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As filed with the Securities and Exchange Commission on June 10, 1998
Registration No. 333-_____
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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SECOND BANCORP INCORPORATED
(Exact name of Registrant as specified in its charter)
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Ohio 6021 34-1547453
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(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
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108 Main Avenue
Warren, Ohio 44481
(330) 841-0123
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(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
Christopher Stanitz, Esq., Executive Vice President and Secretary
Second Bancorp Incorporated
108 Main Avenue
Warren, Ohio 44481
(330) 841-0123
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(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
Charles S. DeRousie, Esq. and Kevin C. O'Neil
Michael D. Martz, Esq. Brouse & McDowell L.P.A.
Vorys, Sater, Seymour and Pease LLP 500 First National Tower
52 East Gay Street Akron, Ohio 44308
Columbus, Ohio 43215 (330) 535-5711
(614) 464-6400
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable following the effective date of the Registration Statement
and upon the effective date of the merger ("Merger") of Enfin, Inc. with and
into the Registrant pursuant to the Agreement and Plan of Merger described in
the enclosed Prospectus/Proxy Statement included as Part I of this Registration
Statement.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [ ]
CALCULATION OF REGISTRATION FEE
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Proposed maximum Proposed maximum Amount of
Title of each class of Amount to be offering aggregate registration
securities being registered registered(1) price per unit (2) offering price (2) fee
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Common Shares,
without par value........... 586,000 N/A $4,486,016 $1,323.37
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(1) Represents the maximum number of common shares of Registrant that the
Registrant expects would be issuable to shareholders of Enfin, Inc. in the
event of certain adjustments to the merger consideration would be required
pursuant to the Agreement and Plan of Merger.
(2) Estimated solely for the purpose of computing the registration fee based
upon $4,486,016, the book value of the Enfin, Inc. common shares, $1.00
stated value, to be exchanged in the Merger, as of May 31, 1998, in
accordance with Rule 457(f)(2) of the General Rules and Regulations under
the Securities Act of 1933.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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SECOND BANCORP INCORPORATED ENFIN, INC.
PROSPECTUS PROXY STATEMENT
FOR UP TO 586,000 FOR THE SPECIAL MEETING OF SHAREHOLDERS OF
COMMON SHARES, NO PAR VALUE, OF SECOND BANCORP INCORPORATED ENFIN, INC.
TO BE ISSUED IN CONNECTION WITH THE MERGER OF ENFIN, INC. WITH TO BE HELD ON _____ __, 1998
AND INTO SECOND BANCORP INCORPORATED
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This Prospectus/Proxy Statement constitutes a Prospectus of Second
Bancorp Incorporated, a bank holding company and an Ohio corporation ("Second
Bancorp"), in respect of the common shares of Second Bancorp, no par value (the
"Shares"), to be issued in connection with the proposed merger of Enfin, Inc., a
bank holding company and an Ohio corporation ("Enfin"), into Second Bancorp.
This Prospectus/Proxy Statement also constitutes a Proxy Statement of Enfin for
use in connection with the solicitation of proxies by the Board of Directors of
Enfin to be used at the Enfin Special Meeting (hereinafter defined). Enfin
shareholders will be asked at the Enfin Special Meeting to consider and act upon
a proposal to adopt the Agreement and Plan of Merger, dated April 1, 1998, by
and between Second Bancorp and Enfin (the "Agreement"), a copy of which is
attached hereto as Annex A, pursuant to which Enfin will merge with and into
Second Bancorp (the "Merger"). This Prospectus/Proxy Statement is being
furnished to the shareholders of Enfin on or about ____ __, 1998.
In accordance with the terms and subject to the conditions of the
Agreement, each of the outstanding common shares of Enfin (the "Enfin Shares")
will be canceled and extinguished on the effective date of the Merger (the
"Effective Time") in consideration and exchange for .950 Shares, subject to
certain adjustments (the "Exchange Ratio") as described below:
(i) if the Second Bancorp Closing Price (defined below) exceeds
$30.25, then the Exchange Ratio shall equal $28.74 divided by
the Second Bancorp Closing Price; and
(ii) if the Second Bancorp Closing Price is less than $24.75, then
the Exchange Ratio shall equal $23.51 divided by the Second
Bancorp Closing Price.
The "Second Bancorp Closing Price" is defined under the Agreement as the average
closing price per Share on The Nasdaq Stock Market (as reported by the Wall
Street Journal or, if not reported thereby, another authoritative source) for
the most recent twenty (20) days on which actual trades of Shares occur ending
on the seventh (7th) day immediately preceding the Effective Time.
Pursuant to the Agreement, in no event shall the Exchange Ratio exceed 1.069
Shares. In addition, in the event that Second Bancorp enters into any "change in
control" or similar type transaction, the Exchange Ratio shall not be less than
.718. See "SUMMARY - Terms of the Merger" and "THE MERGER - Exchange of Enfin
Shares."
As of _______ __, 1998, the last trading day before the printing of
this Prospectus/Proxy Statement, the closing price of the Shares was $__.__. If
the Second Bancorp Closing Price would be $__.__ at the Effective Time, the
shareholders of Enfin would receive ___ Shares for each Enfin Share canceled and
exchanged in the Merger. THIS EXAMPLE IS PRESENTED FOR ILLUSTRATIVE PURPOSES
ONLY AND IS NOT DETERMINATIVE OF WHAT THE SECOND BANCORP CLOSING PRICE MAY BE AT
THE EFFECTIVE TIME.
ENFIN SHAREHOLDERS WHO WISH TO EXERCISE DISSENTERS' RIGHTS MUST, AMONG OTHER
THINGS, NOT VOTE IN FAVOR OF THE ADOPTION OF THE AGREEMENT AND THE APPROVAL OF
THE MERGER AND MUST MAKE A WRITTEN DEMAND ON ENFIN ON OR BEFORE ______ __, 1998.
SEE "RIGHTS OF DISSENTING SHAREHOLDERS".
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS/PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE SHARES WHICH ARE BEING OFFERED PURSUANT TO THIS PROSPECTUS/PROXY STATEMENT
WHICH WILL BE ISSUED UPON THE CONSUMMATION OF THE MERGER ARE NOT SAVINGS
ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION AND ARE
NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER STATE OR
FEDERAL AGENCY.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities Exchange Commission. These securities may not be sold nor may offers
to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus/Proxy Statement shall not constitute an offer to sell
or the solicitation of an offer to buy nor shall there by any sale of these
securities in any state in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
such state.
The date of this Prospectus/Proxy Statement is __________ __, 1998.
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AVAILABLE INFORMATION
Second Bancorp is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Second Bancorp has
filed with the Commission a Registration Statement on Form S-4 (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), in respect of the Shares to be issued to Enfin shareholders
in the Merger. As permitted by the rules and regulations of the Commission, this
Prospectus/Proxy Statement omits certain information, exhibits and undertakings
contained in the Registration Statement. Reference is made to the Registration
Statement and to the exhibits thereto for further information. Statements
contained herein concerning such documents are not necessarily complete and, in
each instance, reference is made to the copy of such document filed as an
exhibit to the Registration Statement. Each such statement is qualified in its
entirety by such reference.
The Registration Statement and the exhibits thereto, as well as the
reports, proxy statements and other information filed with the Commission by
Second Bancorp under the Exchange Act, may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the regional offices of the
Commission in New York (at 7 World Trade Center, Suite 1300, New York, New York
10048) and Chicago (Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511). Reports, proxy statements and other
information concerning Second Bancorp may be inspected at the offices of the
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006 . In addition, Second Bancorp files its reports, proxy
statements and other information with the Commission electronically, and the
Commission maintains a website located at http://www.sec.gov containing such
information.
