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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. __)(1/)
SECURITY FIRST CORP.
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(Name of Issuer)
COMMON STOCK, NO PAR VALUE
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(Title of Class of Securities)
81425K102
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(CUSIP Number)
Terry E. Patton
Senior Vice President, Counsel and Secretary
FirstMerit Corporation
III Cascade Plaza, 7th Floor
Akron, Ohio 44308
(330)384-7033
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(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
Copy to:
Kevin C. O'Neil, Brouse & McDowell
500 First National Tower, Akron, Ohio 44308
(330) 434-5207
April 5, 1998
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(Date of Event Which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box [ ].
Note: Six copies of this statement, including all exhibits, should be filed
with the Commission. See Rule 13d-1(a) for other parties to whom copies are
to be sent.
(Continued on following pages)
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(1/) The remainder of this cover page shall be filled out for a reporting
person's initial filing on this form with respect to the subject class of
securities, and for any subsequent amendment containing information which would
alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 or otherwise subject to the liabilities of that section of the Act but
shall be subject to all other provisions of the Act (however, see the Notes).
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SCHEDULE 13D
CUSIP NO. 81425K102
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1 NAME OF REPORTING PERSONS
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS
FIRSTMERIT CORPORATION
IRS Identification No. 34-1339938
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) / /
(b) / /
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3 SEC USE ONLY
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4 SOURCE OF FUNDS*
WC, OO (See Item 3)
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) OR 2(e) / /
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
Ohio
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7 SOLE VOTING POWER
1,752,789 (See Item 5)
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8 SHARED VOTING POWER
NUMBER OF SHARES 0 (See Item 5)
BENEFICIALLY ----------------------------------------------------
OWNED BY EACH 9 SOLE DISPOSITIVE POWER
REPORTING PERSON
WITH 1,752,789 (See Item 5)
----------------------------------------------------
10 SHARED DISPOSITIVE POWER
0 (See Item 5)
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,752,789 (See Item 5)
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
/X/ (See Item 5)
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
19.9% (See Item 5)
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14 TYPE OF REPORTING PERSON*
CO
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*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE> 3
SCHEDULE 13D
ITEM 1. SECURITY AND ISSUER
This Statement on Schedule 13D (this "Statement")relates to the common
stock, $.01 par value per share ("Security First Common"), of Security First
Corp., a corporation incorporated under the laws of the State of Delaware(the
"Security First"). The principal executive offices of Security First are located
at 1413 Golden Gate Boulevard, Mayfield Heights, Ohio 44124-1800.
ITEM 2. IDENTITY AND BACKGROUND
(a) - (c), (f): This Statement is being filed by FirstMerit
Corporation, an Ohio corporation ("FirstMerit"). FirstMerit is a multi-bank
holding company. FirstMerit's principal business and principal executive offices
are located at III Cascade Plaza, 7th Floor, Akron, Ohio 44308.
The names of the directors and executive officers of FirstMerit and
their respective business addresses or residences, citizenship and present
principal occupations or employment, as well as the names, principal businesses
and addresses of any corporations or other organizations in which such
employment is conducted, are set forth on Schedule I hereto, which Schedule I is
incorporated herein by reference.
Other than the directors and executive officers, there are no persons
or corporations controlling or ultimately in control of FirstMerit.
(d), (e): During the last five years, neither FirstMerit nor, to its
knowledge, any of the persons listed in Schedule I hereto has (i) been convicted
in a criminal proceeding (excluding traffic violations or similar misdemeanors)
or (ii) been a party to any civil proceeding of a judicial or administrative
body of competent jurisdiction as a result of which proceeding such person was
or is subject to a judgment, decree or final order enjoining future violations
of, or prohibiting or mandating activities subject to, federal or state
securities laws or finding any violation with respect to such laws.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
As more fully described in Item 4 hereof, Security First has granted to
FirstMerit an option pursuant to which FirstMerit has the right, upon the
occurrence of certain events (none of which has yet occurred) to purchase up to
19.9% (currently being 1,752,789 shares on a fully diluted basis) of Security
First Common at a per share price equal to $22.25. If such option were
exercisable and FirstMerit were to exercise such option in full on the date
hereof, the funds required to purchase the shares of Security First Common
issuable upon such exercise would be $38,999,551. It is currently anticipated
that such funds would be provided from FirstMerit's working capital or by
borrowings from other sources yet to be determined.
ITEM 4. PURPOSE OF TRANSACTION
(a) - (j): MERGER AGREEMENT.
Security First and FirstMerit have entered into an Agreement of
Affiliation and Plan of Merger dated as of April 5, 1998 (the "Agreement")
pursuant to which Security First will, subject to the conditions and upon the
terms stated therein, merge with and into FirstMerit through a tax-free,
stock-for-stock exchange(the "Merger"). FirstMerit will be the surviving
corporation in the Merger. The Merger Agreement provides that the articles of
incorporation and code of regulations of FirstMerit in effect as of the
effective time of the Merger (the "Effective Time") will be the certificate of
incorporation and code of regulations of the surviving corporation.
Under the terms of the Agreement, upon consummation of the Merger all
shares of Security First common stock issued and outstanding immediately prior
to the Effective Time (as defined in the Agreement) of the Merger shall be
converted into the right to receive 0.8855 of a share of FirstMerit common
stock. Based on the closing price of FirstMerit's
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common stock on April 3, 1998 of $33.06 per share, the value of the transaction
on such date was approximately $256 million.
The Merger, which would be accounted for as a pooling of interests, is
expected to close by the end of the third quarter of 1998. The Agreement has
been approved by the boards of directors of both companies. Consummation of the
Merger is subject to certain customary conditions, including, among others, the
adoption of the Agreement by the Security First shareholders and receipt of
regulatory approvals.
OPTION AGREEMENT
GENERAL. Security First and FirstMerit entered into a Stock Purchase
Option dated as of April 5, 1998 (the "Option Agreement") pursuant to which
FirstMerit was granted an irrevocable option (the "Security First Stock Option")
to purchase up to 19.9% (currently being 1,752,789 shares on a fully diluted
basis without giving effect to the issuance of any shares subject to the
Security First Stock Option)of Security First Common, at a price equal to $22.25
per share. The number of shares and the purchase price are subject to adjustment
as described in the Security First Stock Option.
One effect of the Security First Stock Option is to increase the
likelihood that the Merger will be consummated in part by making it both more
difficult and more expensive for another party to attempt to obtain control of
or acquire Security First.
PURCHASE EVENTS; EXERCISE OF OPTION. The Security First Stock Option
provides that FirstMerit may exercise the Security First Stock Option upon the
occurrence of one or more of the following "Purchase Events:"
(a) Security First or any of its subsidiaries, without the prior
written consent of FirstMerit, authorizes, recommends, proposes, or publicly
announces an intention to authorize, recommend, or propose, or enters into an
agreement to effect (i) a merger, consolidation, or other business combination
involving Security First or any of its significant subsidiaries with or into any
person (other than a merger, consolidation, joint venture, or other business
combination with or into FirstMerit or any of FirstMerit's subsidiaries, or a
merger or consolidation of any of Security First's subsidiaries with or into
Security First or any of its other subsidiaries), (ii) a sale, lease, or other
disposition of assets or earning power of Security First or any of its
subsidiaries, in one or more transactions, representing 20% or more of the
consolidated assets or earning power of Security First and its subsidiaries to
any person (other than FirstMerit or any of its subsidiaries), or (iii) an
issuance, sale, or other disposition (whether by means of a merger,
consolidation, share exchange, or other transaction) of securities representing
20% or more of the voting power of Security First or any of its significant
subsidiaries to any person (other than FirstMerit or any of its subsidiaries)
(any of the foregoing being an "Acquisition Transaction;" except that, if
FirstMerit has given its prior written consent to any such transaction, such
transaction will not be considered an "Acquisition Transaction");
(b) any person (other than FirstMerit or any of its subsidiaries)
commences or files a registration statement under the Securities Act with
respect to, a tender offer or exchange offer to acquire shares of Security First
Common Stock such that, upon consummation of the offer, that person would
beneficially own 25% or more of the Security First Common Stock then
outstanding;
(c) any person (other than FirstMerit or any of its subsidiaries, any
of Security First's subsidiaries in a fiduciary capacity in the ordinary course
of its business, any employee benefit plan or employee stock ownership plan of
Security First or any of its subsidiaries, or any person organized, appointed,
or established by Security First or any of its subsidiaries for or pursuant to
any such plan), alone or together with such person's affiliates, acquires
beneficial ownership of 20% or more of the Security First Common Stock then
outstanding, or any group (other than a group of which FirstMerit or any of its
subsidiaries, any of Security First's subsidiaries in a fiduciary capacity in
the ordinary course of its business, any employee benefit plan or employee stock
ownership plan of Security First or any of its subsidiaries, or any person
organized, appointed, or established by Security First or any of its
subsidiaries for or pursuant to any such plan) has been
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formed that beneficially owns 20% or more of the Security First Common Stock
then outstanding; or
(d) the holders of Security First Common Stock do not approve the
Merger Agreement at the meeting of such holders (or any adjournment or
postponement thereof) held for the purpose of voting on the Merger Agreement,
such meeting is not held or is canceled (and not rescheduled) prior to
termination of the Merger Agreement, or Security First's Board of Directors
withdraws or modifies in a manner adverse to FirstMerit the recommendation of
Security First's Board of Directors that Security First's stockholders approve
the Merger and adopt the Merger Agreement, in each case after any person (other
than FirstMerit or any of its subsidiaries), after April 5, 1998, (i) publicly
announces a bona fide proposal, or publicly discloses a bona fide intention to
make a bona fide proposal, to engage in an Acquisition Transaction (or Security
First publicly discloses receipt of such a proposal) or (ii) files an
application or gives notice under the BHCA or the Change in Bank Control Act of
1978 for approval to engage in an Acquisition Transaction.
Generally, the right to exercise the Security First Stock Option
terminates upon the earliest of (a) the completion of the Merger, (b) 12 months
after the first occurrence of a Purchase Event, and (c) termination of the
Merger Agreement in accordance with its terms before the occurrence of a
Purchase Event.
In the event of any change in the Security First Common Stock by reason
of a stock dividend, split-up, recapitalization, combination, exchange of
shares, or similar transaction, the type and number of shares or securities
subject to the Security First Stock Option and the purchase price therefor will
be adjusted appropriately.
REPURCHASE OF OPTION. During the 12-month period following the first
occurrence of a Repurchase Event (as described below), FirstMerit will have the
right to require Security First to repurchase the Security First Stock Option
and all shares of Security First Common Stock purchased upon exercise of the
Security First Stock Option that are beneficially owned by FirstMerit at the
time the repurchase is requested. The aggregate repurchase price will be the sum
of (a) the aggregate purchase price paid by FirstMerit for all shares of
Security First Common Stock purchased upon exercise of the Security First Stock
Option that are beneficially owned by FirstMerit at the time the repurchase is
requested, (b) the excess, if any, of the Applicable Price (as described below)
over the purchase price paid by FirstMerit for each share of Security First
Common Stock purchased upon exercise of the Security First Stock Option that is
beneficially owned by FirstMerit at the time the repurchase is requested,
multiplied by the number of such shares, and (c) the excess, if any, of the
Applicable Price over the purchase price payable upon exercise of the Security
First Stock Option multiplied by the number of shares with respect to which the
Security First Stock Option has not been exercised.
For purposes of this section, "Repurchase Event" has the same meaning
as "Acquisition Transaction," except that the percentage referred to in
subparagraph (a)(ii) of the definition of Acquisition Transaction above in the
paragraph captioned "Purchase Events; Exercise of Option" is 50%, and the
percentage referred to in subparagraph (a)(iii) of the definition is 40%. For
purposes of this section, "Applicable Price" means the highest of (x) the
highest price per share to be paid by any person (other than FirstMerit or any
of its subsidiaries) for Security First Common Stock or the highest
consideration per share to be received by the holders of Security First Common
Stock, in each case pursuant to an agreement for a merger, consolidation, joint
venture, or other business combination with Security First that is entered into
after April 5, 1998, and before the repurchase is requested, (y) the highest
closing sales price per share of Security First Common Stock reported on
Nasdaq/NMS (or, if transactions in Security First Common Stock are not reported
on Nasdaq/NMS, the highest bid price quoted on the principal trading market on
which the Security First Common Stock is traded as reported by a recognized
source) during the 60 business days before the repurchase is requested, and (z)
in the event of the sale by Security First or its subsidiaries, in one or more
transactions, of assets or earning power aggregating more than 50% of the
consolidated assets or earning power of Security First and its subsidiaries to
any person (other than FirstMerit or any of its subsidiaries), the sum of the
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price paid for such assets or earning power and the current value of the
remaining assets of Security First and its subsidiaries, divided by the number
of shares of Security First Common Stock outstanding at the time of the sale.
Notwithstanding any other provision, the consideration payable to FirstMerit
shall be adjusted so that the maximum payable to FirstMerit under this provision
will not exceed the aggregate price paid by FirstMerit pursuant to the Security
First Stock Option, plus $7.5 million.
Except to the extent that FirstMerit has exercised its right to require
Security First to repurchase the Security First Stock Option and the Security
First Common Stock purchased upon exercise of the Security First Stock Option,
as described in the preceding paragraph, during the six-month period beginning
12 months after the first occurrence of a Repurchase Event, Security First will
have the right to repurchase from FirstMerit all of the shares of Security First
Common Stock purchased upon exercise of the Security First Stock Option that are
beneficially owned by FirstMerit at the time the repurchase is requested. The
aggregate price will be the greater of (a) 110% of the average closing sales
price per share of Security First Common Stock reported on Nasdaq/NMS (or, if
transactions in Security First Common Stock are not reported on Nasdaq/NMS, the
highest bid price quoted on the principal trading market on which the Security
First Common Stock is traded as reported by a recognized source) for the 10
business days before the repurchase is requested and (b) the sum of (x) the
purchase price per share paid by FirstMerit for such shares and (y) FirstMerit's
"pre-tax per share carrying cost" (as defined in the Security First Stock
Option) for such shares, multiplied in either case by the number of shares being
repurchased.
REGISTRATION RIGHTS; RIGHT OF FIRST REFUSAL. Upon request by FirstMerit
within the 18 month period following the first exercise of the Security First
Stock Option (or later in the event of a delay in obtaining certain regulatory
approvals), Security First will prepare and file a registration statement with
the Commission if such registration is necessary to permit the sale or other
disposition of the shares of Security First Common Stock purchased upon exercise
of the Security First Stock Option. Security First will also permit FirstMerit
to include the shares in certain registration statements initiated by Security
First.
Until the later of (a) 24 months following the first exercise of the
Security First Stock Option and (b) termination of the Security First Stock
Option, Security First will have a right of first refusal with respect to the
sale or other disposition of shares of Security First Common Stock purchased
upon exercise of the Security First Stock Option. This right of first refusal
will not, however, apply to (x) any disposition in which the proposed transferee
will receive not more than two percent of the outstanding Security First Common
Stock, (y) any registered public offering in which steps are taken to reasonably
ensure that no purchaser will acquire more than two percent of the outstanding
Security First Common Stock, and (z) any transfer to a wholly owned subsidiary
of FirstMerit that agrees to be bound by the terms of the Security First Stock
Option.
TERMINATION OF OPTION. FirstMerit may not exercise the Security First
Stock Option if, at the time of exercise, it is in material breach of the Merger
Agreement. Moreover, Security First's obligations under the Security First Stock
Option will terminate and the Security First Stock Option will no longer be
exercisable if the Merger Agreement is terminated and FirstMerit is in material
breach of the Merger Agreement when it is terminated; provided that, for this
purpose, if the Merger Agreement is to be terminated by FirstMerit, Security
First must upon request notify FirstMerit if a material breach by FirstMerit
exists and, if the Merger Agreement is terminated by Security First and all of
the material breaches are curable, Security First must provide FirstMerit with
notice of the material breaches and an opportunity to cure.
ADDITIONAL PROVISIONS. Certain rights and obligations of Security First
and FirstMerit under the Security First Stock Option are subject to receipt of
required regulatory approvals. Among others things, regulatory approvals are
required for the acquisition by FirstMerit of more than five percent of the
outstanding Security First Common Stock.
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Copies of the Merger Agreement and the Stock Purchase Option are
attached as exhibits to this Statement and are incorporated herein by reference.
The foregoing summary of such documents is not intended to be complete and is
qualified in its entirety by reference to the actual documents being filed
herewith.
Except as set forth herein, FirstMerit has no current plans or
proposals with respect to Security First that relate to or would result in any
of the actions specified in clauses (a) through (j) of Item 4 of Schedule 13D.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER
(a), (b): FirstMerit may be deemed to be the beneficial owner of the
1,752,789 shares of Security First Common issuable upon exercise of the Security
First Stock Option. As provided in the Option Agreement, FirstMerit may exercise
the Security First Stock Option only upon the happening of one or more events,
none of which has occurred. See Item 4 hereof. Since the Security First Stock
Option is not currently exercisable, FirstMerit expressly disclaims beneficial
ownership of any of such shares of Security First Common. If the Security First
Stock Option were currently exercisable and exercised in full, the shares of
Security First Common issuable upon exercise of the Security First Stock Option
would represent approximately 19.9% of the total number of outstanding shares of
Security First Common(based upon the 7,555,044 shares of Security First Common
currently issued and outstanding, 374,892 shares for issuance for stock options
and 878,048 shares for issuance upon conversion of the Security First 6.25%
debentures, all as represented by Security First in the Merger Agreement to be
as of April 5, 1998).
FirstMerit has no right to vote or dispose of the shares of Security
First Common issuable upon exercise of the Security First Stock Option unless
and until such time as the Security First Stock Option is exercised. If
FirstMerit were to exercise the Security First Stock Option, it would have sole
power to vote and to dispose of the shares of Security First Common issued as a
result of such exercise. As of April 8, 1998, to its knowledge, FirstMerit and
its subsidiaries, hold no shares of Security First Common.
Except as set forth above, neither FirstMerit nor, to its knowledge,
any of the persons listed on Schedule I hereto beneficially owns any shares of
Security First Common.
(c): Except for the issuance of the Security First Stock Option,
neither FirstMerit nor, to its knowledge, any of the persons listed on Schedule
I hereto has effected any transaction in shares of Security First Common for
such person's own account during the past 60 days. In the ordinary course of
their trust and investment management business, subsidiaries of FirstMerit may
have effected transactions in shares of Security First Common during the past 60
days on behalf of trust accounts ("Trust Accounts").
(d): No other person has the right to receive or the power to direct
the receipt of dividends from, or the proceeds from the sale of, the shares of
Security First Common issuable upon exercise of the Security First Stock Option.
To its knowledge, any beneficiaries of Trust Accounts would likely have the
right to receive or the power to direct the receipt of dividends from, or the
proceeds from the sale of, any shares of Security First Common held in any such
Trust Accounts.
(e): Not applicable.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO SECURITIES OF THE ISSUER
Except as set forth in response to Items 3, 4 and 5 hereof, neither
FirstMerit nor, to its knowledge, any of the persons listed on Schedule I hereto
has any contracts, arrangements, understandings or relationships (legal or
otherwise) with any person with respect to any securities of Security First,
including, but not limited to, transfer or voting any of the securities,
finder's fees, joint ventures, loan or option arrangements, put or calls,
guarantees of profits, division of profits or loss, or the giving or withholding
<PAGE> 8
of proxies.
ITEM 7. MATERIALS TO BE FILED AS EXHIBITS
1. Merger Agreement dated April 5, 1998 between Security First
Corp. and FirstMerit Corporation
2. Stock Purchase Option dated April 5, 1998 between Security
First Corp. and FirstMerit Corporation
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this Statement is true, complete and correct.
FirstMerit Corporation
Dated: April 9, 1998 By: /s/ Terry E. Patton
------------------------
Terry E. Patton
Senior Vice President, Counsel
and Secretary
<PAGE> 9
10
SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS OF FIRSTMERIT CORPORATION
The names, business addresses and present principal occupations
of the directors and executive officers of FirstMerit Corporation ("FirstMerit")
are set forth below. If no business address is given, the director's or
executive officer's business address is III Cascade Plaza, Akron, Ohio 44308.
The business address of each FirstMerit director is also the business address of
such director's employer, if any. Unless otherwise indicated, all directors and
executive officers listed below are citizens of the United States.
I. DIRECTORS
NAME PRESENT PRINCIPAL OCCUPATION AND ADDRESS
Karen S. Belden Co-owner, Easterday's Gift Shop and Florist
3002 Woodcliff Drive, NW
Canton, Ohio 44718
R. Cary Blair Chairman, President and Chief Executive
Officer
Westfield Companies
I Park Circle
P.O. Box 5001
Westfield Center, Ohio 44251
John C. Blickle President
Heidman, Inc., dba McDonald's Restaurants
400 West Market Street
Akron, Ohio 44303
Sid A. Bostic President and Chief Operating Officer
FirstMerit Corporation and FirstMerit
Bank, N.A.
Robert W. Briggs President
Buckingham, Doolittle & Burroughs
50 S. Main Street
Akron, Ohio 44308
John R. Cochran Chairman and Chief Executive Officer
FirstMerit Corporation and First Merit
Bank, N.A.
Richard Colella Attorney
Colella & Kolczun, P.L.L.
North Pointe Bldg.
5750 Cooper Foster Park Road
Lorain, Ohio 44053-4133
Elizabeth A. Dalton 1900 Ashwood Drive
Akron, Ohio 44313
Terry L. Haines President and Chief Executive Officer
A. Schulman, Inc.
3550 W. Market Street
Akron, Ohio 44333
Clifford J. Isroff Chairman and Secretary
I Corp.
4000 Embassy Parkway, Suite 110
Akron, Ohio 44333
Philip A. Lloyd, II Partner
Brouse & McDowell
500 First National Tower
Akron, Ohio 44308
<PAGE> 10
Robert G. Merzweiler President and Chief Executive Officer
Landmark Plastic Corporation
P.O. Box 7646
Akron, Ohio 44306
Stephen E. Myers President and Chief Executive Officer
Myers Industries, Inc.
1293 South Main Street
Akron, Ohio 44301
Roger T. Read 2966 N. Martadale Drive
Akron, Ohio 44333
Justin T. Rogers, Jr. 370 Delaware Ave.
Akron, Ohio 44303
Richard N. Seaman President and Chief Executive Officer
Seaman Corporation
1000 Venture Blvd.
Wooster, Ohio 44691
II. EXECUTIVE OFFICERS
NAME PRESENT PRINCIPAL OCCUPATION AND ADDRESS
John R. Cochran Chairman and Chief Executive Officer
Sid A. Bostic President and Chief Operating Officer
John R. Macso President, FirstMerit Services
Division and Chief Technology
Officer
Robert P. Brecht Executive Vice President
Jack R. Gravo Executive Vice President
Bruce M. Kephart Executive Vice President
George P. Paidas Executive Vice President
Gregory R. Bean Senior Vice President
Gary J. Elek Senior Vice President
Terry E. Patton Senior Vice President, Counsel and
Secretary
William E. Stansifer Senior Vice President
Carrie L. Tolstedt Executive Vice President
<PAGE> 11
FIRSTMERIT CORPORATION
SCHEDULE 13D: Security First Corp.
