATES WITH YOUR PROXY CARD.
WHAT SHOULD I DO NOW?
After you have carefully read this document, please indicate on your proxy
card how you want to vote. Sign and mail the proxy card in the enclosed postage
prepaid envelope as soon as possible, so that your shares will be represented at
the special meeting. If you do not return a properly executed proxy card or do
not vote at the special meeting in person, this will have the same effect as a
vote against the adoption of the merger agreement.
IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, BANK OR NOMINEE, WILL MY
BROKER, BANK OR NOMINEE AUTOMATICALLY VOTE MY SHARES FOR ME?
No. Your broker, bank or nominee will not be able to vote your shares of
Security Financial common stock unless you provide instructions on how to vote.
You should instruct your broker, bank or nominee how to vote your shares by
following the procedures your broker provides. If you do not provide
instructions to your broker, bank or nominee, your shares will not be voted, and
this will have the effect of voting against adoption of the merger agreement.
Please check the voting form used by your broker, bank or nominee to see if it
offers telephone or internet voting.
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WHO CAN HELP ANSWER MY QUESTIONS?
If you want additional copies of this document, or if you want to ask any
questions about the merger or how to submit your proxy, you should contact:
John P. Hyland
President and Chief Executive Officer
Security Financial Bancorp, Inc.
9321 Wicker Avenue
St. John, Indiana 46373
Telephone: (219) 365-4344
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SUMMARY TERM SHEET
THIS SUMMARY TERM SHEET HIGHLIGHTS SELECTED INFORMATION REGARDING THE MERGER FROM THIS PROXY
STATEMENT AND DOES NOT CONTAIN ALL THE INFORMATION THAT IS IMPORTANT TO YOU. FOR A MORE COMPLETE
DESCRIPTION OF THE TERMS OF THE PROPOSED MERGER, WE URGE YOU TO READ CAREFULLY THE ENTIRE DOCUMENT AND
THE OTHER DOCUMENTS TO WHICH WE REFER, INCLUDING THE MERGER AGREEMENT, ATTACHED AS APPENDIX A.
THE COMPANIES
SECURITY FINANCIAL BANCORP, INC. We are the parent company of Security Federal Bank & Trust,
9321 WICKER AVENUE, a federally-chartered stock savings bank, and are a Delaware
ST. JOHN, INDIANA 46373 corporation. Security Federal operates six banking offices
(219) 365-4344 in Lake and Porter Counties, Indiana. At March 31, 2003, we
had total assets of $199.8 million, deposits of $147.6
million and stockholders' equity of $36.6 million.
Standard Bancshares is the parent company of Standard Bank
STANDARD BANCSHARES, INC. and Trust Co., an Illinois state chartered non-member bank,
7800 WEST 95TH STREET and is an Illinois corporation. Standard Bank operates 20
HICKORY HILLS, ILLINOIS 60457 banking offices in Cook, Du Page, Grundy and Will Counties,
(708) 598-7400 Illinois. At March 31, 2003, Standard Bancshares had total
assets of $970.0 million, deposits of $816.7 million and
capital of $108.2 million.
THE SPECIAL MEETING
PLACE, DATE AND TIME (PAGE 10) A special meeting of our stockholders will be held at 9321
Wicker Avenue, St. John, Indiana on June 10, 2003 at 9:00
a.m., Central time.
PURPOSE OF THE MEETING At the special meeting, our stockholders will be asked to
(PAGE 10) approve the merger agreement with Standard Bancshares and
to transact any other business that may properly come before
meeting.
WHO CAN VOTE AT THE MEETING You can vote at the special meeting of Security Financial
(PAGE 10) stockholders if you owned our common stock at the close of
business on April 25, 2003. You will be able to cast one
vote for each share of our common stock you owned on that
date. As of April 25, 2003, there were 1,863,951 shares of
our common stock outstanding.
WHAT VOTE IS REQUIRED FOR In order to approve the merger agreement, the holders of at
APPROVAL OF THE MERGER least a majority of the outstanding shares of our common
AGREEMENT (PAGE 10) stock entitled to vote must vote in favor of the merger
agreement. You can vote your shares by attending the
special meeting and voting in person or by completing and
mailing the enclosed proxy card. As of April 25, 2003, the
directors and executive officers of Security Financial and
Security Federal beneficially owned approximately 18.0% of
our outstanding common stock (excluding options).
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THE MERGER
OVERVIEW OF THE TRANSACTION We propose a business combination in which we will merge
(PAGE 12) with a wholly owned subsidiary of Standard Bancshares, with
Security Financial as the surviving entity and a wholly
owned subsidiary of Standard Bancshares following the
merger. Immediately after completion of the merger, Security
Financial will be dissolved.
EACH SECURITY FINANCIAL SHARE WILL BE As our stockholder, upon the closing of the merger, each
EXCHANGED FOR $24.00 IN CASH (PAGE 12) of your shares of our common stock will automatically be
converted into the right to receive $24.00 in cash.
HOW TO RECEIVE CASH IN EXCHANGE FOR In order to receive cash in exchange for your Security
YOUR SECURITY FINANCIAL STOCK Financial stock certificates, you will need to surrender
CERTIFICATES your Security Financial stock certificates. The paying
(PAGE 13) agent, Registrar and Transfer Company, will send you written
instructions for surrendering your certificates after we
have completed the merger.
SECURITY FINANCIAL STOCK PRICE Our common stock trades on the Nasdaq SmallCap Market under
the symbol "SFBI." On February 6, 2003, which was the last
trading day before we announced the merger, our common stock
closed at $22.90 per share. On April 28, 2003, which is the
last practicable trading day before the printing of this
document, our common stock closed at $23.67 per share.
TAX CONSEQUENCES OF THE MERGER (PAGE 14) When you exchange your Security Financial shares solely for
cash, you generally should recognize capital gain or loss on
the exchange.
THIS TAX TREATMENT MAY NOT APPLY TO ALL SECURITY FINANCIAL
STOCKHOLDERS. DETERMINING THE ACTUAL TAX CONSEQUENCES OF THE
MERGER TO YOU CAN BE COMPLICATED. YOU SHOULD CONSULT YOUR
OWN TAX ADVISOR FOR A FULL UNDERSTANDING OF THE MERGER'S TAX
CONSEQUENCES THAT ARE PARTICULAR TO YOU.
SECURITY FINANCIAL'S BOARD OF DIRECTORS Our board of directors believes that the merger is fair and
RECOMMENDS THAT STOCKHOLDERS in the stockholders' best interests, and unanimously
APPROVE THE MERGER recommends that you vote "FOR" the proposal to approve and
adopt the merger agreement.
For a discussion of the circumstances surrounding the merger
and the factors considered by our board of directors in
approving the merger agreement, see page 14.
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SECURITY FINANCIAL'S FINANCIAL ADVISOR Howe Barnes Investments, Inc. has delivered to our board of
BELIEVES THE MERGER CONSIDERATION IS FAIR directors its opinion that, as of the date of this
TO STOCKHOLDERS (PAGE 19) document, the merger consideration is fair to the holders of
Security Financial common stock from a financial point of
view. A copy of this opinion is provided as Appendix B to
this document. You should read it completely to understand the
procedures followed, assumptions made, matters considered,
and qualifications and limitations on the review made by
Howe Barnes in providing this opinion. We have agreed to pay
Howe Barnes approximately $345,000, of which $172,323 has
been paid as of March 31, 2003, plus expenses for its
services in connection with the merger.
INTERESTS OF SECURITY FINANCIAL'S DIRECTORS Some of our directors and officers have interests in the
AND OFFICERS IN THE MERGER THAT DIFFER merger that are different from, or are in addition to, their
FROM YOUR INTERESTS (PAGE 25) interests as stockholders in Security Financial. The members
of our board of directors knew about these additional
interests, and considered them, when they approved the
merger. These include:
o a payment to John P. Hyland, our President and Chief
Executive Officer, in connection with the termination
of the Security Federal Bank & Trust Supplemental
Executive Retirement Plan (as limited under a letter of
understanding with Standard Bancshares);
o a payment to John P. Hyland under the non-competition
agreement that John P. Hyland entered into with
Standard Bancshares effective as of the closing of the
merger;
o a payment to Patrick J. Hunt, our Executive Vice
President and Chief Financial Officer, in connection
with the termination of his employment agreement with
Security Federal (as limited under a letter of
understanding with Standard Bancshares);
o the offer of employment of Patrick J. Hunt as Chief
Financial Officer of Standard Bancshares;
o the vesting of unvested Security Financial stock
options and restricted stock awards as a result of
completion of the merger;
o the termination of the Security Financial employee
stock ownership plan and allocation of the remaining
cash to plan participants;
o provisions in the merger agreement relating to the
indemnification of directors and officers and insurance
for our directors and officers for events occurring
before the merger; and
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o Standard Bank's maintenance of an advisory board
including certain members of the board of directors of
Security Federal.
REGULATORY APPROVAL NEEDED TO COMPLETE We cannot complete the merger unless it is first approved by
THE MERGER the Federal Reserve Bank of Chicago, the Federal Deposit
(PAGE 28) Insurance Corporation and the State of Illinois. Standard
Bancshares has filed the required applications with these
regulatory agencies. As of the date of this document,
Standard Bancshares has not received the approval from any
regulatory agency. While we do not know of any reason why
Standard Bancshares would not be able to obtain approval in
a timely manner, we cannot be certain when or if Standard
Bancshares will receive it.
YOU HAVE DISSENTERS' APPRAISAL RIGHTS IN Under Delaware law, if you do not vote in favor of the
THE MERGER (PAGE 29) merger you have the right to seek an appraisal of the fair
value of your Security Financial common stock and receive a
cash payment of such fair value. SECURITY FINANCIAL
STOCKHOLDERS ELECTING TO EXERCISE DISSENTERS' APPRAISAL
RIGHTS MUST COMPLY WITH THE PROVISIONS OF SECTION 262 OF THE
DELAWARE GENERAL CORPORATION LAW IN ORDER TO PERFECT THEIR
RIGHTS. WE WILL REQUIRE STRICT COMPLIANCE WITH THE STATUTORY
PROCEDURES. A copy of Section 262 of the Delaware General
Corporation Law is attached as Appendix C.
THE MERGER AGREEMENT
A COPY OF THE MERGER AGREEMENT IS PROVIDED AS APPENDIX A TO THIS PROXY STATEMENT. PLEASE READ THE ENTIRE
MERGER AGREEMENT CAREFULLY. IT IS THE LEGAL DOCUMENT THAT GOVERNS THE MERGER.
CONDITIONS TO COMPLETING THE MERGER The completion of the merger depends on a number of
(PAGE 33) conditions being met. These conditions include, among other
items:
o approval of the merger agreement by our stockholders;
o approval of the merger by regulatory authorities;
o the continued accuracy of certain representations and
warranties made on the date of the merger agreement;
and
o the absence of adverse changes in certain aspects of
our operations and financial position.
We cannot be certain when or if the conditions to the merger
will be satisfied or waived, or that the merger will be
completed.
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We have agreed not to initiate, solicit, encourage or
facilitate any competing proposal with a third party.
AGREEMENT NOT TO SOLICIT Despite the agreement not to solicit other competing
OTHER PROPOSALS (PAGE 35) proposals, we may, at any time prior to stockholder approval
of the merger, generally negotiate or have discussions with,
or provide information to, a third party who makes an
unsolicited proposal, provided that our board of directors:
o determines in good faith, based on advice of legal
counsel, that failure to provide such information or to
participate in such negotiations or discussions would
likely be inconsistent with our directors' fiduciary
duties to our stockholders; and
o provides Standard Bancshares with at least two business
days' written notice of its intention to provide such
information or to participate in such negotiations or
discussions.
WE MAY AMEND THE TERMS OF THE MERGER AND We may agree to amend the merger agreement, and each of us
WAIVE SOME CONDITIONS (PAGE 36) may waive our right to require the other party to adhere to
the terms and conditions of the merger agreement, where the
law allows. However, if Security Financial's stockholders
approve the merger agreement, they must approve any
amendment or waiver that reduces or changes the
consideration to be received by Security Financial's
stockholders in the merger.
TERMINATING THE MERGER AGREEMENT (PAGE 36) Security Financial and Standard Bancshares may agree at any
time not to complete the merger, even if our stockholders
have approved the merger agreement. In addition, either
Security Financial or Standard Bancshares may decide,
without the consent of the other, to terminate the merger
agreement:
o if any of the closing conditions are impossible to
satisfy prior to September 30, 2003 (unless the
impossibility is due to the action or failure to act in
breach of the merger agreement by the party seeking to
terminate the merger agreement);
o if our stockholders fail to approve the merger;
o in the event the other party's breach of any
representation or warranty or breach of any covenant or
agreement contained in the merger agreement results in
the failure to satisfy the party's closing conditions;
or
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o if the merger is not consummated by September 30, 2003
(unless the failure to consummate by September 30, 2003
is due to the failure of the party seeking to terminate
to perform its obligations under the merger agreement).
We may also terminate the merger agreement if each of the
following conditions is met:
o We have complied with our obligations under the merger
agreement regarding competing proposals;
o Our board of directors has determined, in its good
faith judgment and in accordance with its obligations
under the merger agreement regarding competing
proposals, that it has received a superior proposal and
that it would be in the best interest of our
stockholders to pursue such superior proposal; and
o We have tendered, in immediately available funds, the
required termination fee;
provided, however, we may not terminate the merger agreement
until five business days after the superior proposal has
been delivered to Standard Bancshares, together with a
summary of the terms of the superior proposal and such other
information required under its obligations under the merger
agreement regarding competing proposals.
Standard Bancshares may also terminate the merger agreement
if, after the date of the merger agreement, any third party
has commenced or made a competing acquisition proposal, and
thereafter our board of directors withdraws, or materially
and adversely modifies or changes its recommendation of the
merger agreement.
TERMINATION FEE (PAGE 37) We must pay Standard Bancshares a fee of $2.0 million if we
terminate the merger agreement as a result of us pursuing a
superior proposal, or if Standard Bancshares terminates the
merger agreement as a result of our board of directors'
withdrawal or material and adverse modification or change in
its recommendation of the merger agreement or any aspect of
the merger after receipt of a competing proposal.
In addition, we must pay Standard Bancshares a termination
fee of $250,000 if Standard Bancshares terminates the merger
agreement as a result of:
o our inability to satisfy any of our closing conditions;
or
o our stockholders not voting in favor of the merger;
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provided, however, that this fee will not be paid if the
merger agreement is terminated by Standard Bancshares solely
because dissenting shares exceed 10% of our outstanding
shares and dissenting shares do not exceed 15% of our
outstanding shares at the effective time.
In addition, unless we have already paid the $2.0 million
termination fee set forth above, we must pay Standard
Bancshares a termination fee of $2.0 million if we receive a
competing proposal prior to termination of the merger
agreement and enter into an acquisition agreement with
another party within 18 months after the merger agreement is
terminated for any reason other than:
o by mutual agreement;
o Security Financial terminating the merger agreement
because Standard Bancshares breaches a closing
condition; or
o Standard Bancshares terminating the merger agreement
because there is a threatened action, suit or
proceeding that would materially and adversely effect
the consummation of the merger in the reasonable
opinion of Standard Bancshares, there is an injunction
preventing the consummation of the merger, or
regulatory approvals are not obtained.
In addition, Standard Bancshares must pay us a termination
fee of $250,000 if Standard Bancshares terminates the merger
agreement as a result of:
o Standard Bancshares' inability to satisfy any of its
closing conditions; or
o Standard Bancshares not having received regulatory
approval of the merger.
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THE SPECIAL MEETING
This proxy statement is furnished in connection with the solicitation of
proxies by the board of directors of Security Financial to be used at the
special meeting of stockholders. This proxy statement and the enclosed proxy
card are being first mailed on or about May 8, 2003 to stockholders of record.
PLACE, DATE AND TIME
The special meeting will be held at 9321 Wicker Avenue, St. John, Indiana
on Tuesday, June 10, 2003 at 9:00 a.m., Central time.
PURPOSE OF THE MEETING
The purpose of the meeting is to consider and vote on a proposal to approve
and adopt the merger agreement and to act on any other matters brought before
the meeting.
WHO CAN VOTE AT THE MEETING; RECORD DATE
You are entitled to vote your Security Financial common stock only if the
records of Security Financial show that you held your shares as of the close of
business on April 25, 2003. As of the close of business on April 25, 2003, a
total of 1,863,951 shares of Security Financial's common stock were outstanding.
Each share of common stock has one vote. As provided in Security Financial's
charter, record holders of Security Financial's common stock who beneficially
own, either directly or indirectly, in excess of 10% of Security Financial's
outstanding shares are not entitled to any vote in respect of the shares held in
excess of the 10% limit.
QUORUM AND VOTE REQUIRED
QUORUM. The special meeting will be held only if a majority of the
outstanding shares of common stock entitled to vote (excluding any shares in
excess of the 10% limit) are represented at the meeting. If you return valid
proxy instructions or attend the meeting in person, your shares will be counted
for purposes of determining whether there is a quorum present, even if you
abstain from voting. Broker non-votes also will be counted for purposes of
determining the existence of a quorum. A broker non-vote occurs when a broker,
bank or other nominee holding shares for a beneficial owner does not vote on a
particular proposal because the nominee does not have discretionary voting power
with respect to that item and has not received voting instructions from the
beneficial owner. Under applicable rules, brokers, banks and other nominees may
not exercise their voting discretion on the proposal to approve and adopt the
merger agreement and, for this reason, may not vote shares held for beneficial
owners without specific instructions from the beneficial owners.
VOTE REQUIRED. Approval and adoption of the merger agreement requires the
affirmative vote of the majority of the outstanding shares of Security
Financial's common stock. Failure to return a properly executed proxy card or to
vote in person and abstentions and broker non-votes will have the same effect as
a vote "Against" the merger agreement.
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SHARES HELD BY DIRECTORS AND OFFICERS OF SECURITY FINANCIAL; VOTING AGREEMENTS
As of February 6, 2003, directors of Security Financial and Security
Federal and executive officers of Security Financial owned approximately 15.85%
of the shares of Security Financial common stock, not including shares that may
be acquired upon the exercise of stock options. All of the Security Financial
and Security Federal directors and the Security Financial executive officers
have entered into voting agreements with Standard Bancshares requiring each
individual to continue to hold all shares owned or controlled on and after
February 6, 2003 through the date of the special meeting and to vote all of the
shares of Security Financial common stock in favor of the proposal to approve
the merger agreement.
VOTING BY PROXY
The board of directors of Security Financial is sending you this proxy
statement for the purpose of requesting that you allow your shares of Security
Financial common stock to be represented at the special meeting by the persons
named in the enclosed proxy card. All shares of Security Financial's common
stock represented at the special meeting by properly executed proxies will be
voted according to the instructions indicated on the proxy card. If you sign,
date and return a proxy card without giving voting instructions, your shares
will be voted as recommended by Security Financial's board of directors. THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL OF THE MERGER
AGREEMENT.
If any matters not described in this proxy statement are properly presented
at the special meeting, the persons named in the proxy card will use their own
best judgement to determine how to vote your shares. This includes a motion to
adjourn or postpone the special meeting in order to solicit additional proxies.
However, no proxy voted against the proposal to approve the merger agreement
will be voted in favor of an adjournment or postponement to solicit additional
votes in favor of the merger agreement. If the special meeting is postponed or
adjourned, Security Financial common stock may be voted by the persons named in
the proxy card on the new special meeting date as well, unless you have revoked
your proxy. Security Financial does not know of any other matters to be
presented at the special meeting.
If Security Financial common stock is held in street name, you will receive
instructions from your broker, bank or other nominee that you must follow in
order to have your shares voted. Your broker or bank may allow you to deliver
your voting instructions via the telephone or the Internet. Please see the
instruction form that accompanies this proxy statement.
REVOCABILITY OF PROXIES
You may revoke your proxy at any time before the vote is taken at the
meeting. To revoke your proxy you must either advise the Corporate Secretary of
Security Financial in writing before your common stock has been voted at the
special meeting, deliver a later dated proxy card, or attend the meeting and
vote your shares in person. Attendance at the special meeting will not in itself
constitute revocation of your proxy.
PARTICIPANTS IN SECURITY FEDERAL BANK & TRUST'S ESOP AND 401(k) PLAN
If you participate in the Security Federal Bank & Trust Employee Stock
Ownership Plan or if you hold shares through the Security Federal Bank & Trust
401(k) Plan in the Security Financial Bancorp, Inc. Stock Fund, you will receive
a vote authorization form for each plan that reflects all shares you may vote
under the plans. Under the terms of the ESOP, the ESOP trustee votes all shares
held by the ESOP, but each participant in the ESOP may direct the trustee how to
vote the shares of Security Financial common stock allocated to his or her
account. The ESOP trustee, subject to the exercise of its fiduciary duties, will
vote all unallocated shares of common stock held by the ESOP and allocated
shares for which no timely voting instructions are received in the same
proportion as shares for which the trustee has received voting instructions.
Under the terms of the 401(k) Plan, a participant is entitled to direct the
trustee how to vote the shares of Security Financial common stock held in the
Security Financial Bancorp, Inc. Stock Fund and credited to his or her account.
The trustee will vote all shares of
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Security Financial common stock for which no directions are given or for which
timely instructions were not received in the same proportion as shares for which
the trustee received voting instructions. The deadline for returning your voting
instructions to each plan's trustee is June 3, 2003.
THE MERGER
THE FOLLOWING DISCUSSION OF THE MERGER IS QUALIFIED BY REFERENCE TO THE
MERGER AGREEMENT, WHICH IS ATTACHED TO THIS PROXY STATEMENT AS APPENDIX A. YOU
SHOULD READ THE ENTIRE MERGER AGREEMENT CAREFULLY. IT IS THE LEGAL DOCUMENT THAT
GOVERNS THE MERGER.
THE PARTIES TO THE MERGER
SECURITY FINANCIAL BANCORP, INC. Security Financial became the federally
chartered stock holding company for Security Federal in connection with the
conversion of Security Federal from the mutual to stock form of ownership. The
conversion was completed on January 5, 2000. As a Savings and Loan Holding
Company, Security Financial is regulated by the office of thrift supervision.
Since its formation, Security Financial's principal activity has been to direct
and coordinate the business of Security Federal. At March 31, 2003, Security
Financial had total assets of $199.8 million, total deposits of $147.6 million
and total stockholders' equity of $36.6 million.
Security Federal is a federally chartered savings bank headquartered in St.
John, Indiana. Security Federal is regulated by the Office of Thrift Supervision
and its deposits are insured by the Federal Deposit Insurance Corporation up to
applicable limits. Security Federal conducts its business through its
administrative and branch office located in St. John, Indiana, and five other
full service branch offices located immediately southeast of Chicago, Illinois
in the Indiana counties of Lake and Porter. Security Federal is a
community-oriented savings institution dedicated to financing home ownership and
other consumer needs.
STANDARD BANCSHARES, INC. Standard Bancshares is the parent company of
Standard Bank. Standard Bancshares is regulated by the Federal Reserve. Since
its formation in November, 1984, Standard Bancshares' principal activity has
been to direct and coordinate the business of Standard Bank. At March 31, 2003,
Standard Bancshares had total assets of $970.0 million, total deposits of $816.7
million and total stockholders' equity of $108.2 million.
Standard Bank is an Illinois state chartered non-member bank headquartered
in Hickory Hills, Illinois. Standard Bank is regulated by the State of Illinois
and the Federal Deposit Insurance Corporation and its deposits are insured by
the Federal Deposit Insurance Corporation up to applicable limits. Standard Bank
currently operates 20 offices in the southern and western regions of the
Chicago, Illinois area encompassing Cook, DuPage, Will and Grundy counties in
Illinois. Standard Bank conducts a general banking business, which includes most
of the services, both consumer and commercial, which banks may lawfully provide.
FORM OF THE MERGER
The Security Financial and Standard Bancshares boards of directors each
have unanimously approved the merger agreement that provides for the merger of
Security Financial with and into Standard Bancshares. Standard Bancshares will
survive the merger. Upon completion of the merger, each share of Security
Financial common stock will be converted into the right to receive $24.00 in
cash and Security Financial stockholders will no longer have any rights or
interests in Security Financial. As soon as possible after the conditions to
consummation of the merger have been satisfied or waived, and unless the
12
merger agreement has been terminated or an alternative structure is used as
discussed below, the merger will be effected as follows:
o Standard Acquisition Corporation, a newly formed, wholly owned
subsidiary of Standard Bancshares will merge with and into Security
Financial, with Security Financial as the surviving entity and a
wholly owned subsidiary of Standard Bancshares;
o immediately after completion of the merger, Security Financial will be
dissolved; and
o in connection with the dissolution of Security Financial, Security
Federal will merge with and into Standard Bank, with Standard Bank as
the surviving financial institution.
TREATMENT OF SECURITY FINANCIAL STOCK OPTIONS
Immediately prior to the closing of the merger, all outstanding options to
purchase shares of Security Financial common stock will become immediately
exercisable and vested, to the extent not already exercisable and vested. At the
closing of the merger, all options will be cancelled and Security Financial will
pay each holder an amount equal to the excess of the $24.00 per share merger
consideration over the exercise price per share of each option, net of any cash
that must be withheld under federal and state income and employment tax
requirements.
TREATMENT OF SECURITY FINANCIAL STOCK AWARDS
At the closing of the merger, each share of restricted stock outstanding
and issued pursuant to the Security Financial 2002 Stock-Based Incentive Plan,
to the extent not already vested, will vest and will represent a right to
receive the $24.00 per share merger consideration.
PROCEDURES FOR SURRENDERING YOUR CERTIFICATES
Immediately prior to the closing of the merger, Standard Bancshares will
deposit with the paying agent an amount of cash equal to the aggregate merger
consideration. The paying agent will act as paying agent for the benefit of the
holders of Security Financial common stock. Each holder of Security Financial
common stock who properly surrenders his or her Security Financial shares to the
paying agent will be entitled to receive a cash payment of $24.00 per share of
Security Financial common stock net of any required tax withholding upon
acceptance of the shares by the paying agent.
No later than three business days after the closing of the merger, the
paying agent will send you a letter of transmittal that will contain detailed
instructions for surrendering your certificates of Security Financial common
stock. If you hold your Security Financial common stock in "street name," your
broker, bank or nominee will send you the letter of transmittal.
YOU SHOULD NOT RETURN YOUR SECURITY FINANCIAL COMMON STOCK CERTIFICATES
WITH THE ENCLOSED PROXY, AND YOU SHOULD NOT SEND YOUR STOCK CERTIFICATES TO THE
PAYING AGENT UNTIL YOU RECEIVE THE LETTER OF TRANSMITTAL.
If your Security Financial common stock certificates have been lost, stolen
or destroyed, you will have to prove your ownership of these certificates and
that they were lost, stolen or destroyed before you receive any payment for your
shares.
Two hundred seventy days following the closing of the merger, Standard
Bancshares will be entitled at its election to cause the paying agent to deliver
to Standard Bancshares any funds not
13
disbursed to former Security Financial stockholders. Thereafter, the payment
obligation for any certificate representing Security Financial common stock that
has not been satisfied will become the responsibility of Standard Bancshares
only as a general creditor.
Neither Standard Bancshares, Security Financial, the paying agent nor any
other party to the merger will be liable to any former holder of Security
Financial common stock for any funds delivered to a public official pursuant to
applicable abandoned property or escheat laws.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following discussion addresses the material United States federal
income tax consequences of the merger to holders of Security Financial common
stock. This discussion applies only to Security Financial stockholders that hold
their Security Financial common stock as a capital asset within the meaning of
Section 1221 of the Internal Revenue Code of 1986, as amended. Further, this
discussion does not address all aspects of United States federal taxation that
may be relevant to a particular stockholder in light of its personal
circumstances or to stockholders subject to special treatment under the United
States federal income tax laws including: banks or trusts; tax-exempt
organizations; insurance companies; dealers in securities or foreign currency;
traders in securities who elect to apply a mark-to-market method of accounting;
pass-through entities and investors in such entities; foreign persons;
stockholders who received their Security Financial common stock through the
exercise of employee stock options, through a tax-qualified retirement plan or
otherwise as compensation; and stockholders who hold Security Financial common
stock as part of a hedge, straddle, constructive sale, conversion transaction or
other integrated instrument.
This discussion is based on the Internal Revenue Code of 1986, as amended,
Treasury regulations, administrative rulings and judicial decisions, all as in
effect as of the date of this proxy statement and all of which are subject to
change (possibly with retroactive effect) and to differing interpretations. Tax
considerations under state, local and foreign laws are not addressed in this
document. The tax consequences of the merger to you may vary depending upon your
particular circumstances. Therefore, you should consult your tax advisor to
determine the particular tax consequences of the merger to you, including those
relating to state and/or local taxes.
Neither Security Financial nor Standard Bancshares has requested or will
request a ruling from the Internal Revenue Service as to any of the tax effects
to Security Financial's stockholders of the transactions discussed in this proxy
statement, and no opinion of counsel has been or will be rendered to Security
Financial's stockholders with respect to any of the tax effects of the merger to
stockholders.
Security Financial stockholders will recognize gain or loss for federal
income tax purposes equal to the difference, if any, between the cash received
and such stockholder's aggregate adjusted tax basis in the Security Financial
common stock surrendered in exchange for the cash. The gain or loss will be a
capital gain or loss, provided that such shares were held as capital assets of
the Security Financial stockholder at the effective time of the merger. The gain
or loss will be long-term capital gain or loss if the Security Financial
stockholder's holding period is more than one year; otherwise, the capital gain
or loss will be short-term. The Internal Revenue Code contains limitations on
the extent to which a taxpayer may deduct capital losses from ordinary income.
BACKGROUND OF THE MERGER
Since the completion of Security Financial's initial public offering on
January 5, 2000, Security Financial's board of directors and management have
reviewed the strategic alternatives available to Security Financial for
maximizing stockholder value, including, among other things, pursuing
acquisition
14
opportunities as a means of deploying the capital Security Financial raised in
its public offering. However, the board of directors and management had little
success in identifying other institutions that would be interested in being
acquired, and which could be acquired at a price that would result in the
acquisition being accretive to Security Financial's earnings. The board of
directors was aware of Office of Thrift Supervision regulations that would make
it difficult for a third party to consummate a merger or sales transaction with
Security Financial within three years of Security Federal's mutual to stock
conversion. Consequently, the board of directors primarily focused on internal
improvements to Security Financial's operations as a means to enhance
shareholder value.
In January 2002, Security Financial's management was approached by another
financial institution to explore whether a merger might make sense. Informal
discussions took place regarding the possibility of a merger. Security
Financials's board of directors engaged Keefe, Bruyette & Woods, Inc., an
investment banking firm, for the sole purpose of analyzing a merger with that
financial institution and providing the board of directors with advice regarding
such a merger. A written non-binding expression of interest was received by the
board of directors on March 4, 2002. The non-binding expression of interest
proposed the payment of a fixed value in exchange for 100% of the outstanding
shares of Security Financial, with 40% of the total value to be paid in the
potential acquirer's stock, and 60% in cash.
Also in March 2002, the Security Financial board of directors directed
management to enter into an engagement with an independent financial advisor who
would familiarize itself with the business and prospects of Security Financial,
assess Security Financial's strategic plan, analyze the various alternatives
available to Security Financial and make a formal report to the board of
directors. Howe Barnes was then engaged. In conjunction with its assessment of
Security Financial, Howe Barnes was asked to analyze the market and perform a
valuation analysis on Security Financial.
On March 22, 2002, the board of directors met to consider the non-binding
expression of interest it had received. Security Financial's outside counsel,
Muldoon Murphy & Faucette LLP, addressed the board of directors with regard to
its fiduciary duties in the merger context. A representative from Keefe,
Bruyette gave a presentation to the board of directors, which included an
overview of the non-binding expression of interest, and merger and acquisition
pricing generally. It was made clear that the value proposed was contingent on a
due diligence review by the potential acquirer of Security Financial as well as
OTS approval to make a formal offer.
In addition, representatives from Howe Barnes attended the March 22, 2002
meeting to deliver its report to the board of directors. The following strategic
options were examined: maintain the status quo; take Security Financial private;
pursue acquisitions and grow Security Financial; or engage in a business
combination with another party. A brief analysis of those options and their
probable consequences for value enhancement and liquidity, the risk to value
maximization, the time necessary to achieve a positive result, and the impact on
shareholders was provided. Finally, a valuation analysis of Security Financial
was provided. It was noted that in conjunction with its valuation analysis,
various companies were contacted regarding whether they would be interested in
acquiring Security Financial and at what price. Three preliminary indications of
interest were presented. Following Howe Barnes' presentation, the board of
directors of Security Financial resolved that while Security Financial's
strategy continued to be a strategy of remaining independent, it should continue
to explore all potential options for enhancing shareholder value, including the
continued consideration of the expression of interest that had been received,
and any interest another company may have in Security Financial. Finally, it was
agreed that the potential acquirer that had submitted the non-binding expression
of interest should be permitted to perform due diligence on Security Financial.
15
On May 10, 2002, Security Financial received a written non-binding
expression of interest from another financial institution. The form of merger
consideration proposed by the second potential acquirer was 60% cash and 40%
stock. Although the merger consideration proposed by the second potential
acquirer was very close in value to the proposal received from the first
potential acquirer, unlike that offer, which proposed a stated value that would
not fluctuate, the value offered by the second potential acquirer in its
expression of interest would fluctuate depending upon the value of the second
potential acquirer's shares.
On May 29, 2002, the Security Financial board of directors met to consider
both non-binding expressions of interest. The board of directors considered at
length the values proposed and the positive and negative aspects of the second
non-binding of interest received given the stock portion of the merger
consideration would be subject to market risk through closing. In addition, it
was noted that, as drafted, it was unclear how exactly the merger consideration
proposed by the second potential acquirer would be calculated. It was ultimately
determined that the second potential acquirer should be directed to clarify its
expression of interest before the board of directors could act on pursuing
either expression of interest. On May 31, 2002, the Security Financial board of
directors met to discuss a revised and clarified expression of interest that had
been received by Security Financial from the second potential acquirer. The
board of directors then resolved to permit the second potential acquirer to
conduct due diligence.
On June 12, 2002, the first potential acquirer submitted a revised
expression of interest offering greater merger consideration than proposed in
March. On June 18, 2002, the second potential acquirer submitted a revised
non-binding expression of interest, and had enhanced its indication of value as
well. Because the two proposals were still very close in value, the board of
directors directed management to engage an independent financial adviser to
provide the board of directors with guidance regarding which proposal would
provide stockholders with the greatest value. RP Financial, LC. was then
retained.
A meeting of the board of directors was held on June 20, 2002, to hear
presentations from the three financial advisers hired by Security Financial. A
representative from Keefe, Bruyette analyzed the revised expression of interest
submitted by the first potential acquirer, and a representative of Howe Barnes
analyzed the revised expression of interest submitted by the second potential
acquirer. In addition, the board of directors received a detailed presentation
from RP Financial. Among other factors, the market available for each of the two
potential acquirers' stock was reviewed. It was noted that while the first
potential acquirer's stock was traded on the OTC Bulletin Board, with very
little liquidity, the second potential acquirer's stock was traded on Nasdaq.
The difficulty Security Financial's stockholders would have liquidating the
stock received from the first potential acquirer was reviewed in detail. The two
proposals were also examined on a pro forma basis. Following substantial
discussion, the board of directors determined the second potential acquirer's
indication of interest was preferable. It was noted, however, that there would
be an impediment to moving forward with any merger transaction due to the Office
of Thrift Supervision Regulations requiring a potential acquirer to seek Office
of Thrift Supervision approval prior to making a formal offer, which had not yet
been done by either of the potential acquirers. Howe Barnes was directed to
inquire about the status of the second potential acquirers' Office of Thrift
Supervision filing.
On July 18, 2002, the first potential acquirer submitted a revised
preliminary expression of interest. The revised proposal increased the amount of
merger consideration being proposed. On July 19, 2002, the board of directors
met to consider the revised expression of interest and to compare it to the
second potential acquirer's expression of interest, which remained unchanged
from what the board of directors had considered in June. RP Financial was again
requested to provide an independent financial analysis of the two expressions of
interest. The lack of liquidity in the first potential acquirer's stock was
16
still a substantial concern. Ultimately, the board of directors determined that
the expression of interest from the second potential acquirer was still
preferable to that submitted by the first potential acquirer.
On August 1, 2002, Standard Bancshares sent an unsolicited letter to Mr.
Hyland offering $24.00 in cash in exchange for each share of Security Financial
outstanding common stock. On August 15, 2002, Standard Bancshares submitted a
preliminary non-binding expression of interest, which provided more details
regarding its proposal. The Security Financial board of directors met on August
16, 2002 to consider the Standard Bancshares preliminary non-binding expression
of interest. RP Financial reviewed the preliminary non-binding expression of
interest in detail and compared it to the preliminary non-binding expressions of
interest received from the other potential acquirers. All three preliminary
non-binding expressions of interest that were before Security Financial were
analyzed in detail. It was discussed that because a portion of the consideration
offered by the other two potential acquirers was stock, it was necessary to
evaluate each company and the potential growth in each company's stock on a
going forward basis compared to the value of the Standard Bancshares proposal.
Finally, it was discussed that although Security Financial had been waiting
almost two months for the second potential acquirer to file the application with
the Office of Thrift Supervision to obtain approval to make a formal offer to
Security Financial, Standard Bancshares had already drafted such an application
and was prepared to file it. Consequently, it was agreed that Standard
Bancshares seemed to be a more motivated purchaser. After extensive analysis and
consultation with Security Financial's financial adviser, Security Financial's
board of directors concluded that the preliminary non-binding expression of
interest submitted by Standard Bancshares was superior to the other two
proposals.