This Prospectus/Proxy Statement is accompanied by a copy of Second
Bancorp's Annual Report to Shareholders for 1997 and Second Bancorp's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1998.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Prospectus/Proxy Statement incorporates by reference certain
documents of Second Bancorp which are not presented herein or delivered
herewith. These documents (without exhibits, unless such exhibits are
specifically incorporated by reference into this Prospectus/Proxy Statement) are
available without charge to each person, including any beneficial owner, to whom
a copy of this Prospectus/Proxy Statement is delivered, upon written or oral
request. Requests for such documents should be directed to Christopher Stanitz,
Executive Vice President and Secretary, Second Bancorp Incorporated, 108 Main
Avenue, Warren, Ohio 44481. In order to ensure timely delivery of such
documents, any request should be made no later than ________ __, 1998.
The following documents filed by Second Bancorp with the Commission
under the Exchange Act are hereby incorporated by reference into this
Prospectus/Proxy Statement: (a) Second Bancorp's Annual Report on Form 10-K for
the year ended December 31, 1997; (b) Second Bancorp's Quarterly Report on Form
10-Q for the quarter ended March 31, 1998; (c) Second Bancorp's Current Report
on Form 8-K dated April 17, 1998; (d) Second Bancorp's Current Report on Form
8-K dated May 7, 1998; (e) Second Bancorp's Current Report on Form 8-K dated
June 8, 1998, containing the consolidated financial statements of The Trumbull
Savings and Loan Company (See "RECENT DEVELOPMENT INVOLVING SECOND BANCORP");
and (f) the description of Second Bancorp's common shares contained in Second
Bancorp's Registration Statement on Form S-4 (Registration No. 33-09239) under
the caption "Description of Holding Shares" as filed on October 2, 1986 with the
Commission pursuant to the Securities Act, including all amendments and reports
filed for the purpose of updating such description.
All documents filed by Second Bancorp under Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act between the date of this Prospectus/Proxy
Statement, and any exhibits thereto, shall be deemed to be incorporated by
reference in this Prospectus/Proxy Statement and to be a part hereof from the
date of filing of such documents. Any statement contained herein or in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus/Proxy
Statement to the extent that a
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statement contained herein or in any other subsequently filed document which is
also incorporated or deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement, as so modified or superseded,
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus/Proxy Statement.
This Prospectus/Proxy Statement is accompanied by a copy of Second
Bancorp's Annual Report to Shareholders for 1997 and Second Bancorp's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1998.
The information relating to Second Bancorp contained in this
Prospectus/Proxy Statement should be read together with the information in the
documents incorporated by reference.
Following the Merger, Second Bancorp will continue to be subject to the
information, reporting and proxy statement requirements of the Exchange Act.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION
This Prospectus/Proxy Statement (including information included or
incorporated by reference herein) contains or may contain forward-looking
statements that involve risks and uncertainties. This Prospectus/Proxy Statement
contains forward-looking statements with respect to the financial condition,
results of operations, plans, objectives, future performance and business of
each of Second Bancorp, Enfin and Trumbull Financial Corporation, an Ohio
corporation and bank holding company and of Second Bancorp on a pro-forma
combined basis following the consummation of the Merger and the proposed merger
by and between Second Bancorp and Trumbull Financial Corporation (See "RECENT
DEVELOPMENT INVOLVING SECOND BANCORP"), including statements preceded by,
followed by or that include the words "believes," "expects," "anticipates" or
similar expressions.
These forward-looking statements involve certain risks and
uncertainties. Factors that may cause actual results to differ materially from
those contemplated by such forward-looking statements include, among others, the
following possibilities: (1) expected cost savings from the Merger cannot be
fully realized or realized within the expected time frame; (2) revenues
following the Merger are lower than expected, or deposits attrition, operating
costs or customer pressures among depository and other financial institutions
increase significantly; (4) costs or difficulties related to the integration of
the businesses of Second Bancorp and Enfin are greater than expected; (5)
changes in the interest rate environment reduce margins; (6) general economic or
business conditions are less favorable than expected resulting in, among other
things, a deterioration in credit quality or a reduced demand for credit; (7)
legislation or regulatory changes adversely affect the businesses in which
Second Bancorp will be engaged; and (8) changes in the securities markets.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION
NOT CONTAINED IN THIS PROSPECTUS/ PROXY STATEMENT AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY SECOND BANCORP OR ENFIN. NEITHER THIS PROSPECTUS/PROXY STATEMENT,
NOR ANY DISTRIBUTION OF THE SECURITIES OFFERED PURSUANT TO THIS PROSPECTUS/PROXY
STATEMENT, CONSTITUTES AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO
PURCHASE, THE SECURITIES OFFERED BY THIS PROSPECTUS/PROXY STATEMENT OR THE
SOLICITATION OF A PROXY IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH
AN OFFER, SOLICITATION OF AN OFFER OR PROXY SOLICITATION. THE DELIVERY OF THIS
PROSPECTUS/PROXY STATEMENT SHALL NOT, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN OR
IN THE AFFAIRS OF SECOND BANCORP OR ENFIN SINCE THE DATE OF THIS
PROSPECTUS/PROXY STATEMENT.
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TABLE OF CONTENTS
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AVAILABLE INFORMATION............................................................................................ii
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE..................................................................ii
SUMMARY...........................................................................................................1
Introduction.............................................................................................1
Parties to the Agreement.................................................................................1
Recent Development involving Second Bancorp..............................................................2
Special Meeting of Enfin Shareholders....................................................................2
Reasons for the Merger...................................................................................3
Opinion of Austin Associates, Inc........................................................................4
Terms of the Merger......................................................................................4
Recommendation of the Board of Directors of Enfin........................................................6
Interests of Certain Persons in the Merger...............................................................6
Comparison of Rights of Holders of The Shares and Enfin Shares...........................................7
Exchange of Certificates Evidencing Shares and Enfin Shares..............................................8
Resale of Shares........................................................................................8
Dissenters' Rights.......................................................................................8
Market Prices............................................................................................8
RECENT DEVELOPMENT INVOLVING SECOND BANCORP.......................................................................9
PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)................................................10
SELECTED FINANCIAL DATA OF SECOND BANCORP, ENFIN AND TRUMBULL....................................................17
COMPARATIVE PER SHARE DATA.......................................................................................20
THE MERGER.......................................................................................................23
Introduction............................................................................................23
Background and Reasons for the Merger...................................................................23
Opinion of Austin Associates, Inc.......................................................................25
Recommendation of the Board of Directors of Enfin.......................................................28
Exchange of Enfin Shares................................................................................28
Fractional Shares.......................................................................................28
Exchange of Certificates Evidencing Shares and Enfin Shares.............................................29
Representations, Warranties and Covenants...............................................................29
Conditions..............................................................................................30
Regulatory Approvals....................................................................................31
Effective Time..........................................................................................31
Termination and Amendment...............................................................................31
Interests of Certain Persons in the Merger..............................................................31
Management and Operations of Second Bancorp and the Bank
Following the Consummation of the Merger..........................................................32
Resale of Shares........................................................................................32
Income Tax Consequences.................................................................................32
Accounting Treatment....................................................................................33
MARKET PRICES....................................................................................................34
RIGHTS OF DISSENTING SHAREHOLDERS................................................................................34
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SPECIAL MEETING OF ENFIN SHAREHOLDERS............................................................................36
Date, Time and Place....................................................................................36
Purpose of Meeting......................................................................................36
Shares Outstanding and Entitled to Vote and Record Date.................................................36
Vote Required...........................................................................................36
Voting and Solicitation and Revocation of Proxies.......................................................36
BUSINESS OF SECOND BANCORP.......................................................................................37
Market Area.............................................................................................37
Competition.............................................................................................37
SECURITY OWNERSHIP OF SECOND BANCORP.............................................................................38