INDEX OF EXHIBITS
EXHIBIT
1 Agreement of Affiliation and Plan of Merger dated April 5,
1998 by and between FirstMerit Corporation and Security First
Corp.
2 Security First Corp. Stock Purchase Option dated April 5, 1998
<PAGE> 1
Exhibit 1
AGREEMENT OF AFFILIATION
AND PLAN OF MERGER
THIS AGREEMENT OF AFFILIATION AND PLAN OF MERGER, dated as of April 5,
1998 (this "Agreement"), is made by and between FirstMerit Corporation, an Ohio
corporation ("FirstMerit"), and Security First Corp., a Delaware corporation
("Security First").
WHEREAS, the respective Boards of Directors of FirstMerit and Security
First have each determined that it is in the best interests of their respective
shareholders for Security First to merge with and into FirstMerit upon the terms
and subject to the conditions set forth herein;
WHEREAS, the respective Boards of Directors of FirstMerit and Security
First have each approved the merger of Security First with and into FirstMerit,
upon the terms and subject to the conditions set forth herein;
WHEREAS, the Board of Directors of FirstMerit intends,
contemporaneously with the merger of Security First with and into FirstMerit, to
merge the wholly owned subsidiaries of Security First (not including the
non-banking subsidiaries), with and into FirstMerit Bank, N.A., a wholly owned
subsidiary of FirstMerit;
WHEREAS, the Board of Directors of FirstMerit will appoint to the
FirstMerit Board of Directors at the Effective Time, an individual to be
recommended by Security First (subject to the approval of the FirstMerit Board
of Directors);
WHEREAS, as an inducement for FirstMerit to enter into this Agreement,
Security First will provide FirstMerit with an option to purchase up to 19.9
percent of the capital stock of Security First, but only if certain events
occur, pursuant to the terms and conditions of the Security First Stock Purchase
Option (as hereinafter defined);
WHEREAS, for Federal income tax purposes, it is intended that the
merger shall qualify as a reorganization under the provisions of Section 368 of
the Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, for accounting purposes, it is intended that the merger shall
be accounted for as a "pooling of interests;"
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties and agreements contained herein, and subject to the
terms and conditions set forth herein, the parties hereto hereby agree as
follows:
1
<PAGE> 2
1. THE MERGER
1.1. MERGER.
1.1.1. MERGER. At the Effective Time (as hereinafter defined),
Security First will be merged with and into FirstMerit (the "Merger") in
accordance with the provisions of Section 1701.78 of the Ohio General
Corporation Law ("OGCL"). FirstMerit shall be the surviving corporation in the
Merger and shall continue after the Merger to be incorporated under the laws of
the State of Ohio (the "Surviving Corporation"). The Merger shall have the
effects specified in the OGCL. The name of the Surviving Corporation shall be
"FirstMerit Corporation."
1.1.2. EFFECTIVE TIME. As soon as practicable following the
Closing (as hereinafter defined), FirstMerit and Security First (the
"Constituent Corporations") shall cause a certificate of merger complying with
the requirements of Section 1701.81 of the OGCL (the "Certificate of Merger") to
be filed with the Secretary of State of the State of Ohio. The form of
Certificate of Merger is attached hereto as Exhibit 1.1.2, which has attached to
it the Amended and Restated Articles of Incorporation of the Surviving
Corporation. The Merger will become effective at the time and date which the
Certificate of Merger is filed with the Secretary of State of the State of Ohio
(the "Effective Time").
1.1.3. CONSUMMATION OF MERGER. The closing of the Merger (the
"Closing") will take place (i) at 10:00 a.m. (local time) at the principal
executive offices of FirstMerit as promptly as practicable after the date on
which all of the conditions set forth in Article 6 are satisfied or duly waived,
or (ii) at such other time and place and on such other date as FirstMerit and
Security First may agree.
1.1.4. ARTICLES OF INCORPORATION AND REGULATIONS. The Amended
and Restated Articles of Incorporation and Code of Regulations of FirstMerit,
attached hereto as Exhibit 1.1.4, in effect immediately prior to the Effective
Time will be the Amended and Restated Articles of Incorporation and Regulations
of the Surviving Corporation after the Effective Time, until duly amended in
accordance with their respective terms and the OGCL.
1.1.5. DIRECTORS AND OFFICERS. The directors and officers of
FirstMerit immediately prior to the Effective Time will be the directors and
officers, respectively, of the Surviving Corporation, until their successors
have been duly elected or appointed and qualified or until their earlier death,
resignation or removal in accordance with the terms of the Surviving
Corporation's Amended and Restated Articles of Incorporation and Code of
Regulations and the OGCL. Immediately following Closing, the Board of Directors
of FirstMerit will appoint to the FirstMerit Board of Directors, an individual
to be recommended by Security First, but subject to the approval of the
FirstMerit Board of Directors, such individual to serve in the class whose terms
expire in 2001.
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1.1.6. SERVICE OF PROCESS. B.&McD., Inc., whose address is 106
S. Main Street, Akron, Summit County, Ohio 44308, is the statutory agent upon
whom any process, notice or demand against FirstMerit, or the Surviving
Corporation may be served.
2. CONVERSION OF SHARES
2.1. CONVERSION OF SHARES. Subject to the provisions of this Agreement,
at the Effective Time, automatically by virtue of the Merger and without any
action on the part of any party or shareholder, each share of the common stock,
$.01 par value per share, of Security First (the "Security First Common Stock"),
issued and outstanding immediately prior to the Effective Time (excluding shares
held by Security First or any of the Security First Subsidiaries (as defined
below) or by FirstMerit or any of the FirstMerit Subsidiaries (as defined
below), in each case other than in a fiduciary capacity or as a result of debts
previously contracted ("Treasury Shares")), shall cease to be outstanding and
shall be converted into and become the right to receive .8855 (subject to
adjustment pursuant to Section 2.5) (the "Exchange Ratio") shares of common
stock, no par value, of FirstMerit ("FirstMerit Common Stock").
2.2. FRACTIONAL SHARES. Notwithstanding any other provision hereof, no
fractional shares of FirstMerit Common Stock and no certificates or scrip
therefor, or other evidence of ownership thereof, will be issued in the Merger;
instead, FirstMerit shall pay to each holder of Security First Common Stock who
would otherwise be entitled to a fractional share of FirstMerit Common Stock
(after taking into account all Security First Certificates delivered by such
holder) an amount in cash (without interest) determined by multiplying such
fraction by the average of the last sale prices of FirstMerit Common Stock, as
reported by The Nasdaq Stock Market National Market System ("Nasdaq/NMS")
reporting system (as reported in The Wall Street Journal or, if not reported
therein, in another authoritative source), for the five Nasdaq/NMS trading days
immediately preceding the Effective Date.
2.3. EXCHANGE PROCEDURES.
2.3.1. At or prior to the Effective Time, FirstMerit shall
deposit, or shall cause to be deposited, with the Exchange Agent, for the
benefit of the holders of Security First Certificates, for exchange in
accordance with this Article 2, certificates representing the shares of
FirstMerit Common Stock ("New Certificates") and an estimated amount of cash
(such cash and New Certificates, together with any dividends or distributions
with respect thereto (without any interest thereon), being hereinafter referred
to as the "Exchange Fund") to be paid pursuant to this Article 2 in exchange for
outstanding shares of Security First Common Stock.
2.3.2. As promptly as practicable after the Effective Date,
FirstMerit shall send or cause to be sent to each former holder of record of
shares (other than Treasury Shares) of Security First Stock immediately prior to
the Effective Time transmittal materials for use in exchanging such
shareholder's Security First Certificates for the consideration set forth in
this Article 2. FirstMerit shall cause the New Certificates into which shares of
a shareholder's Security First Common Stock
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are converted on the Effective Date and/or any check in respect of the
fractional share interests or dividends or distributions which such person shall
be entitled to receive to be delivered to such shareholder upon delivery to the
Exchange Agent of Security First Certificates representing such shares of
Security First Common Stock (or indemnity reasonably satisfactory to FirstMerit
and the Exchange Agent, if any of such certificates are lost, stolen or
destroyed) owned by such shareholder. No interest will be paid on any such cash
to be paid pursuant to this Article 2 upon such delivery.
2.3.3. Notwithstanding the foregoing, neither the Exchange
Agent nor any party hereto shall be liable to any former holder of Security
First Common Stock for any amount properly delivered to a public official
pursuant to applicable abandoned property, escheat or similar laws.
2.3.4. No dividends or other distributions with respect to
FirstMerit Common Stock with a record date occurring after the Effective Time
shall be paid to the holder of any unsurrendered Security First Certificate
representing shares of Security First Common Stock converted in the Merger into
shares of such FirstMerit Common Stock until the holder thereof shall surrender
such Security First Certificate in accordance with this Article 2. After the
surrender of a Security First Certificate in accordance with this Article 2, the
record holder thereof shall be entitled to receive any such dividends or other
distributions, without any interest thereon, which theretofore had become
payable with respect to shares of FirstMerit Common Stock represented by such
Security First Certificate.
2.3.5. Any portion of the Exchange Fund that remains unclaimed
by the shareholders of Security First for twelve months after the Effective Time
shall be paid to FirstMerit by the Exchange Agent. Any shareholders of Security
First who have not theretofore complied with this Article 2 shall thereafter
look only to FirstMerit for payment of the shares of FirstMerit Common Stock,
cash in lieu of any fractional shares and unpaid dividends and distributions on
the FirstMerit Common Stock deliverable in respect of each share of Security
First Common Stock such shareholder holds as determined pursuant to this
Agreement, in each case, without any interest thereon.
2.4. RESERVED.
2.5. ANTI-DILUTION PROVISIONS. In the event FirstMerit changes (or
establishes a record date for changing) the number of shares of FirstMerit
Common Stock issued and outstanding prior to the Effective Date as a result of a
stock split, stock dividend, recapitalization or similar transaction with
respect to the outstanding FirstMerit Common Stock and the record date therefor
shall be prior to the Effective Date, or exchanges FirstMerit Common Stock for a
different number or kind of shares or securities or is involved in any
transaction resulting in any of the foregoing, the Exchange Ratio shall be
proportionately adjusted.
2.6. TREASURY SHARES. Each of the shares of Security First Stock held
as Treasury Shares immediately prior to the Effective Time shall be canceled and
retired at the Effective Time and no consideration shall be issued in exchange
therefor.
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2.7. STOCK OPTIONS. The Security First Disclosure Letter (as
hereinafter defined) sets forth a list of each stock option outstanding on the
date of this Agreement (collectively, the "Security First Stock Options"), to
purchase Common Stock heretofore granted pursuant to the Security First 1987
Stock Option and Incentive Plan, 1996 Stock Option and Incentive Plan and the
First Kent Financial Corporation 1994 Stock Option Plan (the "Security First
Option Plans"). The Security First Disclosure Letter also sets forth with
respect to each Security First Stock Option the option exercise price, the
number of shares subject to the option, the dates of grant, vesting,
exercisability and expiration of the option and that the option is either an
incentive or a nonqualified stock option. Without the written consent of
FirstMerit, no additional stock options shall, after the date of this Agreement,
be granted under the Security First Option Plans. All rights under Security
First Stock Options shall be treated as provided in this Section.
Each Security First Stock Option outstanding immediately prior to the
Effective Time shall be assumed at the Effective Time by the Surviving
Corporation and continue to be an issued and outstanding option of the Surviving
Corporation in accordance with the terms of the respective Security First Option
Plans, except that: (a) the Surviving Corporation and its Compensation Committee
shall be substituted for Security First and the committee of Security First's
Board of Directors administering such Security First Option Plans, (b) from and
after the Effective Time, each such Security First Stock Option may be exercised
only for FirstMerit Common Stock notwithstanding any contrary provision of the
Security First Option Plans or stock option agreements executed in connection
therewith, (c) each such Security First Stock Option shall at the Effective Time
become an option to purchase a number of shares of FirstMerit Common Stock equal
to the product arrived at by multiplying the Exchange Ratio by the number of
shares of Common Stock subject to such option immediately prior to the Effective
Time, and (d) the exercise price per share of FirstMerit Common Stock at which
each such Security First Stock Option is exercisable shall be the amount
(rounded up to the next whole cent) arrived at by dividing the exercise price
per share of Common Stock at which such Security First Stock Option is
exercisable immediately prior to the Effective Time by the Exchange Ratio;
provided, however, that, notwithstanding the foregoing, the Surviving
Corporation shall not issue or pay for any fractional share otherwise issuable
upon any exercise of a Security First Stock Option, as assumed and adjusted as
aforesaid.
In addition, notwithstanding clauses (c) and (d) of the immediately
preceding sentence, each Security First Stock Option which is an incentive stock
option shall be adjusted as required by Section 424 of the Code, and the
regulations promulgated thereunder, so as not to constitute a modification,
extension or renewal of the option, within the meaning of Section 424 of the
Code. The Board of Directors of the Surviving Corporation shall take such action
as may be required under the Security First Option Plans to effectuate the
foregoing. Immediately after Closing, FirstMerit shall reserve for issuance
(and, if not previously registered pursuant to the Securities Act, register) the
number of shares of FirstMerit Common Stock necessary to satisfy FirstMerit's
obligations under this Section. Prior to the Closing, and thereafter as may be
appropriate, FirstMerit shall take such actions as are necessary to effect the
provisions of this Section, and to preserve for the holders of Security First
Stock Options the benefits to be provided pursuant to this Section.
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2.8. SECURITY FIRST CONVERTIBLE DEBENTURES. The Security First
Disclosure Letter sets forth the terms of the Security First Debentures. Without
the written consent of FirstMerit, no additional Security First Debentures
shall, after the date of this Agreement, be issued. All rights under Security
First Debentures shall be treated as provided in this Section. As soon as
practicable after the date of this Agreement, Security First shall call and
redeem, pursuant to the terms of the Security First Debentures, all of the
outstanding Security First Debentures.
3. REPRESENTATIONS AND WARRANTIES OF FIRSTMERIT
FirstMerit hereby represents and warrants to Security First that:
3.1. CORPORATE ORGANIZATION. FirstMerit is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Ohio and is duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction in which its ownership or lease of property
or the nature of the business conducted by it makes such qualification
necessary, except for such jurisdictions in which the failure to be so qualified
would not have a Material Adverse Effect (as hereinafter defined) on FirstMerit.
FirstMerit is registered as a bank holding company under the Bank Holding
Company Act of 1956, as amended (the "BHCA"). FirstMerit has the requisite
corporate power and authority to own, lease and operate its properties and
assets and to carry on its business as it is now being conducted.
3.2. AUTHORITY. FirstMerit has the requisite corporate power and
authority to execute and deliver this Agreement and, except for any required
approval of the applicable Regulatory Authorities (as defined hereinafter), to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly authorized and approved by the Board of Directors of FirstMerit,
including provisions for the resolution of certain issues by management, and no
other corporate proceedings on the part of FirstMerit are necessary to authorize
this Agreement or to consummate the transactions so contemplated. This Agreement
has been duly executed and delivered by, and constitutes a valid and binding
obligation of, FirstMerit, enforceable against FirstMerit in accordance with its
terms, except as enforceability hereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other similar laws affecting the
enforcement of creditors' rights generally and except that the availability of
the equitable remedy of specific performance or injunctive relief is subject to
the discretion of the court before which any proceedings may be brought.
3.3. CAPITALIZATION. The authorized capital stock of FirstMerit
consists of 80,000,000 shares of FirstMerit Common Stock and 7,000,000 shares of
preferred stock. As of December 31, 1997, (i) 68,127,314 shares of FirstMerit
Common Stock (including 6,159,750 treasury shares) were validly issued and
outstanding, fully paid and nonassessable and not issued in violation of any
preemptive right of any shareholder of FirstMerit, and (ii) no shares of
preferred stock were issued and outstanding. Since December 31, 1997 and through
the date of this Agreement, FirstMerit has not issued any additional shares of
FirstMerit Common Stock or preferred stock other than pursuant to the exercise
of employee stock purchase rights or stock options under FirstMerit Option Plans
(as hereinafter defined) outstanding on December 31, 1997. Except as
contemplated by this Agreement, the FirstMerit Rights Plan (as hereinafter
defined) or in the FirstMerit Disclosure Letter (which is a letter attached
hereto as Exhibit 3.3, dated the date of this Agreement, from FirstMerit to
Security
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First, such letter being identified by Security First executing a copy thereof),
as of the date of this Agreement, there are no shares of capital stock of
FirstMerit authorized, issued or outstanding and there are no outstanding
subscriptions, options, warrants, scrip, rights, calls, convertible securities
or any other similar agreements, arrangements or commitments of any character
relating to the issued or unissued capital stock or other securities of
FirstMerit obligating, or which may obligate, FirstMerit to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of capital
stock of FirstMerit or obligating, or which may obligate, FirstMerit to grant,
extend or enter into any subscription, option, warrant, scrip, right, call,
convertible security or other similar agreement, arrangement or commitment.
Except as set forth in the FirstMerit Disclosure Letter, there are no voting
trusts or other similar agreements, arrangements or commitments to which
FirstMerit or any FirstMerit Subsidiary (as hereinafter defined) is a party with
respect to the voting of the capital stock of FirstMerit. All of the shares of
FirstMerit Common Stock issuable in exchange for the Security First Common Stock
at the Effective Time in accordance with this Agreement will be, when so issued,
duly authorized, validly issued, fully paid and nonassessable and will not be
subject to preemptive rights. FirstMerit has reserved for issuance the number of
shares of FirstMerit Common Stock necessary to satisfy FirstMerit's obligations
under Section 2.1.
3.4. SUBSIDIARIES. The FirstMerit Disclosure Letter sets forth, as of
the date of this Agreement, the name and state of incorporation of each banking,
and each other significant subsidiary of FirstMerit (collectively, the
"FirstMerit Subsidiaries"). Except as set forth in the FirstMerit Disclosure
Letter, each of the FirstMerit Subsidiaries is a bank, or a corporation duly
organized, validly existing and in good standing under the laws of its
respective jurisdiction of incorporation or organization and is duly qualified
to do business as a foreign corporation in each jurisdiction in which its
ownership or lease of property or the nature of the business conducted by it
makes such qualification necessary, except for such jurisdictions in which the
failure to be so qualified would not have a Material Adverse Effect on
FirstMerit. Each of the FirstMerit Subsidiaries has the requisite corporate
power and authority to own, lease and operate its properties and assets and to
carry on its businesses as they are now being conducted.
Except as set forth in the FirstMerit Disclosure Letter, as of the date
of this Agreement, all outstanding shares of capital stock of each FirstMerit
Subsidiary are owned by FirstMerit or another FirstMerit Subsidiary and are
validly issued, fully paid and nonassessable, have not been issued in violation
of any preemptive right and are owned free and clear of all liens, claims,
charges, options, encumbrances or agreements with respect thereto. Except as set
forth in the FirstMerit Disclosure Letter, as of the date of this Agreement,
neither FirstMerit nor any FirstMerit Subsidiary owns beneficially more than 5%
of any class of equity securities or any similar interests of any corporation,
bank, business, trust, association or similar organization. There are, as of the
date of this Agreement, no outstanding subscriptions, options, warrants, scrip,
rights, calls, convertible securities or any other similar agreements,
arrangements or commitments of any character relating to the issued or unissued
capital stock or other securities of any FirstMerit Subsidiary obligating, or
which may obligate, any FirstMerit Subsidiary to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of its capital stock or
obligating, or which may obligate, any FirstMerit Subsidiary to grant, extend or
enter into any subscription, option, warrant, scrip, right, call, convertible
security or other similar agreement, arrangement or commitment.
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3.5. INFORMATION IN DISCLOSURE DOCUMENTS, REGISTRATION STATEMENT, ETC.
(a) None of the information with respect to FirstMerit or any
FirstMerit Subsidiary provided by FirstMerit for inclusion in the registration
statement to be filed with the Securities and Exchange Commission (the
"Commission") by FirstMerit on Form S-4 (or any other appropriate form) under
the Securities Act of 1933, as amended (the "Securities Act") for the purpose of
registering the shares of FirstMerit Common Stock to be issued in the Merger
(the "Registration Statement") will, at the time it becomes effective and at the
time of the Security First Meeting (as hereinafter defined), 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. None of the
information with respect to FirstMerit or any FirstMerit Subsidiary provided by
FirstMerit for inclusion in any prospectus/proxy statement or information
statement or notice of FirstMerit and Security First, or any amendments or
supplements thereto, required to be mailed to Security First's shareholders in
connection with the Merger (the "Proxy" or "Proxy Statement") will, at the time
of the mailing of the Proxy Statement, and at the time of the Security First
Meeting, contain any statement which, at the time it is made and in light of the
circumstances under which it is made, is false or misleading with respect to any
material fact, or which omits to state any material fact necessary in order to
make the statements therein not false or misleading or necessary to correct any
statement in any earlier communication with respect to the solicitation of any
proxy for the Security First Meeting which has become false or misleading. The
Registration Statement will comply as to form in all material respects with the
provisions of the Securities Act and the rules and regulations promulgated
thereunder. The Proxy Statement will comply as to form in all material respects
with the provisions of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations promulgated thereunder.
(b) All documents that FirstMerit is responsible for filing with any
Governmental Entity (as hereafter defined) will comply as to form in all
material respects with applicable law. None of the information with respect to
FirstMerit or any FirstMerit Subsidiary provided by FirstMerit for inclusion in
any document to be filed with any regulatory authority in connection with the
transactions contemplated hereby will contain any statement of a material fact
which is untrue as of the time that such statement is made.
3.6. CONSENTS AND APPROVALS; NO VIOLATION. Except as set forth in the
FirstMerit Disclosure Letter, neither the execution and delivery of this
Agreement by FirstMerit, nor the consummation by FirstMerit of the transactions
contemplated hereby, nor compliance by FirstMerit with any of the provisions
hereof will (a) conflict with or result in any breach of any provision of its
Amended and Restated Articles of Incorporation or Code of Regulations, (b)
violate, conflict with, constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under, or result in the
termination of, or accelerate the performance required by, or result in a right
of termination or acceleration of, or result in the creation of any lien,
security interest, charge or other encumbrance upon any of the properties or
assets of FirstMerit or any of the FirstMerit Subsidiaries under, any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, deed of
trust, license, lease, agreement or other instrument or obligation to which
FirstMerit or any FirstMerit Subsidiary is a party or to which they or any of
their respective properties or assets may be subject, except for such
violations, conflicts, breaches, defaults, terminations, accelerations or
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creations of liens or other encumbrances, which, individually or in the
aggregate, will not have a Material Adverse Effect on FirstMerit, (c) violate
any judgment, ruling, order, writ, injunction, decree, statute, rule or
regulation applicable to FirstMerit or any FirstMerit Subsidiary or any of their
respective properties or assets, except for such violations which, individually
or in the aggregate, will not have a Material Adverse Effect on FirstMerit, or
(d) require any consent, approval, authorization or permit of or from, or filing
with or notification to, any court, governmental authority or other regulatory
or administrative agency or commission, domestic or foreign ("Governmental
Entity"), except (i) pursuant to the Exchange Act and the Securities Act, (ii)
filing the certificate of merger pursuant to the OGCL and the DGCL, (iii)
filings required under the securities or blue sky laws of the various states,
(iv) filings with, and approval by, the Board of Governors of the Federal
Reserve System (the "FRB"), (v) filings with, and approval by, the Office of
Thrift Supervision ("OTS"), (vi) filings with, and approval by, the Office of
the Comptroller of the Currency (the "OCC"), (vii) filings and approvals
pursuant to any applicable state takeover laws ("State Takeover Approvals"),
(viii) consents, approvals, authorizations, permits, filings or notifications in
connection with compliance with applicable provisions of federal and state
securities laws relating to the regulation of broker-dealers, investment
advisors, or stock transfer agents, or (ix) consents, approvals, authorizations,
permits, filings or notifications which have either been obtained or made prior
to the Closing or which, if not obtained or made, will neither, individually or
in the aggregate, have a Material Adverse Effect on FirstMerit nor restrict
FirstMerit's legal authority to execute and deliver this Agreement and
consummate the transactions contemplated hereby.