The board of directors then discussed at length whether Security Financial
should contact other potential merger partners to attempt to obtain a more
favorable merger proposal. RP Financial noted that, while it is always possible
that a third party might make a more favorable proposal, the three merger
proposals that Security Financial had already received appeared to be within the
range of fair value for the stockholders. Further, it was noted that when Howe
Barnes had done its valuation analysis of Security Financial, Howe Barnes had
stated its belief that it had evaluated every financial institution that would
reasonably be interested in a business combination with Security Financial. It
was determined that the board of directors had already engaged in a competitive
bidding process and attempting to seek new potential merger partners was
unlikely to be productive and could cause Standard Bancshares to lose interest
in pursuing a transaction with Security Financial. Consequently, the board of
directors determined it was not in the best interests of stockholders for
Security Financial to seek merger proposals from other parties.
After Standard Bancshares was advised that Security Financial was
interested in pursing a merger transaction with Standard Bancshares, Standard
Bancshares, in August, 2002, filed an application with the Office of Thrift
Supervision seeking permission to make a formal acquisition proposal to Security
Financial. In September, 2002, Standard Bancshares provided Security Financial
with a draft of a proposed definitive merger agreement, and representatives of
the parties began discussions with regard to the terms and conditions of a
definitive agreement. Consistent with the regulations of the Office of Thrift
Supervision, however, Standard Bancshares did not request that the draft
agreement either be presented to Security Financial's board of directors for
consideration, or be executed by Security Financial, until the earlier of Office
of Thrift Supervision approval of Standard Bancshares' pending application to
make a formal acquisition proposal to Security Financial, or January 6, 2003,
the date on which the restrictions on merger proposals in the Office of Thrift
Supervision's regulations would no longer be applicable to Security Financial.
In December, 2002, Standard Bancshares concluded that the Office of Thrift
Supervision was unlikely to approve Standard Bancshares' pending application
prior to January 6, 2003 and, therefore, Standard Bancshares withdrew its
application.
17
The parties discussed the terms of a definitive merger agreement throughout
the fourth quarter of 2002 and January, 2003. On January 28, 2003, at a
regularly scheduled board of directors meeting, a definitive merger agreement
was presented to the board of directors. At the meeting, Howe Barnes made a
presentation on the fairness, from a financial point of view, of the merger
consideration to the Security Financial stockholders. Muldoon Murphy & Faucette
LLP led a discussion on and analyzed each section of the definitive merger
agreement with Security Financial's board of directors and reviewed with the
board of directors its fiduciary duties to stockholders in the merger context.
Following detailed discussions on the foregoing, Security Financial's board of
directors approved the merger agreement subject to certain modifications. John
Palmer, the Chairman of the Board of Security Financial, was authorized to
execute the merger agreement on behalf of the board of directors subject to the
definitive merger agreement being modified. The definitive merger agreement was
ultimately executed on February 6, 2003. Security Financial and Standard
Bancshares announced the execution of the merger agreement by a joint press
release issued on February 7, 2003.
SECURITY FINANCIAL'S REASONS FOR THE MERGER
Security Financial's board of directors has unanimously approved the merger
agreement and recommends that Security Financial stockholders vote "FOR" the
approval of the merger agreement.
Security Financial's board of directors has determined that the merger and
the merger agreement are fair to, and in the best interests of, Security
Financial and its stockholders. In approving the merger agreement, Security
Financial's board of directors also consulted with legal counsel regarding its
legal duties and the terms of the merger agreement, and with Howe Barnes with
respect to the financial aspects and fairness of the transaction from a
financial point of view to its stockholders. In arriving at its determination,
Security Financial's board of directors also considered a number of factors,
including the following:
o the process followed by Security Financial and its financial advisor
in connection with the sale helped to ensure that an offer more
favorable than Standard Bancshares' offer was not available;
o the consideration offered by Standard Bancshares was significantly
higher than any other bids received by Security Financial;
o the board of directors considered the book value and earnings per
share of Security Financial's common stock and various pricing and
other data in an attempt to establish Security Financial's value in a
merger or sales transaction;
o Security Financial's assessment of Standard Bancshares's ability to
pay the aggregate merger consideration without third party financing;
o the opinion of Security Financial's financial advisor that the $24.00
merger consideration is fair from a financial point of view to
Security Financial's stockholders;
o the review conducted by the board of directors of the strategic
options available to Security Financial and the assessment of the
board of directors that none of those options presented superior
opportunities or were likely to create greater value for Security
Financial stockholders than the prospects presented by the proposed
merger with Standard Bancshares;
18
o Standard Bancshares's indication that it would likely retain most of
Security Financial's employees;
o the current and prospective economic, competitive and regulatory
environment facing Security Financial, Standard Bancshares and the
financial services industry generally;
o the board of directors' assessment that Security Financial would
better serve the convenience and needs of its customers and the
communities that it serves through affiliation with a financial
institution such as Standard Bancshares that had a larger
infrastructure, wider selection of financial products and services and
more prominent market position;
o the board of directors' belief that, while no assurances could be
given, the probability of consummating the merger appeared to be high
and the business and financial advantages contemplated in connection
with the merger appeared achievable within a reasonable time frame;
o the likelihood of Standard Bancshares obtaining regulatory approval of
the merger;
o the likelihood of Security Financial stockholders approving the
merger; and
o the fact that appraisal rights will be available under Delaware law
with respect to the merger.
The foregoing discussion of the information and factors considered by
Security Financial's board of directors is not intended to be exhaustive, but
constitutes all material factors considered by the Security Financial board of
directors. In view of the variety of factors considered in connection with its
evaluation of the merger agreement and the transactions contemplated by it, the
Security Financial board of directors did not find it practicable to, and did
not, quantify or otherwise attempt to assign relative weights to the specific
factors considered in reaching its determination and individual directors may
have given different weights to the different factors.
OPINION OF SECURITY FINANCIAL'S FINANCIAL ADVISOR
At the request of the board of directors of Security Financial at its
January 28, 2003 board meeting, at which the terms of the proposed merger were
discussed and considered, Howe Barnes delivered an opinion to Security
Financial's board of directors that, as of January 28, 2003, the consideration
to be received by the holders of shares of Security Financial common stock was
fair, from a financial point of view, to the holders of Security Financial
common stock. Howe Barnes confirmed its January 28, 2003 opinion on February 6,
2003 and again on the date of this proxy statement that, as of each respective
date and based on the matters set forth in the opinion, the merger consideration
is fair, from a financial point of view, to the holders of Security Financial
common stock.
THE FULL TEXT OF HOWE BARNES' OPINION DATED THE DATE OF THIS PROXY
STATEMENT, WHICH SETS FORTH ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS
CONSIDERED, AND LIMITS ON THE REVIEW UNDERTAKEN BY HOWE BARNES, IS ATTACHED AS
APPENDIX B AND IS INCORPORATED HEREIN BY REFERENCE. THE DESCRIPTION OF THE HOWE
BARNES OPINION SET FORTH IN THIS PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF SUCH OPINION. SECURITY FINANCIAL STOCKHOLDERS ARE
URGED TO READ THE HOWE BARNES OPINION IN ITS ENTIRETY.
19
Howe Barnes' opinion is limited to the fairness, from a financial point of
view, of the merger consideration to be received by the holders of Security
Financial common stock and does not address Security Financial's underlying
business decision to proceed with the merger. The opinion is directed only to
the merger consideration in the merger and does not constitute a recommendation
to any holder of Security Financial common stock as to how such holder should
vote with respect to the merger agreement at any meeting of holders of Security
Financial common stock.
Howe Barnes, as part of its investment banking business, is regularly
engaged in the valuation of banks and bank holding companies, thrifts and thrift
holding companies, and various other financial services companies, in connection
with mergers and acquisitions, initial and secondary offerings of securities,
and valuations for other purposes. The Security Financial board of directors
selected Howe Barnes on the basis of its familiarity with the financial services
industry, its qualifications, ability, previous experience, and its reputation
with respect to such matters.
For purposes of its opinion dated January 28, 2003, and updated February 6,
2003 and the date of this proxy statement, in connection with its review of the
proposed transaction with Standard Bancshares, Howe Barnes, among other things:
o reviewed the merger agreement and the specific terms of the merger;
o participated in discussions with representatives of Security Financial
concerning the company's financial condition, businesses, assets,
earnings prospects, and senior management's views as to its future
financial performance;
o reviewed certain publicly available financial statements, both audited
(where available) and unaudited, and related financial information of
Security Financial and Standard Bancshares, including those included
in their most recent respective Annual Reports and/or Form 10-K and
the Quarterly Reports on Form 10-Q, as well as other internally
generated reports relating to asset/liability management, asset
quality, and so forth;
o reviewed certain financial forecasts and projections of Security
Financial prepared by its management and reviewed publicly available
information for Security Financial;
o discussed and reviewed certain aspects of the past and current
business operations, financial condition, and future prospects of
Security Financial with certain members of management;
o reviewed reported market prices and historical trading activity of
Security Financial common stock;
o reviewed certain aspects of the financial performance of Security
Financial and compared such financial performance of Security
Financial, together with stock market data relating to Security
Financial common stock, with similar data available for certain other
financial institutions and certain of their publicly traded
securities; and
o reviewed certain of the financial terms, to the extent publicly
available, of certain recent business combinations involving other
financial institutions.
In conducting its review and rendering its opinion dated the date hereof,
Howe Barnes assumed and relied upon, without independent verification, the
accuracy and completeness of all of the financial
20
and other information that has been provided to Howe Barnes by Security
Financial, Standard Bancshares, and their respective representatives, and of the
publicly available information that was reviewed by Howe Barnes. Howe Barnes is
not an expert in the evaluation of allowances for loan losses and has not
independently verified such allowances, and has relied on and assumed that the
aggregate allowances for loan losses set forth in the balance sheets of each of
Security Financial and Standard Bancshares at December 31, 2002 are adequate to
cover such losses and complied fully with applicable law, regulatory policy, and
sound banking practice as of the date of such financial statements. Howe Barnes
was not retained to and did not conduct a physical inspection of any of the
properties or facilities of Security Financial or Standard Bancshares, did not
make any independent evaluation or appraisal of the assets, liabilities or
prospects of Security Financial or Standard Bancshares, was not furnished with
any such evaluation or appraisal, and did not review any individual credit
files. Howe Barnes' opinion is necessarily based on economic, market, and other
conditions as in effect on, and the information made available to us as of, the
date hereof.
The following is a brief summary of the analyses presented by Howe Barnes
to Security Financial's board of directors in connection with Howe Barnes'
written opinion.
COMPARABLE TRANSACTION ANALYSIS. As part of its analyses, Howe Barnes
reviewed 12 completed or pending comparable mergers and acquisitions of savings
institutions headquartered throughout the United States announced from January
4, 2002 to September 19, 2002 in which total assets of the acquired company were
in the approximate range of $100 million to $300 million ("Comparable
Transactions"). The Comparable Transactions included the following transactions:
ANNOUNCE
DATE SELLER BUYER
- ----------------- ------------------------------------------- -----------------------------------
09/19/02 Empire Federal Bancorp, Inc. Sterling Financial Corporation
09/05/02 CBES Bancorp, Inc. NASB Financial Inc.
07/23/02 Family Savings Bank, FSB Boston Bank of Commerce
07/22/02 Big Foot Financial Corporation Midwest Banc Holdings Inc.
06/06/02 American Home Loan Corporation FBOP Corporation
05/30/02 CFS Bancshares Inc. Citizens Bancshares Corporation
04/10/02 Massachusetts Fincorp, Inc. Abington Bancorp, Inc.
03/11/02 USABancShares.com, Inc. Berkshire Financial Holdings, Inc.
02/27/02 WHG Bancshares Corporation BCSB Bankcorp, Inc.
02/07/02 Prestige Bancorp, Inc. Northwest Bancorp, Inc.
01/10/02 Pulaski Bancorp, Inc. Kearny, MHC
01/04/02 First Colony Bancshares, Inc. Peoples Bancorp Inc.
For each transaction for which data was available, Howe Barnes calculated the
multiple of the offer value to the acquired company's: (i) earnings per share
for the twelve months preceding ("LTM"); (ii) premium to core deposits; (iii)
book value per share; (iv) tangible book value per share; and (v) assets. Howe
Barnes compared these multiples with the corresponding multiples for the merger,
valuing the merger consideration at $24.00 per share or $44.7 million plus an
additional $1.2 million to be paid
21
for the outstanding options. In calculating the multiples for the merger, Howe
Barnes used Security Financial's earnings per share for the twelve months ended
December 31, 2002, and book value per share, tangible book value per share and
core deposits as of December 31, 2002.
PRICE/LTM EPS CORE DEPOSIT PRICE/BOOK VALUE PRICE/TANGIBLE
RATIO PREMIUM (%) BOOK VALUE PRICE/ASSETS (%)
(X) (%) (%)
--------------- --------------- ----------------- ---------------- -----------------
High: 95.51 17.65 253.27 253.27 27.06
Low: 10.25 0.24 100.68 100.68 1.21
Mean: 30.43 4.98 132.99 135.68 12.18
Median: 21.09 3.14 112.80 116.91 12.91
Merger
Consideration
for Security
Financial: 116.9 6.49 124.07 124.07 23.12
No company or transaction used in the above analyses as a comparison is
identical to Security Financial, Standard Bancshares, or the merger.
Accordingly, an analysis of the results of the foregoing is not mathematical;
rather, it involves complex considerations and judgments concerning differences
in financial operating characteristics, including, among other things,
differences in revenue composition and earnings performance among the companies,
and other facts that could affect the public trading value of the companies to
which they are being compared.
22
COMPARABLE COMPANY ANALYSIS. Howe Barnes calculated, reviewed, and compared
selected publicly-available financial data and ratios (at or for the twelve
months ended either September 30, 2002 or December 31, 2002) and trading
multiples (as of January 27, 2003) for Security Financial to the corresponding
ratios and multiples of publicly-traded Illinois and Indiana thrifts with total
assets between $100 and $300 million (the "Security Financial Peer Group")
consisting of:
TICKER COMPANY NAME CITY STATE
- ---------------------- ------------------------------------- --------------------------- --------------
AMFC AMB Financial Corp. Munster IN
BRBI Blue River Bancshares, Inc. Shelbyville IN
FBEI First Bancorp of Indiana, Inc. Evansville IN
FBTC First BancTrust Corporation Paris IL
FFBI First Federal Bancshares, Inc. Colchester IL
FFED Fidelity Federal Bancorp Evansville IN
FFWC FFW Corporation Wabash IN
GTPS Great American Bancorp, Inc. Champaign IL
LOGN Logansport Financial Corp. Logansport IN
NBSI North Bancshares, Inc. Chicago IL
NEIB Northeast Indiana Bancorp, Inc. Huntington IN
PBNC PFS Bancorp, Inc. Aurora IN
PFED Park Bancorp, Inc. Chicago IL
RIVR River Valley Bancorp Madison IN
SOBI Sobieski Bancorp, Inc. South Bend IN
UCBC Union Community Bancorp Crawfordsville IN
The companies in the Security Financial Peer Group are similar in size to
Security Financial, and operate in an economic, geographic, and demographic
environment that Howe Barnes deemed to be similar to the environment in which
Security Financial operates. Comparative financial statistics were reviewed and
particular attention was given to the one-year period leading up to the date of
the fairness opinion.
The financial performance and trading multiples used in comparing Security
Financial to the Security Financial Peer Group averages were:
PRICE TO
PRICE TO PRICE TO PRICE TO TANGIBLE
2001 EPS LTM EPS BOOK VALUE BOOK VALUE
(X) (X) (%) (%)
----------------- ------------------- -------------------- --------------------
High: 26.54 26.54 130.73 134.15
Low: 10.73 9.73 79.98 83.29
Mean: 16.20 15.58 96.18 99.04
Median: 14.41 14.41 93.36 95.07
Security Financial: 41.49 99.22 114.85 114.85
23
DISCOUNTED CASH FLOW ANALYSIS. Using discounted cash flow analysis, Howe
Barnes estimated the future dividend streams that Security Financial could
produce over the period from January 1, 2003 through December 31, 2007, assuming
annual asset growth rates and further assumed Security Financial performed in
accordance with recent historical trends and the future outlook of Security
Financial management. Howe Barnes calculated terminal values as a perpetuity
with an asset growth rate of 3.0%. The dividend streams and terminal value were
discounted to present values using discount rates that reflect different
assumptions regarding the required rates of return to holders and prospective
buyers of Security Financial common stock. Howe Barnes estimated a range of
terminal values by applying multiples to estimated fiscal year-end 2007 net
income. The range of terminal multiples was chosen based on past and current
trading multiples of institutions similar to Security Financial and past and
current multiples of comparable merger and acquisition transactions. The range
of present values of Security Financial resulting from this analysis was then
compared with the merger consideration.
LONG-TERM GROWTH TERMINAL MULTIPLES CALCULATED VALUES
GROWTH RATE DISCOUNT RATE RATE
------------------- ---------------------- ----------------- -------------------- --------------------
High: 5.00% 15.00% 3.00% 20x $45.0 million
Low: 3.00% 12.00% 3.00% 18x $41.1 million
The foregoing is a summary of the material financial analyses performed by
Howe Barnes and presented to the Security Financial board of directors, but does
not purport to be a complete description of the analyses performed by Howe
Barnes. The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Furthermore,
in arriving at its opinion, Howe Barnes did not attribute any particular weight
to any analysis or factor considered by it, but rather made qualitative
judgments as to the significance and relevance of each analysis and factor.
Selecting portions of the analyses or of the summary set forth above, without
considering the analyses as a whole, could create an incomplete view of the
processes underlying Howe Barnes' opinion. The ranges of valuations resulting
from any particular analysis described above should not be taken to be Howe
Barnes' view of the actual value of Standard Bancshares, or the current or
future trading price for Security Financial common stock.
In performing its analyses, Howe Barnes made numerous assumptions with
respect to industry performance, business and economic conditions and other
matters, many of which are beyond the control of Security Financial and Standard
Bancshares. The analyses performed by Howe Barnes are not necessarily indicative
of actual values of future results, which may be significantly more or less
favorable than suggested by such analyses. Such analyses were prepared solely as
part of Howe Barnes' analysis of the fairness of the merger consideration, from
a financial point of view, to the holders of Security Financial common stock.
The analyses do not purport to be appraisals or to reflect the prices at which a
company or its securities may actually be bought or sold.
Pursuant to the terms of a letter agreement dated March 1, 2002, Security
Financial agreed to pay Howe Barnes for its services in connection with the
merger, including the rendering of its opinion. Pursuant to its engagement of
Howe Barnes, Security Financial agreed to pay Howe Barnes a cash fee of $172,323
upon execution of the merger agreement and rendering of the fairness opinion and
$172,323 payable on the closing date, for advisory services rendered in
connection with reaching the merger agreement. In addition, Security Financial
agreed to indemnify Howe Barnes against certain liabilities arising out of its
engagement, including liabilities under the federal securities laws.
24
INTERESTS OF DIRECTORS AND OFFICERS IN THE MERGER THAT ARE DIFFERENT FROM YOUR
INTERESTS
Some members of Security Financial's management and board of directors may
have interests in the merger that are in addition to or different from the
interests of Security Financial stockholders. The Security Financial board of
directors was aware of these interests and considered them in approving the
merger agreement. Included below is a summary of some of the agreements and
benefit plans under which officers or directors participate and under which
benefits will be paid in accordance with the merger agreement.
LETTER OF UNDERSTANDING WITH JOHN P. HYLAND AND TERMINATION OF THE
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. In connection with the execution of the
merger agreement, John P. Hyland, President and Chief Executive Officer of
Security Financial and Security Federal, entered into a letter of understanding
with Standard Bancshares. Provisions in the letter of understanding provide for
the following, among other items:
o immediately after the effective time of the merger, John P. Hyland
will resign from all officer and director positions he holds with
Security Financial and any of its subsidiaries and his employment will
terminate;
o John P. Hyland will receive, at the effective time of the merger, a
payment not to exceed $146,080 in connection with the termination of
the Security Federal Bank & Trust Supplemental Executive Retirement
Plan which plan currently makes up for benefits lost under Security
Federal's tax qualified plans due to Internal Revenue Service
limitations and provides a supplemental employee stock ownership plan
benefit to participants in connection with a change in control of
Security Federal or Security Financial prior to the complete repayment
of the loan to the employee stock ownership plan (the merger will
constitute a change in control under the plan); and
o John P. Hyland's agreement to execute a non-competition agreement with
Standard Bancshares (as discussed below).
NON-COMPETITION AGREEMENT WITH JOHN P. HYLAND. Standard Bancshares
recognizes the need to obtain from John P. Hyland post-employment restrictive
covenants in order to realize the full value of the merger and to achieve its
anticipated operating results. Therefore, in connection with the execution of
the merger agreement, Standard Bancshares and John P. Hyland entered into a
non-competition agreement, effective at the effective time of the merger, to
ensure that John P. Hyland will not have the ability to use his local contacts
and experience to compete immediately with Standard Bancshares. The
non-competition agreement will have a six-month term and will provide for a lump
sum payment of $50,000 in consideration of John P. Hyland being subject to the
non-competition requirements.
LETTER OF UNDERSTANDING WITH PATRICK J. HUNT AND TERMINATION OF HIS
EMPLOYMENT AGREEMENT. In connection with the execution of the merger agreement,
Patrick J. Hunt, Executive Vice President and Chief Financial Officer of
Security Financial and Security Federal, entered into a letter of understanding
with Standard Bancshares. Provisions in the letter of understanding provide for
the following, among other items:
25
o immediately after the effective time of the merger, Patrick J. Hunt
will resign from all officer positions he holds with Security
Financial and any of its subsidiaries and his employment with Standard
Bancshares will be at-will; and
o Patrick J. Hunt will receive, at the effective time of the merger and
subject to applicable limits, a payment of no more than $273,964 from
Standard Bancshares and 24 months of continued insurance coverage in
connection with the termination of his employment agreement with
Security Federal which agreement currently provides him with a
severance payment and continuation of certain employee benefits
following a change in control of Security Financial or Security
Federal and the termination of his employment with Security Federal
(the merger will constitute a change in control under his employment
agreement).
In addition, Standard Bancshares has agreed that on the closing date of the
merger, Standard Bancshares will offer Patrick J. Hunt the position of Chief
Financial Officer of Standard Bancshares. Patrick J. Hunt will be paid a base
salary of $96,720 per year, and Standard Bancshares is expected to retain
Patrick J. Hunt at least until the date on which the systems' data conversion is
completed.
VESTING OF SECURITY FINANCIAL RESTRICTED STOCK. Directors, officers and
employees of Security Financial received restricted stock awards that vest
equally over a five-year period under the Security Financial Bancorp, Inc. 2000
Stock-Based Incentive Plan. Under the terms of the plan, all unvested restricted
stock awards immediately vest upon a change in control of Security Financial.
The merger will constitute a change in control of Security Financial under the
plan. As of April 25, 2003, the directors and executive officers of Security
Financial and Security Federal held a total of 48,107 shares of unvested
restricted stock, which will be converted into the right to receive the same
$24.00 per share merger consideration as all other shares of Security Financial
common stock. The following table reflects the number of shares of unvested
restricted stock held by directors and executive officers and the payment that
each will receive in exchange for their unvested shares of restricted stock.
NUMBER OF SHARES TOTAL PAYMENT
OF UNVESTED FOR UNVESTED
NAME RESTRICTED STOCK RESTRICTED STOCK
-------- ---------------------- ---------------------
Vincent Cainkar 800 $ 19,200
Howard O. Cyrus, Sr. 2,000 48,000
Sheila Donoghue 800 19,200
Dr. Peter Ferrini 2,600 62,400
John P. Hyland 15,507 372,168
Jay D. Johnson 800 19,200
Tula Kavadias 2,000 48,000
Richard J. Lashley 800 19,200
Robert L. Lauer 1,600 38,400
John Wm. Palmer 800 19,200
Philip T. Rueth 2,000 48,000
All executive officers who are not directors
(9) persons(1) 18,400 441,600
---------------------------------------------------
(1) Includes directors of Security Federal.
SECURITY FINANCIAL STOCK OPTIONS. Immediately prior to the closing of the
merger, all outstanding options to purchase shares of Security Financial common
stock will become immediately exercisable and vested, to the extent not already
exercisable and vested. At the closing of the merger, all options will be
cancelled and Security Financial will pay each holder an amount equal to the
excess of
26
the $24.00 per share merger consideration over the exercise price per
share of each option, net of any cash which must be withheld under federal and
state income and employment tax requirements. As of April 25, 2003, the
directors and executive officers of Security Financial and Security Federal held
options to purchase a total of 160,059 shares of Security Financial common stock
with a weighted average exercise price of $17.16. The following table reflects
for directors and officers the number of options that will vest as a result of
the merger, the number of options held by each and the payment that each will
receive in exchange for his or her options.
NAME NUMBER OF OPTIONS TOTAL TOTAL PAYMENT
VESTING AS A RESULT NUMBER FOR OPTIONS
OF THE MERGER OF OPTIONS
------- --------------------- ----------- ---------------------
Vincent Cainkar 4,652 5,815 $ 24,539
Howard O. Cyrus, Sr. 4,652 5,815 41,403
Sheila Donoghue 4,652 5,815 24,539
Dr. Peter Ferrini 4,652 5,815 41,403
John P. Hyland 38,768 48,461 345,042
Jay D. Johnson 4,652 5,815 24,539
Tula Kavadias 4,652 5,815 41,403
Richard J. Lashley 4,652 5,815 41,403
Robert L. Lauer 4,652 5,815 41,403
John Wm. Palmer 4,652 5,815 41,403
Philip T. Rueth 4,652 5,815 41,403
All executive officers who are not directors (9)
persons(1) 47,758 53,448 380,550
------------------------------------------------------
(1) Includes directors of Security Federal.
AMENDMENT TO EMPLOYEE SEVERANCE COMPENSATION PLAN. In connection with the
merger, Security Federal agreed to amend the Security Federal Bank & Trust
Employee Severance Compensation Plan in several respects. The amendment
generally provides that participants will receive a severance benefit under the
plan if they terminate employment within one year of a change in control for any
reason except the following:
o if the participant terminates employment by reason of death, voluntary
retirement, voluntary termination, disability, or termination for
cause;
o if the participant is on or commences a leave of absence or other
interruption of employment that does not constitute a termination of
employment;
o if the participant declines an offer to continue in his present
position or an offer to work in another similar position requiring
skills and knowledge similar to those required in his current position
and with the same or greater salary or rate of pay;
o if the participant declines an offer to work at another facility or
location that is not more than 35 miles from his current place of
employment and the offer is for a position that is the same as his
present position or a similar position requiring skills and knowledge
similar to those required in his current position and with the same or
greater salary or rate of pay and job responsibilities; or
o if the participant refuses to execute a general release of legal
claims.
27
MAINTENANCE OF AN ADVISORY BOARD. Standard Bank will maintain an advisory
board for the purpose of advising Standard Bank on the former Security Federal
operations. The advisory board will include certain members of the board of
directors of Security Federal. Each advisory board member will be paid a fee of
$500 for each meeting attended.
TERMINATION OF SECURITY FINANCIAL ESOP. Security Financial will terminate
its employee stock ownership plan upon completion of the merger. The plan will
repay its existing loan from Security Financial and will allocate the remaining
cash representing earnings on trust assets to the accounts of the plan
participants, including John P. Hyland and Patrick J. Hunt, in proportion to
their account balances, to the extent allowed under applicable law and the
governing documents of the plan.
PROTECTION OF SECURITY FINANCIAL DIRECTORS AND OFFICERS AGAINST CLAIMS.
Standard Bancshares has agreed to indemnify and hold harmless each present and
former director and officer of Security Financial and its subsidiaries for a
period of three years following consummation of the merger from liability and
expenses arising out of matters existing or occurring at or before the
consummation of the merger to the fullest extent that he or she would have been
entitled under Security Financial's, or the subsidiary's, certificate of
incorporation and bylaws. Standard Bancshares will advance any related costs to
each of these persons as they are incurred. Standard Bancshares will also
maintain a policy of directors' and officers' liability insurance coverage for
the benefit of Security Financial's directors and officers for three years
following consummation of the merger, subject to certain limitations on the
amount of premiums to be paid.
APPROVALS NEEDED TO COMPLETE THE MERGER
In addition to the approval of the merger agreement by the Security
Financial stockholders, completion of the merger and the transactions
contemplated by the merger agreement are subject to the prior approval of the
Federal Reserve Bank of Chicago, the Federal Deposit Insurance Corporation and
the State of Illinois. In reviewing applications, the Federal Reserve Bank of
Chicago, the Federal Deposit Insurance Corporation, and the State of Illinois
must consider, among other factors, the financial and managerial resources and
future prospects of the existing and resulting institutions, and the convenience
and needs of the communities to be served. In addition, the Federal Reserve Bank
of Chicago, the Federal Deposit Insurance Corporation and the State of Illinois
may not approve a transaction if it will result in a monopoly or otherwise be
anti-competitive. Standard Bancshares filed an application with the Federal
Reserve Bank of Chicago on March 14, 2003, with the Federal Deposit Insurance
Corporation on March 14, 2003, and with the State of Illinois on March 14, 2003.
In addition, Security Federal must give notice of the proposed merger with
Standard Bank to the Office of Thrift Supervision before the merger occurs. This
notice has been given.
Under the Community Reinvestment Act of 1977, the Federal Deposit Insurance
Corporation and the State of Illinois must take into account the record of
performance of Security Federal and Standard Bank in meeting the credit needs of
the entire community, including low and moderate-income neighborhoods, served by
each institution. As part of the review process, bank regulatory agencies may
receive comments and protests from community groups and others. Security Federal
and Standard Bank each received a "satisfactory" rating during their respective
last Community Reinvestment Act examinations.
In addition, a period of 15 to 30 days must expire following approval by
the Federal Deposit Insurance Corporation and the Federal Reserve Bank of
Chicago within which period the United States Department of Justice may file
objections to the merger under the federal anti-trust laws. While the parties to
the merger agreement believe that the likelihood of such action by the
Department of Justice is
28
remote in this case, there can be no assurance that the Department of Justice
will not initiate proceedings to block the merger. If such proceeding is
instituted or challenge is made, the parties to the merger agreement cannot
ensure a favorable result.
The merger cannot proceed in the absence of the requisite regulatory
approvals. See "THE MERGER AGREEMENT--CONDITIONS TO COMPLETING THE MERGER" AND
"THE MERGER AGREEMENT -- OTHER PROVISIONS OF THE MERGER AGREEMENT --TERMINATING
THE MERGER AGREEMENT." There can be no assurance that the requisite regulatory
approvals will be obtained, and if obtained, there can be no assurance as to the
date of any approval. There can also be no assurance that any regulatory
approvals will not contain a condition or requirement that causes the approvals
to fail to satisfy the conditions set forth in the merger agreement and
described under "THE MERGER AGREEMENT--CONDITIONS TO COMPLETING THE MERGER."
The approval of any application merely implies the satisfaction of
regulatory criteria for approval that does not include review of the merger from
the standpoint of the adequacy of the consideration to be received by Security
Financial stockholders. Furthermore, regulatory approvals do not constitute an
endorsement or recommendation of the merger.
FINANCING THE MERGER
The total amount of funds required to consummate the merger and to pay
Standard Bancshares' related fees and expenses is estimated to be approximately
$45 million. The funds Standard Bancshares will use to satisfy its obligations
will be obtained from: (1) a capital distribution from Standard Bank to Standard
Bancshares; (2) funds borrowed by Standard Bancshares from a commercial bank;
and (3) cash on hand. The merger is not conditioned on any financing
arrangements.
ACCOUNTING TREATMENT OF THE MERGER
The merger will be accounted for under the purchase method of accounting.
Under this method of accounting, Standard Bancshares and Security Financial will
be treated as one company as of the date of the merger, and Standard Bancshares
will record the fair value of Security Financial's assets (including intangible
assets which arise from either contractual or other legal rights or are
separable) and liabilities on its consolidated financial statements. Acquisition
costs in excess of the fair value of the net assets acquired will be recorded as
goodwill. Goodwill will not be amortized for financial accounting purposes, but
instead will be tested for impairment annually. Security Financial's results of
operations will be included in Standard Bancshares's consolidated income
statement after completion of the merger.
DISSENTERS' APPRAISAL RIGHTS
Under Delaware law, if you both properly make a demand for appraisal in
writing prior to the vote taken at the special meeting and you do not vote in
favor of the merger, you have the right to seek an appraisal of the fair value
of your Security Financial common stock and receive a cash payment of such fair
value. SECURITY FINANCIAL STOCKHOLDERS ELECTING TO EXERCISE DISSENTERS'
APPRAISAL RIGHTS MUST COMPLY WITH THE PROVISIONS OF SECTION 262 OF THE DELAWARE
GENERAL CORPORATION LAW IN ORDER TO PERFECT THEIR RIGHTS. SECURITY FINANCIAL
WILL REQUIRE STRICT COMPLIANCE WITH THE STATUTORY PROCEDURES. A copy of Section
262 of the Delaware General Corporation Law is attached as Appendix C.
The following is intended as a brief summary of the material provisions of
the Delaware statutory procedures required to be followed by a stockholder in
order to dissent from the merger and perfect the stockholder's appraisal rights.
This summary, however, is not a complete statement of all
29
applicable requirements and is qualified in its entirety by reference to Section
262 of the Delaware General Corporation Law, the full text of which appears in
Appendix C of this proxy statement.
Section 262 requires that stockholders be notified not less than 20 days
before the special meeting to vote on the merger that appraisal rights will be
available. A copy of Section 262 must be included with such notice. This proxy
statement constitutes Security Financial's notice to its stockholders of the
availability of appraisal rights in connection with the merger in compliance
with the requirements of Section 262. If you wish to consider exercising your
appraisal rights you should carefully review the text of Section 262 contained
in Appendix C because failure to timely and properly comply with the
requirements of Section 262 will result in the loss of your appraisal rights
under Delaware law.
If you elect to exercise your appraisal rights and demand appraisal of your
shares, you must satisfy each of the following conditions:
o YOU MUST DELIVER TO SECURITY FINANCIAL A WRITTEN DEMAND FOR APPRAISAL
OF YOUR SHARES BEFORE THE STOCKHOLDER VOTE ON THE MERGER IS TAKEN.
This written demand for appraisal must be in addition to and separate
from any abstention from or vote against the merger, whether by proxy
or in person. Voting against or failing to vote for the merger by
itself does not constitute a demand for appraisal within the meaning
of Section 262.
o YOU MUST NOT VOTE IN FAVOR OF THE MERGER. An abstention or failure to
vote will satisfy this requirement, but a vote in favor of the merger,
by proxy or in person, will constitute a waiver of your appraisal
rights in respect of the shares so voted and will nullify any
previously filed written demands for appraisal.
o YOU MUST CONTINUOUSLY BE THE RECORD HOLDER OF YOUR SHARES FROM THE
DATE OF MAKING THE DEMAND FOR APPRAISAL THROUGH THE EFFECTIVE TIME OF
THE MERGER.
o YOU MUST OTHERWISE COMPLY WITH THE STATUTORY REQUIREMENTS OF SECTION
262.
If you fail to comply with any of these conditions and the merger is
completed, you will be entitled to receive payment for your shares of Security
Financial common stock as provided for in the merger agreement, but you will
have no appraisal rights with respect to your shares of Security Financial
common stock.
All demands for appraisal should be addressed to the Corporate Secretary,
Security Financial Bancorp, Inc., 9321 Wicker Avenue, St. John, Indiana 46373,
before the vote on the merger is taken at the special meeting. Any demand should
be executed by or on behalf of the record holder of the shares of Security
Financial common stock. The demand must reasonably inform Security Financial of
the identity of the stockholder and the intention of the stockholder to demand
appraisal of his or her shares.
TO BE EFFECTIVE, A DEMAND FOR APPRAISAL BY A HOLDER OF SECURITY FINANCIAL
COMMON STOCK MUST BE MADE BY OR IN THE NAME OF SUCH REGISTERED STOCKHOLDER. A
DEMAND CANNOT BE MADE BY THE BENEFICIAL OWNER IF HE OR SHE DOES NOT ALSO HOLD
THE SHARES OF RECORD. THE BENEFICIAL HOLDER MUST, IN SUCH CASES, HAVE THE
REGISTERED OWNER SUBMIT THE REQUIRED DEMAND IN RESPECT OF SUCH SHARES. IF YOU
HOLD YOUR SHARES OF SECURITY FINANCIAL COMMON STOCK IN A BROKERAGE ACCOUNT OR IN
OTHER NOMINEE
30
FORM AND YOU WISH TO EXERCISE APPRAISAL RIGHTS, YOU SHOULD CONSULT WITH YOUR
BROKER OR OTHER NOMINEE TO DETERMINE THE APPROPRIATE PROCEDURES FOR THE MAKING
OF A DEMAND FOR APPRAISAL BY SUCH NOMINEE.
If shares are owned of record by a fiduciary, such as a trustee, guardian
or custodian, execution of a demand for appraisal should be made by the record
owner in its fiduciary capacity. If the shares are owned of record by more than
one person, as in a joint tenancy or tenancy in common, the demand should be
executed by or for all joint owners. An authorized agent, including one for two
or more joint owners, may execute the demand for appraisal for a stockholder of
record; however, the agent must identify the record owner or owners and
expressly disclose the fact that, in executing the demand, he or she is acting
as agent for the record owner. A record owner, such as a broker, who holds
shares as a nominee for others may exercise his or her right of appraisal with
respect to the shares held for one or more beneficial owners, while not
exercising this right for other beneficial owners. In such case, the written
demand should state the number of shares as to which appraisal is sought. Where
no number of shares is expressly mentioned, the demand will be presumed to cover
all shares held in the name of such record owner.