MANAGEMENT OF SECOND BANCORP.....................................................................................39
ENFIN MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS......................41
Introduction............................................................................................41
Overview................................................................................................41
Comparison of Operating Results for Three Months Ended March 31, 1998 and 1997..........................46
Comparison of Operating Results for the Years Ended December 31, 1997 and 1996..........................46
Comparison of Operating Results for the Years Ended December 31, 1996 and 1995..........................47
Comparison of March 31, 1998 and December 31, 1997 Financial Condition..................................49
Comparison of December 31, 1997 and 1996 Financial Condition............................................49
Liquidity and Capital Resources.........................................................................51
Impact Of Inflation On Changing Prices..................................................................52
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.......................................................53
BUSINESS OF ENFIN................................................................................................56
Market Area.............................................................................................57
Competition.............................................................................................57
Lending and Investments.................................................................................57
Deposits and Borrowings.................................................................................62
SECURITY OWNERSHIP OF ENFIN......................................................................................62
DESCRIPTION OF SECOND BANCORP SHARES.............................................................................63
General.................................................................................................63
Dividend Rights.........................................................................................63
Director and Officer Liability and Indemnification......................................................64
Provisions in Amended Articles and Amended Regulations Which May Be Deemed to Have
Anti-Takeover Effects.............................................................................64
Ohio Statutes that have Anti-Takeover Effects...........................................................65
COMPARISON OF RIGHTS OF HOLDERS OF SECOND BANCORP SHARES AND HOLDERS OF ENFIN SHARES.............................66
General.................................................................................................66
Board of Directors......................................................................................66
Voting Rights...........................................................................................67
Anti-Takeover Provisions................................................................................68
Preemptive Rights.......................................................................................68
Dividends...............................................................................................68
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Anti-Takeover Statutes..................................................................................69
Director and Officer Liability and Indemnification......................................................70
REGULATION OF FINANCIAL INSTITUTIONS.............................................................................71
Regulation of Bank Holding Companies....................................................................71
Transactions with Affiliates............................................................................72
Regulation of Nationally Chartered Banks................................................................72
Regulation of Ohio State Chartered Banks................................................................72
Federal Deposit Insurance Corporation...................................................................72
Interstate Banking and Branching........................................................................73
Regulatory Capital......................................................................................74
Prompt Corrective Regulatory Action.....................................................................74
Limits on Dividends and Other Payments..................................................................75
LEGAL MATTERS....................................................................................................75
EXPERTS..........................................................................................................75
INDEX TO FINANCIAL STATEMENTS OF ENFIN..........................................................................F-1
ANNEXES:
.........Annex A: Agreement and Plan of Merger, dated April 1, 1998, by and between
Second Bancorp, Inc. and Enfin (excluding exhibits)
.........Annex B: Fairness Opinion of Austin Associates, Inc.
.........Annex C: Section 1701.85 of the Ohio Revised Code
.........Annex D: Form of Acquiring Person Statement
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SUMMARY
The following is a summary of some of the matters to be considered in
connection with the Enfin Special Meeting and is qualified in its entirety by
reference to the more detailed information contained elsewhere in this
Prospectus/Proxy Statement, the Annexes attached hereto and the other documents
referred to herein.
INTRODUCTION
On April 1, 1998, Second Bancorp Incorporated, an Ohio corporation and
bank holding company ("Second Bancorp"), and Enfin, Inc., an Ohio corporation
and bank holding company ("Enfin"), entered into the Plan and Agreement of
Merger (the "Agreement"), pursuant to which Enfin will merge with and into
Second Bancorp (the "Merger"). If the Agreement and the Merger are adopted by:
(i) the affirmative vote of the holders of two-thirds of the issued and
outstanding common shares of Enfin (the "Enfin Shares"), and (ii) a majority of
the voting power of Enfin represented in person or by proxy at the Enfin Special
Meeting (as defined below) excluding any Enfin Shares owned by any officer of
Enfin or any director of Enfin who is also an employee of Enfin, and if all
other conditions to the consummation of the Merger are satisfied, the Merger
will be consummated. See "SPECIAL MEETING OF ENFIN SHAREHOLDERS - Vote Required"
and "DESCRIPTION OF SECOND BANCORP SHARES - Ohio Statutes that have
Anti-Takeover Effects."
On the date upon which the Merger becomes effective (the "Effective
Time"), each of the outstanding Enfin Shares will be canceled and extinguished
in consideration and exchange for .950 of the common shares, no par value, of
Second Bancorp (the "Shares"), subject to certain adjustments (the "Exchange
Ratio"). Pursuant to the agreement, in no event shall the exchange ratio exceed
1.069 shares. In addition, in the event that Second Bancorp enters into any
"change in control" or similar type transaction, the exchange ratio shall not be
less than .718. See "SUMMARY - Terms of the Merger" and "THE MERGER - Exchange
of Enfin Shares."
As of the date of this Prospectus/Proxy Statement, there were 547,792
Enfin Shares issued and outstanding and [6,859,542] Shares issued and
outstanding.
PARTIES TO THE AGREEMENT
SECOND BANCORP. Second Bancorp is an Ohio corporation and bank holding
company established on August 26, 1986. Second Bancorp is subject to regulation,
supervision and examination by the Board of Governors of the Federal Reserve
System (the "Federal Reserve Board").
Second Bancorp's sole subsidiary is The Second National Bank of Warren
(the "Bank"), located in Warren, Ohio. The Bank was organized in 1880 and is a
nationally-chartered bank. The Bank is subject to regulation, supervision and
examination by the Office of the Comptroller of the Currency (the "OCC") and the
Federal Deposit Insurance Corporation ("FDIC"). The Bank is insured up to
applicable limits under the Federal Deposit Insurance Act.
The Bank operates through twenty-six branches and one loan production
office and offers a wide range of commercial and consumer banking and trust
services primarily to business and individual customers in various communities
in a five county area of northeastern Ohio. The Bank focuses its marketing
efforts primarily on local independent commercial and professional firms, the
individuals who are the owners and principals of such firms as well the
low-to-moderate to upper income retail customers in the Bank's trade areas. In
recent years, the Bank has emphasized increased commercial and direct consumer
and real estate lending and market area expansion. See "BUSINESS OF SECOND
BANCORP."
ENFIN. Enfin is an Ohio corporation and bank holding company
established on December 27, 1989. Enfin is subject to regulation, supervision
and examination by the Federal Reserve Board.
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Enfin's sole subsidiary is Enterprise Bank, located in Solon, Ohio
("Enterprise Bank"). Enterprise Bank was organized on September 7, 1990 and is a
state-chartered bank. Enterprise Bank is subject to regulation, supervision and
examination by the Ohio Division of Financial Institutions (the "Division") and
the Federal Deposit Insurance Corporation ("FDIC"). Enterprise Bank is insured
up to applicable limits under the Federal Deposit Insurance Act. See "BUSINESS
OF ENFIN."
RECENT DEVELOPMENT INVOLVING SECOND BANCORP
On May 4, 1998, Second Bancorp announced its proposed acquisition of
Trumbull Financial Corporation, under the terms of which Trumbull Financial
Corporation will merge into Second Bancorp. See "RECENT DEVELOPMENT INVOLVING
SECOND BANCORP."
SPECIAL MEETING OF ENFIN SHAREHOLDERS
The special meeting of shareholders of Enfin will be held at _:__ p.m.,
on ______ __, 1998, at the Radisson Hotel, I-271 and Chagrin Blvd., Cleveland,
Ohio (the "Enfin Special Meeting"). At the Enfin Special Meeting, Enfin
shareholders will be asked to consider and act upon (i) a proposal to adopt the
Agreement and approve the Merger and (ii) such other business as may properly
come before the Enfin Special Meeting and any adjournment thereof. Only the
holders of record of Enfin Shares outstanding at the close of business on ______
__, 1998 (the "Enfin Record Date"), will be entitled to notice of and to vote at
the Enfin Special Meeting and any adjournment thereof. The affirmative vote of
the holders of two-thirds of the outstanding Enfin Shares, voting in person or
by proxy, is required to adopt the Agreement and approve the Merger. In
addition, pursuant to the requirements of the Ohio Control Share Acquisition
Statute, the Merger must be approved by the affirmative vote of the holders of a
majority of the Enfin Shares represented in person and by proxy at the separate
Control Share Acquisition Special Meeting (the "Separate Meeting"), and by a
majority of the portion of such voting power excluding any Enfin Shares owned by
executive officers of Enfin and any director of Enfin who is also an employee of
Enfin and any other "interested Enfin Shares" (a notice and a proxy for such
Separate Meeting will be mailed to shareholders of Enfin separate and apart from
this Prospectus/Proxy Statement). See "COMPARISON OF RIGHTS OF HOLDERS OF SECOND
BANCORP SHARES AND HOLDERS OF ENFIN SHARES - Anti-Takeover Statutes." As of the
Enfin Record Date, 547,792 Enfin Shares were outstanding and entitled to vote
and were held of record by 118 shareholders.