3.7. REPORTS AND FINANCIAL STATEMENTS. Since December 31, 1997,
FirstMerit has filed all reports, registrations and statements, together with
any required amendments thereto, that it was required to file with the
Commission, including, but not limited to Forms 10-K, Forms 10-Q, Forms 8-K and
proxy statements (collectively, the "FirstMerit Reports"). FirstMerit has
previously made available or furnished, or, with respect to the FirstMerit
Reports filed after the date of this Agreement, will promptly furnish, Security
First with true and complete copies of each of the FirstMerit Reports. As of
their respective dates (but taking into account any amendments filed prior to
the date of this Agreement), the FirstMerit Reports complied, or, with respect
to FirstMerit Reports filed after the date of this Agreement, will comply, in
all material respects with all the rules and regulations promulgated by the
Commission and did not contain, or, with respect to FirstMerit Reports filed
after the date of this Agreement, will not contain, any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The audited consolidated financial
statements and unaudited interim financial statements of FirstMerit included in
the FirstMerit Reports (the "FirstMerit Financial Statements") have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis (except as may be indicated therein or in the notes thereto)
and fairly present the consolidated financial position of FirstMerit and the
FirstMerit Subsidiaries as at the dates thereof and the consolidated results of
operations and cash flows for the periods then ended subject, in the case of the
unaudited interim financial statements, to normal year-end audit adjustments,
any other adjustments described therein and the absence of footnotes.
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3.8. TAXES. Except as set forth in the FirstMerit Disclosure Letter,
FirstMerit and each FirstMerit Subsidiary have prepared in good faith and duly
and timely filed, all federal, state, local and foreign income, franchise,
sales, real and personal property and other tax returns and reports required to
be filed by them on or before the date of this Agreement, except where the
failure to file would not have a Material Adverse Effect on FirstMerit. Except
as set forth in the FirstMerit Disclosure Letter, FirstMerit and each FirstMerit
Subsidiary have paid, or have adequately reserved or have made adequate accruals
(in accordance with generally accepted accounting principles) with respect to,
all taxes, interest and penalties shown to be owing on all such returns or
reports. There are no liens for federal, state, local or foreign taxes upon the
assets of FirstMerit or of any FirstMerit Subsidiary, except for statutory liens
for taxes and assessments not yet delinquent or the validity of which is being
contested in good faith by appropriate proceedings. As of the date of this
Agreement, except as set forth in the FirstMerit Disclosure Letter, neither
FirstMerit nor any of the FirstMerit Subsidiaries is a party to any action or
proceeding, nor is any such action or proceeding threatened, by any Governmental
Entity for the assessment or collection of taxes which are material in amount,
and no deficiency notices or reports have been received by FirstMerit or any of
the FirstMerit Subsidiaries in respect of any material deficiencies for any tax,
assessment or government charges.
3.9. EMPLOYEE PLANS. All employee bonus, deferred compensation,
pension, retirement, profit sharing, stock option, stock purchase, employee
stock ownership, stock appreciation rights, savings, consulting, severance,
collective bargaining, group insurance, fringe benefit and other employee
benefit, incentive and welfare plans, policies, contracts and arrangements and
all trust agreements related thereto, now in effect and relating to any present
or former directors, officers or employees of FirstMerit or FirstMerit
Subsidiaries, whether or not described in Section 3(3) of Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), are identified in the
FirstMerit Disclosure Letter ("FirstMerit Employee Plans"). All of the
FirstMerit employee plans have been maintained, operated and administered in
substantial compliance with their terms, and FirstMerit, all of the FirstMerit
Subsidiaries and all of the FirstMerit Employee Plans currently comply, and have
at all relevant times complied, in all material respects with ERISA, the Code,
and any other applicable laws. FirstMerit has previously delivered or made
available to Security First copies of all FirstMerit Employee Plans, in each
case as in effect on the date of this Agreement.
3.10. MATERIAL CONTRACTS. Except as set forth in the FirstMerit
Disclosure Letter or disclosed in the FirstMerit Reports, neither FirstMerit nor
any FirstMerit Subsidiary is, as of the date of this Agreement, a party to, or
is bound by, (a) any material lease not made in the ordinary course of business
of FirstMerit, (b) any agreement, arrangement, or commitment not made in the
ordinary course of business which materially restricts the conduct of any line
of business of FirstMerit, (c) any material agreement, indenture or other
instrument not specifically disclosed in the FirstMerit Financial Statements
relating to the borrowing of money by FirstMerit or the guarantee by FirstMerit
of any such obligation (other than trade payables and instruments relating to
transactions entered into in the ordinary course of business), (d) any
agreement, arrangement or commitment with or to a labor union, or (e) any other
contract or agreement or amendment thereto that would be required to be filed as
an exhibit to a Form 10-K filed by FirstMerit with the Commission as of the date
of this Agreement (the "FirstMerit Contracts"). Neither FirstMerit nor any
FirstMerit Subsidiary is in default under any FirstMerit Contract, which default
is reasonably likely to have, either individually
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or in the aggregate, a Material Adverse Effect on FirstMerit, and there has not
occurred any event that with the lapse of time or the giving of notice or both
would constitute such a default.
3.11. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in the
FirstMerit Disclosure Letter or disclosed in FirstMerit Reports filed by
FirstMerit with the Commission prior to the date of this Agreement, since
December 31, 1997 to the date of this Agreement, there has not been any change
in the financial condition, results of operations or business of FirstMerit and
the FirstMerit Subsidiaries that either individually or in the aggregate has had
a Material Adverse Effect on FirstMerit.
3.12. LITIGATION. Except as disclosed in the FirstMerit Disclosure
Letter or in FirstMerit Reports filed by FirstMerit with the Commission prior to
the date of this Agreement, there is no litigation, action, arbitration or
proceeding pending, or, to the best knowledge of FirstMerit, threatened against
or affecting FirstMerit or any FirstMerit Subsidiary which, either individually
or in the aggregate, is having, or insofar as reasonably can be foreseen, will
have, a Material Adverse Effect on FirstMerit, nor is there any judgment,
decree, injunction, rule or order of any Governmental Entity or arbitrator,
outstanding against FirstMerit or any FirstMerit Subsidiary having, or which,
insofar as reasonably can be foreseen, in the future would have, any such
effect.
3.13. COMPLIANCE WITH LAWS AND ORDERS. Except as disclosed in the
FirstMerit Disclosure Letter or in FirstMerit Reports filed by FirstMerit with
the Commission prior to the date of this Agreement, the businesses of FirstMerit
and the FirstMerit Subsidiaries are not being conducted, and have not been
conducted since December 31, 1997, in violation of any law, ordinance,
regulation, judgment, order, decree, license or permit of any Governmental
Entity, except for possible violations which individually or in the aggregate do
not, and, insofar as reasonably can be foreseen, in the future will not, have a
Material Adverse Effect on FirstMerit. Except as set forth in the FirstMerit
Disclosure Letter, no investigation or review by any Governmental Entity with
respect to FirstMerit or any of the FirstMerit Subsidiaries outside the ordinary
course of business and not generally applicable to entities engaged in the same
business is pending or, to the knowledge of FirstMerit, threatened, and no
Governmental Entity has indicated an intention to conduct the same in each case
other than those the outcome of which will not have a Material Adverse Effect on
FirstMerit.
3.14. AGREEMENTS WITH BANK REGULATORS. As of the date of this
Agreement, except as set forth in the FirstMerit Disclosure Letter, neither
FirstMerit nor any FirstMerit Subsidiary is a party to any written agreement or
memorandum of understanding with, or a party to any commitment letter or similar
undertaking to, or is subject to any order or directive by, or is a recipient of
any extraordinary supervisory letter from, any Governmental Entity outside the
ordinary course of business and not generally applicable to entities engaged in
the same business, including, without limitation, cease and desist or other
orders of any bank regulatory authority, which restricts materially the conduct
of its business, or in any manner relates to its capital adequacy, its credit
policies or its management, nor has FirstMerit been advised by any Governmental
Entity that it is contemplating issuing, requiring or requesting (or is
considering the appropriateness of issuing,
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requiring or requesting) any such order, directive, agreement, memorandum of
understanding, extraordinary supervisory letter, commitment letter or similar
undertaking. Except as set forth in the FirstMerit Disclosure Letter, there are
no (i) material violations or (ii) violations with respect to which refunds or
restitutions which are material in amount to FirstMerit and the FirstMerit
Subsidiaries taken as a whole may be required, cited in any compliance report to
FirstMerit or any FirstMerit Subsidiary as a result of an examination by any
bank regulatory authority.
3.15. FIRSTMERIT OWNERSHIP OF STOCK. Except as disclosed in the
FirstMerit Disclosure Letter, and except pursuant to Stock Purchase Option dated
April 5, 1998 (the "Security First Stock Purchase Option"), a copy of which is
attached hereto as Exhibit 3.15, neither FirstMerit nor, to the best of its
knowledge, any of its affiliates or associates (i) beneficially owns, directly
or indirectly, or (ii) are parties to any agreement, arrangement or commitment
for the purpose of acquiring, holding, voting or disposing of, in each case,
shares of Security First Common Stock (other than shares of Security First
Common Stock held in a fiduciary, trust, custodial or agency capacity by a bank
or trust subsidiary of FirstMerit) which in the aggregate, represent 1% or more
of the outstanding shares of Security First Common Stock.
3.16. FEES. Except for the fees paid and payable to Morgan Stanley &
Co. Incorporated, neither FirstMerit nor any FirstMerit Subsidiary has paid or
become obligated to pay any fee or commission to any broker, finder or
intermediary in connection with the transactions contemplated by this Agreement.
3.17. FIRSTMERIT ACTION. The Board of Directors of FirstMerit (at a
meeting duly called and held) has by the requisite vote (i) determined that the
Merger is advisable and in the best interests of FirstMerit and its
shareholders, (ii) authorized and approved this Agreement and the Stock Purchase
Option, and the transactions contemplated hereby and thereby, including the
Merger, and (iii) authorized and approved the Merger in accordance with
applicable takeover laws (if any) with the result that they will not apply to
the consummation of the Merger and acquisition of shares of FirstMerit Common
Stock by the holders of Security First Common Stock pursuant to this Agreement.
3.18. RIGHTS AGREEMENT. No person will become an "Acquiring Person" and
no "Shares Acquisition Date" or "Distribution Date" will occur under the
Shareholder Rights Agreement, as amended and restated, dated July 18, 1996,
between FirstMerit and FirstMerit Bank, N.A., as rights agent (the "FirstMerit
Rights Plan"), and no holder of rights issued under the FirstMerit Rights Plan
shall have any rights under the FirstMerit Rights Plan as a result of the
approval, execution or delivery of this Agreement or the consummation of the
Merger. No amendments have been made prior to the date of this Agreement to the
FirstMerit Rights Plan except as specifically referred to in this Section.
3.19. ENVIRONMENTAL MATTERS. Except as set forth in the FirstMerit
Disclosure Letter, to the best of FirstMerit's knowledge: (i) neither FirstMerit
nor any of the FirstMerit Subsidiaries has been or is in violation of or liable
under any Environmental Law (as hereinafter defined), except for
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any such violations or liabilities which would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect on
FirstMerit; and (ii) none of the Loan Portfolio Properties and Other Properties
Owned (as hereinafter defined) by FirstMerit or any of the FirstMerit
Subsidiaries has been since such properties have been owned, operated or managed
by FirstMerit or any of the FirstMerit Subsidiaries is in violation of under any
Environmental Law, except for any such violations which, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect on
FirstMerit. Except as set forth in the FirstMerit Disclosure Letter, there are
no actions, suits, demands, notices, claims, investigations or proceedings
pending, or to the best of FirstMerit's knowledge threatened, relating to the
liability of the Loan Portfolio Properties and Other Properties Owned by
FirstMerit or the FirstMerit Subsidiaries under any Environmental Law,
including, without limitation, any notices, demand letters or requests for
information from any federal, state or local environmental agency relating to
any such liabilities under or violations of Environmental Law.
3.20. ACCOUNTING MATTERS. Neither FirstMerit nor, to the best of its
knowledge, any of its affiliates, has taken or agreed to take any action that
would prevent FirstMerit from accounting for the business combination to be
effected by the Merger as a "pooling of interests."
4. REPRESENTATIONS AND WARRANTIES OF SECURITY FIRST
Security First hereby represents and warrants to FirstMerit that:
4.1. CORPORATE ORGANIZATION. Security First is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and is duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction in which its ownership or lease of property
or the nature of the business conducted by it makes such qualification
necessary, except for such jurisdictions in which the failure to be so qualified
would not have a Material Adverse Effect on Security First. Security First is
registered as a savings and loan holding company with the OTS. Security First
has the requisite corporate power and authority to own, lease and operate its
properties and assets and to carry on its business as it is now being conducted.
Security First has delivered to FirstMerit as attachments to the Security First
Disclosure Letter true and complete copies of its Certificate of Incorporation
and its Bylaws (the "Corporate Governance Documents") as currently in effect.
4.2. AUTHORITY. Security First has the requisite corporate power and
authority to execute and deliver this Agreement and, except for any required
approval of Security First's shareholders and the approval of the applicable
Regulatory Authorities, to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized and approved by the
Board of Directors of Security First and no other corporate proceedings on the
part of Security First are necessary to authorize this Agreement or to
consummate the transactions so contemplated, except for approval by the
shareholders of Security First as provided in Section 6.1(a). This Agreement has
been duly executed and delivered by, and constitutes a valid and binding
obligation of, Security First, enforceable against
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Security First in accordance with its terms, except as enforceability hereof may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium and
other similar laws affecting the enforcement of creditors' rights generally and
except that the availability of the equitable remedy of specific performance or
injunctive relief is subject to the discretion of the court before which any
proceedings may be brought, and except as enforceability hereof may be limited
by laws relating to the safety and soundness of insured depository institutions
as set forth in 12 U.S.C. Section 1818(b) or to the appointment of a conservator
or receiver by the Federal Deposit Insurance Corporation.
4.3. CAPITALIZATION. The authorized capital stock of Security First
consists of 20,000,000 shares of Security First Common Stock and 1,000,000
shares of serial preferred, par value $.01 per share. As of the date of this
Agreement, (i) 7,555,044 shares of Security First Common Stock were validly
issued and outstanding, fully paid and nonassessable and not issued in violation
of any preemptive right of any Security First shareholder and no shares of
serial preferred were issued. As of the date of this Agreement, there were
88,324 treasury shares and outstanding Security First Stock Options to purchase
374,892 shares of Security First Common Stock, and there were outstanding
Security First 6.25% Convertible Subordinated Debentures ("Security First
Debentures") to covert into 878,048 shares of Security First Common Stock, all
of which are currently redeemable by Security First at 100% of the original
principal amount. Except as contemplated by this Agreement, the Security First
Stock Purchase Option or in the Security First Disclosure Letter (which is a
letter attached hereto as Exhibit 4.3, dated the date of this Agreement, from
Security First to FirstMerit, such letter being identified by FirstMerit
executing a copy thereof), there are no shares of capital stock of Security
First authorized, issued or outstanding and there are no outstanding
subscriptions, options, warrants, scrip, rights, calls, convertible securities
or any other similar agreements, arrangements or commitments of any character
relating to the issued or unissued capital stock or other securities of Security
First obligating, or which may obligate, Security First to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of capital
stock of Security First or obligating, or which may obligate, Security First to
grant, extend or enter into any subscription, option, warrant, scrip, right,
call, convertible security or other similar agreement, arrangement or
commitment. Except as set forth in the Security First Disclosure Letter, there
are no voting trusts or other similar agreements, arrangements, or commitments
to which Security First or any Security First Subsidiary (as hereinafter
defined) is a party with respect to the voting of the capital stock of Security
First.
4.4. SUBSIDIARIES. The Security First Disclosure Letter sets forth, as
of the date of this Agreement, the name and state of incorporation of each
subsidiary of Security First (collectively, the "Security First Subsidiaries")
and the authorized capital stock of each Security First Subsidiary. Except as
set forth in the Security First Disclosure Letter, each of the Security First
Subsidiaries is a bank, savings association or a corporation, duly organized,
validly existing and in good standing under the laws of its respective
jurisdiction of incorporation or organization and is duly qualified to do
business as a foreign corporation in each jurisdiction in which its ownership or
lease of property or the nature of the business conducted by it makes such
qualification necessary, except for such jurisdictions in which the failure to
be so qualified would not have a Material Adverse Effect on Security First. Each
of the Security First Subsidiaries has the requisite corporate power and
authority
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to own, lease and operate its properties and assets and to carry on its
businesses as they are now being conducted. Security First has delivered to
FirstMerit as attachments to the Security First Disclosure Letter true and
complete copies of the Security First Subsidiaries' articles of incorporation
and code of regulations (charter or bylaws), each as currently in effect.
Except as set forth in the Security First Disclosure Letter, as of the
date of this Agreement, all outstanding shares of capital stock of each Security
First Subsidiary are owned by Security First or another Security First
Subsidiary and are validly issued, fully paid and nonassessable, have not been
issued in violation of any preemptive right and are owned free and clear of all
liens, claims, charges, options, encumbrances or agreements with respect
thereto. Except as set forth in the Security First Disclosure Letter, as of the
date of this Agreement, neither Security First nor any Security First Subsidiary
owns beneficially more than 5% of any class of equity securities or any similar
interests of any corporation, bank, business, trust, association or similar
organization. There are, as of the date of this Agreement, no outstanding
subscriptions, options, warrants, scrip, rights, calls, convertible securities
or any other similar agreements, arrangements or commitments of any character
relating to the issued or unissued capital stock or other securities of any
Security First Subsidiary obligating, or which may obligate, any Security First
Subsidiary to issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of its capital stock or obligating, or which may obligate, any
Security First Subsidiary to grant, extend or enter into any subscription,
option, warrant, scrip, right, call, convertible security or other similar
agreement, arrangement or commitment.
4.5. INFORMATION IN DISCLOSURE DOCUMENTS, REGISTRATION STATEMENT, ETC.
(a) None of the information with respect to Security First or any
Security First Subsidiary provided by Security First for inclusion in the
Registration Statement will, at the time it becomes effective and at the time of
the Security First Meeting, 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. None of the information with respect to Security
First or any Security First Subsidiary provided in writing by Security First for
inclusion in the Proxy Statement will, at the time of the mailing of the Proxy
Statement, and at the time of the Security First Meeting, contain any statement
which, at the time it is made and in light of the circumstances under which it
is made, is false or misleading with respect to any material fact, or which
omits to state any material fact necessary in order to make the statements
therein not false or misleading or necessary to correct any statement in any
earlier communication with respect to the solicitation of any proxy for the
Security First Meeting which has become false or misleading. The Proxy Statement
will comply as to form in all material respects with the provisions of the
Exchange Act, and the rules and regulations promulgated thereunder.
(b) All documents that Security First is responsible for filing with
any Governmental Entity will comply as to form in all material respects with
applicable law. None of the information with respect to Security First or any
Security First Subsidiary provided by Security First for inclusion in any
document to be filed with any Governmental Entity in connection with the
transactions contemplated hereby will contain any statement of a material fact
which is untrue as of the time that such statement is made.
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4.6. CONSENT AND APPROVALS; NO VIOLATION. Except as set forth in the
Security First Disclosure Letter, neither the execution and delivery of this
Agreement by Security First, nor the consummation by Security First of the
transactions contemplated hereby, nor compliance by Security First with any of
the provisions hereof, will (a) conflict with or result in any breach of any
provision of its Corporate Governance Documents, (b) violate, conflict with,
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration of, or result in the creation of any lien, security interest,
charge or other encumbrance upon any of the properties or assets of Security
First or any of the Security First Subsidiaries under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, deed of trust,
license, lease, agreement or other instrument or obligation to which Security
First or any Security First Subsidiary is a party or to which they or any of
their respective properties or assets may be subject, except for such
violations, conflicts, breaches, defaults, terminations, accelerations or
creations of liens or other encumbrances, that are set forth in the Security
First Disclosure Letter or which, individually or in the aggregate, will not
have a Material Adverse Effect on Security First, (c) violate any judgment,
ruling, order, writ, injunction, decree, statute, rule or regulation applicable
to Security First or any Security First Subsidiary or any of their respective
properties or assets, except for such violations which, individually or in the
aggregate, will not have a Material Adverse Effect on Security First, or (d)
require any consent, approval, authorization or permit of or from, or filing
with or notification to, any Governmental Entity, except (i) pursuant to the
Exchange Act and the Securities Act, (ii) filing certificates of merger pursuant
to the OGCL and the DGCL, (iii) filings required under the securities or blue
sky laws of the various states, (iv) filings with, and approval by, the FRB, (v)
filings with, and approval by, the OTS, (vi) filings with, and approval by the
OCC, (vii) filings and approvals pursuant to any applicable State Takeover
Approvals, or (viii) consents, approvals, authorizations, permits, filings or
notifications which have either been obtained or made prior to the Closing or
which, if not obtained or made, will neither, individually or in the aggregate,
have a Material Adverse Effect on Security First nor restrict Security First's
legal authority to execute and deliver this Agreement and consummate the
transactions contemplated hereby.
4.7. REPORTS AND FINANCIAL STATEMENTS. Since March 31, 1997, Security
First has filed all reports, registrations and statements, together with any
required amendments thereto, that it was required to file with the Commission,
including, but not limited to Forms 10-K, Forms 10-Q, Forms 8-K and proxy
statements (collectively, the "Security First Reports"). Security First has
previously made available or furnished, or, with respect to Security First
Reports filed after the date of this Agreement, will promptly furnish,
FirstMerit with true and complete copies of each of the Security First Reports.