Within 10 days after the effective date of the merger, Standard Bancshares
must give written notice to each Security Financial stockholder who has properly
filed a written demand for appraisal and who did not vote in favor of the merger
that the merger has become effective. Within 120 days after the effective date,
either Standard Bancshares or any stockholder who has complied with the
requirements of Section 262 and is otherwise entitled to appraisal rights may
file a petition in the Delaware Court of Chancery demanding a determination of
the fair value of the shares held by all stockholders entitled to appraisal.
Standard Bancshares does not presently intend to file this petition in the event
there are such stockholders and has no obligation to do so. Accordingly, the
failure of a stockholder to file a petition under Section 262 within the period
specified could nullify such stockholder's previously written demand for
appraisal.
Within 120 days after the effective date of the merger, any Security
Financial stockholder who has complied with the requirements of Section 262 is
entitled to receive upon written request to Standard Bancshares a written
statement from Standard Bancshares that sets forth the aggregate number of
shares not voted in favor of the merger and for which demands for appraisal have
been received and the aggregate number of stockholders that made demands for
appraisal. The Standard Bancshares statement must be mailed to the stockholder
within 10 days after Standard Bancshares received the stockholders' written
request or the expiration of the time period for delivery of demands for
appraisals, whichever is later.
At any time within 60 days after the effective date, any stockholder who
has demanded an appraisal has the right to withdraw the demand and to accept the
payment specified by the merger agreement for his or her shares of Security
Financial common stock. If a petition for appraisal is duly filed by a
stockholder and a copy of the petition is delivered to Standard Bancshares,
Standard Bancshares will then be obligated within 20 days after receiving
service of a copy of the petition to provide the Chancery Court with a duly
verified list containing the names and addresses of all stockholders who have
demanded an appraisal of their shares and with whom agreements as to the value
of their shares have not been reached. After notice to the stockholders named on
such list, the Chancery Court is empowered to conduct a hearing upon the
petition, to determine those stockholders who have complied with Section 262 and
who have become entitled to appraisal rights. The Chancery Court may require the
stockholders who have demanded payment for their shares to submit their stock
certificates to the Register in Chancery for notation on the stock certificates
of the pendency of the appraisal
31
proceedings; and if any stockholder fails to comply with such direction, the
Chancery Court may dismiss the proceedings as to such stockholder.
After determination of the stockholders entitled to appraisal of their
shares of Security Financial common stock, the Chancery Court will appraise the
shares, determining their fair value exclusive of any element of value arising
from the accomplishment or expectation of the merger, together with a fair rate
of interest. When the fair value is determined, the Chancery Court will direct
the payment of such value, with interest thereon accrued during the pendency of
the proceeding if the Chancery Court so determines, to the stockholders entitled
to receive payment, upon surrender by such holders of the certificates
representing the shares entitled to appraisal.
In determining fair value, the Chancery Court is required to take into
account all relevant factors. You should be aware that the fair value of your
shares as determined under Section 262 could be more, the same, or less than the
value that you are entitled to receive pursuant to the merger agreement.
Costs of the appraisal proceeding may be imposed upon Standard Bancshares
and the stockholders participating in the appraisal proceeding by the Chancery
Court as the Chancery Court deems equitable in the circumstances. Upon the
application of a stockholder, the Chancery Court may order all or a portion of
the expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorneys' fees and the
fees and expenses of experts, to be charged pro rata against the value of all
shares entitled to appraisal. Any stockholder who had demanded appraisal rights
will not, after the effective date of the merger, be entitled to vote shares
subject to such demand for any purpose or to receive payments of dividends or
any other distribution with respect to such shares (other than with respect to
payment as of a record date prior to the effective date of the merger); however,
if no petition for appraisal is filed within 120 days after the effective date,
or if the stockholder delivers a written withdrawal of his or her demand for
appraisal and an acceptance of the merger within 60 days after the effective
date of the merger, then the right of the stockholder to appraisal will cease
and the stockholder will be entitled to receive the cash payment for shares of
his or her Security Financial common stock pursuant to the merger agreement. Any
withdrawal of a demand for appraisal made more than 60 days after the effective
date of the merger may only be made with the written approval of the surviving
corporation and must, to be effective, be made within 120 days after the
effective date of the merger.
In view of the complexity of Section 262, Security Financial stockholders
who may wish to dissent from the merger and pursue appraisal rights should
consult their legal advisors.
THE MERGER AGREEMENT
THE FOLLOWING DISCUSSION OF THE MERGER IS QUALIFIED BY REFERENCE TO THE
MERGER AGREEMENT, WHICH IS ATTACHED TO THIS PROXY STATEMENT AS APPENDIX A. YOU
SHOULD READ THE ENTIRE MERGER AGREEMENT CAREFULLY. IT IS THE LEGAL DOCUMENT THAT
GOVERNS THE MERGER.
WHEN WILL THE MERGER BE COMPLETED
The closing of the merger will take place on a date designated by Standard
Bancshares and Security Financial that is no later than the fifth business day
of the month following the month in which all of the conditions to the merger
contained in the merger agreement are satisfied or waived. See "--CONDITIONS TO
COMPLETING THE MERGER." On the closing date, Standard Bancshares will file a
certificate of merger with the Secretary of State of the State of Delaware. The
merger will become effective at the time stated in the certificate of merger.
32
Security Financial and Standard Bancshares expect to complete the merger in
the second calendar quarter of 2003. However, neither Security Financial nor
Standard Bancshares can guarantee when or if the required regulatory approvals
will be obtained. See "THE MERGER--APPROVALS NEEDED TO COMPLETE THE MERGER."
Furthermore, either Security Financial or Standard Bancshares may terminate the
merger agreement if, among other reasons, the merger has not been completed on
or before September 30, 2003, unless failure to complete the merger by that time
is due to the failure of the party seeking to terminate the agreement to perform
its obligations set forth in the merger agreement. See "--OTHER PROVISIONS OF
THE MERGER AGREEMENT--TERMINATING THE MERGER AGREEMENT."
CONDITIONS TO COMPLETING THE MERGER
The respective obligations of Security Financial and Standard Bancshares to
effect the merger are subject to the satisfaction or waiver of the following
conditions specified in the merger agreement:
o no preliminary or permanent injunction or other order by any federal
or state court that prevents the consummation of the merger shall have
been issued and shall remain in effect. No statute, rule or regulation
shall have been enacted, promulgated or enforced by any applicable
governmental authority that prohibits or makes illegal consummation of
the merger;
o the agreement shall have been duly approved by the requisite vote of
the stockholders of Security Financial;
o Standard Bancshares shall have received the regulatory approvals to
acquire Security Financial and to consummate the merger and all
required waiting periods shall have expired; provided, however, that
Standard Bancshares shall have no obligation to accept nonstandard
conditions or restrictions in the regulatory approvals;
o the other party having performed in all material respects its
obligations under the merger agreement, the other party's
representations and warranties being true and correct as of the date
of the merger agreement and as of the closing date, and receipt of a
certificate signed by the other party's president to that effect; and
o the other party shall have delivered all of the certificates,
documents and other items set forth in the merger agreement, including
legal opinions from counsel.
The obligation of Standard Bancshares to complete the merger is also
conditioned on the following:
o there shall not have been any action taken, or any applicable law or
regulation enacted, promulgated or issued which would prohibit
Standard Bancshares' ownership or operation of all or a material
portion of Security Financial's business or assets, which would compel
Standard Bancshares to dispose of or hold separate all or a material
portion of Security Financial's business or assets or which would
render Standard Bancshares or Security Financial unable to consummate
any aspect of the merger;
o Security Financial must obtain any required consent or waiver of the
other party to any material lease, license, loan or financing
agreement or other contract or agreement to which Security Financial
or any of its subsidiaries is a party, unless the failure to obtain
such consent or waiver would not have a material adverse effect on
Security Financial;
33
o no action, suit, proceeding or claim shall have been (i) instituted or
made by any person, or (ii) threatened by any person, in each case
relating to the merger or the validity or propriety of any aspect of
the merger that would materially and adversely affect the consummation
of the merger in the reasonable opinion of Standard Bancshares;
o the aggregate number of shares of Security Financial common stock held
by any person who properly exercises any appraisal rights under
Delaware law with respect to those shares shall not exceed 10% of the
outstanding shares of Security Financial common stock at the effective
time;
o Security Financial's adjusted stockholders' equity for each of the 10
business days immediately preceding the closing date shall be not less
than the sum of (i) $36,145,000 plus (ii) the aggregate consideration
received by Security Financial in connection with the exercise of
Security Financial stock options plus (iii) any tax benefit reflected
in Security Financial's consolidated stockholders' equity related to
the exercise of Security Financial stock options prior to the
effective time plus (iv) the positive difference, if any, between (A)
an amount equal to 1.25% of the average aggregate outstanding
principal amount of Security Financial's loans during such period and
(B) the average amount of the allowance for loan and lease losses of
Security Federal during such period, as approved by the certified
public accountants selected by Standard Bancshares;
o John P. Hyland and Patrick J. Hunt shall have complied with the terms
of their respective letters of understanding with Standard Bancshares;
o from the date of the merger agreement to the effective time, there
shall be and have been no change that would have or would reasonably
be expected to have a material adverse effect on Security Financial
from that which was represented and warranted on the date of the
merger agreement;
o all parties to voting agreements shall have fully performed their
obligations under the voting agreements;
o immediately prior to the effective time, (i) the total outstanding
demand, NOW, savings and money market deposits of Security Federal
shall not be less than $67,500,000; and (ii) the total deposits of
Security Federal shall be not less than $141,500,000; and
o Standard Bancshares shall have received written evidence, in form and
substance acceptable to Standard Bancshares in its sole discretion,
reflecting that Security Financial shall have no outstanding unpaid,
unaccrued, or unrecorded liabilities, except for liabilities and
expenses that have reduced adjusted stockholder's equity.
Notwithstanding anything to the contrary in the immediately preceding
sentence, Security Financial shall have paid in full all of Security
Financial's transactional expenses relating to the merger.
The obligation of Security Financial to complete the merger is also
conditioned on Standard Bancshares depositing with the paying agent a sufficient
amount of cash to pay the aggregate merger consideration.
34
You can find the details of the conditions to the merger in Article VIII of
the merger agreement located in Appendix A. Neither party to the merger
agreement can guarantee that all of these conditions will be satisfied or
waived.
OTHER PROVISIONS OF THE MERGER AGREEMENT
Although the completion of the merger requires stockholder approval, many
provisions of the merger agreement became effective immediately upon its
signing. Your vote was not required to make these provisions binding obligations
of Standard Bancshares and Security Financial.
REPRESENTATIONS AND WARRANTIES. Standard Bancshares and Security Financial
have made certain customary representations and warranties to each other in the
merger agreement relating to each party's business. Each party's representations
and warranties must be true and correct upon both signing of the merger
agreement and the completion of the merger. A party can terminate the merger
agreement if the other party's representations and warranties are not true and
correct resulting in a material adverse effect on that other party. If the
merger is completed, or if the merger agreement is terminated for some unrelated
reason, the representations and warranties become void. You can find details of
these obligations in Articles III and IV of the merger agreement located in
Appendix A.
COOPERATION AND CONDUCT OF BUSINESS; AGREEMENT NOT TO SOLICIT OTHER
PROPOSALS. Each party has agreed to cooperate in completing the merger and
Security Financial has agreed to avoid extraordinary transactions between the
signing of the merger agreement and the completion of the merger. You can find
details of these obligations in Article V of the merger agreement located in
Appendix A.
In addition, Security Financial has agreed not to initiate, solicit,
encourage or facilitate any competing proposal with a third party. A competing
proposal includes the following:
o any merger, consolidation or other similar transaction with Security
Financial or one of its significant subsidiaries;
o a purchase, lease or other acquisition of all or substantially all of
the assets of Security Financial or one of its significant
subsidiaries;
o a purchase or acquisition which would cause a person or group to
become the beneficial owner of 15% or more of common stock of Security
Financial;
o any tender or exchange offer to acquire 15% or more of the common
stock of Security Financial;
o a public proxy or consent solicitation made to stockholders of
Security Financial seeking proxies in opposition to the proposal set
forth in this proxy statement to approve the merger agreement; and
o a bona fide proposal to Security Financial or its stockholders, by
public announcement or written communication, that is or becomes the
subject of public disclosure, to engage in any of the foregoing.
Despite the agreement not to solicit other competing proposals, the board
of directors of Security Financial may, at any time prior to stockholder
approval of the merger, generally negotiate or have
35
discussions with, or provide information to, a third party who makes an
unsolicited proposal, provided that the board of directors:
o determines in good faith, based on advice of legal counsel, that
failure to provide such information or to participate in such
negotiations or discussions would likely be inconsistent with its
fiduciary duties to Security Financial stockholders; and
o provides Standard Bancshares with at least two business days' written
notice of its intention to provide such information or to participate
in such negotiations or discussions.
EMPLOYEE MATTERS. Each person who is an employee of Security Financial or
Security Federal as of the closing of the merger (whose employment is not
specifically terminated upon the closing) will become an employee of Standard
Bank. Standard Bank will make available employee benefit and health insurance
plans to each continuing employee on the same basis that it provides such plans
to Standard Bank employees. Security Financial and Security Federal employees
will be treated as new employees for purposes of Standard Bank's employee
benefit and health insurance plans; provided, however, that continuing employees
will receive credit for service with Security Financial or Security Federal for
purposes of vesting and determination of eligibility to participate in Standard
Bank's employee benefit plans, but not for purposes of accrual of benefits. By
virtue of the merger, Standard Bancshares will assume the vested benefits or
other vested amounts earned or accrued under Security Financial or Security
Federal employee benefit plans.
CHANGING THE TERMS OF THE MERGER AGREEMENT. Before the completion of the
merger, Security Financial and Standard Bancshares may agree to waive, amend or
modify any provision of the merger agreement. However, after the vote by
Security Financial stockholders, Security Financial and Standard Bancshares can
make no amendment or modification that would reduce the amount or alter the kind
of consideration to be received by Security Financial's stockholders under the
terms of the merger agreement without further approval of Security Financial's
stockholders.
TERMINATING THE MERGER AGREEMENT. Security Financial and Standard
Bancshares may agree at any time not to complete the merger, even if Security
Financial stockholders have approved the merger agreement. In addition, either
Security Financial or Standard Bancshares may decide, without the consent of the
other, to terminate the merger agreement:
o if any of the closing conditions are impossible to satisfy prior to
September 30, 2003 (unless the impossibility is due to the action or
failure to act in breach of the merger agreement by the party seeking
to terminate the merger agreement);
o if the stockholders of Security Financial fail to approve the merger;
o in the event the other party's breach of any representation or
warranty or breach of any covenant or agreement contained in the
merger agreement results in the failure to satisfy the party's closing
conditions; or
o if the merger is not consummated by September 30, 2003 (unless the
failure to consummate by September 30, 2003 is due to the failure of
the party seeking to terminate to perform its obligations under the
merger agreement).
36
Security Financial may also terminate the merger agreement if each of the
following conditions is met:
o Security Financial has complied with its obligations under the merger
agreement regarding competing proposals;
o Security Financial's board of directors has determined, in its good
faith judgment and in accordance with its obligations under the merger
agreement regarding competing proposals, that it has received a
superior proposal and that it would be in the best interest of
Security Financial's stockholders to pursue such superior proposal;
and
o Security Financial has tendered, in immediately available funds, the
required termination fee;
provided, however, Security Financial may not terminate the merger agreement
until five business days after the superior proposal has been delivered to
Standard Bancshares, together with a summary of the terms of the superior
proposal and such other information required under its obligations under the
merger agreement regarding competing proposals.
Standard Bancshares may also terminate the merger agreement if, after the
date of the merger agreement, any third party has commenced or made a competing
acquisition proposal, and thereafter the board of directors of Security
Financial withdraws, or materially and adversely modifies or changes its
recommendation of the merger agreement.
TERMINATION FEE. The merger agreement requires Security Financial to pay
Standard Bancshares a fee of $2.0 million if Security Financial terminates the
merger agreement in pursuing a superior proposal or if Standard Bancshares
terminates the merger agreement as a result of Security Financial's board of
directors' withdrawal or material and adverse modification or change in its
recommendation of the merger agreement or any aspect of the merger after receipt
of a competing proposal.
In addition, Security Financial must pay Standard Bancshares a termination
fee of $250,000 if Standard Bancshares terminates the merger agreement as a
result of:
o Security Financial's inability to satisfy any of its closing
conditions; or
o Security Financial's stockholders not voting in favor of the merger;
provided, however, that this fee will not be paid if the merger agreement is
terminated by Standard Bancshares solely because dissenting shares exceed 10% of
outstanding shares of Security Financial and dissenting shares do not exceed 15%
of outstanding shares of Security Financial at the effective time.
In addition, unless Security Financial has already paid the $2.0 million
termination fee set forth above, Security Financial must pay Standard Bancshares
a termination fee of $2.0 million if Security Financial receives a competing
proposal prior to termination of the merger agreement and enters into an
acquisition agreement with another party within 18 months after the merger
agreement is terminated for any reason other than:
o by mutual agreement;
37
o Security Financial terminating the merger agreement because Standard
Bancshares breaches a closing condition; or
o Standard Bancshares terminating the merger agreement because there is
a threatened action, suit or proceeding that would materially and
adversely affect the consummation of the merger in the reasonable
opinion of Standard Bancshares, there is an injunction preventing the
consummation of the merger, or regulatory approvals are not obtained.
In addition, Standard Bancshares must pay Security Financial a termination
fee of $250,000 if Security Financial terminates the merger agreement as a
result of:
o Standard Bancshares' inability to satisfy any of its closing
conditions; or
o Standard Bancshares not having received regulatory approval of the
merger.
EXPENSES. Except as described above, all costs and expenses in connection
with the merger will be paid by the party incurring the expense.
STOCK OWNERSHIP
The following table sets forth certain information with respect to
beneficial ownership of Security Financial's common stock, as of April 25, 2003,
for:
o each person known to Security Financial to beneficially own more than
5% of its common stock;
o each of the Security Financial's directors;
o each of the Security Financial's executive officers who received
salary and bonus in excess of $100,000 in the year ended June 30,
2002; and
o all of the Security Financial's and Security Federal's directors and
executive officers as a group.
38
A person may be considered to beneficially own any shares of stock over
which he or she has, directly or indirectly, sole or shared voting or investing
power. Unless otherwise indicated, each of the named individuals has sole voting
power and sole investment power with respect to the number of shares shown.
NUMBER OF SHARES
THAT MAY BE
NUMBER OF ACQUIRED WITHIN
NAME (AND ADDRESS OF PERSONS SHARES OWNED 60 DAYS BY PERCENT OF COMMON
OWNING MORE THAN 5%) (EXCLUDING OPTIONS) EXERCISING OPTIONS STOCK OUTSTANDING(1)
- ----------------------------------------- ----------------------- ---------------------- ------------------------
DIRECTORS, EXECUTIVE OFFICERS AND
OTHER AFFILIATED PERSONS:
Vincent Cainkar..................... 5,500(2) 1,163 *
Howard O. Cyrus, Sr................. 3,500(3) 1,163 *
Sheila Donoghue..................... 2,100(4) 1,163 *
Dr. Peter Ferrini................... 40,450(5) 1,163 2.2
Patrick J. Hunt..................... 3,077(6) 1,200 *
John P. Hyland...................... 26,901(7) 9,693 2.0
Jay D. Johnson...................... 6,100(8) 1,163 *
Tula Kavadias....................... 4,700(9) 1,163 *
Richard J. Lashley.................. 167,900(10) 1,163 9.1
20 East Jefferson Avenue
Suite 22
Naperville, Illinois 60540
Robert L. Lauer..................... 6,968(11) 1,163 *
John Wm. Palmer..................... 168,000(10) 1,163 9.1
20 East Jefferson Avenue
Suite 22
Naperville, Illinois 60540
Philip T. Rueth..................... 13,500(12) 1,163 *
Security Federal Bank & Trust
Employee Stock Ownership Plan....... 152,171(13) -- 8.2
9321 Wicker Avenue
St. John, Indiana 46373
All directors and executive officers
as a group (20 persons)............. 336,027(14) 32,013 19.4
NON-AFFILIATED PERSONS:
Paul J. Duggan...................... 167,394(15) -- 9.0
53 West Jackson Boulevard
Suite 400
Chicago, Illinois 60604
David M. W. Harvey.................. 115,000(16) -- 6.2
P.O. Box 3178
Gardnerville, Nevada 89410
39
* Less than 1% of shares outstanding.
(1) Based on 1,863,951 shares of Security Financial common stock outstanding
and entitled to vote as of April 25, 2003.
(2) Includes 800 unvested shares awarded under Security Financial's 2001
Stock-Based Incentive Plan for Mr. Cainkar as to which he has voting power
but not investment power. Also Mr. Cainkar is deemed to be the beneficial
owner of 4,400 shares held by Burbank Partners.
(3) Includes 2,000 unvested shares awarded under Security Financial's 2001
Stock-Based Incentive Plan for Mr. Cyrus as to which he has voting power
but not investment power.
(4) Includes 800 unvested shares awarded under Security Financial's 2001
Stock-Based Incentive Plan for Ms. Donoghue as to which she has voting
power but not investment power.
(5) Includes 2,600 unvested shares awarded under Security Financial's 2001
Stock-Based Incentive Plan for Mr. Ferrini as to which he has voting power
but not investment power.
(6) Includes 2,000 unvested shares awarded under Security Financial's 2001
Stock-Based Incentive Plan for Mr. Hunt as to which he has voting power but
not investment power. Also includes 577 shares allocated to Mr. Hunt under
the ESOP for which Mr. Hunt has voting power but not investment power.
(7) Includes 15,507 unvested shares awarded under Security Financial's 2001
Stock-Based Incentive Plan for Mr. Hyland as to which he has voting power
but not investment power. Also includes 2,950 shares allocated to Mr.
Hyland under the ESOP, for which Mr. Hyland has voting power but not
investment power.
(8) Includes 800 unvested shares awarded under Security Financial's 2001
Stock-Based Incentive Plan for Mr. Johnson as to which he has voting power
but not investment power. Also Mr. Johnson is deemed to be the beneficial
owner of 5,000 shares held by Aqua Fund, L.P.
(9) Includes 2,000 unvested shares awarded under Security Financial's 2001
Stock-Based Incentive Plan for Ms. Kavadias as to which she has voting
power but not investment power.
(10) Financial Edge Fund. L.P., Financial Edge - Strategic Fund, L.P., PL
Capital, LLC, John Wm. Palmer and Richard J. Lashley are deemed to be
beneficial owners of 166,900, 166,900, 166,900, 168,000 and 167,900 of
these shares, respectively. Based on information in a Schedule 13D,
Amendment No. 6, filed jointly on October 5, 2001 with the Securities and
Exchange Commission. Includes unvested shares awarded under Security
Financial's 2001 Stock-Based Incentive Plan for Messrs. Lashley and Palmer
as to which the holder has voting power but not investment power, as
follows: 800 shares and 800 shares, respectively. Also includes shares as
to which Messrs. Palmer and Lashley share voting and investment power held
by Financial Edge Fund. L.P. and Financial Edge - Strategic Fund, L.P. as
follows: 156,900 shares and 10,000, shares, respectively.
(11) Includes 1,600 unvested shares awarded under Security Financial's 2001
Stock-Based Incentive Plan for Mr. Lauer as to which he has voting power
but not investment power. Also includes 1,400 shares owned by Mr. Lauer's
spouse's trust and 915 shares held by Mr. Lauer as custodian for his son.
(12) Includes 2,000 unvested shares awarded under Security Financial's 2001
Stock-Based Incentive Plan for Mr. Rueth as to which he has voting power
but not investment power. Includes 5,000 shares owned by Mr. Rueth's
spouse's trust and 1,000 shares owned by Mr. Rueth's family trust.
(13) As of April 25, 2003, 28,109 shares had been allocated under the ESOP to
participants' accounts. See "VOTING AND PROXY PROCEDURES-PARTICIPANTS IN
SECURITY FEDERAL BANK & TRUST ESOP AND 401(k) PLAN" for a discussion of the
ESOP's voting procedures.
(14) Includes shares held by directors of Security Federal who are not also
directors of Security Financial. For purposes of avoiding double-counting,
excludes 166,900 shares beneficially owned by both Messrs. Palmer and
Lashley through Financial Edge Fund, L.P. and Financial Edge-Strategic
Fund, L.P.
(15) Paul J. Duggan, Jackson Boulevard Capital Management, Ltd., Jackson
Boulevard Equities, L.P., Jackson Financial Fund, L.P. and Jackson
Boulevard Partners are deemed to be beneficial owners of 167,394, 83,300,
67,100, 16,200 and 84,094 of these shares, respectively. Based on
information in a Schedule 13D, Amendment No. 4, filed jointly on February
13, 2003 with the Securities and Exchange Commission.
(16) Everest Partners Limited Partnership (d.b.a. Everest Partners, L.P.),
Everest Managers, L.L.C. and David M. W. Harvey are deemed to be beneficial
owners of 115,000, 115,000 and 115,000 of these shares, respectively. Based
on information in a Schedule 13D, Amendment No. 1, filed jointly on
November 27, 2000 with the Securities and Exchange Commission.
40
STOCKHOLDER PROPOSALS AND NOMINATIONS
Security Financial will hold an annual meeting for the year ending June 30,
2003, only if the merger is not anticipated to be completed during the 2003
calendar year. Proposals that stockholders seek to have included in the proxy
statement for Security Financial's next annual meeting, if one is held, must
have been received by Security Financial no later than August 20, 2003. If,
however, next year's annual meeting is held on a date more than 30 calendar days
from December 18, 2003, a stockholder proposal must be received by a reasonable
time before the proxy solicitation for such annual meeting is made. Any such
proposals will be subject to the requirements of the proxy rules adopted by the
Securities and Exchange Commission.
Security Financial's bylaws provide that in order for a stockholder to make
nominations for the election of directors or proposals for business to be
brought before the annual meeting, a stockholder must deliver notice of such
nominations and/or proposals to the Secretary of Security Financial not less
than 90 days before the date of the annual meeting; provided, however, that if
less than 100 days' notice of the annual meeting is given to stockholders, such
notice must be delivered not later than the close of the tenth day
following the day on which notice of the annual meeting was mailed to
stockholders or public disclosure of the meeting date was made. A copy of the
bylaws may be obtained from Security Financial.
SOLICITATION OF PROXIES
The cost of solicitation of proxies on behalf of the Board will be borne by
Security Financial. Proxies may be solicited personally or by telephone by
directors, officers and other employees of Security Financial and Security
Federal without any additional compensation. Security Financial will also
request persons, firms and corporations holding shares in their names, or in the
name of their nominees, which are beneficially owned by others, to send proxy
material to, and obtain proxies from, the beneficial owners, and will reimburse
those record holders for their reasonable expenses in doing so. Georgeson
Shareholder Communications, Inc., a proxy solicitation firm, will be paid a fee
of $5,000, plus out-of-pocket expenses, to assist Security Financial.
WHERE YOU CAN FIND MORE INFORMATION
As a public company, Security Financial is obligated to file annual,
quarterly and current reports, proxy statements and other information with the
SEC. You may read and copy any reports, statements or other information that we
file at the SEC's public reference rooms in Washington, D.C., New York, New
York, and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. In addition, Security Financial's
public filings are available to the public from commercial document retrieval
services and on the Internet World Wide Website maintained by the SEC at
"http://www.sec.gov."
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Philip T. Rueth
Philip T. Rueth
CORPORATE SECRETARY
St. John, Indiana
May 8, 2003
41
1
APPENDIX A
EXECUTION COPY
--------------
AGREEMENT AND PLAN OF REORGANIZATION
by and among
STANDARD BANCSHARES, INC.,
an Illinois corporation,
STANDARD ACQUISITION CORPORATION,
a Delaware corporation and a wholly owned subsidiary of
Standard Bancshares, Inc.,
and
SECURITY FINANCIAL BANCORP, INC.,
a Delaware corporation.
February 6, 2003
6
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (this "Agreement") is made and
entered into as of the 5th day of February, 2003, by and among STANDARD
BANCSHARES, INC., an Illinois corporation ("Purchaser"), STANDARD ACQUISITION
CORPORATION, a Delaware corporation and a wholly owned subsidiary of Purchaser
("MergerSub"), and SECURITY FINANCIAL BANCORP, INC., a Delaware corporation
("Bancorp").
R E C I T A L S:
- - - - - - - -
A. Purchaser is a registered bank holding company under the Bank
Holding Company Act of 1956, as amended.
B. Bancorp is a registered savings and loan holding company under the
Home Owners' Loan Act, as amended.
C. MergerSub is a Delaware corporation organized by Purchaser solely
for the purpose of facilitating the transactions contemplated herein.
D. The Boards of Directors of Purchaser, MergerSub and Bancorp deem it
advisable that MergerSub be merged with and into Bancorp in accordance with this
Agreement, which provides, among other things, that Bancorp shall be the
Surviving Corporation.
E. Purchaser currently anticipates that, at some time following the
Merger of MergerSub with and into Bancorp, Purchaser will cause Bancorp to be
dissolved and liquidated into Purchaser. In connection with such dissolution,
Purchaser will cause Security Federal Bank & Trust, a wholly owned subsidiary
of Bancorp, to be merged with and into Standard Bank and Trust Co., a
wholly owned subsidiary of Purchaser.
A G R E E M E N T S:
- - - - - - - - - -
In consideration of the representations, warranties, covenants and
agreements herein contained, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. In addition to capitalized terms otherwise defined
-----------
herein, as used in this Agreement the following capitalized terms shall have the
meanings provided in this Section 1.1:
-----------
"Adjusted Stockholders' Equity" shall mean the consolidated
stockholders' equity of Bancorp, calculated in accordance with GAAP and
reflecting, among other things, the recognition of or accrual for all expenses
paid, incurred or projected to be paid or incurred by Bancorp or Target Bank in
connection with this Agreement and the Reorganization, but adjusted to exclude
(i) any realized gains with respect to any sales of securities occurring after
1
7
June 30, 2002, (ii) with respect to securities that are or were classified as
available for sale or as trading securities, any change in the amount of the
adjustment required pursuant to SFAS 115 resulting from changes in unrealized
gains and losses occurring after June 30, 2002, (iii) any adjustments required
in connection with the consummation of the Reorganization pursuant to Section
-------
7.5(e) hereof and (iv) an amount that represents the payments, on an after-tax
- ------
basis, due to the Chief Executive Officer and Chief Financial Officer as a
result of the consummation of the Merger as set forth in their respective Letter
of Understanding (which amount, on a pre-tax basis, shall not exceed $394,028).
In addition, the amount paid by Bancorp in respect of the Option Spread pursuant
to Section 2.6 shall have no effect on the Adjusted Stockholders' Equity for any
-----------
purpose under this Agreement. Bancorp's Adjusted Stockholders' Equity shall be
calculated by Bancorp's independent certified public accountants as of the close
of business on the day immediately preceding the Closing Date, using reasonable
estimates of revenues and expenses where actual amounts are not available. Such
calculation shall be subject to verification and approval prior to the Closing
by certified public accountants selected by Purchaser, which approval shall not
be withheld unreasonably.
"Affiliate" of, or a Person "Affiliated" with, a specific Person is a
Person that directly or indirectly, through one or more intermediaries,
controls, or is controlled by, or is under common control with, the Person
specified.
"Aggregate Option Exercise Price" shall mean the aggregate
consideration, if any, received by Bancorp in connection with the exercise of
Bancorp Stock Options prior to the Effective Time.
"Applicable Governmental Authorities" shall mean, with respect to a
Person, the Regulatory Authorities and any other federal, state, county or local
governmental body, instrumentality, agency, board or official having authority
or jurisdiction to enforce any Applicable Law and Regulation.
"Applicable Law(s) and Regulation(s)" shall mean, with respect to a
Person, all statutes, laws, ordinances, regulations, rules and rulings, and all
published guidelines, interpretive letters, advisories or bulletins, of any
Applicable Governmental Authority that are applicable to or binding upon such
Person, the conduct of its business or any of its assets.
"Asset/Liability Management Policy" shall have the meaning given to
such term in Section 4.18(f) hereof.
---------------
"Bancorp" shall mean Security Financial Bancorp, Inc., a Delaware
corporation and the parent bank holding company for Target Bank.
"Bancorp Benefit Plans" shall mean the plans, programs, arrangements
and agreements described in Section 4.19(a) hereof.
---------------
"Bancorp Certificate" shall mean a stock certificate evidencing
ownership of shares of Bancorp Common Stock.
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"Bancorp Common Stock" shall have the meaning given to such term in
Section 4.5 hereof.
- -----------
"Bancorp Disclosure Schedule" shall mean the agreements, lists,
instruments and other documentation described or referred to in this Agreement
as being included in the Bancorp Disclosure Schedule. The inclusion of a fact,
circumstance or event in the Bancorp Disclosure Schedule shall not be deemed an
admission by Bancorp that such item represents a material exception or that such
item is reasonably likely to result in a Bancorp Material Adverse Effect.
Subject to the requirement that all disclosures made in the Bancorp Disclosure
Schedule include appropriate cross-references to the section(s) of this
Agreement to which such disclosure is responsive, any matter disclosed in the
Bancorp Disclosure Schedule pursuant to one section of this Article IV shall be
----------
deemed disclosed for all cross-referenced sections of Article IV.
----------
"Bancorp Financial Statements" shall have the meaning given to such
term in Section 4.10(a) hereof.
---------------
"Bancorp Material Adverse Effect" shall mean an effect that is or could
reasonably be expected to be material and adverse to the financial condition,
business, or results of operations of Bancorp, as the context may dictate, and
the Bancorp Subsidiaries, taken as a whole, or that would reasonably be expected
to materially affect the ability of Bancorp, Purchaser, MergerSub, the Bank or
Target Bank to consummate the Reorganization; provided, however, that none of
(i) any such effects resulting from any changes in any law, rule, regulation,
regulatory accounting principles or GAAP, or any interpretations thereof that
apply generally to financial institutions such as Purchaser, the Bank, Bancorp
and Target Bank, (ii) changes in economic conditions or financial market
conditions affecting the banking and thrift industries generally in the Seventh
Federal Reserve District except to the extent that the effect or change is
material and adverse when compared to the effect or change, if any, on other
banks, thrifts, bank holding companies and thrift holding companies in the
Seventh Federal Reserve District with assets greater than $200 million but less
than $500 million, or (iii) the direct out-of-pocket costs of compliance with
this Agreement on the results of Bancorp's operations shall be considered in
determining if a Bancorp Material Adverse Effect has occurred.
"Bancorp Permitted Liens" shall mean (i) liens arising out of judgments
or awards in respect of which Bancorp or any Bancorp Subsidiary is in good faith
prosecuting an appeal or proceedings for review and in respect of which it has
secured a subsisting stay of execution pending such appeal or proceedings; (ii)
liens for taxes, assessments, and other governmental charges or levies the
payment of which is not past due, or as to which Bancorp or any Bancorp
Subsidiary is diligently contesting in good faith and by appropriate proceedings
either the amount thereof or the liability therefor or both; (iii) deposits,
liens or pledges to secure payments of worker's compensation, unemployment
insurance, pensions, or other social security obligations, or the performance of
bids, tenders, leases, contracts (other than contracts for the payment of
money), public or statutory obligations, surety, stay or appeal bonds, or
similar obligations arising in the ordinary course of business; (iv) zoning
restrictions, easements, licenses and other restrictions on the use of real
property or any interest therein, or
3
9
minor irregularities in title thereto, that do not materially impair the use of
such property in the operation of the business of Bancorp or any Bancorp
Subsidiary or the merchantability or the value of such property or interest
therein for the purpose of such business; (v) purchase money mortgages or other
purchase money or vendor's liens or security interests (including, without
limitation, finance leases), provided that no such mortgage, lien or security
interest shall extend to or cover any other property of Bancorp or any Bancorp
Subsidiary other than that so purchased; and (vi) pledges and liens given to
secure deposits and other liabilities of Bancorp or any Bancorp Subsidiary
arising in the ordinary course of banking business;
"Bancorp Properties" shall mean (i) real estate owned or leased by
Bancorp or any Bancorp Subsidiary and used or formerly used in the conduct of
its business; (ii) the Target Bank REO; (iii) real estate that is in the process
of pending foreclosure or forfeiture proceedings conducted by Bancorp or any
Bancorp Subsidiary; (iv) real estate that is held in trust for others by Bancorp
or any Bancorp Subsidiary; (v) real estate owned or leased by a partnership or
joint venture in which Bancorp or any Bancorp Subsidiary has an ownership
interest; and (vi) any other real estate owned or leased by Bancorp or any
Bancorp Subsidiary.
"Bancorp Qualified Plans" shall have the meaning given to such term in
Section 4.19(b) hereof.
- ---------------
"Bancorp Regulatory Reports" shall have the meaning given to such term
in Section 4.8 hereof.
-----------
"Bancorp Restricted Stock" shall mean the 69,294 shares of Bancorp
Common Stock granted by Bancorp as restricted stock, under the Bancorp Stock
Option Plan or otherwise, prior to the date of this Agreement that are
outstanding.
"Bancorp SEC Reports" shall have the meaning given to such term in
Section 4.7 hereof.