As of the Enfin Record Date, the directors and executive officers of
Enfin owned, in the aggregate, 181,628 Enfin Shares, or 33.2% of the outstanding
Enfin Shares. The directors and executive officers of Enfin intend to vote all
of their respective Enfin Shares FOR the adoption of the Agreement and the
approval of the Merger. Assuming the affirmative vote of all Enfin Shares owned
by the directors and executive officers of Enfin, the affirmative vote of the
holders of an additional 183,567 Enfin Shares, representing an additional 33.5%
of the outstanding Enfin Shares, will be necessary to adopt the Agreement and
approve the Merger. See "SPECIAL MEETING OF ENFIN SHAREHOLDERS - Shares
Outstanding and Entitled To Vote and Record Date - Vote Required."
The Enfin shareholders present, in person or by proxy, at the Enfin
Special Meeting will constitute a quorum at the Enfin Special Meeting. Each
Enfin shareholder will be entitled to one vote for each Enfin Share held. Under
Ohio law, shares which are held by a nominee for a beneficial owner and which
are represented in person or by proxy at the Enfin Special Meeting, but which
are not voted with respect to the adoption of the Agreement and the approval of
the Merger ("non-votes"), will be counted as present for purposes of
establishing a quorum. The effect of an abstention or non-vote will be the same
as a vote against the adoption of the Agreement and the approval of the Merger.
The Enfin Shares represented by each properly executed proxy received
before the Enfin Special Meeting and not revoked prior to use will be voted at
the Enfin Special Meeting, or any adjournment thereof, as specified on such
proxy or, in the absence of specific instructions to the contrary, will be voted
FOR the adoption of the Agreement and the approval of the Merger. The Board of
Directors may not, pursuant to its discretionary authority, vote proxies in
favor of the adjournment of the Enfin Special Meeting if such proxies contain
2
<PAGE> 10
instructions that they be voted against the adoption of the Agreement and the
approval of the Merger. Any Enfin shareholder who has executed and returned a
proxy may revoke such proxy at any time before it is voted by executing and
returning to Enfin a proxy bearing a later date or by giving notice of
revocation to Enfin in writing or at the Enfin Special Meeting. The mere
presence at the Enfin Special Meeting of an Enfin shareholder who has executed
and returned a proxy will not revoke the proxy. See "SPECIAL MEETING OF ENFIN
SHAREHOLDERS Voting and Solicitation and Revocation of Proxies."
REASONS FOR THE MERGER
SECOND BANCORP. Second Bancorp's long-term business strategies include
the strategy to grow (i) internally by development and sales activity in
currently served markets and by de novo branching into new markets, and (ii)
externally by in-market and near-market branch and whole bank and thrift
acquisitions. In the course of pursuing that growth strategy, Second Bancorp
engaged in regular general and business development discussions with Enfin's
sole banking subsidiary, Enterprise Bank ("Enterprise") beginning in 1996. Those
discussions resulted in several commercial loan participations between the Bank
and Enterprise Bank.
In February of 1998, Second Bancorp was contacted by investment bankers
representing Enfin and was asked to indicate its preliminary interest, or lack
thereof, in pursuing acquisition discussions with Enfin. Based upon management's
review of public source information and considering its existing business
relationship with Enterprise Bank, Second Bancorp indicated an interest in
participating in a competitive bidding process for Enfin. After subsequent
review of a confidential offering memorandum and related information provided by
representatives of Enfin, consultation with financial, tax and legal
representatives and an extensive review of the opportunity by Second Bancorp's
Board of Directors at its February 27, 1998 meeting, Second Bancorp submitted an
indication of interest dated March 2, 1998 to Enfin which lead to formal
acquisition negotiations. After the conduct of a detailed due diligence
examination of Enfin and its subsidiary, Second Bancorp's Board of Directors
approved the definitive terms of the transaction at an extended meeting attended
by all of its directors on March 30, 1998. Second Bancorp and Enfin entered into
the Agreement on April 1, 1998.
Second Bancorp's interest in acquiring Enfin is primarily based upon:
(i) the natural extension of the Bank's commercial lending and small business
financial services business to the demographically attractive Solon, Ohio and
southeastern Cuyahoga County market which a combination of the two companies
represents; (ii) the opportunity to acquire and further develop Enfin's
attractive deposit and loan customer base and to obtain the services of Enfin's
highly qualified and respected commercial loan, retail banking and support
staffs, and (iii) the anticipated enhancement of Second Bancorp's earnings
resulting from the operating efficiencies created by combination of the
companies.
ENFIN. In January 1997, the Enfin Board discussed the future prospects
of Enfin, particularly in relation to the manner by which stockholder value
could be maximized. The discussion focused upon various alternatives, but
primarily involved a possible sale or merger of Enfin with another financial
institution. Of particular concern was finding an institution that could
maximize the return to shareholders, as well as one that would provide both
excellent service to existing customers and that had similar management and
business philosophies.
During 1997 and early 1998, Enfin received several unsolicited inquires
of interest regarding a sale or merger of the institution. The Enfin Board of
Directors reviewed these indications of interest and entered into discussions
with the institutions and conducted due diligence in several instances. In
January and February 1998, the Board determined to conduct a controlled bid
process and received four proposals.
Following the extensive review and discussion of the four proposals,
the Board of Directors of Enfin elected to pursue negotiations exclusively with
Second Bancorp. Such decision was based primarily on the perception by the
directors of a material difference between the aggregate value of the Second
Bancorp proposal and the aggregate values of each of the three other proposals.
The Board of Directors of Enfin considered numerous factors, including but not
limited to the following: (a) economic conditions and prospects for the markets
in which Enfin operates, including competitive pressures in the financial
services industry in general;
3
<PAGE> 11
(b) the prospect for higher dividends and market liquidity provided by the
Shares; (c) the business, results of operations, asset quality, financial
condition of Second Bancorp, compatibility of management and business
philosophies and services and products offered to customers by Second Bancorp;
and (d) the opinion rendered by Austin Associates, Inc. to the effect that, as
of April 1, 1998, the Exchange Ratio was fair to the holders of Enfin Shares
from a financial point of view.
OPINION OF AUSTIN ASSOCIATES, INC.
Austin Associates, Inc. has rendered a written opinion to the Board of
Directors of Enfin to the effect that the terms of the Merger are fair from a
financial point of view to the shareholders of Enfin. Austin Associates, Inc.
based its opinion upon, among other things: (1) a comparison of the financial
statements and other financial information concerning Enfin and Second Bancorp
set forth or incorporated by reference in this Prospectus/Proxy Statement; (2)
certain other financial information concerning Enfin, including, but not limited
to, operating budgets and loan loss reserve adequacy reports; (3) financial and
share price data of Enfin, Second Bancorp and comparable banking organizations;
(4) the financial terms, to the extent publicly available, of certain comparable
transactions; (5) the terms of certain other proposals received by Enfin from
other banking institutions; and (6) discussions with the management of Enfin and
Second Bancorp. The terms of the Merger Agreement were determined by Second
Bancorp and Enfin, and their representatives, after arm's-length negotiations
between the parties.
