SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement / / Confidential, for Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Security of Pennsylvania Financial Corp.
-------------------------------------------------------------------------------
(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.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, $0.01 par value per share
(2) Aggregate number of securities to which transaction applies:
1,490,907
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
$17.50 per share for all of the outstanding shares of common stock
(1,356,885 shares) and $17.50 less the exercise price for each share
underlying options to purchase the Registrant's common stock to the
extent options remain outstanding at the time of consummation
(134,022 shares). In the event that options have been exercised,
the shares issued upon the exercise thereof are entitled to receive
$17.50 per share.
(4) Proposed maximum aggregate value of transaction: $26,090,872.50
(5) Total fee paid: $5,218.17
/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:_____________________________________________
(2) Form, schedule or registration statement no.:_______________________
(3) Filing party:_______________________________________________________
(4) Date filed:_________________________________________________________
[Security of Pennsylvania Financial Corp. letterhead]
September __, 2000
Dear Fellow Stockholder:
We cordially invite you to attend a special meeting of the stockholders
of Security of Pennsylvania Financial Corp. The meeting will be held at our
main office located at 31 West Broad Street, Hazelton, Pennsylvania, on
October___, 2000 at ____ p.m., Eastern Time.
At the special meeting, you will be asked to adopt a merger agreement
which provides for Security to be merged with a subsidiary of Northeast
Pennsylvania Financial Corp. If the merger is completed, you will receive a
cash payment of $17.50 for each share of Security of Pennsylvania Financial
Corp. stock that you own. Our stock price recently closed at $____ on
September, 2000. Upon completion of the merger, you will neither own any stock
or have any interest in Security of Pennsylvania Financial Corp. nor will you
receive, as a result of the merger, any stock of Northeast Pennsylvania
Financial Corp.
Your exchange of shares of Security of Pennsylvania Financial Corp. stock
for cash generally will cause you to recognize income for federal, and possibly
state and local, tax purposes. You should consult your personal tax advisor
for a full inderstanding of the tax consequences of the merger to you.
Completion of the merger is subject to certain conditions, including
receipt of various regulatory approvals and adoption of the merger agreement
by the affirmative vote of a majority of our outstanding shares of 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.
As of September 5, 2000, the directors and officers of Security of
Pennsylvania Financial Corp. beneficially owned [8.9%] of the shares of
Security of Pennsylvania Financial Corp. stock. We expect that all of the
shares held by our directors and officers will be voted in favor of the
merger. As of September 5, 2000, Northeast Pennsylvania Financial Corp. owned
[4.8%] of the shares of Security of Pennsylvania Financial Corp. stock.
Northeast Pennsylvania Financial Corp. has indicated that it intends to vote
all of its shares in favor of the merger.
Your Board of Directors has unanimously approved the merger agreement
and recommends that you vote "FOR" the merger because the Board believes it to
be in the best interests of our stockholders.
It is very important that your shares be represented at the special
meeting. 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 we have provided.
On behalf of the Board, I thank you for your prompt attention to this
important matter.
Sincerely,
Richard C. Laubach
President and Chief Executive Officer
Security of Pennsylvania Financial Corp.
31 West Broad Street
Hazleton, Pennsylvania 18201
(570) 454-0824
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER ___, 2000
NOTICE IS HEREBY GIVEN that a special meeting of stockholders of
Security of Pennsylvania Financial Corp. will be held at our main office
located at 31 West Broad Street, Hazelton, Pennsylvania on October __, 2000
commencing at ____ p.m., Eastern Time.
A proxy card and a proxy statement for the special meeting are enclosed.
The meeting is for the purpose of considering and acting upon:
1. The adoption of the Agreement and Plan of Merger, dated June 2,
2000, between Security, Northeast Pennsylvania Financial Corp. and Northeast
Acquisition, Inc., a wholly owned subsidiary formed for the purpose of
facilitating the merger. We will be merged with Northeast Acquisition, Inc.
and will become a wholly owned subsidiary of Northeast Pennsylvania Financial
Corp. You will receive $17.50 in cash for each share of Security common
stock that you own. A copy of the merger agreement is included as Appendix A
to the accompanying proxy statement; and
2. The potential adjournment of the special meeting of stockholders if
necessary to solicit additional proxies; and
3. Such other matters as may properly come before the special meeting
or any adjournments or postponements thereof. We are not aware of any other
business to come before the special meeting.
Our stockholders of record at the close of business on September 5, 2000 are
entitled to vote at the special meeting, and any adjournments or postponements
of the special meeting. You have a right to dissent from the merger and
obtain payment of the fair value of your shares by complying with the Delaware
law provisions contained in Appendix C.
You are cordially invited to attend the special meeting. However, to
ensure your representation at the special meeting, please complete, sign, date
and promptly mail your proxy card in the enclosed postage-paid envelope. The
proxy card will not be used if you attend and vote at the special meeting in
person. If you are a stockholder whose shares are not registered in your
name, you will need additional documentation from the holder of record of your
shares to vote in person at the meeting. The prompt return of your proxy will
save us the expense of further requests for proxies.
By Order of the Board of Directors,
Richard C. Laubach
President and Chief Executive Officer
Hazleton, Pennsylvania
September __, 2000
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
RECOMMENDS THAT YOU VOTE "FOR" ADOPTION OF THE MERGER AGREEMENT.
SECURITY OF PENNSYLVANIA FINANCIAL CORP.
PROXY STATEMENT FOR SPECIAL MEETING OF STOCKHOLDERS
TABLE OF CONTENTS
Page
----
Questions and Answers About Voting Procedures for the Special Meeting. . 1
Summary Term Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Selected Consolidated Financial and Other Information about Security . . 5
Where You Can Find More Information. . . . . . . . . . . . . . . . . . . 7
The Special Meeting. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Place, Time and Date. . . . . . . . . . . . . . . . . . . . . . . . . 8
Matters to Be Considered. . . . . . . . . . . . . . . . . . . . . . . 8
Record Date; Vote Required. . . . . . . . . . . . . . . . . . . . . . 8
Beneficial Ownership of Security Common Stock . . . . . . . . . . . . 8
Security Common Stock . . . . . . . . . . . . . . . . . . . . . . . . 9
Proxies. .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
The Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Background of the Merger. . . . . . . . . . . . . . . . . . . . . . . 12
Our Reasons for the Merger; Recommendation of Your Board of Directors 13
The Consideration is Fair According to Sandler O'Neill, Our Financial
Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
You Will Receive Cash for Your Shares of Security Common Stock. . . . 20
Treatment of Options. . . . . . . . . . . . . . . . . . . . . . . . . 20
Procedure for Surrendering Your Certificates. . . . . . . . . . . . . 21
Representations and Warranties Made by Us and Northeast . . . . . . . 22
Conditions to the Merger. . . . . . . . . . . . . . . . . . . . . . . 23
Conduct of Business Prior to Completion of the Merger . . . . . . . . 24
Approvals Needed to Complete the Merger . . . . . . . . . . . . . . . 27
Waiver and Amendment of the Merger Agreement. . . . . . . . . . . . . 28
Termination of the Merger Agreement . . . . . . . . . . . . . . . . . 28
Interests of Directors and Officers in the Merger that are Different
from Your Interests . . . . . . . . . . . . . . . . . . . . . . . . 29
Employees and Benefit Plans . . . . . . . . . . . . . . . . . . . . . 32
You Have Dissenters' Rights of Appraisal. . . . . . . . . . . . . . . 32
Federal Income Tax Consequences of the Merger for Security
Stockholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Accounting Treatment of the Merger. . . . . . . . . . . . . . . . . . 36
Who Pays for What . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Bank Merger Agreement . . . . . . . . . . . . . . . . . . . . . . . . 36
Adjournment of the Special Meeting . . . . . . . . . . . . . . . . . . . 36
Beneficial Ownership of Security Common Stock. . . . . . . . . . . . . . 38
Stockholder Proposals. . . . . . . . . . . . . . . . . . . . . . . . . . 39
Other Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Appendix A -- Agreement and Plan of Merger
(excluding the exhibits thereto). . . . . . . . . . . . . . A-1
Appendix B -- Opinion of Our Financial Advisor . . . . . . . . . . . . . B-1
Appendix C -- Section 262 of the Delaware General Corporate Law. . . . . C-1
i
QUESTIONS AND ANSWERS
ABOUT VOTING PROCEDURES FOR THE SPECIAL MEETING
Q: What do I need to do now? Q: Can I change my vote?
A: After you have carefully read A: Yes. If you have not voted
this proxy statement, indicate on through your broker or other
your proxy card how you want your nominee, there are three ways
shares to be voted. Then sign, you can change your vote
date and mail your proxy card in after you have sent in your
the enclosed prepaid return proxy card.
envelope as soon as possible.
This will enable your shares to
be represented and voted at the * First, you may send a
special meeting. written notice to the
person to whom you
Q: Why is my vote important? submitted your proxy
stating that you would
A: The merger must be approved by a like to revoke your
majority of the outstanding proxy.
shares of Security common stock.
If you do not return your proxy * Second, you may complete
card or vote in person at the and submit a new proxy
special meeting, it will have the card. Any earlier proxies
same effect as a vote against the will be revoked
merger. automatically.
Q: If my shares are held in street * Third, you may attend the
name by my broker, will my broker special meeting and vote
automatically vote my shares for in person. Any earlier
me? proxy will be revoked.
However, simply attending
A: No. Your broker will not be able the special meeting
to vote your shares without without voting will not
instructions from you. You revoke your proxy.
should instruct your broker to
vote your shares, following the
directions your broker provides. If you have instructed a
broker or other nominee to
Q: What if I fail to instruct my vote your shares, you must
broker? follow directions you
receive from your broker or
A: If you fail to instruct your other nominee to change your
broker to vote your shares, it vote
will have the same effect as a
vote against the merger Q: Should I send in my stock
agreement. certificates now?
Q: Can I attend the meeting and vote A: No. You should not send in
my shares in person? your stock certificates at
this time.
A: Yes. All stockholders are
invited to attend the special Instructions for surrendering
meeting. Stockholders of record your Security stock
can vote in person at the special certificates in exchange for
meeting. If your shares are held $17.50 per share will be sent
in street name, then you are not to you after we complete the
the stockholder of record and you merger.
must ask your broker or other
nominee how you can vote at the Q: Whom should I call with
special meeting. questions?
A: You should call Regan &
Associates, Inc. at
(800) 777-3426.
1
SUMMARY TERM SHEET
This summary term sheet highlights selected information from this proxy
statement. It does not contain all the information that may be important to
you. We urge you to read carefully the entire document and the other
documents to which we refer, including the merger agreement, to fully
understand the merger.
Security Stockholders Will Receive First Federal Bank as the
$17.50 in Cash Per Share of surviving bank (see pages 10-11).
Security Common Stock (see page
20). * The merger cannot occur unless
Security stockholders approve the
merger by the affirmative
vote of a majority of the
When the merger is completed, outstanding shares of Security
each Security stockholder will common stock and we receive
receive $17.50 in cash for each share approvals from banking regulators
of Security common stock held. For (see pages 23, 27)
example, if you own 50 shares of
Security common stock, you will be * If the merger is not completed on
entitled to receive $875.00 upon the or before December 31, 2000, the
surrender of your certificate for merger may be terminated by either
those shares. Northeast or Security, unless the
failure of such occurence is due
to a breach of the party seeking to
Our Reasons for the Merger (see terminate (see page 28)
pages 13-14).
* Three member of our Board of
Security's Board of Directors Direcotrs will be appointed to
believes that the merger is in the First Federal Bank's Board of
best interest of Security and Directors and one member of
Security's stockholders and our Board of Directors will
recommend that stockholders vote be appointed to the Board
"FOR" the proposal to adopt the of Directors of Northeast
merger agreement. The proposed Pennsylvania Trust Co., a
merger will enable our stockholders subsidiary of Northeast (see
to realize significant value on their page 31).
investment in Security. In reaching
its decision to approve the merger * We have agreed not to solicit or
agreement, our Board considered encourage a competing transaction
various factors which are discussed to acquire us or Security Savings
in detail in this proxy statement. Association, except where failure
to do so would cause our Board
Some Material Terms of the to breach its fiduciary duties
Merger Agreement. (see page 26).
* Security will first merge with * We will pay Northeast a fee of
a newly formed, wholly owned $300,000 if a third party makes
subsidiary of Northeast and will a valid proposal to acquire us and
become a subsidiary of certain other conditions occur
Northeast; immediately (see page 29).
thereafter, Security will merge
up and into Northeast with * We will pay Northeast $900,000 if
Northeast being the surviving we enter into an agreement to be
corporation (see pages 10-11). acquired by a third party (see
page 29).
* Security Savings Association will
merge with First Federal Bank with
2
* Security and Security that states the cash consideration to
Savings Association have be paid to our stockholders is
agreed to conduct their fair from a financial point of view.
business according to A copy of the opinion is attached to
particular guidelines (see this proxy statement as Appendix B.
pages 24-26). You should read it completely
to understand the assumptions made,
* The completion of the matters considered and limitations
merger depends on a on the review performed by Sandler
number of conditions O'Neill in issuing its opinion.
being satisfied or waived We have agreed to pay Sandler O'Neill
(see page 23). a fee equal to 1% of the total
merger consideration, which is
The Merger Will be Taxable to estimated to amount to approximately
Security's Stockholders (see page $250,000.
35).
You Have Appraisal Rights (see pages
Security stockholders will 32-35)
recognize income for federal, and
possibly state and local tax Under Delaware law, you have
purposes, on the exchange of their dissenter's appraisal rights
Security shares for cash. You will with respect to your Security shares.
recognize gain or loss equal to the If you do not wish to accept the
difference between the amount of $17.50 per share merger consideration,
cash you receive and your tax basis you can dissent from the merger and
in the Security common stock. instead choose to have the fair
You should determine the actual value of your shares judicially
tax consequences of the merger to determined and paid to you in
you. They will depend on your cash. However, in order to exercise
specific situation and factors not your rights, you must follow specific
within our control. You should procedures. You should carefully
consult your personal tax advisor read Section 262 of the Delaware
for a full understanding of the General Corporate Law which is
merger's specific tax included as Appendix C.
consequences to you.
Merger Expected to Occur in the Fourth
Security's Board of Directors Quarter of Year 2000 (see page 23).
Recommends Stockholder
Approval (see pages 13-14). This merger will only occur after
all the conditions to its completion
Our Board of Directors have been satisfied or waived.
believes that the merger is in the Currently, we anticipate that the
best interests of Security and our merger will occur in the fourth
stockholders and has unanimously quarter of 2000.
approved the merger. Our Board
recommends that Security Financial Interests of Security's
stockholders vote "FOR" adoption Officers and Directors in the Merger
of the merger agreement. (see pages 29-31).
Our Financial Advisor Says the Our directors and executive
Merger Consideration is Fair from officers have interests in the merger
a Financial Point of View to as individuals in addition to,
Security's Stockholders (see pages or different from, their interests
14-20). as stockholders, such as receiving
severance payments, payments under
Our financial advisor, consulting and non-competition
Sandler O'Neill & Partners, L.P., has agreements, indemnification and
given us a written opinion dated June insurance coverage, and other benefits.
2, 2000 and updated as of______, 2000
* Richard C. Laubach, our President
and Chief Exwecutive Officer, and
David P. Marchetti, Sr., our
Chief Financial Officer and
Treasurer, have each entered into a
consulting and non-competition
agreement with Northeast and First
Federal Bank effective upon
completion of the merger.
3
The compensation to be paid under * Three members of our Board of
the agreements is $425,000 to Mr. Directors will be appointed to
Laubach and $275,000 to Mr. First Federal Bank's Board of
Marchetti. Directors and will receive the
fees received by First Federal Bank
* Messrs. Laubach and board members. In addition, one
Marchetti will be entitled member of our Board will be
to receive payments under appointed to the Board of Directors
their employment of Northeast Pennsylvania Trust Co.,
agreements with us and a subsidiary of Northeast.
our subsidiary, Security
Savings Association. * All unvested stock options and
Notwithstanding that both restricted stock awards will
employment agreements accelerate and fully vest as of the
provide for a severance completion of the merger. For
payment in the event of a Security directors and employees
change in control, no who continue as directors or
duplicate payments will be employees of Northeast after the
made under the merger, their options can be
agreements. Because the exchanged either for cash or be
full amount of these converted into options to receive
payments, together with Northeast common stock. All
other benefits they will other Security stock options will
receive in connection with be canceled and option holders
the merger, would include will be entitiled to receive a
excess parachute payments cash payment. The cash payment for
under the Internal Revenue each share subject to the options
Code, Messrs. Laubach will equal the $17.50 per share
and Marchetti have elected merger consideration less the per
to reduce these payments share exercise price of the options.
to avoid (1) the imposition Assuming no options are exercised
on them of a 20% excise before the merger is completed and
tax and (2) the non- all holders choose to cash out their
deductibility of the full options, the aggregate value will be
amount of these payments approximately $1,114,058. The
to us or Northeast. As value of the restricted stock awards
reduced, the payments that will vest as a result of the
under the employment merger is approximately $955,605.
agreements are estimated
to be approximately Our Board of Directors was aware of
$159,000 to Mr. Laubach these interests and considered them in
(which includes a payment its decision to approve the merger
due under a supplemental agreement.
executive retirement plan)
and $12,000 to Mr.
Marchetti.
* Three other officers of
Security Savings
Association may be entitled
to lump sum payments
pursuant to change of control
severance agreements
entered into by each of them
and Security Savings
Association in the event they
are not offered a comparable
position at First Federal
Bank. The aggregate
payments due under the three
change of control severance
agreements is estimated to
be approximately $349,000.
4
SELECTED CONSOLIDATED FINANCIAL AND OTHER
INFORMATION ABOUT SECURITY
The following tables set forth selected historical consolidated financial
and other data about Security at the dates and for the periods shown. The
historical consolidated financial data for the nine months ended March 31, 2000
and 1999 are derived from unaudited consolidated financial statements. However,
in the opinion of management, all adjustments consisting of normal recurring
accruals, necessary for a fair presentation at such dates and for such periods
have been made. Operating results for the nine months ended March 31, 2000 are
not necessarily indicative of the results that may be expected for the entire
year ended June 30, 2000. The financial information for the three years
ended June 30, 1999 is based on, and qualified in its entirety by, our
consolidated financial statements, including the notes thereto, which have been
filed previously with the SEC.
At At
March 31, June 30,
--------------------------------------------
2000 1999 1998 1997
--------- --------- --------- ---------
(Dollars in thousands)
Selected Financial
Condition Data:
Total assets. . . . . $134,400 $119,531 $111,990 $107,447
Cash and due
from banks . . . . . 830 1,853 3,272 2,867
Interest-bearing
deposits with banks. 9,704 13,383 24,043 6,167
Loans, net (1). . . . 79,492 72,789 69,211 66,738
Securities held-to-
maturity . . . . . . 7,955 1,492 5,326 24,842
Securities available-
for-sale . . . . . . 33,101 27,425 7,901 4,248
Real estate owned,
net. . . . . . . . . 113 53 221 531
Deposits. . . . . . . 100,314 95,816 102,604 98,465
Borrowed funds. . . . 14,000 1,000 -- --
Total equity. . . . . 19,441 22,515 9,231 8,583
Nonperforming assets
and troubled debt
restructurings . . . 2,135 1,344 2,085 2,117
Nine Months Ended
March 31, Year Ended June 30,
----------------- ---------------------------------
2000 1999 1999 1998 1997
-------- -------- -------- -------- --------
(Dollars in thousands)
Selected Operating
Data:
Total interest income . . $6,627 $5,750 $7,799 $7,740 $7,440
Total interest expense. . 3,392 3,129 4,098 4,260 4,029
----- ----- ----- ----- -----
Net interest income. . . 3,235 2,621 3,701 3,480 3,411
Provision for loan losses 9 65 62 176 34
----- ----- ----- ----- -----
Net interest income after
provision for loan
losses. . . . . . . . . 3,226 2,556 3,639 3,304 3,377
Total noninterest income. 273 264 353 304 284
Total noninterest expense 2,495 2,904 3,656 2,485 3,107(2)
----- ----- ----- ----- --------
Income (loss) before
provision for income
taxes. . . . . . . . . . 1,004 (84) 336 1,123 554
Income tax provision
(benefit). . . . . . . . 308 (53) 102 506 344
----- ----- ----- ----- -----
Net income (loss). . . . $ 696 $ (31) $ 234 $ 617 $ 210
===== ===== ===== ===== =====
Earnings per share:
Basic. . . . . . . . . . $ 0.52 N/A $ 0.04 N/A N/A
===== =====
Diluted. . . . . . . . . $ 0.49 N/A $ 0.04 N/A N/A
===== =====
(Footnotes on following page)
5
At or For the At or For the
Nine Months Ended Year Ended
March 31, June 30,
----------------- --------------------------
2000 1999 1999 1998 1997
------ ------ ------ ------ ------
Selected Operating Ratios
and Other Data(3):
Performance Ratios:
Average yield on interest-
earning assets(4). . . . . 7.17% 6.86% 6.96% 7.40% 7.28%
Average rate paid on
interest-bearing
liabilities. . . . . . . . 4.22 3.94 4.14 4.24 4.11
Average interest rate
spread(5). . . . . . . . . 2.95 2.92 2.82 3.16 3.17
Net interest margin(6). . . 3.53 3.18 3.30 3.33 3.34
Ratio of interest-earning
assets to interest-
bearing liabilities. . . . 110.56 112.47 113.32 104.27 104.22
Net interest income after
provision for loan
losses to noninterest
expense. . . . . . . . . . 124.30 88.02 99.54 132.96 108.69
Noninterest expense as a
percent of average
assets . . . . . . . . . . 1.97 2.88 3.13 2.26 2.91
Return on average assets. . 0.73 0.20 0.20 0.56 0.20
Return on average equity. . 4.42 1.47 1.36 6.89 2.52
Ratio of average equity to
average assets . . . . . . 16.52 13.80 14.75 8.16 7.79
Dividend payout ratio . . . 30.61 N/A 40.00 N/A N/A
Regulatory Capital Ratios(7):
Tangible capital ratio. . . 12.30 13.25 13.40 8.35 8.13
Core capital ratio. . . . . 12.30 13.25 13.40 8.35 8.13
Risk-based capital ratio. . 29.05 30.91 26.84 16.92 21.70
Asset Quality Ratios:
Nonperforming loans and
troubled debt
restructurings as
a percent of total
loans(8) . . . . . . . . . 2.69 1.72 1.77 2.69 2.38
Nonperforming assets and
troubled debt
restructuring as a
percent of total assets(9) 1.71 1.18 1.12 1.86 1.97
Allowance for loan losses
as a percent of total
loans. . . . . . . . . . . 0.65 0.74 0.57 0.65 0.64
Allowance for loan losses
as a percent of
nonperforming loans and
troubled debt
restructurings(1)(8) . . . 20.14 36.24 32.46 24.25 27.05
Net loans charged-off to
average interest-
earning loans. . . . . . . 0.00 0.08 0.14 0.22 0.05
Full service offices at end
of period . . . . . . . . . 4 4 4 4 4
____________________________
(1) Loans, net represents gross loans receivable net of the allowance for loan
losses,loans in process and deferred loan origination fees. The allowance
for loan losses at March 31, 2000 and June 30, 1999, 1998 and 1997 was
$430,000, $419,000, $452,000 and $429,000, respectively.
(2) Includes a one-time special assessment of $620,000 in order to recapitalize
the Savings Association Insurance Fund.
(3) Regulatory capital ratios and asset quality ratios are end of period
ratios. With the exception of end of period ratios, all ratios are based
on average monthly balances during the indicated periods and have been
annualized where appropriate.
(Footnotes continued on following page)
6
(4) Calculations of yield for tax-exempt investments are not presented on a tax
equivalent basis due to the average balance of tax-exempt investments being
immaterial.
(5) The average interest rate spread represents the difference between the
average yield on interest-earning assets and the average cost of
interest-bearing liabilities.
(6) The net interest margin represents net interest income as a percent of
average interest-earning assets.
(7) Reflects regulatory capital ratios of Security Savings Association.
(8) Nonperforming loans consist of all nonaccrual loans and all other loans
90 days or more past due. It is the policy of Security to cease accruing
interest on loans 90 days or more past due (unless the loan principal and
interest are determined by management to be fully secured and in the
process of collection) and to charge off all accrued interest.
(9) Nonperforming assets consist of non-performing loans and foreclosed real
estate.
WHERE YOU CAN FIND MORE INFORMATION
As a public company, Security is obligated to file annual,
quarterly and current reports, proxy statements and other information
with the Securities and Exchange Commission. 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, our 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."
7
THE SPECIAL MEETING
Place, Time and Date
The special meeting is scheduled to be held at ____ p.m., Eastern Time,
on October ___, 2000, at our main office located at 31 West Broad Street,
Hazleton, Pennsylvania.
Matters to Be Considered
At the special meeting, you will be asked to approve a proposal to adopt
the merger agreement, a proposal to adjourn the special meeting if necessary
to solicit additional proxies and such other matters as are properly brought
before the special meeting. As of September 5, 2000, we do not know of any
business that will be presented for consideration at the special meeting other
than the approval of the merger agreement.
Record Date; Vote Required
Only our stockholders of record at the close of business on September 5,
2000 are entitled to notice of and to vote at the special meeting. As
provided in our certificate of incorporation, no one who beneficially owns,
either directly or indirectly, in excess of 10% of our outstanding shares will
be entitled to vote any shares held in excess of the 10% limit. As of
September 5, 2000, there were [1,356,885] shares of our common stock
outstanding and entitled to vote at the special meeting.
Each outstanding share of our common stock will be entitled to cast one
vote per share at the special meeting. You may vote in person or by
submitting a properly executed proxy. The presence, in person or by properly
executed proxy, of the holders of a majority of our outstanding shares of
common stock will constitute a quorum. Abstentions and broker non-votes will
be treated as shares present at the special meeting for purposes of
determining the presence of a quorum. A broker non-vote is an unvoted proxy
submitted by a broker. Under applicable rules, brokers or other nominees who
hold shares in street name for customers who are the beneficial owners of such
shares may not vote those shares with respect to the merger agreement unless
they have received specific instructions from their customers.
To approve and adopt the merger agreement, the holders of a majority of
the outstanding shares of Security common stock entered to vote must vote in
favor of the merger agreement. Consequently, a failure to vote, an abstention
or a broker non-vote will have the same effect as voting against the merger
agreement. In addition, the holders of a majority of Security's common stock
represented in person or by proxy and voting at the special meeting must vote
in favor of the proposal to adjourn the special meeting. Accordingly, an
abstentition will have the same effect as voting against the proposal to
adjourn the special meeting. Broker non-votes will have no effect.
Approval of the merger agreement by our stockholders is one of the
conditions that must be satisfied to complete the merger. See "The Merger -
Conditions to the Merger."
Beneficial Ownership of Security Common Stock
As of September 5, 2000, our directors and executive officers and their
affiliates beneficially owned in the aggregate [120,101] shares (excluding
stock options) of our common stock, or [8.9%] of our outstanding shares of
common stock entitled to vote at the special meeting. Based on the unanimous
8
approval of the merger agreement by our Board of Directors, we currently
expect that each Security director and executive officer will vote his or her
shares of Security common stock beneficially owned by him or her for approval
of the merger agreement. As of September 5, 2000, Northeast owned [65,000]
shares of Security common stock. As of such date, no directors or executive
officers of Northeast owned any shares of Security common stock. Northeast
has indicated that it intends to vote all of such shares in favor of the
merger.
Security Common Stock
Our common stock is traded on the American Stock Exchange under the
symbol "SPN." On June 1, 2000, the last trading day prior to the joint
announcement by Security and Northeast that they had entered into the merger
agreement, the closing price per share of our common stock was $10.88.
On September __, 2000, which is the last practicable date prior to printing
this proxy statement, the closing per share sales price of our common stock
was $___.
Proxies
Shares of our common stock represented by properly executed proxies
received prior to or at the special meeting will, unless they have been
revoked, be voted at the special meeting in accordance with the instructions
indicated in the proxies. If no instructions are indicated on a properly
executed proxy, the shares will be voted "FOR" the adoption of the merger
agreement.
You should complete and return the proxy card accompanying this proxy
statement to ensure that your vote is counted at the special meeting,
regardless of whether you plan to attend the special meeting. You can revoke
your proxy at any time before the vote is taken at the special meeting by:
* submitting written notice of revocation to the Secretary of
Security,
* submitting a properly executed proxy of a later date, or
* voting in person at the special meeting, but simply attending the
special meeting without voting will not revoke an earlier proxy.
Written notice of revocation and other communications about revoking
your proxy should be addressed to:
Security of Pennsylvania Financial Corp.
31 West Broad Street
Hazleton, Pennsylvania 18201
Attention: Nancy Latoff
Secretary
If any other matters are properly presented at the special meeting for
consideration, the proxy holders will have discretion to vote on such matters
in accordance with their best judgment. As of September 5, we know of no
other matters to be presented at the meeting.
9
Certain material events or changes in circumstances including a material
amendment to the merger agreement or a material revision of the fairness
opinion issued by Sandler O'Neill may result in a resolicitation of your vote.
Under those circumstances, we will provide you with supplemental information
about the material event or change in circumstances and give you an
opportunity to recast your vote
If your Security common stock is held in street name, you will receive
instructions from your broker, bank or other nominee that you must follow to
have your shares voted. Your broker, bank or other nominee may allow you to
deliver your voting instructions via telephone or the Internet. Please see
your instruction form that accompanies this proxy statement.