- -----------
"Bancorp Stock Option Plan" shall mean the Security Financial Bancorp,
Inc. 2000 Stock-Based Incentive Plan, as amended, modified, supplemented or
restated from time to time.
"Bancorp Stock Options" shall mean the 178,159 stock options granted by
Bancorp, under the Bancorp Stock Option Plan or otherwise, prior to the date of
this Agreement that are outstanding.
"Bancorp Subsidiaries" shall mean Target Bank, Family Home Service
Corporation, Strategic Financial Corporation, The Boulevard Inc., and any
corporation and other entity that Bancorp directly or indirectly controls, or of
which Bancorp directly or indirectly owns or controls 5% or more of the
outstanding equity securities and any joint ventures in which Bancorp has an
equity interest; provided, however, there shall not be included any such entity
to the extent that the equity securities of such entity are owned or controlled
in a bona fide fiduciary capacity. The term "Bancorp Subsidiary" shall mean any
single subsidiary constituting one of the several Bancorp Subsidiaries.
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"Bancorp Transactional Expenses" shall mean all fees and expenses of
all attorneys, accountants, consultants, financial advisors and other
professional advisors of Bancorp and Target Bank, the costs of preparing,
printing and mailing of the Proxy Statement, the fees of the Paying Agent, and
all other costs and expenses incurred by Bancorp and Target Bank in connection
with this Agreement, the Reorganization and the other transactions contemplated
hereby.
"Bank" shall mean Standard Bank and Trust Co., an Illinois state
chartered non-member bank that is wholly owned by Purchaser, with its main
office located at Hickory Hills, Illinois.
"Bank Merger" shall mean the merger of Target Bank with and into Bank,
as described in Section 5.6 hereof, with Bank being the Surviving Bank.
-----------
"Bank Merger Agreement" shall have the meaning given to such term in
Section 5.6 hereof.
- -----------
"Best Efforts" shall mean commercially reasonable good faith efforts.
"BHCA" shall mean the Bank Holding Company Act of 1956, as amended.
"BIF" shall mean the Bank Insurance Fund administered by the FDIC.
"BMA" shall mean the Bank Merger Act, as amended.
"Business Day" shall mean any day other than a Saturday, a Sunday or
any other day that the Bank is authorized or required to be closed.
"Certificate of Merger" shall mean the certificate of merger to be
filed by Bancorp and MergerSub with the Secretary of State of the State of
Delaware pursuant to Section 2.2 hereof.
------------
"Change in Control Benefit" shall have the meaning given to such term
in Section 4.19(a) hereof.
---------------
"Closing" shall mean the actions required to consummate the
Reorganization which shall take place as provided in Article II hereof after the
----------
satisfaction or waiver of all of the conditions set forth in Article VIII
------------
hereof.
"Closing Date" shall mean the date the Closing occurs.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Competing Proposal" shall have the meaning given to such term in
Section 5.4(b) hereof.
- --------------
"Confidentiality Agreement" shall mean that agreement dated August 1,
2002, between Purchaser and Bancorp.
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"Deposit Schedule" shall have the meaning given to such term in Section
-------
4.27(i) hereof.
- -------
"DGCL" shall mean the Delaware General Corporation Law, as amended.
"Disclosure Schedule Related Breach" shall have the meaning given to
such term in Section 7.6(b) hereof.
--------------
"Disclosure Schedule Update" shall have the meaning given such term in
Section 7.6(b) hereof.
- --------------
"Disclosure Update Receipt Date" shall have the meaning given to such
term in Section 7.6(b) hereof.
--------------
"Dissenting Share" shall mean a share of Bancorp Common Stock held by
any Person who properly exercises (including timely perfection and timely
compliance with all other requirements under Section 262 of the DGCL) any
appraisal rights under the DGCL with respect to such share.
"DOL" shall mean the United States Department of Labor.
"Effective Time" shall mean the time at which the Certificate of Merger
relating to the Merger that will be filed pursuant to Section 2.2 hereof shall
-----------
become effective in accordance with the DGCL.
"Environmental Law(s)" shall mean any law, regulation, rule, ordinance
or similar requirement which governs or protects the environment enacted by the
United States, any state, or any county, city or agency or subdivision of the
United States or any state.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"ESOP" shall have the meaning given to such term in Section 4.19(h)
---------------
hereof.
"ESOP Loan" shall have the meaning given to such term in Section
-------
4.19(h) hereof.
- -------
"FDI Act" shall mean the Federal Deposit Insurance Act, as amended.
"FDIC" shall mean the Federal Deposit Insurance Corporation.
"Federal Reserve" shall mean the Board of Governors of the Federal
Reserve System.
"FIRF" shall mean the multiple-employer pension plan known as the
"Financial Institutions Retirement Fund" in which Bancorp has participated and
to which it has made contributions.
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12
"GAAP" shall mean generally accepted accounting principles as historically
applied on a consistent basis by Bancorp and Target Bank.
"Hazardous Material(s)" shall mean any material or substance: (i) which
is a "hazardous substance," "pollutant" or "contaminant," pursuant to the
Comprehensive Environmental Response Compensation and Liability Act ("CERCLA")
(42 U.S.C. 9601 et seq.), as amended, and regulations promulgated thereunder;
(ii) containing gasoline, oil, diesel fuel or other petroleum product; (iii)
which is "hazardous waste" pursuant to the Federal Resource Conservation and
Recovery Act ("RCRA") (42 U.S.C. Section 6901 et seq.), as amended, and
regulations promulgated thereunder; (iv) containing polychlorinated biphenyls
(PCBs); (v) containing asbestos; (vi) which is radioactive; (vii) the presence
of which requires investigation or remediation under any Environmental Law
(defined above); or (viii) which is defined or identified as a "hazardous
waste," "hazardous substance," "pollutant," "contaminant," or "biologically
Hazardous Material" under any Environmental Law.
"HOLA" shall mean the federal Home Owners' Loan Act, as amended.
"HSRA" shall mean the Hart-Scott-Rodino Antitrust Improvement Act of
1976, as amended.
"IBA" shall mean the Illinois Banking Act, as amended.
"Immediate Family" shall mean a Person's spouse and, if they reside
with such Person, parents and children.
"Indemnified Party" shall have the meaning given to such term in
Section 6.2(a) hereof.
- --------------
"Intellectual Property" shall have the meaning given to such term in
Section 4.27(f) hereof.
- ---------------
"Investment Securities" shall have the meaning given to such term in
Section 4.18(a) hereof.
- ---------------
"IRS" shall mean the Internal Revenue Service.
"Knowledge" or "to the Knowledge of" shall mean: (i) with respect to
Purchaser, actual knowledge of the members of the board of directors of
Purchaser (or any Purchaser Subsidiary) or any officer of Purchaser (or any
Purchaser Subsidiary) with the title of Senior Vice President or any more senior
title; and (ii) with respect to Bancorp, actual knowledge of the members of the
board of directors of Bancorp (or any Bancorp Subsidiary) or any officer of
Bancorp (or any Bancorp Subsidiary) with the title of President, CEO, Executive
Vice President, Vice President, Assistant Vice President Information Technology
or Trust Administrator.
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"Letter of Transmittal" shall have the meaning given to such term in
Section 2.5(c) hereof.
- --------------
"Letter of Understanding" shall have the meaning given to such term in
Section 7.4(c) hereof.
- --------------
"Liabilities" shall mean, with respect to a Person, all of the
obligations or liabilities of such Person, whether accrued, absolute,
contingent, unliquidated or otherwise, whether due or becoming due, and
regardless of when asserted, arising out of transactions or events heretofore
entered into, or any action or inaction, including taxes with respect to or
based upon transactions or events heretofore occurring, that are required to be
reflected, disclosed or reserved against in such Person's audited consolidated
financial statements in accordance with GAAP.
"Loan Loss Reserve Policy" shall have the meaning given to such term
in Section 4.17(h) hereof.
--------------
"Loan Policy" shall have the meaning given to such term in Section
-------
4.17(h) hereof.
- -------
"Loans" shall have the meaning given to such term in Section 4.17(a)
--------------
hereof.
"Mailing Date" shall have the meaning given to such term in Section
-------
5.2(e) hereof.
- ------
"Maximum Insurance Amount" shall have the meaning given to such term
in Section 6.2(c) hereof.
--------------
"Merger" shall mean the merger of MergerSub with and into Bancorp
pursuant to Article II hereof, which provides, among other things, that Bancorp
----------
shall be the surviving corporation.
"Merger Consideration" shall mean the right to receive $24.00 in cash
per share of Bancorp Common Stock, into which right all shares of Bancorp Common
Stock shall be converted in the Merger pursuant to Article II hereof. The
----------
aggregate Merger Consideration shall not exceed the sum of (i) $44,734,824, plus
(ii) an amount equal to the product of (a) $24.00 multiplied by (b) the number
of issued and outstanding shares of Bancorp Common Stock issued upon the
exercise of Bancorp Stock Options prior to the Effective Time.
"MergerSub" shall mean Standard Acquisition Corporation, a Delaware
corporation that is wholly owned by Purchaser and was organized by Purchaser
solely for the purpose of facilitating the Merger.
"Mortgaged Premises" shall mean each (i) real property interest
(including any fee or leasehold interest) that is encumbered or affected by any
mortgage, deed of trust, deed to secure debt or other similar document or
instrument granting to Bancorp or any Bancorp Subsidiary a lien on or security
interest in such real property interest, and (ii) any other real property
interest upon which is situated assets or other property affected or encumbered
by any
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document or instrument granting to Bancorp or any Bancorp Subsidiary a
lien thereon or security interest therein.
"NASD" shall mean the National Association of Securities Dealers.
"NASDAQ" shall mean the National Association of Securities Dealers
Automated Quotation system.
"Option Spread" shall have the meaning given to such term in Section
-------
2.4(c) hereof. The aggregate of the Option Spreads shall not exceed an amount
- ------
equal to the difference between (i) $1,217,902, less (ii) an amount equal to the
product of (a) the number of Bancorp Stock Options exercised prior to the
Effective Time, multiplied by (b) an amount equal to the difference between (1)
$24.00, less (2) the weighted average option exercise price of all Bancorp Stock
Options exercised prior to the Effective Time.
"OTS" shall mean the Office of Thrift Supervision.
"OTS Application" shall have the meaning given to such term in Section
-------
7.5(e) hereof.
- ------
"Paying Agent" shall mean Registrar and Transfer Company, as agent for
the purpose of effectuating the payment of the Merger Consideration in
accordance with Article II hereof.
----------
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"Person" shall mean any individual, corporation, limited liability
company, business trust, association, partnership, joint venture, other entity,
government or governmental department or agency.
"Proxy Statement" shall have the meaning given to such term in Section
-------
5.2(b) hereof.
- ------
"Purchaser" shall mean Standard Bancshares, Inc., an Illinois
corporation that is the bank holding company for the Bank.
"Purchaser Material Adverse Effect" shall mean an effect that is or
could reasonably be expected to be material and adverse to the financial
condition, business, or results of operations of Purchaser, as the context may
dictate, and the Purchaser Subsidiaries, taken as a whole, or that would
reasonably be expected to materially affect the ability of Bancorp, Purchaser,
MergerSub, the Bank or Target Bank to consummate the Reorganization; provided,
however, that none of (i) any such effects resulting from any changes in any
law, rule, regulation, regulatory accounting principles or GAAP, or any
interpretations thereof that apply generally to financial institutions such as
Purchaser, the Bank, Bancorp and Target Bank, (ii) changes in economic
conditions or financial market conditions affecting the banking and thrift
industries generally in the Seventh Federal Reserve District except to the
extent that the effect or change is material and adverse when compared to the
effect or change, if any, on other banks, thrifts, bank holding companies and
thrift holding companies in the Seventh Federal Reserve District with assets
greater than $200 million but less than $500 million, or (iii) the
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direct out-of-pocket costs of compliance with this Agreement on the results of
Purchaser's operations shall be considered in determining if a Purchaser
Material Adverse Effect has occurred.
"Purchaser Subsidiaries" shall mean the Bank, Standard Insurance
Agency, Inc., MergerSub and any corporation and other entity that Purchaser
directly or indirectly controls, or of which Purchaser directly or indirectly
owns or controls 5% or more of the outstanding equity securities and any joint
ventures in which Purchaser has an equity interest; provided, however, there
shall not be included any such entity to the extent that the equity securities
of such entity are owned or controlled in a bona fide fiduciary capacity. The
term "Purchaser Subsidiary" shall mean any single subsidiary constituting one of
the several Purchaser Subsidiaries.
"Regulatory Approvals" shall mean the approval, non-objection or
waiver of the OTS, the Federal Reserve, the U.S. Department of Justice and any
other Applicable Governmental Authorities whose approval, non-objection or
waiver is necessary for the consummation of the Reorganization.
"Regulatory Authorities" shall mean the OTS, the Federal Reserve, the
U.S. Department of Justice, and any Applicable Governmental Authorities having
jurisdiction over any aspect of the Reorganization.
"Reorganization" shall mean the series of transactions contemplated in
this Agreement including and resulting in the Merger.
"SAIF" shall mean the Savings Association Insurance Fund administered
by the FDIC.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Securities Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
"Significant Subsidiary" shall have the meaning given to such term in
Section 5.4(b) hereof.
- --------------
"Signing Event" shall have the meaning given to such term in Section
-------
9.2 hereof.
- ---
"Stockholders' Meeting" shall have the meaning given to such term in
Section 5.2(a) hereof.
- --------------
"Superior Proposal" shall have the meaning given to such term in
Section 5.4(b) hereof.
- --------------
"Surviving Bank" shall have the meaning given to such term in Section
-------
5.6 hereof.
- ---
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16
"Surviving Corporation" shall have the meaning given such term in
Section 2.1 hereof.
- -----------
"Target Bank" shall mean Security Federal Bank & Trust, a federal
savings bank that is wholly owned by Bancorp, with its main office located at
9321 Wicker Avenue, St. John, Indiana.
"Target Bank Common Stock" shall have the meaning given such term in
Section 4.5(b) hereof.
- --------------
"Target Bank Interim Financial Statements" shall have the meaning
given to such term in Section 4.10(b).
---------------
"Target Bank Financial Statements" shall have the meaning given to
such term in Section 4.10(b).
----------------
hereof.
"Target Bank Preferred Stock" shall have the meaning given such term
in Section 4.5(b) hereof.
--------------
"Target Bank Regulatory Reports" shall have the meaning given to such
term in Section 4.9 hereof.
-----------
"Target Bank REO" shall mean other real estate owned by Target Bank,
as defined by the rules and regulations of the OTS.
"Tax" shall have the meaning given to such term in Section 4.15(a)
---------------
hereof.
"Termination Date" shall mean September 30, 2003, or such other date
as shall have been agreed to in writing by Bancorp and Purchaser.
"Third Party" shall have the meaning given to such term in Section
-------
5.4(b) hereof.
- ------
1.2 PRINCIPLES OF CONSTRUCTION. In this Agreement, unless otherwise
--------------------------
stated or the context otherwise requires, the following usages apply:
(a) unless otherwise provided herein, actions permitted but not
required under this Agreement may be taken at any time, and from time to time,
in the actor's sole discretion;
(b) in computing periods from a specified date to a later specified
date, the words "from" and "commencing on" (and the like) mean "from and
including, "and the words "to," "until" and "ending on" (and the like) mean "to,
and including";
(c) headings are inserted for convenience of reference only and are
not a part of, nor shall they affect any construction or interpretation of this
Agreement;
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(d) unless otherwise specified, indications of time of day mean
Chicago, Illinois, time;
(e) all references to Articles, Sections, Schedules and Exhibits
are to Articles, Sections, Schedules and Exhibits in or to this Agreement unless
otherwise specified;
(f) references to a statute shall refer to the statute and any
successor statute, and to all regulations promulgated under or implementing the
statute or successor, as in effect at the relevant time;
(g) references to a governmental or quasi-governmental agency,
authority or instrumentality shall also refer to a regulatory body that
succeeds to the functions of the agency, authority or instrumentality;
(h) "including" shall mean "including, but not limited to;"
(i) unless the context requires otherwise, all words used in this
Agreement in the singular number shall extend to and include the plural, all
words in the plural number shall extend to and include the singular and all
words in any gender shall extend to and include all genders;
(j) any reference to a document or set of documents in this
Agreement, and the rights and obligations of the parties under any such
documents, shall mean such document or documents as amended from time to time,
and any and all modifications, extensions, renewals, substitutions or
replacements thereof; and
(k) all references to dollars ($) shall mean United States currency.
ARTICLE II
THE MERGER; EFFECT; PAYMENT; CLOSING
2.1 THE MERGER. In accordance with the terms and subject to the
----------
conditions of this Agreement, including the receipt of all Regulatory Approvals
and all requisite stockholder approvals, Bancorp, MergerSub and Purchaser shall
cause the Merger to be consummated, pursuant to which MergerSub shall be merged
with and into Bancorp and the separate corporate existence of MergerSub shall
thereupon cease, and Bancorp shall be the surviving corporation in the Merger
(the "Surviving Corporation").
2.2 CLOSING; EFFECTIVE TIME. Subject to all of the terms and
-----------------------
conditions of this Agreement, the Closing of the Merger shall occur on a date
that is mutually agreed upon by the parties; provided, that, in the absence of
an agreement, the Closing shall occur as soon as practicable following the date
on which the conditions set forth in Article VIII have been satisfied or waived,
------------
but in no event later than the fifth Business Day of the calendar month
following the calendar month in which such date occurs. The Closing of the
Merger and the consummation of the other aspects of the Reorganization shall
take place at the Law Offices of Barack Ferrazzano et al., 333 West Wacker
Drive, Suite 2700, Chicago, Illinois 60606, at a
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time to be mutually agreed upon by the parties. The Merger shall become
effective upon the filing of a certificate of merger with the Secretary of
State of the State of Delaware (the "Certificate of Merger"), or at such time
thereafter as Purchaser and Bancorp may agree upon in writing and provide in
the Certificate of Merger.
2.3 EFFECTS OF MERGER.
-----------------
(a) At and after the Effective Time, the Surviving
Corporation shall be governed by the laws of the State of Delaware with all of
its rights, privileges, powers and franchises unaffected by the Merger, and
shall possess all assets and property of every description, whether real,
personal or mixed, and every interest in the assets and property, contingent or
otherwise, wherever located, and the rights, privileges, immunities, powers,
franchises and authority, of a public as well as a private nature, of each of
Bancorp and MergerSub, including all debts due on whatever account, all choses
in action, and each and every interest of or belonging or due to each of Bancorp
or MergerSub, all of which shall vest in the Surviving Corporation without
further act or deed; and the title to all real estate, or any interest therein,
vested in any of such corporations shall not revert or in any way be impaired by
the Merger. At and after the Effective Time, the Merger shall have the further
effects as set forth in Sections 251, 259, 260 and 261 of the DGCL.
(b) The certificate of incorporation of MergerSub shall be
the certificate of incorporation of the Surviving Corporation until amended in
accordance with the provisions thereof and the DGCL.
(c) The bylaws of MergerSub in effect immediately prior to the
Effective Time shall be the bylaws of the Surviving Corporation until altered,
amended or repealed as provided therein, or in accordance with the certificate
of incorporation of the Surviving Corporation and the DGCL.
(d) The directors of the Surviving Corporation shall be the
Persons who were directors of MergerSub immediately prior to the Effective Time.
The officers of the Surviving Corporation shall be the Persons who were officers
of MergerSub immediately prior to the Effective Time.
2.4 EFFECTS OF MERGER ON CAPITAL STOCK AND STOCK OPTIONS. Upon the
----------------------------------------------------
Merger becoming effective and at the Effective Time:
(a) Each share of Bancorp Common Stock issued and outstanding
immediately prior to the Effective Time of the Merger shall, ipso facto and
without any action on the part of any holder thereof, become and be converted
into the right to receive the Merger Consideration from Purchaser. As used in
Article II, the term "Bancorp Common Stock" shall include Bancorp Restricted
- ----------
Stock. Each certificate representing outstanding Bancorp Common Stock shall,
after the Effective Time of the Merger, represent only the right to receive the
Merger Consideration from Purchaser. Each holder of Bancorp Common Stock, upon
surrender to the Paying Agent, in proper form for cancellation, of the Bancorp
Certificate representing such holder's Bancorp Common Stock, shall be entitled
to receive a check from
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the Paying Agent in an appropriate amount of the Merger Consideration for such
shares. Until so presented and surrendered in exchange for the Merger
Consideration, each certificate that represented issued and outstanding Bancorp
Common Stock shall be deemed for all purposes to evidence the right to receive
the Merger Consideration. No interest shall accrue or be payable with respect
to the Merger Consideration.
(b) Each share of Bancorp Common Stock issued and owned of record by
Purchaser or by Bancorp as treasury stock immediately prior to the Effective
Time of the Merger shall be cancelled and retired, and no cash shall be payable,
with respect thereto.
(c) Each Bancorp Stock Option shall, ipso facto and without any
action on the part of holders thereof, become and be converted into the right to
receive the difference between the Merger Consideration and the applicable
option exercise price (the "Option Spread"), payable as provided herein. Prior
to the Effective Time, the board of directors of Bancorp and the committee or
committees established under the Bancorp Stock Option Plan shall take such
actions or make such determinations as may be required under the Bancorp Stock
Option Plan, subject to the approval of Purchaser, to effect the provisions of
this Agreement.
(d) Each share of the common stock of MergerSub that is issued and
outstanding at the Effective Time of the Merger shall, ipso facto and without
any action on the part of the holder thereof, continue as one share of the
common stock of the Surviving Corporation, and all of such shares of common
stock of the Surviving Corporation shall be owned by Purchaser. Outstanding
certificates representing shares of common stock of MergerSub shall be deemed to
represent an identical number of shares of common stock of the Surviving
Corporation.
2.5 PAYMENT FOR SHARES.
------------------
(a) As soon as practicable after the Effective Time, but no
later than three (3) Business Days thereafter, the parties shall deliver or
cause to be delivered to the Paying Agent a certified copy of the list of the
holders of Bancorp Common Stock as of the Effective Time. From and after the
Effective Time, the stock transfer records of Bancorp shall be closed and there
shall be no further registrations or transfers on the stock transfer books of
Bancorp of the shares of Bancorp Common Stock that were outstanding immediately
prior to the Effective Time.
(b) Immediately prior to the Effective Time, Purchaser shall
make available or cause to be made available to the Paying Agent amounts
sufficient in the aggregate to provide all funds necessary for the Paying Agent
to make payments of the Merger Consideration to the holders of Bancorp Common
Stock issued and outstanding immediately prior to the Effective Time.
(c) As soon as practicable after the Effective Time, but no
later than three (3) Business Days thereafter, Purchaser shall use its Best
Efforts to cause the Paying Agent to mail to each Person (or deliver to each
Person, at such Person's expense, who requests
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delivery) who was, at the Effective Time, a holder of record of issued and
outstanding Bancorp Common Stock, a letter of transmittal and instructions for
use in effecting the surrender of Bancorp Certificate(s) which, immediately
prior to the Effective Time, represented such shares (the "Letter of
Transmittal").
(d) Upon surrender to the Paying Agent of such Bancorp
Certificates (or such documentation as is acceptable to and required by the
Paying Agent with respect to lost Bancorp Certificate(s)), together with such
Letter of Transmittal, duly executed and completed in accordance with the
instructions thereto, the Paying Agent shall promptly cause to be paid to the
Persons entitled thereto a check in the amount to which such Persons are
entitled, after giving effect to any required Tax withholdings.
(e) If payment is to be made to a Person other than the
registered holder of Bancorp Certificate(s) surrendered, it shall be a condition
of any such payment that the Bancorp Certificate(s) so surrendered shall be
properly endorsed or otherwise executed in proper form for transfer and that the
Person requesting such payment shall pay any transfer or other taxes required by
reason of the payment to a Person other than the registered holder of Bancorp
Certificate(s) surrendered, or establish to the satisfaction of Purchaser or the
Paying Agent that any such Tax has been paid or is not applicable.
(f) Two hundred seventy (270) days following the Effective
Time, the Paying Agent shall deliver to Purchaser a certified list of the
names and addresses of all former registered holders of Bancorp Common Stock who
have not then surrendered their Bancorp Certificates to receive the Merger
Consideration to which they are entitled, and (ii) Purchaser shall be entitled
at its election to cause the Paying Agent to deliver to it any funds (including
any interest received with respect thereto) made available to the Paying Agent
which have not been disbursed to holders of certificates formerly representing
Bancorp Common Stock outstanding at the Effective Time. Upon the delivery of
such funds to Purchaser, such holders shall be entitled to look to Purchaser
only as general creditors thereof with respect to the cash payable upon due
surrender of their Bancorp Certificates.
(g) The Merger Consideration paid pursuant to this Article II
----------
shall constitute and represent full satisfaction of all rights pertaining to
such shares of Bancorp Common Stock.
(h) Except as otherwise expressly provided herein or in the
Letter of Transmittal, Purchaser shall pay all charges and expenses in
connection with the payment of the Merger Consideration in exchange for Bancorp
Common Stock, except for the fees and expenses of the Paying Agent, which shall
be paid by Bancorp.
2.6 PAYMENT OF OPTION SPREAD. Immediately prior to the Effective
------------------------
Time, all outstanding Bancorp Stock Options shall become immediately exercisable
and fully vested. At the Effective Time, all outstanding Bancorp Stock Options
shall be cancelled and Bancorp shall pay each holder, for each Bancorp Stock
Option held, an amount in cash equal to the Option Spread reduced by any
required Tax withholdings. The payment of the Option Spreads
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pursuant to this Article II shall be delivered and paid by Bancorp in full
----------
satisfaction of all rights pertaining to the Bancorp Stock Option Plan and the
Bancorp Stock Options.
2.7 ESCHEAT. Notwithstanding anything in this Article II or
------- ----------
elsewhere in this Agreement to the contrary, neither the Paying Agent nor any
party hereto shall be liable to a former holder of Bancorp Common Stock or any
Bancorp Stock Options for any funds delivered to a public official pursuant to
any applicable escheat or abandoned property laws.
2.8 DISSENTING SHARES. The holder of any Dissenting Share shall have
-----------------
the rights, subject to the limitations, provided by Section 262 of the DGCL. If
at any time a holder of Dissenting Shares shall lose or withdraw such holder's
rights to appraisal with respect to such holder's shares of Bancorp Common
Stock, then such shares shall be converted into the right to receive the Merger
Consideration in respect of such shares.
2.9 PURCHASER'S DELIVERIES AT CLOSING. At the Closing, Purchaser
---------------------------------
shall deliver, or cause to be delivered, to Bancorp the following items:
(a) evidence of the delivery by Purchaser or its agents to
the Paying Agent of the aggregate amount of the Merger Consideration for payment
to the holders of Bancorp Common Stock as provided in this Agreement;
(b) good standing certificates for each of Purchaser and
MergerSub issued by the Secretary of State of the State of Illinois in the case
of Purchaser, and by the Secretary of State of the State of Delaware in the case
of MergerSub, each dated not more than fifteen (15) Business Days prior to the
Closing Date;
(c) a copy of the articles of incorporation of Purchaser and
the certificate of incorporation of MergerSub certified not more than fifteen
(15) Business Days prior to the Closing Date by the Secretary of State of the
State of Illinois in the case of Purchaser, and by the Secretary of State of the
State of Delaware in the case of MergerSub;
(d) a certificate of the Secretary of each of Purchaser and
MergerSub dated the Closing Date certifying (i) a copy of the bylaws of such
corporation; and (ii) copies of resolutions of the board of directors of each
such corporation and by Purchaser as the sole stockholder of MergerSub
authorizing and approving his Agreement and the Reorganization;
(e) a certificate of the President of Purchaser and MergerSub
dated the Closing Date certifying that: (i) there have been no further
amendments to the charter and certificate of incorporation delivered pursuant
to subsection (c) of this Section; and (ii) the conditions set forth in
Sections 8.2(a) and 8.2(b) of this Agreement have been satisfied;
- --------------------------
(f) copies of each of the Regulatory Approvals;
(g) a legal opinion of Purchaser's counsel, Barack
Ferrazzano et al., substantially in the form set forth in Exhibit A hereto and
---------
dated as of the Effective Time; and
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(h) such other documents as Bancorp or its counsel shall
reasonably request.
2.10 BANCORP'S DELIVERIES AT CLOSING. At the Closing, Bancorp shall
--------------------------------
deliver, or cause to be delivered, to Purchaser the following items:
(a) good standing certificates for Bancorp issued by the
Secretary of State of the State of Delaware and the Secretary of State of the
State of Indiana, each dated not more than fifteen (15) Business Days prior to
the Closing Date;
(b) a good standing certificate for Target Bank issued by the
OTS and dated not more than fifteen (15) Business Days prior to the Closing
Date;
(c) a copy of the certificate of incorporation of Bancorp
certified by the Secretary of State of the State of Delaware, which shall be
certified as of a date which is not more than fifteen (15) Business Days prior
to the Closing Date;
(d) a copy of the charter of Target Bank certified by the OTS
as of a date which is not more than fifteen (15) Business Days prior to the
Closing Date;
(e) a certificate of the Secretary of Bancorp dated the
Closing Date certifying (i) a copy of the bylaws of Bancorp, (ii) copies of
resolutions of the board of directors of Bancorp and the stockholders of
Bancorp authorizing and approving this Agreement and the Reorganization;
(f) a certificate of the Secretary or an assistant secretary
of Target Bank dated the Closing Date certifying a copy of the bylaws of Target
Bank;
(g) a certificate executed by the President of Bancorp dated
the Closing Date certifying that: (i) there have been no further amendments to
the certificate of incorporation and charter delivered pursuant to subsections
(c) and (d) of this Section; and (ii) the conditions set forth in
Sections 8.1(a) and 8.1(b) of this Agreement have been satisfied;
- --------------------------
(h) a legal opinion of Bancorp's counsel, Muldoon Murphy &
Faucette LLP, substantially in the form set forth in Exhibit B attached hereto
---------
and dated as of the Effective Time;
(i) resignations from all of the directors of Target Bank and
those officers of Target Bank that are so identified in writing by Purchaser at
or prior to the Closing; and
(j) such other documents as Purchaser or its counsel shall
reasonably request.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Bancorp that each of the following
statements in this Article III is true and correct on the date hereof.
-----------
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3.1 ORGANIZATION.
------------
(a) Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the State of Illinois and has
all requisite power and authority, corporate and otherwise, to own, operate and
lease its assets, properties and businesses and to carry on its businesses
substantially as they have been and are now being conducted. Purchaser is
qualified to do business and is in good standing in each jurisdiction where the
character of the properties owned or leased by it or the nature of the business
transacted by it requires that it be so qualified, except where the failure to
so qualify would not have a Purchaser Material Adverse Effect. Purchaser has all
requisite corporate power and authority to enter into this Agreement and, upon
the receipt of all Regulatory Approvals, to consummate the Reorganization.
Purchaser is duly registered as a bank holding company under the BHCA and the
regulations of the Federal Reserve.
(b) MergerSub is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and
has all requisite power and authority, corporate and otherwise, to own, operate
and lease its assets, properties and businesses and to carry on its businesses
substantially as they have been and are now being conducted. MergerSub is duly
qualified to do business and is in good standing in each jurisdiction where the
character of the properties owned or leased by it or the nature of the business
transacted by it requires that it be so qualified, except where the failure to
so qualify would not have a Purchaser Material Adverse Effect. MergerSub has all
requisite corporate power and authority to enter into this Agreement and, upon
the receipt of all Regulatory Approvals, to consummate the Reorganization.
(c) The Bank is an Illinois state-chartered non-member bank duly
organized and in existence under the laws of the State of Illinois and its
deposits are insured by the FDIC through the BIF and SAIF to the full extent
permitted under the FDI Act.
(d) Purchaser has no direct or indirect subsidiaries other than the
Purchaser Subsidiaries. Each of the Purchaser Subsidiaries is wholly owned by
either Purchaser or the Bank. Each Purchaser Subsidiary other than the Bank is a
duly organized and validly existing corporation in good standing under the laws
of the State of Illinois or Delaware, with corporate power and authority to own,
operate and lease its assets and properties, and carry on its business
substantially as it has been and is now being conducted.
(e) Purchaser and each Purchaser Subsidiary hold all licenses,
certificates, permits, franchises and rights from all Applicable Governmental
Authorities necessary for the conduct of its and their respective businesses,
except where the failure to so hold would not have a Purchaser Material Adverse
Effect.
3.2 AUTHORIZATION. The execution, delivery and performance of the
-------------
Agreement and the consummation of the Reorganization have been duly and
unanimously approved and authorized by the boards of directors of Purchaser,
MergerSub and the Bank, and all necessary corporate action on the part of
Purchaser, MergerSub and the Bank has been taken. The Agreement has been, or
where applicable, will be, duly executed and delivered by Purchaser,
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MergerSub and the Bank, as applicable, and, subject to the Regulatory Approvals,
will constitute the valid and binding obligations of Purchaser, MergerSub and
the Bank, except to the extent that enforceability thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
or equitable principles and doctrines. Neither the charter nor the bylaws of
Purchaser will need to be amended to effectuate the Reorganization.
3.3 CONFLICTS.
---------
(a) The execution and delivery of the Agreement does not, and the
consummation of the Reorganization will not, conflict with or result in any
violation of the articles of incorporation or bylaws of Purchaser or the Bank,
the certificate of incorporation or bylaws of MergerSub or similar documents of
any other Purchaser Subsidiary. The execution and delivery of the Agreement does
not, and the consummation of the Reorganization will not, conflict with or
result in any violation, breach or termination of, or default or loss of a
material benefit under, or permit the acceleration of, any obligation or result
in the creation of any material lien, charge or encumbrance on any of the
property or assets under any provision of any mortgage, indenture, lease,
agreement or other instrument, permit, concession, grant, franchise, license,
judgment, order, decree or Applicable Law and Regulation, other than any such
conflicts, violations, defaults or losses of benefits that (i) individually or
in the aggregate do not have a Purchaser Material Adverse Effect, or (ii) will
be cured or waived prior to the Effective Time.
(b) No consent, approval, order or authorization of, or
registration, declaration or filing with, any federal or state governmental
authority is required by or with respect to Purchaser or MergerSub in connection
with the execution and delivery of the Agreement or the consummation by
Purchaser and MergerSub of the Reorganization, the absence of which would have a
Purchaser Material Adverse Effect, except for the filings to be submitted by
Purchaser and the Bank in order to obtain the Regulatory Approvals, the filing
of the Certificate of Merger with respect to the Merger with the Secretary of
State of the State of Delaware, any filings, approvals or no-action letters with
or from state securities authorities, any antitrust filings, consents, waivers
or approvals.
3.4 PROXY STATEMENT DISCLOSURE. None of the information to be
--------------------------
supplied by Purchaser for inclusion in the Proxy Statement or any amendments
thereof or supplements thereto will, at the time of the Stockholders' Meeting,
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
3.5 LITIGATION. There is no suit, action, investigation or
----------
proceeding, legal, quasi-judicial, administrative or otherwise, pending or,
to Purchaser's Knowledge, threatened against or affecting Purchaser or any
Purchaser Subsidiary, or any of their respective officers, directors, employees
or agents, in their capacities as such, which, if adversely determined, would
have a Purchaser Material Adverse Effect, or which is seeking to enjoin
consummation of the Reorganization or to obtain other relief in connection with
this Agreement or the Reorganization, nor is there any judgment, decree,
injunction, rule or order of any court,
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arbitrator or Applicable Governmental Authority outstanding against Purchaser
or any Purchaser Subsidiary or any of their respective officers, directors,
employees or agents, in their capacities as such, having, or which could
reasonably be foreseen to have in the future, a Purchaser Material Adverse
Effect.
3.6 ADEQUATE FUNDS. At the Effective Time, Purchaser will have
--------------
sufficient funds and capital to carry out its obligations under the Agreement
and to consummate the Reorganization.
3.7 NO SHARE OWNERSHIP. As of the date hereof, neither Purchaser,
------------------
any Affiliate nor any Purchaser Subsidiary owns any shares of Bancorp Common
Stock.
3.8 COMPLIANCE WITH LAWS.
--------------------
(a) The businesses of Purchaser and each Purchaser Subsidiary
are not being conducted in violation of any Applicable Law and Regulation,
including the BHCA, the FDI Act, the IBA, any laws affecting financial
institutions (including those pertaining to the Bank Secrecy Act, the investment
of funds, the lending of money, the collection of interest and the extension of
credit), federal and state securities laws, laws and regulations relating to
financial statements and reports, truth-in-lending, truth-in-savings, fair debt
collection practices, usury, fair credit reporting, consumer protection, unfair
trade practices, occupational safety, fair employment practices, fair labor
standards, escheat and laws and regulations relating to employee benefits, and
any statutes or ordinances relating to the properties occupied or used by
Purchaser or any Purchaser Subsidiary, except for possible or actual violations
which either individually or in the aggregate do not and, insofar as reasonably
can be foreseen in the future, will not have a Purchaser Material Adverse
Effect.
(b) The policies, programs and practices of Purchaser and each
Purchaser Subsidiary relating to wages, hours of work, and other terms and
conditions of employment are in compliance in all material respects with
Applicable Laws and Regulations governing employment and terms and conditions of
employment. There are no disputes, claims, or charges, pending or, to
Purchaser's Knowledge, threatened, against Purchaser or any Purchaser Subsidiary
alleging breach of any express or implied employment contract or commitment, or
material breach of any Applicable Law and Regulation relating to employment or
terms and conditions of employment, and, to Purchaser's Knowledge, there is no
basis for any valid claim or charge with regard to such matters.