A copy of the opinion of Austin Associates, Inc. dated as of the date
of this Prospectus/Proxy Statement, is attached hereto as Annex B. The opinion
should be read in its entirety for a description of the procedures followed,
assumptions and qualifications made and matters considered by Austin Associates,
Inc. and for a description of the limitations of the opinion. See "THE MERGER -
Opinion of Austin Associates, Inc."
TERMS OF THE MERGER
EXCHANGE OF ENFIN SHARES. At the Effective Time, Enfin will merge with
and into Second Bancorp and Second Bancorp will thereafter be the continuing and
surviving corporation and Enfin's separate corporate existence will terminate.
Also at the Effective Time, each of the outstanding Enfin Shares will be
canceled and extinguished in consideration and exchange for .950 Shares, subject
to certain adjustments (the "Exchange Ratio") as discussed below:
(i) if the Second Bancorp Closing Price (defined below) exceeds
$30.25, then the Exchange Ratio shall equal $28.74 divided by
the Second Bancorp Closing Price; and
(ii) if the Second Bancorp Closing Price is less than $24.75, then
the Exchange Ratio shall equal $23.51 divided by the Second
Bancorp Closing Price.
The "Second Bancorp Closing Price" is defined under the Agreement as the average
closing price per Share on The Nasdaq Stock Market (as reported by the Wall
Street Journal or, if not reported thereby, another authoritative source) for
the most recent twenty (20) days on which actual trades of Shares occur ending
on the seventh (7th) day immediately preceding the Effective Time.
As of _________ __, 1998, the last trading day before the printing of
this Prospectus/Proxy Statement, the closing price of the Shares was $__.__. If
the Second Bancorp Closing Price would be $__.__ at the Effective Time, the
shareholders of Enfin would receive ___ Shares for each Enfin Share canceled and
exchanged in the Merger. THIS EXAMPLE IS PRESENTED FOR ILLUSTRATIVE PURPOSES
ONLY AND IS NOT DETERMINATIVE OF WHAT THE SECOND BANCORP CLOSING PRICE MAY BE AT
THE EFFECTIVE TIME.
Pursuant to the Agreement, in no event shall the Exchange Ratio exceed
1.069 Shares. In addition, in the event that Second Bancorp enters into a change
in control or similar type of transaction, the Exchange Ratio
4
<PAGE> 12
cannot be less than .718 Shares. See "THE MERGER - Exchange of Enfin Shares" and
"THE MERGER - Termination and Amendment."
As of the date of this Prospectus/Proxy Statement, there are 547,792
Enfin Shares issued and outstanding and [6,859,542] Shares issued and
outstanding.
THE BANK MERGER. As soon as possible after the consummation of the
Merger, Enterprise Bank will be merged with and into the Bank (the "Bank
Merger"). The Bank will be the surviving entity of the Bank Merger and
Enterprise Bank's separate corporate existence will terminate. After the
consummation of the Bank Merger, Enterprise Bank's single office located in
Solon, Ohio will be operated as a branch of the Bank.
FRACTIONAL SHARES. No fractional Shares will be issued in the Merger.
In lieu of any such fractional Shares, Second Bancorp will pay to each holder of
Enfin Shares who otherwise would be entitled to receive a fraction of a Share an
amount in cash equal to the product obtained by multiplying (i) the fractional
Share interest to which such holder (after taking into account all Enfin Shares
held at the Effective Time by such holder) would otherwise be entitled by (ii)
the Second Bancorp Closing Price. No interest will be payable with respect to
such payments for fractional Shares.
REPRESENTATIONS, WARRANTIES AND COVENANTS. Each of Second Bancorp and
Enfin has made certain representations and warranties in the Agreement in
respect of various matters, including but not limited to, the corporate
organization and financial condition of each and, in the case of Enfin, certain
of its representations and warranties relate to Enterprise Bank. In addition,
Enfin has made certain covenants in respect of various matters, including, but
not limited to, the conduct of its business between the date of the Agreement
and the Effective Time and concerning acquisition proposals and the potential
payment of a $750,000 break-up fee to Second Bancorp if Enfin accepts an
acquisition proposal. See "THE MERGER - Representations, Warranties and
Covenants."
CONDITIONS AND EFFECTIVE TIME. The consummation of the Merger is
subject to the satisfaction or waiver of a number of conditions, including, but
not limited to: (i) the adoption of the Agreement and the approval of the Merger
by the affirmative vote of the holders of two-thirds of the issued and
outstanding Enfin Shares; (ii) the receipt of all necessary regulatory approvals
in connection with the Merger and the Bank Merger; (iii) in the aggregate, less
than 10% of the Shares to be issued shall be (a) subject to purchase as
fractional Shares and (b) subject to perfected dissenters' rights pursuant to
Ohio Revised Code Section 1701.85; (iv) the representations and warranties of
Second Bancorp and Enfin contained in the Agreement shall be true and correct in
all material respects at the Effective Time; (v) all covenants and conditions
required to be performed under the Agreement by Second Bancorp and Enfin must
have been performed; (vi) a minimum Enfin shareholders' equity in the amount of
$4,272,000, exclusive of certain expenses of the Merger and certain expenses
described in the Agreement; (vii) Enterprise Bank's loans, net of allowance for
loan losses, shall not be less than $35,904,000; (viii) the total deposits of
Enterprise Bank shall not be less than $37,697,000; and (ix) pursuant to the
requirements of the Ohio Control Share Acquisition Statute, the Merger must be
approved by the affirmative vote of the holders of a majority of the Enfin
Shares represented in person and by proxy at the separate Control Share
Acquisition Special Meeting (the "Separate Meeting"), and by a majority of the
portion of such voting power excluding any Enfin Shares owned by executive
officers of Enfin and any director of Enfin who is also an employee of Enfin and
any other "interested Enfin Shares" (a notice and a proxy for such Separate
Meeting will be mailed to shareholders of Enfin separate and apart from this
Prospectus/Proxy Statement). All conditions must be satisfied in order to
complete the Merger. See "COMPARISON OF RIGHTS OF HOLDERS OF SECOND BANCORP
SHARES AND HOLDERS OF ENFIN SHARES - Anti-Takeover Statutes." Following the
satisfaction or waiver of all such conditions, a Certificate of Merger will be
filed as soon as practicable with the Ohio Secretary of State, after which the
Merger will be effective. See "THE MERGER - Conditions - Effective Time."
REGULATORY APPROVALS. On ______ __, 1998, the Federal Reserve Board
approved the Merger. Such approval is conditioned upon the satisfaction of
several common administrative requirements. It is currently anticipated that the
Merger will be consummated in the third quarter of 1998. The Bank Merger is
subject to
5
<PAGE> 13
approval by the OCC and the Division. Regulatory applications have been filed
with the OCC and the Division seeking approval of the Bank Merger.
TERMINATION. The Agreement may be terminated and the Merger abandoned
upon the occurrence of certain events, including, but not limited to: (i) the
mutual consent and action of the Board of Directors of Second Bancorp and Enfin;
(ii) by either party if the other party has failed to satisfy all of the
conditions of the Agreement and such conditions have not been waived; (iii) by
either party if the Merger is not consummated on or before December 3l, 1998;
(iv) by a majority vote of the Board of Directors of Second Bancorp or Enfin 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 the
breach; and (v) by the vote of a majority of the Board of Directors of Enfin at
any time during the fourth and fifth full days immediately prior to the
Effective Time if (x) the Second Bancorp Closing Price is less than $20 (subject
to certain adjustments set forth in the Agreement) and if the decrease in such
price of the Shares from the price on April 1, 1998, expressed as a percentage,
exceeds the percentage decline (if any) in the Nasdaq Stock Market Index for
Banks published in the Wall Street Journal for the period beginning on the date
of the Agreement and ending on the seventh (7th) day immediately preceding the
Effective Time and (y) if Second Bancorp has not given written notice to Enfin
on the second or third full day immediately prior to the Effective Time which
notice indicates that Second Bancorp agrees that the Exchange Ratio shall be
calculated by dividing $21.38 by the Second Bancorp Closing Price. See "THE
MERGER - Termination and Amendment."