As of their respective dates (but taking into account any amendments filed prior
to the date of this Agreement), and except as stated in the Security First
Disclosure Letter, the Security First Reports complied, or, with respect to
Security First Reports filed after the date of this Agreement, will comply, in
all material respects with all the rules and regulations promulgated by the
Commission, and did not contain, or, with respect to Security First Reports
filed after the date of this Agreement, will not contain, any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The audited
consolidated financial statements and unaudited interim financial statements of
Security First included in the Security First Reports (the "Security First
Financial Statements") have been prepared in accordance with generally
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accepted accounting principles applied on a consistent basis (except as may be
indicated therein or in the notes thereto) and fairly present the consolidated
financial position of Security First and the Security First Subsidiaries as at
the dates thereof and the consolidated results of operations and cash flows for
the periods then ended subject, in the case of the unaudited interim financial
statements, to normal year-end audit adjustments, any other adjustments
described therein and the absence of footnotes.
4.8. TAXES. Except as set forth in the Security First Disclosure
Letter, Security First and each Security First Subsidiary have prepared in good
faith and duly and timely filed, or caused to be duly and timely filed, all
federal, state, local and foreign income, franchise, sales, real and personal
property and other tax returns and reports required to be filed by them on or
before the date of this Agreement, except where the failure to file would not
have a Material Adverse Effect on Security First. Except as set forth in the
Security First Disclosure Letter, Security First and each Security First
Subsidiary have paid, or have adequately reserved or have made adequate accruals
(in accordance with generally accepted accounting principles) with respect to,
all taxes, interest and penalties shown to be owing on all such returns and
reports. The Security First Disclosure Letter sets forth, as of the date of this
Agreement, the following information with respect to Security First and each
Security First Subsidiary: (i) the most recent tax year through which the
Internal Revenue Service ("IRS") has completed its examination of such
corporation, (ii) whether there is an examination pending by the IRS with
respect to such corporation and, if so, the tax years involved, (iii) whether
such corporation has executed or filed with the IRS any agreement which is still
in effect extending the period for assessment and collection of any federal tax
and, if so, the tax years covered by such agreement and the expiration date of
such extension, and (iv) whether there are any existing material disputes as to
state, local or foreign taxes. Except as set forth in the Security First
Disclosure Letter, there are no liens for federal, state, local or foreign taxes
upon the assets of Security First or of any Security First Subsidiary, except
for statutory liens for taxes and assessments not yet delinquent or the validity
of which is being contested in good faith by appropriate proceedings. Except as
set forth in the Security First Disclosure Letter, neither Security First nor
any of the Security First Subsidiaries is a party to any action or proceeding,
nor is any such action or proceeding threatened, by any Governmental Entity for
the assessment or collection of taxes which are material in amount, and no
deficiency notices or reports have been received by Security First or any of the
Security First Subsidiaries in respect of any material deficiencies for any tax,
assessment, or government charges. After the date of this Agreement, Security
First will promptly notify FirstMerit of (i) the commencement or threat of any
such action or proceeding involving an amount of taxes material to Security
First and its subsidiaries taken as a whole, and (ii) the receipt by Security
First or the Security First Subsidiaries of any such deficiency notices or
reports in respect of any material deficiencies.
4.9. EMPLOYEE PLANS, EMPLOYEES. All employee bonus, deferred
compensation, pension, retirement, profit sharing, stock option, stock purchase,
employee stock ownership, stock appreciation rights, savings, consulting,
severance, collective bargaining, group insurance, fringe benefit and other
employee benefit, incentive and welfare plans, policies, contracts and
arrangements and all trust agreements related thereto, now in effect and
relating to any present or former directors, officers or employees of Security
First or the Security First Subsidiaries, whether or not described in Section
3(3) of ERISA ("Security First Employee Plans"), are identified in the Security
First Disclosure Letter. Security First has previously delivered or made
available to FirstMerit copies of all Security First Employee Plans, in each
case as in effect on the date of this Agreement.
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All of Security First Employee Plans have been maintained, operated and
administered in substantial compliance with their terms, and Security First, all
of the Security First Subsidiaries and all of the Security First Employee Plans
currently comply, and have at all relevant times complied, in all material
respects with ERISA, the Code, and any other applicable laws. With respect to
each Security First Employee Plan which is a pension plan (as defined in Section
3(2) of ERISA): (a) except as set forth in the Security First Disclosure Letter
each pension plan as amended (and any trust relating thereto) intended to be a
qualified plan under Section 401(a) of the Code either has been determined by
the IRS to be so qualified or is the subject of a pending application for such
determination that was timely filed, (b) except as set forth in the Security
First Disclosure Letter, would be fully funded (calculated using the interest
rate and other actuarial assumptions mandated by the Pension Benefit Guaranty
Corporation ("PBGC")) if terminated at the Effective Time and there is no
accumulated funding deficiency (as defined in Section 302 of ERISA and Section
412 of the Code), whether or not waived, and no waiver of the minimum funding
standards of such sections has been requested from the IRS, (c) no reportable
event described in Section 4043 of ERISA has occurred, (d) no defined benefit
plan has been terminated, nor has the PBGC instituted proceedings to terminate a
defined benefit plan or to appoint a trustee or administrator of a defined
benefit plan, and no circumstances exist that constitute grounds under Section
4042 of ERISA entitling the PBGC to institute any such proceedings, and (e) no
pension plan is a "multi-employer plan" within the meaning of Section 3(37) of
ERISA.
Except as set forth in the Security First Disclosure Letter, no
Security First Employee Plan provides benefits, including, without limitation,
death or medical benefits (whether or not insured), with respect to current or
former employees beyond their retirement or other termination of service (other
than (i) temporary coverage mandated by applicable law, (ii) death benefits or
retirement benefits under any "employee pension plan," as that term is defined
in Section 3(2) of ERISA, (iii) deferred compensation benefits accrued as
liabilities on the books of Security First or any Security First Subsidiary, or
(iv) benefits the full cost of which are borne by the current or former employee
(or his or her beneficiary)).
Except as set forth in the Security First Disclosure Letter, all
employees of Security First and the Security First Subsidiaries are "at will"
and there are no employment, consulting or like agreements, written or oral,
expressed or implied.
4.10. MATERIAL CONTRACTS. Except as set forth in the Security First
Disclosure Letter or disclosed in the Security First Reports, neither Security
First nor any Security First Subsidiary is, as of the date of this Agreement, a
party to, or is bound by, (a) any material lease not made in the ordinary course
of business of Security First, (b) any agreement, arrangement, or commitment not
made in the ordinary course of business which materially restricts the conduct
of any line of business of Security First, (c) any benefit agreements providing
for aggregate payments to any person in any calendar year in excess of $100,000,
(d) any material agreement, indenture or other instrument not specifically
disclosed in the Security First Financial Statements relating to the borrowing
of money by Security First or the guarantee by Security First of any such
obligation (other than trade payables and instruments relating to transactions
entered into in the ordinary course of business), (e) any agreement, arrangement
or commitment with or to a labor union or (f) any other contract or
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agreement or amendment thereto that would be required to be filed as an exhibit
to a Form 10-K filed by Security First with the Commission (the agreements
and other documents referred to in clauses (a) through (e) of this sentence,
collectively, the "Security First Contracts"). Except as stated in the
Security First Disclosure Letter, neither Security First nor any Security First
Subsidiary is in default under any Security First Contract, which default is
reasonably likely to have, either individually or in the aggregate, a Material
Adverse Effect on Security First, and there has not occurred any event that
with the lapse of time or the giving of notice or both would constitute such a
default.
4.11. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in the
Security First Disclosure Letter or disclosed in Security First Reports filed by
Security First with the Commission prior to the date of this Agreement, since
March 31, 1997 to the date of this Agreement, there has not been any change in
the financial condition, results of operations or business of Security First and
the Security First Subsidiaries that either individually or in the aggregate has
had a Material Adverse Effect on Security First.
4.12. LITIGATION. Except as disclosed in the Security First Disclosure
Letter or in Security First Reports filed by the Security First with the
Commission prior to the date of this Agreement, there is no litigation, action,
arbitration or proceeding pending, or, to the best knowledge of Security First,
threatened against or affecting Security First or any Security First Subsidiary
which, either individually or in the aggregate, is having, or insofar as
reasonably can be foreseen will have, a Material Adverse Effect on Security
First, nor is there any judgment, decree, injunction, rule or order of any
Governmental Entity or arbitrator, outstanding against Security First or any
Security First Subsidiary having, or which, insofar as reasonably can be
foreseen, in the future would have, any such effect.
4.13. COMPLIANCE WITH LAWS AND ORDERS. Except as disclosed in the
Security First Disclosure Letter or in Security First Reports filed by Security
First with the Commission prior to the date of this Agreement, the businesses of
Security First and the Security First Subsidiaries are not being conducted, and
have not been conducted since March 31, 1997, in violation of any law,
ordinance, regulation, judgment, order, decree, license or permit of any
Governmental Entity (including, without limitation, zoning ordinances, building
codes, and environmental, civil rights, and occupational health and safety laws
and regulations and, in the case of Security First Subsidiaries that are savings
and loans or thrifts, all statutes, rules and regulations pertaining to the
conduct of such business), except for possible violations which individually or
in the aggregate do not, and, insofar as reasonably can be foreseen, in the
future will not, have a Material Adverse Effect on Security First. Except as set
forth in the Security First Disclosure Letter, no investigation or review by any
Governmental Entity with respect to Security First or any of the Security First
Subsidiaries outside the ordinary course of business and not generally
applicable to entities engaged in the same business is pending or, to the
knowledge of Security First, threatened, nor has any Governmental Entity
indicated an intention to conduct the same in each case other than those the
outcome of which will not have a Material Adverse Effect on Security First.
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4.14. AGREEMENTS WITH REGULATORS. As of the date of this Agreement,
except as disclosed in the Security First Disclosure Letter, neither Security
First nor any Security First Subsidiary is a party to any written agreement or
memorandum of understanding with, or a party to any commitment letter or similar
undertaking to, or is subject to any order or directive by, or is a recipient of
any extraordinary supervisory letter from, any Governmental Entity outside the
ordinary course of business and not generally applicable to entities engaged in
the same business, including, without limitation, cease and desist orders of any
regulatory authority, which restricts materially the conduct of its business, or
in any manner relates to its capital adequacy, its credit policies or its
management, nor has Security First been advised by any Governmental Entity that
it is contemplating issuing, requiring, or requesting (or is considering the
appropriateness of issuing, requiring or requesting) any such order, directive,
agreement, memorandum of understanding, extraordinary supervisory letter,
commitment letter or similar undertaking. Except as set forth in Security First
Disclosure Letter, there are no (i) material violations, or (ii) violations with
respect to which refunds or restitutions which are material in amount to
Security First and the Security First Subsidiaries taken as a whole may be
required, cited in any compliance report to Security First or any Security First
Subsidiary as a result of an examination by any regulatory authority.
4.15. SECURITY FIRST OWNERSHIP OF STOCK. Except as disclosed in the
Security First Disclosure Letter, as of the date of this Agreement, neither
Security First nor, to the best of its knowledge, any of its affiliates or
associates (i) beneficially owns directly or indirectly, or (ii) are parties to
any agreement, arrangement or commitment for the purpose of acquiring, holding,
voting or disposing of, in each case, shares of FirstMerit Common Stock (other
than shares of FirstMerit Common Stock held in a fiduciary, trust, custodial or
agency capacity by a subsidiary of Security First) which in the aggregate,
represent 5% or more of the outstanding shares of FirstMerit Common Stock.
4.16. FEES. Except for fees paid and payable to Charles Webb & Company
("Charles Webb"), neither Security First nor any Security First Subsidiary has
paid or become obligated to pay any fee or commission to any broker, finder or
intermediary in connection with the transactions contemplated by this Agreement.
4.17. SECURITY FIRST ACTION. The Board of Directors of Security First
(at a meeting duly called and held) has by the requisite vote (i) determined
that the Merger is advisable and in the best interests of Security First and its
shareholders, (ii) authorized and approved this Agreement, the Security First
Stock Purchase Option and the transactions contemplated hereby and thereby,
including the Merger, (iii) directed that the Merger Agreement be submitted for
consideration by Security First's shareholders entitled to vote thereon at the
Security First Meeting, and (iv) authorized and approved the Security First
Stock Purchase Option and the Merger Agreement in accordance with applicable
takeover laws (if any) with the result that they will not apply to the
consummation of the Merger and the acquisition by FirstMerit of shares of
Security First Common Stock pursuant to the Merger, the Security First Stock
Purchase Option or any of the transactions contemplated by this Agreement or the
Security First Stock Purchase Option. Charles Webb, Security First's financial
advisor, has provided the Board of Directors of Security First with its opinion
that, as of the date of such duly called meeting of the Board, the Merger
Consideration is fair, from a financial point of view, to the shareholders of
Security First.
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4.18. VOTE REQUIRED. The affirmative vote of the holders of a majority
of the outstanding shares of Security First Common Stock entitled to vote
thereon is the only vote of the holders of any class or series of Security First
capital stock necessary to approve this Agreement and the transactions
contemplated hereby, unless FirstMerit has exercised its rights to acquire the
Security First Common Stock under the Security First Stock Purchase Option.
4.19. CONDUCT OF SECURITY FIRST TO DATE. Except as disclosed in the
Security First Disclosure Letter and in the Security First Reports filed with
the Commission prior to the date of this Agreement, from and after March 31,
1997, to the date of this Agreement: (a) Security First and the Security First
Subsidiaries have carried on their respective businesses in the ordinary and
usual course consistent with their current practices, (b) Security First has not
issued or sold any of its capital stock (except shares of Security First Common
Stock issued upon exercise of Security First Stock Options or under the Security
First Debentures), or any corporate debt securities which would be classified as
long-term debt on the balance sheets of Security First, (c) Security First has
not granted any option for the purchase of its capital stock (other than
pursuant to the Security First Stock Purchase Option), effected any stock split,
or otherwise changed its authorized capitalization, (d) Security First has not
declared, set aside, or paid any dividend or other distribution in respect of
its capital stock, or, directly or indirectly, redeemed or otherwise acquired
any of its capital stock, except regular quarterly cash dividends (based upon
historic precedent), (e) Security First has neither incurred nor prepaid any
corporate debt securities or instruments which are or would be classified as
long-term debt on the balance sheet of Security First, (f) neither Security
First nor any Security First Subsidiary has sold, assigned, transferred, or
otherwise disposed of to a third party (i) equity securities in or issued by any
Security First Subsidiary, (ii) branch offices of any Security First Subsidiary,
(iii) assets constituting any other line of business, or (iv) any of its other
material properties or assets other than for a fair consideration in the
ordinary course of business, (g) neither Security First nor any Security First
Subsidiary has purchased or otherwise acquired from a third party equity
securities in or issued by such third party other than in the ordinary course of
business, branch offices of such third party, assets constituting any other line
of business, or any other material properties or assets outside the ordinary
course of its business, (h) neither Security First nor any Security First
Subsidiary has: increased the rate of compensation of, or paid any bonus to, any
of its directors, officers, or other employees, except under existing plans and
policies, entered into any new, or amended or supplemented any existing, or
secured, collateralized, or funded any, employment, management, consulting,
deferred compensation, severance, or other similar contract, entered into,
terminated, or substantially modified any Security First Employee Plan in
respect of any of its present or former directors, officers, or other employees,
or agreed to do any of the foregoing, (i) neither Security First nor any
Security First Subsidiary, has entered into any material transaction, contract,
lease, agreement or commitment requiring the approval of the Board of Directors
of Security First or any Security First Subsidiary, or amended, modified or
terminated any contract, lease or other agreement to which it is a party in a
manner requiring the approval of the Board of Directors of Security First or any
Security First Subsidiary, and (j) no Security First Subsidiary has entered into
any material transaction, contract, lease, agreement or commitment outside the
ordinary course of business requiring the approval of the Board of Directors of
such Subsidiary or amended, modified or terminated outside the ordinary course
of business any material contract, lease or other agreement to which it is a
party in a manner requiring the approval of the Board of Directors of such
Subsidiary.
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4.20. ENVIRONMENTAL MATTERS. For purposes of this Agreement, the
following terms shall have the indicated meanings:
"Environmental Law" means any federal, state or local law,
statute, ordinance, rule, regulation, code, license, permit,
authorization, approval, consent, order, judgment, decree, injunction
or agreement with any Governmental Entity relating to (i) the
protection, preservation or restoration of the environment (including,
without limitation, air, water vapor, surface water, ground water,
drinking water supply, surface soil, subsurface soil, plant and animal
life or any other natural resource), and/or (ii) the use, storage,
recycling, treatment, generation, transportation, processing, handling,
labeling, production, release or disposal of Hazardous Substances. The
term Environmental Law includes, without limitation; the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, 42
U.S.C. Section 9601, et seq.; the Resource Conservation and Recovery
Act, as amended, 42 U.S.C. Section 6901, et seq.; the Clean Air Act, as
amended, 42 U.S.C. Section 7401, et seq.; the Federal Water Pollution
Control Act, as amended, 33 U.S.C. Section 1251 et seq.; the Toxic
Substances Control Act, as amended, 125 U.S.C. Section 9601, et seq.;
the Emergency Planning and Community Right to Know Act, 42 U.S.C.
Section 11001, et seq.; the Safe Drinking Water Act, 42 U.S.C. Section
300f, et seq.; all comparable state and local laws; and any common law
(including without limitation common law that may impose 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 Substance.
"Hazardous Substance" means any substance presently 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 material containing any such
substance as a component. Hazardous Substances include, without
limitation, petroleum or any derivative or by-product thereof,
asbestos, radioactive material, and polychlorinated biphenyls.
"Loan Portfolio Properties and Other Properties Owned" means
those properties owned, operated or managed (including those held in
trust) by Security First, as the case may be, or any of their
subsidiaries.
Except as set forth in Security First Disclosure Letter, to the best of Security
First's knowledge: (i) neither Security First nor any of the Security First
Subsidiaries has been or is in violation of or liable under any Environmental
Law, except for any such violations or liabilities which would not reasonably be
expected, individually or in the aggregate, to have a Material Adverse Effect on
Security First; and (ii) none of the Loan Portfolio Properties and Other
Properties Owned by Security First or any of the Security First Subsidiaries has
been since such properties have been owned, operated or managed by Security
First or any of the Security First Subsidiaries, is in violation of any
Environmental Law, except for any such violations which, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect on
Security First. Except as set forth in Security First Disclosure Letter, there
are no actions, suits, demands, notices, claims, investigations or proceedings
pending, or to the best of Security First's knowledge threatened, relating to
the liability of the Loan Portfolio Properties and Other Properties Owned by
Security First or the Security First Subsidiaries under any Environmental Law,
including, without limitation, any
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notices, demand letters or requests for information from any federal, state or
local environmental agency relating to any such liabilities under or violations
of Environmental Law.
4.21. ACCOUNTING MATTERS. Neither Security First nor, to the best of
its knowledge, any of its affiliates, has taken or agreed to take any action
that would prevent FirstMerit from accounting for the business combination to be
effected by the Merger as a "pooling of interests."
5. COVENANTS
5.1. ACQUISITION PROPOSALS AND NEGOTIATIONS. Each of Security First and
the Security First Subsidiaries shall not, directly or indirectly, and shall
instruct and otherwise use its diligent efforts to cause their respective
officers, directors, employees, agents and advisors not to, directly or
indirectly, solicit or initiate any proposals or offers from any person, or
discuss or negotiate with any such person, relating to any acquisition or
purchase of all or a material amount of the assets of, or any equity securities
of, or any merger, consolidation or business combination with, Security First or
any of the Security First Subsidiaries (such transactions are referred to herein
as "Acquisition Transactions"), provided, however, that nothing contained in
this Section shall prohibit:
(i) Security First or any Security First Subsidiary, as the
case may be, from furnishing information to, or entering into discussions or
negotiations with, any person or entity that makes an unsolicited proposal of an
Acquisition Transaction if and to the extent that,
(a) the Board of Directors of Security First, after
consultation with and based upon the opinion of Silver, Freedman & Taff, L.L.P.
determines in good faith that such action is required for the directors of
Security First to fulfill their fiduciary duties and obligations to the Security
First shareholders and other constituencies under Delaware law, taking into
consideration the sale process engaged in connection with the transactions
contemplated hereby, and
(b) prior to furnishing such information to, or
entering into discussions or negotiations with, such person or entity, Security
First provides immediate written notice to FirstMerit at least two business days
prior to furnishing information to, or entering into discussions or negotiations
with, such a person or entity, or
(ii) the Board of Directors of Security First from failing to
make, withdrawing or modifying its recommendation referred to in Section 5.14
following receipt of a proposal for an Acquisition Transaction if the Board of
Directors of Security First, after consultation with and based upon the opinion
of Silver, Freedman & Taff, L.L.P. determines in good faith that such action is
required for the directors of Security First to fulfill their fiduciary duties
and obligations to the Security First shareholders and other constituencies
under Delaware law, taking into consideration the sale process engaged in
connection with the transactions contemplated hereby.
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In the event Security First or any officer, director or representative
thereof receives any contact, either oral or written, from a third party or its
representative regarding an Acquisition Transaction or any matter directly or
indirectly related thereto after the date of this Agreement, Security First
shall immediately notify FirstMerit of such contact, and provide such
information requested by FirstMerit, including but not limited to the name of
the party or parties, and all details related thereto. Security First shall have
a continuing obligation to provide information to FirstMerit regarding any
additional or continuing contacts. Any writings received by Security First or
any officer, director or representative thereof, shall be immediately provided
to FirstMerit, regardless of such writing being marked confidential or
otherwise.
5.2. INTERIM OPERATIONS OF SECURITY FIRST. During the period from the
date of this Agreement to the Effective Time, except as specifically
contemplated by this Agreement, as required by law, as set forth in Security
First Disclosure Letter, or as otherwise approved in writing by FirstMerit
(which shall not be unreasonably withheld):
5.2.1. CONDUCT OF BUSINESS. Security First shall, and shall
cause each of the Security First Subsidiaries to, conduct their respective
businesses only in, and not take any action except in the ordinary course of
business substantially consistent with current practices (which practices
include any workout arrangements for troubled loans and real estate development
assets). Security First shall use all diligent efforts to (i) maintain and
preserve intact the business organization of Security First and each of the
Security First Subsidiaries, keep available the services of its and their
present officers and employees, and keep the branch operations fully staffed
with competent employees, (ii) preserve the goodwill of those having business
relationships with Security First or the Security First Subsidiaries, (iii)
maintain and keep its properties in as good repair and condition as at present,
except for depreciation due to ordinary wear and tear, (iv) attempt to resolve
such loans which FirstMerit has identified in writing to Security First as
"troubled," in a workout arrangement which conditions and terms shall be
satisfactory to Security First and FirstMerit, (v) keep in full force and effect
insurance and bonds comparable in amount and scope of coverage to that now
maintained by it, provided however, in the event that any such insurance
(including, without limitation, directors' and officers' liability insurance) is
canceled or not renewable at its expiration at current or standard rates,
Security First shall consult with FirstMerit in order to determine whether to
exercise its right to extend the discovery period and in evaluating available
alternatives to replace the current insurance, (vi) perform in all material
respects all obligations required to be performed by each of Security First and
each of the Security First Subsidiaries under all material contracts, leases and
documents relating to or affecting its assets, properties, and business, and
(vii) comply with and perform in all material respects all obligations and
duties imposed upon it by all federal, state, municipal, and local laws, and all
rules, regulations and orders imposed by federal, state, municipal or local
governmental agencies.