In addition to solicitation by mail, our directors, officers and
employees, who will not receive additional compensation for such services, may
solicit proxies from our stockholders, personally or by telephone, telegram or
other forms of communication. Brokerage houses, nominees, fiduciaries and
other custodians will be requested to forward soliciting materials to
beneficial owners and will be reimbursed for their reasonable expenses
incurred in sending proxy material to beneficial owners. We will bear our own
expenses in connection with the solicitation of proxies for the special
meeting.
We have retained Regan & Associates, Inc., a professional proxy
solicitation firm, to assist in the solicitation of proxies. We will pay
Regan & Associates, Inc. a fee of $5,000. We also will reimburse brokerage
firms and other custodians, nominees and fiduciaries for reasonable expenses
incurred by them in sending the proxy materials to the beneficial owners of
Security common stock. In addition to solicitations by mail, our directors,
officers and employees may solicit proxies personally or by telephone without
additional compensation.
You are requested to complete, date and sign the accompanying proxy card
and to return it promptly in the enclosed postage-paid envelope.
You should not forward stock certificates with your proxy cards.
THE MERGER
The information in this proxy statement concerning the terms of the
merger is qualified in its entirety by reference to the full text of the
merger agreement, which is attached as Appendix A and incorporated by
reference herein. All stockholders are urged to read the merger agreement in
its entirety, as well as the opinion of our financial advisor attached as
Appendix B.
General
As soon as possible after the conditions to consummation of the merger
described below have been satisfied or waived, and unless the merger agreement
has been terminated as discussed below, Security and a subsidiary of
Northeast will merge in accordance with Delaware law. Under the terms of the
merger agreement, an interim subsidiary of Northeast will be merged with and
into us, with Security surviving as a subsidiary of Northeast. It is intended
that after the merger, Security will be merged with and into Northeast, with
Northeast as the surviving entity. Immediately after the merger is completed,
10
Security's subsidiary, Security Savings Association of Hazleton, will merge
with and into Northeast's subsidiary, First Federal Bank. First Federal Bank
will be the surviving bank.
Upon completion of the merger, our stockholders will be entitled to
receive $17.50 in cash in consideration for each of their shares of Security
common stock they hold and shall cease to be stockholders of Security. The
directors of Northeast will continue to be the directors of Northeast after
the merger. Three directors from Security will become directors of First
Federal Bank. Also, one director from Security will become a director of
Northeast Pennsylvania Trust Co., a subsidiary of Northeast.
Northeast intends to generate the approximately $25 million of funds
required to purchase Security from internal sources. As of June 30, 2000,
Northeast, on a consolidated basis, had cash and cash equivalents of $8.2
million and available-for-sale securities of $179.3 million. Northeast
intends for its subsidiary, First Federal Bank, to dividend the necessary
funds to it. The dividend requires the approval of the Office of Thrift
Supervision as part of its approval of Northeast's acquisition of Security.
On a pro forma basis after giving effect to First Federal Bank's related
acquisition of Security Savings Association, First Federal Bank would remain a
well capitalized institution under Office of Thrift Supervision regulatory
standards.
The Companies
Security of Pennsylvania Financial Corp.
31 West Broad Street
Hazleton, Pennsylvania 18201
(570) 454-0824
Security is a Delaware corporation and the parent savings and loan
holding company of Security Savings Association of Hazleton. Security Savings
Association is a Pennsylvania-chartered stock savings and loan association
which is headquartered in Hazleton, Pennsylvania. Security Savings Association
operates four offices located in Luzerne and Carbon counties.
Northeast Pennsylvania Financial Corp.
12 East Broad Street
Hazleton, Pennsylvania 18201
(570) 459-3700
Northeast is a Delaware corporation and the holding company for First
Federal Bank, which is headquartered in Hazleton, Pennsylvania. Northeast
also has two other subsidiaries, Northeast Pennsylvania Trust Co. and
Abstractors, Inc. As of June 30, 2000, Northeast had total assets on a
consolidated basis of $658.5 million. First Federal Bank is a federally
chartered savings bank founded in 1935. Through its 13 locations in
northeastern and central Pennsylvania, First Federal Bank offers a broad range
of commercial and retail banking services, including checking accounts,
savings accounts, money market accounts, individual retirement accounts and a
full line of loans. Northeast Pennsylvania Trust Co. was established in 1999
to provide trust, estate and asset management services and products to
individuals and businesses. Abstractors, Inc. is a title insurance agency.
11
Background of the Merger
In late January 2000, a bank holding company expressed interest to our
management in discussing a possible acquisition. After briefing the Board
about the inquiry, Security consulted its investment advisor, Sandler O'Neill,
to assist it in evaluating its strategic alternatives. Among other things,
that consultation identified Northeast as another financial holding company
which might have a strong interest in acquiring Security. Security authorized
Sandler O'Neill to explore with Northeast its interest in Security. As a
result, in early March, Sandler O'Neill contacted Northeast to discuss a
potential business combination.
In late March and early April, the Chairman of the Board of Northeast,
Thomas L. Kennedy, met with our President and Chief Executive Officer, Richard
C. Laubach, several times to discuss a possible acquisition of Security. In
addition, during that time, representatives of Sandler O'Neill met with
representatives of Northeast to discuss the transaction considerations.
On April 13, 2000, our Board of Directors formalized the engagement of
Sandler O'Neill to assist in the evaluation of our strategic alternatives. As
part of this process, Sandler O'Neill reviewed other likely merger candidates
to assess, among other things, their financial capacity to fund the negotiated
merger consideration and concerns related to regulatory and stockholder
approvals. Sandler O'Neill also reviewed with the Board Security's future
financial prospects as a stand-alone entity. Sandler O'Neill served as our
financial advisor in the mutual to stock conversion of Security Savings
Association, which was completed on December 30, 1998. Sandler O'Neill has
provided financial advisory services to us since the conversion.
On May 17, 2000 and May 19, 2000, Mr. Laubach met with E. Lee Beard, the
President and Chief Executive Officer of Northeast, to discuss a merger. We
also retained independent legal counsel, Elias, Matz, Tiernan & Herrick
L.L.P., to assist us in negotiating a merger agreement with Northeast.
Following these meetings, we began negotiating the terms of the merger
agreement with the assistance of our investment banker and legal counsel.
Over the next two weeks, our representatives conducted a limited due diligence
review on Northeast. Northeast completed its due diligence review of us and
the parties continued to refine the key points of the transaction. During
this period, the progress of the negotiations were reported to the members of
our Board by Mr. Laubach.
During the negotiations with Northeast, Sandler O'Neill, on our behalf,
continued to explore merger prospects with the bank holding company that
initially expressed interest in acquiring us. After some preliminary
discussions, the third party provided us with its best offer, which was less
then $17.50 per share. Sandler O'Neill also provided its assessment of the
ability of other potential acquirors to pay comparable consideration to
Security's shareholders, their interest in pursuing an acquisition of a
financial institution of Security's size and market presence and their ability
to obtain necessary approvals. Based on these factors, we elected to continue
our negotiations with Northeast. These negotiations continued up until the
night of June 1, 2000.
On June 2, 2000, our Board met with Sandler O'Neill and its legal
counsel to review and discuss the terms of the merger agreement. Sandler
O'Neill advised Security that the terms being discussed were within the range
of comparable recent similar merger transactions of financial institutions in
various markets. Sandler O'Neill provided us with an oral opinion which stated
that the merger consideration was fair, from a financial point of view, to our
stockholders. Our Board then discussed the terms of the merger agreement and
the presentation by Sandler O'Neill. The Board considered the terms of
Northeast's offer, the cash form of consideration, Northeast's ability to pay
the consideration and its likelihood of receiving regulatory approvals and the
possibility that an auction would result in a withdrawal of Northeast's offer
as well as be disruptive to Security's business. The Board also considered
the current and prospective competitive operating environment facing the
financial services industry generally, and Security in particular, including
the continued pace of consolidation in the industry and the perceived
importance of operational scale in enhancing profitability and remaining
competitive over the long term. After conclusion of the review and
discussion, a vote was taken and the Board unanimously approved the merger
agreement and authorized Mr. Laubach to execute the merger agreement and
related documents. The merger agreement was executed and announced on June 2,
2000.
12
Our Reasons for the Merger; Recommendation of Your Board of Directors
Our Board of Directors believes that the terms of the merger agreement,
which are the product of arm's length negotiations between representatives of
Northeast and Security, are in the best interests of our stockholders. In the
course of reaching its determination, our Board of Directors considered the
following factors:
* the merger consideration to be paid to our stockholders in
relation to the market value, book value, earnings per share and
dividend rates of our common stock,
* information concerning our financial condition, results of
operations, capital levels, asset quality and prospects,
* industry and economic conditions,
* the impact of the merger on the depositors, employees, customers
and communities served by us through expanded commercial, consumer
and retail banking products and services,
* the opinion of our financial advisor as to the fairness of the
merger consideration from a financial point of view to the holders
of our common stock,
* the general structure of the transaction and the compatibility of
management and business philosophy,
* the greater resources and product offerings that Northeast will
have after the merger than we currently have,
* our assessment of Northeast's ability to pay the aggregate merger
consideration, including its cash and cash equivalents and its
available-for-sale securities as well as the likelihood of receipt
of regulatory approval to pay a dividend from First Federal Bank
to Northeast to fund the transaction,
* the results of our due diligence investigation of Northeast,
including the likelihood of receiving the requisite regulatory
approvals in a timely manner,
* the ability of Northeast after the merger to compete in relevant
banking and non-banking markets, and
* our strategic alternatives to the merger, including the continued
operation of Security Savings Association as an independent
financial institution.
In making its determination, our Board of Directors did not ascribe any relative
or specific weights to the factors which it considered. The foregoing
discussion of the factors considered by our Board is not intended to be
exhaustive, but it does include the material factors considered by our Board.
13
Our Board of Directors believes that the merger is in the best interests
of Security and our stockholders. The Board of Directors unanimously
recommends that our stockholders vote for the adoption of the merger
agreement.
The Consideration is Fair According to Sandler O'Neill, Our Financial Advisor
By letter agreement dated as of May 2, 2000, Security retained Sandler
O'Neill as an independent financial advisor in connection with Security's
consideration of a possible business combination. Sandler O'Neill is a
nationally recognized investment banking firm whose principal business
specialty is financial institutions. In the ordinary course of its investment
banking business, Sandler O'Neill is regularly engaged in the valuation of
financial institutions and their securities in connection with mergers and
acquisitions and other corporate transactions.
Sandler O'Neill acted as financial advisor to Security in connection
with the merger and participated in certain of the negotiations leading to the
merger agreement. At the request of Security's board of directors,
representatives of Sandler O'Neill attended the June 2, 2000 meeting at which
the board considered and approved the merger agreement. At the meeting,
Sandler O'Neill delivered to Security's board of directors its oral opinion,
subsequently confirmed in writing, that, as of such date, the merger
consideration was fair to Security stockholders from a financial point of
view. Sandler O'Neill also has delivered to Security's board of directors a
written opinion dated the date of this proxy statement which is substantially
identical to the June 2, 2000 opinion. The full text of Sandler O'Neill's
opinion is attached as Appendix B to this proxy statement. The opinion
outlines the procedures followed, assumptions made, matters considered and
qualifications and limitations on the review undertaken by Sandler O'Neill in
rendering the opinion. The opinion is incorporated by reference into this
description and this description is qualified in its entirety by reference to
the opinion. Security stockholders are urged to carefully read the opinion in
connection with their consideration of the proposed merger.
Sandler O'Neill's opinion was directed to the Security board and was
provided to the board for its information in considering the merger. The
opinion is directed only to the fairness of the consideration to Security
stockholders from a financial point of view. It does not address the
underlying business decision of Security to engage in the merger or any other
aspect of the merger and is not a recommendation to any Security stockholder
as to how such stockholder should vote at the special meeting with respect to
the merger or any other related matter.
In rendering its June 2, 2000 opinion, Sandler O'Neill performed a
variety of financial analyses. Sandler O'Neill prepared its analyses solely
for purposes of rendering its opinion and provided such analyses to Security's
board of directors at its meeting on June 2, 2000. The following is a summary
of the material analyses performed by Sandler O'Neill, but is not a complete
description of all the analyses underlying Sandler O'Neill's opinion. The
preparation of a fairness opinion is a complex process involving subjective
judgments as to the most appropriate and relevant methods of financial
analysis and the application of those methods to the particular circumstances.
The process, therefore, is not necessarily susceptible to a summary
description. Sandler O'Neill believes that its analyses must be considered
as a whole and that selecting portions of the factors and analyses considered
without considering all factors and analyses, or attempting to ascribe relative
weights to some or all such factors and analyses, could create an incomplete
view of the evaluation process underlying its opinion. Also, no company
included in Sandler O'Neill's comparative analyses described below is identical
to Security
14
and no transaction is identical to the merger. Accordingly, an analysis of
comparable companies or transactions involves complex considerations and
judgments concerning differences in financial and operating characteristics
of the companies and other factors that could affect the public trading
values or merger transaction values, as the case may be, of Security and the
companies to which it is being compared.
The earnings projections for Security relied upon by Sandler O'Neill in
its analyses were reviewed with management and were based upon internal
projections of Security for the years ending June 30, 2000 and 2001. For
fiscal years after 2001, Sandler O'Neill assumed, with Security's consent, an
annual growth rate on earning assets of 6%. The earnings projections
furnished to Sandler O'Neill were prepared by the senior management of
Security for internal purposes only and not with a view towards public
disclosure. These projections were based on numerous variables and
assumptions which are inherently uncertain and, accordingly, actual results
could vary materially from those set forth in such projections.
In performing its analyses, Sandler O'Neill also made numerous
assumptions with respect to industry performance, business and economic
conditions and various other matters, many of which cannot be predicted with
certainty and are beyond the control of Security, Northeast and Sandler
O'Neill. Estimates of the values of companies do not purport to be appraisals
or necessarily reflect the prices at which companies or their securities may
actually be sold. Such estimates are inherently subject to uncertainty and
actual values may be materially different. Accordingly, the analyses
performed by Sandler O'Neill are not necessarily indicative of actual values
or future results, which may be significantly more or less favorable than
suggested by such analyses. Sandler O'Neill's analyses do not necessarily
reflect the value of Security common stock or the prices at which Security
common stock may be sold at any time.
Summary of Proposal. Sandler O'Neill reviewed the financial terms of
the proposed transaction. Based upon the per share consideration of $17.50
and Security's March 31, 2000 financial information, Sandler O'Neill
calculated the following ratios:
Transaction value/tangible book value 1.22x
Transaction value/book value 1.22x
Transaction value/last quarter annualized EPS 27.34x
Transaction value/last twelve months' EPS 25.36x
Tangible book premium/core deposits (1) 4.16%
-------------------------
(1) Assumes 5% non-core deposits.
The aggregate transaction value is approximately $23.9 million, based upon
1.2 million fully diluted shares of Security common stock outstanding, which
was determined using the treasury stock method at the per share transaction
value. For purposes of Sandler O'Neill's analyses, earnings per share were
based on fully diluted earnings per share. Sandler O'Neill noted that the
transaction value represented a 60.9% premium over the June 1, 2000 closing
price of Security common stock of $10.875.
Stock Trading History. Sandler O'Neill reviewed the history of the
reported trading prices and volume of Security common stock and the
relationship between the movements in the prices of Security common stock to
movements in certain stock indices, including the Standard & Poor's 500 Index,
the
15
Nasdaq Bank Index and the median performance of a composite group of
publicly traded regional savings institutions selected by Sandler O'Neill.
During the one year period ended May 30, 2000, the Security common stock
outperformed each of the indices to which it was compared.
Beginning Index Value Ending Index Value
May 28, 1999 May 30, 2000
--------------------- ------------------
Security 100.00 110.39
Security Composite Group 100.00 99.23
Nasdaq Bank Index 100.00 84.13
S&P 500 Index 100.00 109.26
Comparable Company Analysis. Sandler O'Neill used publicly available
information to compare selected financial and market trading information for
Security and two groups of financial institutions selected by Sandler O'Neill.
The first group consisted of Security and the following six publicly traded
regional savings institutions (the "Regional Group"):
Elmira Savings Bank Laurel Capital Group Inc.
GSB Financial Corp. Prestige Bancorp, Inc.
Jade Financial Corp. Washington Savings Bank, FSB
Sandler O'Neill also compared Security to a group of five publicly
traded savings institutions nationwide which had a return on average equity
(based on last twelve months' earnings) of greater than 12.50% and a price-to-
tangible book value of greater than 120% (the "Highly Valued Group"). The
Highly Valued Group was comprised of the following institutions:
First Georgia Holding Inc. Mayflower Co-operative Bank
Home Port Bancorp, Inc. Nutmeg Federal S&LA
WVS Financial Corp.
The analysis compared publicly available financial information for
Security and the median data for each of the Regional Group and Highly Valued
Group as of and for each of the years ended December 31, 1995 through December
31, 1999 and as of and for the twelve months ended March 31, 2000. The table
below sets forth the comparative data as of and for the twelve months ended
March 31, 2000.
16
Regional Highly
Security Group Valued Group
-------- -------- ------------
Total assets $134,400 $211,692 $238,021
Annual growth rate of
total assets 8.71% 10.77% 14.53%
Tangible equity/assets 14.47% 9.67% 7.40%
Total Equity $19,441 $22,389 $18,255
Net loans/total assets 59.15% 65.81% 82.05%
Cash & securities/total
assets 38.39% 32.22% 14.14%
Gross loans/total
deposits 79.67% 85.25% 95.24%
Total borrowings/total
assets 10.42% 10.04% 16.02%
Non-performing assets/
total assets 1.67% 0.28% 0.48%
Loan loss reserve/
gross loans 0.54% 0.87% 1.02%
Net interest margin 3.45% 3.45% 4.34%
Loan loss provision/
average assets 0.00% 0.09% 0.03%
Non-interest income/
average assets 0.22% 0.43% 0.51%
Non-interest expense/
average assets 2.51% 2.43% 2.58%
Efficiency ratio 66.14% 67.28% 62.69%
Return on average assets 0.75% 0.72% 1.16%
Return on average equity 4.48% 5.93% 13.85%
Price/tangible book
value per share 75.02% 81.39% 144.86%
Price/earnings per share 15.58x 11.45x 9.21x
Dividend yield 1.40% 2.85% 3.91%
Dividend payout ratio 21.74% 26.30% 34.25%
Analysis of Selected Merger Transactions. Sandler O'Neill reviewed over
100 transactions involving the acquisition of publicly traded savings
institutions in which the transaction values were greater than $15 million.
Of those, 60 transactions were announced nationwide from January 1, 1999 to
May 31, 2000 ("Nationwide Transactions"), 13 transactions were announced from
January 1, 1999 to May 31, 2000 in the Mid Atlantic Region ("Mid Atlantic
Transactions") and 31 transactions were announced nationwide involving sellers
which had a tangible equity/total assets ratio of greater than 10% at
announcement ("Highly-Capitalized Transactions"). Sandler O'Neill reviewed
the multiples of transaction value to last twelve months' earnings,
transaction value to book value and premium to market price and computed high,
low, mean and median multiples and premiums for the respective groups of
transactions. Sandler also analyzed certain imputed relative pricing
multiples for the same groups of transactions. The relative multiples were
determined by dividing the absolute transaction multiples by the relevant
trading multiples of the buyers. Using these relative multiples, Sandler
O'Neill then calculated an imputed relative price/earnings multiple and
relative price/tangible book multiple. These multiples were applied to
Security's financial information as of and for the last quarter annualized
ended March 31, 2000. As illustrated in the following table, Sandler O'Neill
derived an imputed range of
17
values per share of Security common stock of $11.44 to $23.63 based
upon the median multiples for Nationwide Transactions, $14.68 to $21.82 based
upon the median multiples for Mid Atlantic Transactions and $12.18 to $18.63
based upon the median multiples for Highly-Capitalized Transactions.
The transaction value per share of Security common stock in the merger was
$17.50.
Nationwide Mid Atlantic Highly-Capitalized
------------------ ------------------ -------------------
Median Implied Median Implied Median Implied
Multiple Value Multiple Value Multiple Value
-------- ------- -------- ------- -------- -------
Deal price/LTM
EPS 23.42x $16.16 26.56x $18.33 24.53x $16.93
Relative price/
LTM EPS 16.57x $11.44 21.27x $14.68 17.66x $12.18
Deal price/
book value 1.65x $23.63 1.52x $21.82 1.30x $18.63
Relative price/
book value 1.33x $19.04 1.34x $19.25 1.26x $18.08
Premium to
market 39.40% $14.64 37.70% $14.46 36.79% $14.36
Discounted Dividend Stream and Terminal Value Analysis. Sandler O'Neill
also performed an analysis which estimated the future stream of after-tax
dividend flows of Security through September 30, 2003 under various
circumstances, assuming Security's current dividend payout ratio and that
Security performed in accordance with the earnings forecasts reviewed with
management. To approximate the terminal value of Security common stock at
September 30, 2003, Sandler O'Neill applied price/earnings multiples ranging
from 8x to 18x and multiples of tangible book value ranging from 50% to 175%.
The dividend income streams and terminal values were then discounted to
present values using different discount rates ranging from 10% to 13% chosen
to reflect different assumptions regarding required rates of return of holders
or prospective buyers of Security common stock. As illustrated in the
following table, this analysis indicated an imputed range of values per share
of Security common stock of $5.66 to $12.99 when applying the price/earnings
multiples and $6.24 to $22.04 when applying multiples of tangible book value.
The transaction value per share of Security common stock is $17.50 which is
above the price/earnings multiples range and within the tangible book value
multiples range.
Price/Earnings Multiples Tangible Book Value Multiples
------------------------ -----------------------------
Discount Rate 8x 18x .50x 1.75x
------------- -- --- ---- -----
10% $6.18 $12.99 $6.82 $22.04
11 6.00 12.60 6.62 21.37
12 5.83 12.22 6.43 20.72
13 5.66 11.86 6.24 20.09
In connection with its analysis, Sandler O'Neill considered and
discussed with Security's board of directors how the present value analysis
would be affected by changes in the underlying assumptions, including
variations with respect to the growth rate of assets, net income and dividend
payout ratio. Sandler O'Neill noted that the discounted dividend stream and
terminal value analysis is a widely used valuation methodology, but the
results of such methodology are highly dependent upon the numerous assumptions
that must be made, and the results thereof are not necessarily indicative of
actual values or future results.
In connection with rendering its June 2, 2000 opinion, Sandler O'Neill
reviewed, among other things: (1) the merger agreement and exhibits thereto;
(2) certain publicly available financial statements and other historical
financial information of Security that they deemed relevant; (3) certain
publicly
18
available financial statements and other historical financial
information of Northeast that they deemed relevant; (4) certain internal
financial analyses and forecasts of Security prepared by and reviewed with
management of Security and the views of senior management of Security, based
on certain limited discussions with certain members of senior management,
regarding Security's business, financial condition, results of operations and
future prospects; (5) certain internal financial analyses and forecasts of
Northeast prepared by and reviewed with management of Northeast and the views
of senior management of Northeast, based on certain limited discussions with
certain members of senior management, regarding Northeast's business,
financial condition, results of operations and future prospects; (6) the
publicly reported historical price and trading activity for Security's and
Northeast's common stock, including a comparison of certain financial and
stock market information for Security and Northeast with similar publicly
available information for certain other companies the securities of which are
publicly traded; (7) the financial terms of recent business combinations in
the savings institution industry, to the extent publicly available; (8) the
current market environment generally and the banking environment in
particular; and (9) such other information, financial studies, analyses and
investigations and financial, economic and market criteria as it considered
relevant.
In connection with rendering the opinion attached as Appendix B to this
proxy statement, Sandler O'Neill confirmed the appropriateness of its reliance
on the analyses used to render its June 2, 2000 opinion by performing
procedures to update certain of such analyses and by reviewing the assumptions
upon which such analyses were based and the other factors considered in
rendering its opinion.
In performing its reviews and analyses, Sandler O'Neill assumed and
relied upon the accuracy and completeness of all the financial information,
analyses and other information that was publicly available or otherwise
furnished to, reviewed by or discussed with it, and Sandler O'Neill did not
assume any responsibility or liability for independently verifying the
accuracy or completeness of any of such information. Sandler O'Neill did not
make an independent evaluation or appraisal of the assets, the collateral
securing assets or the liabilities, contingent or otherwise, of Security or
Northeast or any of their respective subsidiaries, or the collectibility of
any such assets, nor was it furnished with any such evaluations or appraisals.
Sandler O'Neill is not an expert in the evaluation of allowances for loan
losses and it has not made an independent evaluation of the adequacy of the
allowance for loan losses of Security or Northeast, nor has it reviewed any
individual credit files relating to Security or Northeast. With Security's
consent, Sandler O'Neill has assumed that the respective allowances for loan
losses for both Security and Northeast are adequate to cover such losses and
will be adequate on a pro forma basis for the combined entity. In addition,
Sandler O'Neill has not conducted any physical inspection of the properties or
facilities of Security or Northeast. With respect to all financial
projections reviewed with each company's management and used by Sandler
O'Neill in its analyses, Sandler O'Neill assumed that they reflected the best
currently available estimates and judgments of the respective managements of
the respective future financial performances of Security and Northeast and
that such performances will be achieved. Sandler O'Neill expressed no opinion
as to such financial projections or the assumptions on which they were based.
Sandler O'Neill's opinion was necessarily based upon market, economic
and other conditions as they existed on, and could be evaluated as of, the
date of its opinion. Sandler O'Neill assumed, in all respects material to its
analysis, that all of the representations and warranties contained in the
merger agreement and all related agreements are true and correct, that each
party to such agreements will perform all of the covenants required to be
performed by such party under such agreements and that the
19
conditions precedent in the merger agreement are not waived. Sandler
O'Neill also assumed, with Security's consent, that there has been no material
change in Security's and Northeast's assets, financial condition, results of
operations, business or prospects since the date of the last publicly filed
financial statements available to it, that Security and Northeast will remain as
going concerns for all periods relevant to its analyses, and that the merger
will be accounted for as a purchase transaction and will be a tax-free
reorganization for federal income tax purposes.
Security has agreed to pay Sandler O'Neill a transaction fee of
approximately $250,000 in connection with the merger, of which $62,149 has
been paid and the balance will be paid when the merger is completed. Security
has also paid Sandler O'Neill a fee of $50,000 for rendering its fairness
opinion, which will be credited against that portion of the transaction fee
due upon completion of the merger. Security has also agreed to reimburse
Sandler O'Neill for its reasonable out-of-pocket expenses incurred in
connection with its engagement and to indemnify Sandler O'Neill and its
affiliates and their respective partners, directors, officers, employees,
agents, and controlling persons against certain expenses and liabilities,
including liabilities under securities laws. The amount of the transaction fee
was agreed to after negotiations between Security and Sandler O'Neill. Sandler
O'Neill proposed a fee equal to 1% of the merger consideration and Security
agreed to that fee after reviewing similar fee structures for comparable
transactions.
Sandler O'Neill has in the past provided certain other investment
banking services to Security and Northeast and has received compensation for
such services. During the two years prior to the date of this proxy
statement, Sandler O'Neill acted as financial advisor to Security Savings in
connection with its conversion from mutual to stock form for which Sandler
O'Neill received fees of $272,000. During the past two years, Sandler O'Neill
also provided certain record management services to Northeast related to its
conversion to stock form, for which Sandler O'Neill received fees of $6,600.
In addition, Sandler O'Neill may in the future provide investment banking
services to Northeast and will receive compensation for such services. In the
ordinary course of its business as a broker-dealer, Sandler O'Neill may also
purchase securities from and sell securities to Security and Northeast and may
actively trade the equity securities of Security and Northeast and their
respective affiliates for its own account and for the accounts of customers
and, accordingly, may at any time hold a long or short position in such
securities.
You Will Receive Cash for Your Shares of Security Stock
Upon completion of the merger, each outstanding share of Security common
stock (other than shares as to which dissenters' rights have been asserted and
perfected in accordance with Delaware law and other than treasury shares and
certain shares held by Northeast) shall be converted into and represent the
right to receive $17.50 in cash without any interest thereon. The aggregate
amount of the cash payment represents the merger consideration. The merger
consideration to be paid in connection with the merger is expected to be
approximately $25 million, assuming none of the outstanding Security options
are exercised prior to completion of the merger and that none of the Security
options convert into options to purchase Northeast common stock.
Treatment of Options
Except as provided in the next paragraph, each option to purchase
Security common stock that has not been exercised before the merger is
completed will be canceled and the holder of the unexercised stock option will
be entitled to receive a cash payment equal to $17.50 less the exercise price
per share of such stock option, multiplied by the number of shares of Security
common stock subject to the stock option, less any required tax withholdings.
Our stock-based incentive plan and all options issued under it will terminate
at the effective time of the merger.
20
Our directors and employees who continue to serve as a director and
employee of Northeast or its subsidiaries after the merger and who have
Security stock options may elect, not less than two business days prior to the
closing date of the merger, to convert all or any portion of their Security
stock options into options to purchase shares of Northeast common stock
instead of receiving the cash payment for their stock options described in the
preceding paragraph. The conversion of such options will be effected by
issuing to the electing person Northeast stock options to purchase a number of
shares of Northeast common stock (rounded up to the nearest whole share) equal
to the product of (1) the number of Security stock options being converted and
(2) a fraction, the numerator of which is $17.50 and the denominator of which
is the average of the daily closing sales prices, as reported on the American
Stock Exchange, of Northeast common stock for the 15 consecutive trading days
ending with the last trading day before the effective time of the merger. The
exercise price per share for such Northeast stock options shall be the product
(rounded to the nearest cent) of the exercise price of the Security stock
options being converted multiplied by the reciprocal of the fraction described
in the prior sentence. Each of such Northeast stock options shall be fully
vested and exercisable on the same terms as the related Security stock
options.