TAX AND ACCOUNTING TREATMENT. The consummation of the Merger is
conditioned upon the receipt of an opinion of counsel to the effect that the
Merger will constitute a tax-free reorganization under Section 368(a)(1)(A) of
the Internal Revenue Code of 1986, as amended (the "Code"). No gain or loss will
be recognized by the Enfin shareholders upon the issuance of Shares to them. A
gain or loss will be recognized, however, on cash received by Enfin shareholders
in lieu of fractional shares or upon the exercise of dissenters' rights. Neither
the opinion of counsel nor the discussion of federal income tax consequences in
this Prospectus/Proxy Statement is binding upon either the Internal Revenue
Service or the courts. The Enfin shareholders are advised to consult their own
tax advisors. See "THE MERGER - Income Tax Consequences" and "RIGHTS OF
DISSENTING SHAREHOLDERS."
The Merger, if completed as proposed, will qualify as a
pooling-of-interests for financial accounting purposes. The Agreement provides
as a condition to the parties obligations to consummate the Merger that Second
Bancorp and Enfin shall have received a letter from Ernst & Young LLP, dated as
of the Effective Time, to the extent that, for financial reporting purposes, the
Merger qualifies for pooling-of-interests accounting treatment under generally
accepted accounting principles if consummated in accordance with the Agreement.
See "THE MERGER-Accounting Treatment."
RECOMMENDATION OF THE BOARD OF DIRECTORS OF ENFIN
The Board of Directors of Enfin, based in part upon the fairness
opinion of Austin Associates, Inc., believes that the consummation of the Merger
is in the best interests of Enfin and its shareholders. Accordingly, the Board
of Directors of Enfin unanimously recommends that the Enfin shareholders vote
FOR the adoption of the Agreement and the approval of the Merger.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
On the Enfin Record Date, such executive officers and directors, as a
group, owned an aggregate of 181,628 Enfin Shares, which represents 33.2% of the
total of issued and outstanding Enfin Shares.
The Merger Agreement provides that after consummation of the Merger,
Second Bancorp will cause the Bank to increase its number of directors by one
and to elect to the Bank's Board of Directors one person who currently serves on
the Board of Directors of Enfin.
6
<PAGE> 14
Various employees of Enterprise Bank have entered into agreements with
Enterprise Bank (the "Continuation Agreements") pursuant to which each such
employee has agreed to continue his or her employment with Enterprise Bank until
the Effective Time in return for the payment of a lump sum to such employee at
the Effective Time. The amounts of the lump sum payments under the Continuation
Agreements will vary depending upon the position occupied by the respective
employee and will be in addition to any salary and benefits currently being
received by such employees. Also, pursuant to the Continuation Agreements, each
Enterprise Bank employee has agreed to waive any all claims against Second
Bancorp, Enfin, the Bank and Enterprise Bank.
Second Bancorp has agreed to: (i) honor the indemnification obligations
Enfin and Enterprise Bank have to their officers, directors and employees from
and against certain liabilities and in accordance with the respective
indemnification provisions of Enfin's and Enterprise Bank's Codes of Regulations
and Ohio law, for a six (6) year period beginning at the Effective Time, (ii)
extend director and officer liability insurance coverage to the officers,
directors and employees of Enfin and Enterprise Bank for a three (3) year period
beginning at the Effective Time and (iii) cause the Bank to offer the existing
employees of Enfin and Enterprise Bank the opportunity to become employees of
Second Bancorp or the Bank or offer severance compensation.
COMPARISON OF RIGHTS OF HOLDERS OF THE SHARES AND ENFIN SHARES
The rights of the holders of Enfin Shares are governed by Ohio law and
by Enfin's Amended and Restated Articles of Incorporation ("Enfin Articles") and
Amended and Restated Code of Regulations ("Enfin Regulations"). Upon the
consummation of the Merger, Enfin's shareholders, except holders who exercise
and perfect dissenters' rights, will become shareholders of Second Bancorp and
their rights will be governed thereafter by Ohio law and by Second Bancorp's
Amended Articles of Incorporation ("Second Bancorp Articles") and Amended Code
of Regulations ("Second Bancorp Regulations").
The rights of holders of Enfin Shares and those of holders of the
Shares differ in some respects, but are similar in many material respects. Such
differences are attributable to variation between the Second Bancorp Articles
and Second Bancorp Regulations and the Enfin Articles and Enfin Regulations.
The Second Bancorp Articles provide for a Board of Directors consisting
of not more than eighteen (18) and not less than six (6) directors, classified
into two classes with each class serving a term of two years. Second Bancorp
currently has seven (7) directors. The Enfin Regulations provide for a Board of
Directors consisting of nine directors divided into three (3) classes with each
class serving three (3) years.
Under the Second Bancorp Articles, certain extraordinary transactions
("Business Combinations") require the affirmative vote of the holders of 75% of
the voting power of the Shares. In addition, if certain "minimum price
requirements" are not complied with in connection with any such Business
Combination, the Business Combination may not be consummated. However, if any
such Business Combination is approved by two-thirds of the continuing directors
of Second Bancorp, then any such Business Combination is not required to satisfy
the "minimum price requirements" and is only required to be approved by the
shareholders of Second Bancorp holding a majority of its voting power.
In contrast, under Ohio law, the affirmative vote of holders of at
least two-thirds of the voting power of Enfin would be required to approve any
merger, business combination or similar transaction involving Enfin.
The Second Bancorp Regulations require the affirmative vote of 75% of
the voting power of Second Bancorp or the affirmative vote of a majority of the
directors then in office to change the number of directors of Second Bancorp.
The Enfin Regulations require the affirmative vote of 50% of the voting power of
Enfin to change the number of directors of Enfin.
The preceding summary is not intended to be a complete description of
the differences between the rights of holders of Enfin Shares and the rights of
the holders of the Shares. For a comprehensive comparison of such differences,
see "DESCRIPTION OF SECOND BANCORP SHARES" and "COMPARISON OF RIGHTS OF HOLDERS
OF SECOND BANCORP SHARES AND HOLDERS OF ENFIN SHARES."
7
<PAGE> 15
EXCHANGE OF CERTIFICATES EVIDENCING SHARES AND ENFIN SHARES
As soon as practicable after the consummation of the Merger, each Enfin
shareholder will be advised of such consummation by a letter accompanied by
instructions for use in surrendering the certificate or certificates evidencing
Enfin Shares to American Stock Transfer & Trust Company (the "Exchange Agent").
CERTIFICATES FOR ENFIN SHARES SHOULD NOT BE FORWARDED TO THE TRANSFER AGENT
UNTIL AFTER RECEIPT OF THE LETTER OF TRANSMITTAL AND SHOULD NOT BE RETURNED TO
ENFIN WITH THE ENCLOSED PROXY. See "THE MERGER - Exchange of Certificates
Evidencing the Shares and Enfin Shares."
RESALE OF SHARES
The Shares to be issued upon the consummation of the Merger have been
registered with the Commission under the Securities Act and will be freely
transferable, except for Shares received by persons who may be deemed to be
affiliates of Enfin. See "THE MERGER - Resale of Shares."
DISSENTERS' RIGHTS
Any shareholder of Enfin who does not vote in favor of the adoption of
the Agreement and the approval of the Merger and who delivers a written demand
for payment of the fair cash value of such shareholder's shares not later than
ten days after the Enfin Special Meeting in the manner provided by Ohio Revised
Code Section 1701.85, a copy of which is attached hereto as Annex C, shall be
entitled, if and when the Merger is consummated, and upon strict compliance with
certain procedures set forth in Ohio Revised Code Section 1701.85, to receive
the fair cash value of the Enfin Shares. An Enfin shareholder who wishes to
submit a written demand for payment of the fair cash value of Enfin Shares
should deliver such notice no later than ________ __, 1998 to Enfin, Inc., 6150
Enterprise Parkway, Solon, Ohio 44139, Attention: S. Casamento. See "RIGHTS OF
DISSENTING SHAREHOLDERS."