5.2.2. NEGATIVE COVENANTS. Security First shall not and shall
not permit any of the Security First Subsidiaries to make any change or
amendment to, or to repeal, their respective articles of incorporation or codes
of regulations (or comparable governing instruments). Neither Security First nor
any Security First Subsidiary shall after the date of this Agreement enter into
any loan or credit commitment (including standby letters of credit) to, or
invest (as a venture capital or similar
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investment) or agree to invest (as a venture capital or similar investment) in,
any person or entity if such loan, commitment or investment, would exceed
$500,000 as a residential loan or investment, or $1,000,000 as a commercial
loan, without first consulting with FirstMerit; provided, however, that nothing
in this paragraph shall prohibit Security First or any Security First Subsidiary
from honoring any contractual obligation in existence on the date of this
Agreement. Neither Security First nor any Security First Subsidiary shall after
the date of this Agreement enter into any participatory agreements, loans,
commitments or investments involving collateral outside of Ohio, without first
consulting with FirstMerit, except that the following are excluded from this
restriction: (i) Small Business Association loans, (ii) agency rated asset
backed securities, and (iii) government obligations of the United States of
America, or a state or municipality within the United States of America.
Neither Security First nor any Security First Subsidiary shall
sell, assign, transfer or otherwise dispose of to a third party, (i) branch
offices of any Security First Subsidiary, or (ii) any of its material properties
or assets. Neither Security First nor any Security First Subsidiary shall
purchase or otherwise acquire from a third party, branch offices of such third
party, assets constituting any other line of business, or any other material
properties or assets outside the ordinary course of its business. Neither
Security First nor any Security First Subsidiary shall enter into any
transaction, contract, lease, agreement or commitment (or any amendment to any
transaction, contract, lease, agreement or commitment) outside of the ordinary
course of business which is material to Security First and the Security First
Subsidiaries taken as a whole.
5.2.3. CAPITAL STOCK. Security First shall not, and shall not
permit any of the Security First Subsidiaries to, issue or sell any shares of
capital stock or any other securities of any of them (other than pursuant to
Security First Stock Options outstanding on the date of this Agreement and under
the Security First Debentures, or the exercise by FirstMerit of its rights under
the Security First Stock Purchase Option) or issue any securities convertible
into or exchangeable for, or options, warrants to purchase, scrip, rights to
subscribe for, calls or commitments of any character whatsoever relating to, or
enter into any contract, commitment or arrangement with respect to the issuance
of, any shares of capital stock or any other securities of any of them or enter
into any arrangement, contract or commitment with respect to the purchase or
voting of shares of their capital stock, or adjust, split, combine or reclassify
any of their capital stock or other securities or make any other changes in
their capital structures. Neither Security First nor any Security First
Subsidiary shall acquire beneficial ownership of any class of equity securities
or any similar interests of any corporation, bank, business, trust, association
or similar organization.
5.2.4. DIVIDENDS. Security First shall not and shall not
permit any of the Security First Subsidiaries to declare, set aside, pay or make
any dividend or other distribution or payment (whether in cash, stock or
property) with respect to, or purchase or redeem, any shares of the capital
stock of any of them other than (a) Security First's regular quarterly cash
dividends in the amount (subject to the next paragraph) of $.08 per share,
including an increase based upon historical practice to $.09 per share in May
1998 (to the extent legally permitted), and (b) dividends paid (to the extent
legally permitted) by any Security First Subsidiary to another Security First
Subsidiary or Security First with respect to such Security First Subsidiary's
capital stock. From the date of this Agreement
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to the earlier of the Effective Time or the termination of this Agreement,
Security First shall not, without the prior written consent of FirstMerit, make
any changes in its practice of setting dividend record or dividend payment
dates.
The parties agree to consult with respect to the last
quarterly dividend of Security First payable prior to the Effective Time with
the object of assuring that the shareholders of Security First receive an
equitable dividend distribution, taking into consideration the record and
payment dates of the last Security First dividend distribution and the first
FirstMerit dividend distribution following the Merger. It is the intent of the
parties that in the event that the Effective Date will occur shortly after the
record date for the FirstMerit dividend, that the last Security First dividend
to be paid prior to such time, will be grossed-up on an equitable basis so that
the Security First shareholders receive the economic benefit of such dividend.
5.2.5. EMPLOYEE PLANS, COMPENSATION AND BONUSES. Except as is
necessary to comply with the Code or as contemplated in this Agreement, or as
expressly set forth in the Security First Disclosure Letter regarding salary
increases, incentive pay or bonuses for periods after the date of this
Agreement, Security First shall not, and shall not permit any of the Security
First Subsidiaries to: adopt or amend any bonus, profit sharing, compensation,
severance, termination, stock option, pension, retirement, deferred
compensation, employment or other employee benefit agreements, trusts, plans,
funds or other arrangements for the benefit or welfare of any present or former
director, officer or employee of Security First or any Security First
Subsidiary; increase the compensation or fringe benefits of any present or
former director, officer or employee, including the Senior Officers (as
hereinafter defined); pay any bonus, compensation or benefit not required by any
existing plan or arrangement (including, without limitation, the granting of
stock options or stock rights); take any action or grant any benefit not
required under the terms of any existing agreements, trusts, plans, funds or
other such arrangements; or enter into any contract, agreement, commitment or
arrangement to do any of the foregoing.
Pursuant to the terms of certain split-dollar life insurance
policies, the Security First officers will be entitled to purchase the
split-dollar life insurance policies held by Security First on their lives. The
names of the officers, amount and terms of the policies, and the cash
surrender/purchase price are listed on the schedule attached to the Security
First Disclosure Letter.
5.2.6. CONFORMING ACCOUNTING AND RESERVE POLICIES;
RESTRUCTURING EXPENSES.
(a) Notwithstanding that Security First believes that it has
established all reserves and taken all provisions for possible loan losses
required by generally accepted accounting principles and applicable laws, rules
and regulations, Security First recognizes that FirstMerit has adopted different
loan, accrual and reserve policies (including loan classifications and levels of
reserves for possible loan losses), subject to applicable laws, regulations, and
the requirements of Governmental Entities and generally accepted accounting
principles. From and after the date of this Agreement to the Effective Time,
Security First and FirstMerit shall consult and cooperate with each other with
respect to conforming, as specified in a notice from FirstMerit to Security
First, based upon such consultation, Security First's loan, accrual and reserve
policies to those policies of FirstMerit.
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(b) In addition, from and after the date of this Agreement to
the Effective Time, Security First and FirstMerit shall consult and cooperate
with each other with respect to determining, as specified in a notice from
FirstMerit to Security First, based upon such consultation, appropriate
accruals, reserves and charges to establish and take in respect of excess
facilities and equipment capacity, restructuring costs, severance costs,
litigation matters, write-off or write-down of various assets and other
appropriate accounting adjustments taking into account the Surviving
Corporation's business plan following the Merger.
(c) Security First and FirstMerit shall consult and cooperate
with each other with respect to determining, as specified in a notice from
FirstMerit to Security First, based upon such consultation, the amount and the
timing for recognizing for financial accounting purposes the expenses of the
Merger and the restructuring charges related to or to be incurred in connection
with the Merger.
(d) At the request of FirstMerit, and in an amount and on a
basis satisfactory to Security First, Security First shall promptly establish
and take such reserves and accruals as FirstMerit shall request to conform, on a
mutually satisfactory basis, Security First's loan, accrual and reserve policies
to FirstMerit's policies, shall establish and take such accruals, reserves and
charges in order to implement such policies in respect of excess facilities and
equipment capacity, severance costs, litigation matters, write-off or write-down
of various assets and other appropriate accounting adjustments, and to recognize
for financial accounting purposes such expenses of the Merger and restructuring
charges related to or to be incurred in connection with the Merger; provided,
however, that it is the objective of FirstMerit and Security First that such
reserves, accruals and charges be taken on or before the Effective Time, but in
no event later than immediately prior to the Closing; and provided, further,
that Security First shall not be obligated to take any such action pursuant to
this Section 5.2.6 unless and until (i) FirstMerit specifies its request in a
writing delivered to Security First, (ii) all conditions to the obligations of
Security First and FirstMerit to consummate the Merger set forth in Sections 6.1
through 6.3 have been waived or satisfied by the appropriate party, and (iii)
such reserves, accruals and charges conform with generally accepted accounting
principles, applicable laws, regulations, and the requirements of Governmental
Entities.
5.2.7. STOCK OPTION CASH ELECTION. Security First shall not
approve or allow any holder of a Security First Stock Option to elect or receive
a cash payment in lieu of the right to receive or exercise a Security First
Stock Option.
5.3. INTERIM OPERATIONS OF FIRSTMERIT. During the period from the date
of this Agreement to the Effective Time, except as specifically contemplated by
this Agreement, as required by law, or as otherwise approved in writing by
Security First (which shall not be unreasonably withheld) FirstMerit shall, and
shall cause each of the FirstMerit Subsidiaries to, conduct their respective
businesses in such a manner so as not to materially interfere with the ability
to consummate the Merger, delay the Effective Time or have a Material Adverse
Effect upon the transactions contemplated by the Agreement.
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5.4. EMPLOYMENT MATTERS.
(a) As of the Effective Time, FirstMerit agrees to enter into
employment and related agreements with Messrs. Charles F. Valentine, Austin J.
Mulhern and Jeffrey A. Calabrese substantially in the form and upon the terms
indicated on Exhibits 5.4(a)-1 through (a)-3 hereto, provided such persons have
not terminated their employment with Security First at or prior to the Effective
Time ("Employment Agreements" or "Employment Agreement"), and conditioned upon
the agreement of each to the cancellation of their current employment and
related agreements with Security First.
(b) As of the Effective Time, Security First will pay the financial
obligations of Security First and the Security First Subsidiaries, as
applicable, with regard to the employment and severance agreements with Louis J.
Sorboro and Mary H. Crotty, and FirstMerit will assume and pay, to the extent
such obligations can be assumed or benefits thereunder provided as a matter of
law, but conditional upon receipt of a release of FirstMerit regarding matters
related to employment and termination of employment. The total due them at the
Effective Date is $415,000 and $254,000 respectively. FirstMerit acknowledges
that the consummation of the Merger will constitute a change in status for these
officers entitling each of them to terminate employment for involuntary
termination under their employment arrangements. The parties listed herein will
not be provided any separation benefits.
(c) FirstMerit agrees to pay as separation monies to employees of
Security First and the Security First Subsidiaries, other than the persons with
Employment Agreements or covered in Section 5.4(a) or (b), in consideration for
a standard release of FirstMerit regarding matters related to employment and
termination of employment, who either at Closing do not become employees of
FirstMerit or its Subsidiaries or to persons who become employees of FirstMerit
or its Subsidiaries but whose employment is terminated during the 365-day period
after the Effective Time (except if such termination is for cause). The
separation monies will be calculated as indicated on Exhibit 5.4(b). Such
employees will also be entitled to any other benefits, if any, required by law.
FirstMerit is not required to hire any employees of Security First or
the Security First Subsidiaries, but may if it so desires. All persons employed
(except for the persons with written employment contracts) by FirstMerit and its
Subsidiaries as of the Effective Time will remain "at will" employees, meaning
that their employment can be terminated for any or no reason.
Notwithstanding anything contained herein to the contrary, no third
party shall have a right to enforce the provisions of Sections 5.4(a), (b) or
(c) or assert any claim hereunder.
(d) Following the Effective Time, the employee benefit programs to be
available and applicable to the persons who were employees of Security First and
the Security First Subsidiaries, and who become employees of FirstMerit and/or
its subsidiaries, are as follows:
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(i) Defined Benefit Retirement and Pension Plans. At the
Effective Time (i) each Security First employee shall be credited with their
past service for eligibility and vesting purposes (but not for benefit accrual
purposes) as of the Effective Date of the Merger, and (ii) each Security First
employee who satisfies the age and service eligibility requirements of the
FirstMerit defined benefit plan (including the past service credit referred to
in (i) above) shall be eligible to participate in the FirstMerit defined benefit
plan and accrue benefits thereunder on and after the date of the Merger in
accordance with the provisions thereof.
(ii) Savings Plans. Security First has a qualified, tax-exempt
profit sharing plan with a cash-or-deferred feature qualifying under Section
401(k) of the Code ("Security First 401K Plan"). With respect to the Security
First 401K Plan, and consistent with past practices, the participant salary
deferral contributions under Section 401(k) of the Code and employer matching
contributions under Section 401(m) of the Code may continue through the
Effective Date. FirstMerit maintains the FirstMerit Corporation and Subsidiaries
Employees' Salary Savings Retirement Plan ("FirstMerit 401K Plan"). At the
Effective Time, FirstMerit will credit the Security First employees who become
employees of FirstMerit or any of its current Subsidiaries, for purposes of the
FirstMerit 401K Plan, with all service with Security First or any of the
Security First Subsidiaries for purposes of determining their eligibility to
participate in such plan and the vested portion of their respective accrued
benefits under such plan.
(iii) Health Care Plans. At such time on or after the
Effective Time as FirstMerit shall deem appropriate, FirstMerit and its
Subsidiaries will provide Security First and Security First Subsidiaries
employees hired by FirstMerit with such coverage under the FirstMerit health
care plan as they then provide their employees, with all service with Security
First or any of the Security First Subsidiaries credited for purposes of
determining such employee's eligibility to participate in such plan and without
any "prior existing condition" exclusion. The Security First health care plans
will be continued until the employees so hired can participate in the FirstMerit
health care plans.
No benefits currently provided Security First or the Security
First Subsidiaries employees, which exceed those provided by FirstMerit and its
subsidiaries, will be grandfathered or provided, except if required by law.
Other than otherwise expressly stated herein, FirstMerit shall not assume any
other health care benefit plans or benefits. FirstMerit, where such right
currently exists, retains the existing rights to amend or terminate any such
plan which have been reserved by the plan sponsor in the plan document or
otherwise.
(viii) First Kent Financial Corporation Options and Restricted
Stock. Security First assumed certain obligations related to stock options and
restricted stock that had been issued by First Kent Financial Corporation
("First Kent") when First Kent was merged with and into Security First. Security
First has represented that some of these options and the restricted stock will
vest over the next two years if the holders thereof have a position with the
Surviving Corporation as an employee, director or advisory director. FirstMerit
agrees to establish a non-compensated local advisory board and to appoint each
holder of an unvested option or restricted stock to such advisory board for the
purpose of allowing them to vest and exercise their options and restricted
stock. FirstMerit agrees to allow or to take such action necessary at the
request of a holder, to effectuate a change in an option from an incentive to a
non-qualified option, if such is necessary to keep such option from being
forfeited.
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5.5. ACCESS, INFORMATION AND CONFIDENTIALITY. Upon reasonable notice,
Security First and each of the Security First Subsidiaries shall afford to
FirstMerit and its representatives (including, without limitation, directors,
officers and employees of FirstMerit, its counsel, accountants, environmental
consultants and other professionals retained by FirstMerit) full access during
normal business hours throughout the period prior to the Effective Time to the
books, contracts, records (including, without limitation, tax returns and work
papers of independent auditors), customer information, properties, personnel and
such other information and documents of Security First and each of the Security
First Subsidiaries. FirstMerit shall have a right with the prior notice to
Security First to have environmental assessments conducted on any properties
owned, managed or controlled by Security First and the Security First
Subsidiaries. Security First shall not be required to provide access to any such
item or information if the providing of such access (i) would be reasonably
likely to result in the loss or impairment of any privilege with respect to such
information, or (ii) would be precluded by any law, ordinance, regulation,
judgment, order, decree, license or permit of any Governmental Entity.
All information furnished by one party to another party in connection
with this Agreement and the transactions contemplated hereby which is regarded
by such furnishing party as confidential will be kept confidential by such other
party and its representatives (including, without limitation, directors,
officers and employees, its counsel, accountants and other professionals
retained by such party) and will be used only in connection with this Agreement
and the transactions contemplated hereby, and not in such party's business or by
its directors, officers and employees, its counsel, accountants and other
professionals retained by such party if the Merger is not consummated. Nothing
contained in this Section shall restrict or prohibit Security First or
FirstMerit from disclosing information in any document filed with the
Commission, FRB, OTS, OCC and other Governmental Entities and bodies nor shall
it in any way restrict FirstMerit's right to exercise the Security First Stock
Purchase Option, and so long as this Agreement has not been terminated pursuant
to Article 7 hereof, FirstMerit may, notwithstanding this confidentiality
provision, disclose such information as it deems necessary or advisable in
connection with explaining or providing background information to security
analysts and others concerning the transactions contemplated by this Agreement,
except that any such information dealing with the areas of individual employees,
their future employment, reserves established for specific loans, matters
related to litigation and Security First's business strategies, may only be
disclosed with the prior approval of Security First, which approval shall not be
unreasonably withheld. It is the parties' intent to provide such analysts with
accurate information regarding the transaction in a light favorable to
completion of the transactions contemplated by this Agreement.
5.6. CERTAIN FILINGS; CONSENTS AND ARRANGEMENTS. FirstMerit and
Security First shall (a) promptly file all reports and applications required to
be filed with the Commission, the FRB and such other Governmental Entities (the
"Regulatory Authorities") as may have jurisdiction for such approvals as may be
required to be obtained from such Governmental Entities in order to carry out
the transactions contemplated by this Agreement as soon as practicable between
the date of this Agreement and the Effective Time and each FirstMerit Subsidiary
or Security First Subsidiary that is a bank or savings association shall also
file all reports required to be filed with the FRB, the OTS and the OCC with
respect to the Merger and the other transactions contemplated by this Agreement,
(b) cooperate with one another (i) in promptly determining whether any other
filings are required to be made or consents, approvals, permits or
authorizations are required to be obtained under any other
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federal, state or foreign law or regulation, and (ii) in promptly making any
such filings, furnishing information required in connection therewith and
seeking timely to obtain any such consents, approvals, permits or
authorizations, and (c) deliver to the other party to this Agreement copies of
all such applications and reports promptly after they are filed. In no event,
however, shall either party hereto be liable for any untrue statement of a
material fact or omission to state a material fact in any filing made with any
Governmental Entity pursuant to this Section made in reliance upon, and in
conformity with, written information concerning the other party hereto furnished
by such other party specifically for use in such filing. Each party hereto shall
advise the other party hereto promptly of the occurrence of any event which
makes untrue any statement of a material fact contained in any such filing or
any amendment or supplement thereto or that requires the making of a change in
any such filing or any amendment or supplement thereto in order to make any
material statement therein not misleading.
5.7. TAKEOVER STATUTES AND PROVISIONS. Security First shall use its
diligent efforts to (i) exempt Security First, this Agreement, the Security
First Stock Purchase Option and the Merger from the requirements of any state
takeover law (including without limitation, statutes relating to business
combinations, control share acquisitions and merger moratoriums) and from any
provisions under its Corporate Governance Documents, as applicable, by action of
Security First's Board of Directors or otherwise, and (ii) assist in any
challenge by FirstMerit to the applicability to the Merger of any state takeover
law.
5.8. INDEMNIFICATION AND INSURANCE. Except as may be limited by
applicable law, for a period of six years after the Effective Time, FirstMerit
hereby agrees to honor the terms of the indemnification provisions of Article
Tenth and the limitations of liability of Article Eleventh of of Security
First's Certificate of Incorporation, including advancement of expenses (subject
to applicable requirements for delivery of an undertaking), copies of which are
attached hereto as Exhibit 5.8, which are provided to Security First's and its
subsidiaries' directors, officers and employees, for matters occurring prior to
the Effective Time. Moreover, indemnification of directors, officers and
employees of Security First and Security First Subsidiaries following the
Effective Time will be provided to the same extent it is provided to other
persons working in similar capacities for FirstMerit following the Closing.
For a period of up to three years following the Effective Time,
FirstMerit will maintain in effect the current insurance policies maintained by
Security First (or substitute policies with substantially the same coverage and
terms) covering directors' and officers' liability with respect to claims which
arise from factors or events which occurred before the Effective Time, except
that FirstMerit's obligation under this paragraph for the second and subsequent
years following the Effective Time will be based upon its ability to obtain such
insurance at a commercially reasonable cost. Security First shall notify
FirstMerit prior to purchasing or continuing any insurance to cover the matters
contained herein, provided, however, it is the intent of FirstMerit that tail
coverage will be purchased if such is available. To the extent insurance is
available under any of the provisions in this Section to cover such claims and
costs, such insurance shall be the primary source of funding these obligations.
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5.9. ADDITIONAL AGREEMENTS. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use its diligent efforts to take
promptly, or cause to be taken, all actions necessary, proper or advisable under
applicable laws to consummate the transactions contemplated by this Agreement.
In addition, without limitation, each party shall from time to time execute such
certificates as to factual matters necessary, proper or advisable in order to
receive the opinions contemplated by Article 6 of this Agreement.
If, at any time after the Effective Time, the Surviving Corporation
considers or is advised that any further deeds, bills of sale, assignments,
assurances or any other actions or things are necessary or desirable to vest,
perfect or confirm of record its right, title or interest in and to any of the
rights, properties or assets of Security First acquired or to be acquired by the
Surviving Corporation, Security First and its officers and directors shall be
deemed to have granted to the Surviving Corporation an irrevocable power of
attorney to execute and deliver all such deeds, bills of sale, assignments and
assurances and to take and do all such other actions and things as may be
necessary or desirable to vest, perfect or confirm any and all right, title and
interest in and to such rights, properties or assets in the Surviving
Corporation.
5.10. COMPLIANCE WITH ANTITRUST LAWS. Each of FirstMerit and Security
First shall use its diligent efforts to resolve such objections, if any, which
may be asserted with respect to the Merger by the FRB, the Department of
Justice, or any other Governmental Entity (including, without limitation,
objections under any antitrust laws and any applicable laws or regulations). In
the event a suit is threatened or instituted challenging the Merger as violative
of the antitrust laws, each of FirstMerit and Security First shall use its
diligent efforts to avoid the filing of, resist or resolve such suit. FirstMerit
and Security First shall use their diligent efforts to take such action as may
be required: (a) by the FRB, the Department of Justice, or any other
Governmental Entity in order to resolve such objections as any of them may have
to the Merger, or (b) by any federal or state court of the United States, in any
suit brought by a private party or Governmental Entity challenging the Merger as
violative of any antitrust laws, in order to avoid the entry of, or to effect
the dissolution of, any injunction, temporary restraining order or other order
which has the effect of preventing the consummation of the Merger.
5.11. PUBLICITY. The initial press release announcing this Agreement
shall be a joint press release in a form mutually agreed upon by the parties and
thereafter, except as required by law, Security First and FirstMerit shall
consult with each other and provide a written copy to each other prior to
issuing any press releases, or otherwise making public statements, with respect
to the transactions contemplated hereby and in making any filings with any
Governmental Entity.