Procedure for Surrendering Your Certificates
Prior to the effective time of the merger, Northeast will deposit with
Northeast Pennsylvania Trust Co. or another bank or trust company cash in an
amount equal to the aggregate merger consideration, including the amount of
cash to be paid upon the cancellation of outstanding stock options. The bank
or trust company receiving the deposit will act as paying agent for the
benefit of the holders of certificates of Security common stock in exchange
for the merger consideration.
As soon as reasonably practicable after the effective time of the
merger, a letter of transmittal will be mailed by the paying agent to Security
stockholders. The letter of transmittal will contain instructions for
surrendering your certificates of Security common stock.
You should not return your Security 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 a certificate for Security common stock has been lost, stolen or
destroyed, the paying agent will issue the merger consideration following:
* receipt of an affidavit by the person claiming the loss, theft or
destruction of his or her certificate, and
* if required by the paying agent, the posting of a bond by such
person in such amount as the paying agent may reasonably require
as indemnity against any claim.
After six months following the effective time of the merger, Northeast
may have the paying agent deliver to it any funds not disbursed by the paying
agent to Security stockholders. Thereafter, the payment obligation for any
certificate representing Security common stock which has not been satisfied
will become the responsibility of Northeast.
If certificates for Security common stock are not surrendered prior to
the date on which such payments would otherwise escheat to or become the
property of any governmental agency, the unclaimed
21
amounts will become the property of Northeast to the extent permitted by
applicable law, free and clear of all claims or interest of any person
previously entitled to such amounts. None of Northeast, Security or any other
person will be liable to any former holder of Security common stock for any
amount properly delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws.
Representations and Warranties Made by Us and Northeast
The merger agreement contains representations and warranties made by us
and Northeast which are customary in merger transactions, including, among
others, representations and warranties concerning:
* the organization of Security and Northeast, and their
subsidiaries,
* the due authorization, execution, delivery and enforceability of
the merger agreement,
* the consents or approvals required under, and the lack of breaches
or violations of, applicable certificates of incorporation,
bylaws, instruments and laws, with respect to the transactions
contemplated by the merger agreement,
* the documents filed by Northeast and us with the SEC and other
regulatory agencies,
* the absence of material adverse changes, legal claims, regulatory
actions and undisclosed liabilities,
* the conduct of our business in the ordinary course and absence of
certain changes, and
* the financial statements of Northeast and us.
We made certain additional representations and warranties (which are
also customary), among others, regarding our capitalization, the receipt of a
fairness opinion from our financial advisor, environmental matters, the
adequacy of insurance coverage, investment securities, status of loan
portfolio, payment of taxes, employee benefit plans, title to assets, certain
contracts, properties, the accuracy of the information in this proxy
statement, the absence of Year 2000 issues, liquidation accounts, books and
records, inapplicability of anti-takeover provisions, asset quality,
compliance with laws, including the Community Reinvestment Act, the allowance
for loan losses, labor matters and the real estate owned by us. Northeast
also has represented that it will have the funds necessary to pay the merger
consideration required of it under the merger agreement.
The representations and warranties made by us and Northeast are
qualified by materiality. These representations and warranties will not
survive beyond the completion of the merger, and, if the merger agreement is
terminated without consummation of the merger, other than the possible
termination fee provisions discussed below, there will be no liability on the
part of either us or Northeast, except that no party shall be relieved or
released from any liability arising out of a willful breach by it of any
covenant, undertaking, representation or warranty in the merger agreement.
22
Conditions to the Merger
The respective obligations of Northeast and Security to consummate the
merger are subject to the satisfaction or waiver of the following conditions
specified in the merger agreement:
* approval of the merger agreement by our stockholders,
* the receipt of all required regulatory approvals, consents or
waivers, provided that none of such approvals, consents or waivers
contain any condition or requirement which so materially and
adversely impacts the economic or business benefits to Northeast
that Northeast would not, in its reasonable judgment, have entered
into the merger agreement if such requirement or condition had
been known at the time of execution,
* the absence of any order, decree or injunction of a court or
agency of competent jurisdiction which enjoins or prohibits the
completion of the merger or the bank merger,
* the absence of any statute, rule or regulation which prohibits,
restricts or makes illegal the completion of the merger or the
bank merger,
* the accuracy of the other party's representations and warranties
in all material respects,
* the performance by the other party of its obligations contained in
the merger agreement in all material respects, and
* the receipt of certain certificates.
Northeast's obligation to effect the merger also is subject to the following
conditions:
* receipt by us of all necessary third party consents, and
* that no more than 15% of our outstanding common stock will be
subject to dissenters' rights of appraisal with respect to the
merger.
Our obligation to effect the merger is subject to the condition that
Northeast deposits sufficient funds with the paying agent to pay the aggregate
merger consideration.
There can be no assurance that the conditions to consummation of the
merger will be satisfied or waived. The merger will become effective when the
certificate of merger is filed with the Secretary of State of the State of
Delaware or at such later time as may be agreed to by Northeast and us and
indicated in the certificate of merger. It is currently anticipated that the
effective time of the merger will occur during the fourth quarter of 2000.
Conduct of Business Prior to the Completion of the Merger
Northeast and we have agreed that during the period from the date of the
merger agreement to the completion of the merger we will not:
23
* take any action which would adversely affect or delay the ability
of us or Northeast to perform our respective covenants and
agreements on a timely basis under the merger agreement, or
* take any action which would adversely affect or delay the ability
of us, Security Savings Association, Northeast or First Federal
Bank to obtain any necessary approvals, consents or waivers of any
governmental entity required for the transactions contemplated by
the merger agreement or which would reasonably be expected to
result in any such approvals, consents or waivers containing any
material condition or restriction.
* take any action that is intended or expected to result in any of
our or Northeast's representations and warranties contained in the
merger agreement being or becoming untrue in any material respect
at any time prior to the effective time of the merger, or in any
of the conditions to the merger not being satisfied or in
violation of the merger agreement.
We also have agreed that during the period from the date of the merger
agreement to the completion of the merger (except as expressly provided in the
merger agreement), we and Security Savings Association will:
* conduct our business in the regular, ordinary and usual course
consistent with our past practice,
* maintain and preserve intact our business organization,
properties, leases, employees and advantageous business
relationships and retain the services of our officers and key
employees,
* take no action that results in or is reasonably likely to have a
material adverse effect on us or Security Savings Association,
* maintain adequate insurance as is customary for our industry,
* confer regularly with Northeast, subject to applicable law,
regarding material issues affecting our business and the status of
our and Security Savings Association's operations,
* promptly notify Northeast of any material change in our business,
properties, assets, condition or results of operations, and
* promptly provide Northeast with copies of all filings made by us
or Security Savings Association regarding the merger agreement.
We also agreed, among other things, that, except as contemplated by the
merger agreement or unless Northeast provides its written consent, we and
Security Savings Association will not:
24
* other than in the ordinary course of business consistent with our
past practice, incur any indebtedness or assume, guarantee,
endorse or become responsible for the obligations of any
individual, corporation or other entity,
* adjust, split, combine or reclassify any of our capital stock,
* pay any dividends to our stockholders except for regular quarterly
dividends of up to $0.05 per share, or redeem, repurchase or
otherwise acquire any of our capital stock,
* grant any stock options, stock awards or rights to acquire shares
of our capital stock,
* issue any shares of our capital stock or any securities or
obligations convertible or exercisable into our capital stock,
other than pursuant to the exercise of existing options to
purchase Security common stock,
* enter into any agreement to sell, transfer, mortgage, encumber or
otherwise dispose of any of our material properties or assets,
* cancel, release or assign any indebtedness, except pursuant to
contracts or agreements in force as of the date of the merger
agreement,
* acquire any new equity interests, property or assets of any other
business, individual or entity other than the Federal Home Loan
Bank of Pittsburgh,
* enter into, amend, terminate or renew any agreement or lease other
than those involving payments of less than $10,000 per year,
* make, renegotiate, renew, increase, extend, modify or purchase any
loan, lease or extension of credit, except for loans made in
conformity with our lending policies for less than $300,000 or for
loans that we have a binding obligation to make,
* make or increase any loan or extension of credit to our or
Security Savings Association's directors or executive officers on
terms that are more favorable than terms available to the general
public,
* increase the compensation of or pay any pension, bonus, severance,
retirement allowance or contribution to any of our directors,
officers or employees, except for the payment of permissible
bonuses as provided by the merger agreement,
* become a party to, amend or commit to, any employee pension,
welfare, profit-sharing or retirement plan or employment
agreement,
* voluntarily accelerate the vesting of or lapsing of restrictions
with respect to any stock options or other stock-based
compensation,
* elect any new senior executive officers, nominate any new
directors to our Board, hire any employee with annual compensation
in excess of $25,000, or change the titles of our officers,
25
* settle any claim, action or proceeding in excess of $50,000 or
that requires a material restriction on our business,
* amend our certificate of incorporation or bylaws,
* other than in the ordinary course of business consistent with our
past practices and Security Savings Association's investment
policy, make any investments in individual amounts exceeding $1.0
million, or materially change our investment securities portfolio,
with certain exceptions,
* make any investment in any debt security, except for the purchase
of U.S. government and agency securities with final maturities not
greater than five years that are purchased in the ordinary course
of business,
* make any capital expenditures except those necessary to maintain
existing assets or to pay taxes,
* establish or commit to establish any new branch locations or file
any application to relocate or terminate any banking office,
* engage in any transaction that is not in the ordinary course of
business and consistent with past practices,
* implement or adopt any change in our accounting principles,
practices or methods unless required by generally accepted
accounting practices or regulatory guidelines, or
* agree to do, or adopt any resolutions by our Board in support of,
any of the actions noted above.
In addition, we or our agents and affiliates have agreed not to solicit
inquiries or proposals from, or furnish information to or participate in any
discussions or negotiations with, third parties who are trying to buy a
material interest in us. Generally, an effort by us to encourage a merger,
acquisition or similar business combination with a third party, the sale of
10% or more of our or Security Savings Association's assets, an offer for 25%
or more of our stock, the acquisition by any person or group who owns 15% or
more of our stock, or a public announcement to enter into an agreement to do
any of these things, would violate this covenant. We are required to notify
Northeast immediately if we receive any such inquires or proposals and provide
information about the third party and its proposal. However, we are permitted
to furnish information to or engage in discussions or negotiations with third
parties if, after having consulted with and received the advice of our
counsel, we determine that the failure to do so may cause our Board of
Directors to breach its fiduciary duties. In making such determination, we
must find that such proposal from a third party (a) if accepted, is likely to
be completed and (b) if completed, is reasonably likely to result in a
transaction that is more favorable to our stockholders from a financial point
of view than the merger.
26
Approvals Needed to Complete the Merger
In addition to the approval of the merger agreement by our stockholders,
completion of the merger and the transactions contemplated by the merger
agreement are subject to the prior approval of the Office of Thrift
Supervision under the Home Owners' Loan Act, the Bank Merger Act and the
conversion regulations. In reviewing applications under the Bank Merger Act,
the OTS 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 OTS may not approve a transaction if it will result in a monopoly or
otherwise be anti-competitive.
Under the Community Reinvestment Act of 1977, the OTS must take into
account the record of performance of First Federal Bank and Security Savings
Association 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, the banking agencies frequently receive comments and
protests from community groups and others. Security Savings Association and
First Federal Bank each received a "satisfactory" rating during their
respective last Community Reinvestment Act examinations.
In addition, a period of up to 30 days must expire following approval by
the OTS, within which period the United States Department of Justice may file
objections to the merger under the federal anti-trust laws. Although we
believe that the likelihood of such action by the Department of Justice is
remote in this merger, there can be no assurance that the Department of
Justice will not initiate such proceeding. If such proceeding is instituted or
challenge is made, we cannot ensure a favorable result.
We are not aware of any other regulatory approvals required for
completion of the merger, except as described above. Should any other
approvals be required, it is presently contemplated that such approvals would
be sought. There can be no assurance that any other approvals, if required,
will be obtained.
The approval of any application merely implies the satisfaction of
regulatory criteria for approval, which does not include review of the merger
from the standpoint of the adequacy of the consideration to be received by
Security stockholders. Furthermore, regulatory approvals do not constitute an
endorsement or recommendation of the merger.
There can be no assurances that the requisite regulatory approvals will
be received in a timely manner, in which event the consummation of the merger
may be delayed. If the merger is not consummated on or before December 31,
2000, the merger agreement may be terminated by either Northeast or us. We
can give you no assurance as to the receipt or timing of such approvals.
It is a condition to the consummation of the merger that the regulatory
approvals be obtained without any condition or requirement that would so
materially and adversely impact the economic or business benefits of the
merger to Northeast that had such condition or requirement been known,
Northeast, in its reasonable judgment, would not have entered into the merger
agreement. No assurance can be provided that any such approvals will not
contain terms, conditions or requirements which cause such approvals to fail
to satisfy such condition to the consummation of the merger.
27
Waiver and Amendment of the Merger Agreement
Prior to the completion of the merger, Northeast and we may extend the
time for performance of any obligations under the merger agreement, waive any
inaccuracies in the representations and warranties contained in the merger
agreement and waive compliance with any covenant, agreement or, to the extent
permitted by law, any condition of the merger agreement. However, after our
stockholders have adopted the merger agreement, no waiver can reduce the
amount or modify the form of consideration to be provided to our stockholders
or otherwise materially adversely affect our stockholders without their
approval.
The merger agreement may be amended or supplemented at any time by
mutual agreement of Northeast and us, provided that any such amendment or
supplement after our stockholders have adopted the merger agreement is subject
to the same condition in the last sentence of the preceding paragraph.
Termination of the Merger Agreement
The merger agreement may be terminated prior to the time the merger is
completed, either before or after stockholder approval of the merger
agreement, by:
* the mutual written consent of Northeast and us; or
* by Northeast or us if:
* our stockholders do not approve the merger agreement, except
that we cannot terminate the merger agreement in such event
if we have breached certain of our obligations under the
merger agreement, including the requirement that our board
of directors recommends, subject to its fiduciary duties as
advised by counsel, that stockholders vote to approve the
merger agreement and use its best efforts to solicit such
approvals,
* any necessary governmental approval is denied or a final,
nonappealable order of a governmental entity prohibits
completion of the merger,
* the merger is not completed by December 31, 2000, unless the
failure of such occurrence is due to a breach of the party
seeking to terminate, or
* the other party has (a) failed to perform or comply with any
covenant in the merger agreement which failure is material
in the context of the merger or (b) breached the merger
agreement and such breach would have a material adverse
effect, and in either case such failure or breach has not
been timely cured within 30 days after the giving of written
notice.
* by Northeast if:
* our Board of Directors does not publicly recommend that our
stockholders approve the merger or if the Board withdraws,
qualifies or revises its recommendation for approval of the
merger,
28
* we enter into an agreement to be acquired by another party
or solicit an inquiry or proposal from or furnish
information to or participate in discussions with such third
party, or
* a tender offer or exchange offer for 20% of Security's
shares begins and our Board of Directors does not recommend
against the tender offer or exchange offer.
In the event that the merger agreement is terminated, the merger
agreement shall become void and have no effect, and there shall be no
liability on the part of either Northeast or us or either party's officers and
directors, except that:
* certain provisions regarding confidential information shall
survive and remain in full force and effect,
* all costs and expenses incurred in connection with the merger will
be paid by the party incurring the expenses,
* if prior to June 2, 2001, after a valid proposal to acquire us is
made by a third party to us or to our stockholders, which proposal
has not been publicly and irrevocably withdrawn prior to our
stockholder meeting, and (a) we have willfully breached any
covenant or obligation in the merger agreement and such breach
would entitle Northeast to terminate the agreement, or (b) the
stockholder meeting has not been held or is canceled or if after
the proposal was made and was not publicly withdrawn the
stockholders do not approve the merger agreement, or (c) we have
withdrawn or changed our recommendation in a manner adverse to the
merger agreement, we will owe Northeast $300,000,
* if prior to December 2, 2001, we enter into an agreement to be
acquired by a third party, we will owe Northeast a fee of $900,000
(or $600,00 if we have already paid the $300,000 mentioned above),
and
* a breaching party shall not be relieved of liability or damages
for any willful breach giving rise to such termination.
Interests of Directors and Officers in the Merger that are Different from Your
Interests
Some members of our management and Board of Directors may have interests
in the merger that are in addition to or different from the interests of our
stockholders. Our Board was aware of these interests and considered them in
approving the merger agreement.
Security Stock Options. As of September 5, 2000, directors and executive
officers held options to purchase in the aggregate 134,022 shares of Security
common stock under our stock-based incentive plan. None of the stock options
are currently exercisable, but they will become fully exercisable upon the
receipt of all required federal regulatory approvals for the merger. At the
effective time of the merger, except as noted below, all Security options will
be canceled and holders of options will have the right to receive $17.50 for
each share covered by the option less the per share exercise price of the
option. Employees and directors who become employees or directors of
Northeast or First Federal Bank, however, may elect to convert all or a
portion of their Security stock options into options for Northeast common
stock. See "-Treatment of Options" for a description of the treatment of
Security options in the
29
merger agreement. See "Beneficial Ownership of Security Common Stock" for
the amount of options held by our directors and executive officers.
Security Restricted Stock Awards. As of September 5, 2000, an aggregate of
54,606 shares of our common stock have been awarded to our directors and
executive officers pursuant to our stock-based incentive plan, none of which
have yet vested. All unvested awards will become fully vested upon the
receipt of all required federal regulatory approvals for the merger. As a
result, holders of the awards will be entitled to receive $17.50 for each
share subject to such awards. See "Beneficial Ownership of Security Common
Stock" for the amount of unvested awards held by our directors and executive
officers.
Security Employee Stock Ownership Plan. As of September 5, 2000, our ESOP
held 119,383 shares of our common stock which had not yet been allocated to
participants and which were pledged as collateral for the remaining $1,158,468
loan to the ESOP. The ESOP will be terminated upon completion of the merger,
at which time the loan will be repaid with the cash received by the ESOP in
the merger. Based on the number of unallocated shares and the current loan
balance, the ESOP will have approximately $930,734 of cash after repayment of
the loan, which cash will be allocated to the participants in accordance with
the terms of the ESOP and distributed to participants following receipt of a
favorable determination letter from the Internal Revenue Service.
Employment Agreements. Effective as of December 30, 1998, we and
Security Savings Association each entered into employment agreements with
Messrs. Laubach and Marchetti. Under the employment agreements, Messrs.
Laubach and Marchetti are each entitled to receive a severance payment upon a
change in control of us or Security Savings Association equal to the greater
of (1) the payments due for the remaining term of the agreement or (2) three
times their average annual compensation for the five preceding tax years.
Messrs. Laubach and Marchetti also are entitled to insurance coverage for
three years, subject to reduction as a result of certain effects of such
payments. The merger will be considered a "change in control" of Security and
Security Savings Association for purposes of the employment agreements. The
agreements with Security Savings Association provide for a reduction in the
amount of severance payments and benefits to the extent necessary to avoid any
parachute payments under Section 280G of the Internal Revenue Code, and the
agreements with Security provide for a reduction if the reduced amount would
result in a higher net after-tax benefit to the executives. If the present
value of all parachute payments exceeds three times the executive's average
compensation for the preceding five years, then Sections 280G and 4999 of the
Internal Revenue Code impose a 20% excise tax on all parachute payments in
excess of one times the five-year average compensation, and such excess cannot
be deducted by either Northeast or us. Because a portion of the accelerated
value of the outstanding stock options and restricted stock awards held by
Messrs. Laubach and Marchetti are deemed to be parachute payments, the
executives have agreed to reduce their severance payments and benefits under
their employment agreements in order to avoid the 20% excise tax. As reduced,
the severance payments and benefits are estimated to be approximately $113,000
to Mr. Laubach and $12,000 to Mr. Marchetti. Mr. Laubach also will receive a
payment of approximately $46,000 pursuant to a supplemental executive retirement
plan.
Consulting and Non-Competition Agreements. In connection with the
execution of the merger agreement, Messrs. Laubach and Marchetti each entered
into a consulting and non-competition agreement with Northeast and First
Federal Bank to be effective upon completion of the merger. The consulting
portion of the agreements has a term of one year from the effective time of
the merger. Each agreement requires the consultant to perform reasonable
consulting services as may be requested by Northeast or First Federal Bank,
but not in excess of 80 hours in any one month or 800 hours for the
30
year. Such services include providing advice and information on the business
of Northeast and First Federal Bank, providing introductions to customers and
serving as a senior advisor to First Federal Bank.
Messrs. Laubach and Marchetti also have agreed to certain restrictions
regarding their employment and business activities. For example, they have
agreed not to (a) engage in the banking or financial services business within
Northeast's or First Federal Bank's market area, (b) own, manage, operate or
be employed by, or provide management or consulting services to any person or
entity
engaged in the banking or financial services business in Northeast's or
First Federal Bank's market area, (c) solicit or divert business from
Northeast or First Federal Bank, (d) cause another company or person to stop
doing business with Northeast or First Federal Bank or (e) solicit or cause an
employee or director of Northeast or First Federal Bank to compete against
Northeast or First Federal Bank. The non-competition portion of the
agreements has a term of four years and three years from the effective time of
the merger for Messrs. Laubach and Marchetti, respectively.
As compensation for Mr. Laubach's consulting services and for agreeing
to the non-competition restrictions, he will be paid $250,000 at the effective
time of the merger and $14,583 per month for the next twelve months following
the merger, for a total of $425,000. As compensation for Mr. Marchetti's
consulting services and for agreeing to the non-competition restrictions, he
will be paid $175,000 at the effective time of the merger and $8,333 per month
for the next twelve months following the merger, for a total of $275,000. In
addition, for a period of one year following the merger, First Federal Bank
will provide Messrs. Laubach and Marchetti with medical, life, dental and
disability insurance.
Change of Control Agreements. Effective as of December 30, 1998,
Security Savings Association entered into change of control agreements with
two of its officers. Effective as of February 1, 1999, Security Savings
Association entered into a change of control severance agreement with a third
officer of the bank. The change in control agreements provide for a payment
to each of the officers equal to three times the officer's average annual
compensation for the preceding five years upon the officer's termination of
employment following a change in control. The officers also are entitled to
receive insurance coverage for three years following the termination of
employment or change in title or position following a change in control. For
purposes of the change in control agreements, the merger will constitute a
"change in control." The aggregate amount due under the change in control
agreements is estimated to be approximately $349,000, if the employment of all
three officers was terminated.
Board of Directors. Upon completion of the merger, Messrs. Frederick L.
Barletta, George J. Hayden and Richard C. Laubach will be appointed to the
Board of Directors of First Federal Bank (such appointments to be evenly
distributed among the three classes of the Board) and Mr. John J. Raynock will
be appointed to the Board of Directors of Northeast Pennsylvania Trust Co., a
subsidiary of Northeast. Such persons will receive the same board fees as
those received by other members of the board upon which they sit.
Protection of Directors, Officers and Employees Against Claims. In the
merger agreement, Northeast has agreed to indemnify our and Security Savings
Association's directors and officers after the completion of the merger to the
fullest extent which we or Security Savings Association would have been
permitted to do so under our respective certificate or articles of
incorporation or bylaws. Northeast also has agreed to provide, for a period
of three years after the completion of the merger, an insurance policy that
provides our directors and officers with coverage no less favorable than the
coverage we currently provide, except that Northeast is not required to spend
annually during such three-year period more than 150% of our current annual
premium cost.
31
Employees and Benefit Plans
The merger agreement provides that each Security Savings Association
employee whose employment is not terminated when the merger closes will become
an employee of First Federal Bank. These continuing employees will be
eligible to participate in First Federal Bank's 401(k) plan on the same basis
as any newly-hired employee of First Federal Bank, with full credit for prior
service with us and Security Savings Association for purposes of eligibility
and vesting. In addition, Northeast and First Federal Bank will make available
health insurance and other employee welfare benefit plans to continuing
employees on the same basis as it provides such benefits to their current
employees. In light of the termination of the Security ESOP in connection
with the merger and the resulting allocation to the Security employees who
participate in the Security ESOP of all of the unallocated assets remaining
after payment of the loan to the Security ESOP, employees of Security Savings
Association who remain in the employ of First Federal Bank after completion of
the merger will not be entitled to participate in First Federal Bank's employee
stock ownership plan.
Security employees who participate in our pension plan will become fully
vested in their accrued benefit at the effective time of the merger. The
Security pension plan will either be combined with First Federal Bank's
pension plan or terminated, as determined by First Federal Bank. Employees
who become employees of Northeast or First Federal Bank will be entitled to
participate in their pension plan upon the merger of the two pension plans or
the termination of our pension plan. Northeast and First Federal Bank will
credit our employees for their years of service with us and Security Savings
Association for purposes of vesting, eligibility and benefit accrual, except
that if the Security pension plan is terminated rather than merged, service
with Security Savings Association will not be recognized for purposes of
benefit accrual under the First Federal Bank pension plan.
Under the Security Savings Association employee severance compensation
plan, an employee with at least one year service will receive a cash payment
if, within one year of the completion of the merger the employee is
terminated, subject to certain conditions. An employee who is terminated and
who participates in the severance compensation plan is entitled to receive a
cash payment equal to one-twelfth of the employee's annual compensation for
each year of service up to a maximum of 199% of the employee's annual
compensation.
You Have Dissenters' Rights of Appraisal
Under Delaware law, if you do not wish to accept the cash payment
provided for in the merger agreement, you have the right to dissent from the
merger and to have an appraisal of the fair value of your shares conducted by
the Delaware Court of Chancery. Stockholders electing to exercise dissenters'
rights must strictly comply with the provisions of Section 262 of the Delaware
General Corporation Law to perfect their rights. A copy of Section 262 is
attached as Appendix C.
The following is intended as a brief summary of the material provisions
of the Delaware statutory procedures required to dissent from the merger and
perfect a stockholder's dissenters' rights. This summary, however, is not a
complete statement of all applicable requirements and is qualified in its
entirety by reference to Section 262 of the Delaware General Corporation Law.
Section 262 requires that stockholders be notified not less than 20 days
before the special meeting to vote on the merger that dissenters' appraisal
rights will be available. A copy of Section 262 must be included with such
notice. This proxy statement constitutes our notice to you of the
availability
32
of dissenters' rights in connection with the merger. If you wish to consider
exercising your dissenters' 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
dissenters' rights under Delaware law.
If you elect to demand appraisal of your shares, you must satisfy all of
the following conditions:
* You must deliver to us a written demand for appraisal of your
shares before the vote with respect to the merger is taken. This
written demand for appraisal must be in addition to and separate
from any proxy or vote abstaining from or against the merger.
Voting against or failing to vote for the merger by itself does
not constitute a demand for appraisal within the meaning of
Section 262.
* 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 dissenters' rights in respect of the shares so voted and will
nullify any previously filed written demands for appraisal.
* You must continuously hold your shares of Security common stock
through the effective time of the merger.
If you fail to comply with these conditions and the merger is completed,
you will be entitled to receive the cash payment for any shares of Security
common stock you hold as of the effective time of the merger as provided for
in the merger agreement but will have no dissenters' rights of appraisal for
your shares of Security common stock.
All demands for appraisal should be addressed to the Corporate
Secretary, Security of Pennsylvania Financial Corp., 31 West Broad Street,
Hazleton, Pennsylvania 18201, before the vote on the merger is taken at the
special meeting, and should be executed by, or on behalf of, the record holder
of the shares of Security common stock. The demand must reasonably inform us
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 common
stock must be made by or in the name of such registered stockholder, fully and
correctly, as the stockholder's name appears on his or her stock
certificate(s) and 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 shares are owned of record in a fiduciary capacity, such as by a
trustee, guardian or custodian, execution of a demand for appraisal should be
made in such 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 of
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.
33
If you hold your shares of Security common stock in a brokerage account
or in other nominee form and you wish to exercise appraisal rights, you should
consult with your broker or such other
nominee to determine the appropriate procedures for the making of a demand for
appraisal by such nominee.
Within ten days after the effective date of the merger, Northeast must
give written notice that the merger has become effective to each Security
stockholder who has properly filed a written demand for appraisal and who did
not vote in favor of the merger. Within 120 days after the effective date,
either Northeast or any stockholder who has complied with the requirements of
Section 262 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. A dissenting stockholder may request from Northeast
during this 120 day period a statement setting forth (a) the aggregate number
of shares not voted in favor of the merger and with respect to which demands
for appraisal have been received, and (b) the aggregate number of holders of
such shares. We have been informed that Northeast does not presently intend
to file such a petition in the event there are dissenting stockholders and has
no obligation to do so. Accordingly, your failure to timely file a petition
could nullify your demand for appraisal.
At any time within 60 days after the effective date of the merger, any
stockholder who has demanded an appraisal has the right to withdraw the demand
and to accept the cash payment specified by the merger agreement for his or
her shares of Security common stock. If a petition for appraisal is duly
filed by a stockholder and a copy of the petition is delivered to Northeast,
Northeast 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. After notice to dissenting stockholders, 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 the appraisal rights provided thereby. 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
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.
After determination of the stockholders entitled to appraisal of their
shares of Security 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, if any. When the value is determined, the 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 the same, upon surrender by such holders of the
certificates representing such shares.
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 the
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 Northeast and the
stockholders participating in the appraisal proceeding by the Chancery Court
as the 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.
34
Any stockholder who demands appraisal rights will not, after the
effective date, 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; however, if no petition for appraisal is filed
within 120 days after the effective date, or if such 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, then the right of such
stockholder to appraisal will cease and such stockholder will be entitled to
receive the cash payment for shares of his or her Security 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.
In view of the complexity of Section 262, Security stockholders who may
wish to dissent from the merger and pursue appraisal rights should consult
their legal advisors.