(c) No investigation or review by any Applicable Governmental
Authority with respect to Purchaser or any Purchaser Subsidiary is pending or,
to Purchaser's Knowledge, threatened, nor has any Applicable Governmental
Authority indicated to Purchaser an intention to conduct the same, other than
normal bank and bank holding company regulatory examinations and those whose
outcome will not have a Purchaser Material Adverse Effect.
(d) The Bank's current rating under the Community Reinvestment
Act of 1977 and the regulations promulgated thereunder is "satisfactory."
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3.9 REGULATORY APPROVALS. Except as referred to in Section 3.3(b)
-------------------- --------------
hereof, or in connection, or in compliance with the provisions of the HSRA, the
Securities Act, the Securities Exchange Act, the HOLA, the BHCA, the BMA, the
IBA, the rules and regulations of the OTS and Federal Reserve, and the
environmental, corporation, securities or blue sky laws or regulations of the
various states, no filing or registration with, or authorization, consent or
approval of, any other party is necessary for the consummation by Purchaser or
MergerSub of the Reorganization. As of the date hereof, Purchaser knows of no
reason why the Regulatory Approvals should not be obtained without the
imposition of any material non-Purchaser condition or restriction.
3.10 Regulatory Investigations.
-------------------------
(a) Neither Purchaser nor any Purchaser Subsidiary (i) is
subject to any cease-and-desist or other order or enforcement action issued by,
(ii) is a party to any written agreement, consent agreement or memorandum of
understanding with, (iii) is a party to any commitment letter or similar
undertaking to, (iv) is subject to any order or directive by, (v) is a recipient
of any supervisory letter from, or (vi) has adopted any policies, procedures or
board resolutions at the request of any Regulatory Authority or other Applicable
Governmental Authority that currently restricts in any material respect the
ability of Purchaser to consummate the Reorganization, nor has Purchaser or any
Purchaser Subsidiary been advised by any Regulatory Authority or other
Applicable Governmental Authority that it is considering issuing, initiating,
ordering or requesting any of the foregoing.
(b) There is no unresolved violation, criticism or exception
cited by the Illinois Office of Banks and Real Estate or any other Applicable
Governmental Authority that would have a Purchaser Material Adverse Effect.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BANCORP
Bancorp represents and warrants to Purchaser that each of the following
statements in this Article IV is true and correct on the date hereof, is subject
----------
to being updated pursuant to Section 7.6. As expressly set forth below in this
-----------
Article IV, certain representations and warranties are qualified by disclosures
- ----------
set forth in the Bancorp Disclosure Schedule.
4.1 ORGANIZATION.
------------
(a) Bancorp is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has all requisite
power and authority, corporate and otherwise, to own, operate and lease its
assets, properties and businesses and to carry on its businesses substantially
as they have been and are now being conducted. Bancorp is qualified to do
business and is in good standing in each jurisdiction where the character of the
properties owned or leased by it or the nature of the business transacted by it
requires that it be so qualified, except where the failure to so qualify would
not have a Bancorp Material Adverse Effect. Bancorp has all requisite corporate
power and authority to enter into this Agreement and, upon the receipt of all
Regulatory Approvals and the approval of the majority
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of the stockholders of Bancorp as hereinafter provided, to consummate the
Reorganization. Bancorp is duly registered as a savings and loan holding
company under the BHCA.
(b) Target Bank is a federal savings bank duly organized and in
existence under the laws of the United States and its deposits are insured by
the FDIC to the full extent permitted under the FDI Act. Target Bank is a
"qualified thrift lender," as that term is used in Section 10(m) of the HOLA.
Target Bank has all requisite corporate power and authority, upon the receipt
of all Regulatory Approvals and the approval of Bancorp as its sole stockholder,
to consummate the Reorganization.
4.2 AUTHORIZATION. The execution, delivery and performance of the
--------------
Agreement and the consummation of the Reorganization have been duly approved and
authorized by the boards of directors of Bancorp and Target Bank, and all
necessary corporate action on the part of Bancorp and Target Bank has been
taken, subject to the approval of this Agreement by the stockholders of Bancorp.
The Agreement has been, or where applicable, will be, duly executed and
delivered by Bancorp and Target Bank, as applicable, and, subject to the
Regulatory Approvals, and, in the case of this Agreement and the Reorganization,
the approval by the majority of the stockholders of Bancorp, will constitute the
valid and binding obligations of Bancorp and Target Bank, except to the extent
that enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws or equitable principles or doctrines.
Neither the certificate of incorporation nor the bylaws of Bancorp will need to
be amended to effectuate the Reorganization.
4.3 CONFLICTS.
---------
(a) The execution and delivery of the Agreement does not, and
the consummation of the Reorganization will not, conflict with or result in any
violation of the certificate of incorporation or bylaws of Bancorp or similar
documents of any Bancorp Subsidiary. The execution and delivery of the Agreement
does not, and the consummation of the Reorganization will not, conflict with or
result in any violation, breach or termination of, or default or loss of a
material benefit under, or permit the acceleration of, any obligation or result
in the creation of any material lien, charge or encumbrance on any of the
property or assets under any provision of any mortgage, indenture, lease,
agreement or other instrument, permit, concession, grant, franchise, license,
judgment, order, decree or Applicable Law and Regulation, other than any such
conflicts, violations, defaults or losses of benefits that (i) individually or
in the aggregate do not have a Bancorp Material Adverse Effect on Bancorp, or
(ii) will be cured or waived prior to the Effective Time.
(b) No consent, approval, order or authorization of, or
registration, declaration or filing with, any Applicable Governmental Authority
is required by or with respect to Bancorp in connection with the execution and
delivery of the Agreement or the consummation of the Reorganization, the absence
of which would have a Bancorp Material Adverse Effect, except for the filings to
be submitted by Purchaser and the Bank in order to obtain the Regulatory
Approvals, the Proxy Statement, the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware, any filings, approvals or no-action
letters
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with or from state securities authorities, and any necessary antitrust filings,
consents, waivers or approvals.
4.4 ANTITAKEOVER PROVISIONS INAPPLICABLE. No "business combination,"
------------------------------------
"moratorium," "control share" or other state antitakeover statute or regulation,
or any provision in Bancorp's certificate of incorporation or bylaws, (i)
prohibits or restricts Bancorp's ability to perform its obligations under the
Agreement, or its ability to consummate the Reorganization, (ii) would have the
effect of invalidating or voiding the Agreement or any provision hereof or
thereof, (iii) would subject Purchaser to any material impediment or condition
in connection with the exercise of any of its rights under the Agreement, or
(iv) would require greater than a majority of the directors or greater than a
majority of the stockholders of Bancorp to approve the Agreement.
4.5 CAPITALIZATION AND STOCKHOLDERS.
-------------------------------
(a) The authorized capital stock of Bancorp consists of the
following: (i) 4,000,000 shares of common stock, par value $0.01 per share (the
"Bancorp Common Stock"), of which 1,863,951 shares are issued and outstanding
and 74,509 shares are held by Bancorp as treasury shares; and (ii) 1,000,000
shares of Preferred Stock, $0.01 par value, none of which are issued and
outstanding. All of the issued and outstanding shares of Bancorp Common Stock
have been duly and validly authorized and issued, and are fully paid and
non-assessable. None of the outstanding shares of Bancorp Common Stock are
subject to any preemptive rights of the current or past stockholders of Bancorp.
All of the issued and outstanding shares of Bancorp Common Stock will be
entitled to vote to approve the Agreement.
(b) The authorized capital stock of Target Bank consists of
4,000,000 shares of common stock, $1.00 par value per share (the "Target Bank
Common Stock"), and 1,000,000 shares of preferred stock, $1.00 par value per
share (the "Target Bank Preferred Stock"). All of the issued and outstanding
shares of Target Bank Common Stock and Target Bank Preferred Stock have been
duly and validly authorized and issued, and are fully paid and non-assessable.
None of the outstanding shares of Target Bank Common Stock or Target Bank
Preferred Stock are subject to any preemptive rights of the current or past
stockholders of Target Bank.
(c) Bancorp has reserved 193,846 shares of Bancorp Common
Stock for issuance as options under the Bancorp Stock Option Plan, pursuant to
which Bancorp Stock Options for an aggregate of 178,159 shares of Bancorp Common
Stock have been granted and are outstanding. Bancorp has reserved 77,538 shares
of Bancorp Common Stock for issuance as restricted stock under the Bancorp Stock
Option Plan, pursuant to which 69,294 shares of Bancorp Restricted Stock have
been granted and are outstanding, of which 55,387 shares are unvested. Except as
set forth in this Section 4.5, there are no shares of capital stock or other
-----------
equity securities of Bancorp outstanding and no outstanding options, warrants,
scrip, rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into or exchangeable for,
shares of the capital stock of Bancorp, or
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contracts, commitments, understandings, or arrangements by which Bancorp is or
may be bound to issue additional shares of its capital stock or options,
warrants, or rights to purchase or acquire any additional shares of its capital
stock. Each Bancorp Stock Option and share of Bancorp Restricted Stock is vested
and exercisable or will be vested and exercisable as of the date set forth in
Schedule 4.5(c) to the Bancorp Disclosure Schedule and each Bancorp Stock
- ---------------
Option has an exercise price in the amount set forth in Schedule 4.5(c) to the
---------------
Bancorp Disclosure Schedule.
(d) Schedule 4.5(d) to the Bancorp Disclosure Schedule accurately
---------------
identifies the names and addresses of all of the stockholders who, to Bancorp's
Knowledge, beneficially own more than five percent (5%) of the shares of Bancorp
Common Stock and the number of shares of Bancorp Common Stock held by each such
stockholder, by each director and senior officer of Bancorp and by the Bancorp
Benefits Plans. From the date hereof until the Effective Time, Bancorp shall,
upon request, provide Purchaser with a complete list of all of its stockholders
of record, including the names, addresses and number of shares of Bancorp Common
Stock held by each stockholder. Without the advance written consent of Bancorp,
Purchaser will not disclose or make use of the information provided by Bancorp
pursuant hereto except as may be required in connection with the filings to be
submitted in order to obtain the Regulatory approvals and as is otherwise
specifically permitted by this Agreement.
(e) Bancorp does not have outstanding any indebtedness which
entitles the holder or holders thereof to exercise voting rights in connection
with the election of its directors or the approval of the Reorganization, nor
are there outstanding any options, warrants, calls, rights, commitments or
agreements of any kind obligating Bancorp or any Bancorp Subsidiary to issue or
sell any such indebtedness. There are no outstanding contractual obligations of
Bancorp or any Bancorp Subsidiary to repurchase, redeem or otherwise acquire any
shares of its capital stock or any of its indebtedness.
4.6 THE BANCORP SUBSIDIARIES.
------------------------
(a) Schedule 4.6(a) to the Bancorp Disclosure Schedule accurately
---------------
identifies the number of shares of authorized and outstanding capital stock of
the Bancorp Subsidiaries, and a description of the business of each Bancorp
Subsidiary. Bancorp owns directly or indirectly all of the issued and
outstanding shares of capital stock of each of the Bancorp Subsidiaries. Except
as set forth in Schedule 4.6(a) to the Bancorp Disclosure Schedule, neither
---------------
Bancorp nor the Bancorp Subsidiaries own directly or indirectly any debt or
equity securities, or other proprietary interest in any other corporation, joint
venture, partnership, entity, association or other business. No capital stock of
any of the Bancorp Subsidiaries is or may become required to be issued by reason
of any options, warrants, scrip, rights to subscribe to, calls, or commitments
of any character whatsoever relating to, or securities or rights convertible
into or exchangeable for, shares of the capital stock of any of the Bancorp
Subsidiaries. There are no contracts, commitments, understandings or
arrangements relating to the rights of Bancorp to vote or to dispose of shares
of the capital stock of any Bancorp Subsidiary. All of the shares of capital
stock of each Bancorp Subsidiary held by Bancorp or a
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Bancorp Subsidiary are fully paid and non-assessable and are owned by Bancorp
or such Bancorp Subsidiary free and clear of any claim, lien or encumbrance.
(b) Each Bancorp Subsidiary other than Target Bank is duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated or organized, and is qualified to do
business and in good standing in each jurisdiction where the character of the
properties owned or leased by it or the nature of the business transacted by it
requires it to be so qualified, except where the failure to so qualify, either
individually or in the aggregate, would not have a Bancorp Material Adverse
Effect. Each Bancorp Subsidiary has the power and authority necessary for it to
own, operate or lease its assets, properties and business and to carry on its
business substantially as they have been and are now being conducted.
4.7 SEC REPORTS. Prior to the execution of this Agreement, Bancorp
-----------
has delivered or made available to Purchaser complete and accurate copies of the
following (collectively and together with the deliveries required under Section
-------
7.2(a) below, the "Bancorp SEC Reports"): (a) Bancorp's Annual Reports on Form
- ------
10-KSB for the years ended June 30, 2000, 2001 and 2002 as filed with the SEC;
(b) all Bancorp proxy statements and annual reports to stockholders used in
connection with meetings of Bancorp's stockholders held since January 1, 2000;
(c) Bancorp's Quarterly Reports on Form 10-Q for the quarter ended September 30,
2002, as filed with the SEC; and (d) Bancorp's Current Reports on Form 8-K as
filed with the SEC since January 1, 2000. Each Bancorp SEC Report was timely
filed and as of their respective dates or as subsequently amended prior to the
date hereof, each of the Bancorp SEC Reports (i) do not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statement therein, in light of the
circumstances under which it was made, not misleading and (ii) complies as to
form in all material respects with the applicable accounting requirements and
the rules and regulations of the SEC.
4.8 BANCORP REGULATORY REPORTS. Prior to the execution of this
--------------------------
Agreement, Bancorp has delivered or made available to Purchaser complete and
accurate copies of all reports that Bancorp has filed with the OTS since
January 1, 2000, and will provide Purchaser with the reports required by
Section 7.2(b) hereof (collectively, the "Bancorp Regulatory Reports"). Since
- --------------
January 1, 2000, Bancorp has filed in a timely manner all Bancorp Regulatory
Reports that it was required to file with the OTS. As of their respective dates
or as subsequently amended prior to the date hereof, each of the Bancorp
Regulatory Reports (i) is true and correct in all material respects, (ii)
complies in all material respects with applicable rules and regulations of the
OTS applied on a consistent basis, and (iii) fairly presents the financial
condition of Bancorp as of the dates thereof.
4.9 TARGET BANK REGULATORY REPORTS. Prior to the execution of this
------------------------------
Agreement, Bancorp has delivered or made available to Purchaser complete and
accurate copies of all reports that Target Bank has filed with the OTS since
January 1, 1998, and will provide Purchaser with the reports required by Section
-------
7.2(b) hereof (collectively, the "Target Bank Regulatory Reports"). Since
- ------
January 1, 1998, Target Bank has filed in a timely manner all
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Target Bank Regulatory Reports that it was required to file with the OTS. As of
their respective dates or as subsequently amended prior to the date hereof,
each of the Target Bank Regulatory Reports (i) is true and correct in all
material respects, (ii) complies in all material respects with applicable rules
and regulations of the OTS, applied on a consistent basis, and (iii) fairly
presents the financial condition of Target Bank as of the dates thereof.
4.10 FINANCIAL STATEMENTS.
--------------------
(a) Prior to the execution of this Agreement, Bancorp has
delivered or made available to Purchaser complete and accurate copies of Target
Bank's audited financial statements for the fiscal year ended June 30, 2000
(the "Target Bank Financial Statements") and Bancorp's audited consolidated
financial statements for the fiscal years ended June 30, 2001 and 2002, and
unaudited financial statements for the quarter ended September 30, 2002 and
months ending October 31, 2002 and November 30, 2002 (and for any subsequent
month-end and quarter-end that occurred prior to the 24th day preceding the
date hereof), and will provide purchaser with the Bancorp reports required by
Section 7.2(d) hereof (collectively with the Target Bank Financial Statements,
- --------------
the "Bancorp Financial Statements"). The Bancorp Financial Statements and the
financial statements (including any footnotes thereto) contained in the Bancorp
SEC Reports have been or will be, as the case may be, prepared in accordance
with GAAP, applied on a consistent basis during the periods involved, except
as indicated in the notes thereto or, in the case of unaudited statements, as
permitted by SEC Form 10-Q, and fairly present or will fairly present, as the
case may be, the financial position of Target Bank (with respect to the Target
Bank Financial Statements) and Bancorp as of the dates thereof and the results
of operations, changes in stockholders' equity and cash flows for the periods
then ended (subject, in the case of the unaudited statements, to recurring year
end adjustments normal in nature and amount and the absence of footnotes).
(b) Bancorp has delivered or made available to Purchaser copies of
the balance sheets of Target Bank as of the month ending November, 2002 (and
for any subsequent month-end and quarter-end that occurred prior to the 24th day
preceding the date hereof), and the related statements of income, changes in
shareholder's equity and cash flows for the period(s) then ended, and will
provide Purchaser with the Target Bank reports required by Section 7.2(d) hereof
--------------
(collectively, the "Target Bank Interim Financial Statements"). The Target Bank
Interim Financial Statements have been prepared in accordance with GAAP applied
on a consistent basis during the period involved and fairly present the
financial position of Target Bank (subject, in the case of interim statements,
to recurring year end adjustments normal in nature and amount and the absence of
footnotes).
(c) Since June 30, 2002, Bancorp and the Bancorp Subsidiaries have
not undergone, suffered or experienced any Bancorp Material Adverse Effect.
Since June 30, 2002, Bancorp and the Bancorp Subsidiaries have conducted their
respective businesses only in the ordinary course consistently with past
practices. No facts or circumstances have been discovered from which it
reasonably appears that Bancorp will undergo, suffer or experience a Bancorp
Material Adverse Effect.
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4.11 REGULATORY INVESTIGATIONS.
-------------------------
(a) Neither Bancorp nor any of Bancorp Subsidiary (i) is
subject to any cease-and-desist or other order or enforcement action issued by,
(ii) is a party to any written agreement, consent agreement or memorandum of
understanding with, (iii) is a party to any commitment letter or similar
undertaking to, or is subject to any order or directive by, (iv) has been since
January 1, 1998, a recipient of any supervisory letter from, (v) has been
ordered to pay any civil money penalty by, or (vi) has adopted any policies,
procedures or board resolutions at the request of any Regulatory Authority or
other Applicable Governmental Authority that currently restricts in any material
respect the conduct of its business or that in any material manner relates to
its capital adequacy, its ability to pay dividends, its credit or risk
management policies, its management or its business, nor has Bancorp or any
Bancorp Subsidiary been advised by any Regulatory Authority or other Applicable
Governmental Authority that it is considering issuing, initiating, ordering or
requesting any of the foregoing.
(b) Except for routine examinations conducted by the OTS in
the regular course of the business of Bancorp or any Bancorp Subsidiary, no
Applicable Governmental Authority has initiated any proceeding or, to Bancorp's
Knowledge, investigation into the business or operations of Bancorp or any
Bancorp Subsidiary within the past three (3) years. There is no unresolved
violation, criticism or exception by the OTS, the SEC or any other Applicable
Governmental Authority that would have a Bancorp Material Adverse Effect.
4.12 COMPLIANCE WITH LAWS.
--------------------
(a) The businesses of Bancorp and each Bancorp Subsidiary are
not being conducted in violation of any Applicable Laws and Regulations,
including the HOLA, the FDI Act, any laws affecting financial institutions
(including those pertaining to the Bank Secrecy Act, the investment of funds,
the lending of money, the collection of interest and the extension of credit),
federal and state securities laws, laws and regulations relating to financial
statements and reports, truth-in-lending, truth-in-savings, fair debt collection
practices, usury, fair credit reporting, consumer protection, unfair trade
practices, occupational safety, fair employment practices, fair labor standards,
escheat and laws and regulations relating to employee benefits, and any statutes
or ordinances relating to the Bancorp Properties, except for possible violations
which either individually or in the aggregate do not and will not have a Bancorp
Material Adverse Effect.
(b) The policies, programs and practices of Bancorp and each
Bancorp Subsidiary relating to wages, hours of work, and other terms and
conditions of employment are in compliance in all material respects with
Applicable Laws and Regulations governing employment and terms and conditions of
employment. There are no disputes, claims, or charges, pending or, to Bancorp's
Knowledge, threatened, against Bancorp or any Bancorp Subsidiary alleging breach
of any express or implied employment contract or commitment, or a material
breach of any Applicable Law and Regulation relating to employment or terms and
conditions of employment, and, to Bancorp's Knowledge, there is no basis for any
valid claim or charge with regard to such matters.
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(c) Schedule 4.12(c) to the Bancorp Disclosure Schedule sets
----------------
forth Target Bank's current rating under the Community Reinvestment Act of 1977
and the regulations promulgated thereunder.
4.13 LITIGATION. Schedule 4.13 to the Bancorp Disclosure Schedule
----------
includes copies of all attorney responses to auditor letters provided in
connection with the Bancorp Financial Statements. Except as disclosed in
Schedule 4.13 to the Bancorp Disclosure Schedule, there is no suit, action,
investigation or proceeding, legal, quasi-judicial, administrative or otherwise,
pending or, to Bancorp's Knowledge, threatened against or affecting Bancorp or
any Bancorp Subsidiary, or any of their respective officers, directors,
employees or agents, in their capacities as such, which is seeking damages
against Bancorp, any Bancorp Subsidiary, or any of their respective officers,
directors, employees or agents, in their capacities as such. None of the matters
disclosed in Schedule 4.13 to the Bancorp Disclosure Schedule has or will have a
Bancorp Material Adverse Effect, or is seeking to enjoin the consummation of any
aspect of the Reorganization, or to obtain other relief in connection with the
Agreement or the Reorganization. No judgment, decree, injunction, rule or order
of any court, arbitrator or Applicable Governmental Authority is outstanding
against Bancorp or any Bancorp Subsidiary or any of their respective officers,
directors, employees or agents, in their capacities as such, having, or which
could have a Bancorp Material Adverse Effect.
4.14 LICENSES. Bancorp and each Bancorp Subsidiary hold all licenses,
--------
certificates, permits, franchises and all patents, trademarks, service marks,
trade names, copyrights or rights thereto, and adequate authorizations,
approvals, consents, licenses, clearances and orders or registrations with all
Applicable Governmental Authorities that are material to the conduct of their
respective businesses as now conducted and as presently proposed to be
conducted.
4.15 Taxes.
-----
(a) Bancorp and each Bancorp Subsidiary and all members of any
consolidated, affiliated, combined or unitary group of which Bancorp or any of
the Bancorp Subsidiaries is a member have each timely filed all Tax and Tax
information returns or reports, including all Forms 1099, 1098 and 5498 and the
federal and state tax returns for the tax year ended June 30, 2002, required to
be filed (all such returns and reports being correct and complete in all
material respects), and have paid (or Bancorp has paid on behalf of each Bancorp
Subsidiary), or have accrued on their respective books and set up an adequate
reserve for the payment of, all Taxes required to be paid in respect of the
periods covered by such returns or reports, and have accrued on their respective
books and set up an adequate reserve for the payment of all income and other
Taxes anticipated to be payable. Neither Bancorp nor any Bancorp Subsidiary is
delinquent in the payment of any Tax, assessment or governmental charge. No
deficiencies for any Taxes have been proposed, asserted or assessed against
Bancorp or any Bancorp Subsidiary that have not been resolved or settled, and no
requests for waivers of the statute of limitations to assess any such Tax are
pending or have been agreed to. Except as set forth on Schedule 4.15(a) to the
----------------
Bancorp Disclosure Schedule, the Tax returns and reports of Bancorp and each
Bancorp Subsidiary have not been audited by either the IRS,
28
34
the Indiana Department of Revenue, the Delaware Department of Revenue, or any
other federal, state or local Taxing authorities, for any of the last ten (10)
years. Neither Bancorp nor any Bancorp Subsidiary is a party to any action or
proceeding by any Applicable Governmental Authority for the assessment or the
collection of Taxes. Deferred Taxes of Bancorp and each Bancorp Subsidiary have
been accounted for in accordance with GAAP and consistent with past practices.
Bancorp and each Bancorp Subsidiary has delivered to Purchaser correct and
complete copies of all federal and state income Tax returns and reports and
supporting schedules for all Tax years since June 30, 1992. For purposes of this
Agreement, "Tax" means any federal, state, local or foreign income, gross
receipts, license, payroll, employment, excise, severance, prohibited
transaction, stamp, occupation, premium, property or windfall profits tax,
environmental tax, customs duty, capital stock, franchise, employees' income
withholding, foreign or domestic withholding, social security, unemployment,
disability, workers' compensation, employment-related insurance, real property,
personal property, sales, use, transfer, value added, alternative or add-on
minimum or other tax, fee or assessment imposed by a taxing jurisdiction,
including any interest, penalties or additional amounts in respect of the
foregoing, for each party hereto and its commonly controlled entities and all
members of any consolidated, affiliated, combined or unitary group of which any
of them is a member.
(b) Bancorp has not filed any consolidated federal income tax return
with an "affiliated group" within the meaning of Section 1504 of the Code where
Bancorp was not the common parent of the group. Neither Bancorp nor any Bancorp
Subsidiary is, or has been, a party to any Tax allocation agreement or
arrangement pursuant to which it has any contingent or outstanding liability to
anyone other than Bancorp or any Bancorp Subsidiary.
(c) Bancorp and each Bancorp Subsidiary have each withheld amounts
from its employees, stockholders, borrowers and holders of deposit accounts in
compliance with the tax withholding provisions of Applicable Laws and
Regulations, has filed all federal, state and local returns and reports for all
years for which any such return or report would be due with respect to employee
income tax withholding, social security, unemployment taxes, income and
other Taxes and all payments or deposits with respect to such Taxes have been
timely made and, except as set forth in Schedule 4.15(c) to the Bancorp
----------------
Disclosure Schedule, has notified all employees, stockholders and holders of
deposit accounts of their obligations to file all forms, statements or reports
with it in accordance with applicable federal, state and local Tax laws and has
taken reasonable steps to insure that such employees, stockholders and holders
of deposit accounts have filed all such forms, statements and reports with it.
4.16 INSURANCE. Schedule 4.16 to the Bancorp Disclosure Schedules
--------- -------------
includes copies of all insurance policies and bonds presently maintained by
Bancorp or the Bancorp Subsidiaries with respect to their respective businesses,
operations, properties or assets. All such insurance policies and bonds are in
full force and effect. Neither Bancorp nor any Bancorp Subsidiary is in default
of any of its obligations under any such insurance policy or bond. Bancorp and
each Bancorp Subsidiary maintain all insurance and bonds they are required to
carry by law or by any agreement by which they are bound. Schedule 4.16 to the
-------------
Bancorp Disclosure Schedule lists and briefly describes all claims that have
been filed under
29
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such insurance policies and bonds and the current status of such claims. All
such claims have been filed in due and timely fashion. Neither Bancorp nor any
Bancorp Subsidiary has had an insurance policy or bond cancelled or non-renewed
by the issuer of the policy or bond within the past five (5) years.
4.17 LOANS.
-----
(a) Except as disclosed in Schedule 4.17(a) to the Bancorp
----------------
Disclosure Schedule, each loan, loan agreement, note, lease or other borrowing
agreement, any participation therein, and any guaranty, renewal or extension
thereof (collectively, "Loans") reflected as an asset on any of the Bancorp
Financial Statements, the Bancorp SEC Reports, the Bancorp Regulatory Reports,
the Target Bank Regulatory Reports or the Target Bank Interim Financial
Statements is evidenced by documentation that is customary and legally
sufficient in all material respects and constitutes, to Bancorp's Knowledge, the
legal, valid and binding obligation of the obligor named therein, enforceable in
accordance with its terms, except to the extent that the enforceability thereof
may be limited by bankruptcy, insolvency, reorganization, moratorium or similar
laws relating to or affecting the enforcement of creditors rights generally or
equitable principles or doctrines. To Bancorp's Knowledge, no obligor named
therein is seeking to avoid the enforceability of any term of any Loan under any
such laws or equitable principles or doctrines, and no Loan is subject to any
defense, offset or counterclaim.
(b) All Loans originated by Bancorp or any Bancorp Subsidiary, and
all Loans purchased by Bancorp or any Bancorp Subsidiary, were made or purchased
in accordance with the policies of the boards of directors of Bancorp and such
Bancorp Subsidiary and in the ordinary course of the business of Bancorp and
such Bancorp Subsidiary. Except as set forth in Schedule 4.17(b) to the Bancorp
----------------
Disclosure Schedule, Target Bank's interest in all Loans is free and clear of
any security interest, lien, encumbrance or other charge, and Bancorp and each
Bancorp Subsidiary have complied in all material respects with all Applicable
Laws and Regulations relating to such Loans.
(c) Except as disclosed in Schedule 4.17(c) to the Bancorp
----------------
Disclosure Schedule, neither Bancorp nor Target Bank is a party to any Loan (i)
under the terms of which the obligor is more than sixty (60) days delinquent in
payment of principal or interest or in default of any other material provision
as of the dates shown thereon or for which Target Bank has discontinued the
accrual of interest; (ii) that has been classified as "substandard,"
"doubtful," "loss," "other loans especially mentioned" or any comparable
classifications by Bancorp or Target Bank, or by any Applicable Governmental
Authority, (iii) that has been listed on any "watch list" or similar internal
report of Bancorp or Target Bank or has been categorized as a "potential
problem loan" in any Bancorp SEC Report; or (iv) to an Affiliate of an obligor
under any Loan described in clause (i), (ii) or (iii) hereof.
(d) The allowance for loan and lease losses reflected in the
financial statements (including footnotes thereto) contained in any of the
Bancorp SEC Reports, the Bancorp Financial Statements, the Bancorp Regulatory
Reports, the Target Bank Regulatory
30
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Reports or the Target Bank Interim Financial Statements was determined on the
basis of Bancorp's continuing review and evaluation of the Loan portfolio under
the requirements of GAAP and Applicable Laws and Regulations, was established
in a manner consistent with the Loan Loss Reserve Policy, and, in the reasonable
judgment of Bancorp, is adequate in all material respects as of their respective
dates under the requirements of GAAP and Applicable Laws and Regulations to
provide for possible or specific losses, net of recoveries relating to Loans
previously charged-off, on Loans outstanding.
(e) Schedule 4.17(e) to the Bancorp Disclosure Schedule contains a
----------------
complete list of the Target Bank REO and other repossessed property. The Target
Bank REO and other repossessed property are carried on the Bancorp SEC Reports,
the Bancorp Financial Statements, the Bancorp Regulatory Reports, the Target
Bank Regulatory Reports and the Target Bank Financial Statements in accordance
with GAAP.
(f) All guarantees of indebtedness owed to Bancorp or any Bancorp
Subsidiary, including those of the Federal Housing Administration, the Small
Business Administration, and other state and federal agencies, are valid and
enforceable, except to the extent enforceability thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or affecting the enforcement of creditors rights generally or
equitable principles or doctrines, and except as would not have a Bancorp
Material Adverse Effect.
(g) In originating, underwriting, servicing, and discharging Loans,
mortgages, land contracts, and contractual obligations relating thereto, either
for their own account or for the account of others, Bancorp and each Bancorp
Subsidiary have complied with all applicable terms and conditions of such
obligations and with all Applicable Laws and Regulations, contractual
requirements, and procedures with respect to such servicing, except where the
failure to comply would not have a Bancorp Material Adverse Effect.
(h) A true, correct and complete copy of the lending policy (the
"Loan Policy") and the policy for establishing the allowance for loan and lease
losses (the "Loan Loss Reserve Policy") for Bancorp and Target Bank, in each
case as in effect as of the date hereof, are set forth on Schedule 4.17(h) to
----------------
the Bancorp Disclosure Schedule.
4.18 INVESTMENTS.
-----------
(a) Set forth on Schedule 4.18(a) to the Bancorp Disclosure Schedule
----------------
is a complete and accurate list of all investment and debt securities,
mortgage-backed and related securities, marketable equity securities and
securities purchased under agreements to resell that are owned by Bancorp or any
Bancorp Subsidiary (together with any securities hereafter acquired, the
"Investment Securities"). Schedule 4.18(a) shows, as of November 30, 2002, the
----------------
applicable CUSIP numbers, the applicable maturity dates and the applicable
coupon rates of the Investment Securities, the carrying values and estimated
fair values of investment and debt securities, the gross carrying value and
estimated fair value of the mortgage-backed and related securities, and the
estimated cost and the estimated fair value of the marketable equity securities.
31
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(b) Except as set forth in Schedule 4.18(b) to the Bancorp
----------------
Disclosure Schedule, none of the Investment Securities is subject to any
restriction, whether contractual or statutory, that materially impairs the
ability of Bancorp freely to dispose of such investment at any time. With
respect to all material repurchase agreements to which Bancorp or any Bancorp
Subsidiary is a party, Bancorp or such Bancorp Subsidiary has a valid,
perfected first lien or security interest in the securities or other collateral
securing each such repurchase agreement, and the value of the collateral
securing each such repurchase agreement equals or exceeds the amount of the
debt secured by such collateral under such agreement.
(c) Except as set forth in Schedule 4.18(c) to the Bancorp
----------------
Disclosure Schedule, neither Bancorp nor any Bancorp Subsidiary has sold or
otherwise disposed of any assets in a transaction in which the acquiror of such
assets or other Person has the right, either conditionally or absolutely, to
require Bancorp or any Bancorp Subsidiary to repurchase or otherwise reacquire
any such assets.
(d) All Investment Securities that are classified as "held to
maturity," "available for sale" and "trading" held by Bancorp or any Bancorp
Subsidiary have been classified and accounted for in accordance with SFAS 115
and the intentions of Bancorp's management.
(e) There are no interest rate swaps, caps, floors, option
agreements or other interest rate risk management arrangements to which Bancorp
or any Bancorp Subsidiary is a party or by which any of its assets or properties
may be bound.
(f) A true, correct and complete copy of the policy as in effect as
of the date hereof for Bancorp and Target Bank regarding investments, funds
management and liquidity/interest rate risk (the "Asset/Liability Management
Policy") is set forth on Schedule 4.18(f) to the Bancorp Disclosure Schedule.
4.19 BANCORP BENEFIT PLANS.
---------------------
(a) Schedule 4.19(a) to the Bancorp Disclosure Schedule
----------------
contains a list and a true and correct copy (or, a description with respect to
any oral employee benefit plan, practice, policy or arrangement), including all
amendments thereto, of each compensation, consulting, employment, termination or
collective bargaining agreement, and each stock option, stock purchase, stock
appreciation right, recognition and retention, life (including split-dollar
arrangements), health, accident or other insurance, bonus, deferred or incentive
compensation, severance or separation agreement or any agreement providing any
payment or benefit resulting from a change in control, profit sharing,
retirement, or other employee benefit plan, practice, policy or arrangement of
any kind, oral or written, covering employees, former employees, directors or
former directors of Bancorp or each Bancorp Subsidiary or their respective
beneficiaries, including any employee benefit plans within the meaning of
Section 3(3) of ERISA, which Bancorp or any Bancorp Subsidiary maintains, to
which Bancorp or any Bancorp Subsidiary contributes, or under which any
employee, former employee, director or former director of Bancorp or any
Bancorp Subsidiary is covered or has benefit rights and pursuant to which any
liability of Bancorp or any Bancorp Subsidiary exists
32
38
or is reasonably likely to occur (the "Bancorp Benefit Plans"), and current
summary plan descriptions, trust agreements, and insurance contracts and IRS
Form 5500 or 5500-C (for the three most recently completed plan years) with
respect thereto. Except as set forth on Schedule 4.19(a) of the Bancorp
Disclosure Schedule, Bancorp neither maintains nor has entered into any Bancorp
Benefit Plan or other document, plan or agreement which contains any change in
control provisions which would cause an increase or acceleration of benefits or
benefit entitlements to employees or former employees of Bancorp or any Bancorp
Subsidiary or their respective beneficiaries, or other provisions, which would
cause an increase in the liability of Bancorp or any Bancorp Subsidiary or to
Purchaser as a result of the Reorganization or any related action thereafter
(as used in this Section 4.19, a "Change in Control Benefit").
The term "Bancorp Benefit Plans" as used herein refers to all plans contemplated
under the preceding sentences of this Section 4.19, provided that the term
------------
"Plan" or "Plans" is used in this Agreement for convenience only and does not
constitute an acknowledgment that a particular arrangement is an employee
benefit plan within the meaning of Section 3(3) of ERISA. No Bancorp Benefit
Plan is a multiemployer plan within the meaning of Section 3(37) of ERISA.
Neither Bancorp nor any Bancorp Subsidiary has been notified by any Applicable
Governmental Authority to amend any payments or other compensation paid or
payable by Bancorp or any Bancorp Subsidiary under this Agreement, any Bancorp
Benefit Plan or otherwise, to or for the benefit of any employee or director of
Bancorp or any Bancorp Subsidiary and to Bancorp's Knowledge or all the Bancorp
Subsidiaries, all such payments are in compliance with all applicable rules,
regulations and bulletins promulgated by the Applicable Governmental
Authorities.