5.12. REGISTRATION STATEMENT, PROXY STATEMENT AND COMFORT LETTERS.
(a) FirstMerit will, as soon as practicable, prepare and file with the
Commission the Registration Statement, and any required amendments thereto, will
use all reasonable efforts to have the Registration Statement declared effective
by the Commission as promptly as practicable and will maintain the effectiveness
of such Registration Statement. FirstMerit will also take any action required to
be taken under any applicable state blue sky or securities laws in connection
with the
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issuance of the FirstMerit Common Stock pursuant to the Merger. Security First
shall promptly furnish FirstMerit all information concerning Security First, the
Security First Subsidiaries, and the holders of its capital stock and shall
promptly take any action as FirstMerit may reasonably request in connection with
any such action.
FirstMerit, with the direct assistance of Security First, will as soon
as practicable prepare and file the Proxy Statement with the Commission, and
take such other action so that Security First may promptly after the
effectiveness of the Registration Statement mail the Proxy Statement to Security
First's shareholders. FirstMerit and Security First shall cooperate and consult
with each other in the preparation of the Proxy Statement and Security First
shall promptly furnish FirstMerit all information concerning Security First, the
Security First Subsidiaries, and the holders of its capital stock, and shall
promptly take any action as FirstMerit may reasonably request in connection with
any such action.
(b) Each of FirstMerit and Security First will cause its respective
independent auditors to issue a letter addressed to both FirstMerit and Security
First, within three business days prior to the effectiveness of the Registration
Statement and also as of Closing, stating among other things, the following: (i)
such accountants are independent public accountants within the meaning of the
Securities Act and the rules and regulations promulgated thereunder; (ii) in the
opinion of such accountants, the financial statements included in the
Registration Statement and reported on therein by such accountants comply as to
form in all material respects with the applicable accounting requirements of the
Securities Act and the Rules and Regulations promulgated thereunder; (iii) on
the basis of specified limited procedures (which procedures do not constitute an
examination in accordance with generally accepted auditing standards), including
a reading of the latest available unaudited financial statements, inquiries of
officials responsible for financial and accounting matters, nothing came to
their attention which caused them to believe that, during the period subsequent
to March 31, 1997 for Security First and December 31, 1997 for FirstMerit, to a
specified date not more than three business days prior to the effective date of
the Registration Statement and to a specified date not more than three business
days prior to Closing, there was any change in the shares of its capital stock
or long-term debt, if any, (other than changes due to payments in accordance
with the terms of such debt, or in the event of any such change in long-term
debt, the amount thereof) or any decrease (increase) in the total or per share
amount of its net income (net loss) as compared with the corresponding period in
the preceding year, except in all instances for changes or decreases (increases)
which the Registration Statement discloses have occurred or may occur; (iv) such
accountants have read the other data included in the Registration Statement with
respect to the financial condition and operations of their respective clients
and they find such data to be correctly computed and in agreement with their
respective books and records of FirstMerit and Security First.
(c) FirstMerit shall be responsible for all expenses incident to the
obtaining of the requisite regulatory approvals from Governmental Entities.
Without limiting the generality of the foregoing, the expenses to be assumed by
FirstMerit shall include (i) all expenses for its own legal counsel and other
expenses incurred by FirstMerit incident to the preparation and filing of
applications on its behalf and on behalf of Security First and other requests
for regulatory consents and approvals with the appropriate regulatory agencies
as contemplated by this Agreement; (ii) all
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expenses for its own legal counsel and all other expenses incurred in connection
with the registration of the FirstMerit Common Stock under the federal and state
securities laws and (iii) all printing and mailing expenses of the parties. The
expenses to be assumed by FirstMerit shall not include any legal, accounting or
other expenses incurred by Security First in connection with its own corporate
proceedings or incident to the transactions contemplated by this Agreement.
5.13. AFFILIATES COMPLIANCE WITH THE SECURITIES ACT.
(a) Within 30 days after the date of this Agreement, each of Security
First and FirstMerit shall identify to the other party all persons whom it
reasonably believes are its "affiliates" as that term is used in paragraphs (c)
and (d) of Rule 145 under the Securities Act and/or Accounting Series, Releases
130 and 135, as amended, of the Commission (the "Affiliates"). Thereafter and
until the Effective Time, each of Security First and FirstMerit shall identify
to the other party each additional person whom it reasonably believes to have
thereafter become its Affiliate.
(b) Each of Security First and FirstMerit shall use its diligent
efforts to cause each person who is identified as an Affiliate pursuant to
clause (a) above to deliver to FirstMerit not later than the date on which the
Merger is approved, a written agreement, substantially in the form of Exhibit
5.13(b)-1 (in the case of Affiliates of Security First) and Exhibit 5.13(b)-2
(in the case of Affiliates of FirstMerit).
Because the Merger is intended to qualify for pooling of interests
accounting treatment, the shares of FirstMerit Common Stock received by such
Affiliates in the Merger shall not be transferable until such time as financial
results covering at least 30 days of post-Merger operations have been published,
and the certificates representing such shares will bear an appropriate
restrictive legend.
5.14. SECURITY FIRST SHAREHOLDER MEETING. Security First shall take all
action necessary, in accordance with applicable law and its Corporate Governance
Documents to convene a special or regular meeting of the holders of Common Stock
(the "Security First Meeting") as promptly as practicable after the
effectiveness of the Registration Statement for the purpose of considering and
taking action upon this Agreement and the transactions contemplated herein.
Subject to the fiduciary obligations and duties of the Board of Directors of
Security First under Delaware law and to the provisions of Section 5.1 of this
Agreement, the Board of Directors of Security First shall recommend that the
holders of the Common Stock vote in favor of and approve the Merger and adopt
this Agreement at the Security First Meeting.
5.15. POOLING AND TAX-FREE REORGANIZATION TREATMENT. Neither FirstMerit
nor Security First shall intentionally take or cause to be taken nor fail to
take any action, whether before or after the Effective Time, which would
disqualify the Merger as a "pooling of interests" for accounting purposes or as
a "reorganization" within the meaning of Section 368(a) of the Code, other than
FirstMerit's exercise of its rights under the Security First Stock Purchase
Option.
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5.16. MERGERS OF SUBSIDIARIES. The Board of Directors of FirstMerit
intends, contemporaneously with the merger of Security First with and into
FirstMerit, to merge the Security First Subsidiaries (not including the
non-banking subsidiaries) with and into FirstMerit Bank, N.A., a wholly owned
subsidiary of FirstMerit.
Security First shall cause such of the Security First Subsidiaries as
FirstMerit may request to enter into definitive merger or consolidation
agreements with FirstMerit Bank, N.A., providing for the merger or consolidation
of the Security First Subsidiaries with or into FirstMerit Bank, N.A.; provided,
however, that, in all cases, the obligation of Security First to cause such
merger or consolidation shall be subject to the condition that the Merger be
simultaneously consummated; and provided further, notwithstanding anything to
the contrary in this Agreement, (i) the representations and warranties of
Security First in this Agreement shall not be deemed to be untrue or breached,
(ii) Security First shall not be deemed to have failed to perform any covenant
or obligation contained in this Agreement, and (iii) no condition to
FirstMerit's obligation to effect the Merger shall be deemed not to have been
satisfied by or as a result of any merger or consolidation consummated pursuant
to this Section. Security First shall cause the Security First Subsidiaries to
fully cooperate with FirstMerit in consummating these mergers or consolidations,
including cooperating in the filing of any necessary regulatory applications.
5.17. CURRENT INFORMATION. During the period from the date of this
Agreement to the Effective Time, each of Security First and FirstMerit will
promptly notify the other of (i) any material change in the normal course of its
business, (ii) any governmental complaints, investigations or hearings (or
communications indicating that the same may be contemplated), or receipt of any
memorandum of understanding or cease and desist order from a regulatory
authority, or (iii) the institution or the threat of material litigation
involving such party and will keep the other party fully informed of such
events. During such period, FirstMerit and Security First shall promptly provide
the other with monthly unaudited financial statements as soon as they are
available and each shall promptly provide the other with a copy of all Reports
filed by it after the date of this Agreement through the Effective Time. Each of
FirstMerit and Security First agrees to keep the foregoing information strictly
confidential, except as required by law.
5.18. INTEGRATION OF OPERATIONS. Subject to applicable laws,
regulations and the requirements of Governmental Entities, during the period
from the date of this Agreement to the Effective Time, the parties will consult
and cooperate fully with each other to do all things advisable to prepare for
and facilitate the integration of Security First and the applicable Security
First Subsidiaries operations into and with FirstMerit's operations as rapidly
and effectively as possible as of the Effective Time, including, without
limitation, preparation for the integration of such branch operations, if any
(including, without limitation, the preparation for the necessary installation
of all of FirstMerit's or its subsidiaries hardware and software systems),
management information systems, financial and accounting operations, employee
compensation and benefit matters and similar matters, and employee training, as
requested by FirstMerit; provided that all such integration prior to the
Effective Time shall be subject to the concurrence of Security First.
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5.19. NASD LISTING. FirstMerit will file an additional listing
application with the National Association of Securities Dealers, Inc. (the
"NASD") for the FirstMerit Common Stock to be issued in the Merger at the time
prescribed by applicable rules and regulations. In addition, FirstMerit will use
its best efforts to maintain its listing on the Nasdaq/NMS.
6. CONDITIONS
6.1. CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE MERGER. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment or waiver at or prior to the Closing of the following
conditions:
(a) The Merger and this Agreement shall have been approved and adopted
by the requisite vote of the holders of Security First's Common Stock.
(b) All authorizations, consents, orders or approvals, lack of any
injunctive actions by the Department of Justice or any state anti-trust agency,
of the FRB, OTS, OCC and any other Governmental Entity (collectively,
"Consents") which are necessary for the consummation of the Merger (other than
immaterial Consents, the failure to obtain which would not involve criminal
liability, any material civil penalties or fines, or would not have or
reasonably be expected to have a Material Adverse Effect on the combined
businesses, financial condition, or results of operations of FirstMerit,
Security First, the FirstMerit Subsidiaries and the Security First Subsidiaries
taken as a whole), shall have been obtained or shall have occurred and shall be
in full force and effect, and all applicable waiting periods shall have expired,
at the Effective Time. A material Consent shall not be deemed to have been
obtained if the Consent shall include any conditions or requirements which, in
the reasonable opinion of the Board of Directors of FirstMerit, would have a
Material Adverse Effect on the anticipated economic and business benefits to
FirstMerit of the transactions contemplated by this Agreement, taken as a whole.
(c) The Registration Statement shall have become effective in
accordance with the provisions of the Securities Act and shall not be subject to
a stop order suspending the effectiveness of the Registration Statement.
(d) No temporary restraining order, preliminary or permanent
injunction or other order by any federal or state court or agency in the United
States which enjoins or prohibits the consummation of the Merger shall have been
issued and remain in effect.
(e) FirstMerit shall have obtained an opinion of its counsel,
reasonably satisfactory in form and substance to FirstMerit and dated as of
Closing, to the effect that the Merger will constitute a tax-free reorganization
within the meaning of Section 368(a)(1)(A) of the Code.
(f) FirstMerit shall have received a letter, dated the date of the
Closing, from Coopers & Lybrand to the effect that, for financial reporting
purposes, the Merger qualifies for pooling-of-interests accounting treatment
under generally accepted accounting principles, if consummated in accordance
with this Agreement.
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6.2. CONDITIONS TO OBLIGATION OF SECURITY FIRST TO EFFECT THE MERGER.
The obligation of Security First to effect the Merger shall be subject to the
fulfillment or waiver at or prior to the Closing of the additional following
conditions:
(a) FirstMerit shall have performed in all material respects all of
its obligations contained in this Agreement required to be performed at or prior
to the Closing.
(b) The representations and warranties of FirstMerit contained in this
Agreement shall be true and correct both: (i) on the date of this Agreement, and
(ii) as of the Effective Time as if made at and as of such time, (x) except,
both on the date of this Agreement and at the Effective Time, as expressly
contemplated or permitted by this Agreement, (y) except, as of the Effective
Time, for representations and warranties relating to a time or times other than
the Effective Time, and (z) except, both on the date of this Agreement and at
the Effective Time, to the extent that the untruthfulness or inaccuracy of the
representations or warranties of FirstMerit, individually or in the aggregate,
shall not have a Material Adverse Effect on FirstMerit.
(c) FirstMerit shall have furnished Security First a Certificate dated
the date of the Closing, signed on behalf of FirstMerit by the Chief Executive
Officer or President, and the Chief Financial Officer of FirstMerit, that to the
best of their knowledge and belief, the conditions set forth in Sections 6.2(a),
(b) and (e) have been satisfied.
(d) Security First shall have received the opinion of legal counsel for
FirstMerit, dated as of Closing, substantially to the effect set forth in
Exhibit 6.2(d) hereto, and such certificates from the appropriate persons and/or
authorities regarding FirstMerit's board resolutions, form of corporate
governance documents and good standing.
(e) Since the date of this Agreement, there shall have not been any
change in the financial condition, results of operations or business of
FirstMerit and the Subsidiaries of FirstMerit that would have a Material Adverse
Effect on FirstMerit.
6.3. CONDITIONS TO OBLIGATION OF FIRSTMERIT TO EFFECT THE MERGER. The
obligation of FirstMerit to effect the Merger shall be subject to the
fulfillment or waiver at or prior to the Closing of the additional following
conditions:
(a) Security First shall have performed in all material respects all of
its obligations contained in this Agreement required to be performed at or prior
to the Closing.
(b) The representations and warranties of Security First contained in
this Agreement shall be true and correct both: (i) on the date of this
Agreement, and (ii) as of the Effective Time as if made on and as of such time,
(x) except, both on the date of this Agreement and at the Effective Time, as
expressly contemplated or permitted by this Agreement, (y) except, as of the
Effective Time, for representations and warranties relating to a time or times
other than the Effective Time, and (z) except, both on the date of this
Agreement and at the Effective Time, to the extent that the untruthfulness or
inaccuracy of the representations or warranties of Security First, individually
or in the aggregate, shall not have a Material Adverse Effect on Security First.
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(c) Since the date of this Agreement there shall not have been any
change in the financial condition, results of operations or business of Security
First and the subsidiaries of Security First that either individually or in the
aggregate would have a Material Adverse Effect on Security First, other than
change as a result of action taken under Section 5.2.6 and the second paragraph
of Section 5.4(a), and the responses thereto by Security First and the impact
thereof on the operating performance of Security First.
(d) Security First shall have furnished FirstMerit a certificate dated
the date of the Closing signed on behalf of Security First by the Chief
Executive Officer or President, and Chief Financial Officer of Security First,
that to the best of their knowledge and belief, the conditions set forth in
Sections 6.3(a), (b) and (c) have been satisfied. In addition, Security First
shall have furnished FirstMerit certificates, one dated the effective date of
the Registration Statement and Proxy, and one as of the Closing, signed on
behalf of Security First by the Chief Executive Officer or President, and Chief
Financial Officer of Security First, that to the best of their knowledge and
belief, that Security First participated in the preparation of the Registration
Statement and the Proxy Statement, including review and discussion of the
contents thereof, and nothing came to the attention of Security First that
caused it to believe that the Registration Statement or the Proxy Statement at
the time such documents became effective, and as of the date of Closing,
contained any untrue statement of a material fact or omitted 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.
(e) FirstMerit shall have received the opinion of legal counsel for
Security First dated as of Closing, substantially to the effect set forth in
Exhibit 6.3(e) hereto, and such certificates from the appropriate persons and/or
authorities regarding Security First's and its subsidiaries' board resolutions,
forms of corporate governance documents and good standing.
7. MISCELLANEOUS
7.1. TERMINATION. Notwithstanding any other provision of this
Agreement, this Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval of this Agreement by the shareholders of
Security First:
(a) by mutual agreement of the parties by the vote of a majority of the
Board of Directors of each of FirstMerit and Security First;
(b) by the vote of a majority of the Board of Directors of either
FirstMerit or Security First if the Merger shall not have been consummated on or
before December 31, 1998, unless the failure to consummate by such date is
related to the action or inaction of the Governmental Entities and such action
or inaction is not directly related to either FirstMerit's or Security First's
breach of their respective obligations under Sections 5.6 or 5.12(a), then on or
before March 31, 1999. (provided that the terminating party is not in material
breach of any representation, warranty, covenant or other agreement contained
herein);
(c) by the vote of a majority of the Board of Directors of Security
First if any of the conditions specified in Sections 6.1 and 6.2 have not been
met or waived by Security First at such time as such condition can no longer be
satisfied;
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(d) by the vote of a majority of the Board of Directors of FirstMerit
if any of the conditions specified in Sections 6.1 and 6.3 have not been met or
waived by FirstMerit at such time as such condition can no longer be satisfied;
(e) by the vote of a majority of the Board of Directors of either
FirstMerit or Security First if any regulatory agency has denied approval of the
Merger and such denial has become final and non-appealable (regardless of
whether Security First is deemed to be a "party" to an application with respect
to the Merger); and
(f) by the vote of a majority of the Board of Directors of either
FirstMerit or Security First in the event of a material breach by the other
party of any representation, warranty, covenant or agreement, which breach is
not cured, or cannot be cured, within 30 days after written notice thereof is
given to the party committing such breach.
7.2. NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES; EFFECT OF
TERMINATION. The representations and warranties or covenants in this Agreement
will terminate at the Effective Time or the earlier termination of this
Agreement pursuant to Section 7.1, as the case may be: provided however, that if
the Merger is consummated, Sections 1.1.5, 2.1 through 2.8, 5.4, 5.5, 5.8, 5.9,
5.10, 5.12(c), 5.13, 5.15, 5.16, 5.19 and 7.2 will survive the Effective Time to
the extent contemplated by such Sections; provided, further in the event of the
termination of this Agreement, this Agreement shall become void and of no effect
except that the first sentence in the second paragraph of Section 5.5, and all
of Sections 5.12(c) and 7.11, will in all events survive any termination of this
Agreement.
7.3. WAIVER. Either party hereto may, by written notice to the other
party hereto, (a) extend the time for the performance of any of the obligations
or other actions of such other party under this Agreement, (b) waive any
inaccuracies in the representations or warranties of such other party contained
in this Agreement or in any document delivered pursuant to this Agreement, (c)
waive compliance with any of the conditions or covenants of such other party
contained in this Agreement, or (d) waive or modify performance of any of the
obligations of such other party under this Agreement. Except as provided in the
preceding sentence, no action taken pursuant to this Agreement, including,
without limitation, any investigation by or on behalf of either party, shall be
deemed to constitute a waiver by the party taking such action of compliance with
any of the representations, warranties, covenants, conditions, or agreements
contained in this Agreement. The waiver by either party hereto of a breach of
any provision of this Agreement shall not operate or be construed as a waiver of
any subsequent breach.
7.4. AMENDMENT. This Agreement may be amended or supplemented by the
parties hereto, by action taken by or on behalf of their respective Boards of
Directors, at any time before or after approval of this Agreement by the
shareholders of Security First, provided however, that any such amendment or
supplement to this Agreement made subsequent to the adoption of this Agreement
by the shareholders of Security First shall not (a) alter the amount or change
the form of the consideration contemplated by this Agreement, (b) alter or
change any term of the Amended and Restated Articles of Incorporation of the
Surviving Corporation to be affected by the Merger, or (c) alter or change the
qualification of the Merger as a tax-free reorganization under the provisions of
Section 368 of the Code.
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7.5. ENTIRE AGREEMENT. This Agreement and the Security First Stock
Purchase Option, and the agreements referenced and contemplated therein and
thereby, contain the entire agreement among FirstMerit and Security First with
respect to the Merger and the other transactions contemplated hereby and
thereby, and supersede all prior agreements among the parties with respect to
such matters.
7.6. APPLICABLE LAW. This Agreement will be governed by and construed
in accordance with the laws of the State of Ohio, without giving effect to the
principles of conflicts of law thereof.
7.7. CERTAIN DEFINITIONS.
(a) For purposes of this Agreement, the term:
(i) "affiliate" and "associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Exchange Act, as in effect on the date hereof;
(ii) "control" (including the terms "controlled by" and "under
common control with") means the possession, directly or indirectly or
as trustee or executor, of the power to direct or cause the direction
of the management or policies of a person, whether through the
ownership of stock, as trustee or executor, by contract or credit
arrangement or otherwise;
(iii) "person" means an individual, corporation, partnership,
association, trust or unincorporated organization; and
(iv) "Material Adverse Effect" on Security First or FirstMerit
means a material adverse effect (other than as a result of changes (x)
in banking laws or regulations of general applicability or
interpretations thereof by court or governmental entities, and (y) in
generally accepted accounting principles) on the respective condition
(financial and otherwise), results of operations, or business of
Security First and its Subsidiaries, or FirstMerit and its
Subsidiaries, as the case may be, taken as a whole, or on the ability
of Security First or FirstMerit, as the case may be, to consummate the
transactions contemplated hereby.
The effect of any action taken by Security First at the
written request of FirstMerit pursuant to Section 5.2.6 shall not be
taken into consideration in determining whether any Material Adverse
Effect has occurred.
7.8. NOTICES. All notices and other communications hereunder will be in
writing and will be deemed to have been duly given or delivered, if delivered
personally or delivered by a recognized commercial courier, to each of the
parties at the following addresses:
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<PAGE> 41
<TABLE>
<S> <C>
TO SECURITY FIRST: TO FIRSTMERIT:
Charles F. Valentine, Chairman of the John R. Cochran, Chairman and
Board and Chief Executive Officer Chief Executive Officer
Security First Corp. FirstMerit Corporation
1413 Golden Gate Boulevard III Cascade Plaza, 7th Floor
Mayfield Heights, Ohio 44124 Akron, Ohio 44308
WITH A COPY TO: WITH COPIES TO:
James S. Fleischer, P.C. Terry E. Patton, Senior Vice President
Silver, Freedman & Taff, L.L.P. and Secretary
1100 New York Ave., N.W. FirstMerit Corporation
Suite 700 III Cascade Plaza, 7th Floor
Washington, D.C. 20005 Akron, Ohio 44308
Kevin C. O'Neil
Brouse & McDowell
500 First National Tower
Akron, Ohio 44308
</TABLE>
or to such other address as any party may have furnished to the other parties in
writing in accordance with this Section 7.8.
7.9. COUNTERPARTS; EXHIBITS. This Agreement may be executed in any
number of counterparts, each of which will be deemed to be an original but all
of which together will constitute but one agreement. Any exhibits or schedules
referenced herein and attached hereto shall be incorporated by reference herein
as if fully written out in this Agreement.
7.10. PARTIES IN INTEREST. This Agreement is not intended to nor will
it confer upon any other person any rights or remedies, except as expressly
stated herein.