Federal Income Tax Consequences of the Merger for Security Stockholders
The exchange of our common stock for cash pursuant to the terms of the
merger agreement will be a taxable transaction for federal income tax purposes
under the Internal Revenue Code, and may also be a taxable transaction under
state, local and other tax laws. Similarly, any Security stockholders who
exercise their dissenters' appraisal rights and receive cash in exchange for
their shares of Security common stock will recognize income for federal tax
purposes and may recognize income under state, local and other tax laws. A
stockholder of Security will recognize gain or loss equal to the difference
between the amount of cash received by the stockholder pursuant to the merger
and the tax basis in the Security common stock exchanged by such stockholder
pursuant to the merger. Gain or loss must be determined separately for each
block of Security common stock surrendered pursuant to the merger. For
purposes of federal tax law, a block consists of shares of Security common
stock acquired by the stockholder at the same time and price.
Gain or loss recognized by the stockholder exchanging his or her
Security common stock pursuant to the merger or pursuant to the exercise of
dissenters' rights will be capital gain or loss if such Security common stock
is a capital asset in the hands of the stockholder. If the Security common
stock has been held for more than one year, the gain or loss will be long-
term. Capital gains recognized by an exchanging individual stockholder
generally will be subject to tax at the top marginal rate applicable to the
stockholder (up to a maximum of 39.6% for short-term capital gains and 20% for
long-term capital gains), and capital gains recognized by an exchanging
corporate stockholder generally will be subject to tax at a maximum rate of
35%.
Neither Northeast nor Security has requested or will request a ruling
from the Internal Revenue Service as to any of the tax effects to Security's
stockholders of the transactions discussed in this proxy statement, and no
opinion of counsel has been or will be rendered to Security's stockholders
with respect to any of the tax effects of the merger to stockholders.
The federal income tax discussion set forth above is based upon current
law and is intended for general information only. You are urged to consult
your tax advisor concerning the specific tax consequences of the merger to
you, including the applicability and effect of state, local or other tax laws
and of any proposed changes in those tax laws and the Internal Revenue Code.
35
Accounting Treatment of the Merger
The merger will be accounted for under the purchase method of
accounting. Under this method of accounting, Northeast and Security will be
treated as one company as of the date of the merger, and Northeast will record
the fair market value of Security's assets less liabilities on its financial
statements. Acquisition costs in excess of the fair values of the net assets
acquired, if any, will be recorded as an intangible asset and amortized for
financial accounting purposes. The reported income of Northeast will include
our operations after the completion of the merger.
Who Pays for What
All out-of-pocket costs and expenses incurred in connection with the
merger (including, but not limited to, counsel fees) shall be paid by the
party incurring such costs and expenses.
Bank Merger Agreement
In connection with the merger, Security Savings Association and First
Federal Bank have entered into a bank merger agreement under which Security
Savings Association and First Federal Bank will merge, with First Federal Bank
being the surviving bank. The bank merger agreement may be terminated by
mutual consent of the parties at any time and will be terminated automatically
if the merger agreement is terminated.
ADJOURNMENT OF THE SPECIAL MEETING
Each proxy solicited requests authority to vote for an adjournment of
the special meeting, if an adjournment is deemed to be necessary. Security
may seek an adjournment of the special meeting for not more than 30 days so
that we can solicit additional votes in favor of the merger agreement if the
merger proposal has not received the requisite vote of stockholders at the
special meeting and has not received the negative votes of the holders of a
majority of Security's stock. If Security desires to adjourn the meeting, it
will request a motion that the meeting be adjourned for up to 29 days with
respect to the merger proposal (and solely with respect to the merger
proposal, provided that a quorum is present at the special meeting), and no
vote will be taken on the merger proposal at the originally scheduled special
meeting. Each proxy solicited, if properly signed and returned to Security
and not revoked prior to its use, will be voted on any motion for adjournment
in accordance with the instructions contained therein. If no contrary
instructions are given, each proxy received will be voted in favor of any
motion to adjourn the meeting. Unless revoked prior to its use, any proxy
solicited for the special meeting will continue to be valid for any adjourned
meeting, and will be voted in accordance with instructions contained therein,
and if no contrary instructions are given, for the proposal in question.
Any adjournment will permit Security to solicit additional proxies and
will permit a greater expression of the stockholders' views with respect to
the merger proposal. The adjournment would be disadvantageous to stockholders
who are against the merger agreement because an adjournment will give Security
additional time to solicit favorable votes and thus increase the chances of
passing the merger proposal.
If a quorum is not present at the special meeting, no proposal will be
acted upon and the Security Board of Directors will adjourn the special
meeting to a later date to solicit additional proxies on each of the proposals
being submitted to stockholders.
36
An adjournment for up to 29 days will not require either the setting of
a new record date or notice of the adjourned meeting as in the case of an
original meeting. Security has no reason to believe that an adjournment of
the special meeting will be necessary at this time.
Because the Board of Directors recommends that stockholders vote "FOR" the
proposed merger agreement, the Board of Directors also recommends that
stockholders vote "FOR" the possible adjournment of the special meeting on the
merger proposal. Approval of the proposal to adjourn the special meeting on
the merger proposal requires approval of the majority of the shares of
Security common stock present in person or by proxy and voting on the
adjournment proposal.
37
BENEFICIAL OWNERSHIP OF SECURITY COMMON STOCK
Stockholders of record as of the close of business on September 5, 2000
will be entitled to one vote for each share of our common stock then held. As
of that date, we had [1,356,885] shares of common stock issued and outstanding.
The following table sets forth information regarding the share ownership of:
* each holder of more than 5% of our outstanding common stock,
including our Employee Stock Ownership Plan and the Security
Savings Charitable Foundation,
* each member of our Board of Directors, and
* all of our and Security Savings Association's directors and
executive officers as a group.
Shares Beneficially
Name of Beneficial Owner Owned (1)(2)(3) Percent of Class
--------------------------------- ------------------- ----------------
Security of Pennsylvania Financial 126,940(4) 9.4%
Corp.
Employee Stock Ownership Plan
31 West Broad Street
Hazleton, Pennsylvania 18201
Security Savings Charitable 75,383 5.6
Foundation
31 West Broad Street
Hazleton, Pennsylvania 18201
Directors:
Frederick L. Barletta 17,720(5) 1.3
Peter B. Deisroth 4,870 0.4
George J. Hayden 17,720 1.3
Richard C. Laubach 21,979(6) 1.6
Joseph E. Lundy 5,720(7) 0.4
Vincent L. Marusak 17,720 1.3
John J. Raynock 7,720 0.6
Anthony P. Sidari 7,720 0.6
All directors and executive officers 120,101(8) 8.9
of Security and Security Savings
Association as a group (11 persons)
_______________________
(1) Based upon filings made pursuant to the Securities Exchange Act of 1934,
as amended, and information furnished by the respective individuals.
Under regulations promulgated pursuant to the Exchange Act, shares of
common stock are deemed to be beneficially owned by a person if he or
she directly or indirectly has or shares (a) voting power, which
includes the power to vote or to direct the voting of the shares, or (b)
investment power, which includes the power to dispose or to direct the
disposition of the shares. Unless otherwise indicated, the named
beneficial owner has sole (or shares with spouse or other immediate
family members) voting and dispositive power with respect to the shares.
(Footnotes continued on following page)
38
(2) The amounts set forth in the table exclude shares subject to outstanding
stock options under our 1999 Stock-Based Incentive Plan as follows: for
Mr. Laubach, 39,675 shares; for each of the seven non-employee directors,
6,801 shares; and for all directors and executive officers as a group,
134,022 shares.
(3) Includes unvested restricted shares granted pursuant to our 1999 Stock-
Based Incentive Plan as follows: for Mr. Laubach, 15,870 shares; for
each of the seven non-employee directors, 2,720 shares; and for all
directors and executive officers as a group, 54,606 shares. The
recipients of these awards are entitled to vote these shares.
(4) The Security ESOP holds common stock on behalf of employee participants
of the plan. As of September 5, 2000, 7,557 shares have been allocated
to the accounts of participating employees and will be voted in
accordance with such participants' instructions. The 119,383 shares
held in the ESOP which are unallocated will be voted by First Bankers
Trust Company, N.A.,the trustee of the ESOP, pursuant to the terms of
the ESOP in the same proportion for and against each proposal as the
allocated shares are actually voted by participants, subject to
applicable law and the fiduciary duties of the trustee. The shares held
in the ESOP are not included in the individual beneficial ownership
amounts of the trustees.
(5) Includes 7,500 shares owned by Mr. Barletta's spouse which may be deemed
to be beneficially owned by Mr. Barletta.
(6) Includes 1,109 shares allocated to Mr. Laubach's account under our ESOP.
(7) Includes 1,500 shares owned by Mr. Lundy's spouse which may be deemed
to be beneficially owned by Mr. Lundy.
(8) Includes 2,149 shares allocated to the accounts of all executive
officers as a group under our ESOP.
STOCKHOLDER PROPOSALS
If the merger is not consummated prior to the next regularly scheduled
annual meeting of our stockholders, any proposal which a stockholder wishes to
have included in our proxy materials for the next annual meeting of
stockholders must have been received at our main office located at 31 West
Broad Street, Hazleton, Pennsylvania 18201, attention: Nancy Latoff,
Secretary, no later than May 20, 2000. No proposals were received by such
date. Otherwise, any stockholder proposal to take action at the next annual
meeting requires the stockholder to provide notice to us which must be
received at our main office located at 31 West Broad Street, Hazleton,
Pennsylvania 18201 not less than ninety (90) days before the date originally
fixed for such meeting; provided, however, that in the event that less than
one hundred (100) days notice or prior public disclosure of the date of the
meeting is made to stockholders, notice by the stockholder must be received no
later than the close of business on the tenth day following the date that we
mail or publically disclose the date of the annual meeting. The stockholder's
notice must include the stockholder's name and address, as it appears in our
records, a brief description of the proposed business, the reason for
conducting such business at the annual meeting, the class and number of shares
of Security common stock that is beneficially owned by such stockholder and
any material interest of such stockholder in the proposed business. In the
case of nominations to the Board of
39
Directors, certain information regarding the nominee must be provided. Nothing
in this paragraph shall be deemed to require us to include in our proxy
statement or the proxy relating to any annual meeting any stockholder proposal
which does not meet all of the requirements for inclusion established by the
SEC in effect at the time such proposal is received. In addition, all
stockholder proposals must also comply with our bylaws and Delaware law.
OTHER MATTERS
Each proxy solicited hereby also confers discretionary authority on our
Board of Directors to vote the proxy with respect to the approval of the
minutes of the last meeting of stockholders, matters incident to the conduct
of the meeting, and upon such other matters as may properly come before the
special meeting. Our Board of Directors is not aware of any business to
come before the special meeting other than those matters described above in
this proxy statement. However, if any other matter should properly come
before the special meeting, it is intended that proxy holders will act in
accordance with their best judgment.
40
APPENDIX A
------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
DATED AS OF JUNE 2, 2000
BY AND AMONG
NORTHEAST PENNSYLVANIA FINANCIAL CORP.
NORTHEAST ACQUISITION, INC.
AND
SECURITY OF PENNSYLVANIA FINANCIAL CORP.
------------------------------------------------------------------------------
(excluding exhibits)
TABLE OF CONTENTS
Page No.
Introductory Statement. . . . . . . . . . . . . . . . . . . . . A-1
ARTICLE I
The Merger . . . . . . . . . . . . . . . . . . . . . . . . A-1
Section 1.1. Structure of the Merger. . . . . . . . . . .A-1
Section 1.2. Effect on Shares of Target Common Stock. . .A-2
Section 1.3. Payment Procedures . . . . . . . . . . . . .A-2
Section 1.4. Stock Options. . . . . . . . . . . . . . . .A-4
Section 1.5. Effect on Shares of Acquisition Sub Stock. .A-5
Section 1.6. Certificate of Incorporation and Bylaws of
the Surviving Corporation. . . . . . . . . .A-5
Section 1.7. Directors and Officers of the Surviving
Corporation. . . . . . . . . . . . . . . . .A-5
Section 1.8. Bank Merger. . . . . . . . . . . . . . . . .A-5
Section 1.9. Alternative Structure. . . . . . . . . . . .A-5
Section 1.10. Dissenters' Rights . . . . . . . . . . . . .A-5
ARTICLE II
Representations and Warranties. . . . . . . . . . . . . . .A-6
Section 2.1. Representations and Warranties of Target . .A-6
Section 2.2. Representations and Warranties of Acquiror .A-22
ARTICLE III
Conduct Pending the Merger. . . . . . . . . . . . . . . . A-27
Section 3.1. Conduct of Target's Business Prior to the
Effective Time . . . . . . . . . . . . . . A-27
Section 3.2. Forbearance by Target. . . . . . . . . . . A-27
Section 3.3. Conduct of Acquiror's Business Prior to the
Effective Time . . . . . . . . . . . . . . A-30
ARTICLE IV
Covenants. . . . . . . . . . . . . . . . . . . . . . . . A-31
Section 4.1. Acquisition Proposals. . . . . . . . . . . A-31
Section 4.2. Certain Policies and Actions of Target . . A-33
Section 4.3. Access and Information . . . . . . . . . . A-33
Section 4.4. Certain Filings, Consents and Agreements . A-35
Section 4.5. Anti-takeover Provisions . . . . . . . . . A-35
Section 4.6. Additional Agreements. . . . . . . . . . . A-35
Section 4.7. Publicity. . . . . . . . . . . . . . . . . A-35
Section 4.8. Stockholder Meeting. . . . . . . . . . . . A-36
Section 4.9. Proxy Statement. . . . . . . . . . . . . . A-36
Section 4.10. Notification of Certain Matters. . . . . . A-37
Section 4.11. Employees, Directors and Officers. . . . . A-37
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Section 4.12. Indemnification. . . . . . . . . . . . . . A-40
ARTICLE V
Conditions to Consummation. . . . . . . . . . . . . . . . A-42
Section 5.1. Conditions to Each Party's Obligations . . A-42
Section 5.2. Conditions to the Obligations of Acquiror. A-42
Section 5.3. Conditions to the Obligations of Target. . A-43
ARTICLE VI
Termination . . . . . . . . . . . . . . . . . . . . . . . A-44
Section 6.1. Termination. . . . . . . . . . . . . . . . A-44
Section 6.2. Expenses . . . . . . . . . . . . . . . . . A-45
Section 6.3. Termination Fee. . . . . . . . . . . . . . A-45
Section 6.4. Effect of Termination. . . . . . . . . . . A-46
ARTICLE VII
Closing, Effective Date and Effective Time. . . . . . . . A-46
Section 7.1. Effective Date and Effective Time. . . . . A-46
Section 7.2. Deliveries at the Closing. . . . . . . . . A-47
ARTICLE VIII
Certain Other Matters . . . . . . . . . . . . . . . . . . A-47
Section 8.1. Certain Definitions; Interpretation. . . . A-47
Section 8.2. Survival . . . . . . . . . . . . . . . . . A-48
Section 8.3. Waiver; Amendment. . . . . . . . . . . . . A-48
Section 8.4. Counterparts . . . . . . . . . . . . . . . A-48
Section 8.5. Governing Law. . . . . . . . . . . . . . . A-48
Section 8.6. Expenses . . . . . . . . . . . . . . . . . A-48
Section 8.7. Notices. . . . . . . . . . . . . . . . . . A-48
Section 8.8. Entire Agreement; etc. . . . . . . . . . . A-49
Section 8.9. Successors and Assigns; Assignment . . . . A-49
Section 8.10 Arbitration. . . . . . . . . . . . . . . . A-49
Exhibit A - Plan of Bank Merger
Exhibit B - Consulting and Non-Competition Agreement
Exhibit C - Consulting and Non-Competition Agreement
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AGREEMENT AND PLAN OF MERGER
This is an Agreement and Plan of Merger, dated as of the 2nd day
of June, 2000 ("Agreement"), by and among Northeast Pennsylvania Financial
Corp., a Delaware corporation ("Acquiror"), Northeast Acquisition, Inc., a
Delaware corporation ("Acquisition Sub"), and Security of Pennsylvania
Financial Corp., a Delaware corporation ("Target").
Introductory Statement
The Board of Directors of each of Acquiror and Target (i) has
determined that this Agreement and the business combination and related
transactions contemplated hereby are in the best interests of Acquiror and
Target, respectively, and in the best interests of their respective
stockholders and (ii) has approved, at meetings of each of such Boards of
Directors, this Agreement.
Acquiror and Target desire to make certain representations,
warranties and agreements in connection with the business combination and
related transactions provided for herein and to prescribe various conditions
to such transactions.
Acquisition Sub has been organized as a wholly owned subsidiary of
Acquiror to facilitate the business combination contemplated by this
Agreement.
In connection with the execution and delivery of this Agreement,
and as a condition and inducement to the Acquiror's and Acquisition Sub's
willingness to enter into this Agreement, certain executives of Target are
entering into consulting and non-competition agreements with the Acquiror
(which shall become effective at the Effective Time) in the forms attached as
Exhibits B and C.
In consideration of their mutual promises and obligations
hereunder, the parties hereto adopt and make this Agreement and prescribe the
terms and conditions hereof and the manner and basis of carrying it into
effect, which shall be as follows:
ARTICLE I
THE MERGER
Section 1.1. Structure of the Merger. On the Effective Date
(as defined in Section 7.1), Acquisition Sub will merge with and into Target
("Merger"), pursuant to the provisions of, and with the effect provided in,
the Delaware General Corporation Law ("DGCL"). Upon consummation of the
Merger, the separate corporate existence of Acquisition Sub shall cease.
Target shall be the surviving corporation (hereinafter sometimes referred to
in such capacity as the "Surviving Corporation" or, unless the context
otherwise requires, "Target") in the Merger and shall continue to be governed
by the DGCL, and its separate corporate existence, with all of its rights,
privileges, immunities, powers and franchises, shall continue unaffected by
the Merger. The name of Target, as the Surviving Corporation in the Merger,
shall be Security of Pennsylvania Financial Corp. From and after the
Effective Time (as defined in Section 7.1), the Surviving Corporation shall
possess all
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of the properties and rights and be subject to all of the liabilities and
obligations of Target and Acquisition Sub, all as more fully described in the
DGCL.
Section 1.2. Effect on Shares of Target Common Stock.
(a) By virtue of the Merger, automatically and without any
action on the part of the holder thereof, each share of common stock, par
value $.01 per share, of Target ("Target Common Stock") that is issued and
outstanding at the Effective Time, other than Excluded Shares (as defined
below), shall cease to be outstanding and shall be converted into and become
the right to receive (subject to adjustment as described below) $17.50 in
cash, without interest thereon (the "Merger Consideration").
"Excluded Shares" shall consist of (i) Dissenters' Shares
(as defined in Section 1.10); (ii) shares held directly or indirectly by
Acquiror (other than shares held in a fiduciary capacity or in satisfaction of
a debt previously contracted) and (iii) shares held by Target as treasury
stock.
(b) As of the Effective Time, each Excluded Share, other than
Dissenters' Shares, shall be canceled and retired and shall cease to exist,
and no exchange or payment shall be made with respect thereto. In addition,
no Dissenters' Shares shall be converted into the Merger Consideration
pursuant to this Section 1.2 but instead shall be treated in accordance with
the procedures set forth in Section 1.10 of this Agreement.
Section 1.3. Payment Procedures.
(a) Appropriate transmittal materials ("Letter of Transmittal")
shall be mailed as soon as reasonably practicable after the Effective Time to
each holder of record of Target Common Stock as of the Effective Time. A
Letter of Transmittal shall be deemed properly completed only if accompanied
by certificates representing all shares of Target Common Stock to be converted
thereby.
(b) At and after the Effective Time, each certificate ("Target
Certificate") previously representing shares of Target Common Stock (except as
specifically set forth in Section 1.2) shall represent only the right to
receive the Merger Consideration multiplied by the number of shares of Target
Common Stock previously represented by the Target Certificate.
(c) Prior to the Effective Time, Acquiror shall deposit, or
shall cause to be deposited, in a segregated account with Northeast
Pennsylvania Trust Co. or another bank or trust company selected by Acquiror
and reasonably acceptable to Target, which shall act as paying agent ("Paying
Agent") for the benefit of the holders of shares of Target Common Stock, for
payment in accordance with this Section 1.3, an amount of cash sufficient to
pay the aggregate Merger Consideration to be paid pursuant to Section 1.2 and
to pay the amount required pursuant to Section 1.4.
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(d) The Letter of Transmittal shall (i) specify that delivery
shall be effected, and risk of loss and title to the Target Certificates shall
pass, only upon delivery of the Target Certificates to the Paying Agent, (ii)
be in a form and contain any other provisions as Acquiror may reasonably
determine and (iii) include instructions for use in effecting the surrender of
the Target Certificates in exchange for the Merger Consideration. Upon the
proper surrender of the Target Certificates to the Paying Agent, together with
a properly completed and duly executed Letter of Transmittal, the holder of
such Target Certificates shall be entitled to receive in exchange therefor a
check in the amount equal to the cash that such holder has the right to
receive pursuant to Section 1.2. Target Certificates so surrendered shall
forthwith be canceled. As soon as practicable following receipt of the
properly completed Letter of Transmittal and any necessary accompanying
documentation, the Paying Agent shall issue a check as provided herein. If
there is a transfer of ownership of any shares of Target Common Stock not
registered in the transfer records of Target, the Merger Consideration shall
be issued to the transferee thereof if the Target Certificates representing
such Target Common Stock are presented to the Paying Agent, accompanied by all
documents required, in the reasonable judgment of Acquiror and the Paying
Agent, (x) to evidence and effect such transfer and (y) to evidence that any
applicable stock transfer taxes have been paid.
(e) From and after the Effective Time there shall be no
transfers on the stock transfer records of Target of any shares of Target
Common Stock. If, after the Effective Time, Target Certificates are presented
to Acquiror, they shall be canceled and exchanged for the Merger Consideration
deliverable in respect thereof pursuant to this Agreement in accordance with
the procedures set forth in this Section 1.3.
(f) Any portion of the aggregate amount of cash to be paid
pursuant to Section 1.2 that remains unclaimed by the stockholders of Target
for six months after the Effective Time shall be repaid by the Paying Agent to
Acquiror upon the written request of Acquiror. After such request is made, any
stockholders of Target who have not theretofore complied with this Section 1.3
shall look only to Acquiror for the Merger Consideration deliverable in
respect of each share of Target Common Stock such stockholder holds, as
determined pursuant to Section 1.2 of this Agreement, without any interest
thereon. If outstanding Target Certificates are not surrendered prior to the
date on which such payments would otherwise escheat to or become the property
of any governmental unit or agency, the unclaimed items shall, to the extent
permitted by any abandoned property, escheat or other applicable laws, become
the property of Acquiror (and, to the extent not in its possession, shall be
paid over to it), free and clear of all claims or interest of any person
previously entitled to such claims. Notwithstanding the foregoing, neither
the Paying Agent nor any party to this Agreement (or any affiliate thereof)
shall be liable to any former holder of Target Common Stock for any amount
delivered to a public official pursuant to applicable abandoned property,
escheat or similar laws.
(g) Acquiror and the Paying Agent shall be entitled to rely upon
Target's stock transfer books to establish the identity of those persons
entitled to receive the Merger Consideration, which books shall be conclusive
with respect thereto. In the event of a dispute with respect to ownership of
stock represented by any Target Certificate, Acquiror and the Paying Agent
shall be entitled to
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deposit any Merger Consideration represented thereby in escrow with an
independent third party and thereafter be relieved with respect to any claims
thereto.
(h) If any Target Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Target Certificate to be lost, stolen or destroyed and, if required by
the Paying Agent, the posting by such person of a bond in such amount as the
Paying Agent may reasonably direct as indemnity against any claim that may be
made against it with respect to such Target Certificate, the Paying Agent will
issue in exchange for such lost, stolen or destroyed Target Certificate the
Merger Consideration deliverable in respect thereof pursuant to Section 1.2.
Section 1.4. Stock Options.
(a) Except as provided in Section 1.4(b), at the Effective Time,
each option to acquire shares of Target Common Stock (a "Target Option")
granted pursuant to the Target Stock-Based Incentive Plan (the "Target
Incentive Plan") that is then outstanding and unexercised, shall be canceled,
and in lieu thereof the holders of such options shall be paid in cash an
amount equal to the product of (i) the number of shares of Target Common Stock
subject to such option at the Effective Time and (ii) the amount by which the
Merger Consideration exceeds the exercise price per share of such option, net
of any cash which must be withheld under federal and state income and
employment tax requirements. In the event that the exercise price of a Target
Option is greater than the Merger Consideration, then at the Effective Time
such Target Option shall be canceled without any payment made in exchange
therefor. At the Effective Time the Target Incentive Plan shall be deemed
terminated.
(b) Directors and employees of Target who continue to serve as a
director or be employed by Acquiror or a subsidiary of Acquiror may, by
written notice to Acquiror received by Acquiror not less than the day that is
two business days prior to the Closing Date (as defined in Section 7.1), elect
to convert all or any portion of the Target Options held by them into options
("Acquiror Options") to purchase shares of Acquiror's common stock, par value
$.01 per share ("Acquiror Common Stock"). Any such election shall identify
the Target Options to be converted into Acquiror Options and shall become
irrevocable upon receipt by Acquiror of the notice of election. Any
conversion pursuant to this Section 1.4(b) shall be effected by issuing to the
electing individual Acquiror Options to purchase the number of shares of
Acquiror Common Stock (rounded up to the nearest whole share) equal to the
product of (i) the number of shares of Target Common Stock subject to the
Target Options being converted, and (ii) a fraction, the numerator of which is
the per share Merger Consideration and the denominator of which is the average
of the daily closing sales prices of a share of Acquiror Common Stock, as
reported on the American Stock Exchange, for the 15 consecutive trading days
ending with the last trading day before the Effective Date(as defined in
Section 7.1). The exercise price per share for each share of Acquiror Common
Stock subject to an Acquiror Option issued under this Section 1.4(b) shall be
equal to the product (rounded to the nearest cent) of the per share exercise
price of the Target Option being converted into such Acquiror Options
multiplied by the reciprocal of the fraction described in Section 1.4(b)(ii)
above. Each such Acquiror
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Option (i) shall be fully vested and shall be exercisable on the same terms
as the related Target Options, (ii) shall not be subject to any condition,
except as may be required under applicable securities laws, and (iii) shall
be evidenced by an Acquiror Option Agreement in a form to be provided by
Acquiror that is reasonably acceptable to Target, and that shall provide for
reasonable registration rights. No payment shall be made pursuant to Section
1.4(a) with respect to any portion of a Target Option that is converted into
an Acquiror Option as described in this paragraph.
Section 1.5. Effect on Shares of Acquisition Sub Stock. Each
share of common stock of Acquisition Sub that is issued and outstanding
immediately prior to the Effective Time shall be converted into and exchanged
for one share of the Surviving Corporation.
Section 1.6. Certificate of Incorporation and Bylaws of the
Surviving Corporation. The certificate of incorporation and bylaws of Target
in effect immediately prior to the Effective Time shall be the certificate of
incorporation and bylaws of the Surviving Corporation from and after the
Effective Time until amended in accordance with law.
Section 1.7. Directors and Officers of the Surviving
Corporation. From and after the Effective Time, the directors and officers of
the Surviving Corporation shall consist of the directors and officers of
Acquisition Sub serving immediately prior to the Effective Time, each to hold
office in accordance with the certificate of incorporation and bylaws of the
Surviving Corporation until their respective successors are duly elected or
appointed and qualified.
Section 1.8. Bank Merger. Concurrently with or as soon as
practicable after the execution and delivery of this Agreement, First Federal
Bank ("Acquiror Bank"), a wholly owned subsidiary of Acquiror, and Security
Savings Association of Hazleton ("Target Bank"), a wholly owned subsidiary of
Target, shall enter into the Plan of Bank Merger, in the form attached hereto
as Exhibit A, pursuant to which Target Bank will merge with and into Acquiror
Bank (the "Bank Merger"). The parties hereto intend that the Bank Merger
shall become effective on the Effective Date.
Section 1.9. Alternative Structure. Notwithstanding anything
to the contrary contained in this Agreement, prior to the Effective Time,
Acquiror may specify that the structure of the transactions contemplated by
this Agreement be revised and the parties hereto shall enter into such
alternative transactions as Acquiror may determine to effect the purposes of
this Agreement; provided, however, that such revised structure shall not (i)
alter or change the amount or kind of the Merger Consideration or (ii)
materially impede or delay the receipt of any regulatory approval referred to
in, or the consummation of the transactions contemplated by, this Agreement.
This Agreement and any related documents shall be appropriately amended in
order to reflect any such revised structure.
Section 1.10. Dissenters' Rights. Notwithstanding anything to
the contrary contained in this Agreement, shares of Target Common Stock that
are outstanding immediately prior to the Effective Time and that are held by
stockholders who shall have not voted in favor of the Merger or consented
thereto in writing and who properly shall have delivered to Target a written
demand
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for appraisal of the fair value of such shares in accordance with the
DGCL (collectively, the "Dissenters' Shares") shall not be converted into or
represent the right to receive the Merger Consideration. Such stockholders
instead shall be entitled to receive payment of the fair value of such shares
held by them in accordance with the provisions of the DGCL, except that all
Dissenters' Shares held by stockholders who shall have failed to perfect or
who effectively shall have withdrawn or otherwise lost their dissenters'
rights under the DGCL shall thereupon be deemed to have been converted into
and to have become exchangeable, as of the Effective Time, for the right to
receive, without any interest thereon, the Merger Consideration upon surrender
in the manner provided in Section 1.3, of the Target Certificate or Target
Certificates that, immediately prior to the Effective Time, evidenced such
shares. Target shall give Acquiror (i) prompt notice of any written demands
for appraisal of the fair value of any shares of Target Common Stock,
attempted withdrawals of such demands and any other instruments served
pursuant to the DGCL and received by Target relating to stockholders' rights
of appraisal, and (ii) the opportunity to direct all negotiations and
proceedings with respect to demands for appraisal under the DGCL. Target shall
not, except with the prior written consent of Acquiror, voluntarily make any
payment with respect to, or settle or offer to settle, any such demand for
appraisal.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1. Representations and Warranties of Target.