(b) Each of the Bancorp Benefit Plans that is intended to be
a pension, profit sharing, stock bonus, thrift, savings or employee stock
ownership plan that is qualified under Section 401(a) of the Code ("Bancorp
Qualified Plans") has been determined by the IRS to qualify under Section
401(a) of the Code, or an application for determination of such qualification
will be timely made to the IRS prior to the end of the applicable remedial
amendment period under Section 401(b) of the Code (a copy of each such
determination letter or pending application is included in Schedule 4.19(b) of
----------------
the Bancorp Disclosure Schedule), and, to Bancorp's Knowledge, there exist no
circumstances likely to materially adversely affect the qualified status of any
such Bancorp Qualified Plan. All such Bancorp Qualified Plans established or
maintained by Bancorp or each Bancorp Subsidiary or to which Bancorp or any
Bancorp Subsidiary contribute are in compliance in all material respects with
all applicable requirements of ERISA, and are in compliance in all material
respects with all applicable requirements (including qualification and
non-discrimination requirements in effect as of the Effective Time) of the Code
for obtaining the tax benefits the Code thereupon permits with respect to such
Bancorp Qualified Plans. Except as set forth in Schedule 4.19(b) of the Bancorp
----------------
Disclosure Schedule, no Bancorp Qualified Plan is a defined benefit pension plan
that is subject to Title IV of ERISA. All accrued contributions and other
payments required to be made by Bancorp or each Bancorp Subsidiary to any
Bancorp Benefit Plan through the date hereof, have been made or reserves
adequate for such purposes as of the date hereof, have been set aside therefor
and reflected in Bancorp Financial Statements. Neither Bancorp nor any Bancorp
Subsidiary has accumulated any funding deficiency under Section 412 of the Code.
For each Bancorp Qualified Plan that is a defined benefit pension plan, the net
fair
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market value of assets under the Plan exceeds the actuarial present value of
the accumulated Plan benefits, both vested and non-vested, as determined on the
basis of the actuarial methods and assumptions used for purposes of the most
recent actuarial report for the Plan filed with the IRS. Bancorp has the right
to withdraw from the FIRF without incurring any cost, expense or liability other
than pursuant to Section 4064 of ERISA. Neither Bancorp nor any Bancorp
Subsidiary is in material default in performing any of its respective
contractual obligations under any of the Bancorp Benefit Plans or any related
trust agreement or insurance contract, and there are no material outstanding
liabilities of any such Plan other than liabilities for benefits to be paid to
participants in such Plan and their beneficiaries in accordance with the terms
of such Plan.
(c) There is no pending or, to Bancorp's Knowledge, threatened
litigation or pending claim (other than benefit claims made in the ordinary
course) by or on behalf of or against any of Bancorp Benefit Plans (or with
respect to the administration of any of such Plans) now or heretofore maintained
by Bancorp or any Bancorp Subsidiary that allege violations of any Applicable
Laws or Regulations or the terms of the Plan which are reasonably likely to
result in a Liability on the part of Bancorp or any Bancorp Subsidiary or any
such Plan.
(d) Bancorp and each Bancorp Subsidiary and all other Persons having
fiduciary or other responsibilities or duties with respect to any Bancorp
Benefit Plan are, and since the inception of each such Plan have been, in
substantial compliance with, and each such Plan is and has been operated in
substantial accordance with, its provisions and in substantial compliance with
the Applicable Laws and Regulations governing such Plan, including the rules and
regulations promulgated by the Department of Labor, the PBGC and the IRS under
ERISA, the Code or any other applicable law. No "reportable event" (as defined
in Section 4043(b) of ERISA) has occurred with respect to any Bancorp Benefit
Plan. No Bancorp Benefit Plan has engaged in or been a party to a "prohibited
transaction" (as defined in Section 406 of ERISA or Section 4975(c) of the Code)
without an exemption thereto under Section 408 of ERISA or 4975(d) of the Code.
All Bancorp Benefit Plans that are group health plans have been operated in
compliance with the group health plan continuation requirements of Section 4980B
of the Code and Sections 601-609 of ERISA and with the certification of prior
coverage and other requirements of Sections 701-702 of ERISA.
(e) Neither Bancorp nor any Bancorp Subsidiary has incurred, nor to
Bancorp's Knowledge or the Knowledge of such Bancorp Subsidiary is reasonably
likely to incur, any liability under Title IV of ERISA in connection with any
Plan subject to the provisions of Title IV of ERISA now or heretofore maintained
or contributed to by it or by Target Bank.
(f) Except as set forth on Schedule 4.19(f) to the Bancorp
----------------
Disclosure Schedule, neither Bancorp nor any Bancorp Subsidiary has made any
payments, or is or has been a party to any agreement or any Bancorp Benefit
Plan, that under any circumstances could obligate it, Target Bank, any other
Bancorp Subsidiary or any successor of any of them,
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to make any payment that is not or will not be deductible in full because of
Section 162(m) or 280G of the Code.
(g) Schedule 4.19(g) to the Bancorp Disclosure Schedule describes
----------------
any obligation that Bancorp or any Bancorp Subsidiary has to provide health or
welfare benefits to retirees or other former employees, directors or their
dependents (other than rights under Section 4980B of the Code or Section 601 of
ERISA), including information as to the number of retirees, other former
employees or directors and dependents entitled to such coverages and their ages.
(h) Schedule 4.19(h) to the Bancorp Disclosure Schedule lists: (i)
----------------
each director, officer and other employee of Bancorp and each Bancorp Subsidiary
who is eligible to receive a Change in Control Benefit, showing the amount of
each such Change in Control Benefit and the basis and methodology of the
calculation thereof, estimated compensation for calendar year 2002 based upon
compensation received to the date of this Agreement, and the individual's rate
of salary in effect on the date of this Agreement, the individual's
participation in any bonus or other employee benefit plan, and such individual's
compensation from Bancorp or any Bancorp Subsidiary for each of the calendar
years 1997 through 2002 as reported by Bancorp or each Bancorp Subsidiary on IRS
Form W-2 or Form 1099; (ii) a listing of each Bancorp Stock Option, showing the
holder thereof, the number of shares, the exercise price per share and a copy of
the award agreements relating thereto; (iii) a listing of Bancorp Restricted
Stock, showing each holder thereof, the number of shares of each holder and a
copy of the award agreements relating thereto; (iv) a listing of the
participants in the Bancorp Employee Stock Ownership Plan ("ESOP"), showing the
number of outstanding shares of Bancorp Common Stock credited to each
participant, the vesting dates thereof, and the unpaid balance of any loans
owing by the ESOP to Bancorp or any party as of the date hereof (the "ESOP
Loan"), the number of unallocated shares of Bancorp Common Stock under the ESOP;
and (v) each officer or director for whom a supplemental executive retirement,
salary continuation or deferred compensation plan or agreement is maintained,
showing the calculations of the amounts due under each such plan or agreement
and the payment schedule thereof, and the amounts accrued in the Bancorp
Financial Statements with respect thereto.
(i) Bancorp and each Bancorp Subsidiary have filed or caused to be
filed, and will continue to file or cause to be filed, in a timely manner all
filings pertaining to each Bancorp Benefit Plan with the IRS, the PBGC, the
Department of Labor, as prescribed by the Code or ERISA, or regulations issued
thereunder. All such filings, as amended, were complete and accurate in all
material respects as of the dates of such filings, and there were no
misstatements or omissions in any such filing which would have a Bancorp
Material Adverse Effect.
(j) Neither Bancorp nor any Bancorp Subsidiary is a party to or
bound by any collective bargaining agreement and, to Bancorp's Knowledge, no
labor union claims to or is seeking to represent any employees of Bancorp or
any Bancorp Subsidiary.
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(k) Neither Bancorp nor any Bancorp Subsidiary has any obligation to
any former employee, or any current employee upon retirement, under any Bancorp
Benefit Plan or otherwise, other than those disclosed in the Bancorp Disclosure
Schedules, and any Bancorp Benefit Plan can be terminated as of or after the
Effective Time without resulting in any liability to Purchaser for any
additional contributions, penalties, premiums, fees, fines, excise taxes, or
any other charges or liabilities.
4.20 ENVIRONMENTAL MATTERS.
---------------------
(a) To the Knowledge of Bancorp, there are no present or past
conditions on Bancorp Properties or Mortgaged Premises involving or resulting
from a past or present storage, spill, discharge, leak, emission, injection,
escape, dumping or release of any kind whatsoever of any Hazardous Materials or
from any generation, transportation, treatment, storage, disposal, use or
handling of any Hazardous Materials, that would have a Bancorp Material Adverse
Effect.
(b) Bancorp and each Bancorp Subsidiary are in compliance in
all material respects with all applicable Environmental Laws. Neither Bancorp
nor any Bancorp Subsidiary have received notice of, nor to their Knowledge are
there outstanding or pending, any public or private claims, lawsuits, citations,
penalties, unsatisfied abatement obligations or notices or orders of
non-compliance relating to the environmental condition of Bancorp Properties,
which have or may have a Bancorp Material Adverse Effect.
(c) To the Knowledge of Bancorp, no Bancorp Properties are
currently undergoing remediation or cleanup of Hazardous Materials or other
environmental conditions, the actual or estimated cost of which may have a
Bancorp Material Adverse Effect.
(d) To the Knowledge of Bancorp, Bancorp and each Bancorp
Subsidiary have all governmental permits, licenses, certificates of inspection
and other authorizations governing or protecting the environment necessary to
conduct its present business. Further, Bancorp warrants and represents that
these permits, licenses, certificates of inspection and other authorizations are
fully transferable, to the extent permitted by law, to Purchaser.
4.21 INTELLECTUAL PROPERTY. With respect to each item of Intellectual
---------------------
Property owned by Bancorp or any Bancorp Subsidiary, Bancorp or such Bancorp
Subsidiary possesses all right, title and interest in and to the item, free and
clear of any lien, claim, royalty interest or encumbrance. With respect to each
item of Intellectual Property that Bancorp or any Bancorp Subsidiary is licensed
or authorized to use, the license, sublicense, agreement or permission covering
such item is legal, valid, binding, enforceable and in full force and effect and
has not been breached by any party thereto. Neither Bancorp nor any Bancorp
Subsidiary has ever received any charge, complaint, claim, demand or notice
alleging any interference, infringement, misappropriation or violation with or
of any intellectual property rights of a third party, including any claims that
Bancorp or such Bancorp Subsidiary must license or refrain from using any
intellectual property rights of a third party. To Bancorp's Knowledge, neither
Bancorp nor any Bancorp Subsidiary has interfered with, infringed upon,
misappropriated or otherwise come into conflict with any intellectual property
rights of third parties and no third
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party has interfered with, infringed upon, misappropriated or otherwise come
into conflict with any intellectual property rights of Bancorp or any Bancorp
Subsidiary.
4.22 PROPERTIES.
----------
(a) Schedule 4.22(a) to the Bancorp Disclosure Schedule
----------------
contains a list and description of all Bancorp Properties as of June 30,
2002. Bancorp and each Bancorp Subsidiary have good, sufficient and marketable
title to such Bancorp Properties, except for (i) assets and properties disposed
of since such date in the ordinary course of business, (ii) Bancorp Permitted
Liens, none of which, in the aggregate, are material to the assets of Bancorp on
a consolidated basis and (iii) as set forth in Schedule 4.22(a) to the Bancorp
----------------
Disclosure Schedule. All buildings, structures, fixtures and appurtenances
comprising part of the Bancorp Properties are in good operating condition and
have been well-maintained, reasonable wear and tear excepted. Bancorp and each
Bancorp Subsidiary have title or other rights to its assets sufficient in all
material respects for the conduct of their respective businesses as presently
conducted, and such assets are free, clear and discharged of, and from any and
all liens, charges, encumbrances, security interests and/or equities. Title to
all Bancorp Properties listed on Schedule 4.22(a) as being owned by Bancorp or a
----------------
Bancorp Subsidiary is held in fee simple.
(b) Schedule 4.22(b) to the Bancorp Disclosure Schedule
----------------
contains copies of all leases of real or personal property to which Bancorp or
any Bancorp subsidiary is a party as lessee. All such leases are valid,
effective, and enforceable against the lessor in accordance with their
respective terms. There is not under any of such leases any existing default, or
any event which, with notice or lapse of time or both, would constitute a
default, with respect to either Bancorp or any Bancorp Subsidiary, or to
Bancorp's Knowledge, the other party. None of such leases contains a prohibition
against assignment by Bancorp or any Bancorp Subsidiary, by operation of law or
otherwise, or any other provision that would preclude Purchaser or any Purchaser
Subsidiary from possessing and using the leased premises or property for the
same purposes and upon the same rental and other terms upon the consummation of
the Merger as are applicable to the possession and use of such premises or
property by Bancorp or any Bancorp Subsidiary as of the date of this Agreement.
Neither Bancorp nor any Bancorp Subsidiary has made a prior assignment for
collateral purposes of any such lease.
4.23 ADA COMPLIANCE. Neither Bancorp nor any Bancorp Subsidiary has
--------------
received any written notice that any "alteration" (as such term is defined in
the Americans with Disabilities Act and the regulations issued thereunder
(collectively, the "ADA")) to the respective business properties and facilities
of Bancorp and each Bancorp Subsidiary, including automated teller machines
(collectively, the "Company Facilities") undertaken after January 26, 1992, are
not in compliance in all material respects with the ADA and the ATBCB
Accessibility Guidelines for Buildings and Facilities ("ADAAG"). Neither Bancorp
nor any Bancorp Subsidiary has received any written notice of any investigation,
proceeding or complaint, formal or informal, pending or overtly threatened
against Bancorp or any Bancorp
37
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Subsidiary in connection with the Company Facilities under ADA, ADAAG, or any
other local, state or federal law concerning accessibility for individuals with
disabilities.
4.24 FIDUCIARY ACCOUNTS. Schedule 4.24 to the Bancorp Disclosure
------------------
Schedule contains a list and a brief description of all accounts for which
Target Bank acts as a fiduciary, including accounts for which it serves as a
trustee, agent, custodian, personal representative, guardian, conservator or
investment advisor. Target Bank has administered all accounts required to be
listed in Schedule 4.24 to the Bancorp Disclosure Schedule in accordance with
the terms of the governing documents, Applicable Laws and Regulations and the
common law. The accountings for each such fiduciary account are true and correct
in all material respects and accurately reflect the assets of such fiduciary
account in all material respects.
4.25 INDEMNIFICATION. To Bancorp's Knowledge, no action or failure
---------------
to take action by any director, officer, employee or agent of Bancorp or any
Bancorp Subsidiary has occurred that may give rise to a claim or a potential
claim by any such Person for indemnification against Bancorp or any Bancorp
Subsidiary under any agreement with, or the corporate indemnification
provisions of, Bancorp or any Bancorp Subsidiary, or under any Applicable Laws
and Regulations.
4.26 INSIDER INTERESTS. Except as set forth on Schedule 4.26 to the
----------------- -------------
Bancorp Disclosure Schedule, or as otherwise disclosed in the Bancorp Disclosure
Schedule, no officer or director of Bancorp or any Bancorp Subsidiary, any
member of the Immediate Family of any such Person, and no entity that any such
Persons "controls" within the meaning of Regulation O of the FRB, has any Loan,
deposit account or any other agreement with Bancorp or any of the Bancorp
Subsidiaries, any interest in any material property, real, personal or mixed,
tangible or intangible, used in or pertaining to the business of Bancorp or any
of the Bancorp Subsidiaries, or any other interest or transaction that would be
required to be disclosed under Regulation S-K of the SEC.
4.27 ADDITIONAL DISCLOSURE ITEMS. Schedule 4.27 to the Bancorp
--------------------------- -------------
Disclosure Schedule contains the following information or copies of the
following documents, if and to the extent any of the following are not
specifically included in other Schedules to the Bancorp Disclosure Schedule or
the Bancorp SEC Reports:
(a) A list and description of each outstanding letter of
credit and each commitment to issue or confirm a letter of credit in excess of
$25,000 to which Bancorp or any Bancorp Subsidiary is a party and/or under which
it may (contingently or otherwise) have any Liability.
(b) Complete and correct copies of the certificate of
incorporation, charter and bylaws of Bancorp and each Bancorp Subsidiary.
(c) A list and description of all powers of attorney granted
by Bancorp or any Bancorp Subsidiary that are currently in force.
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44
(d) All judgments, orders, injunctions, court decrees or
settlement agreements arising out of or relating to the labor and employment
practices or decisions of Bancorp or each Bancorp Subsidiary which, by their
terms, continue to bind or affect Bancorp, any Bancorp Subsidiary or any of its
assets.
(e) All orders, decrees, memoranda, agreements or
understandings with any Applicable Governmental Authority that are binding upon
or affecting the current operations of Bancorp or any Bancorp Subsidiary (but
that are not affecting only specific deposit accounts or Loans of certain
customers of Target Bank) or any of their directors or officers in their
capacities as such.
(f) All trademarks, trade names, service marks, patents, or
copyrights, whether registered or the subject of an application for
registration, which are owned by Bancorp or any Bancorp Subsidiary or licensed
from a third party (excluding computer software programs, source codes and
related materials) (collectively, the "Intellectual Property").
(g) All contracts, agreements or commitments, or amendments
thereto, to which Bancorp and any Bancorp Subsidiary is a party that:
(i) affect ownership, title to or the use of any
Bancorp Properties;
(ii) relate to employment, severance or consulting
arrangements, or legal, tax or any similar professional service arrangements,
with any Person;
(iii) provide for the payment of commissions to or the
sharing of profits with any Person;
(iv) require the consent or approval of, or notice to,
any Person as a result of or in connection with the Merger or any merger of
Target Bank with and into the Bank;
(v) involve data processing or merchant processing;
(vi) involve the guaranty or accommodation by Bancorp
or any Bancorp Subsidiary of the Liabilities of any Person;
(vii) contain any covenant limiting the right of Bancorp
or any Bancorp Subsidiary to engage in any line of business or compete with any
Person, or limiting the right of any Person to compete with Bancorp or a Bancorp
Subsidiary or solicit its employees or customers;
(viii) relate to any license or permit that is necessary
to the operation of the business of Bancorp or any Bancorp Subsidiary;
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(ix) except for (A) the certificate of incorporation or
bylaws of Bancorp or any similar documents of any Bancorp Subsidiary (copies of
which have been provided pursuant to Section 4.27(b) above) and (B) customary
---------------
indemnification provisions in favor of purchasers of Loans permitted to be sold
under this Agreement, provide for any recourse or indemnification obligation on
the part of Bancorp or any Bancorp Subsidiary;
(x) relate to the servicing of Loans for any Person
or the sale of servicing rights with respect to any Loans;
(xi) involve forward commitments or similar arrangements
to purchase or sell mortgages, except as may relate to the sale of residential
mortgage Loans into the secondary market in the ordinary course of Bancorp's
business consistent with past practices;
(xii) involve as a party any past or present officer or
director of Bancorp or any Bancorp Subsidiary;
(xiii) is an agreement that would be required to be filed
as an exhibit under Applicable Laws and Regulations of the SEC that is not
otherwise provided pursuant to this Section 4.27(g);
---------------
(xiv) either have a term of more than one (1) year,
cannot be terminated without the payment of liquidated damages, a penalty or an
equivalent thereto in excess of $10,000, or involve an annual expenditure on the
part of Bancorp or any Bancorp Subsidiary in excess of $20,000; or
(xv) (a list of all brokered deposits including the
amount of such deposit, the name of the depositor, the interest rate, the
maturity and the name of the broker for such deposit.
(h) All environmental reports (including, without limitation,
phase one reports dated as of a recent date for all owned Bancorp Properties),
surveys, architectural drawings, consultant reports and space plans prepared
for, or in the possession or control of, Bancorp or any Bancorp Subsidiary with
respect to any Bancorp Property.
(i) A schedule reflecting the total dollar amount and total
number of deposit accounts of Target Bank, in each case broken out by zip code
of the account holder and deposit account type (e.g., demand or certificate of
deposit) (the "Deposit Schedule"), as of December 16, 2002.
4.28 DEFAULTS. There has not been any default, or the occurrence of
--------
an event which, with notice or lapse of time or both, would constitute a default
in any obligation to be performed by Bancorp or any Bancorp Subsidiary under any
contract or commitment. Neither Bancorp nor any Bancorp Subsidiary has waived
any right under any contract or commitment, except where any such default or
waiver, individually or in the aggregate with any other such defaults or
waivers, would not have a Bancorp Material Adverse Effect. To Bancorp's
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Knowledge, no other party to any contract with or commitment to Bancorp or any
Bancorp Subsidiary is in material default in any material obligation to be
performed by such party.
4.29 OPERATIONS SINCE JUNE 30, 2002. Between June 30, 2002, and the
------------------------------
date hereof, there has not been, except as set forth on Schedule 4.29 to the
-------------
Bancorp Disclosure Schedule:
(a) any increase in the compensation payable or to become
payable by Bancorp or any Bancorp Subsidiary to any officer or director;
(b) any payment of dividends by Bancorp or any Bancorp
Subsidiary, or any distribution by any of them, whether directly or indirectly,
of any assets of any kind whatsoever, on or in redemption or as the purchase
price of any of their respective capital stocks, or any prepayment of any
indebtedness to any stockholder;
(c) any mortgage, pledge or subjection to lien, charge or
encumbrance of any kind of or on any asset, tangible or intangible, of Bancorp
or any Bancorp Subsidiary, except for Bancorp Permitted Liens;
(d) any creation or assumption of indebtedness, including the
extension or renewal of any existing indebtedness, or the increase thereof, by
Bancorp or any Bancorp Subsidiary for borrowed money, other than in the ordinary
course of business, none of which is in default;
(e) the establishment of any new, or an increase in the
formula for or rate of contributions to or benefits under, any existing
retirement, pension, profit sharing, stock bonus, employee stock ownership,
savings or thrift plan, or any similar plan of deferred compensation, whether
funded or unfunded and whether qualified or unqualified (within the meaning of
the Code) by Bancorp or any Bancorp Subsidiary;
(f) any action by Bancorp or any Bancorp Subsidiary seeking
any cancellation of, or a decrease in the insured limit under, or increase in
the deductible amount of the insured's retention under, any policy of insurance
or bond maintained directly or indirectly by Bancorp or any Bancorp Subsidiary
on any of their respective assets or businesses, including fire and other
hazard insurance on its assets, automobile liability insurance, general public
liability insurance, directors and officers liability insurance, and blanket
bond.
(g) any change in independent auditors, or the historic
methods or practices of accounting of Bancorp or any Bancorp Subsidiary (other
than as required by GAAP or regulatory accounting principles), or in its system
for maintaining its equipment and real estate;
(h) any purchase by Bancorp or any Bancorp Subsidiary of any
fixed asset that either (i) has a purchase price individually or in the
aggregate in excess of $25,000 or (ii) is outside of the ordinary course of
business;
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(i) any sale or transfer of any asset in excess of $25,000 of
Bancorp or any Bancorp Subsidiary, except for loans and marketable securities
sold in the ordinary course of business at market prices, or any other sale or
transfer of any asset of Bancorp or any Bancorp Subsidiary outside of the
ordinary course of business;
(j) any write-down of any asset in excess of $25,000;
(k) any cancellation or compromise of any debt to, claim by
or right of, Bancorp or any Bancorp Subsidiary, except in the ordinary course
of business;
(l) any amendment or termination of any material contract or
commitment to which Bancorp or any Bancorp Subsidiary is a party;
(m) any agreement, contract or commitment entered into, or
agreed to be entered into, except in the ordinary course of business;
(n) any theft, damage, destruction or loss of or to any
property or properties owned or used by Bancorp, whether or not covered by
insurance which could have a Bancorp Material Adverse Affect;
(o) any Bancorp Material Adverse Effect; or
(p) any agreement to do any of the foregoing in this
Section 4.29.
- ------------
4.30 CORPORATE RECORDS. The corporate record books, transfer books
------------------
and stock ledgers of Bancorp and each Bancorp Subsidiary are complete and
accurate in all material respects, and reflect all meetings, consents and other
material actions of the organizers, incorporators, stockholders, boards of
directors and committees of the boards of directors of Bancorp and each Bancorp
Subsidiary, and all transactions in their respective capital stocks, since
their respective inceptions.
4.31 UNDISCLOSED LIABILITIES. Bancorp and each Bancorp Subsidiary
-----------------------
have no Liabilities except Liabilities that are reflected, disclosed or reserved
in the Bancorp Financial Statements or the Target Bank Interim Financial
Statements.
4.32 FAIRNESS OPINION. Bancorp has received from Howe Barnes
----------------
Investments, Inc. an opinion dated the date of this Agreement to the effect
that, subject to the terms, conditions and qualifications set forth therein, as
of the date thereof, the Merger Consideration to be received by the stockholders
of Bancorp pursuant to the Merger is fair to such stockholders from a financial
point of view.
4.33 NO BROKERS. Except for Howe Barnes Investments, Inc., no agent,
----------
broker, investment banker or other firm or Person or officer or director of
either Purchaser or Bancorp is or will be entitled to any broker's or finder's
fee or any other commission, bonus or similar fee in connection with any aspect
of the Reorganization. Schedule 4.33 to the Bancorp
-------------
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Disclosure Schedule describes the compensation that may be payable to Howe
Barnes Investments, Inc. in connection with the Reorganization.
4.34 BANCORP DISCLOSURE SCHEDULE FURNISHED. The Bancorp Disclosure
-------------------------------------
Schedule is final and complete as of the date of this Agreement, and has been
delivered to Purchaser.
ARTICLE V
COVENANTS OF BANCORP
5.1 CONDUCT OF BUSINESS BY BANCORP UNTIL THE EFFECTIVE TIME. During
-------------------------------------------------------
the period commencing on the date hereof and continuing until the Effective
Time, Bancorp agrees that:
(a) Bancorp and each Bancorp Subsidiary will carry on their
respective businesses in, and only in, the usual, regular and ordinary course in
substantially the same manner as heretofore conducted, maintain their respective
books in accordance with GAAP, conduct their respective businesses and
operations only in accordance with safe and sound banking and business
practices, and, to the extent consistent with such businesses, use their Best
Efforts to preserve intact their present business organizations, to keep
available the services of their present officers and employees, and to preserve
their relationships with customers, suppliers and others having business
dealings with them, in each case to the end that their respective goodwill and
going businesses shall be unimpaired at the Effective Time.
(b) Without limitation of its obligations under Section
-------
5.1(a), unless required by this Agreement or otherwise consented to in writing
- ------
and in advance by Purchaser (which consent shall not be unreasonably withheld),
Bancorp shall, and shall cause each Bancorp Subsidiary to:
(i) Comply with all Applicable Laws and Regulations;
(ii) File in a timely manner all Bancorp SEC Reports,
Bancorp Regulatory Reports, Target Bank Regulatory Reports, state and federal
tax returns, and all other reports that it is required to file under Applicable
Laws and Regulations;
(iii) Comply with all material leases, contracts,
licenses and agreements;
(iv) Maintain its properties and assets in their present
states of repair, order and condition, reasonable wear and tear excepted, and
maintain and keep in full force and effect all policies of insurance and bonds
presently in effect, including the insurance of accounts with the FDIC;
(v) Make and commit to make Loans only in accordance
with safe and sound banking practices and on terms and conditions that are
consistent with the Loan policies and procedures of Target Bank, as established
by the board of directors of Target Bank prior to the date of this Agreement;
and
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(vi) Maintain the allowance for loan and lease losses of
Target Bank in accordance with the Loan Loss Reserve Policy and in a manner that
is adequate in all material respects under the requirements of GAAP and
Applicable Laws and Regulations to provide for possible losses, net of
recoveries relating to Loans previously charged off, on Loans outstanding
(including accrued interest receivable) and on other assets.
(c) Unless required by this Agreement or otherwise consented
to in advance and in writing by Purchaser (which consent shall not be
unreasonably withheld), Bancorp shall not, and shall not cause or permit any
Bancorp Subsidiary to:
(i) Amend or propose to amend its certificate of
incorporation, articles of association, charter, bylaws or similar
organizational or corporate documents;
(ii) Issue, sell, grant or otherwise permit to become
outstanding any additional shares of Bancorp Common Stock, preferred stock or
any other capital stock or equity securities of Bancorp, securities convertible
into or exchangeable for its equity securities, warrants, stock appreciation
rights, options or other rights to acquire its equity securities (including
pursuant to the Bancorp Stock Option Plan or similar stock based employee
compensation plan), or any bonds, debt securities or other securities of
Bancorp; provided that shares of Bancorp Common Stock may be issued in
connection with the exercise of Bancorp Stock Options;
(iii) Redeem, purchase, acquire or offer to acquire any
shares of capital stock of Bancorp or any Bancorp Subsidiary or other securities
of Bancorp or any Bancorp Subsidiary, except that a portion of the shares of
Bancorp Common Stock held by the ESOP may be redeemed in accordance with
Section 7.5(f) of this Agreement;
- --------------
(iv) Split, combine or reclassify any outstanding shares
of capital stock of Bancorp or any Bancorp Subsidiary, or declare, set aside or
pay any dividend or other distribution payable in cash, stock, property or
otherwise with respect to shares of capital stock of Bancorp or any Bancorp
Subsidiary, except that Target Bank may pay dividends to Bancorp in amounts
sufficient to enable Bancorp to pay its ordinary operating expenses and accrued
liabilities, and the accounting, legal, printing, investment banking, other
expenses and costs relating to the Reorganization;
(v) Acquire, by merger, exchange, consolidation,
acquisition of stock or assets or otherwise, any corporation, partnership,
limited liability company, joint venture or other business organization or
division or material assets thereof, or assets or deposits that are material to
Bancorp on a consolidated basis, except in exchange for debts previously
contracted, including the Target Bank REO;
(vi) Change the Loan Policy, Asset/Liability Management
Policy, Loan Loss Reserve Policy or any other policies and practices,
including those with respect to liquidity management and cash flow planning,
marketing, loan and deposit pricing or fee schedules, deposit origination,
lending, budgeting, profit and tax planning, accounting or any other material
aspect of its business or operations, except for such changes as may be required
44
50
in the reasonable opinion of the management of Bancorp to respond to then
current market or economic conditions or as may be required by Applicable
Governmental Authorities; provided, however, that Bancorp notifies Purchaser of
any such change, and the express terms thereof, in writing as soon as
practicable, but in no event later than three (3) Business Days after such
change is made; and provided, further, that any change to the Loan Policy, Loan
Loss Reserve Policy or Asset/Liability Management Policy be adopted at a meeting
of the board of directors of Bancorp or Target Bank, as the case may be, or of
the appropriate committee of the board of directors, to which a representative
of the Purchaser has been invited by delivery of a written notice pursuant to
Section 7.1(b), which meeting is actually held on the date and at the time set
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forth in such notice, and is otherwise held in accordance with such notice;
(vii) File any applications for additional branches, open
any new office or branch, close any current office or branch, or relocate
operations from existing locations;
(viii) Incur or become subject to any indebtedness for
borrowed money except (A) for Federal Home Loan Bank borrowings with a term of
one (1) year or less, (B) for non-brokered deposit accounts established in the
ordinary course of business on terms and conditions, including interest rates,
that are not more favorable in any material respect than those available from
local commercial banks in arms' length transactions in the ordinary course of
business, and (C) as necessary for Target Bank to cover daylight overdrafts and
other temporary indebtedness incurred in the ordinary course of business;
(ix) Mortgage, pledge or subject any of its assets to
any lien or other encumbrance except (A) in the ordinary course of business,
(B) liens and encumbrances for current property taxes not yet due and payable
or being contested in good faith, (C) Bancorp Permitted Liens, and (D) liens and
encumbrances resulting from Federal Home Loan Bank borrowings permitted
hereunder;
(x) Discharge or satisfy any material lien or
encumbrance on its assets or repay any material indebtedness for borrowed money,
except for scheduled repayments
of (A) Federal Home Loan Bank advances, (B) Bancorp's term debt, and (C) other
obligations incurred and repaid in the ordinary course of business;
(xi) Invest in, purchase or lease any real estate,
except for investments in Target Bank REO;
(xii) Make any single or group of related capital
expenditures or commitments therefor in excess of $25,000, other than pursuant
to binding commitments existing on the date hereof and disclosed herein, and as
necessary to maintain its assets in good repair;
(xiii) Enter into any contract or agreement to buy, sell,
exchange or otherwise deal in any assets or series of assets in a single
transaction in excess of $25,000 in aggregate value, except for the origination,
purchase and sale of mortgage Loans and Loan
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51
participations, the purchase of Investment Securities as permitted herein, and
sales of Target Bank REO and other repossessed properties or the acceptance of
a deed in lieu of foreclosure;
(xiv) Enter into any new, or modify, amend, renew or
extend (through action or inaction) the term of any existing, lease, contract
or license that has a term of more than one (1) year, or that involves the
payment by Bancorp or any Bancorp Subsidiary of more than $20,000 in the
aggregate, other than any Loan permitted under Section 5.1(c)(xx) and (xxi);
----------------------------
(xv) Terminate any material lease, contract or license;
(xvi) Allow any material lease, contract or license to
terminate or expire, or any option to terminate, extend or renew the term
thereof to lapse or expire, without providing Purchaser with at least thirty
(30) days prior notice thereof;
(xvii) Institute, settle or agree to settle any claim,
action or proceeding, whether or not initiated in a court of law, involving an
expenditure in excess of $25,000 without providing Purchaser with at least
fifteen (15) days prior notice thereof;
(xviii) Issue any certificates of deposit having a
maturity longer than sixty (60) months or otherwise in any manner not in the
ordinary course of business and consistent with past practices and the
Asset/Liability Management Policy; or accept or renew any brokered deposits;
(xix) Make, commit to make, renew, extend the term of or
increase the amount of any Loan to any Person other than in the ordinary course
of business, consistent with past practices and the Loan Policy;
(xx) Subject to Applicable Laws and Regulations, make,
commit to make, renew, extend the term or increase the amount of any Loan
with an outstanding principal amount in excess of $50,000 to any Person if such
Loan or any other Loans to such Person or an Affiliate or member of the
Immediate Family of such Person is on the "watch list" or similar internal
report of Bancorp or Target Bank, or has been classified as "substandard,"
"doubtful," "loss," or "other Loans specially mentioned or listed as a
"potential problem loan," unless Bancorp or any Bancorp Subsidiary determines to
do so at a meeting of the board of directors of Bancorp or Target Bank, as the
case may be, or of the appropriate committee of the board of directors, to which
a representative of Purchaser has been invited by delivery of a written notice
pursuant to Section 7.1(b), which actually held on the date an at the time set
--------------
forth in such notice, and is otherwise held in accordance with such notice;
provided, however, that nothing in this subsection shall prohibit Bancorp or
Target Bank from honoring any contractual obligation in existence on the date
of this Agreement;
(xxi) Subject to Applicable Laws and Regulations, make,
commit to make, renew, extend the term or increase the amount of any Loan to any
executive officer (as defined in Regulation O of the Federal Reserve) or
director of Bancorp or any Bancorp
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Subsidiary, any five percent (5%) stockholder of Bancorp, or any Affiliate of
any of the foregoing;
(xxii) Cancel or release any material Loan, other debt
or claims, release any collateral therefor, or waive any rights of material
value, except in the ordinary course of business or upon payment in full;
(xxiii) Sell any Investment Securities except as may be
required in the opinion of the management of Bancorp to respond to then
current market or economic conditions or as may be required by any Applicable
Governmental Authority, provided that Bancorp notifies Purchaser of any such
sale as soon as practicable, but in no event more than three (3) Business Days
after such sale is consummated;
(xxiv) Purchase any Investment Securities that are not
the subject of deliberations of participants on a conference call concerning the
purchase of Investment Securities or at any meeting of the investment committee
of the board of directors of Bancorp or Target Bank, as the case may be, on or
at which a representative of Purchaser has been invited by delivery of a written
notice pursuant to Section 7.1(b), which conference call actually takes place on
--------------
the date and at the time set forth in such notice, and is otherwise conducted in
accordance with such notice; provided, however, that in the event the
representative of Purchaser at any such meeting objects to a proposed purchase
of any Investment Securities, Bancorp or Target Bank, as the case may be, shall
not purchase such Investment Securities; and, provided, further, that,
notwithstanding anything to the contrary set forth in this Section 5.1(c)(xxiv),
--------------------
in all events, Bancorp and Target Bank shall be permitted to (A) purchase
Investment Securities in accordance with its Asset/Liability Management Policy
and consistent with past practices so long as Bancorp causes Target Bank to
maintain cash and cash equivalent in an aggregate amount of not less than
$35,000,000 following each such purchase and (B) replace existing Investment
Securities at maturity by purchasing United States Treasury or agency securities
having maturities (without regard to any call feature) of one (1) year or less
and similar value;
(xxv) Change the manner in which its portfolio of
Investment Securities is classified or reported in accordance with SFAS 115 or
otherwise, or restructure or materially change its Investment Securities
portfolio or its gap position;
(xxvi) Purchase or otherwise acquire any investments,
direct or indirect, in any derivative securities, financial futures or
commodities or enter into any interest rate swap, floors and option agreements,
or other similar interest rate management agreements;
(xxvii) Enter into any new, or amend, modify or terminate
any existing employment, severance, retention, covenant not to compete or
similar agreements or arrangements with any officer, director or employee,
except as expressly provided by this Agreement;
(xxviii) Subject to the provisions of the Letter of
Understanding, grant any wage, salary or compensation increases, any bonuses,
or any severance, termination or
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53
retention payments to (A) any officer or director other than pursuant to a
program that has been approved in advance and in writing by Purchaser, and
(B) to any employee who is not an officer in a manner that is inconsistent with
past practices;
(xxix) Hire any employee with an annual salary in excess
of $25,000 except for employees at will who are hired at a comparable or
lesser salary to replace employees who have resigned or whose employment has
otherwise been terminated;
(xxx) Amend the Bancorp Benefit Plans except as
required by Applicable Laws and Regulations to consummate any aspect of the
Reorganization in accordance with Applicable Laws and Regulations and in
accordance with a plan or program that has been approved in advance and in
writing by Purchaser, or adopt any other profit sharing, stock option, pension,
retirement, employee stock ownership, restricted stock, incentive compensation,
deferred compensation, bonus, severance, retention, vacation, insurance or other
employee benefit plan, trust, fund, contract or arrangement for the benefit or
welfare of any employees;
(xxxi) Make contributions to any Bancorp Benefit Plan
except as required by the terms of such plans or agreements as in effect as of
the date of this Agreement, and as contemplated by this Agreement; or
(xxxii) Agree or commit to do any of the foregoing.