7.11. EXPENSES. Except as otherwise set forth in this Agreement, each
party shall be responsible for the costs and expenses incurred by it in
connection with the transactions contemplated by this Agreement. If this
Agreement is terminated by Security First or FirstMerit pursuant to 7.1(f)
because of the material breach by the other party of any representation,
warranty, covenant, undertaking or restriction contained in this Agreement, if
the terminating party is not in material breach of any representation, warranty,
covenant, undertaking or restriction contained in this Agreement, then the
breaching party shall pay all costs and expenses of the terminating party,
including but not limited to printing, mailing and related fees, as well as fees
for financial advisors, accountants and legal counsel; provided, however, that
if this Agreement is terminated under circumstances other than those described
in this Section 7.11, all costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby will be paid by the party
incurring such costs and expenses.
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7.12. ENFORCEMENT OF THE AGREEMENT. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached, that it is impossible to measure in money the damages that
would result to a party by reason of the failure of any of the parties to
perform any of the obligations of this Agreement and that money damages would be
an inadequate remedy in this instance. It is accordingly agreed that the parties
hereto will be entitled to an injunction or injunctions to prevent breaches of
this Agreement and to enforce specifically the terms and provisions hereof in
any court of the United States or any state having jurisdiction, this being in
addition to any other remedy to which they are entitled at law or in equity. In
addition, it is agreed and that if any party should institute an action or
proceeding seeking specific enforcement of this Agreement, the party against
which such action or proceeding is brought hereby waives the claim or defense
that the party instituting such action or proceeding has an adequate remedy at
law and hereby agrees not to assert in any such action or proceeding the claim
or defense that such a remedy at law exists and shall waive or not assert any
requirement to post bond in connection with seeking specific performance.
Notwithstanding anything to the contrary herein, and in addition to any rights
set forth in Section 7.11, a party may seek monetary damages against a breaching
party for any willful breach of this Agreement.
7.13. SEVERABILITY. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other terms and provisions of this Agreement will nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party hereto. Upon any such determination that any term or other provision
is invalid, illegal or incapable of being enforced and does not adversely affect
the substance of these transactions in a material way, the parties hereto will
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that the transactions contemplated by this Agreement are consummated to the
extent possible.
[Signature Pages Next]
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<PAGE> 43
IN WITNESS WHEREOF, Security First and FirstMerit have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the day and year first written above.
FirstMerit Corporation
Attest:
/s/ Terry E. Patton By: /s/ John R. Cochran
- ----------------------------- ----------------------------
Terry E. Patton, Secretary John R. Cochran, Chairman and
Chief Executive Officer
[KCO:2182441]
ACKNOWLEDGMENT
STATE OF OHIO )
) SS:
COUNTY OF SUMMIT )
BE IT REMEMBERED that on this 5th day of April, 1998, personally came
before me, a Notary Public in and for the State and County aforesaid, John R.
Cochran, Chairman and Chief Executive Officer, and Terry E. Patton, Senior Vice
President and Secretary of FirstMerit Corporation, an Ohio corporation, and they
duly executed the Agreement of Affiliation and Plan of Merger before me and
acknowledged it to be their act and deed and the act and deed of said
Corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 5th day
of April, 1998.
/s/ Kevin C. O'Neil
-------------------------------
Kevin C. O'Neil, Notary Public
<PAGE> 44
Security First Corp.
Attest:
/s/ Jeffrey J. Calabrese By: /s/ Charles F. Valentine
- ------------------------------- ----------------------------------
Jeffrey J. Calabrese, Secretary Charles F. Valentine, Chairman of the
Board and Chief Executive Officer
ACKNOWLEDGMENT
STATE OF OHIO )
) SS:
COUNTY OF CUYAHOGA )
BE IT REMEMBERED that on this 5th day of April, 1998, personally came
before me, a Notary Public in and for the State and County aforesaid, Charles F.
Valentine, Chairman of the Board and Chief Executive Officer and Jeffrey J.
Calabrese, Secretary of Security First Corp., a Delaware corporation, and they
duly executed the Agreement of Affiliation and Plan of Merger before me and
acknowledged it to be their act and deed and the act and deed of said
Corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 5th day
of April, 1998.
/s/
-------------------------------
Notary Public
<PAGE> 45
Exhibits to
Agreement of Affiliation and Plan of Merger
FirstMerit Corporation
and
Security First Corp.
<TABLE>
<S> <C>
Exhibit 1.1.2 Form of Certificate of Merger
Exhibit 1.1.4 Articles and Code of Regulations of FirstMerit
Exhibit 3.3 FirstMerit Disclosure Letter
Exhibit 3.15 Security First Stock Purchase Option
Exhibit 4.3 Security First Disclosure Letter
Schedule 5.4 Summary of Executive Employment Compensation
Exhibit 5.4(a) Employment Agreements
5.4(a)-1 C. Valentine
5.4(a)-2 A. Mulhern
5.4(a)-3 J. Calabrese
SERP Membership Agreements
5.4(a)-4 C. Valentine
5.4(a)-5 A. Mulhern
Exhibit 5.4(b) Form of Change of Control Termination Agreement
Exhibit 5.4(c) FirstMerit Severance Policy
Exhibit 5.8 Indemnification Provisions
Exhibit 5.13(b)-1 Form of Affiliates Agreement for FirstMerit
Exhibit 5.13(b)-2 Form of Affiliates Agreement for Security First
Exhibit 6.2(d) Form of Brouse & McDowell's Legal Opinion
Exhibit 6.3(e) Form of Silver Freedman & Taff, L.L.P. Legal Opinion
</TABLE>
<PAGE> 1
Exhibit 2
STOCK PURCHASE OPTION
THIS STOCK PURCHASE OPTION, dated as of April 5, 1998 (the
"Agreement"), is by and between Security First Corp., a Delaware corporation
("Security First"), and FirstMerit Corporation, an Ohio corporation
("FirstMerit").
WHEREAS, Security First and FirstMerit propose to enter into an
Agreement of Affiliation and Plan of Merger, dated as of April 5, 1998 (the
"Merger Agreement"), providing for the merger of Security First with and into
FirstMerit (the "Merger"); and
WHEREAS, as a condition and inducement to FirstMerit to enter into the
Merger Agreement, FirstMerit has requested that Security First agree, and
Security First has agreed, to grant the option contained in the Agreement to
FirstMerit;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, and covenants set forth in this Agreement and in
the Merger Agreement, Security First and FirstMerit agree as follows:
1. CERTAIN DEFINITIONS. In addition to the terms otherwise defined in
this Agreement, the following terms shall have the meanings set forth below:
(a) "Affiliate" and "Associate" shall have the meanings given
to them in Rule 12b-2 under the Exchange Act.
(b) "Beneficial ownership" and "beneficially own" shall have
the meanings given to them in Rule 13d-3 under the Exchange Act.
(c) "BHC Act" shall mean the Bank Holding Company Act of 1956,
as amended.
(d) "Capital Stock" shall mean all classes of equity shares of
Security First, including the Common Stock and any other classes of common or
preferred shares.
(e) "Common Stock" shall mean the shares of common stock,
without par value, of Security First.
(f) "Effective Time" shall have the meaning given to it in the
Merger Agreement.
(g) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(h) "Federal Reserve" shall mean the Board of Governors of the
Federal Reserve System.
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<PAGE> 2
(i) "Group" shall have the same meaning as the term "group" in
Section 13(d)(3) of the Exchange Act.
(j) "Option Shares" shall mean shares of Common Stock that are
subject to the Option.
(k) "Person" shall have the meaning given to it in Sections
3(a)(9) and 13(d)(3) of the Exchange Act.
(l) "Securities Act" shall mean the Securities Act of 1933, as
amended.
(m) "Significant Subsidiary" shall have the meaning given to
it in Rule 1.02 of Regulation S-X of the Securities and Exchange Commission.
2. GRANT OF OPTION. Subject to the terms and conditions set forth in
this Agreement, Security First hereby grants to FirstMerit an unconditional,
irrevocable option (the "Option") to purchase from time-to-time from Security
First up to 19.9% of its Capital Stock (without giving effect to any shares
subject to or issued pursuant to this Agreement), in shares of Common Stock
(subject to adjustment hereafter pursuant to Section 7), free and clear of all
liens, claims, charges, and encumbrances of any kind, at a purchase price per
share (the "Purchase Price") equal to $22.25 per share.
3. EXERCISE OF OPTION.
(a) Following the occurrence of a Purchase Event, FirstMerit
may exercise the Option, in whole or in part, at any time and from time to time
prior to the expiration of the right to exercise the Option (as provided in
Section 3(c)); except that (i) FirstMerit may not exercise the Option if, at the
time of exercise, it is in material breach of any term, condition, covenant,
representation or warranty of or contained within the Merger Agreement, and (ii)
any purchase of Option Shares upon exercise of the Option shall be subject to
compliance with applicable law, including the BHC Act and the regulations of the
Federal Reserve promulgated thereunder.
(b) As used herein, a "Purchase Event" means any of the
following events that occur after the date of this Agreement:
(i) Security First or any subsidiary of Security
First, any of their officers, directors, or authorized representatives
or agents, without the prior written consent of FirstMerit, shall have
authorized, recommended, or proposed, shall have publicly announced an
intention to authorize, recommend, or propose, or shall have entered
into an agreement to effect (a) a merger, consolidation or other
business combination involving Security First or any of its Significant
Subsidiaries with or into any person (other than a merger,
consolidation, joint venture, or other business combination with or
into FirstMerit or any subsidiary of FirstMerit, or a merger or
consolidation of any subsidiary of Security First with
2
<PAGE> 3
or into Security First or any other subsidiary of Security First), (b)
a sale, lease, or other disposition of assets or earning power of
Security First or any of its subsidiaries, in one or more transactions,
representing 20% or more of the consolidated assets or earning power of
Security First and its subsidiaries to any person (other than
FirstMerit or any subsidiary of FirstMerit), or (c) an issuance, sale,
or other disposition (whether by means of a merger, consolidation,
share exchange, or other transaction) of securities representing 20% or
more of the voting power of Security First or any of its Significant
Subsidiaries to any person (other than FirstMerit or any subsidiary of
FirstMerit) (any of the foregoing being an "Acquisition Transaction;"
except that, if FirstMerit has given its prior written consent to any
such transaction (which consent may be unreasonably withheld for any or
no reason), the transaction as to which FirstMerit has given its prior
written consent shall not be an "Acquisition Transaction");
(ii) any person (other than FirstMerit or any
subsidiary of FirstMerit) shall have commenced (as such term is defined
in Rule 14d-2 under the Exchange Act), or shall have filed a
registration statement under the Securities Act with respect to, a
tender offer or exchange offer to acquire shares of Capital Stock such
that, upon consummation of the offer, such person would beneficially
own 25% or more of the capital stock then outstanding;
(iii) any person (other than FirstMerit or any
subsidiary of FirstMerit, any subsidiary of Security First in a
fiduciary capacity in the ordinary course of such subsidiary's
business, any employee benefit plan or employee stock ownership plan of
Security First or any subsidiary of Security First, or any person
organized, appointed, or established by Security First or any
subsidiary of Security First for or pursuant to the terms of any such
plan), alone or together with such person's Affiliates, shall have
acquired beneficial ownership of 20% or more of the Capital Stock then
outstanding, or any group (other than a group of which FirstMerit or
any subsidiary of FirstMerit, any subsidiary of Security First in a
fiduciary capacity in the ordinary course of such subsidiary's
business, any employee benefit plan or employee stock ownership plan of
Security First or any subsidiary of Security First, or any person
organized, appointed, or established by Security First or any
subsidiary of Security First for or pursuant to the terms of any such
plan is a member) shall have been formed, as reasonably determined in
good faith by the Board of Directors of FirstMerit, that beneficially
owns 20% or more of the Capital Stock (if any) then outstanding; or
(iv) the holders of Common Stock shall not have
approved the Merger Agreement at the meeting of such stockholders (or
any adjournment or postponement thereof) held for the purpose of voting
on the Merger Agreement, such meeting shall not have been held or shall
have been canceled (and not rescheduled) prior to termination of the
Merger Agreement, or Security First's Board of Directors shall have
withdrawn or modified in a manner adverse to FirstMerit the
recommendation of Security First's Board of Directors that Security
First's stockholders vote in favor of and approve the Merger and adopt
the Merger Agreement, in each case after any person (other than
FirstMerit or any subsidiary of FirstMerit) shall, after the date of
this Agreement, have (a) publicly announced a bona fide
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<PAGE> 4
proposal, or publicly disclosed a bona fide intention to make a bona
fide proposal, to engage in an Acquisition Transaction (or Security
First shall have publicly disclosed receipt of such a proposal) or (b)
filed an application or given a notice, whether in draft or final form,
under the BHC Act or the Change in Bank Control Act of 1978 for
approval to engage in an Acquisition Transaction.
(c) Except as provided in the last sentence of this Section
3(c) and in Section 8(c), the right to exercise the Option shall terminate upon
the earliest to occur of (i) the Effective Time, (ii) 12 months after the first
occurrence of a Purchase Event, and (iii) termination of the Merger Agreement in
accordance with its terms prior to the occurrence of a Purchase Event. The
rights set forth in Sections 9 and 11 shall not terminate when the right to
exercise the Option terminates, but shall extend to such time as is provided in
Sections 9 or 11, respectively. Notwithstanding the termination of the right to
exercise the Option, FirstMerit shall be entitled to purchase those Option
Shares with respect to which it has exercised the Option prior to termination of
the right to exercise the Option.
(d) In the event FirstMerit wishes to exercise the Option, it
shall send to Security First a written notice (the date on which the notice is
sent being herein referred to as the "Notice Date") specifying (i) the number of
Option Shares that it intends to purchase pursuant to such exercise and (ii) a
place and date not earlier than seven business days nor later than 15 business
days from the Notice Date for the closing of such purchase (the "Closing Date").
Notwithstanding the foregoing, if the closing of such purchase cannot be
consummated by reason of any applicable judgment, decree, order, law, or
regulation, the Closing Date shall be extended and occur not earlier than three
business days nor later than 15 business days after such restriction on
consummation has expired or been terminated. If prior notification to or
approval by the Federal Reserve or any other regulatory authority is required in
connection with such purchase and sale, FirstMerit shall promptly file and
expeditiously process the notice or application for approval (and Security First
shall cooperate with FirstMerit in the filing and processing thereof), and the
Closing Date shall be extended and occur not earlier than three business days
nor later than 15 business days after the date on which (x) any required
notification period has expired or been terminated or (y) such approval has been
obtained, as the case may be, and, in either event, any requisite waiting period
has expired.
(e) Notwithstanding Section 3(d), in no event shall any
Closing Date be more than 18 months after the Notice Date, and, if the Closing
Date has not occurred within 18 months after the related Notice Date due to the
failure to obtain any required approval by the Federal Reserve or any other
regulatory authority, the exercise of the Option on the Notice Date shall be
deemed to have been rescinded. In the event (i) FirstMerit receives official
notice that an approval of the Federal Reserve or any other regulatory authority
required for the purchase and sale of the Option Shares will not be issued or
granted or (ii) a Closing Date has not occurred within 18 months after the
related Notice Date due to the failure to obtain any such required approval,
FirstMerit shall be entitled to exercise the Option in connection with the
resale of the Option Shares pursuant to a registration statement as provided in
Section 10.
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<PAGE> 5
4. PAYMENT AND DELIVERY OF CERTIFICATES.
(a) On each Closing Date, FirstMerit shall pay to Security
First in immediately available funds, by wire transfer to a bank account
designated by Security First, an amount equal to the Purchase Price multiplied
by the number of Option Shares to be purchased on the Closing Date.
(b) On each Closing Date, simultaneous with the delivery of
immediately available funds as provided in Section 4(a), Security First shall
deliver to FirstMerit a certificate or certificates representing the Option
Shares being purchased, and FirstMerit shall deliver to issuer a letter in which
FirstMerit agrees not to sell or otherwise dispose of such Option Shares in
violation of applicable law or the provisions of this Agreement.
(c) Certificates for the Option Shares shall be endorsed with
a restrictive legend substantially as follows:
THE TRANSFER OF THE STOCK REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO
RESTRICTIONS ARISING UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
PURSUANT TO THE TERMS OF THE STOCK PURCHASE OPTION DATED AS OF APRIL 5,
1998. A COPY OF SUCH AGREEMENT WILL BE PROVIDED TO THE HOLDER HEREOF
WITHOUT CHARGE UPON RECEIPT BY SECURITY FIRST OF A WRITTEN REQUEST
THEREFOR.
It is understood and agreed that the reference in the foregoing legend to
restrictions arising under the Securities Act shall be removed, by delivery of a
substitute certificate or certificates without such reference, if FirstMerit
delivers to Security First a copy of an opinion of counsel in form and substance
reasonably satisfactory to Security First, to the effect that an exemption is
available for the transaction under the Securities Act.
5. REPRESENTATIONS AND WARRANTIES OF SECURITY FIRST. Security First
hereby represents and warrants to FirstMerit as follows:
(a) DUE AUTHORIZATION. Security First has all requisite
corporate power and authority to enter into this Agreement and, subject to
obtaining the approvals, if any, contemplated by this Agreement or required by
law, to consummate the transactions contemplated by this Agreement. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Security First. This Agreement has been duly
executed and delivered by Security First and constitutes a valid and binding
obligation of Security First, enforceable against Security First in accordance
with its terms.
(b) AUTHORIZED STOCK. Security First has heretofore taken, and
until termination of the right to exercise the option shall hereafter take, all
corporate and other action necessary to authorize and reserve, and, subject to
obtaining the governmental and other approvals and consents contemplated by this
Agreement and as may be required by law, to permit it to issue, all of the
Option Shares, including any additional shares of Common Stock, that may be
issued pursuant to Section 7. The Option Shares, including any such additional
shares of Common Stock, upon issuance
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<PAGE> 6
pursuant hereto, shall be duly and validly issued, fully paid, and
nonassessable, and shall be delivered free and clear of all liens, claims,
charges, and encumbrances of any kind, including any preemptive rights of any
stockholder of Security First.
Security First will not, by charter amendment or otherwise,
avoid or seek to avoid the observance or performance of any of its obligations
or representations in this Agreement.
(c) NO CONFLICTS. Except as disclosed pursuant to the Merger
Agreement, the execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated hereby will not, conflict with, or
result in a violation of or default under, (i) any provision of the corporate
governance documents of Security First or any subsidiary of Security First or
(ii), subject to obtaining the approvals, if any, contemplated by this Agreement
or required by law, any loan or credit agreement, note, mortgage, indenture,
lease, or other agreement, obligation, instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule, or
regulation applicable to Security First or any subsidiary of Security First or
their respective properties or assets, which conflict, violation, or default
would have a material adverse effect on Security First.
6. REPRESENTATIONS AND WARRANTIES OF FIRSTMERIT. FirstMerit hereby
represents and warrants to Security First that:
(a) DUE AUTHORIZATION. FirstMerit has all requisite corporate
power and authority to enter into this Agreement and, subject to obtaining the
approvals referred to in this Agreement, to consummate the transactions
contemplated by this Agreement. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of FirstMerit. This
Agreement has been duly executed and delivered by FirstMerit and constitutes a
valid and binding obligation of FirstMerit, enforceable against FirstMerit in
accordance with its terms.
(b) NO CONFLICTS. The execution and delivery of this Agreement
does not, and the consummation of the transactions contemplated hereby will not,
conflict with, or result in a violation of or default under, (i) any provision
of the Articles of Incorporation or Code of Regulations of FirstMerit or any
subsidiary of FirstMerit or (ii), subject to obtaining the approvals referred to
in this Agreement or required by law, any loan or credit agreement, note,
mortgage, indenture, lease, or other agreement, obligation, instrument, permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule, or regulation applicable to FirstMerit or any subsidiary of
FirstMerit or their respective properties or assets, which conflict, violation,
or default would have a material adverse effect on FirstMerit.
(c) PURCHASE NOT FOR DISTRIBUTION. Any Option Shares acquired
by FirstMerit upon exercise of the Option will not be taken with a view to the
public distribution thereof and will not be transferred or otherwise disposed of
except in a transaction registered or exempt from registration under the
Securities Act.
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<PAGE> 7
7. ADJUSTMENT UPON CHANGES IN CAPITALIZATION, ETC.
(a) In the event of any change in the Common Stock by reason
of a stock dividend, split-up, recapitalization, combination, exchange of
shares, or similar transaction, the type and number of shares or securities
subject to the option, and the Purchase Price therefor, shall be adjusted
appropriately, and proper provision shall be made in the agreements governing
any such transaction, so that FirstMerit shall receive upon exercise of the
Option the number and class of shares, other securities or property that
FirstMerit would have received in respect of the Option Shares if the Option had
been exercised and the Option Shares had been issued to FirstMerit immediately
prior to such event or the record date therefor, as applicable.
(b) In the event that Security First enters into an agreement
(i) to consolidate with or merge into any person (other than FirstMerit or any
subsidiary of FirstMerit), and Security First shall not be the continuing or
surviving corporation of such consolidation or merger, (ii) pursuant to which
any person (other than FirstMerit or any subsidiary of FirstMerit) shall merge
into Security First, and Security First shall be the continuing or surviving
corporation, but outstanding shares of Common Stock shall be changed into or
exchanged for stock, other securities, property, or cash, or (iii) to sell,
lease, or otherwise transfer assets of Security First or any of its
subsidiaries, in one or more transactions, representing more than 50% of the
consolidated assets or earning power of Security First and its subsidiaries to
any person (other than FirstMerit or any subsidiary of FirstMerit), then, and in
each such case, the agreement governing such transaction shall make proper
provisions so that upon the consummation of any such transaction and upon the
terms and conditions set forth herein, FirstMerit may, in its discretion,
convert the Option into the right to receive, at the election of FirstMerit,
either from the Acquiring Corporation or from any person that controls the
Acquiring Corporation, or Security First in the case of a merger described in
clause (ii), the number and class of shares, other securities or property that
FirstMerit would have received in respect of the Option Shares if the Option had
been exercised and the Option Shares had been issued to FirstMerit immediately
prior to the consummation of such transaction, the distribution of the proceeds
thereof to Security First's stockholders, or the record date therefor, as
applicable.
(c) For purposes of this Agreement, "Acquiring Corporation"
means (i) the continuing or surviving corporation in a merger or consolidation
involving Security First in which Security First is not the continuing or
surviving corporation, (ii) Security First in a merger in which Security First
is the continuing or surviving corporation in a transaction described in Section
7(b)(ii), and (iii) the transferee of more than 50% of the consolidated assets
or earning power of Security First and its subsidiaries. The provisions of
Sections 7 through 12 shall apply with appropriate adjustments to any securities
for which the Option becomes exercisable pursuant to this Section 7.