Except as set forth in the letter setting forth, among other things, facts and
circumstances and events, the disclosure of which is required or appropriate
in relation to any or all of its respective representations and warranties
(and making specific reference to the Section of this Agreement to which they
relate) (the "Disclosure Letter") delivered by Target to Acquiror prior to the
execution of this Agreement, Target represents and warrants to Acquiror that:
(a) Organization.
(i) Target is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and is
registered as a savings and loan holding company under the Home Owners' Loan
Act, as amended ("HOLA").
(ii) Target Bank is a savings and loan association duly
organized and validly existing under the laws of the Commonwealth of
Pennsylvania. The deposits of Target Bank are insured by the Savings
Association Insurance Fund ("SAIF") administered by the Federal Deposit
Insurance Corporation ("FDIC") to the extent provided in the Federal
Deposit Insurance Act, as amended ("FDIA"). Target Bank is a member of the
Federal Home Loan Bank of Pittsburgh ("FHLB").
(iii) Target and Target Bank each has all requisite
corporate power and authority to own, lease and operate its properties and to
conduct the business currently being conducted by it. Target and Target Bank
are each duly qualified or licensed as a foreign corporation to transact
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business and are in good standing in each jurisdiction in which the character
of the properties owned or leased by it or the nature of the business
conducted by it makes such qualification or licensing necessary, each of which
jurisdictions is listed in Target's Disclosure Letter, except where the
failure to be so qualified or licensed and in good standing would not have a
Material Adverse Effect on Target.
(b) Subsidiaries.
(i) Target does not, directly or indirectly, own an equity
interest representing 5% or more of any class of the capital stock or other
equity interests in any corporation, partnership, joint venture or other
entity other than Target Bank.
(ii) Target owns of record and beneficially all the capital
stock of Target Bank free and clear of any claims, liens, encumbrances or
restrictions and there are no agreements or understandings with respect to the
voting or disposition of any such shares. The outstanding shares of capital
stock of Target Bank have been validly authorized and are validly issued,
fully paid and nonassessable.
(iii) Target Bank does not hold any shares of its capital
stock in its treasury, and there are not, and on the Effective Time there will
not be, outstanding (A) any options, warrants or other rights with respect to
the capital stock of Target Bank, (B) any securities convertible into or
exchangeable for shares of such capital stock or any other debt or equity
security of Target Bank or (C) any other commitments of any kind for the
issuance of additional shares of capital stock or other debt or equity
security of Target Bank or options, warrants or other rights with respect to
such securities.
(c) Capital Structure.
(i) The authorized capital stock of Target consists of
5,000,000 shares of Target Common Stock, and 1,000,000 shares of preferred
stock, par value $0.01 per share ("Target Preferred Stock").
(ii) As of the date of this Agreement:
(A) 1,356,885 shares of Target Common Stock are
issued and outstanding, all of which are validly
issued, fully paid and nonassessable;
(B) 158,700 shares of Target Common Stock are
reserved for issuance pursuant to Target Options
under the Target Incentive Plan;
(C) 230,115 shares of Target Common Stock are held
by Target in its treasury; and
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(D) no shares of Target Preferred Stock are
outstanding or reserved for issuance.
(iii) As of the date of this Agreement, options to purchase
an aggregate of 134,022 shares of Target Common Stock have been granted. Set
forth in Target's Disclosure Letter is a complete and accurate list of all
outstanding Target Options, including the names of the optionees, dates of
grant, exercise prices, dates of vesting, dates of termination and shares
subject to each grant. Following the Effective Time, no holder of Target
Options will have any right to receive shares of common stock of Acquiror upon
the exercise of Target Options except as provided in Section 1.4.
(iv) As of the date of this Agreement, Target Incentive
Plan holds 63,480 shares of Target Common Stock and awards pursuant to Target
Incentive Plan have been granted with respect to 54,606 of those shares of
Target Common Stock. Set forth in Target's Disclosure Letter is a complete
and accurate list of all outstanding shares of restricted stock awarded,
including the names of the recipients, dates of grant, dates of vesting, dates
of termination and shares subject to each grant.
(v) No bonds, debentures, notes or other indebtedness
having the right to vote on any matters on which stockholders of Target may
vote are issued or outstanding.
(vi) Except as set forth in this Section 2.1(c) or in
Target's Disclosure Letter, as of the date of this Agreement, (A) no shares of
capital stock or other voting securities of Target are issued, reserved for
issuance or outstanding and (B) neither Target nor Target Bank has or is bound
by any outstanding subscriptions, options, warrants, calls, rights,
convertible securities, commitments or agreements of any character obligating
Target or Target Bank to issue, deliver or sell, or cause to be issued,
delivered or sold, any additional shares of capital stock of Target or
obligating Target or Target Bank to grant, extend or enter into any such
option, warrant, call, right, convertible security, commitment or agreement.
As of the date hereof, there are no outstanding contractual obligations of
Target or Target Bank to repurchase, redeem or otherwise acquire any shares of
capital stock of Target or Target Bank.
(d) Authority.
(i) Target has all requisite corporate power and authority
to enter into this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated by this Agreement. The execution and
delivery of this Agreement and the consummation of the transactions
contemplated by this Agreement have been duly authorized by all necessary
corporate actions on the part of the Board of Directors of Target, and no
other corporate proceedings on the part of Target are necessary to authorize
this Agreement or to consummate the transactions contemplated by this
Agreement other than the approval and adoption of this Agreement by the
affirmative vote of the holders of a majority of the outstanding shares of
Target Common Stock at Target's Stockholder Meeting (as defined in Section
4.8). This Agreement has been duly and validly executed and delivered by
Target and constitutes a valid and binding obligation of Target,
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enforceable in accordance with its terms, subject to applicable bankruptcy,
insolvency and similar laws affecting creditors' rights and remedies generally
and subject, as to enforceability, to general principles of equity, whether
applied in a court of law or a court of equity.
(ii) Target Bank has all requisite corporate power and
authority to enter into the Plan of Bank Merger and to consummate the
transactions contemplated thereby. The execution and delivery of the Plan of
Bank Merger and the consummation of the transactions contemplated thereby have
been duly authorized by the Board of Directors of Target Bank and approved by
Target as the sole stockholder of Target Bank. The Plan of Bank Merger, upon
execution and delivery by Target Bank, will be duly and validly executed and
delivered by Target Bank and will constitute a valid and binding obligation of
Target Bank, enforceable in accordance with its terms, subject to applicable
bankruptcy, insolvency and similar laws affecting creditors' rights and
remedies generally and subject, as to enforceability, to general principles of
equity, whether applied in a court of law or a court of equity.
(e) Fairness Opinion. Target has received the written opinion
of Sandler O'Neill & Partners, L.P., to the effect that, as of the date
hereof, the Merger Consideration to be received by Target's stockholders is
fair, from a financial point of view, to such stockholders.
(f) No Violations; Consents.
(i) The execution, delivery and performance of this
Agreement by Target do not, and the consummation of the transactions
contemplated by this Agreement will not, (A) assuming the consents and
approvals referred to in Section 2.1(f)(ii) are obtained and the applicable
waiting periods have expired and the approval of Target's stockholders is
obtained, violate any law, rule or regulation or any judgment, decree, order,
governmental permit or license to which Target or Target Bank (or any of their
respective properties) is subject, (B) violate the certificate of
incorporation or bylaws of Target or the similar organizational documents of
Target Bank or (C) constitute a breach or violation of, or a default under (or
an event which, with due notice or lapse of time or both, would constitute a
default under), or result in the termination of, accelerate the performance
required by, or result in the creation of any lien, pledge, security interest,
charge or other encumbrance upon any of the properties or assets of Target or
Target Bank under, any of the terms, conditions or provisions of any note,
bond, indenture, deed of trust, loan agreement or other agreement, instrument
or obligation to which Target or Target Bank is a party, or to which any of
their respective properties or assets may be subject, except, in the case of
(C), for any such breaches, violations or defaults that would not,
individually or in the aggregate, have a Material Adverse Effect on Target.
(ii) Except for (A) the filing of an application with the
Office of Thrift Supervision (the "OTS") under HOLA and approval of such
application, (B) the filing of the Proxy Statement (as defined in Section 4.9)
with the Securities and Exchange Commission ("SEC"), (C) the filing of a
certificate of merger with the Delaware Secretary of State pursuant to the
DGCL and the filing of Articles of Combination with the OTS, and (D) the
filing of any necessary notice or approval of the Pennsylvania Department of
Banking (the "Department"), no consents or approvals
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of or filings or registrations with any court, administrative agency or
commission or other governmental authority or instrumentality (each a
"Governmental Entity") or with any third party are necessary in connection
with the execution and delivery by Target of this Agreement or the
consummation by Target and Target Bank of the Merger, the Bank Merger and the
other transactions contemplated by this Agreement, including the Bank Merger.
As of the date hereof, the executive officers and the members of the Boards of
Directors of Target and Target Bank know of no reason pertaining to Target why
any of the approvals referred to in this Section 2.1(f) should not be obtained
without the imposition of any material condition or restriction described in
Section 5.1(b).
(g) Reports and Financial Statements.
(i) Target and Target Bank have each timely filed all
material reports, forms, registration statements and proxy or information
statements, together with any amendments required to be made with respect
thereto, that they were required to file since December 31, 1997 with (A) the
FDIC, (B) the OTS, (C) the Department, (D) the National Association of
Securities Dealers, Inc. ("NASD"), and (E) the SEC (collectively, "Target's
Reports") and have paid all fees and assessments due and payable in connection
therewith. As of their respective dates, none of Target's Reports contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements made
therein, in light of the circumstances under which they were made, not
misleading. All of Target's Reports filed with the SEC under the Securities
Exchange Act of 1934, as amended ("Exchange Act"), complied in all material
respects with the applicable requirements of the Exchange Act, and the rules
and regulations of the SEC promulgated thereunder.
(ii) Each of the financial statements of Target included in
Target's Reports filed with the SEC complied as to form, as of their
respective dates of filing with the SEC, in all material respects with
applicable accounting requirements and with the published rules and
regulations of the SEC with respect thereto. The financial statements
included in Target's Reports were prepared from the books and records of
Target and Target Bank, fairly present the consolidated financial position of
Target and Target Bank in each case at and as of the dates indicated and the
consolidated income, changes in stockholders' equity and cash flows of Target
and Target Bank for the periods indicated, and, except as otherwise set forth
in the notes thereto, were prepared in accordance with generally accepted
accounting principles ("GAAP") consistently applied throughout the periods
covered thereby; provided, however, that the unaudited financial statements
for interim periods are subject to normal year-end adjustments (which will not
be material individually or in the aggregate) and lack a statement of changes
in stockholders' equity and complete footnotes.
(h) Absence of Certain Changes or Events. Except as disclosed
in Target's Reports filed with the SEC prior to the date of this Agreement,
since June 30, 1999, (i) Target and Target Bank have not incurred any debt,
liability or obligation of any nature whatsoever (whether accrued, contingent,
absolute or otherwise and whether due or to become due), except in the
ordinary course of their business consistent with past practice, (ii) Target
and Target Bank have conducted their respective businesses only in the
ordinary and usual course of such businesses consistent with their
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past practices, (iii) there has not been any event or occurrence that has had
a Material Adverse Effect on Target, (iv) there has been no increase in the
salary, compensation, pension or other benefits payable or to become payable
by Target or Target Bank to any of their respective directors, officers or
employees, other than in conformity with the policies and practices of such
entity in the usual and ordinary course of its business and other than the
award of stock options and/or restricted stock, (v) neither Target nor Target
Bank has paid or made any accrual or arrangement for payment of bonuses or
special compensation of any kind or any severance or termination pay to any of
their directors, officers or employees, other than in conformity with the
policies and practices of such entity in the usual and ordinary course of its
business which, to the extent made or accrued by the date of financial
statements of the entity, are properly recorded on those financial statements,
and (vi) there has been no change in any accounting principles, practices or
methods of Target or Target Bank other than as required by GAAP.
(i) Absence of Claims. No litigation, controversy, claim,
action, suit or other legal, administrative or arbitration proceeding before
any court, governmental agency or arbitrator, other than in connection with
routine foreclosure and collection claims against borrowers, is pending
against Target or Target Bank and, to the knowledge of Target, no such
litigation, controversy, claim, action, suit or proceeding has been
threatened. To the knowledge of Target, there are no investigations, reviews
or inquiries by any court or governmental agency pending or threatened against
Target or Target Bank. There are no judgments, decrees, injunctions or orders
of any Governmental Entity or arbitrator outstanding against Target or Target
Bank.
(j) Absence of Regulatory Actions. Since December 31, 1996,
neither Target nor Target Bank has been a party to any cease and desist order,
written agreement or memorandum of understanding with, or any commitment
letter or similar undertaking to, or has been subject to any action,
proceeding, order or directive by, or has been a recipient of any
extraordinary supervisory letter from any federal or state governmental
authority charged with the supervision or regulation of depository
institutions or depository institution holding companies or engaged in the
insurance of bank deposits ("Government Regulators"), or has adopted any board
resolutions at the request of any Government Regulator, or has been advised by
any Government Regulator that it is contemplating issuing or requesting (or is
considering the appropriateness of issuing or requesting) any such action,
proceeding, order, directive, written agreement, memorandum of understanding,
extraordinary supervisory letter, commitment letter, board resolutions or
similar undertaking.
(k) Taxes. All federal, state, local and foreign tax returns
required to be filed by or on behalf of Target or Target Bank have been timely
filed or requests for extensions have been timely filed and any such extension
shall have been granted and not have expired, and all such filed returns are
complete and accurate in all material respects. All taxes shown on such
returns, all taxes required to be shown on returns for which extensions have
been granted and all other taxes required to be paid by Target or Target Bank
have been paid in full or adequate provision has been made for any such taxes
on Target's balance sheet (in accordance with GAAP). For purposes of this
Section 2.1(k), the term "taxes" shall include all income, franchise, gross
receipts, real and personal property, real property transfer and gains, wage
and employment taxes. As of the date of this Agreement,
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there is no audit examination, deficiency assessment, tax investigation or
refund litigation with respect to any taxes of Target or Target Bank, and no
claim has been made by any authority in a jurisdiction where Target or Target
Bank do not file tax returns that Target or Target Bank is subject to taxation
in that jurisdiction. All taxes, interest, additions and penalties due with
respect to completed and settled examinations or concluded litigation relating
to Target or Target Bank have been paid in full or adequate provision has been
made for any such taxes on Target's consolidated statement of financial
condition (in accordance with GAAP). Neither Target nor Target Bank has
executed an extension or waiver of any statute of limitations on the
assessment or collection of any material tax due that is currently in effect.
Target and Target Bank have withheld and paid all taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder or other third party, and Target
and Target Bank have timely complied with all applicable information reporting
requirements under Part III, Subchapter A of Chapter 61 of the Internal
Revenue Code of 1986, as amended ("IRC"), and similar applicable state and
local information reporting requirements. Neither Target nor Target Bank (i)
has made an election under Section 341(f) of the IRC, or (ii) has issued or
assumed any obligation under Section 279 of the IRC, any high yield discount
obligation as described in Section 163(i) of the IRC or any
registration-required obligation within the meaning of Section 163(f)(2) of
the IRC that is not in registered form.
(l) Agreements.
(i) Except for this Agreement, Target and Target Bank are
not bound by any material contract (as defined in Item 601(b)(10) of
Regulation S-K promulgated by the SEC), to be performed after the date hereof
that has not been filed with or incorporated by reference in Target's Reports.
(ii) Target's Disclosure Letter lists any contract,
arrangement, commitment or understanding (whether written or oral) to which
Target or Target Bank is a party or is bound:
(A) with any executive officer or other key employee
of Target or Target Bank the benefits of which are contingent, or the terms of
which are materially altered, upon the occurrence of a transaction involving
Target or Target Bank of the nature contemplated by this Agreement;
(B) with respect to the employment of any directors,
officers employees or consultants;
(C) with respect to any contract, arrangement,
commitment or understanding (whether written or oral) (including any stock
option plan, phantom stock or stock appreciation rights plan, restricted stock
plan or stock purchase plan) any of the benefits of which will be increased,
or the vesting or payment of the benefits of which will be accelerated, by the
occurrence of any of the transactions contemplated by this Agreement or the
value of any of the benefits of which will be calculated on the basis of any
of the transactions contemplated by this Agreement;
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(D) containing covenants that limit the ability of
Target or Target Bank to compete in any line of business or with any person,
or that involve any restriction on the geographic area in which, or method by
which, Target (including any successor thereof) or Target Bank may carry on
their respective businesses (other than as may be required by law or any
regulatory agency);
(E) pursuant to which Target or Target Bank may
become obligated to invest in or contribute capital to any entity;
(F) not fully disclosed in the Target's Reports that
relates to borrowings of money (or guarantees thereof) by Target or Target
Bank, other than in the ordinary course of business; or
(G) except as set forth in Target's Disclosure
Letter, which is a lease or license with respect to any property, real or
personal, whether as landlord, tenant, licensor or licensee, involving a
liability or obligation as obligor in excess of $10,000 on an annual basis.
To the knowledge of Target, each of the agreements and other documents
referenced in Target's Disclosure Letter is a valid, binding and enforceable
obligation of the parties sought to be bound thereby, subject to applicable
bankruptcy, insolvency and similar laws affecting creditors' rights and
remedies generally and subject, as to enforceability, to general principles of
equity, whether applied in a court of law or a court of equity. Target has
previously made available to Acquiror true and complete copies of each
agreement and other documents referenced in Target's Disclosure Letter.
(iii) Neither Target nor Target Bank is in default under
(and no event has occurred which, with due notice or lapse of time or both,
would constitute a default under) or is in violation of any provision of any
note, bond, indenture, mortgage, deed of trust, loan agreement, lease or other
agreement to which it is a party or by which it is bound or to which any of
its respective properties or assets is subject and, to the knowledge of
Target, no other party to any such agreement (excluding any loan or extension
of credit made by Target or Target Bank) is in default in any respect
thereunder.
(iv) Each of Target and Target Bank owns or possesses valid
and binding licenses and other rights to use without payment all patents,
copyrights, trade secrets, trade names, service marks and trademarks used in
its businesses, and neither Target nor Target Bank has received any notice of
conflict with respect thereto that asserts the right of others. Each of
Target and Target Bank has performed all the obligations required to be
performed by it and are not in default under any contract, agreement,
arrangement or commitment relating to any of the foregoing.
(m) Labor Matters. Target and Target Bank are in material
compliance with all applicable laws respecting employment, retention of
independent contractors and employment practices, terms
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and conditions of employment and wages and hours, and are not engaged in any
unfair labor practice. Neither Target nor Target Bank is or has ever been a
party to, or is or has ever been bound by, any collective bargaining
agreement, contract or other agreement or understanding with a labor union or
labor organization with respect to its employees, nor is Target or Target Bank
the subject of any proceeding asserting that it has committed an unfair labor
practice or seeking to compel it to bargain with any labor organization as to
wages and conditions of employment nor, to the knowledge of Target, has any
such proceeding been threatened, nor is there any strike, other labor dispute
or organizational effort involving Target or Target Bank pending or
threatened.
(n) Employee Benefit Plans.
(i) Target's Disclosure Letter contains a complete and
accurate list of all pension, retirement, stock option, stock purchase, stock
ownership, savings, stock appreciation right, profit sharing, deferred
compensation, consulting, bonus, group insurance, severance and other benefit
plans, contracts, agreements and arrangements, including, but not limited to,
"employee benefit plans," as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), incentive and
welfare policies, contracts, plans and arrangements and all trust agreements
related thereto with respect to any present or former directors, officers or
other employees of Target or Target Bank (hereinafter referred to collectively
as the "Target Employee Plans"). Target has previously made available or
delivered to Acquiror true and complete copies of each agreement, plan and
other documents referenced in Target's Disclosure Letter. There has been no
announcement or commitment by Target or Target Bank to create an additional
Target Employee Plan, or to amend any Target Employee Plan, except for
amendments required by applicable law which do not materially increase the
cost of such Target Employee Plan and except as contemplated by Section
4.11(h) hereof. With respect to each Target Employee Plan, Target has
previously made available to Acquiror a true and correct copy of (A) the
annual report on the applicable form of the Form 5500 series filed with the
Internal Revenue Service ("IRS") for the most recent three plan years, if
required to be filed, (B) such Target Employee Plan, including amendments
thereto, (C) each trust agreement, insurance contract or other funding
arrangement relating to such Target Employee Plan, including amendments
thereto, (D) the most recent summary plan description and summary of material
modifications thereto for such Target Employee Plan, to the extent available,
if the Target Employee Plan is subject to Title I of ERISA, (E) the most
recent actuarial report or valuation if such Target Employee Plan is a Target
Pension Plan (as defined below) and any subsequent changes to the actuarial
assumptions contained therein and (F) the most recent determination letter
issued by the IRS if such Target Employee Plan is a Target Qualified Plan (as
defined below).
(ii) There is no pending or threatened litigation,
administrative action or proceeding relating to any Target Employee Plan. All
of the Target Employee Plans comply in all material respects with all
applicable requirements of ERISA, the IRC and other applicable laws. There
has occurred no "prohibited transaction" (as defined in Section 406 of ERISA
or Section 4975 of the IRC) with respect to the Target Employee Plans which is
likely to result in the imposition of any penalties or taxes upon Target or
Target Bank under Section 502(i) of ERISA or Section 4975 of the IRC.
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(iii) No liability to the Pension Benefit Guaranty
Corporation has been or is expected by Target or Target Bank to be incurred
with respect to any Target Employee Plan which is subject to Title IV of ERISA
("Target Pension Plan"), or with respect to any "single-employer plan" (as
defined in Section 4001(a) of ERISA) currently or formerly maintained by
Target or any entity which is considered one employer with Target under
Section 4001(b)(1) of ERISA or Section 414 of the IRC (an "ERISA Affiliate").
No Target Pension Plan had an "accumulated funding deficiency" (as defined in
Section 302 of ERISA), whether or not waived, as of the last day of the end of
the most recent plan year ending prior to the date hereof; the fair market
value of the assets of each Target Pension Plan exceeds the present value of
the "benefit liabilities" (as defined in Section 4001(a)(16) of ERISA) under
such Target Pension Plan as of the end of the most recent plan year with
respect to the respective Target Pension Plan ending prior to the date hereof,
calculated on the basis of the actuarial assumptions used in the most recent
actuarial valuation for such Target Pension Plan as of the date hereof; and no
notice of a "reportable event" (as defined in Section 4043 of ERISA) for which
the 30-day reporting requirement has not been waived has been required to be
filed for any Target Pension Plan within the 12-month period ending on the
date hereof. Neither Target nor Target Bank has provided, or is required to
provide, security to any Target Pension Plan or to any single-employer plan of
an ERISA Affiliate pursuant to Section 401(a)(29) of the IRC. Neither Target,
Target Bank, nor any ERISA Affiliate has contributed to any "multiemployer
plan," as defined in Section 3(37) of ERISA, on or after September 26, 1980.
(iv) Each Target Employee Plan that is an "employee pension
benefit plan" (as defined in Section 3(2) of ERISA) and which is intended to
be qualified under Section 401(a) of the IRC (a "Target Qualified Plan") has
received a favorable determination letter from the IRS, and Target and Target
Bank are not aware of any circumstances likely to result in revocation of any
such favorable determination letter. Each Target Qualified Plan that is an
"employee stock ownership plan" (as defined in Section 4975(e)(7) of the IRC)
has satisfied all of the applicable requirements of Sections 409 and
4975(e)(7) of the IRC and the regulations thereunder in all respects and any
assets of any such Target Qualified Plan that are not allocated to
participants' individual accounts are pledged as security for, and may be
applied to satisfy, any securities acquisition indebtedness.
(v) Neither Target nor Target Bank has any obligations for
post-retirement or post-employment benefits under any Target Employee Plan
that cannot be amended or terminated upon 60 days' notice or less without
incurring any liability thereunder, except for coverage required by Part 6 of
Title I of ERISA or Section 4980B of the IRC, or similar state laws, the cost
of which is borne by the insured individuals. With respect to Target or
Target Bank, for the Target Employee Plans listed in Target's Disclosure
Letter, the execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby will not result in any payment or series
of payments by Target or Target Bank to any person which is an "excess
parachute payment" (as defined in Section 280G of the IRC), increase or secure
(by way of a trust or other vehicle) any benefits payable under any Target
Employee Plan or accelerate the time of payment or vesting of any such
benefit.
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(o) Title to Assets. Target's Disclosure Letter contains a
complete and accurate list of all real property owned or leased by Target or
Target Bank, including all properties of Target or Target Bank classified as
"Real Estate Owned" or words of similar import (the "Real Property"). Each of
Target and Target Bank has good and marketable title to its properties and
assets (including any intellectual property asset such as any trademark,
service mark, trade name or copyright) and property acquired in a judicial
foreclosure proceeding or by way of a deed in lieu of foreclosure or similar
transfer whether real or personal, tangible or intangible, in each case free
and clear of any liens, security interests, encumbrances, mortgages, pledges,
restrictions, charges or rights or interests of others, except pledges to
secure deposits and other liens incurred in the ordinary course of business.
Each lease pursuant to which Target or Target Bank is lessee or lessor is
valid and in full force and effect and neither Target nor Target Bank, nor, to
the knowledge of Target, any other party to any such lease is in default or in
violation of any provisions of any such lease. All material tangible
properties of Target and Target Bank are in a good state of maintenance and
repair, conform with all applicable ordinances, regulations and zoning laws
and are considered by Target to be adequate for the current business of Target
and Target Bank. To the knowledge of Target, none of the buildings,
structures or other improvements located on the Real Property encroaches upon
or over any adjoining parcel or real estate or any easement or right-of-way.
(p) Compliance with Laws. Each of Target and Target Bank has
all permits, licenses, certificates of authority, orders and approvals of, and
has made all filings, applications and registrations with, all Governmental
Entities that are required in order to permit it to carry on its business as
it is presently conducted; all such permits, licenses, certificates of
authority, orders and approvals are in full force and effect, and no
suspension or cancellation of any of them is threatened. Since the date of its
incorporation, the corporate affairs of Target have not been conducted in
violation of any law, ordinance, regulation, order, writ, rule, decree or
approval of any Governmental Entity. Neither Target nor Target Bank is in
violation of, is, to the knowledge of Target, under investigation with respect
to any violation of, or has been given notice or been charged with any
violation of, any law, ordinance, regulation, order, writ, rule, decree or
condition to approval of any Governmental Entity which, individually or in the
aggregate, would reasonably be expected to have a Material Adverse Effect on
Target.
(q) Fees. Other than financial advisory services performed for
Target by Sandler O'Neill & Partners, L.P. pursuant to an agreement dated May
2, 2000, a true and complete copy of which has been previously delivered to
Acquiror, neither Target nor Target Bank, nor any of their respective
officers, directors, employees or agents, has employed any broker or finder or
incurred any liability for any financial advisory fees, brokerage fees,
commissions or finder's fees in connection with this Agreement and the
transactions contemplated thereby, and no broker or finder has acted directly
or indirectly for Target or Target Bank in connection with this Agreement or
the transactions contemplated hereby.
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(r) Environmental Matters.
(i) With respect to Target and Target Bank:
(A) Each of Target and Target Bank, the
Participation Facilities (as defined below), and, to the knowledge of Target,
the Loan Properties (as defined below) are, and have been, in substantial
compliance with, and are not liable under, all Environmental Laws (as defined
below);
(B) There is no suit, claim, action, demand,
executive or administrative order, directive, investigation or proceeding
pending or, to the knowledge of Target, threatened, before any court,
governmental agency or board or other forum against Target or Target Bank or
any Participation Facility (1) for alleged noncompliance (including by any
predecessor) with, or liability under, any Environmental Law or (2) relating
to the presence of or release into the environment of any Hazardous Material
(as defined below), whether or not occurring at or on a site owned, leased or
operated by Target or Target Bank or any Participation Facility;
(C) To the knowledge of Target, there is no suit,
claim, action, demand, executive or administrative order, directive,
investigation or proceeding pending or threatened before any court,
governmental agency or board or other forum relating to or against any Loan
Property (or Target or Target Bank in respect of such Loan Property) (1)
relating to alleged noncompliance (including by any predecessor) with, or
liability under, any Environmental Law or (2) relating to the presence of or
release into the environment of any Hazardous Material, whether or not
occurring at a Loan Property;
(D) To the knowledge of Target, the properties
currently owned or operated by Target or Target Bank (including, without
limitation, soil, groundwater or surface water on or under the properties, and
buildings thereon) are not contaminated with and do not otherwise contain any
Hazardous Material other than as permitted under applicable Environmental Law;
(E) Neither Target nor Target Bank has received any
notice, demand letter, executive or administrative order, directive or request
for information from any Governmental Entity or any third party indicating
that it may be in violation of, or liable under, any Environmental Law;
(F) To the knowledge of Target, there are no
underground storage tanks on, in or under any properties owned or operated by
Target or Target Bank or any Participation Facility and no underground storage
tanks have been closed or removed from any properties owned or operated by
Target or Target Bank or any Participation Facility; and
(G) To the knowledge of Target, during the period of
(1) Target's or Target Bank's ownership or operation of any of their
respective current properties or (2) Target's or Target Bank's participation
in the management of any Participation Facility, there has been no
contamination by or release of Hazardous Materials in, on, under or affecting
such properties. To the knowledge of Target, prior to the period of (1)
Target's or Target Bank's ownership or operation
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of any of their respective current properties or (2) Target's or Target Bank's
participation in the management of any Participation Facility, there was no
contamination by or release of Hazardous Material in, on, under or affecting
such properties.