With respect to any written request by Bancorp for Purchaser's consent to any
non-permitted action of Bancorp or Target Bank described in this Section 5.1,
-----------
Purchaser shall not withhold its consent unreasonably, and Bancorp shall be
entitled to conclusively presume that Purchaser has consented to any such action
unless Bancorp shall have received Purchaser's written objection to such action
within five (5) Business Days of the date of Purchaser's actual receipt of such
written request.
(d) Subject to any specific provisions of this Agreement, it
is the intent of the parties to this Agreement that neither Purchaser nor any
Purchaser Subsidiary by reason of this Agreement shall be deemed (until
consummation of the Reorganization) to control, directly or indirectly, Bancorp
or any Bancorp Subsidiary shall not exercise, or be deemed to exercise, directly
or indirectly, a controlling influence over the management or policies of
Bancorp or any Bancorp Subsidiary.
5.2 STOCKHOLDERS' MEETING; PROXY STATEMENT.
--------------------------------------
(a) The board of directors of Bancorp has determined that this
Agreement and the transactions contemplated hereby are in the best interests of
Bancorp and its stockholders, and has directed that this Agreement and the
transactions contemplated hereby be submitted to Bancorp's stockholders for
adoption and approval at a duly held meeting of such stockholders. Bancorp
shall, as soon as practicable, take all steps necessary to duly call, give
notice of, convene and hold a special meeting of its stockholders and take such
actions as shall be appropriate for the special meeting for the purpose of
obtaining stockholder approval of this
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54
Agreement and the transactions contemplated hereby, including the Merger (the
"Stockholders' Meeting").
(b) Bancorp shall prepare a proxy statement for the purpose of
holding the Stockholders' Meeting (the "Proxy Statement") and Bancorp shall
submit the Proxy Statement to the SEC within forty-five (45) days after the date
of this Agreement. The Proxy Statement shall be prepared in accordance with all
applicable requirements of the Securities Exchange Act and the rules and
regulations promulgated thereunder.
(c) Purchaser shall furnish such information concerning
Purchaser and the Bank as is necessary to prepare the Proxy Statement, insofar
as it relates to Purchaser or the Bank, in accordance with all applicable
requirements of the Securities Exchange Act and the rules and regulations
promulgated thereunder. Purchaser agrees promptly to advise Bancorp if at any
time prior to the Stockholders' Meeting any information provided by Purchaser
for use in the Proxy Statement becomes incorrect or incomplete in any material
respect, and to provide to Bancorp the information needed to correct such
inaccuracy or omission.
(d) Bancorp shall prepare the initial draft of the Proxy
Statement and deliver such initial draft to Purchaser at least ten (10) Business
Days prior to the date on which it will be filed with the SEC. Bancorp shall
deliver a final proposed Proxy Statement to Purchaser and its counsel at least
two (2) Business Days prior to filing it with the SEC, and shall provide
Purchaser with copies of all responses from or written communications from SEC
relating to the Proxy Statement. Bancorp shall also deliver a copy of the final
Proxy Statement to Purchaser promptly after the SEC has completed its review
thereof.
(e) Bancorp shall mail the Proxy Statement to its stockholders
as soon practicable, but in no event later than thirty (30) days after the date
the SEC has completed its review of the Proxy Statement (the "Mailing Date").
(f) Bancorp shall retain, at Bancorp's expense, a proxy
solicitation firm designated by Purchaser promptly following Purchaser's
request, and shall cooperate fully with requests of such proxy solicitation
firm.
5.3 RECOMMENDATION OF APPROVAL. Subject to its fiduciary duties,
--------------------------
the board of directors of Bancorp shall unanimously recommend to its
stockholders the approval of this Agreement and the Reorganization, including
the Merger, and shall include such recommendation in the Proxy Statement; and
shall otherwise use its Best Efforts to the extent consistent with its fiduciary
duties to obtain such stockholders' approval.
5.4 CERTAIN ACTIONS.
---------------
From and after the date hereof until the earlier of the Effective Time
or the termination of this Agreement in accordance with the terms hereof, none
of Bancorp, Target Bank or any other Affiliate of Bancorp or any of their
respective directors, officers, employees, investment bankers, financial
advisors, counsel, accountants, representatives or agents, shall, directly or
indirectly: (i) make, encourage, facilitate, solicit, induce, assist or
49
55
initiate any inquiry or proposal, or participate in any negotiations with, or
provide any information to, any corporation, partnership, agent, attorney,
financial advisor, or other Person (other than Purchaser, an Affiliate
of Purchaser or an officer, employee or other authorized representative of
Purchaser or such Affiliate, or counsel for Purchaser or its directors and
financial advisor, solely for use in connection with the transactions
contemplated hereby) relating to any Competing Proposal; (ii) furnish any
information to any Person in connection with, or participate in any negotiations
with respect to, or knowingly take any other action designed to facilitate, any
Competing Proposal; or (iii) participate in any discussions regarding any
Competing Proposal; provided, however, that if, at any time prior to approval of
this Agreement by the stockholders of Bancorp, the Board of Directors of Bancorp
determines in good faith, after receipt of advice from outside counsel, that the
failure to provide such information or to participate in such negotiations or
discussions would likely be inconsistent with its fiduciary duties to Bancorp's
stockholders under applicable law, Bancorp may, in response to a proposal that
was not solicited by it and that did not result from a breach of this Section
-------
5.4(a), subject to Bancorp giving Purchaser at least two Business Days' written
- ------
notice of its intention to do so, (x) furnish information with respect to
Bancorp to any Person pursuant to a customary confidentiality agreement provided
that a copy of all such information is delivered simultaneously to Purchaser,
and (y) participate in negotiations regarding such proposal. Bancorp shall
promptly notify Purchaser orally and in writing of any inquiry, request for
information or any proposal in connection with a Competing Proposal, the
material terms and conditions of such request or proposal (including a copy
thereof, if in writing, and any related correspondence) and the identity of the
Person making such inquiry, request or proposal. Bancorp will keep Purchaser
reasonably informed of the status and details (including amendments or proposed
amendments) of such request or proposal on a current basis, and will respond
promptly in writing to any reasonable inquiry by Purchaser concerning the
foregoing. Bancorp shall immediately cease and terminate any existing
solicitation, initiation, encouragement, activity, discussion or negotiation
with any Person conducted heretofore by Bancorp or its representatives with
respect to the foregoing.
(b) For purposes of this Agreement, "Competing Proposal"
shall mean, whether in the form of an actual or intended proposal to or
from, a signed agreement with, a completed action by or other communication
with, as the case may be, any Person (or group of Persons) other than Purchaser
and the Purchaser Subsidiaries (a "Third Party"), any of: (i) a merger (whether
or not Bancorp is the surviving corporation) or consolidation, or any similar
transaction (other than the Merger) of any company with either Bancorp or any
significant subsidiary (as defined in Rule 1.2 of Regulation S-X of the SEC) (a
"Significant Subsidiary") of Bancorp; (ii) a purchase, lease or other
acquisition of all or substantially all the assets of either Bancorp or any
Significant Subsidiary of Bancorp; (iii) a purchase or other acquisition (which,
in the case of the stockholders reflected on Schedule 5.4 to the Bancorp
------------
Disclosure Schedule, shall occur after the date of this Agreement), in one or a
series of related transactions, of "beneficial ownership" by any "person" or
"group" (as such terms are defined in Section 13(d)(3) of the Securities
Exchange Act) (including by way of merger, consolidation, share exchange or
otherwise) which would cause such person or group to become (or, in the case of
the shareholders reflected on Schedule 5.4 to the Bancorp Disclosure Schedule,
------------
would result in such person or group becoming or being) the beneficial
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56
owner of securities representing 15% or more of the voting power of either
Bancorp or any Significant Subsidiary of Bancorp; (iv) a tender or exchange
offer to acquire securities representing 15% or more of the voting power of
Bancorp; (v) a public proxy or consent solicitation made to stockholders of
Bancorp seeking proxies in opposition to any proposal relating to any aspect of
the Reorganization that has been recommended by the board of directors of
Bancorp; or (vi) the making of a bona fide proposal to Bancorp or its
stockholders, by public announcement or written communication, that is or
becomes the subject of public disclosure, to engage in one or more of the
transactions referenced in clauses (i) through (v) above. For purposes of this
Agreement, a "Superior Proposal" shall mean any Competing Proposal (on its most
recently amended or modified terms, if amended or modified) that the Board of
Directors of Bancorp determines in its good faith judgment (based on, among
other things, the advice of its financial advisor) to be more favorable to
Bancorp's stockholders than the Merger, taking into account all relevant factors
(including whether, in the good faith judgment of the Board of Directors of
Bancorp, after obtaining the advice of its financial advisor, the Third Party is
reasonably able to finance the Competing Proposal, and any proposed changes to
this Agreement that may be proposed by Purchaser in response to such Competing
Proposal).
5.5 VOTING AGREEMENT. Concurrently with the execution and delivery
----------------
of this Agreement, Bancorp shall deliver to Purchaser voting agreements in the
form set forth in Exhibit C hereto signed by all directors and executive
officers of Bancorp, who shall hold not less than 15.85% of the issued and
outstanding shares of Bancorp Common Stock. Bancorp further agrees to use its
commercially reasonable good faith efforts to obtain and deliver to Purchaser,
as promptly as practicable, a signed voting agreement in the form of Exhibit C
---------
hereto from any Person who becomes a director or executive officer of Bancorp
or Target Bank or otherwise becomes a reporting person of Bancorp pursuant to
Section 16 of the Securities Exchange Act.
5.6 BANK MERGER. If so requested by Purchaser, Bancorp shall take
-----------
all action necessary and appropriate to cause Target Bank to enter into an
agreement of merger (the "Bank Merger Agreement") pursuant to which Bank and
Target Bank shall merge (the "Bank Merger"), at a time after the consummation
of the Merger as may be determined by Purchaser, with Bank being the surviving
bank thereof (the "Surviving Bank") in accordance with applicable laws and
regulations. The Bank Merger Agreement shall be in a form reasonably
satisfactory to Purchaser.
ARTICLE VI
COVENANTS OF PURCHASER
6.1 REGULATORY APPLICATIONS.
-----------------------
(a) Purchaser shall, within forty-five (45) days of the date
hereof, file applications or notices with the Federal Reserve and any other
Applicable Governmental Authorities, and shall use its Best Efforts to respond
as promptly as practicable to all inquiries received concerning said
applications.
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(b) Purchaser shall deliver a draft of the nonconfidential
portions of all regulatory applications and notices to Bancorp prior to filing
them, and shall provide Bancorp with copies of the nonconfidential portions of
all responses from or written communications from Regulatory Authorities
relating to the Merger or this Agreement to the extent permitted by law.
Purchaser shall also deliver a final copy of the nonconfidential portions of
all regulatory applications and notices to Bancorp promptly after they are
filed with the appropriate Regulatory Authority.
6.2 INDEMNIFICATION; DIRECTOR AND OFFICER LIABILITY INSURANCE.
---------------------------------------------------------
(a) Subject to applicable limitations imposed by Applicable
Regulatory Authorities, from and after the Effective Time through the third
(3rd) anniversary of the Effective Time, Purchaser agrees to indemnify and hold
harmless each present and former director and officer of Bancorp and the Bancorp
Subsidiaries (each, an "Indemnified Party") against any costs or expenses
(including reasonable attorneys' fees), judgments, fines, amounts paid in
settlement, losses, claims, damages, or liabilities incurred in connection with
any claim, action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of matters existing or occurring at
or prior to the Effective Time (including the transactions contemplated by this
Agreement), whether asserted or claimed prior to, at or through the third (3rd)
anniversary of the Effective Time, as they are from time to time incurred, in
each case to the fullest extent such person would have been indemnified or have
the right to advancement of expenses pursuant to Bancorp's certificate of
incorporation and bylaws, or the corresponding documents of the applicable
Bancorp Subsidiary, as the case may be, as in effect on the date of this
Agreement. Notwithstanding anything to the contrary contained in this paragraph,
nothing contained herein shall require Purchaser to indemnify any person who was
a director or officer of Bancorp or any Bancorp Subsidiary to a greater extent
than Bancorp or any Bancorp Subsidiary is, as of the date of this Agreement,
required to indemnify any such person.
(b) Any Indemnified Party wishing to claim indemnification
under Section 6.2(a), upon learning of any such claim, action, suit, proceeding,
--------------
or investigation, shall promptly notify Purchaser thereof. In the event of any
such claim, action, suit, proceeding, or investigation (whether arising before
the Effective Time or through the third (3rd) anniversary thereof) (i) Purchaser
shall have the right to assume the defense thereof and Purchaser shall not be
liable to any Indemnified Party for any legal expenses of other counsel or any
other expenses subsequently incurred by such Indemnified Party in connection
with the defense thereof, except that if Purchaser elects not to assume such
defense or counsel for the Indemnified Party advises that there are issues which
raise conflicts of interest between Purchaser and the Indemnified Party, the
Indemnified Party may retain counsel satisfactory to them, and Purchaser shall
pay the reasonable fees and expenses of such counsel for the Indemnified Party
promptly as statements therefor are received; provided, however, that Purchaser
shall be obligated pursuant to this Section 6.2(b) to pay for only one firm of
--------------
counsel for all Indemnified Parties in any jurisdiction unless the use of one
counsel for such Indemnified Parties would present such counsel with a conflict
of interest, and (ii) such Indemnified Party shall cooperate in the defense of
any such matter.
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(c) Purchaser shall maintain Bancorp's existing directors'
and officers' liability insurance policy (or provide a policy providing
comparable coverage and amounts on terms no less favorable to the persons
currently covered by Bancorp's existing policy, including Purchaser's existing
policy if it meets the foregoing standard) covering persons who are currently
covered by such insurance for a period of three (3) years after the Effective
Time; provided, however, that in no event shall Purchaser be obligated to
expend, in order to maintain or provide insurance coverage pursuant to this
Section 6.2(c), an amount in excess of 150% of the amount of the annual premium
- --------------
paid by Bancorp as of the date hereof for such insurance (the "Maximum Insurance
Amount"); provided further that, prior to the Effective Time, Bancorp shall
notify the appropriate directors' and officers' liability insurers of the Merger
and of all pending or threatened claims, actions, suits, proceedings or
investigations asserted or claimed against any Indemnified Party, or
circumstances likely to give rise thereto to the extent known to Bancorp, in
accordance with terms and conditions of the applicable policies. If the
aggregate amount of the annual premiums necessary to maintain or procure such
insurance coverage exceeds the Maximum Insurance Amount, Purchaser shall obtain
the most advantageous coverage obtainable for an annual premium equal to the
Maximum Insurance Amount.
(d) The provisions of this Section 6.2 are intended to be
----------
for the benefit of, and shall be enforceable by, each Indemnified Party.
6.3 CREATION OF ADVISORY BOARD. Purchaser shall cause Purchaser Bank
--------------------------
to establish an advisory board within 30 days of the Effective Time and,
promptly after its establishment, shall appoint certain of the members of the
board of directors of Target Bank to such advisory board. Purchaser shall cause
Purchaser Bank to pay each member of such advisory board a fee of $500 for each
meeting of the advisory board that such member attends.
ARTICLE VI
ADDITIONAL AGREEMENTS
7.1 ACCESS TO INFORMATION; CONFIDENTIALITY.
--------------------------------------
(a) Between the date hereof and the Effective Time, upon
reasonable notice, Bancorp will afford, and will cause each Bancorp Subsidiary
to afford, to the officers, accountants, attorneys and authorized
representatives of Purchaser, reasonable access during normal business hours to
the corporate and banking offices, personnel, properties, contracts,
commitments, books and records and independent accountants of Bancorp and each
Bancorp Subsidiary. Bancorp shall furnish Purchaser with all such statements
(financial and otherwise), records and documents or copies thereof, and other
information concerning the business and affairs of Bancorp and each Bancorp
Subsidiary, as Purchaser shall from time to time reasonably request. Bancorp
further agrees to use its Best Efforts to cause its independent accountants and
such other Persons as the parties shall mutually agree upon to fully cooperate
with Purchaser and its representatives in connection with the right of access
granted herein.
(b) Bancorp shall allow Purchaser's president, or any other
officer designated by Purchaser, (i) to attend the meetings of the boards of
directors and board
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committees of Bancorp and Target Bank, including the loan committee and
investment committee of Bancorp and Target Bank, as an observer, and (ii) to
participate by conference call in each and every meeting held by Bancorp or any
Bancorp Subsidiary at which any decision is considered concerning the purchase
of Investment Securities. Bancorp shall give reasonable (and no less than five
(5) Business Days' prior written) notice to Purchaser of the date, time and
place of each such meeting or conference call (and any adjournments and
postponements thereof), and, if known, the agenda for or business to be
discussed at each such meeting or conference call. Bancorp shall also provide to
Purchaser all written agendas and meeting materials provided to boards of
directors of Bancorp and Target Bank in connection with such board and board
committee meetings. Notwithstanding the foregoing, Bancorp shall not be required
to permit Purchaser's president (or any other representative of Purchaser) to
attend any portion of any meeting, or to provide to Bancorp with any materials,
that relate to this Agreement or a Competing Proposal, or that involve matters
protected by the attorney-client privilege. All references to "meetings" in
this Section 7.1(b) and in any section of this Agreement that references the
--------------
Section 7.1(b) shall include any adjournment or postponement of such meeting.
- --------------
(c) Except for information and documents that do not
constitute "Evaluation Material" as defined in the Confidentiality Agreement,
all information and documents to which Purchaser is given access pursuant
hereto shall be subject to the Confidentiality Agreement. All information
furnished by Bancorp or any Bancorp Subsidiary to Purchaser pursuant hereto
shall be treated as the sole property of Bancorp until the consummation of the
Merger contemplated hereby, and if the Merger shall not occur, Purchaser shall
destroy or return such information to Bancorp to the extent required by the
Confidentiality Agreement.
7.2 SUPPLEMENTAL REPORTS AND INFORMATION.
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(a) Bancorp shall deliver to Purchaser complete copies of the
Bancorp Annual Report on Form 10-K (or Form 10-KSB) for the fiscal year ending
June 30, 2002, all Bancorp Quarterly Reports on Form 10-Q (or Form 10-QSB), all
Bancorp Current Reports on Form 8-K and all Bancorp proxy materials and related
Bancorp annual reports to stockholders that are filed with the SEC after the
date hereof and prior to the Effective Time as soon as practicable, but in no
event more than three (3) Business Days after the applicable filing date.
(b) Bancorp shall deliver to Purchaser complete copies of all
Bancorp Regulatory Reports and Target Bank Regulatory Reports that are filed
during the period after the date hereof and prior to the Effective Time as soon
as practicable, but in no event more than three (3) Business Days after the
applicable filing date.
(c) Bancorp will furnish to Purchaser (i) a copy of each other
material report filed by it with any other Applicable Governmental Authority,
including any federal, state or local taxing authority and any federal or state
bank regulatory or securities authority during the period after the date hereof
and prior to the Effective Time as soon as practicable, but in no event more
than three (3) Business Days after the applicable filing date, and (ii) all
other
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information concerning its business, properties and personnel as Purchaser
may reasonably request.
(d) During the period after the date hereof and prior to the
Effective Time, Bancorp will provide to Purchaser, as soon as reasonably
available but not later than the 25th day of each calendar month or, in the case
of item (i) below, not later than the third day following their delivery to the
applicable board of directors, (i) the reports of management of Bancorp and
Target Bank to the boards of directors of Bancorp and the Target Bank,
respectively, for the most recently available month, including to the extent
available, delinquency schedules, additions to loan loss reserves, and payroll
reports, and (ii)schedules of all Loans made during the immediately preceding
month which set forth the name of the borrower, the amount of and interest rate
for each Loan and the collateral provided by the borrower.
(e) Bancorp will furnish to Purchaser one or more Deposit
Schedules (in addition to the one provided pursuant to Section 4.27(i)) if
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Purchaser so requests, with each such schedule being as of a date chosen by
Purchaser that is no earlier than five (5) Business Days following the date of
Purchaser's request. The furnishing of the first such Deposit Schedule shall be
at Bancorp's expense, with the furnishing of any and all subsequent Deposit
Schedules being at Purchaser's expense.
(f) Bancorp shall use its Best Efforts to furnish to
Purchaser, within ten (10) Business Days of the date hereof, copies of any and
all selling agreements and other contracts relating to the sale of insurance to
which The Boulevard Inc. is a party.
7.3 TITLE REPORTS. As soon as practical after the date hereof, but
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in any event no later than thirty (30) days after the date hereof, Bancorp
shall, at Purchaser's expense, obtain and deliver to Purchaser, with
respect to all real estate owned or held pursuant to a ground lease by Bancorp
and any Bancorp Subsidiary, an owner's preliminary report of title covering a
date subsequent to the date hereof, issued by Chicago Title and Trust or such
other title insurance company as is reasonably acceptable to Purchaser, showing
fee simple title in Bancorp or such Bancorp Subsidiary in such real estate or
the appropriate leasehold interest of Bancorp or such Bancorp Subsidiary,
subject only to (i) the standard exceptions to title customarily contained in a
policy on ALTA 1970 Owner's Form B; (ii) liens of current state and local
property taxes which are not delinquent or subject to penalty; and (iii) other
liens, encumbrances, restrictions and conditions of record that do not
materially adversely affect the value or use of such real estate.
7.4 RESOLUTION OF BANCORP BENEFIT PLANS. Bancorp and Purchaser shall
-----------------------------------
cooperate in effecting the following treatment of the Bancorp Benefit Plans,
except as mutually agreed upon by Purchaser and Bancorp prior to the Effective
Time:
(a) At the Effective Time, Purchaser (or a Purchaser
Subsidiary) shall be substituted for Bancorp as the sponsoring employer under
those Bancorp Benefit Plans with respect to which Bancorp or Target Bank is a
sponsoring employer immediately prior to the Effective Time, and shall assume
and be vested with all of the powers, rights, duties,
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obligations and liabilities previously vested in Bancorp or Target Bank with
respect to each such Plan. Except as otherwise provided herein, each such Plan
and any Bancorp Benefit Plan sponsored by Bancorp or Target Bank shall be
continued in effect by Purchaser or any applicable Purchaser Subsidiary after
the Effective Time, subject to the power reserved to Purchaser or any applicable
Purchaser Subsidiary under each such Plan to subsequently amend or terminate the
Plan in accordance with Applicable Laws and Regulations. Bancorp, Target Bank
and Purchaser will use all reasonable efforts (i) to effect said substitutions
and assumptions, and take such other actions contemplated under this Agreement,
and (ii) to amend such Plans as to the extent necessary to provide for said
substitutions and assumptions, and such other actions contemplated under this
Agreement.
(b) At or as promptly as practicable after the Effective Time
as Purchaser shall reasonably determine, Purchaser shall provide, or cause any
Purchaser Subsidiary to provide, to each employee of Bancorp and Target Bank as
of the Effective Time ("Bancorp Employees") the opportunity to participate in
each employee benefit plan and program maintained by Purchaser or the
Purchaser Subsidiaries for similarly situated employees (the "Purchaser Benefit
Plans"); provided, however, that with respect to such Purchaser Benefit Plans,
Bancorp Employees shall be given credit for service with Bancorp or Target Bank
in determining eligibility for and vesting in benefits thereunder, but not for
purposes of benefit accrual; provided further that Bancorp Employees shall not
be subject to any waiting periods or pre-existing condition exclusions under the
Purchaser Benefit Plans to the extent that such periods are longer or
restrictions impose a greater limitation than the periods or limitations imposed
under Bancorp Benefit Plans. Nothing in the preceding sentence shall obligate
Purchaser to provide or cause to be provided any benefits duplicative of those
provided under any Bancorp Benefit Plan continued pursuant to subparagraph (a)
above, including, but not limited to, extending participation in any Purchaser
Benefit Plan which is an "employee pension benefit plan" under ERISA with
respect to any year during which allocations are made to Bancorp Employees under
a Bancorp Qualified Plan. Except as otherwise provided in this Agreement, the
power of Bancorp, Purchaser, Target Bank or any Purchaser Subsidiary to amend or
terminate any benefit plan or program, including any Bancorp Benefit Plan, shall
not be altered or affected. Moreover, this Agreement shall not confer upon any
Bancorp employee any rights or remedies hereunder and shall not constitute a
contract of employment or create any right, to be retained or otherwise, in
employment with Purchaser, Target Bank or any Purchaser Subsidiary.
(c) Each of CFO and CEO shall have executed a Letter of
Understanding (each a "Letter of Understanding") with Purchaser that sets forth
certain matters concerning their employment after the Reorganization, copies of
which are attached as Schedule 7.4(c) to the Bancorp Disclosure Schedule.
(d) Immediately prior to the Effective Time, all outstanding
shares of Bancorp Restricted Stock that are then unvested shall become fully
vested.
(e) Notwithstanding anything in this Agreement to the
contrary, all retention, severance, covenant not to compete, termination
payments, acceleration of benefit
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vesting, and other compensation paid by Bancorp or Target Bank, or as provided
for in this Agreement, any Letter of Understanding, any Bancorp Benefit Plan
or otherwise, including any Change in Control Benefit, shall not violate any
prohibitions which are imposed by the Applicable Governmental Authorities, or
which the Applicable Governmental Authorities otherwise deem to constitute
unsafe and unsound banking practices or unreasonable compensation giving effect
to any obligations of Purchaser or the Purchaser Subsidiary as provided herein
or in any Letter of Understanding.
(f) As of the Effective Time, the ESOP shall be terminated in
accordance with its terms. Prior to the Effective Time, Bancorp shall be
permitted to make such changes to the ESOP as it deems appropriate to carry out
the provisions of the ESOP and this Section 7.4(f), and shall file a request for
determination with the IRS with respect to the termination of the ESOP. Bancorp
shall submit to Purchaser for its approval such ESOP changes before they are
made and the request for determination before it is filed with the IRS.
Purchaser acknowledges that approval of the Reorganization by the stockholders
of Bancorp shall constitute a "change in control" under the ESOP and that,
pursuant to the terms thereof, the ESOP trustee will sell a sufficient number of
unallocated shares of Bancorp Common Stock to repay the then outstanding ESOP
Loan in full, and that the ESOP trustee may sell such shares to Bancorp. As soon
as practicable after receipt of a favorable determination letter from the IRS
with respect to the termination, the assets of the ESOP shall be distributed to
the participants and beneficiaries or transferred pursuant to an eligible
rollover distribution as a participant or beneficiary may direct (including a
rollover into a qualified plan of Purchaser, if approved by Purchaser, in which
the individual is then participating). Except for a quarterly payment due on or
about March 31, 2003 in an amount not to exceed $47,000 and as otherwise
expressly provided above in this Section 7.4(f), from and after the date of this
--------------
Agreement through the Effective Time, neither Bancorp nor Target Bank shall make
any contributions to the ESOP that will be used to repay, nor shall they repay,
the ESOP Loan or any amounts due thereunder. Bancorp shall, and shall cause
Target Bank to, cooperate with Purchaser and take any action requested by
Purchaser to prepare for the termination of the ESOP as of the Effective Time.
(g) Bancorp shall have caused Target Bank to adopt the
amendments to the Security Federal Bank & Trust Employee Severance Compensation
Plan set forth in Exhibit D attached hereto.
(h) Immediately prior to the Effective Time, Bancorp and
Target Bank shall terminate the Target Bank Supplemental Executive Retirement
Plan.
(i) Bancorp shall withdraw from and terminate its
participation in the FIRF, effective March 31, 2003, and shall notify the PBGC
and all other required parties of such withdrawal in accordance with the
requirements of Section 4041 of ERISA and the requirements of the FIRF. Bancorp
further agrees to take all other actions requested by Purchaser or required
under ERISA or under the FIRF in connection with such withdrawal, including,
but not limited to, satisfying any related liability as required under Section
4064 of ERISA.
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(j) Neither Bancorp nor Target Bank shall make any
contributions, other than employee elective deferrals, to the Target Bank 401(k)
Profit Sharing Plan.
(k) No later than forty-five (45) days after the date hereof,
Bancorp shall prepare and submit to the DOL the delinquent Annual
Return/Report of Employee Benefit Plan on Form 5500 for the ESOP with respect to
plan years 2000 and 2001. Bancorp shall comply with the DOL's Delinquent Filer
Voluntary Compliance Program in connection with such preparation and submission,
and shall pay all applicable penalty amounts. Bancorp shall provide Purchaser
with copies of these submissions on the same day they are made with the DOL.
7.5 COOPERATION.
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(a) Each of Purchaser and Bancorp covenants that, unless this
Agreement is terminated as provided herein, it will use its Best Efforts to
bring about the Reorganization as soon as practicable. Subject to the terms and
conditions herein provided, each of Purchaser and Bancorp agrees to use all
reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, all things necessary, proper or advisable under Applicable
Laws and Regulations to consummate and make effective the Reorganization. In
case at any time any further action is reasonably requested by one party as
being necessary or desirable to carry out the purposes of this Agreement, the
other party agrees to take such further action.
(b) Bancorp will cooperate in the preparation by Purchaser of
such applications to the Applicable Governmental Authorities and any other
regulatory authorities as may be necessary in connection with the Regulatory
Approvals. Purchaser and Bancorp will each cooperate in the preparation of such
applications, statements or materials as may be required to be furnished to the
stockholders of Bancorp or filed or submitted to Applicable Governmental
Authorities in connection with the Merger, and with solicitation of the approval
by stockholders of Bancorp in respect thereof.
(c) Bancorp will cooperate and will cause Target Bank to
cooperate with Purchaser in obtaining any consent, authorization or approval
of, or any exemption by, any Applicable Governmental Authority or other third
party that must be obtained or made by any of them in connection with the
Merger, or the taking of any other action contemplated hereby.
(d) If necessary to expedite or facilitate the Closing, the
Regulatory Approvals and any other aspect of the Reorganization, the
parties agree that, at the election of Purchaser, Purchaser may restructure the
transaction as a merger of Bancorp with and into Purchaser or with and into an
acquisition subsidiary of the Bank, provided that any such restructuring shall
not result in any change in the Merger Consideration, change the federal income
tax treatment of the transactions contemplated hereunder, or delay the Closing
or Purchaser's receipt of the Regulatory Approvals. In the event such election
is made, Bancorp will take or perform any additional reasonably necessary or
advisable steps to enable Purchaser to restructure the transaction in such
manner.
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(e) Bancorp agrees that it shall, and shall cause Target Bank
and the other Bancorp Subsidiaries, to: (i) make any accounting adjustments
or entries to its books of account and other financial records; (ii) make
adjustments to Target Bank's loan loss reserve; (iii) sell or transfer any
investment securities held by it; (iv) charge-off any Loan; (v) create any new
reserve account or make additional provisions to any other existing reserve
account; (vi) make changes in any accounting method; (vii) accelerate, defer or
accrue any anticipated obligation, expense or income item; (viii) subject to
regulatory approval, declare and pay immediately prior to the Effective Time a
dividend from Target Bank to Bancorp in an amount not to exceed $16,000,000;
(ix) make any other adjustments which would affect the financial reporting of
the Surviving Corporation, on a consolidated basis after the Effective Time; and
(x) in the case of the Bancorp Subsidiaries, cause their directors and
shareholders to take such corporate actions as may be necessary to properly
reflect the ownership of outstanding common stock issued by any such Bancorp
Subsidiary and to otherwise cause the corporate books and records of any such
Bancorp Subsidiary to be in order, in each case as Purchaser shall reasonably
request; provided, however, that neither Bancorp nor Target Bank shall be
obligated to take any such requested action until immediately prior to the
Closing and at such time as all conditions precedent to Bancorp's obligations
under this Agreement (except for the completion of actions to be taken at the
Closing) have been satisfied, and no such adjustment which Bancorp or Target
Bank would not have been required to make but for the provisions of this Section
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7.5(e) in and of itself shall result in a breach of any warranty or
- ------
representation made herein, have any effect on Bancorp's Adjusted Stockholders'
Equity, change the amount of the Merger Consideration or the Option Spread
to be paid to the holders of Bancorp Common Stock and the Bancorp Stock Options,
or delay the Closing or Purchaser's receipt of the Regulatory Approvals. In
connection with item (viii) above, Bancorp shall, no later than the date on
which Purchaser files the application contemplated in Section 6.1(a), file an
--------------
application with the OTS for approval of a dividend (the "OTS Application") from
Target Bank to Bancorp of up to $16,000,000, which dividend shall be declared
and paid immediately prior to the Effective Time pursuant to this Section
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7.5(e). Bancorp shall use its Best Efforts to respond as promptly as practicable
- ------
to all inquiries received from the OTS or any other Applicable Governmental
Authority concerning the OTS Application. Purchaser shall prepare the initial
draft of the OTS Application and deliver such initial draft to Bancorp within
thirty (30) days after the date of this Agreement. Bancorp shall cooperate fully
with Purchaser in providing such information as may be required in the OTS
Application and in connection with any and all responses to OTS comments or
inquiries relating to the OTS Application. Bancorp shall provide Purchaser with
all responses or written communications from the OTS relating to the OTS
Application. Bancorp shall deliver a final copy of the OTS Application and any
responses to OTS comments or inquiries relating to the OTS Application to
Purchaser promptly after they are filed with the OTS.
(f) Bancorp will cooperate and cause The Boulevard Inc. to
cooperate with Purchaser in providing any notice to, and requesting any consent,
authorization or approval from, any Person that Purchaser determines should be
provided or requested pursuant to any selling agreement or other contract
relating to the sale of insurance to which The Boulevard Inc. is a party.
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7.6 NOTIFICATION OF CERTAIN MATTERS.
-------------------------------
(a) Each party shall give prompt notice to the other parties
of (i) the occurrence or failure to occur of any event or the discovery of
any information, which occurrence, failure or discovery would be likely to cause
any representation or warranty on its part contained in this Agreement to be
untrue, inaccurate or incomplete after the date hereof or, in case of any
representation or warranty given as of a specific date, would be likely to cause
any such representation on its part contained in this Agreement to be untrue,
inaccurate or incomplete in any material respect as of such specific date and
(ii) any material failure of such party to comply with or satisfy any covenant
or agreement to be complied with or satisfied by it hereunder.
(b) From and after the date hereof to the Effective Time, and
at and as of the Effective Time, Bancorp shall supplement or amend any of
its representations and warranties which apply to the period after the date
hereof by delivering monthly updates to the Bancorp Disclosure Schedule (each, a
"Disclosure Schedule Update") to Purchaser with respect to any matter hereafter
arising which, in the good faith judgment of Bancorp, would render any such
representation or warranty after the date of this Agreement materially
inaccurate or incomplete as a result of such matter arising. A Disclosure
Schedule Update shall be provided to Purchaser on or before the 25th day of each
calendar month. A Disclosure Schedule Update that reflects the breach of any
warranty or representation made by Bancorp in this Agreement (any and all
breaches so reflected in a Disclosure Schedule Update, the "Disclosure Schedule
Related Breach") shall not cure or be deemed to cure the Disclosure Schedule
Related Breach.
7.7 PRESS RELEASES. Purchaser and Bancorp shall coordinate all
--------------
publicity relating to any aspect of the Reorganization and, except as otherwise
required by Applicable Laws and Regulations, or with respect to employee
meetings, neither party shall issue any press release, publicity statement or
other public notice relating to the Agreement or any aspect of the
Reorganization without obtaining the prior consent of the other, which consent
shall not be unreasonably withheld.
ARTICLE VI
CONDITIONS
8.1 CONDITIONS TO THE OBLIGATIONS OF PURCHASER. Notwithstanding any
------------------------------------------
other provision of this Agreement, the obligations of Purchaser to consummate
the Merger are subject to the following conditions precedent:
(a) The representations and warranties made by Bancorp in
Sections 4.1, 4.2 and 4.4 of this Agreement shall have been true and
- -------------------------
correct as of the date of this Agreement and shall be true and correct as of the
Effective Time as though made on and as of such time with regard to any
Disclosure Schedule Update. Each other representation and warranty made by
Bancorp in this Agreement or in any other document delivered by Bancorp or any
Bancorp Subsidiary pursuant to this Agreement: (i) that is not qualified as to
materiality, Bancorp Material Adverse Change or Bancorp Material Adverse Effect,
shall have been true and correct in all material respects as of the date of this
Agreement; and (ii) that is qualified in any respect
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as to materiality, Bancorp Material Adverse Change or Bancorp Material Adverse
Effect, shall have been true and correct as of the date of this Agreement. In
addition, all of the representations and warranties that are referenced in
clauses (i) and (ii) of the immediately preceding sentence shall be true and
correct as of the Effective Time as though made on and as of such time;
provided, however, that for all purposes of this Section 8.1(a), such
--------------
representations and warranties shall be deemed to be so true and correct as of
the Effective Time unless the failure or failures of such representations and
warranties to be true and correct, either individually or in the aggregate, and
without giving effect to any qualification as to materiality, Bancorp Material
Adverse Change or Bancorp Material Adverse Effect set forth in such
representations or warranties, will have or are reasonably likely to have a
Bancorp Material Adverse Effect.
(b) Bancorp shall have performed in all material respects all
of its obligations and shall have performed or complied in all of the
material respects with all agreements and covenants required by this Agreement
and in any other document delivered by Bancorp or any Bancorp Subsidiary
pursuant to this Agreement to be performed by or complied with by Bancorp prior
to or at the Effective Time.