MARKET PRICES
The Shares are quoted on the Nasdaq Stock Market under the symbol
"SECD." Enfin Shares are not actively traded, have no established public market
and are not listed on any national exchange or quotation system.
The following table sets forth the high and low bid prices for the
Shares on the Nasdaq Stock Market for the periods indicated and the cash
dividends per Shares declared during such periods:
<TABLE>
<CAPTION>
CASH DIVIDEND
QUARTER ENDED HIGH LOW DECLARED
------------- ---- --- --------
<S> <C> <C> <C>
March 31, 1996 $14.94 $13.75 $.11
June 30, 1996 $14.13 $12.50 $.11
September 30, 1996 $17.00 $13.63 $.11
December 31, 1996 $16.50 $14.88 $.11
March 31, 1997 $18.50 $15.06 $.12
June 30, 1997 $22.25 $17.75 $.12
September 30, 1997 $24.50 $20.75 $.12
December 31, 1997 $28.00 $21.88 $.12
March 31, 1998 $35.00 $24.88 $.13
June 30, 1998 $__.__ $__.__ $__.__
</TABLE>
The last known sale of Enfin Shares occurred on [February 19, 1998].
The price per Enfin Share in such sale equaled $[10.00].
8
<PAGE> 16
As of _________ __, 1998, the last trading day before the printing of
this Prospectus/Proxy Statement, the closing price of the Shares was $__.__. If
the Second Bancorp Closing Price is $__.__ at the Effective Time, the
shareholders of Enfin will receive ___ Shares for each Enfin Share canceled and
exchanged in the Merger. This example is presented for illustrative purposes
only and is not determinative of what the Second Bancorp Closing Price may be at
the Effective Time.
NO ASSURANCE CAN BE GIVEN AS TO WHAT THE MARKET PRICE OF THE SHARES
WILL BE IF AND WHEN THE MERGER IS CONSUMMATED OR WHEN THE SHARES ARE ACTUALLY
ISSUED.
RECENT DEVELOPMENT INVOLVING SECOND BANCORP
On May 4, 1998, Second Bancorp entered into a Plan and Agreement of
Merger (the "Trumbull Merger Agreement"), pursuant to which Trumbull Financial
Corporation, an Ohio corporation and bank holding company ("Trumbull"), will
merge with and into Second Bancorp (the "Trumbull Merger"). As of March 31,
1998, Trumbull had consolidated assets (unaudited) of $525 million and
consolidated deposits (unaudited) of $383 million. The Trumbull Merger is
subject to approval by the shareholders of Second Bancorp and Trumbull, certain
regulatory approvals and certain other customary conditions contained in the
Trumbull Merger Agreement. If the Trumbull Merger Agreement and the Trumbull
Merger are adopted by the affirmative vote of the holders of a majority of the
issued and outstanding Shares and by the affirmative vote of two-thirds of the
issued and outstanding common shares of Trumbull, and if all other conditions to
the consummation of the Trumbull Merger are satisfied, the Trumbull Merger will
be consummated. It is anticipated that the Trumbull Merger will be consummated
during the third quarter of 1998.
If all of the conditions to the Trumbull Merger are satisfied, on the
date upon which the Trumbull Merger becomes effective, each of the outstanding
Trumbull common shares will be canceled and extinguished in consideration and
exchange for 3.780 Shares, subject to certain adjustments set forth in the
Trumbull Merger Agreement.
After the consummation of the Trumbull Merger, The Trumbull Savings and
Loan Company, an Ohio-chartered savings bank which is wholly owned by Trumbull,
will merge with and into the Bank and the Bank will be the surviving entity of
the merger.
Pursuant to the Trumbull Merger Agreement, Second Bancorp will increase
its number of directors by three (3) and elect three (3) members of Trumbull's
Board of Directors to the Second Bancorp Board of Directors. In addition, Second
Bancorp has agreed to cause the Bank to increase its number of directors by
three (3) and to elect three (3) members of Trumbull's Board of Directors to the
Bank's Board of Directors.
As of the date of this Prospectus/Proxy Statement, there were 869,364
common shares of Trumbull issued and outstanding and [6,859,542] Shares issued
and outstanding. See "PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION",
which includes consolidated pro-forma financial information for Second Bancorp
assuming the consummation of both the Merger and the Trumbull Merger. See also
"SELECTED FINANCIAL DATA OF SECOND BANCORP, ENFIN AND TRUMBULL" and "COMPARATIVE
PER SHARE DATA." In addition, the financial statements of The Trumbull Savings
and Loan Company at September 30, 1997, and for each of the three years ended
September 30, 1997, and certain unaudited financial information of Trumbull as
of December 31, 1997 and March 31, 1998, are incorporated into this
Prospectus/Proxy Statement by reference and have been filed with the Commission
pursuant to Second Bancorp's Current Report on Form 8-K dated June 8, 1998.
THERE CAN BE NO ASSURANCE THAT THE TRUMBULL MERGER WILL EVER BE
CONSUMMATED.
9
<PAGE> 17
PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
The unaudited pro forma financial information on the following pages
presents (a) the historical consolidated balance sheets of Second Bancorp and
Enfin at March 31, 1998 and the unaudited pro forma combined consolidated
balance sheet as of March 31, 1998 giving effect to the Merger as if it had
occurred on that date on a pooling-of-interests accounting basis; (b) the
historical consolidated balance sheet of Trumbull at December 31, 1997 and the
unaudited pro forma combined consolidated balance sheet as of March 31, 1998,
giving effect to the Merger and the Trumbull Merger as if they had occurred on
that date on a pooling-of-interests accounting basis; (c) the historical
consolidated statements of income for the three months ended March 31, 1998 and
the years ended December 31, 1997, 1996 and 1995, giving effect to the Merger
and the Trumbull Merger on a pooling-of-interests basis. In accordance with the
rules and regulations of the Securities and Exchange Commission, Trumbull's
financial information for the years ended September 30, 1993 through 1997 have
been combined with Second Bancorp's financial information for the years ended
December 31, 1993 through 1997, respectively, for purposes of preparing the pro
forma financial information. In addition, Second Bancorp's financial information
for the three months ended March 31, 1998 and 1997 was combined with Trumbull's
financial information for the three months ended December 31, 1997 and 1996,
respectively, for purposes of preparing the pro forma financial information.
The unaudited pro forma financial information assumes all of the
outstanding Enfin Shares and common shares of Trumbull are converted into
Shares. The unaudited pro forma financial information is based on the historical
financial statements, giving effect to the Merger and the Trumbull Merger under
the pooling-of-interest method of accounting. The pro forma statements exclude
the estimated effect of potential expense savings associated with the
consolidation of operations of Second Bancorp, Enfin and Trumbull, and may not
be indicative of the results that actually would have occurred had the Merger
and the Trumbull Merger been consummated on the date(s) indicated, or which may
be attained in the future.
10
<PAGE> 18
SECOND BANCORP, INCORPORATED
PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
As of Dec.