8. REPURCHASE OF OPTION AT REQUEST OF FIRSTMERIT.
(a) At the request of FirstMerit at any time during the period
beginning upon the first occurrence of a Repurchase Event and ending 12 months
thereafter, Security First shall repurchase from FirstMerit the Option (unless
the Option shall have expired or been terminated) and all shares of Common
Stock, purchased by FirstMerit upon exercise of the Option that are beneficially
owned by FirstMerit at the Request Date. The date on which FirstMerit requests
that Security First
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<PAGE> 8
repurchase the Option or Option Shares under this Section 8 is referred to as
the "Request Date". Such repurchase shall be at an aggregate price (the "Put
Consideration") equal to the sum of:
(x) the aggregate Purchase Price paid by FirstMerit
for all shares of Common Stock, if any, purchased upon exercise of the
Option that are beneficially owned by FirstMerit on the Request Date;
(y) the excess, if any, of the Applicable Price (as
defined below) over the Purchase Price paid by FirstMerit for each
share of Common Stock with respect to which the Option has been
exercised that are beneficially owned by FirstMerit on the Request
Date, multiplied by the number of such shares; and
(z) the excess, if any, of the Applicable Price over
the Purchase Price (adjusted pursuant to Section 7), multiplied by the
number of Option Shares with respect to which the Option has not been
exercised; provided that, in the case of Option Shares with respect to
which the Option has been exercised but the Closing Date has not
occurred, the Closing Date shall be suspended and the Option shall be
treated, for purposes of this clause (z), as if it had not been
exercised.
(b) If FirstMerit exercises its rights under this Section 7,
Security First shall, within 10 business days after the Request Date, pay the
Put Consideration to FirstMerit in immediately available funds, by wire transfer
to a bank account designated by FirstMerit; FirstMerit shall, against receipt of
the payment therefor, surrender to Security First the Option and the
certificates evidencing the shares of Common Stock, if any, purchased upon
exercise of the Option that are beneficially owned by FirstMerit on the Request
Date; and FirstMerit shall warrant that it has sole record and beneficial
ownership of such shares, free and clear of all liens, claims, charges, and
encumbrances of any kind.
Notwithstanding the foregoing, if Security First is prohibited from
repurchasing the Option or any or all Option Shares or from paying all or any
portion of the Put Consideration by reason of any applicable judgment, decree,
order, law, or regulation, Security First shall immediately repurchase or pay
that portion of the Option and Option Shares or Put Consideration that it is not
prohibited from repurchasing or paying, shall from time to time thereafter
immediately repurchase or pay such further portion of the Put Consideration that
it is not then prohibited from repurchasing or paying, and, in all cases, shall
pay the balance of the Option and Option Shares or Put Consideration within 10
business days after such prohibition has expired or been terminated. Upon
receipt of a partial payment of the Put Consideration, FirstMerit shall
surrender a portion of the Option and/or Option Shares, as selected by
FirstMerit, corresponding (as closely as practicable) to the portion of the Put
Consideration received by FirstMerit.
If prior notification to or approval by the Federal Reserve or any
other regulatory authority is required in connection with the payment of all or
any portion of the Put Consideration, Security First shall pay from time to time
that portion of the Put Consideration that it is not prohibited from
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<PAGE> 9
paying and shall promptly file and expeditiously process the required notice or
application for approval (and FirstMerit shall cooperate with Security First in
the filing of any such notice or application and the obtaining of any such
approval), and Security First shall pay the Put Consideration within 10 business
days after the date on which, as the case may be, (i) any required notification
period has expired or been terminated or (ii) such approval has been obtained.
(c) If the Federal Reserve or any other regulatory authority
disapproves of the repurchase by Security First of all or any part of the Option
or Option Shares pursuant to this Section 8, Security First shall promptly give
notice of such disapproval to FirstMerit, and FirstMerit shall have the right to
exercise the Option as to the number of Option Shares for which the Option was
exercisable at the Request Date less the number of shares as to which payment
has been made. If the Option shall have terminated prior to the date of such
notice or shall be scheduled to terminate at any time before the expiration of a
period ending on the thirtieth business day after the date of such notice,
FirstMerit shall nevertheless have the right so to exercise the Option or
exercise its right under Section 11 until the expiration of such period of 30
business days. Notwithstanding anything herein to the contrary, Security First
shall not be obligated to repurchase the Option or any Option Shares on more
than one occasion.
(d) For purposes of this Agreement, the "Applicable Price"
means the highest of (i) the highest price per share to be paid by any person
(other than FirstMerit or one of its subsidiaries) for shares of Common Stock or
the highest consideration per share to be received by holders of Common Stock,
in each case pursuant to an agreement for a merger, consolidation, joint
venture, or other business combination with Security First entered into after
the date hereof and on or prior to the Request Date, (ii) the highest closing
sales price per share of Common Stock reported on The Nasdaq Stock Market
National Market System of the National Association of Securities Dealers
Automated Quotation System ("Nasdaq") (or, if transactions in Common Stock are
not reported on Nasdaq, the highest bid price quoted on the principal trading
market on which the Common Stock is traded as reported by a recognized source)
during the 60 business days preceding the Request Date, and (iii) in the event
of the sale by Security First or its subsidiaries, in one or more transactions,
of assets or earning power aggregating more than 50% of the consolidated assets
or earning power of Security First and its subsidiaries to any person (other
than FirstMerit or any subsidiary of FirstMerit), the sum of the price paid for
such assets or earning power and the current value of the remaining assets of
Security First and its subsidiaries divided by the number of shares of Common
Stock outstanding at the time of the sale. The value of any consideration other
than cash that is offered, paid, or received pursuant to clauses (i) or (iii) of
this Section 8(d), and the value of the remaining assets of Security First and
its subsidiaries referred to in clause (iii), shall be determined in good faith
by an independent nationally recognized investment banking firm mutually
acceptable to FirstMerit and Security First, which determination shall be
conclusive for all purposes of this Agreement.
(e) As used herein, a "Repurchase Event" means the
consummation of an Acquisition Transaction, provided, that, the percentage for
purposes of Section 3(b)(i)(b) shall be 50% and the percentages for purposes of
Section 3(b)(i)(c) shall be 40%.
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<PAGE> 10
(f) Notwithstanding anything in this Agreement to the
contrary, the Put Consideration payable to FirstMerit, determined in accordance
with Subsection (a) of this Section, shall be adjusted so that in no event will
the aggregate Put Consideration payable to FirstMerit pursuant to the terms of
this Section 8 exceed the aggregate Purchase Price paid by FirstMerit pursuant
to the Option, plus $7,500,000.
9. REPURCHASE OF OPTION AT REQUEST OF SECURITY FIRST.
(a) Except to the extent that FirstMerit shall have previously
exercised its rights under Section 8, at the request of Security First during
the six-month period commencing 12 months following the first occurrence of a
Repurchase Event, Security First may repurchase from FirstMerit, and FirstMerit
shall sell to Security First, all (but not less than all) of the shares of
Common Stock purchased by FirstMerit upon exercise of the Option that are
beneficially owned by FirstMerit on the Call Date at a price (the "Call
Consideration") equal to the greater of (x) 110% of the Current Market Price and
(y) the sum of (a) the Purchase Price paid by FirstMerit for such shares plus
(b) FirstMerit's pretax per share carrying cost, multiplied in either case by
the number of shares being repurchased. The date on which Security First
requests that FirstMerit sell the Option Shares under this Section 9 is referred
to as the "Call Date."
Notwithstanding the foregoing, FirstMerit may, within 30 days
following Security First's notice of its intention to purchase shares pursuant
to this Section 9, deliver an Offeror's Notice pursuant to Section 11, in which
case the provisions of Section 11 and not those of this Section 9 shall control.
Notwithstanding any contrary provision of this Section 9, Security First's
rights under this Section 9 shall be suspended (with any such rights being
extended accordingly) during any period in which the exercise of such rights
would subject FirstMerit to liability pursuant to Section 16(b) of the Exchange
Act.
(b) If Security First exercises its rights under this Section
9 and FirstMerit does not deliver an Offeror's Notice or sell shares of Common
Stock to a third party pursuant to the Offeror's Notice, Security First shall,
within 10 business days after the thirtieth day following Security First's
notice of its intention to purchase shares pursuant to this Section 9 or, if
applicable, within 10 business days after abandonment of the transaction covered
by the Offeror's Notice, pay the Call Consideration in immediately available
funds, by wire transfer to a bank account designated by FirstMerit; FirstMerit
shall surrender to Security First the certificates evidencing the shares of
Common Stock purchased upon exercise of the option that are beneficially owned
by FirstMerit on the Call Date; and FirstMerit shall warrant that it has sole
record and beneficial ownership of such shares, free and clear of all liens,
claims, charges, and encumbrances of any kind.
(c) As used herein, (i) "Current Market Price" means the
average closing sales price per share of Common Stock reported on Nasdaq (or if
the Common Stock is not reported on Nasdaq, the highest bid price quoted on the
principal trading market on which such shares are traded as reported by a
recognized source) for the 10 business days preceding the Call Date, and (ii)
"FirstMerit's pretax per share carrying cost" shall be the amount equal to the
interest on the aggregate
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<PAGE> 11
Purchase Price paid for the shares of Common Stock being repurchased pursuant to
this Section 9 from the date of purchase to the date of repurchase at the rate
of interest announced by Security First as its prime or base lending or
reference rate during such period, less any dividends received on the shares
being repurchased, divided by the number of shares being repurchased.
10. REGISTRATION RIGHTS. If requested by FirstMerit at any time and
from time to time within (a) the period beginning upon the first exercise of the
Option and ending 18 months thereafter or (b) the period beginning upon the
occurrence of either of the events set forth in clauses (i) and (ii) of Section
3(e), or the receipt by FirstMerit of official notice that an approval of the
Federal Reserve or any other regulatory authority required for a repurchase
pursuant to Section 8(c) will not be issued or granted, and ending 30 business
days thereafter (but solely as to shares of Common Stock with respect to which
the required approval was not received), Security First shall prepare and file a
registration statement under the Securities Act, if such registration is
necessary, in order to permit the sale or other disposition of any or all shares
of Common Stock or other securities that have been purchased by or are issuable
to FirstMerit upon exercise of the Option in accordance with the intended method
of sale or other disposition stated by FirstMerit, including, if applicable, a
"shelf" registration statement under Rule 415 under the Securities Act or any
successor provision, and Security First shall use its best efforts to qualify
such shares or other securities under any applicable state securities laws.
FirstMerit shall use all reasonable efforts to cause, and to cause any
underwriters of any sale or other disposition to cause, any sale or other
disposition pursuant to registration statement to be effected on a widely
distributed basis. Security First shall use all reasonable efforts to cause such
registration statement to become effective, to obtain all consents or waivers of
other parties that are required therefor, and to keep such registration
statement effective for such period (not in excess of 180 days from the day such
registration statement first becomes effective) as may be reasonably necessary
to effect such sale or other disposition. In the event that FirstMerit requests
Security First to file a registration statement following the failure to obtain
an approval required for an exercise of the Option as described in Section 3(e),
the closing of the sale or other disposition of Common Stock pursuant to such
registration statement shall occur substantially simultaneously with the
exercise of the Option.
The obligations of Security First hereunder to file a registration
statement and to maintain its effectiveness may be suspended for one or more
periods of time not exceeding 90 days in the aggregate if the Board of Directors
of Security First determines that the filing of such registration statement or
the maintenance of its effectiveness would require disclosure of non-public
information that would materially and adversely affect Security First. Any
registration statement prepared and filed under this Section 10, and any sale
covered thereby, shall be at Security First's expense, except for underwriting
discounts or commissions, brokers' fees, and the fees and disbursements of
FirstMerit's counsel related thereto. FirstMerit shall provide all information
reasonably requested by Security First for inclusion in any registration
statement to be filed hereunder, and shall make all necessary representations
and warranties with respect to the accuracy and completeness thereof and shall
hold Security First harmless with respect to any liability therefor.
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<PAGE> 12
If, during the time periods referred to in the first sentence of this
Section 10, Security First effects a registration under the Securities Act of
any Common Stock for its own account or for the account of any stockholder of
Security First (other than a registration on Form S-4, Form S-8, or any
successor form), Security First shall afford FirstMerit the right to participate
in such registration, and such participation shall not affect the obligation of
Security First to effect the registration statement for FirstMerit under this
Section 10; provided that, if the managing underwriters of such offering advise
Security First in writing that, in their opinion, the number of shares of Common
Stock requested to be included in such registration exceeds the number that can
be sold in such offering, Security First shall include the shares requested to
be included in the offering by FirstMerit pro rata with the shares intended to
be included in the offering by Security First. In connection with the
registration pursuant to this Section 10, Security First and FirstMerit shall
provide each other and any underwriter of the offering with customary
representations, warranties, covenants, indemnification, and contribution in
connection with such registration.
11. FIRST REFUSAL. At any time after the first occurrence of a Purchase
Event and prior to the later of (a) the expiration of 24 months following the
first purchase of shares of Common Stock upon exercise of the Option and (b) the
termination of the right to exercise the Option pursuant to Section 3(c), if
FirstMerit desires to sell, assign, transfer, or otherwise dispose of all or any
of the shares of Common Stock or other securities purchased by it upon exercise
of the Option, FirstMerit shall give Security First written notice of the
proposed transaction (an "Offeror's Notice"), identifying the proposed
transferee, accompanied by a copy of a binding offer to purchase such shares or
other securities signed by such transferee and setting forth the terms of the
proposed transaction. An Offeror's Notice shall be deemed an offer by FirstMerit
to Security First, which may be accepted within 10 business days after receipt
of such Offeror's Notice by Security First, to sell such shares or other
securities to Security First on the same terms and conditions and at the same
price as those set forth in the Offeror's Notice for the proposed transaction.
The purchase of any such shares or other securities by Security First shall be
settled within 10 business days of the date of the acceptance of the offer by
Security First, and the purchase price shall be paid to FirstMerit in
immediately available funds. Notwithstanding the foregoing, if prior
notification to or approval by the Federal Reserve or any other regulatory
authority is required in connection with such purchase, Security First shall
promptly file and expeditiously process the required notice or application for
approval (and FirstMerit shall cooperate with Security First in the filing of
any such notice or application and the obtaining of any such approval), and the
purchase of such shares or other securities by Security First shall be settled
within 10 business days after the date on which, as the case may be, (a) any
required notification period has expired or been terminated or (b) such approval
has been obtained.
In the event of the failure or refusal of Security First to purchase
all the shares or other securities covered by an Offeror's Notice, or if the
Federal Reserve or any other regulatory authority disapproves of Security
First's proposed purchase of such shares or other securities, FirstMerit may
thereafter sell such shares to the proposed transferee at no less than the price
specified and on terms no more favorable than those set forth in the Offeror's
Notice. The requirements of this Section 11 shall not apply to (x) any
disposition as a result of which the proposed transferee will purchase or
acquire in such transaction not more than 2% of the outstanding Common Stock,
(y) any sale by
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<PAGE> 13
means of a public offering registered under the Securities Act in which steps
are taken to reasonably ensure that no purchaser will purchase or acquire more
than 2% of the outstanding Common Stock, or (z) any transfer to a wholly-owned
subsidiary of FirstMerit that agrees in writing to be bound by the terms hereof.
12. LISTING. If shares of Common Stock or any other securities to be
acquired upon exercise of the Option are quoted on Nasdaq, Security First, at
the request of FirstMerit, will thereafter, use reasonable efforts to cause the
Common Stock to continue to be so quoted.
13. DIVISION OF OPTION. This Agreement (and the Option granted hereby)
are exchangeable, without expense, at the option of FirstMerit, upon
presentation and surrender of this Agreement at the principal office of Security
First, for other Agreements providing for options of different denominations
entitling the Holder thereof to purchase in the aggregate the same number of
shares of Common Stock purchasable hereunder. The terms "Agreement" and "Option"
as used herein include any other Agreements and related options for which this
Agreement and the Option granted hereby may be exchanged. Upon receipt by
Security First of evidence reasonably satisfactory to it of the loss, theft,
destruction, or mutilation of this Agreement, and (in the case of loss, theft,
or destruction) of reasonably satisfactory indemnification, and (in the case of
mutilation) upon surrender and cancellation of this Agreement, Security First
will execute and deliver a new Agreement of like tenor and date. Any such new
Agreement, when executed and delivered, shall constitute an additional
contractual obligation on the part of Security First, whether or not the
Agreement so lost, stolen, destroyed, or mutilated shall at any time be
enforceable by anyone.
14. FIRSTMERIT'S BREACH. Notwithstanding anything to the contrary
contained herein, all of Security First's obligations under this Agreement shall
be terminated and the Option shall not be exercisable if the Merger Agreement
has been terminated and FirstMerit was in material breach of any term,
condition, covenant, representation or warranty of or contained within the
Merger Agreement when it was terminated; provided, however, that Security First
may not assert, for purposes of this Section 14 only, a material breach of the
Merger Agreement by FirstMerit if FirstMerit terminated the Merger Agreement
pursuant to the terms of the Merger Agreement and Security First failed to
notify FirstMerit, upon FirstMerit's written request prior to termination, of
the material breach; provided, further, however, that Security First may not
assert, for purposes of this Section 14 only, a material breach of the Merger
Agreement by FirstMerit if Security First terminated the Merger Agreement
pursuant to the terms of the Merger Agreement and all material breaches by
FirstMerit were curable, unless Security First provided written notice to
FirstMerit of the material breaches and an opportunity to cure as soon as
reasonably practicable.
15. MISCELLANEOUS.
(a) EXPENSES. Except as otherwise provided in Section 10, each
of the parties hereto shall bear and pay all expenses incurred by it or on its
behalf in connection with the transactions contemplated hereunder, including
fees and expenses of its own financial consultants, investment bankers,
accountants, and counsel.
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<PAGE> 14
(b) WAIVER AND AMENDMENT. Any provision of this Agreement may
be waived at any time by the party that is entitled to the benefits of such
provision, but such waiver shall only be effective if in writing and signed by
the party entitled to the benefits of such provision. This Agreement may not be
modified, amended, altered, or supplemented except upon the execution and
delivery of a written agreement executed by the parties hereto.
(c) ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARY;
SEVERABILITY. Except as otherwise set forth in the Merger Agreement, this
Agreement, the Merger Agreement, and the other documents and instruments
referred to therein and herein (a) constitute the entire agreement and
understanding, and supersede all prior agreements and understandings, both
written and oral, between the parties with respect to their subject matter and
(b) are not intended to confer upon any person other than the parties hereto any
rights or remedies. If any term, provision, covenant, or restriction of this
Agreement is held by a court of competent jurisdiction or a federal or state
regulatory agency to be invalid, void, or unenforceable, the other terms,
provisions, covenants, and restrictions of this Agreement shall remain in full
force and effect and shall not be affected, impaired, or invalidated. If for any
reason such court or regulatory agency determines that the Option does not
permit FirstMerit to acquire, or does not require Security First to repurchase,
the full number of shares of Common Stock as provided in Sections 3 and 8 (as
adjusted pursuant to Section 7), it is the express intention of Security First
to allow FirstMerit to acquire, or to require Security First to repurchase, such
lesser number of shares as may be permissible without any amendment or
modification hereof.
(d) GOVERNING LAW. This Agreement shall be governed and
construed in accordance with the laws of the State of Ohio without regard to any
applicable conflicts of law rules.
(e) DESCRIPTIVE HEADINGS. The descriptive headings contained
herein are for convenience of reference only and shall not affect in any way the
meaning or interpretation of this Agreement.
(f) NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally,
telecopied (with confirmation), or mailed by registered or certified mail
(return receipt requested) to the parties at the following addresses (or at such
other address as shall be specified by like notice):
TO SECURITY FIRST: TO FIRSTMERIT:
Charles F. Valentine, Chairman of the John R. Cochran, Chairman and
Board and Chief Executive Officer Chief Executive Officer
Security First Corp. FirstMerit Corporation
1413 Golden Gate Boulevard III Cascade Plaza, 7th Floor
Mayfield Heights, Ohio 44124 Akron, Ohio 44308
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<PAGE> 15
WITH A COPY TO: WITH COPIES TO:
James S. Fleischer Terry E. Patton, Senior Vice President
Silver, Freedman & Taff, L.L.P. and Secretary
1100 New York Ave., N.W. FirstMerit Corporation
Suite 700 III Cascade Plaza, 7th Floor
Washington, D.C. 20005 Akron, Ohio 44308
Kevin C. O'Neil
Brouse & McDowell
500 First National Tower
Akron, Ohio 44308
(g) COUNTERPARTS. This Agreement and any amendments hereto may
be executed in two counterparts, each of which shall be considered one and the
same agreement and shall become effective when both counterparts have been
signed by each of the parties and delivered to the other party, it being
understood that both Parties need not sign the same counterpart.
(h) ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder or under the Option shall be assigned by any
of the parties hereto (whether by operation of law or otherwise) without the
prior written consent of the other party. Subject to the preceding sentence,
this Agreement shall be binding upon, inure to the benefit of and be enforceable
by the parties and their respective successors and assigns.
(i) FURTHER ASSURANCES. In the event of any exercise of the
Option by FirstMerit, Security First and FirstMerit shall execute and deliver
all other documents and instruments and take all other action that may be
reasonably necessary in order to consummate the transactions provided for by
such exercise.
(j) SPECIFIC PERFORMANCE. This Agreement may be enforced by
either party through specific performance, injunctive relief, and other
equitable relief. Both parties hereby waive any requirement for the securing or
posting of any bond in connection with the obtaining of any such equitable
relief and agree that this provision is without prejudice to any other rights
that the parties hereto may have for any failure to perform this Agreement. Both
parties acknowledge that damages would be an inadequate remedy for a breach of
this Agreement by either party.
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<PAGE> 16
IN WITNESS WHEREOF, Security First and FirstMerit have caused
this Agreement to be signed by their respective officers thereunto duly
authorized, all as of the day and year first written above.
FirstMerit Corporation
Attest:
/s/ Terry E. Patton By: /s/ John R. Cochran
- -------------------------- ---------------------------------
Terry E. Patton, Secretary John R. Cochran, Chairman and
Chief Executive Officer
[KCO:2178611]
ACKNOWLEDGMENT
STATE OF OHIO )
) SS:
COUNTY OF SUMMIT )
BE IT REMEMBERED that on this 5th day of April, 1998, personally came
before me, a Notary Public in and for the State and County aforesaid, John R.
Cochran, Chairman and Chief Executive Officer, and Terry E. Patton, Senior Vice
President and Secretary of FirstMerit Corporation, an Ohio corporation, and they
duly executed this agreement before me and acknowledged it to be their act and
deed and the act and deed of said Corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 5th day
of April, 1998.
/s/ Kevin C. O'Neil
--------------------------------
Kevin C. O'Neil, Notary Public
<PAGE> 17
Security First Corp.
Attest:
/s/ Jeffrey J. Calabrese By: /s/ Charles F. Valentine
- ------------------------------- ----------------------------------
Jeffrey J. Calabrese, Secretary Charles F. Valentine, Chairman of the
Board and Chief Executive Officer
ACKNOWLEDGMENT
STATE OF OHIO )
) SS:
COUNTY OF CUYAHOGA )
BE IT REMEMBERED that on this 5th day of April, 1998, personally came
before me, a Notary Public in and for the State and County aforesaid, Charles F.
Valentine, Chairman of the Board and Chief Executive Officer and Jeffrey J.
Calabrese, Secretary of Security First Corp., a Delaware corporation, and they
duly executed the Agreement of Affiliation and Plan of Merger before me and
acknowledged it to be their act and deed and the act and deed of said
Corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 5th day
of April, 1998.
/s/
-------------------------------------
Notary Public