(c) Except as specifically contemplated herein, there shall
not have been any action taken, or any Applicable Law or Regulation
enacted, promulgated or issued which would prohibit Purchaser's ownership or
operation of all or a material portion of Bancorp's business or assets, whether
immediately at the Effective Time or as of some future date, whether specified
or to be specified, or which would compel Purchaser to dispose of or hold
separate all or a material portion of Bancorp's business or assets, whether
immediately at the Effective Time or as of some future date, whether specified
or to be specified, or which would render Purchaser or Bancorp unable to
consummate any aspect of the Reorganization.
(d) To the extent the consummation of the Reorganization
requires that Bancorp or any Bancorp Subsidiary, as the case may be, obtain the
consent or waiver of the other party to any material lease, license, loan or
inancing agreement or other contract or agreement to which Bancorp or any
Bancorp Subsidiary, as the case may be, is a party, such consent or waiver
shall have been obtained, unless the failure to obtain such consent or waiver
would not have a Bancorp Material Adverse Effect.
(e) No action, suit, proceeding or claim shall have been (i)
instituted or made by any Person, or (ii) threatened by any Person, in each case
relating to the Merger or the validity or propriety of any aspect of the
Reorganization that would materially and adversely affect the consummation of
the Reorganization in the reasonable opinion of Purchaser.
(f) The aggregate number of Dissenting Shares shall not exceed
ten percent (10%) of the outstanding shares of Bancorp Stock at the Effective
Time.
(g) Bancorp's Adjusted Stockholders' Equity for each of the
ten (10) Business Days immediately preceding the Closing Date shall be not less
than the sum of (i) $36,145,000 plus (ii) the Aggregate Option Exercise Price
plus (iii) any tax benefit reflected in
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Bancorp's consolidated stockholders' equity related to the exercise of
Bancorp Stock Options prior to the Effective Time plus (iv) the positive
difference, if any, between (A) an amount equal to 1.25% of the average
aggregate outstanding principal amount of the Loans during such period and (B)
the average amount of the allowance for loan and lease losses of Target Bank
during such period, as approved by the certified public accountants selected by
Purchaser.
(h) Messrs. Hyland and Hunt shall have complied with the terms
of their respective Letter of Understanding with Purchaser.
(i) From the date hereof to the Effective Time, there shall
be and have been no change that would have or would reasonably be expected to
have a Bancorp Material Adverse Effect from that which was represented and
warranted on the date of this Agreement.
(j) All parties to voting agreements delivered pursuant to
Section 5.4 hereof shall have fully performed their obligations thereunder.
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(k) Immediately prior to the Effective Time, (i) the total
outstanding demand, NOW, savings and money market deposits of Target Bank shall
not be less than $67,500,000; and (ii) the total deposits of Target Bank shall
be not less than $141,500,000.
(l) Purchaser shall have received written evidence, in form
and substance acceptable to Purchaser in its sole discretion, reflecting that
Bancorp shall have no outstanding unpaid, unaccrued, or unrecorded liabilities,
except for liabilities and expenses that have reduced Adjusted Stockholder's
Equity. Notwithstanding anything to the contrary in the immediately preceding
sentence, Bancorp shall have paid in full all Bancorp Transactional Expenses.
(m) Bancorp shall have tendered for delivery all of the
certificates, documents and other items set forth in Section 2.10 of this
------------
Agreement by and substance reasonably satisfactory to Purchaser.
8.2 CONDITIONS TO THE OBLIGATIONS OF BANCORP. Notwithstanding any
----------------------------------------
other provision of this Agreement, the obligations of Bancorp to consummate the
Merger are subject to the following conditions precedent:
(a) Each of the representations and warranties made by
Purchaser in this Agreement or in any other document delivered by Purchaser or
any Purchaser Subsidiary pursuant to this Agreement: (i) that is not qualified
as to materiality, Purchaser Material Adverse Change or Purchase Material
Adverse Effect, shall have been true and correct in all material respects as of
the date of this Agreement; and (ii) that is qualified as to materiality,
Purchaser Material Adverse Change or Purchaser Material Adverse Effect, shall
have been true and correct as of the date of the Agreement. In addition, all of
the representations and warranties referenced in the immediately preceding
sentence shall be true and correct as of the Effective Time as though made on
and as of the Effective Time; provided, however, that for all purposes of this
Section 8.2(a), such representations and warranties shall be deemed to be
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so true and correct as of the Effective Time unless the failure or failures of
such representations and warranties to be true and correct, either individually
or in the aggregate, and without giving effect to any qualification as to
materiality, Purchaser Material Adverse Change or Purchaser Material Adverse
Effect set forth in such representations or warranties, will have or are
reasonably likely to have a Purchaser Material Adverse Effect.
(b) Purchaser shall have performed in all material respects
all of its obligations and shall have performed or complied in all material
respects with all of the agreements and covenants required by this Agreement and
in any other document delivered by Purchaser or any Purchaser Subsidiary
pursuant to this Agreement to be performed by or complied with by Purchaser
prior to or at the Effective Time.
(c) Purchaser shall have tendered for delivery all of the
certificates, documents and other items set forth in Section 2.9 of this
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Agreement, in form and substance reasonably satisfactory to Bancorp.
(d) Purchaser shall have deposited with the Paying Agent a
sufficient amount of cash to pay the aggregate Merger Consideration.
8.3 CONDITIONS TO THE OBLIGATIONS OF THE PARTIES. Notwithstanding
--------------------------------------------
any other provision of this Agreement, the obligations of Purchaser on the one
hand, and Bancorp on the other hand, to consummate the Merger are subject to the
following conditions precedent:
(a) No preliminary or permanent injunction or other order by
any federal or state court that prevents the consummation of the Merger shall
have been issued and shall remain in effect. No statute, rule or regulation
shall have been enacted, promulgated or enforced by any Applicable Governmental
Authority that prohibits or makes illegal consummation of the Merger.
(b) This Agreement and the Reorganization, including the
Merger, shall have been duly approved by the requisite vote of the stockholders
of Bancorp at a meeting duly called and held for such purpose.
(c) Purchaser shall have received the Regulatory Approvals to
acquire Bancorp and to consummate the Reorganization and all required waiting
periods relating thereto shall have expired; provided, however, that Purchaser
shall have no obligation to accept nonstandard conditions or restrictions in
such Regulatory Approvals.
ARTICLE VI
TERMINATION; AMENDMENT; WAIVER
9.1 TERMINATION. This Agreement may be terminated at any time prior
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to the Effective Time pursuant to any of the following actions, provided that
the applicable action is approved by the Board of Directors of the terminating
party(ies):
(a) by mutual written consent of Purchaser and Bancorp;
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(b) by either Purchaser or Bancorp, if any of the conditions
to such party's obligation to consummate any aspect of the Reorganization shall
have become impossible to satisfy prior to the Termination Date (unless such
impossibility shall be due to the action or failure to act in breach of this
Agreement by the party seeking to terminate this Agreement);
(c) by either Purchaser or Bancorp (subject to the limitations
set forth below) at any time in the event the stockholders of Bancorp fail to
approve this Agreement in a vote taken at a meeting duly convened for that
purpose; provided, however, that Bancorp shall not have the right to terminate
this Agreement pursuant to this Section 9.1(c) if it has failed to comply in all
--------------
material respects with its obligations under Sections 5.2 and 5.3;
--------------------
(d) by Purchaser or Bancorp in the event of (i) the failure of
any representation or warranty contained herein or in any schedule or document
delivered hereto to be true and correct, or (ii) a breach by the other party of
any covenant or agreement contained herein or in any schedule or document
delivered pursuant hereto, which failure or breach would result in the failure
to satisfy any closing conditions set forth in Section 8.1 hereof, in the case
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of Purchaser, or Section 8.2 hereof, the case of Bancorp;
-----------
(e) by either party after the Termination Date, in the event
the Merger has not been consummated by such date (unless the failure to
consummate the Merger by such time is due to the failure of the party seeking
to terminate this Agreement to perform its obligations set forth herein);
(f) by Bancorp, if (i) Bancorp has complied with the
provisions of Section 5.4, (ii) Bancorp's board of directors shall have
-----------
determined, in its good faith judgment and in accordance with Section 5.4, that
-----------
it has received a Superior Proposal and that it would be in the best interests
of Bancorp's stockholders to pursue such Superior Proposal, and (iii) Bancorp
shall have tendered, in immediately available funds, the payments contemplated
in Section 9.2(a); provided, however, that Bancorp may not terminate this
--------------
Agreement pursuant to this Section 9.1(f) until the expiration of five (5)
--------------
Business Days after the Superior Proposal referenced in this Section 9.1(f) has
--------------
been delivered to Purchaser, together with such other information required
pursuant to Section 5.4 and a summary of the terms of any such Superior
-----------
Proposal; or
(g) by Purchaser, if, after the date hereof, any Third Party
shall have commenced or made a Competing Proposal, and thereafter the board of
directors of Bancorp shall have withdrawn, or materially and adversely modified
or changed its recommendation of this Agreement or any aspect of the
Reorganization.
9.2 TERMINATION FEES.
----------------
(a) In the event this Agreement is terminated (i) by Bancorp
as provided in Section 9.1(f), or (ii) by Purchaser as provided in
--------------
Section 9.1(g), then Bancorp shall pay to Purchaser, in immediately available
- --------------
funds, an amount equal to $2,000,000 within ten (10) Business Days after demand
for payment by Purchaser following such termination.
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(b) If this Agreement is terminated by Purchaser pursuant to
Section 9.1(b) or 9.1(d) due to the failure of any condition under
- -------------- ------
Section 8.1 or 8.3(b), Bancorp shall pay to Purchaser, in immediately available
- ----------- ------
funds, an amount equal to $250,000 within ten (10) Business Days after demand
for payment by Purchaser following such termination; provided, however, that
Bancorp shall have no obligation pursuant to this Section 9.2(b) if Purchaser
--------------
has terminated this Agreement pursuant to Section 9.1(b) or 9.1(d) solely due
-------------- ------
to the failure of the condition in Section 8.1(f) and the aggregate number of
--------------
Dissenting Shares does not exceed fifteen percent (15%) of the outstanding
shares of Bancorp Common Stock at the Effective Time.
(c) In the event Purchaser has not received, in full, the payment
contemplated in Section 9.2(a) and this Agreement is terminated for any reason,
--------------
other than (i) pursuant to Section 9.1(a), (ii) by Bancorp pursuant to Section
------------- -------
9.1(b) or 9.1(d) due to the failure of any condition under Section 8.2, or (iii)
- ----- ----- -----------
by Purchaser pursuant to Section 9.1(b) or 9.1(d) due to the failure of the
-------------- ------
condition set forth in Section 8.1(e)(ii), 8.3(a) or 8.3(c), and both of the
------------------ ------ ------
following conditions are satisfied:
(A) Bancorp has received, or a Third Party has
commenced or made, a Competing Proposal prior to the termination of
this Agreement; and
(B) Bancorp enters into an agreement (the "Signing
Event") relating to a Competing Proposal within eighteen (18) months
following the termination of this Agreement,
then Bancorp shall pay to Purchaser, in immediately available funds, an amount
equal to $2,000,000 within ten (10) Business Days after demand for payment by
Purchaser following the Signing Event.
(d) In the event this Agreement is terminated by Bancorp
pursuant to Section 9.1(b) or 9.1(d) due to the failure of a condition under
-------------- ------
Section 8.2 or 8.3(c), Purchaser shall pay to Bancorp, in immediately available
- ----------- ------
funds, an amount equal to $250,000 within ten (10) Business Days after demand
for payment by Bancorp following such termination.
(e) Notwithstanding anything contained in this Agreement to the
contrary, the payment of the termination fee(s) pursuant to the provisions of
this Section 9.2 is intended by the parties to be, and shall constitute,
-----------
liquidated damages and shall be the sole and exclusive remedy and shall be in
lieu of any and all claims that the party terminating this Agreement that is
entitled to such fee and its officers, directors and stockholders have, or might
have against the other parties and their respective officers, directors and
stockholders for any claims arising from, or relating in any way to, this
Agreement or the Reorganization, and the party terminating this Agreement that
is entitled to such termination fee and its officers, directors and stockholders
shall not have any other rights or claims against the other parties and their
respective officers, directors and shareholders.
9.3 EXPENSES. Except as provided elsewhere herein, Purchaser and
--------
Bancorp shall each bear and pay all costs and expenses incurred by it or on its
behalf in connection with the
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transactions contemplated hereunder, including fees and expenses of its own
financial or other consultants, investment bankers, accountants and counsel.
In the event one of the parties hereto files suit to enforce this Section 9.3
-----------
or a suit seeking to recover costs and expenses or damages for breach of this
Agreement, the costs, fees, charges and expenses (including attorneys' fees and
expenses) of the prevailing party in such litigation (and any related
litigation) shall be borne by the non-prevailing party.
9.4 SURVIVAL OF AGREEMENT. In the event of termination of this
---------------------
Agreement by either Purchaser or Bancorp as provided in Section 9.1, this
-----------
Agreement shall forthwith become void and have no effect except that the
agreements contained in Sections 9.2 and 9.3 hereof shall survive the
------------ ---
termination hereof.
9.5 AMENDMENT. This Agreement may be amended by the parties hereto
---------
by action taken by their respective boards of directors at any time before or
after approval hereof by the stockholders of Bancorp but, after such approval,
no amendment shall be made which changes the form of consideration or adversely
affects or decreases the value of the consideration to be received by the
stockholders of Bancorp without the further approval of such stockholders or
which in any other way adversely affects the rights of stockholders of either
Bancorp or Purchaser without the further required approval of the stockholders
so affected. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto. Purchaser and Bancorp
may, without approval of their respective boards of directors, make such
technical changes to this Agreement, not inconsistent with the purposes hereof
and thereof, as may be required to effect or facilitate any governmental
approval or acceptance of the Merger or of this Agreement or to effect or
facilitate any filing or recording required for the consummation of any aspect
of the Reorganization.
9.6 WAIVER. Any term, provision or condition of this Agreement
------
(other than requirements for stockholders' approval and required approvals of
the Applicable Governmental Authorities) may be waived in writing at any time by
the party which is, or the stockholders of which are, entitled to the benefits
hereof. Each and every right granted to any party hereunder, or under any other
document delivered in connection herewith or therewith, and each and every right
allowed it by law or equity, shall be cumulative and may be exercised from time
to time. The failure of either party at any time or times to require performance
of any provision hereof shall in no manner affect such party's right at a later
time to enforce the same. No waiver by any party of a condition or of the breach
of any term, covenant, representation or warranty contained in this Agreement,
whether by conduct or otherwise, in any one or more instances shall be deemed to
be or construed as a further or continuing waiver of any such condition or
breach or a waiver of any other condition or of the breach of any other term,
covenant, representation or warranty of this Agreement. No investigation, review
or audit by Purchaser of Bancorp or Bancorp of Purchaser prior to or after the
date hereof shall estop or prevent either party from exercising any right
hereunder or be deemed to be a waiver of any such right, or affect the
warranties or representations of either party as set forth herein.
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ARTICLE X
GENERAL PROVISIONS
10.1 SURVIVAL. All representations, warranties, covenants and
--------
agreements of the parties in this Agreement or in any instrument delivered by
the parties pursuant to this Agreement (other than the agreements, covenants and
obligations set forth herein which are contemplated to be performed after the
Effective Time) shall not survive the Effective Time except as provided for in
Section 9.4.
- -----------
10.2 NOTICE. All notices and other communications hereunder shall
------
be in writing and shall be deemed given if delivered personally, by facsimile
transmission or by registered or certified mail to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice) and shall be deemed to be delivered on the date so delivered:
(a) if to Buyer: Standard Bancshares, Inc.
7800 West 95th Street
Hickory Hills, Illinois 60457
Telephone: (708) 499-2000
Facsimile: (708) 598-1796
Attention: Lawrence P. Kelley,
President and Chief
Executive Officer
and
Standard Bancshares, Inc.
2400 W. 95th Street
Evergreen Park, Illinois 60805
Telephone: (708) 499-2000
Facsimile: (708) 499-5214
Attention: H. Patrick Berg,
Senior Vice President
with a copy to: Barack Ferrazzano Kirschbaum Perlman
& Nagelberg LLC
333 West Wacker Drive, Suite 2700
Chicago, Illinois 60606
Telephone: (312) 984-3222
Facsimile: (312) 984-3150
Attention: Edwin S. del Hierro, Esq.
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(b) if to Bancorp: Security Financial Bancorp, Inc.
9321 Wicker Avenue
St. John, Indiana 46373
Telephone: (219) 365-4344
Facsimile: (219) 365-6130
Attention: John P. Hyland,
President and Chief
Executive Officer
with a copy to: Muldoon Murphy & Faucette LLP
5101 Wisconsin Avenue, NW
Washington, DC 20016
Telephone: (202) 686-4917
Facsimile: (202) 966-9409
Attention: Paul M. Aguggia, Esq.
10.3 SPECIFIC ENFORCEABILITY; REMEDIES. The parties recognize and
---------------------------------
hereby acknowledge that it may be impossible to measure in money the damages
that would result to a party by reason of the failure of either of the
parties to perform any of the obligations imposed on it by this Agreement and
that in any event damages would be an inadequate remedy in this instance.
Accordingly, if any party should institute an action or proceeding seeking
specific enforcement of the provisions hereof, the party against which such
action or proceeding is brought hereby waives the claim or defense that the
party instituting such action or proceeding has an adequate remedy at law and
hereby agrees not to assert in any such action or proceeding the claim or
defense that such a remedy at law exists and shall waive or not assert any
requirement to post bond in connection with seeking specific performance. The
parties hereto agree that this provision is without prejudice to any other
rights or remedies that the parties hereto may have at law or in equity for any
failure to perform, or a breach of a representation or warranty under, this
Agreement.
10.4 APPLICABLE LAW. This Agreement shall be construed and
--------------
interpreted in all respects, including validity, interpretation and effect, by
the laws of the State of Delaware with respect to matters of corporate laws and,
with respect to all other matters, by the laws of the State of Illinois, except
to the extent that the federal laws of the United States apply.
10.5 HEADINGS, ETC. The article headings and Section headings
--------------
contained in this Agreement are inserted for convenience only and shall not
affect in any way the meaning or interpretation of this Agreement.
10.6 SEVERABILITY. If any term or provision of this Agreement is held
------------
by a final and unappealable order of a court of competent jurisdiction to be
invalid, void, or unenforceable, then the remainder of the terms, provisions,
covenants and restrictions contained in this Agreement shall remain in full
force and effect, and shall in no way be affected, impaired or invalidated
unless the effect would be to cause this Agreement to not achieve its essential
purposes.
10.7 ENTIRE AGREEMENT; BINDING EFFECT; NONASSIGNMENT; COUNTERPARTS.
-------------------------------------------------------------
Except as otherwise expressly provided herein, this Agreement, the documents
delivered pursuant to this
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Agreement and the Confidentiality Agreement (including the documents and
instruments referred to herein and therein) (a) constitute the entire agreement
between the parties hereto and supersede all other prior agreements and
undertakings, both written and oral, between the parties, with respect to the
subject matter hereof; and (b) are not intended to confer upon any other Person
any rights or remedies hereunder except as specifically provided herein. This
Agreement shall be binding upon and inure to the benefit of the parties named
herein and their respective successors. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by either party
hereto without the prior written consent of the other party hereto. This
Agreement may be executed in two or more counterparts
that together shall constitute a single agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed as of the day and year first above written.
STANDARD BANCSHARES, INC.
By: /s/ Lawrence P. Kelley
-------------------------------------
Name: Lawrence P. Kelley
Title: President and Chief Executive
Officer
STANDARD ACQUISITION CORPORATION
By: /s/ Lawrence P. Kelley
-------------------------------------
Name: Lawrence P. Kelley
Title: President
SECURITY FINANCIAL BANCORP, INC.
By: /s/ John Wm. Palmer
-------------------------------------
Name: John Wm. Palmer
Title: Chairman of the Board
S-1
APPENDIX B
May 8, 2003
Board of Directors
Security Financial Bancorp, Inc.
9321 Wicker Avenue
St. John, Indiana 46313
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of the outstanding shares of common stock of Security
Financial Bancorp, Inc. ("Security") of the consideration to be paid for the
exchange of common shares in the merger (the "Merger") of Security with Standard
Bancshares, Inc. ("Standard"), pursuant to the Agreement and Plan of
Reorganization, dated February 6, 2003 by and between Security and Standard (the
"Merger Agreement").
Pursuant to the Merger Agreement, Security will merge with and into a
newly-formed subsidiary of Standard, and Security shall be the surviving
corporation in the Merger. Each share of Security common stock outstanding
immediately prior to the effective time of the Merger (other than shares as to
which statutory dissenters' appraisal rights have been exercised) will be
exchanged for $24.00 in cash; which shall not exceed $44,734,824 in addition to
the $1,217,902 to be paid for the outstanding options spread (the "Total
Consideration"). The terms of the Merger are more fully set forth in the Merger
Agreement.
For purposes of this opinion and in connection with our review of the proposed
transaction, we have, among other things:
1. Reviewed the merger agreement and the specific terms of the merger;
2. Participated in discussions with representatives of Security
concerning the company's financial condition, businesses, assets,
earnings, prospects, and such senior management's views as to its
future financial performance;
3. Reviewed certain publicly available financial statements, both audited
(where available) and unaudited, and related financial information of
Security and Standard, including those included in their most recent
respective Annual Reports and/or Form 10-K and the Quarterly Reports
on Form 10-Q, as well
Board of Directors
Security Financial Bancorp, Inc.
Page 2
- --------------------------------------------------------------------------------
as other internally generated reports relating to asset/liability
management, asset quality, and so forth;
4. Reviewed certain financial forecasts and projections of Security
prepared by its management and reviewed publicly available information
for Security;
5. Discussed and reviewed certain aspects of the past and current
business operations, financial condition, and future prospects of
Security with certain members of management;
6. Reviewed reported market prices and historical trading activity of
Security common stock;
7. Reviewed certain aspects of the financial performance of Security and
Standard and compared such financial performance of Security and
Standard, together with stock market data relating to Security common
stock, with similar data available for certain other financial
institutions and certain of their publicly traded securities; and
8. Reviewed certain of the financial terms, to the extent publicly
available, of certain recent business combinations involving other
financial institutions.
We have assumed and relied, without independent verification, upon the accuracy
and completeness of all of the financial and other information that has been
provided to us by Security, Standard, and their respective representatives, and
of the publicly available information that was reviewed by us. We are not
experts in the evaluation of allowances for loan losses and have not
independently verified such allowances, and have relied on and assumed that the
aggregate allowances for loan losses set forth in the balance sheets of each of
Security and Standard at December 31, 2002 are adequate to cover such losses and
complied fully with applicable law, regulatory policy and sound banking practice
as of the date of such financial statements. We were not retained to and we did
not conduct a physical inspection of any of the properties or facilities of
Security or Standard, did not make any independent evaluation or appraisal of
the assets, liabilities or prospects of Security or Standard, were not furnished
with any such evaluation or appraisal, and did not review any individual credit
files. Our opinion is necessarily based on economic, market, and other
conditions as in effect on, and the information made available to us as of, the
date hereof.
Board of Directors
Security Financial Bancorp, Inc.
Page 3
- --------------------------------------------------------------------------------
Howe Barnes Investments, Inc. ("HBI"), as part of its investment banking
business, is regularly engaged in the valuation of banks and bank holding
companies, thrifts and thrift holding companies, and various other financial
services companies, in connection with mergers and acquisitions, initial and
secondary offerings of securities, and valuations for other purposes. In the
ordinary course of our business HBI acts as a market maker, buying and selling
the common stock of Security for our own account and for the accounts of our
customers. In rendering this fairness opinion, we have acted on behalf of the
Board of Directors of Security and will receive a fee for our services.
HBI's opinion as expressed herein is limited to the fairness, from a financial
point of view, of the consideration to be received by holders of Security common
stock in the Acquisition and does not address Security's underlying business
decision to proceed with the Merger. We have been retained on behalf of the
Board of Directors of Security, and our opinion does not constitute a
recommendation to any holder of Security common stock as to how such holder
should vote with respect to the Merger Agreement at any meeting of holders of
Security common stock.
Subject to the foregoing and based on our experience as investment bankers, our
activities as described above, and other factors we have deemed relevant, we are
of the opinion as of the date hereof that the Consideration is fair, from a
financial point of view, to the holders of Security common stock.
Sincerely,
HOWE BARNES INVESTMENTS, INC.
/s/ Michael Iannaccone
----------------------------------------
Michael Iannaccone, First Vice President
APPENDIX C
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to Section 228
of this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
Section 251(g) of this title), Section 252, Section 254, Section 257, Section
258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal
rights under this section shall be available for the shares of any class or
series of stock of a constituent corporation if the holders thereof are
required by the terms of an agreement of merger or consolidation pursuant
to Sections 251, 252, 254, 257, 258, 263 and 264 of this title to accept
for such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
therof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock (or depository
receipts in respect thereof) or depository receipts at the effective
date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market
system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or held of record by more
than 2,000 holders;
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c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under Section 253 of this title is
not owned by the parent corporation immediately prior to the merger,
appraisal rights shall be available for the shares of the subsidiary
Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal
rights are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of such
stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of
such stockholder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such stockholder's
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must
do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or
resulting corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that the
merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to Section
228 or Section 253 of this title, then either a constituent corporation
before the effective date of the merger or consolidation or the surviving
or resulting corporation within 10 days thereafter shall notify each of the
holders of any class or series of stock of such constituent corporation who
are entitled to appraisal rights of the approval of the merger or
consolidation and that appraisal rights are available for any or all shares
of such class or series of stock of such constituent corporation, and shall
include in such notice a copy of this section. Such notice may, and, if
given on or after the effective date of the merger or consolidation, shall,
also notify such stockholders of the effective date of the merger or
consolidation. Any stockholder entitled to appraisal rights may, within 20
days after the date of mailing of such notice, demand in writing from the
surviving or resulting
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corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10 days
after such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
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the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing,
C-4
no appraisal proceeding in the Court of Chancery shall be dismissed as to any
stockholder without the approval of the Court, and such approval may be
conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
C-5
SECURITY FINANCIAL BANCORP, INC.
SPECIAL MEETING OF STOCKHOLDERS
JUNE 10, 2003
9:00 A.M., CENTRAL TIME
-------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints John P. Hyland, Robert L. Lauer and John
Wm. Palmer, each with full power of substitution, to act as proxies for the
undersigned, and to vote all shares of common stock of Security Financial
Bancorp, Inc. which the undersigned is entitled to vote at the special meeting
of stockholders, to be held on June 10, 2003, at 9:00 a.m., Central time, at
9321 Wicker Avenue, St. John, Indiana and at any and all adjournments of the
meeting with all of the powers the undersigned would possess if personally
present at such meeting as follows:
The approval of the Agreement and Plan of Reorganization, dated February 6,
2003, by and among Security Financial Bancorp, Inc., Standard Bancshares,
Inc. and Standard Acquisition Corporation.
FOR AGAINST ABSTAIN
--- ------- -------
|_| |_| |_|
In their discretion, the proxies are authorized to vote on any other
business that may properly come before the special meeting or any adjournment or
postponement thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE AGREEMENT AND
PLAN OF REORGANIZATION.
THIS PROXY, PROPERLY SIGNED AND DATED, WILL BE VOTED AS DIRECTED, BUT IF NO
INSTRUCTIONS ARE SPECIFIED, THIS PROXY WILL BE VOTED "FOR" THE APPROVAL OF THE
AGREEMENT AND PLAN OF REORGANIZATION. IF ANY OTHER BUSINESS IS PRESENTED AT THE
SPECIAL MEETING, INCLUDING WHETHER OR NOT TO ADJOURN THE MEETING, THIS PROXY
WILL BE VOTED BY THE PROXIES IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE
BOARD OF DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE PRESENTED AT THE SPECIAL
MEETING.
Dated:
------------------------------
------------------------------------
SIGNATURE OF STOCKHOLDER
------------------------------------
SIGNATURE OF CO-HOLDER (IF ANY)
The above signed acknowledges receipt from Security Financial prior to the
execution of this proxy of a notice of special meeting of stockholders and of a
proxy statement for the special meeting of stockholders.
Please sign exactly as your name appears on this card. When signing as
attorney, executor, administrator, trustee or guardian, please give your full
title. If shares are held jointly, each holder may sign but only one signature
is required.
-----------------------------
PLEASE COMPLETE, DATE, SIGN AND PROMPTLY MAIL THIS PROXY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE.
[Security Federal Bank & Trust Letterhead]
Dear ESOP Participant:
On behalf of the Board of Directors, I am forwarding to you the attached
GREEN vote authorization form for the purpose of conveying your voting
instructions to First Bankers Trust Company, N.A. (the "Trustee") on the
proposal presented at the Special Meeting of Stockholders of Security Financial
Bancorp, Inc. (the "Company") on June 10, 2003. Also enclosed is a Notice and
Proxy Statement for the Company's Special Meeting of Stockholders.
As of the Record Date, April 25, 2003, the Security Federal Bank & Trust
Employee Stock Ownership Plan (the "ESOP") Trust held 152,171 shares of common
stock, 28,109 of which had been allocated to participants' accounts. These
allocated shares of Company common stock will be voted as directed by the ESOP
participants; provided timely instructions from the participants are received by
the ESOP Trustee. The unallocated shares of Company common stock in the ESOP
Trust and the allocated shares of Company common stock for which no instructions
are provided, or for which no timely instructions are received by the ESOP
Trustee will be voted by the ESOP Trustee in a manner calculated to most
accurately reflect the instructions the ESOP Trustee has received from
participants regarding the shares of Company common stock allocated to their
accounts, so long as such vote is in accordance with the Employee Retirement
Income Security Act of 1974, as amended.
At this time, in order to direct the voting of the shares of Company common
stock allocated to your ESOP account, please complete and sign the enclosed
GREEN vote authorization form and return it in the enclosed postage-paid
envelope no later than JUNE 3, 2003. Your vote will not be revealed, directly or
indirectly, to any employee or director of the Company or Security Federal Bank
& Trust (the "Bank"). The vote authorization forms will be tabulated by the ESOP
Trustee. The ESOP Trustee will use the voting instructions it receives to vote
the shares of Company common stock held in the ESOP Trust.
As an employee of the Bank and participant in several of the Company and
Bank employee benefit plans you will receive vote authorization forms for each
stock-based plan in which you are a participant. Please vote all of the vote
authorization forms you receive.
Sincerely,
John P. Hyland
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Name:
--------------------
Shares:
-------------------
VOTE AUTHORIZATION FORM
-----------------------
I understand that First Bankers Trust Company, N.A. (the "Trustee"), is the
holder of record and custodian of all shares of Security Financial Bancorp, Inc.
(the "Company") common stock allocated to me under the Security Federal Bank &
Trust Employee Stock Ownership Plan (the "ESOP"). I understand that my voting
instructions are solicited on behalf of the Company's Board of Directors for the
Special Meeting of Stockholders to be held on June 10, 2003.
Accordingly, vote my shares as follows:
The approval of the Agreement and Plan of Reorganization, dated February 6,
2003, by and among Security Financial Bancorp, Inc., Standard Bancshares,
Inc. and Standard Acquisition Corporation.
FOR AGAINST ABSTAIN
--- ------- -------
|_| |_| |_|
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE AGREEMENT AND
PLAN OF REORGANIZATION.
The ESOP Trustee is hereby authorized to vote all shares of Company common
stock allocated to my ESOP account in its trust capacity as indicated above.
- --------------------------- -------------------------------------
Date Signature
PLEASE DATE, SIGN AND RETURN THIS FORM IN THE ENCLOSED POSTAGE-PAID ENVELOPE NO
LATER THAN JUNE 3, 2003.
[Security Federal Bank & Trust Letterhead]
Dear 401(k) Plan Participant:
On behalf of the Board of Directors, I am forwarding to you the attached
YELLOW vote authorization form for the purpose of conveying your voting
instructions to First Bankers Trust Company, N.A. (the "Trustee") on the
proposal presented at the Special Meeting of Stockholders of Security Financial
Bancorp, Inc. (the "Company") on June 10, 2003. Also enclosed is a Notice and
Proxy Statement for the Company's Special Meeting of Stockholders.
As a 401(k) Plan Participant investing in the Security Financial Bancorp,
Inc. Stock Fund ("Employer Stock Fund"), you are entitled to direct the Employer
Stock Fund Trustee as to the voting of Company common stock credited to your
account. The Employer Stock Fund Trustee will vote all shares of Company common
stock for which no directions are given or for which timely instructions were
not received in a manner calculated to most accurately reflect the instructions
the Employer Stock Fund Trustee received from participants regarding shares of
Company common stock in their 401(k) Plan accounts.
At this time, in order to direct the voting of Company common stock
credited to your 401(k) Plan account, you must complete and sign the enclosed
YELLOW vote authorization form and return it to the Employer Stock Fund Trustee
in the accompanying postage-paid envelope by JUNE 3, 2003. Your vote will not be
revealed, directly or indirectly, to any employee or director of the Company or
Security Federal Bank & Trust (the "Bank"). The vote authorization forms will be
tabulated by the Employer Stock Fund Trustee. The Employer Stock Fund Trustee
will use the voting instructions it receives to vote the shares of Company
common stock held in the Employer Stock Fund Trust.
As an employee of the Bank and participant in several of the Company and
Bank employee benefit plans you will receive vote authorization forms for each
stock-based plan in which you are a participant. Please vote all of the vote
authorization forms you receive.
Sincerely,
John P. Hyland
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Name:
--------------------
Shares:
-------------------
VOTE AUTHORIZATION FORM
-----------------------
I understand that First Bankers Trust Company, N.A. (the "Trustee"), is the
holder of record and custodian of all shares of Security Financial Bancorp, Inc.
(the "Company") common stock credited to me under the Security Federal Bank &
Trust 401(k) Plan. I understand that my voting instructions are solicited on
behalf of the Company's Board of Directors for the Special Meeting of
Stockholders to be held on June 10, 2003.
Accordingly, vote my shares as follows:
The approval of the Agreement and Plan of Reorganization, dated February 6,
2003, by and between Security Financial Bancorp, Inc., Standard Bancshares,
Inc. and Standard Acquisition Corporation.
FOR AGAINST ABSTAIN
--- ------- -------
|_| |_| |_|
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE AGREEMENT AND
PLAN OF REORGANIZATION.
The Employer Stock Fund Trustee is hereby authorized to vote all shares
credited to my 401(k) Plan account in its trust capacity as indicated above.
- --------------------------- -------------------------------------
Date Signature
PLEASE DATE, SIGN AND RETURN THIS FORM IN THE ENCLOSED POSTAGE-PAID ENVELOPE NO
LATER THAN JUNE 3, 2003.
[Security Financial Bancorp, Inc. Letterhead]
Dear Stock Award Recipient:
On behalf of the Board of Directors, I am forwarding to you the attached
BLUE vote authorization form for the purpose of conveying your voting
instructions to First Bankers Trust Company, N.A. (the "Trustee") on the
proposal presented at the Special Meeting of Stockholders of Security Financial
Bancorp, Inc. (the "Company") on June 10, 2003. Also enclosed is a Notice and
Proxy Statement for the Company's Special Meeting of Stockholders.
As a recipient of a Stock Award under the Security Financial Bancorp, Inc.
2000 Stock-Based Incentive Plan (the "Incentive Plan"), you are entitled to vote
all shares of restricted Company common stock awarded to you under the Incentive
Plan that are unvested as of April 25, 2003. The Incentive Plan Trustee will
vote the shares of Company common stock held in the Incentive Plan Trust in
accordance with instructions it receives from you and other Stock Award
Recipients.
At this time, in order to direct the voting of Company common stock awarded
to you under the Incentive Plan, you must complete and sign the enclosed BLUE
vote authorization form and return it in the accompanying postage-paid envelope
no later than JUNE 3, 2003.
If you are an employee of Security Federal Bank & Trust and participant in
several of the Security Financial employee benefit plans you will receive vote
authorization forms for each stock-based plan in which you are a participant.
Please vote all of the vote authorization forms you receive.
Sincerely,
John P. Hyland
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Name:
--------------------
Shares:
-------------------
VOTE AUTHORIZATION FORM
-----------------------
I understand that First Bankers Trust Company, N.A. (the "Trustee") is the
holder of record and custodian of all unvested shares of Security Financial
Bancorp, Inc. (the "Company") common stock awarded to me under the Security
Financial Bancorp, Inc. 2000 Stock-Based Incentive Plan (the "Incentive Plan").
I understand my voting instructions are solicited on behalf of the Company's
Board of Directors for the Special Meeting of Stockholders to be held on June
10, 2003.
Accordingly, you are to vote my shares as follows:
The approval of the Agreement and Plan of Reorganization, dated February 6,
2003, by and between Security Financial Bancorp, Inc., Standard Bancshares,
Inc. and Standard Acquisition Corporation.
FOR AGAINST ABSTAIN
--- ------- -------
|_| |_| |_|
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE AGREEMENT AND
PLAN OF REORGANIZATION.
The Incentive Plan Trustee is hereby authorized to vote any unvested shares
awarded to me under the Incentive Plan in its trust capacity as indicated above.
- --------------------------- -------------------------------------
Date Signature
PLEASE DATE, SIGN AND RETURN THIS FORM IN THE ENCLOSED POSTAGE-PAID ENVELOPE NO
LATER THAN JUNE 3, 2003.