(ii) The following definitions apply for purposes of this
Section 2.2(r):
"Loan Property" means any property in which the applicable
party (or a subsidiary of it) holds a security interest and, where required by
the context, includes the owner or operator of such property, but only with
respect to such property.
"Participation Facility" means any facility in which the
applicable party (or a subsidiary of it) participates in the management
(including all property held as trustee or in any other fiduciary capacity)
and, where required by the context, includes the owner or operator of such
property, but only with respect to such property.
"Environmental Law" means (i) any federal, state or local
law, statute, ordinance, rule, regulation, code, license, permit,
authorization, approval, consent, legal doctrine, order, directive, executive
or administrative order, judgment, decree, injunction, legal requirement or
agreement with any Governmental Entity relating to (A) the protection,
preservation or restoration of the environment (which includes, without
limitation, air, water vapor, surface water, groundwater, drinking water
supply, structures, soil, surface land, subsurface land, plant and animal life
or any other natural resource), or to human health or safety as it relates to
Hazardous Materials, or (B) the exposure to, or the use, storage, recycling,
treatment, generation, transportation, processing, handling, labeling,
production, release or disposal of, Hazardous Materials, in each case as
amended and as now in effect. The term Environmental Law includes all
federal, state and local laws, rules, regulations or requirements relating to
the protection of the environment or health and safety, including, without
limitation, (i) the Federal Comprehensive Environmental Response, Compensation
and Liability Act of 1980, the Superfund Amendments and Reauthorization Act of
1986, the Federal Water Pollution Control Act of 1972, the Federal Clean Air
Act, the Federal Clean Water Act, the Federal Resource Conservation and
Recovery Act of 1976 (including, but not limited to, the Hazardous and Solid
Waste Amendments thereto and Subtitle I relating to underground storage
tanks), the Federal Solid Waste Disposal and the Federal Toxic Substances
Control Act, the Federal Insecticide, Fungicide and Rodenticide Act, the
Federal Occupational Safety and Health Act of 1970 as it relates to Hazardous
Materials, the Federal Hazardous Substances Transportation Act, the Emergency
Planning and Community Right-To-Know Act, the Safe Drinking Water Act, the
Endangered Species Act, the National Environmental Policy Act, the Rivers and
Harbors Appropriation Act or any so-called "Superfund" or "Superlien" law,
each as amended and as now in effect, and (ii) any common law or equitable
doctrine (including, without limitation, injunctive relief and tort doctrines
such as negligence, nuisance, trespass and strict liability) that may impose
liability or obligations for injuries or damages due to, or threatened as a
result of, the presence of or exposure to any Hazardous Material.
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"Hazardous Material" means any substance (whether solid,
liquid or gas) which is or could be detrimental to human health or safety or
to the environment, currently or hereafter listed, defined, designated or
classified as hazardous, toxic, radioactive or dangerous, or otherwise
regulated, under any Environmental Law, whether by type or by quantity,
including any substance containing any such substance as a component.
Hazardous Material includes, without limitation, any toxic waste, pollutant,
contaminant, hazardous substance, toxic substance, hazardous waste, special
waste, industrial substance, oil or petroleum, or any derivative or by-product
thereof, radon, radioactive material, asbestos, asbestos-containing material,
urea formaldehyde foam insulation, lead and polychlorinated biphenyl.
(s) Loan Portfolio; Allowance; Asset Quality.
(i) With respect to each loan, lease, advance, credit
enhancement, guarantee, other extension of credit, commitment and
interest-bearing asset of Target and Target Bank (collectively, "Loans")
owned by Target or Target Bank in whole or in part:
(A) the note and the related security documents are
each legal, valid and binding obligations of the maker or obligor thereof,
enforceable against such maker or obligor in accordance with their terms;
(B) neither Target nor Target Bank, nor, to the
knowledge of Target, any prior holder of a Loan, has modified the note or any
of the related security documents in any material respect or satisfied,
canceled or subordinated the note or any of the related security documents
except as otherwise disclosed by documents in the applicable Loan file;
(C) Target or Target Bank is the sole holder of
legal and beneficial title to each Loan (or Target's or Target Bank's
applicable participation interest, as applicable), except as otherwise
referenced on the books and records of Target or Target Bank;
(D) the note and the related security documents,
copies of which are included in the Loan files, are true and correct copies of
the documents they purport to be and have not been suspended, amended,
modified, canceled or otherwise changed except as otherwise disclosed by
documents in the applicable Loan file;
(E) there is no litigation or proceeding pending or
threatened relating to the property that serves as security for a Loan that
would have a Material Adverse Effect upon the related Loan; and
(F) with respect to a Loan held in the form of a
participation, the participation documentation is legal, valid, binding and
enforceable in accordance with its terms.
(ii) The allowance for possible loan losses reflected in
Target's audited consolidated statement of financial condition at June 30,
1999 was, and the allowance for possible
A-19
losses shown on the balance sheets in Target's Reports for periods ending
after June 30, 1999, in the opinion of management, was or will be adequate,
as of the dates thereof, under GAAP.
(iii) Target's Disclosure Letter sets forth a true and
complete listing, as of March 31, 2000, of:
(A) all Loans that have been classified (whether
regulatory or internal) as "Special Mention," "Substandard," "Doubtful,"
"Loss" or words of similar import listed by category, including the amounts
thereof;
(B) Loans (1) that are contractually past due 90
days or more in the payment of principal and/or interest, (2) that are on a
non-accrual status, (3) where the interest rate terms have been reduced and/or
the maturity dates have been extended subsequent to the agreement under which
the Loan was originally created due to concerns regarding the borrower's
ability to pay in accordance with such initial terms, or (4) for which a
specific reserve allocation exists in connection therewith, listed by
category, including the amounts thereof; and
(C) Loans with any director, executive officer or
five percent or greater stockholder of Target or Target Bank or any person,
corporation or enterprise controlling, controlled by or under common control
with any of the foregoing, including the amounts thereof.
(iv) Neither Target nor Target Bank is a party to any Loan
that is in violation of any law, regulation or rule of any Governmental
Entity. Any asset of Target or Target Bank that is classified as "Real Estate
Owned" or words of similar import that is included in any non-performing
assets of Target or Target Bank is listed in Target's Disclosure Letter and
is carried net of reserves at the lower of cost or fair value, less estimated
selling costs, based on current independent appraisals or evaluations or
current management appraisals or evaluations; provided, however, that
"current" shall mean subsequent to March 31, 1999.
(t) Deposits. Except as set forth in the Target's Disclosure
Letter, none of the deposits of Target or Target Bank is a "brokered" deposit.
(u) Anti-takeover Provisions Inapplicable. Target and Target
Bank have taken all actions required to exempt Acquiror, Acquisition Sub, the
Agreement, the Merger, the Plan of Bank Merger and the Bank Merger from any
provisions of an antitakeover nature contained in their organizational
documents, and the provisions of any federal or state "anti-takeover," "fair
price," "moratorium," "control share acquisition" or similar laws or
regulations.
(v) Material Interests of Certain Persons. Except as set
forth in the Target's Disclosure Letter, no officer or director of Target, or
any "associate" (as such term is defined in Rule 12b-2 under the Exchange Act)
of any such officer or director, has any material interest in any material
contract or property (real or personal), tangible or intangible, used in or
pertaining to the business of Target or Target Bank.
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(w) Insurance. In the opinion of management, Target and Target
Bank are presently insured for amounts deemed reasonable by management against
such risks as companies engaged in a similar business would, in accordance
with good business practice, customarily be insured. All of the insurance
policies and bonds maintained by Target and Target Bank are in full force and
effect, Target and Target Bank are not in default thereunder and all material
claims thereunder have been filed in due and timely fashion.
(x) Investment Securities; Derivatives.
(i) Target's Disclosure Letter sets forth the book and
market value as of March 31, 2000 of the investment securities, mortgage-
backed securities and securities held for sale of Target and Target Bank.
Target's Disclosure Letter sets forth, with respect to such securities,
descriptions thereof, CUSIP numbers, pool face values and coupon rates.
(ii) Except for Federal Home Loan Bank stock, pledges to
secure Federal Home Loan Bank borrowings and restrictions that exist for
securities classified as "held to maturity," none of the investment securities
held by Target or Target Bank is subject to any restriction (contractual or
statutory) that would materially impair the ability of the entity holding such
investment freely to dispose of such investment at any time.
(iii) Neither Target nor Target Bank is a party to or has
agreed to enter into an exchange-traded or over-the-counter equity, interest
rate, foreign exchange or other swap, forward, future, option, cap, floor or
collar or any other contract that is a derivative contract (including various
combinations thereof) or owns securities that (A) are referred to generically
as "structured notes," "high risk mortgage derivatives," "capped floating rate
notes" or "capped floating rate mortgage derivatives" or (B) are likely to
have changes in value as a result of interest or exchange rate changes that
significantly exceed normal changes in value attributable to interest or
exchange rate changes.
(y) Indemnification. Except as provided in the certificate of
incorporation or bylaws of Target and the similar governing documents of
Target Bank, neither Target nor Target Bank is a party to any agreement that
provides for the indemnification of any of its present or former directors,
officers, or employees or other persons who serve or served as a director,
officer or employee of another corporation, partnership or other enterprise at
the request of Target and, to the knowledge of Target, there are no claims for
which any such person would be entitled to indemnification under the
certificate of incorporation or bylaws of Target or the similar governing
documents of Target Bank, under any applicable law or regulation or under any
indemnification agreement.
(z) Books and Records. The books and records of Target and
Target Bank on a consolidated basis have been, and are being, maintained in
accordance with applicable legal and accounting requirements and reflect in
all material respects the substance of events and transactions that should be
included therein.
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(aa) Corporate Documents. Target has previously furnished or
made available to Acquiror a complete and correct copy of the certificate of
incorporation, bylaws and similar governing documents of Target and Target
Bank, as in effect as of the date of this Agreement. Neither Target nor Target
Bank is in violation of its certificate of incorporation, bylaws or similar
governing documents. The minute books of Target and Target Bank constitute a
complete and correct record of all actions taken by their respective boards of
directors (and each committee thereof) and their stockholders.
(bb) Proxy Statement. The information regarding Target and Target
Bank to be included in the Proxy Statement filed by Target with the SEC under
the Exchange Act will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under
which they are made, not misleading.
(cc) Community Reinvestment Act Compliance. Target Bank is in
material compliance with the applicable provisions of the Community
Reinvestment Act ("CRA") and the regulations promulgated thereunder, and
Target Bank currently has a CRA rating of satisfactory or better. To the
knowledge of Target, there is no fact or circumstance or set of facts or
circumstances that would cause Target Bank to fail to continue to comply with
such provisions or cause the CRA rating of Target Bank to fall below
satisfactory.
(dd) Undisclosed Liabilities. As of the date hereof, neither
Target nor Target Bank has incurred any debt, liability or obligation of any
nature whatsoever (whether accrued, contingent, absolute or otherwise and
whether due or to become due) except for (i) liabilities reflected on or
reserved against in the consolidated financial statements of Target as of June
30, 1999, (ii) liabilities incurred since June 30, 1999 in the ordinary course
of business consistent with past practice that, either alone or when combined
with all similar liabilities, have not had, and would not reasonably be
expected to have, a Material Adverse Effect on Target and (iii) liabilities
incurred for legal, accounting, financial advisory fees and out-of-pocket
expenses in connection with a proposed sale or merger of Target.
(ee) Year 2000 Matters. Target and Target Bank have not
experienced any material data processing or other computer malfunctions
related to processing date information on and after January 1, 2000 and none
of the third party service providers or customers of Target or Target Bank
have reported year 2000 data processing problems to Target that, individually
or in the aggregate, would have a Material Adverse Effect on Target.
(ff) Liquidation Account. Neither the Merger nor the Bank Merger
will result in any payment or distribution payable out of the liquidation
account of Target Bank established in connection with Target Bank's conversion
from mutual to stock form.
Section 2.2. Representations and Warranties of Acquiror.
Except as set forth in the Disclosure Letter delivered by Acquiror to Target
prior to the execution of this Agreement, Acquiror
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represents and warrants to Target that:
(a) Organization.
(i) Acquiror is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and is
registered as a savings and loan holding company under HOLA.
(ii) Acquiror Bank is a federally chartered savings bank
duly organized and validly existing under the laws of the United States of
America. The deposits of Acquiror Bank are insured by the SAIF to the extent
provided in the FDIA. Acquiror Bank is a member of the FHLB.
(iii) Each of Acquiror and Acquiror Bank has all requisite
corporate power and authority to own, lease and operate its properties and to
conduct the business currently being conducted by it. Each of Acquiror and
Acquiror Bank is duly qualified or licensed as a foreign corporation to
transact business and is in good standing in each jurisdiction in which the
character of the properties owned or leased by it or the nature of the
business conducted by it makes such qualification or licensing necessary,
except where the failure to be so qualified or licensed and in good standing
would not have a Material Adverse Effect on Acquiror.
(iv) Acquisition Sub is a corporation duly organized,
validly existing and in good standing under the laws of Delaware, all of the
outstanding capital stock of which is, or prior to the Effective Time will be,
owned directly or indirectly by Acquiror free and clear of any lien, charge or
other encumbrance. From and after its incorporation, Acquisition Sub has not
and will not engage in any activities other than in connection with or as
contemplated by this Agreement.
(b) Authority.
(i) Each of Acquiror and Acquisition Sub has all requisite
corporate power and authority to enter into this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated by this
Agreement. The execution and delivery of this Agreement and the consummation
of the transactions contemplated by this Agreement have been duly authorized
by all necessary corporate actions of the Boards of Directors of Acquiror and
Acquisition Sub and no other corporate proceedings on the part of Acquiror or
Acquisition Sub are necessary to authorize this Agreement or to consummate the
transactions contemplated by this Agreement except for the approval of this
Agreement and the Merger by Acquiror as the sole stockholder of Acquisition
Sub. This Agreement has been duly and validly executed and delivered by each
of Acquiror and Acquisition Sub and constitutes a valid and binding obligation
of each of Acquiror and Acquisition Sub, enforceable in accordance with its
terms, subject to applicable bankruptcy, insolvency and similar laws affecting
creditors' rights and remedies generally and subject, as to enforceability, to
general principles of equity, whether applied in a court of law or a court of
equity.
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(ii) Acquiror Bank has all requisite corporate power and
authority to enter into the Plan of Bank Merger and to consummate the
transactions contemplated thereby. The execution and delivery of the Plan of
Bank Merger and the consummation of the transactions contemplated thereby have
been duly authorized by the Board of Directors of Acquiror Bank and approved
by Acquiror as the sole stockholder of Acquiror Bank. The Plan of Bank
Merger, upon execution and delivery by Acquiror Bank, will be duly and validly
executed and delivered by Acquiror Bank and will constitute a valid and
binding obligation of Acquiror Bank, enforceable in accordance with its terms,
subject to applicable bankruptcy, insolvency and similar laws affecting
creditors' rights and remedies generally and subject, as to enforceability, to
general principles of equity, whether applied in a court of law or a court of
equity.
(c) No Violations; Consents.
(i) The execution, delivery and performance of this
Agreement by Acquiror do not, and the consummation of the transactions
contemplated hereby will not, constitute (A) assuming the consents and
approvals referred to in Section 2.3(c)(ii) are obtained, a violation of any
law, rule or regulation or any judgment, decree, order, governmental permit or
license to which Acquiror or any of its subsidiaries (or any of their
properties) is subject; (B) a violation of the certificate of incorporation or
bylaws of Acquiror or similar organizational documents of any of its
subsidiaries; or (C) a breach or violation of, or a default under (or an event
which, with due notice or lapse of time or both, would constitute a default
under), or result in the termination of, accelerate the performance required
by, or result in the creation of any lien, pledge, security interest, charge
or other encumbrance upon any of the properties or assets of Acquiror or
Acquiror Bank under, any of the terms, conditions or provisions of any note,
bond, indenture, deed of trust, loan agreement or other agreement, instrument
or obligation to which Acquiror or Acquiror Bank is a party, or to which any
of their respective properties or assets may be subject, except, in the case
of (C), for any such breaches, violations or defaults that wold not,
individually or in the aggregate, have a Material Adverse Effect on Acquiror.
(ii) Except for (A) the filing of an application with the
OTS, under HOLA, and approval of such application, (B) the filing of any
necessary notice or approval of the Department, (C) the approval of the FDIC
under the FDIA, and (D) the filing of a certificate of merger with the
Delaware Secretary of State pursuant to the DGCL and the filing of Articles of
Combination with the OTS, no consents or approvals of or filings or registra-
tions with any Governmental Entity or with any third party are necessary in
connection with the execution and delivery by Acquiror and Acquisition Sub of
this Agreement or the consummation by Acquiror, Acquiror Bank and Acquisition
Sub of the Merger, the Bank Merger and the other transactions contemplated by
this Agreement, including the Bank Merger. As of the date hereof, the
executive officers and members of the Boards of Directors of Acquiror and
Acquiror Bank know of no reason pertaining to Acquiror why any of the
approvals referred to in this Section 2.3(c) should not be obtained without
the imposition of any material condition or restriction described in Section
5.1(b).
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(d) Absence of Claims. No litigation, proceeding, controversy,
claim, action or suit or other legal, administrative or arbitration proceeding
before any court, governmental agency or arbitrator is pending or has been
threatened against Acquiror or any of its subsidiaries that would reasonably
be expected to prevent, delay or adversely affect Acquiror's or Acquiror
Bank's ability to consummate, or which seeks to prohibit the consummation of,
the transactions contemplated by this Agreement.
(e) Absence of Regulatory Actions. Since December 31, 1996,
neither Acquiror nor any of its subsidiaries has been a party to any cease and
desist order, written agreement or memorandum of understanding with, or any
commitment letter or similar undertaking to, or has been subject to any
action, proceeding, order or directive by, or has been a recipient of any
extraordinary supervisory letter from any Government Regulator, or has adopted
any board resolutions at the request of any Government Regulator, or has been
advised by any Government Regulator that it is contemplating issuing or
requesting (or is considering the appropriateness of issuing or requesting)
any such action, proceeding, order, directive, written agreement, memorandum
of understanding, extraordinary supervisory letter, commitment letter, board
resolutions or similar undertaking.
(f) Proxy Statement. The information regarding Acquiror and
Acquiror Bank to be supplied by Acquiror for inclusion in the Proxy Statement
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made,
not misleading.
(g) Community Reinvestment Act Compliance. Acquiror Bank is in
material compliance with the applicable provisions of the CRA and the
regulations promulgated thereunder, and Acquiror Bank currently has a CRA
rating of satisfactory or better. To the knowledge of Acquiror Bank, there is
no fact or circumstance or set of facts or circumstances that would cause
Acquiror Bank to fail to continue to comply with such provisions or cause the
CRA rating of Acquiror Bank to fall below satisfactory.
(h) Financing. Acquiror will have available to it, at the
Effective Time, immediately available funds necessary to pay the aggregate
Merger Consideration and will use such funds for such purpose subject to the
conditions of this Agreement. Acquiror and Acquiror Bank are, and will be
immediately following the Merger, in material compliance with all applicable
capital, debt and financial and nonfinancial regulations of federal banking
agencies having jurisdiction over them.
(i) Reports and Financial Statements.
(i) Acquiror and Acquiror Bank have each timely filed all
material reports, together with any amendments required to be made with
respect thereto, that it was required to file since December 31, 1997 with the
SEC, the NASD, the FDIC and the OTS (collectively, "Acquiror's Reports"). As
of their respective dates, none of Acquiror's Reports contained any untrue
statement of a material fact or omitted to state a material fact required to
be stated therein or necessary to make
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the statements made therein, in light of the circumstances under which they
were made, not misleading. All of Acquiror's Reports complied in all
material respects with the applicable requirements of the Exchange Act and the
rules and regulations of the SEC promulgated thereunder.
(ii) Each of the financial statements of Acquiror included
in Acquiror's Reports filed with the SEC complied as to form, as of their
respective dates of filing with the SEC, in all material respects with
applicable accounting requirements and with the published rules and
regulations of the SEC with respect thereto. The financial statements
included in Acquiror's Reports were prepared from the books and records of
Acquiror and its subsidiaries, fairly present the consolidated financial
position of Acquiror and its subsidiaries in each case at and as of the dates
indicated and the consolidated results of operations, retained earnings and
cash flows of Acquiror and its subsidiaries for the periods indicated, and,
except as otherwise set forth in the notes thereto, were prepared in
accordance with GAAP consistently applied throughout the periods covered
thereby; provided, however, that the unaudited financial statements for
interim periods are subject to normal year-end adjustments (which will not be
material individually or in the aggregate) and lack a statement of changes in
stockholders' equity and complete footnotes.
(j) Undisclosed Liabilities. Except as disclosed in Acquiror's
reports filed with the SEC prior to the date of this Agreement, since
September 30, 1999, neither Acquiror nor any of its subsidiaries has incurred
any debt, liability or obligation of any nature whatsoever (whether accrued,
contingent, absolute or otherwise and whether due or to become due) other than
in the ordinary of business consistent with past practice or that, either
alone or when combined with all similar liabilities, would reasonably be
expected to prevent or delay Acquiror from consummating the transactions
contemplated by this Agreement.
(k) Absence of Certain Changes or Events. Except as disclosed
in Acquiror's Reports filed with the SEC prior to the date of this Agreement,
since September 30, 1999, (i) Acquiror and Acquiror Bank have not incurred any
debt, liability or obligation of any nature whatsoever (whether accrued,
contingent, absolute or otherwise and whether due or to become due), except in
the ordinary course of their business consistent with past practice, (ii)
Acquiror and Acquiror Bank have conducted their respective businesses only in
the ordinary and usual course of such businesses consistent with their past
practices, (iii) there has not been any event or occurrence that has had a
Material Adverse Effect on Acquiror and (iv) there has been no change in any
accounting principles, practices or methods of Acquiror or Acquiror Bank other
than as required by GAAP.
(l) Compliance with Laws. Each of Acquiror and Acquiror Bank
has all permits, licenses, certificates of authority, orders and approvals of,
and has made all filings, applications and registrations with, all
Governmental Entities that are required in order to permit it to carry on its
business as it is presently conducted; all such permits, licenses,
certificates of authority, orders and approvals are in full force and effect,
and no suspension or cancellation of any of them is threatened. Since the date
of its incorporation, the corporate affairs of Acquiror have not been
conducted in violation of any law, ordinance, regulation, order, writ, rule,
decree or approval of any Governmental Entity. Neither Acquiror nor Acquiror
Bank is in violation of, is, to the knowledge of Acquiror,
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under investigation with respect to any violation of, or has been given notice
or been charged with any violation of, any law, ordinance, regulation, order,
writ, rule, decree or condition to approval of any Governmental Entity which,
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect on Acquiror.
ARTICLE III
CONDUCT PENDING THE MERGER
Section 3.1. Conduct of Target's Business Prior to the
Effective Time. Except as expressly provided in this Agreement, during the
period from the date of this Agreement to the Effective Time, Target shall,
and shall cause Target Bank to (i) conduct its business in the regular,
ordinary and usual course consistent with past practice, (ii) maintain and
preserve intact its business organization, properties, leases, employees and
advantageous business relationships and retain the services of its officers
and key employees, (iii) take no action which would adversely affect or delay
the ability of Target or Acquiror to perform their respective covenants and
agreements on a timely basis under this Agreement, (iv) take no action which
would adversely affect or delay the ability of Target, Target Bank, Acquiror
or Acquiror Bank to obtain any necessary approvals, consents or waivers of any
Governmental Entity required for the transactions contemplated hereby or which
would reasonably be expected to result in any such approvals, consents or
waivers containing any material condition or restriction, (v) take no action
that results in or is reasonably likely to have a Material Adverse Effect on
Target or Target Bank, (vi) maintain insurance in such amounts and against
such risks and losses as are customary for companies engaged in a similar
business, (vii) confer on a regular and frequent basis with one or more
representatives of Acquiror to discuss, subject to applicable law, material
operational matters and the general status of the ongoing operations of Target
and Target Bank, (viii) promptly notify Acquiror of any material change in its
business, properties, assets, condition (financial or otherwise) or results of
operations, and (ix) promptly provide Acquiror with copies of all filings made
by Target or Target Bank with any state or federal court, administrative
agency, commission or other Governmental Entity in connection with this
Agreement and the transactions contemplated hereby.
Section 3.2. Forbearance by Target. Without limiting the
covenants set forth in Section 3.1 hereof, except as otherwise provided in
this Agreement and except to the extent required by law or regulation or any
Governmental Entity, during the period from the date of this Agreement to the
Effective Time, Target shall not, and shall not permit Target Bank to, without
the prior consent of Acquiror, which consent shall not be unreasonably
withheld:
(a) other than in the ordinary course of business consistent
with past practice, incur any indebtedness for borrowed money, assume,
guarantee, endorse or otherwise as an accommodation become responsible for the
obligations of any other individual, corporation or other entity (it being
understood and agreed that incurrence of indebtedness in the ordinary course
of business shall include, without limitation, the creation of deposit
liabilities, purchases of Federal funds, advances from the FHLB, sales of
certificates of deposit and entering into repurchase agreements);
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(b) (i) adjust, split, combine or reclassify any capital
stock;
(ii) make, declare or pay any dividend, or make any other
distribution on, or directly or indirectly redeem,
purchase or otherwise acquire, any shares of its
capital stock or any securities or obligations
convertible (whether currently convertible or
convertible only after the passage of time or the
occurrence of certain events) into or exchangeable for
any shares of its capital stock. Notwithstanding the
foregoing, Target may continue to pay to its
stockholders a regular quarterly cash dividend at a
rate not in excess of $0.05 per share of Target Common
Stock;
(iii) grant any stock options or stock appreciation
rights, make any awards of restricted stock
under Target Incentive Plan or grant any
individual, corporation or other entity any
right to acquire any shares of its capital
stock; or
(iv) issue any additional shares of capital stock or any
securities or obligations convertible or excisable for
any shares of its capital stock except pursuant to the
exercise of Target Options outstanding as of the date
hereof;
(c) sell, transfer, mortgage, encumber or otherwise dispose of
any of its material properties or assets to any individual, corporation or
other entity, or cancel, release or assign any indebtedness to any such person
or any claims held by any such person, except pursuant to contracts or
agreements in force at the date of this Agreement;
(d) except pursuant to contracts or agreements in force at the
date hereof or as permitted by this Agreement, make any equity investment,
either by purchase of stock or securities, contributions to capital, property
transfers, or purchase of any property or assets of any other individual,
corporation or entity other than the FHLB;
(e) enter into, amend, terminate or, except as set forth in
Target's Disclosure Letter, renew any contract or agreement, or make any
change in any of its leases or contracts, other than with respect to those
involving aggregate payments of less than $10,000 per annum or the provision
of goods or services with a market value of less than $10,000 per annum, and
other than contracts or agreements covered by Section 3.2(f);
(f) make, renegotiate, renew, increase, extend, modify or
purchase any loan, lease (credit equivalent), advance, credit enhancement or
other extension of credit, or make any commitment in respect of any of the
foregoing, except (i) in conformity with existing lending practices in amounts
not to exceed an aggregate of $300,000 with respect to any individual borrower
or (ii) loans or advances as to which Target has a binding obligation to make
such loans or advances as of the date hereof;
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(g) except for loans or extensions of credit made on terms
generally available to the public, make or increase any loan or other
extension of credit, or commit to make or increase any such loan or extension
of credit, to any director or executive officer of Target or Target Bank, or
any entity controlled, directly or indirectly, by any of the foregoing, other
than renewals of existing loans or commitments to loan;
(h) (i) except as otherwise permitted in Section 4.11 hereof,
or as may be required by law, or as may be required
pursuant to commitments existing on the date hereof as
set forth in Target's Disclosure Letter, increase in
any manner the compensation or fringe benefits of any
of its officers or directors or prior to January 1, 2001,
of its other employees, or pay or agree to pay any
pension, bonus, severance, retirement allowance or
contribution not required by any existing plan or
agreement to any such employees, officers or
directors;
(ii) become a party to, amend or commit itself to any
pension, retirement, profit-sharing or welfare benefit
plan or agreement or employment agreement with or for
the benefit of any employee or director;
(iii) voluntarily accelerate the vesting of, or the lapsing
of restrictions with respect to, any stock options or
other stock-based compensation;
(iv) elect to any senior executive office any person who is
not a member of the senior executive officer team of
Target as of the date of this Agreement or nominate to
the Board of Directors of Target any person who is not
a member of the Board of Directors of Target as of the
date of this Agreement, or hire any employee with
annual compensation in excess of $25,000; or
(v) change the title of the position held by any officer;
(i) settle any claim, action or proceeding involving money
damages in excess of $50,000 or the imposition of any material restriction on
the operations of Target or Target Bank;
(j) amend its certificate of incorporation or its bylaws;
(k) other than in the ordinary course of business consistent
with past practice and Target Bank's investment policy, in individual amounts
not to exceed $1.0 million, make any investment either by purchase of stock or
securities, contributions to capital, property transfers, or purchase of any
property or assets of any other person; or materially restructure or
materially change its investment securities portfolio, through purchases,
sales or otherwise, or the manner in which the portfolio is classified or
reported; provided, however, that the reinvestment in investments permissible
under this Section 3.2 of proceeds from the maturity, redemption of, or
receipt of periodic payments on investment securities permissible under
paragraph (l) below shall not be considered a material change or
restructuring.
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(l) make any investment in any debt security, including
municipal securities, mortgage-backed and mortgage-related securities, other
than U.S. government and U.S. government agency securities with final
maturities not greater than five years that are purchased in the ordinary
course of business consistent with past practice;
(m) make any capital expenditures other than expenditures
necessary to maintain existing assets in good repair or to make payment of
necessary taxes;
(n) establish or commit to the establishment of any new branch
or other office facilities or file any application to relocate or terminate
the operation of any banking office;
(o) take any action that is intended or expected to result in
any of its representations and warranties set forth in this Agreement being or
becoming untrue in any material respect at any time prior to the Effective
Time, or in any of the conditions to the Merger set forth in Article V not
being satisfied or in a violation of any provision of this Agreement;
(p) engage in any transaction that is not in the usual and
ordinary course of business and consistent with past practices;
(q) implement or adopt any change in its accounting principles,
practices or methods, other than as may be required by GAAP or regulatory
guidelines; or
(r) agree to take, make any commitment to take, or adopt any
resolutions of its Board of Directors in support of, any of the actions
prohibited by this Section 3.2.
Any request by Target or response thereto by Acquiror shall be made in
accordance with the notice provisions of Section 8.7 and shall note that it is
a request or response pursuant to this Section 3.2.
Section 3.3. Conduct of Acquiror's Business Prior to the
Effective Time. Except as expressly provided in this Agreement, during the
period from the date of this Agreement to the Effective Time, Acquiror shall,
and shall cause its subsidiaries to (i) take no action which would adversely
affect or delay the ability of Acquiror or Acquiror Bank to perform their
respective covenants and agreements on a timely basis under this Agreement,
(ii) take no action which would adversely affect or delay the ability of
Acquiror, Acquiror Bank or Target to obtain any necessary approvals, consents
or waivers of any Governmental Entity required for the transactions
contemplated hereby or which would reasonably be expected to result in any
such approvals, consents or waivers containing any material condition or
restriction and (iii) take no action that is intended or expected to result in
any of its representations and warranties set forth in this Agreement being or
becoming untrue in any material respect at any time prior to the Effective
Time, or in any of the conditions to the Merger set forth in Article V not
being satisfied or in violation of this Agreement.
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ARTICLE IV
COVENANTS
Section 4.1. Acquisition Proposals.
(a) From and after the date hereof until the termination of this
Agreement, neither Target nor any of its officers, directors, employees,
representatives, agents or affiliates (including, without limitation, any
investment banker, financial advisor, attorney or accountant retained by
Target or Target Bank), will, directly or indirectly, initiate, solicit or
knowingly encourage (including by way of furnishing non-public information or
assistance), or facilitate knowingly, any inquiries or the making of any
proposal that constitutes, or may reasonably be expected to lead to, any
Acquisition Proposal (as defined below), or enter into or maintain or continue
discussions or negotiate with any person or entity in furtherance of such
inquiries or to obtain an Acquisition Proposal or agree to or endorse any
Acquisition Proposal, or authorize or permit any of its officers, directors or
employees or Target Bank or any investment banker, financial advisor,
attorney, accountant or other representative retained by Target Bank to take
any such action; provided, however, that nothing contained in this Section 4.1
shall prohibit Target or the Board of Directors of Target from:
(i) furnishing information to, or entering into
discussions or negotiations with, any person or entity
that makes an unsolicited written, bona fide proposal
to acquire Target pursuant to a merger, consolidation,
share exchange, business combination, tender or
exchange offer or other similar transaction, if, and
only to the extent that:
(A) the Board of Directors of Target, after
consultation with and based upon the advice of
independent legal counsel, determines in good
faith after taking into account various legal,
financial and regulatory aspects of the proposal
and the person making such proposal that such
proposal (x) if accepted, is reasonably likely
to be consummated, and (y) if consummated, is
reasonably likely to result in a transaction
that is more favorable to Target's stockholders,
from a financial point of view, than the
transactions contemplated by the Agreement (such
proposal being referred to herein as a "Superior
Proposal"); and
(B) prior to furnishing such information to, or
entering into discussions or negotiations with,
such person or entity, Target:
(1) provides prompt notice to Acquiror to the
effect that it is furnishing information
to, or entering into discussions or
negotiations with, such person or entity;
and
(2) receives from such person or entity an
executed confidentiality agreement in
reasonably customary form;
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(ii) complying with Rule 14e-2 promulgated under the
Exchange Act with regard to a tender or exchange
offer; or
(iii) failing to make or withdrawing or modifying its
recommendation and entering into a Superior
Proposal if there exists a Superior Proposal and
the Board of Directors of Target, after
consultation with independent legal counsel,
determines in good faith that such action is
necessary for the Board of Directors of Target
to comply with its fiduciary duties to
stockholders under applicable law.
Target shall notify Acquiror orally and in writing of any Acquisition Proposal
(including, without limitation, the terms and conditions of any such
Acquisition Proposal and the identity of the person making such Acquisition
Proposal) as promptly as practicable (but, in any event, no later than 24
hours) after the receipt thereof and shall keep Acquiror informed of the
status and details of any such Acquisition Proposal.
(b) For purposes of this Agreement, "Acquisition Proposal" shall
mean any of the following (other than the transactions contemplated hereunder)
involving Target or Target Bank:
(i) any merger, consolidation, share exchange, business
combination, or other similar transaction;
(ii) any sale, lease, exchange, mortgage, pledge, transfer
or other disposition, directly or indirectly, by
merger, consolidation, business combination, share
exchange, joint venture or otherwise or of 10% or more
of the assets of Target or Target Bank, taken as a
whole, in a single transaction or series of
transactions;
(iii) any tender offer or exchange offer for 25% or
more of the outstanding shares of capital stock
of Target or the filing of a registration
statement under the Securities Act of 1933, as
amended, in connection therewith;
(iv) any transaction in which such person shall acquire
beneficial ownership (as such term is defined in Rule
13d-3 under the Exchange Act), or the right to acquire
beneficial ownership of any "group" (as such term is
defined under the Exchange Act) which shall have been
formed which beneficially owns or has the right to
acquire beneficial ownership of, 15% or more of the
outstanding voting capital stock of Target; or
(v) any public announcement of a proposal, plan or
intention to do any of the foregoing or any agreement
to engage in any of the foregoing.
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Section 4.2. Certain Policies and Actions of Target. At the
request of Acquiror, Target shall cause Target Bank to modify and change its
loan, litigation and real estate valuation policies and practices (including
loan classifications and levels of reserves) and investment and
asset/liability management policies and practices after the date on which all
regulatory and stockholder approvals required to consummate the transactions
contemplated hereby are received, and after receipt of written confirmation
from Acquiror that it is not aware of any fact or circumstance that would
prevent completion of the Merger, and prior to the Effective Time; provided,
however, that Target shall not be required to take such action more than 7
calendar days prior to the Effective Date; and provided, further, that such
modifications or changes in policies and procedures are not prohibited by GAAP
or any applicable laws and regulations. Target's representations, warranties
and covenants contained in this Agreement shall not be deemed to be untrue or
breached in any respect for any purpose as a consequence of any modifications
or changes undertaken solely on account of Section 4.2.
Section 4.3. Access and Information.
(a) Upon reasonable notice, Target shall (and shall cause Target
Bank to) afford Acquiror and its representatives (including, without
limitation, directors, officers and employees of Acquiror and its affiliates
and counsel, accountants and other professionals retained by Acquiror) such
reasonable access during normal business hours throughout the period prior to
the Effective Time to the books, records (including, without limitation, tax
returns and work papers of independent auditors), contracts, properties,
personnel and to such other information relating to Target and Target Bank as
Acquiror may reasonably request; provided, however, that no investigation
pursuant to this Section 4.3 shall affect or be deemed to modify any
representation or warranty made by Target in this Agreement. In furtherance,
and not in limitation of the foregoing, Target shall make available to
Acquiror all information necessary and appropriate for the preparation and
filing of all real property and real estate transfer tax returns and reports
required by reason of the Merger or the Bank Merger.
(b) Target shall provide Acquiror with true, correct and
complete copies of all financial and other information relating to the
business or operations of Target or Target Bank that is provided to directors
of Target and Target Bank in connection with meetings of their Boards of
Directors or committees thereof; provided, however, that not withstanding the
foregoing, Target shall not be required to provide Acquiror with any
information regarding an Acquisition Proposal except as required by Section
4.1.
(c) As soon as reasonably available, but in no event more than
45 days after the end of each fiscal quarter (and 90 days in the case of the
fourth fiscal quarter), Target shall deliver to Acquiror its Quarterly and
Annual Reports, as filed with the SEC under the Exchange Act. Target shall
deliver to Acquiror any Current Reports on Form 8-K promptly after filing such
reports with the SEC and shall provide Acquiror with a copy of any press
release promptly after such release is made available to the public.
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(d) Acquiror will not, and will cause its representatives not
to, use any information obtained pursuant to this Section 4.3 for any purpose
unrelated to the consummation of the transactions contemplated by this
Agreement. Subject to the requirements of applicable law, Acquiror will keep
confidential, and will cause its representatives to keep confidential, all
information and documents obtained pursuant to this Section 4.3 unless such
information (i) was already known to Acquiror or an affiliate of Acquiror,
other than pursuant to a confidentiality agreement or other confidential
relationship, (ii) becomes available to Acquiror or an affiliate of Acquiror
from other sources not known by such party to be bound by a confidentiality
agreement or other obligation of secrecy, (iii) is disclosed with the prior
written approval of Target or (iv) is or becomes readily ascertainable from
published information or trade sources.
(e) During the period of time beginning on the day application
materials to obtain the requisite regulatory approvals for the Merger are
initially filed and continuing to the Effective Time, including weekends and
holidays, Target shall cause Target Bank to provide Acquiror and Acquiror Bank
and their authorized agents and representatives full access to Target Bank
offices after normal business hours for the purpose of installing necessary
wiring and equipment to be utilized by Acquiror Bank after the Effective Time;
provided, that:
(i) reasonable advance notice of each entry shall be given
to Target Bank and Target Bank approves of each entry,
which approval shall not be unreasonably withheld;
(ii) Target Bank shall have the right to have its employees
or contractors present to inspect the work being done;
(iii) to the extent practicable, such work shall be done in
a matter that will not interfere with Target Bank's
business conducted at any affected branch offices;
(iv) all such work shall be done in compliance with all
applicable laws and government regulations, and
Acquiror Bank shall be responsible for the
procurement, at Acquiror Bank's expense, of all
required governmental or administrative permits and
approvals;
(v) Acquiror Bank shall maintain appropriate insurance
satisfactory to Target Bank in connection with any
work done by Acquiror Bank's agents and
representatives pursuant to this Section 4.3;
(vi) Acquiror Bank shall reimburse Target Bank for any
material out-of-pocket costs or expenses reasonably
incurred by Target Bank in connection with this
undertaking; and
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(vii) in the event this Agreement is terminated in
accordance with Article VI hereof, Acquiror Bank,
within a reasonable time period and at its sole cost
and expense, will restore such offices to their
condition prior to the commencement of any such
installation.
Section 4.4. Certain Filings, Consents and Agreements.
(a) As soon as practicable after the date hereof, Acquiror and
Acquiror Bank shall use their reasonable best efforts to prepare and file all
necessary applications, notices and filings to obtain all permits, consents,
approvals and authorizations of all Governmental Entities that are necessary
or advisable to consummate the transactions contemplated by this Agreement,
including the Bank Merger. Target shall, upon request, furnish Acquiror with
all information concerning Target, Target Bank, and Target's directors,
officers and stockholders and such other matters as may be reasonably
necessary or advisable in connection with any application, notice or filing
made by or on behalf of Acquiror to any Governmental Entity in connection with
the transactions contemplated by this Agreement and the Plan of Bank Merger.
(b) As soon as practicable after the date hereof, each of the
parties hereto shall, and they shall cause their respective subsidiaries to,
use its best efforts to obtain any consent, authorization or approval of any
third party that is required to be obtained in connection with the Merger and
the Bank Merger.
Section 4.5. Anti-takeover Provisions. Target and Target
Bank shall take all steps required by any relevant federal or state law or
regulation or under any relevant agreement or other document to exempt or
continue to exempt Acquiror, Acquiror Bank, Acquisition Sub, the Agreement,
the Plan of Bank Merger, the Merger and the Bank Merger from any provisions of
an antitakeover nature contained in Target's or Target Bank's certificates of
incorporation and bylaws, or similar governing documents, and the provisions
of any federal or state antitakeover laws.
Section 4.6. Additional Agreements. Subject to the terms
and conditions herein provided, each of the parties hereto agrees to use all
reasonable efforts to take promptly, or cause to be taken promptly, all
actions and to do promptly, or cause to be done promptly, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement,
including the Merger (and if the Plan of Bank Merger is executed, the Bank
Merger), as expeditiously as possible, including using efforts to obtain all
necessary actions or non-actions, extensions, waivers, consents and approvals
from all applicable Governmental Entities, effecting all necessary
registrations, applications and filings (including, without limitation,
filings under any applicable state securities laws) and obtaining any required
contractual consents and regulatory approvals.
Section 4.7. Publicity. The initial press release
announcing this Agreement shall be a joint press release and thereafter Target
and Acquiror shall consult with each other in issuing any press releases or
otherwise making public statements with respect to the Merger and any other
transaction
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contemplated hereby and in making any filings with any governmental entity or
with any national securities exchange with respect thereto.
Section 4.8. Stockholder Meeting. Target shall take all
action necessary, in accordance with applicable law and its certificate of
incorporation and bylaws, to convene a meeting of its stockholders
("Stockholder Meeting") as promptly as practicable for the purpose of
considering and voting on the approval and adoption of this Agreement, the
Merger and the other transactions provided for in this Agreement. Except to
the extent legally required for the discharge by the Board of Directors of its
fiduciary duties as advised by such Board's counsel, the Board of Directors of
Target shall (i) recommend at the Stockholder Meeting that the stockholders
vote in favor of and approve the transactions provided for in this Agreement
and (ii) use its reasonable best efforts to solicit such approvals.
Section 4.9. Proxy Statement.
(a) For the purposes of holding the Stockholder Meeting,
Acquiror and Target shall prepare and Target shall file with the SEC as soon
as practicable after the date hereof, a proxy statement satisfying the
applicable requirements in all material respects of the Exchange Act and the
rules and regulations thereunder (such proxy statement in the form mailed by
Target to Target stockholders, the "Proxy Statement"). Each of Acquiror and
Target shall use all reasonable efforts to cause the Proxy Statement to be
cleared by the SEC as promptly as practicable after such filing, and Target
shall use all reasonable efforts to cause the Proxy Statement to be mailed to
Target's stockholders as promptly as practicable after the Proxy Statement is
cleared by the SEC. The Proxy Statement shall be approved by Target's Board
of Directors.
(b) No amendment or supplement to the Proxy Statement will be
made by Target without Acquiror's approval, which approval will not be
unreasonably withheld. Target shall notify Acquiror promptly of the receipt
of any comments of the SEC with respect to the Proxy Statement and of any
requests by the SEC for any amendment or supplement thereto or for additional
information and shall provide promptly to Acquiror copies of all
correspondence between Target or any representative of Target and the SEC.
Target shall give Acquiror and its counsel the opportunity to review and
comment on all amendments and supplements to the Proxy Statement and all
responses to requests for additional information and replies to comments prior
to their being filed with, or sent to, the SEC.
(c) Target and Acquiror shall promptly notify the other party if
at any time it becomes aware that the Proxy Statement contains any untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements contained therein, in light
of the circumstances under which they were made, not misleading. In such
event, Target and Acquiror shall cooperate with each other in the preparation
of a supplement or amendment to such Proxy Statement which corrects such
misstatement or omission and Target shall mail an amended Proxy Statement to
Target's stockholders.
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Section 4.10. Notification of Certain Matters. Target shall
give prompt notice to Acquiror of: (i) any event or notice of, or other
communication relating to, a default or event that, with notice or lapse of
time or both, would become a default, received by Target or Target Bank
subsequent to the date of this Agreement and prior to the Effective Time,
under any contract material to the financial condition, properties, businesses
or results of operations of Target and Target Bank taken as a whole to which
Target or Target Bank is a party or is subject; and (ii) any event, condition,
change or occurrence which individually or in the aggregate has, or which, so
far as reasonably can be foreseen at the time of its occurrence, is reasonably
likely to result in a Material Adverse Effect with respect to Target or which
would have been required to be disclosed by Target on a schedule to this
Agreement had such event, condition, change or occurrence been known at the
time such party delivered its disclosure schedules; provided, however, that no
notice provided pursuant to this Section 4.10 shall affect or be deemed to
modify any representation or warranty made herein. Each of Target and
Acquiror shall give prompt notice to the other party of any (i) notice or
other communication from any third party alleging that the consent of such
third party is or may be required in connection with any of the transactions
contemplated by this Agreement and (ii) the occurrence or non-occurrence of
any fact or event which would be reasonably likely to cause any representation
or warranty contained in this Agreement to be untrue or inaccurate in any
material respect at any time from the date hereof to the Effective Time or to
cause any covenant, condition or agreement under this Agreement not to be
complied with or satisfied in all material respects.
Section 4.11. Employees, Directors and Officers.
(a) All persons who are employees of Target Bank immediately
prior to the Effective Time and whose employment is not specifically
terminated at or prior to the Effective Time (a "Continuing Employee") shall,
at the Effective Time, become employees of Acquiror Bank; provided, however,
that in no event shall any of Target's employees be officers of Acquiror Bank,
or have or exercise any power or duty conferred upon such an officer, unless
and until duly elected or appointed to such position in accordance with the
bylaws of Acquiror Bank. All of the Continuing Employees shall be employed at
the will of Acquiror Bank and no contractual right to employment shall inure
to such employees because of this Agreement.
(b) As of the Effective Time, each Target employee who is a
participant in the Target Pension Plan shall become fully vested in his or her
accrued benefit in the Target Pension Plan and the Target Pension Plan will
either be merged into the pension plan of Acquiror Bank (the "Acquiror Bank
Pension Plan") effective as of a date following the Effective Time selected by
Acquiror Bank or, if so elected by Acquiror Bank, terminated immediately prior
to, on, or after the Effective Time. The determination as to whether the
Target Pension Plan shall be terminated or merged into the Acquiror Bank
Pension Plan shall be made by Acquiror Bank. Effective as of the date of the
merger of the Target Pension Plan into the Acquiror Bank Pension Plan, if
applicable, or the termination of the Target Pension Plan (or the Effective
Time, if subsequent to such termination), if applicable, Continuing Employees
who are then participating in the Target Pension Plan shall become
participants in the Acquiror Bank Pension Plan. If the Target Pension Plan is
terminated, the service with Target and Target Bank shall not be recognized
for purposes of benefit accrual under the
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Acquiror Bank Pension Plan. Except as set forth above in this paragraph, once
a Continuing Employee becomes a participant in the Acquiror Bank Pension Plan,
such Continuing Employee's service with Target and Target Bank shall be
treated as service with Acquiror Bank for purposes of determining eligibility,
vesting and benefit accrual, to the extent that such recognition of service
would not result in a duplication of benefits.
(c) Immediately following the Effective Time, each Continuing
Employee shall be eligible to participate in the Acquiror Bank 401(k) Plan
and, subject to Section 4.11(b), the Acquiror Bank Pension Plan, on the same
basis as any newly hired employee of Acquiror Bank (it being understood that
inclusion of eligible Continuing Employees in the Acquiror Bank 401(k) Plan
may occur at different times with respect to different employees); provided,
however, that except as otherwise provided for in this paragraph, for purposes
of determining eligibility and vesting for purposes of the Acquiror Bank
401(k) Plan, each eligible Continuing Employee's service with Target and
Target Bank shall be treated as service with Acquiror Bank to the extent that
such recognition of service would not result in a duplication of benefits.
(d) As of the Effective Time, Acquiror shall make available
employer-provided health insurance to each Continuing Employee on the same
basis as it provides such coverage to Acquiror employees except that any pre-
existing condition, eligibility waiting period or other limitations or
exclusions otherwise applicable under such plans to new employees shall not
apply to a Continuing Employee or their covered dependents who were covered
(without such limitation) under a similar Target plan on the Effective Date of
the Merger.
(e) As of the Effective Time, participation in the Acquiror Bank
Long-Term Disability Plan, Life Insurance Program and Employee Assistance
Program shall be made available to each Continuing Employee on the same basis
as Acquiror provides to Acquiror Bank employees, except that service with
Target and Target Bank by such Continuing Employees shall be considered as
service with Acquiror Bank for purposes of any eligibility waiting period or
other limitation or exclusions otherwise applicable under such plans.
(f) After the Effective Time, Continuing Employees shall be
eligible to participate in Acquiror Bank's bonus incentive plans, commencing
at the beginning of the next bonus payout period commencing after the
Effective Time, on the same basis as other employees of Acquiror Bank.
(g) Continuing Employees shall retain their unused vacation and
sick leave to which they were entitled at Target Bank for use at Acquiror Bank
in accordance with the practices and policies of Acquiror Bank. Effective on
the later of January 1, 2001 or the beginning of the first calendar quarter
after the Effective Time, Continuing Employees shall be entitled to
participate in Acquiror Bank's vacation and sick leave plans on the same basis
as Acquiror Bank employees, and such Continuing Employees shall be credited
with their service with Target and Target Bank for purposes of the level of
vacation and sick leave benefits to which they would be entitled. Employees
of Target Bank whose employment is terminated at or prior to the Effective
Time shall be entitled to receive
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payment for accrued but unused personal, vacation and sick leave to
the same extent as they would be entitled to such payment by Target Bank upon
termination of employment or year end. Target's Disclosure Letter sets forth
the number of personal days, sick days and vacation days that each such
employee is expected to accrue during 2000.
(h) The Target Employee Stock Ownership Plan ("Target ESOP")
shall be amended to provide for its termination as of the Effective Time and
all ESOP Participants shall fully vest and have a nonforfeitable interest in
their accounts under the Target ESOP as of the termination date. In
connection with its termination, the Target ESOP, as amended, shall provide
that the trustee shall use cash consideration received from Acquiror for the
unallocated shares of Target Common Stock held in the Target ESOP to repay the
loan to the Target ESOP in full and that any unallocated portion of the
consideration remaining after repayment of the loan to the Target ESOP shall
be allocated to the accounts of participants and beneficiaries (such
individuals hereinafter referred as the "ESOP Participants") as earnings and
not as "annual additions." Acquiror agrees not to amend the Target ESOP
subsequent to the Effective Time in any manner that would change or expand the
class of persons entitled to receive benefits under the Target ESOP. From and
after the date hereof, in anticipation of such termination, Acquiror and
Target shall use their best efforts to apply for and obtain a favorable
determination letter from the IRS as to the tax-qualified status of the Target
ESOP upon its termination under Sections 401(a) and 4975(e)(7) of the Code
(the "Final Determination Letter") and may amend the Target ESOP to the extent
necessary to do so. Following the receipt of the Final Determination Letter,
distributions of the account balances under the Target ESOP shall be made
promptly to the ESOP Participants. In the event that Acquiror and Target,
prior to the Effective Time, and Acquiror after the Effective Time, reasonably
determine that the Target ESOP cannot obtain favorable Final Determination
Letter, or that the amounts held therein cannot be allocated or distributed in
accordance with the terms of the Target ESOP, as amended, without causing the
Target ESOP to lose its tax-qualified status, Target prior to the Effective
Time and Acquiror after the Effective Time shall take such action as they may
reasonably determine with respect to the allocation and distribution of
account balances to the ESOP Participants, provided that the assets of the
Target ESOP shall be held or paid solely for the benefit of the ESOP
Participants and provided further that in no event shall any portion of the
amounts held in the Target ESOP revert, directly or indirectly, to Target or
any affiliate thereof, or to Acquiror or any affiliate thereof. The current
administrator of the Target ESOP, or another administrator selected by Target,
shall continue to administer the Target ESOP subsequent to the Effective
Time, and the current Trustee of the Target ESOP, or such other trustee(s)
selected by Target or the administrators, shall continue to be the Trustee
subsequent to the Effective Time, until all assets have been distributed from
the plan. Continuing Employees shall have no right to participate in Acquiror
Bank's ESOP, except to the extent that such participation would be required
under applicable law.
(i) Except as otherwise provided in this Agreement, Acquiror
agrees to honor in accordance with their terms the plans, contracts,
arrangements, commitments or understandings disclosed in Section 4.11(i) of
Target's Disclosure Letter, including with respect to benefits which vest or
are otherwise accrued or payable as a result of the consummation of the
transactions contemplated by this Agreement. Acquiror acknowledges and agrees
that the receipt of all required
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regulatory approvals for consummation of the Merger constitutes a change in
control for purposes of the plans, contracts, arrangements, commitments or
understandings, which specifically provide that such action constitutes a
change in control, and which are disclosed in Section 4.11(i) of Target's
Disclosure Letter. Set forth in Target's Disclosure Letter in reasonable
detail are estimates of the payments and benefits due under Target's
employment agreements, change in control agreements and severance plan. It is
intended by Acquiror and Target that the procedures and methodologies used in
preparing such estimates shall be followed in determining the actual payments
or benefits due under such agreements as of the Effective Time.
(j) Subject to Section 1.4(b),Target shall use its best efforts
to obtain from each holder of a Target Option and to deliver to Acquiror at or
before the Closing (as defined in Section 7.1) an agreement to the
cancellation of such holder's Target Options in exchange for a cash payment as
described in Section 1.4.
(k) The employees of Security may be paid bonuses immediately
prior to the Effective Time which in the aggregate shall not exceed $20,000.
Such bonuses, on an individual basis, shall be determined by Target.
(l) Acquiror agrees to use its best efforts to cause three
members of Target's Board of Directors as disclosed in Target's Disclosure
Letter to be appointed as directors of Acquiror Bank as of the Effective Time
(such appointments to be evenly distributed among classes of Acquiror Bank
directors).
(m) Acquiror agrees to use its best efforts to cause one member
of Target's Board of Directors as disclosed in Target's Disclosure Letter to
be appointed as a director of Northeast Pennsylvania Trust Co. as of the
Effective Time.
Section 4.12. Indemnification.
(a) From and after the Effective Time, Acquiror (and any
successor) agrees to indemnify and hold harmless each present and former
director and officer of Target and Target Bank and each officer or employee of
Target and Target Bank that is serving or has served as a director, trustee,
officer, employee or agent of another entity expressly at Target's request or
direction (each, an "Indemnified Party"), against any costs or expenses
(including reasonable attorneys' fees), judgments, fines, amounts paid in
settlement, losses, claims, damages or liabilities (collectively, "Costs")
incurred in connection with any claim, action, suit, proceeding or
investigation, whether civil, 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 after the Effective Time, and to advance any such Costs to
each Indemnified Party as they are from time to time incurred, in each case to
the fullest extent such Indemnified Party would have been permitted to be
indemnified as a director, officer or employee of Target and Target Bank under
the Certificate of Incorporation, Articles of Incorporation or Bylaws of the
Target and Target Bank (in the form in effect as of the date of the Agreement)
and under the DGCL (as in effect at the Effective Time).
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(b) Any Indemnified Party wishing to claim indemnification under
Section 4.12(a), upon learning of any such claim, action, suit, proceeding or
investigation, shall promptly notify Acquiror thereof, but the failure to so
notify shall not relieve Acquiror of any liability it may have hereunder to
such Indemnified Party if such failure does not materially and substantially
prejudice Acquiror. In the event of any such claim, action, suit, proceeding
or investigation: (i) Acquiror shall have the right to assume the defense
thereof with counsel reasonably acceptable to the Indemnified Party and
Acquiror shall not be liable to such Indemnified Party for any legal expenses
of other counsel subsequently incurred by such Indemnified Party in connection
with the defense thereof, except that if Acquiror does not elect to assume
such defense within a reasonable time or counsel for the Indemnified Party at
any time advises that there are issues which raise conflicts of interest
between Acquiror and the Indemnified Party (and counsel for Acquiror does not
disagree), the Indemnified Party may retain counsel satisfactory to such
Indemnified Party, and Acquiror shall remain responsible for the reasonable
fees and expenses of such counsel as set forth above, to be paid promptly as
statements therefor are received; provided, however, that Acquiror shall be
obligated pursuant to this paragraph (b) to pay for only one firm of counsel
for all Indemnified Parties in any one jurisdiction with respect to any given
claim, action, suit, proceeding or investigation unless the use of one counsel
for such Indemnified Parties would present such counsel with a conflict of
interest; (ii) the Indemnified Party will reasonably cooperate in the defense
of any such matter; and (iii) Acquiror shall not be liable for any settlement
effected by an Indemnified Party without its prior written consent, which
consent may not be withheld unless such settlement is unreasonable in light of
such claims, actions, suits, proceedings or investigations against, or
defenses available to, such Indemnified Party.
(c) Acquiror shall pay all reasonable Costs, including
attorneys' fees, that may be incurred by any Indemnified Party in successfully
enforcing the indemnity and other obligations provided for in this Section
4.12 to the fullest extent permitted by law. The rights of each Indemnified
Party hereunder shall be in addition to any other rights such Indemnified
Party may have under applicable law.
(d) Acquiror shall maintain Target's existing directors and
officers' insurance policy (or provide a policy providing comparable coverage
and amounts on terms no less favorable to the persons currently covered by
Target's existing policy, including Acquiror's existing policy if its meets
the foregoing standard) covering persons who are currently covered by such
insurance for a period of three years after the Effective Date; provided,
however, that Acquiror shall not be required to expend annually for such
insurance amounts in excess of 150% of the per annum premiums paid by Target
for the policy year that includes the date of this Agreement, and provided
further, that if the annual premiums for such insurance exceed such 150%
amount, then Acquiror shall be obligated to obtain the most advantageous
coverage of directors' and officers' insurance obtainable for a cost not
exceeding such 150% amount, and provided that the officers and directors
of Target may be required to make applications and provide customary
representations and warranties to Acquiror's insurance carrier for the purpose
of obtaining such insurance.
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(e) In the event Acquiror or any of its successors or assigns
(i) consolidates with or merges into any other person or entity and shall not
be the continuing or surviving corporation or entity of such consolidation or
merger or (ii) transfers or conveys all or substantially all of its properties
and assets to any person or entity, then, and in each such case, to the extent
necessary, proper provision shall be made so that the successors and assigns
of Acquiror assume the obligations set forth in this Section 4.12.
(f) The provisions of this Section 4.12 are intended to be for
the benefit of, and shall be enforceable by, each Indemnified Party and his or
her representatives.
ARTICLE V
CONDITIONS TO CONSUMMATION
Section 5.1. Conditions to Each Party's Obligations. The
respective obligations of each party to effect the Merger, the Bank Merger and
any other transactions contemplated by this Agreement shall be subject to the
satisfaction of the following conditions:
(a) Stockholder Approval. This Agreement shall have been
approved by the requisite vote of Target's stockholders in accordance with
applicable laws and regulations.
(b) Regulatory Approvals. All approvals, consents or waivers of
any Governmental Entity required to permit consummation of the transactions
contemplated by this Agreement shall have been obtained and shall remain in
full force and effect, and all statutory waiting periods shall have expired;
provided, however, that none of such approvals, consents or waivers shall
contain any condition or requirement that would so materially and adversely
impact the economic or business benefits to Acquiror of the transactions
contemplated hereby that, had such condition or requirement been known,
Acquiror would not, in its reasonable judgment, have entered into this
Agreement.
(c) No Injunctions or Restraints; Illegality. No party hereto
shall be subject to any order, decree or injunction of a court or agency of
competent jurisdiction that enjoins or prohibits the consummation of the
Merger or the Bank Merger and no Governmental Entity shall have instituted any
proceeding for the purpose of enjoining or prohibiting the consummation of the
Merger, the Bank Merger, or any transactions contemplated by this Agreement.
No statute, rule or regulation shall have been enacted, entered, promulgated
or enforced by any Governmental Entity which prohibits, restricts or makes
illegal consummation of the Merger or the Bank Merger.
Section 5.2. Conditions to the Obligations of Acquiror. The
obligations of Acquiror to effect the Merger, the Bank Merger and any other
transactions contemplated by this Agreement shall be further subject to the
satisfaction of the following additional conditions:
(a) Representations and Warranties; Performance of Obligations.
Each of the obligations of Target required to be performed by it at or prior
to the Closing pursuant to the terms of this Agreement shall have been duly
performed and complied with in all material respects and the
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representations and warranties of Target contained in this Agreement shall be
true and correct in all material respects, subject to Section 2.1, as of the
date of this Agreement and as of the Effective Time as though made at and as
of the Effective Time (except as to any representation or warranty which
specifically relates to an earlier date), and Acquiror shall have received a
certificate to the foregoing effect signed by the chief executive officer and
the chief financial or principal accounting officer of Target.
(b) Third Party Consents. Target shall have obtained the
consent or approval of each person (other than the governmental approvals or
consents referred to in Section 5.1(b)) whose consent or approval shall be
required in order to permit the succession by Acquiror to any obligation,
right or interest of Target under any loan or credit agreement, note,
mortgage, indenture, lease, license or other agreement or instrument to which
Target or Target Bank is a party or is otherwise bound, except those for which
failure to obtain such consents and approvals would not, individually or in
the aggregate, have a Material Adverse Effect on Acquiror or upon the
consummation of the transactions contemplated hereby.
(c) Dissenters' Shares. On the Closing Date, Dissenters' Shares
shall not constitute more than 15% of the outstanding shares of Target Common
Stock.
(d) Good Standing and Other Certificates. Acquiror shall have
received certificates (such certificates to be dated as of a day as close as
practicable to the Closing Date) from appropriate authorities as to the
corporate existence of Target and Target Bank and such other documents and
certificates to evidence fulfillment of the conditions set forth in Sections
5.1 and 5.2 as Acquiror may reasonably require.
Section 5.3. Conditions to the Obligations of Target. The
obligations of Target to effect the Merger, the Bank Merger and any other
transactions contemplated by this Agreement shall be further subject to the
satisfaction of the following additional conditions:
(a) Representations and Warranties; Performance of Obligations.
Each of the obligations of Acquiror required to be performed by it at or prior
to the Closing pursuant to the terms of this Agreement shall have been duly
performed and complied with in all material respects and the representations
and warranties of Acquiror contained in this Agreement shall be true and
correct in all material respects, subject to Section 2.1, as of the date of
this Agreement and as of the Effective Time as though made at and as of the
Effective Time (except as to any representation or warranty which specifically
relates to an earlier date), and Target shall have received a certificate to
the foregoing effect signed by the chief executive officer and the chief
financial or principal accounting officer of Acquiror.
(b) Deposit of Merger Consideration. Acquiror shall have
deposited with the Paying Agent sufficient cash to pay the aggregate Merger
Consideration and Target shall have received a certificate from the Paying
Agent to such effect.
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(c) Good Standing and Other Certificates. Target shall have
received certificates (such certificates to be dated as of a day as close as
practicable to the Closing Date) from appropriate authorities as to the
corporate existence of Acquiror and such other documents and certificates to
evidence fulfillment of the conditions set forth in Sections 5.1 and 5.3 as
Target may reasonably require.
ARTICLE VI
TERMINATION
Section 6.1. Termination. This Agreement may be terminated,
and the Merger abandoned, at or prior to the Effective Date, either before or
after any requisite stockholder approval:
(a) by the mutual consent of Acquiror and Target in a written
instrument, if the Board of Directors of each so determines by vote of a
majority of the members of its entire Board; or
(b) by either Acquiror or Target, in the event of the failure of
the stockholders of Target to approve the Agreement at the Stockholder
Meeting; provided, however, that Target shall only be entitled to terminate
the Agreement pursuant to this clause if it has complied in all material
respects with its obligations under Section 4.8 and Section 4.9; or
(c) by either Acquiror or Target, if either (i) any approval,
consent or waiver of a governmental agency required to permit consummation of
the transactions contemplated hereby shall have been denied or (ii) any
governmental authority of competent jurisdiction shall have issued a final,
unappealable order enjoining or otherwise prohibiting consummation of the
transactions contemplated by this Agreement; or
(d) by either Acquiror or Target, in the event that the Merger
is not consummated by December 31, 2000, unless the failure to so consummate
by such time is due to the breach of any representation, warranty or covenant
contained in this Agreement by the party seeking to terminate; or
(e) by either Acquiror or Target (provided that the party
seeking termination is not then in material breach of any representation,
warranty, covenant or other agreement contained herein), in the event of (i) a
failure to perform or comply by the other party with any covenant or agreement
of such other party contained in this Agreement, which failure or non-
compliance is material in the context of the transactions contemplated by this
Agreement, or (ii) any inaccuracies, omissions or breach in the
representations, warranties, covenants or agreements of the other party
contained in this Agreement the circumstances as to which either individually
or in the aggregate have, or reasonably could be expected to have, a Material
Adverse Effect on such other party; in either case which has not been or
cannot be cured within 30 calendar days after written notice thereof is given
by the party seeking to terminate to such other party; or
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(f) by Acquiror, if the Board of Directors of Target does not
publicly recommend in the Proxy Statement that stockholders approve and adopt
this Agreement and the Merger or if, after recommending in the Proxy Statement
that stockholders approve and adopt this Agreement and the Merger, the Board
of Directors of Target shall have withdrawn, qualified or revised such
recommendation in any respect materially adverse to Acquiror, the Target shall
have breached its obligations under Section 4.1 or a tender offer or exchange
offer for 20% or more of the outstanding shares of stock of the Target is
commenced and the Board of Directors of the Target fails to recommend against
acceptance of such tender offer or exchange offer by its stockholders
(including by taking no position with respect to the acceptance of such tender
offer or exchange offer by its stockholders).
Section 6.2. Expenses. (a) Except as set forth in Section
6.3, all expenses incurred in connection with this Agreement and the
transactions contemplated by this Agreement shall be paid by the party
incurring such expenses, whether or not the Merger or any other transaction is
consummated. "Expenses," as used in this Agreement, shall include all
reasonable out-of-pocket expenses (including, without limitation, all fees and
expenses of counsel, accountants, investment bankers, experts and consultants
to a party hereto and its affiliates) incurred or accrued by a party or on its
behalf in connection with or related to the authorization, preparation,
negotiation, execution and performance of this Agreement, the preparation,
printing, filing and mailing of the Proxy Statement, the solicitation of
stockholder approvals (including, without limitation, any advertising
expenses), any required filings and all other matters related to the closing
of the Merger and the other transactions contemplated by this Agreement.
Section 6.3. Termination Fee. In recognition of the efforts,
expenses and other opportunities foregone by Acquiror while structuring the
Merger, the parties hereto agree that:
(a) Target shall pay to Acquiror a termination fee of three
hundred thousand dollars ($300,000) in cash on demand if, within 12 months
after the date of this Agreement, after a bona fide proposal is made after the
date of this Agreement by a third party to Target or its stockholders to
engage in an Acquisition Transaction (as defined in Section 8.1), which bona
fide proposal has not been publicly and irrevocably withdrawn prior to the
stockholder meeting, any of the following occur:
(i) Target shall have willfully breached any covenant or
obligation contained in this Agreement and such breach would entitle Acquiror
to terminate the Agreement;
(ii) the stockholder meeting shall not have been held or
shall have been canceled prior to termination of the Agreement, or, if such
bona fide proposal is made public and has not been publicly withdrawn prior to
such stockholder meeting, the stockholders of Target shall not have approved
the Agreement at the stockholder meeting; or
(iii) Target's Board of Directors shall have withdrawn or
modified in a manner adverse to Acquiror the recommendation of Target's Board
of Directors with respect to the Agreement; and
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(b) Target shall pay to Acquiror a termination fee of nine
hundred thousand dollars ($900,000), in cash on demand if, during a period of
18 months after the date hereof, Target or Target Bank, without having
received Acquiror's prior written consent, shall have entered into an
agreement to engage in an Acquisition Transaction (as defined in Section 8.1)
with any person other than Acquiror or any of its Subsidiaries or the Board of
Directors of Target shall have recommended that the stockholders of Acquiror
approve or accept an Acquisition Transaction with any person other than
Acquiror or any of its Subsidiaries. Any fee payable to Acquiror pursuant to
this Section 6.3(b) shall be reduced dollar for dollar to the extent that any
fee is actually paid pursuant to Section 6.3(a). Notwithstanding the
foregoing, Target shall not be obligated to pay to Acquiror the termination
fee described in Section 6.3(a) or Section 6.3(b) in the event that at or
prior to such time as such fee becomes payable (i) Acquiror and Target validly
terminate this Agreement pursuant to Section 6.1(a), (ii) Acquiror or Target
validly terminates this Agreement pursuant to Sections 6.1(c) or 6.1(d),
(iii) Target validly terminates this Agreement pursuant to Section 6.1(e), or
(iv) Target validly terminates this Agreement pursuant to Section 6.1(b) prior
to the time an Acquisition Proposal (as defined in Section 4.1(b)) has been
made.
Section 6.4. Effect of Termination. In the event of
termination of this Agreement by either Acquiror or Target prior to the
consummation of the Merger as provided in Section 6.1, this Agreement shall
forthwith become void and, subject to Section 6.3, have no effect and there
shall be no liability on the part of any party hereto or their respective
officers and directors, except (i) the obligations of the parties under
Sections 4.3 (with respect to confidentiality), and 8.6 shall survive any
termination of this Agreement and (ii) that notwithstanding anything to the
contrary contained in this Agreement, no party shall be relieved or released
from any liabilities or damages arising out of its willful breach of any
provision of this Agreement.
ARTICLE VII
CLOSING, EFFECTIVE DATE AND EFFECTIVE TIME
Section 7.1. Effective Date and Effective Time. The closing
of the transactions contemplated hereby ("Closing") shall take place at the
offices of Muldoon, Murphy & Faucette LLP, 5101 Wisconsin Avenue, N.W.,
Washington, DC 20016, unless another place is agreed to by Acquiror and
Target, on a date designated by Acquiror ("Closing Date") that is no later
than the later of October 5, 2000 or 14 days following the date on which the
expiration of the last applicable waiting period in connection with notices to
and approvals of governmental authorities shall occur and all conditions to
the consummation of this Agreement are satisfied or waived (excluding
conditions that, by their nature, cannot be satisfied until the Closing Date),
or on such other date as may be agreed to by the parties. Prior to the
Closing Date, Acquisition Sub and Target shall execute a certificate of merger
in accordance with all appropriate legal requirements, which shall be filed as
required by law on the Closing Date, and the Merger provided for therein shall
become effective upon such filing or on such date as may be specified in such
certificate of merger. The date of such filing or such later effective date
as specified in the certificate of merger is herein referred to as the
"Effective Date." The "Effective Time" of the Merger shall be as set forth in
the certificate of merger.
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Section 7.2. Deliveries at the Closing. Subject to the
provisions of Articles V and VI, on the Closing Date there shall be delivered
to Acquiror and Target the documents and instruments required to be delivered
under Article V.
ARTICLE VIII
CERTAIN OTHER MATTERS
Section 8.1. Certain Definitions; Interpretation. As used in
this Agreement, the following terms shall have the meanings indicated:
"Acquisition Transaction" means any of the following (other than the
transactions contemplated hereunder) involving Target or any of its
Subsidiaries: (i) any merger, consolidation, share exchange, business
combination, or other similar transaction; (ii) any sale, lease, exchange,
mortgage, pledge, transfer or other disposition of 25% or more of its
consolidated assets in a single transaction or series of transactions; or (iii)
any tender offer or exchange offer for 25% or more of the outstanding shares of
its capital stock or the filing of a registration statement under the Securities
Act in connection therewith;
"material" means material to Acquiror or Target (as the case may be)
and its respective subsidiaries, taken as a whole.
"Material Adverse Effect" means an effect which is material and
adverse to the business, financial condition or results of operations of Target
and Target Bank taken as a whole or Acquiror and its subsidiaries taken as a
whole, as the case may be; provided, however, that any such effect resulting
from any (i) changes in laws, rules or regulations or GAAP or regulatory
accounting requirements or interpretations thereof that apply to Target and
Target Bank or Acquiror and Acquiror Bank, as the case may be, or to similarly
situated financial and/or depository institutions, (ii) changes in economic
conditions affecting financial institutions generally, including but not
limited to, changes in the general level of market interest rates, (iii)
expenses incurred in connection with the transactions contemplated hereby, or
(iv) actions or omissions of a party (or any of its subsidiaries) taken with
the prior written consent of the other party or parties in contemplation of the
transactions contemplated hereby shall not be considered in determining if a
Material Adverse Effect has occurred.
"knowledge" shall mean, with respect to a party hereto, actual
knowledge of any of the members of the Board of Directors of that party or any
officer of that party with the title ranking not less than senior vice
president.
"person" includes an individual, corporation, limited liability
company, partnership, association, trust or unincorporated organization.
When a reference is made in this Agreement to Sections or Exhibits,
such reference shall be to a Section of, or Exhibit to, this Agreement unless
otherwise indicated. The table of contents and
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headings contained in this Agreement are for ease of reference only and shall
not affect the meaning or interpretation of this Agreement. Whenever the
words "include," "includes" or "including" are used in this Agreement, they
shall be deemed followed by the words "without limitation." Any singular
term in this Agreement shall be deemed to include the plural, and any plural
term the singular. Any reference to gender in this Agreement shall be deemed
to include any other gender.
Section 8.2. Survival. Only those agreements and covenants of
the parties that are by their terms applicable in whole or in part after the
Effective Time, including Sections 1.3, 1.4, 4.3, 4.11 and 4.12 of this
Agreement, shall survive the Effective Time. All other representations,
warranties, agreements and covenants shall be deemed to be conditions of the
Agreement and shall not survive the Effective Time.
Section 8.3. Waiver; Amendment. Prior to the Effective Time,
any provision of this Agreement may be (i) waived in writing by the party
benefitted by the provision or (ii) amended or modified at any time (including
the structure of the transaction) by an agreement in writing between the parties
hereto except that, after the vote by the stockholders of Target, no amendment
or modification may be made that would reduce the amount or alter or change the
kind of consideration to be received by holders of Target Common Stock or
contravene any provision of the DGCL or the Pennsylvania and federal banking
laws, rules and regulations.
Section 8.4. Counterparts. This Agreement may be executed in
counterparts each of which shall be deemed to constitute an original, but all of
which together shall constitute one and the same instrument.
Section 8.5. Governing Law. This Agreement shall be governed
by, and interpreted in accordance with, the laws of the State of Delaware,
without regard to conflicts of laws principles.
Section 8.6. Expenses. Each party hereto will bear all expenses
incurred by it in connection with this Agreement and the transactions
contemplated hereby.
Section 8.7. Notices. All notices, requests, acknowledgments
and other communications hereunder to a party shall be in writing and shall be
deemed to have been duly given when delivered by hand, overnight courier or
facsimile transmission (confirmed in writing) to such party at its address or
facsimile number set forth below or such other address or facsimile transmission
as such party may specify by notice (in accordance with this provision) to the
other party hereto.
If to Target, to:
Security of Pennsylvania Financial Corp.
31 W. Broad Street
Hazleton, Pennsylvania 18201
Attn: Richard C. Laubach
Facsimile: (570) 455-9803
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With copies to:
John P. Soukenik, Esq.
Elias, Matz, Tiernan & Herrick L.L.P.
734 15th Street, N.W.
12th Floor
Washington, D.C. 20005
Facsimile: (202) 393-0105
If to Acquiror, to:
Northeast Pennsylvania Financial Corp.
12 E. Broad Street
Hazleton, Pennsylvania 18201
Attn: E. Lee Beard
Facsimile: (570) 459-3734
With copies to:
Douglas P. Faucette, Esq.
Thomas J. Haggerty, Esq.
Muldoon, Murphy & Faucette LLP
5101 Wisconsin Avenue, N.W.
Washington, D.C. 20016
Facsimile: (202) 966-9409
Section 8.8. Entire Agreement; etc. This Agreement, together
with the Plan of Bank Merger, any Exhibit and the Disclosure Letters,
represents the entire understanding of the parties hereto with reference to the
transactions contemplated hereby and supersedes any and all other oral or
written agreements heretofore made. All terms and provisions of this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors and assigns. Except for Sections 1.3, 1.4, 4.11
and 4.12, which confer rights on the parties described therein, nothing in this
Agreement is intended to confer upon any other person any rights or remedies of
any nature whatsoever under or by reason of this Agreement.
Section 8.9. Successors and Assigns; Assignment. This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns; provided, however, that this
Agreement may not be assigned by either party hereto without the written consent
of the other party.
Section 8.10 Arbitration. Any dispute or controversy
arising under or in connection with this Agreement shall be settled exclusively
by arbitration, conducted before a panel of three arbitrators sitting in a
location to be mutually agreed upon by Acquiror and Target within fifty (50)
A-49
miles from the location of Acquiror and Target, in accordance with the rules of
the American Arbitration Association then in effect. Judgment may be entered on
the arbitrator's award in any court having jurisdiction.
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In Witness Whereof, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the date first above written.
NORTHEAST PENNSYLVANIA
FINANCIAL CORP.
By:
-------------------------------------
President and Chief Executive Officer
NORTHEAST ACQUISITION, INC.
By:
-------------------------------------
President and Chief Executive Officer
SECURITY OF PENNSYLVANIA
FINANCIAL CORP.
By:
-------------------------------------
President and Chief Executive Officer
A-51
APPENDIX B
July ___, 2000
Board of Directors
Security of Pennsylvania Financial Corp.
31 West Broad Street
Hazleton, PA 18201
Gentlemen:
Security of Pennsylvania Financial Corp. ("Security"), Northeast
Pennsylvania Financial Corp. ("Northeast Pennsylvania") and Northeast
Acquisition, Inc. ("Acquisition Sub") have entered into an Agreement and Plan
of Merger, dated as of June 2, 2000 (the "Agreement"), pursuant to which
Acquisition Sub will be merged with and into Security (the "Merger"). Upon
consummation of the Merger, each share of Security common stock, par value
$.01 per share, issued and outstanding immediately prior to the Merger (the
"Security Shares"), other than certain shares specified in the Agreement, will
be converted into the right to receive $17.50 in cash, without interest (the
"Merger Consideration"). The terms and conditions of the Merger are more
fully set forth in the Agreement. You have requested our opinion as to the
fairness, from a financial point of view, of the Merger Consideration to the
holders of Security Shares.
Sandler O'Neill & Partners, L.P., as part of its investment banking
business, is regularly engaged in the valuation of financial institutions and
their securities in connection with mergers and acquisitions and other
corporate transactions. In connection with this opinion, we have reviewed,
among other things: (i) the Agreement and exhibits thereto; (ii) certain
publicly available financial statements and other historical financial
information of Security that we deemed relevant; (iii) certain publicly
available financial statements and other historical financial information of
Northeast Pennsylvania that we deemed relevant; (iv) certain internal
financial analyses and forecasts of Security prepared by and reviewed with
management of Security and the views of senior management of Security, based
on certain limited discussions with certain members of senior management,
regarding Security's business, financial condition, results of operations and
future prospects; (v) certain internal financial analyses and forecasts of
Northeast Pennsylvania prepared by and reviewed with management of Northeast
Pennsylvania and the views of senior management of Northeast Pennsylvania,
based on certain limited discussions with certain members of Northeast
Pennsylvania, regarding Northeast Pennsylvania's business, financial
condition, results of operations and future prospects; (vi) the publicly
reported historical
B-1
Board of Directors
Security of Pennsylvania Financial Corp.
July __, 2000
Page 2
price and trading activity for Security's and Northeast Pennsylvania's common
stock, including a comparison of certain financial and stock market
information for Security and Northeast Pennsylvania with similar publicly
available information for certain other companies the securities of which are
publicly traded; (vii) the financial terms of recent business combinations in
the savings institution industry, to the extent publicly available; (viii) the
current market environment generally and the banking environment in
particular; and (ix) such other information, financial studies, analyses and
investigations and financial, economic and market criteria as we considered
relevant.
In performing our review, we have assumed and relied upon the accuracy
and completeness of all the financial information, analyses and other
information that was publicly available or otherwise furnished to, reviewed by
or discussed with us, and we do not assume any responsibility or liability for
independently verifying the accuracy or completeness thereof. We did not make
an independent evaluation or appraisal of the specific assets, the collateral
securing assets or the liabilities (contingent or otherwise) of Security or
Northeast Pennsylvania or any of their subsidiaries, or the collectibility of
any such assets, nor have we been furnished with any such evaluations or
appraisals. We did not make an independent evaluation of the adequacy of the
allowance for loan losses of Security or Northeast Pennsylvania nor have we
reviewed any individual credit files relating to Security or Northeast
Pennsylvania and, with your permission, we have assumed that the respective
allowances for loan losses for both Security and Northeast Pennsylvania are
adequate to cover such losses and will be adequate on a pro forma basis for
the combined entity. With respect to the financial projections prepared by
Security's and Northeast Pennsylvania's respective managements, we have
assumed that they have been reasonably prepared on bases reflecting the best
currently available estimates and judgments of such managements of the future
financial performance of Security and Northeast Pennsylvania and that such
performance will be achieved, and we express no opinion as to such financial
projections or the assumptions on which they are based. We have also assumed
that there has been no material change in Security's or Northeast
Pennsylvania's assets, financial condition, results of operations, business or
prospects since the date of the most recent financial statements made
available to us. We have assumed in all respects material to our analysis
that Security and Northeast Pennsylvania will remain as going concerns for all
periods relevant to our analyses, that all of the representations and
warranties contained in the Agreement and all related agreements are true and
correct, that each party to such agreements will perform all of the covenants
required to be performed by such party under such agreements, that the
conditions precedent in the Agreement are not waived and that the Merger will
be accounted for using the purchase method and will qualify as a tax-free
reorganization for federal income tax purposes.
B-2
Board of Directors
Security of Pennsylvania Financial Corp.
July __, 2000
Page 3
Our opinion is necessarily based on financial, economic, market and
other conditions as in effect on, and the information made available to us as
of, the date hereof. Events occurring after the date hereof could materially
affect this opinion. We have not undertaken to update, revise, reaffirm or
withdraw this opinion or otherwise comment upon events occurring after the
date hereof. We are expressing no opinion herein as to the prices at which
Security's common stock will trade at any time.
We have acted as Security's financial advisor in connection with the
Merger and will receive a fee for our services, a significant portion of which
is contingent upon consummation of the Merger. We have also received a fee
for rendering this opinion. In the past, we have also provided certain other
investment banking services for Security and have received compensation for
such services. As we have previously advised you, in the past we have also
provided, and expect to continue to provide, including during the period that
consummation of the Merger is pending, certain investment banking services for
Northeast Pennsylvania and have received, and will receive, compensation for
such services.
In the ordinary course of our business as a broker-dealer, we may also
purchase securities from and sell securities to Security and Northeast
Pennsylvania. We may also actively trade the equity securities of Security
and Northeast Pennsylvania for our own account and for the accounts of our
customers and, accordingly, may at any time hold a long or short position in
such securities.
Our opinion is directed to the Board of Directors of Security in
connection with its consideration of the Merger and does not constitute a
recommendation to any shareholder of Security as to how such shareholder
should vote at any meeting of shareholders called to consider and vote upon
the Merger. Our opinion is not to be quoted or referred to, in whole or in
part, in a registration statement, prospectus, proxy statement or in any other
document, nor shall this opinion be used for any other purposes, without
Sandler O'Neill's prior written consent; provided, however, that we hereby
consent to the inclusion of this opinion as an appendix to Security's Proxy
Statement dated the date hereof and to the references to this opinion therein.
Based upon and subject to the foregoing, it is our opinion that, as of
the date hereof, the Merger Consideration to be received by the holders of
Security Shares is fair to such shareholders from a financial point of view.
Very truly yours,
B-3
APPENDIX C
DELAWARE CODE ANNOTATED
TITLE 8. CORPORATIONS
CHAPTER 1. GENERAL CORPORATION LAW
SUBCHAPTER IX. MERGER OR CONSOLIDATION
SECTION 262 APPRAISAL RIGHTS.
(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 ordinary 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:
C-1
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
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;
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 subsection (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
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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, each constituent corporation, either before
the effective date of the merger or consolidation or within ten 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; provided that, if the notice is given on or after the effective date
of the merger or consolidation, such notice shall be given by the surviving or
resulting corporation to all such holders of any class or series of stock of a
constituent corporation that are entitled to appraisal rights. 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 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)
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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 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
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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, 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. (Last amended
by Ch. 339, L. '98, eff. 7-1-98.)
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/X/ PLEASE MARK VOTES REVOCABLE PROXY
AS IN THIS EXAMPLE SECURITY OF PENNSYLVANIA FINANCIAL CORP.
SPECIAL MEETING OF STOCKHOLDERS
OCTOBER ,2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF SECURITY
OF PENNSYLVANIA FINANCIAL CORP. (THE "COMPANY") FOR THE SPECIAL MEETING OF
STOCKHOLDERS TO BE HELD ON OCTOBER , 2000, OR AT ANY ADJOURNMENT OR
POSTPONEMENT THEREOF.
The undersigned stockholder of the Company hereby appoints the Board of
Directors of the Company or any successors thereto as proxies, with full
powers of substitution, to represent and to vote as proxy, as designated, all
shares of common stock of the Company held of record by the undersigned at the
close of business on September 5, 2000 at the special meeting of stockholders
to be held at the Company's main office located at 31 West Broad Street,
Hazelton, Pennsylvania, on ______, October __, 2000 at _____a.m., Eastern Time
or at any adjournment or postponement thereof, upon the matters described in
the accompanying Notice of Special Meeting and Proxy Statement and upon such
other matters as may properly come before the special meeting.
The undersigned hereby acknowledges receipt of the Notice of Special
Meeting of Stockholders and the Proxy Statement for the special meeting.
1. Approval of the Agreement and Plan of Merger, dated as of June 2, 2000,
by and among Northeast Pennsylvania Financial Corp., Northeast
Acquisition, Inc. and Security of Pennsylvania Financial Corp.
/ / FOR / / AGAINST / / ABSTAIN
The Board of Directors unanimously recommends a vote "FOR" Proposal 1.
2. Approval of motion to adjourn the special meeting to solicit additional
proxies.
/ / FOR / / AGAINST / / ABSTAIN
The Board of Directors unanimously recommends a vote "FOR" Proposal 2.
In their discretion, the proxies are authorized to vote with respect to
approval of the minutes of the last meeting of stockholders, matters incident
to the conduct of the meeting, and upon such other matters as may properly
come before the meeting. At this time, the Board of Directors knows of no
other business to be presented at the special meeting.
This proxy, when properly executed, will be voted in the manner directed
herein by the undersigned stockholder. If no direction is given, this proxy
will be voted "FOR" Proposal 1 and "FOR" Proposal 2.
Please be sure to sign and date -------------------
this Proxy in the box below. | Date |
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| |
| |
--Stockholder sign above-----Co-holder (if any) sign above------
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^ Detach above card, sign, date and mail in postage paid envelope provided ^
SECURITY OF PENNSYLVANIA FINANCIAL CORP.
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Please sign exactly as your name appears hereon. When shares are held
jointly, only one holder need sign. If signing as attorney, executor,
administrator, trustee or guardian, please include your full title. Corporate
or partnership proxies should be signed by an authorized officer.
PLEASE MARK, SIGN AND DATE THIS PROXY ON THE REVERSE SIDE
AND RETURN IT IN THE ENCLOSED ENVELOPE.