As of March 31, 1998 31, 1997 (E)
----------------------- Second --------------
Second Pro Forma Bancorp Trumbull Pro Forma Pro Forma
Bancorp Enfin Adjustments and Enfin Financial Adjustments Combined
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
(In thousands)
ASSETS
Cash and demand balances due from
banks $ 26,726 $ 2,259 $ - $ 28,985 $ 5,681 $ - $ 34,666
Interest-bearing balances due from
banks - 85 85 85
Federal funds sold 3,000 2,607 5,607 5,607
Securities, Available-for-sale, (at
market value) 298,413 2,203 300,616 8,769 309,385
Securities, Held-to-maturity - 250 250 181,243 181,493
Loans 572,046 36,531 608,577 282,096 890,673
Less reserve for loan losses (7,059) (525) (7,584) (1,470) (9,054)
----------------------------------------------------------------------------------------------
Net loans 564,987 36,006 - 600,993 280,626 - 881,619
Premises and equipment 9,957 122 10,079 4,860 14,939
Accrued interest receivable 6,773 190 6,963 2,397 9,360
Goodwill and intangible assets 3,061 3,061 692 3,753
Other assets 18,369 678 165 (B) 19,212 9,198 1,069 (C) 29,479
----------------------------------------------------------------------------------------------
Total assets $931,286 $44,400 $ 165 $975,851 $493,466 $ 1,069 $1,470,386
==============================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand - non-interest bearing $ 77,289 4,970 $ - 82,259 10,225 - $92,484
Demand - interest bearing 63,388 821 64,209 23,904 88,113
Savings 148,807 14,032 162,839 99,711 262,550
Time Deposits 375,693 19,652 395,345 239,247 634,592
----------------------------------------------------------------------------------------------
Total Deposits 665,177 39,475 - 704,652 373,087 - 1,077,739
Federal funds purchased and
securities sold under agreements
to repurchase 125,665 125,665 10,750 136,415
Other borrowed funds 3,103 3,103 3,103
Federal Home Loan Bank advances 48,435 48,435 66,306 114,741
Accrued interest and other
Liabilities 7,929 522 1,009 (B) 9,460 6,039 4,991 (C) 20,490
----------------------------------------------------------------------------------------------
Total liabilities 850,309 39,997 1,009 891,315 456,182 4,991 1,352,488
Shareholders' equity: (A)
- -
Preferred stock - - -
Common stock 29,993 5,183 35,176 - 869 (A) 36,045
Paid in capital in excess of par - - 869 (869)(A) -
Treasury stock (793) (793) (793)
Net unrealized gains (losses) on
available-for-sale securities,
net of tax 2,274 5 2,279 (189) 2,090
Retained earnings 49,503 (785) (844) (B) 47,874 36,604 (3,922)(C) 80,556
----------------------------------------------------------------------------------------------
Total shareholders' equity 80,977 4,403 (844) 84,536 37,284 (3,922) 117,898
==============================================================================================
Total liabilities and
shareholders' equity $931,286 $44,400 $ 165 $975,851 $493,466 $ 1,069 $1,470,386
==============================================================================================
</TABLE>
See accompanying notes to pro forma combined consolidated financial information.
11
<PAGE> 19
SECOND BANCORP, INCORPORATED
PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT
(UNAUDITED)
<TABLE>
<CAPTION>
For the Quarter Ended
---------------------------------------------------------------------
March 31,1998 Dec. 31, 1997 (E)
-------------------------------------------------
Second Trumbull Pro Forma
(In thousands, except share and per share data) Bancorp Enfin Financial Combined
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans (including fees):
Taxable $ 12,702 $ 855 $ 5,275 $ 18,832
Exempt from federal income taxes 122 - - 122
Securities:
-
Taxable 3,650 51 2,641 6,342
Exempt from federal income taxes 790 - - 790
Federal funds sold 42 34 - 76
---------------------------------------------------------------------
Total interest income 17,306 940 7,916 26,162
INTEREST EXPENSE
Deposits 6,525 424 4,118 11,067
Federal funds purchased and securities
sold under agreements to repurchase 1,479 - 98 1,577
Note payable - - 1 1
Other borrowed funds 31 1 - 32
Federal Home Loan Bank advances 390 - 695 1,085
---------------------------------------------------------------------
Total interest expense 8,425 425 4,912 13,762
---------------------------------------------------------------------
Net interest income 8,881 515 3,004 12,400
Provision for loan losses 785 14 60 859
---------------------------------------------------------------------
Net interest income after
provision for loan losses 8,096 501 2,944 11,541
NON-INTEREST INCOME
Service charges on deposit accounts 675 30 327 1,032
Trust fees 678 - - 678
Security gains 128 - 70 198
Other operating income 760 37 297 1,094
---------------------------------------------------------------------
Total non-interest income 2,241 67 694 3,002
NON-INTEREST EXPENSE
Salaries and employee benefits 3,555 179 1,058 4,792
Net occupancy 797 42 237 1,076
Equipment 631 46 192 869
Professional services 368 17 46 431
Assessment on deposits and other taxes 244 21 165 430
Amortization of goodwill and other
intangibles 163 - 38 201
Other operating expenses 1,364 65 491 1,920
---------------------------------------------------------------------
Total non-interest expense 7,122 370 2,227 9,719
---------------------------------------------------------------------
Income before federal income taxes 3,215 198 1,411 4,824
Income tax expense 726 67 495 1,288
---------------------------------------------------------------------
NET INCOME $ 2,489 $ 131 $ 916 $ 3,536
=====================================================================
EARNINGS PER COMMON SHARE
Basic $ 0.36 $ 0.24 $ 1.05 $ 0.33
Diluted $ 0.36 $ 0.24 $ 1.05 $ 0.33
AVERAGE COMMON SHARES OUTSTANDING
Basic 6,821,478 547,792 869,364 10,628,076
Diluted 6,926,532 547,792 869,364 10,733,130
</TABLE>
See accompanying notes to pro forma combined consolidated financial information.
12
<PAGE> 20
SECOND BANCORP, INCORPORATED
PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT
(UNAUDITED)
<TABLE>
<CAPTION>
For the Year Ended
----------------------------------------------------------------------
December 31, 1997 Sept. 30, 1997 (E)
------------------------------------------------
Second Trumbull Pro Forma
(In thousands, except share and per share data) Bancorp Enfin Financial Combined
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans (including fees):
Taxable $51,272 $ 3,267 $18,690 $73,229
Exempt from federal income taxes 636 - - 636
Securities:
Taxable 12,869 162 13,791 26,822
Exempt from federal income taxes 2,854 - - 2,854
Federal funds sold 616 133 - 749
Other - - 100 100
----------------------------------------------------------------------
Total interest income 68,247 3,562 32,581 104,390
INTEREST EXPENSE
Deposits 26,047 1,600 16,001 43,648
Federal funds purchased and securities
sold under agreements to repurchase 5,175 - 997 6,172
Note payable 276 - - 276
Other borrowed funds 157 6 - 163
Federal Home Loan Bank advances 1,841 - 3,607 5,448
----------------------------------------------------------------------
Total interest expense 33,496 1,606 20,605 55,707
----------------------------------------------------------------------
Net interest income 34,751 1,956 11,976 48,683
Provision for loan losses 3,939 125 140 4,204
----------------------------------------------------------------------
Net interest income after
provision for loan losses 30,812 1,831 11,836 44,479
NON-INTEREST INCOME
Service charges on deposit accounts 3,021 91 1,068 4,180
Trust fees 2,562 - - 2,562
Security gains (losses) 595 - (80) 515
Other operating income 3,026 144 1,347 4,517
----------------------------------------------------------------------
Total non-interest income 9,204 235 2,335 11,774
NON-INTEREST EXPENSE
Salaries and employee benefits 13,450 813 4,324 18,587
Net occupancy 3,117 171 899 4,187
Equipment 2,069 183 780 3,032
Professional services 1,579 60 127 1,766
Assessment on deposits and other taxes 950 90 771 1,811
Amortization of goodwill and other intangibles 752 - 184 936
Other operating expenses 6,674 281 1,977 8,932
----------------------------------------------------------------------
Total non-interest expense 28,591 1,598 9,062 39,251
----------------------------------------------------------------------
Income before federal income taxes 11,425 468 5,109 17,002
Income tax expense 2,450 (449) 1,744 3,745
----------------------------------------------------------------------
NET INCOME $ 8,975 $ 917 $3,365 $13,257
======================================================================
EARNINGS PER COMMON SHARE
Basic $ 1.33 $ 1.67 $ 3.87 $ 1.26
Diluted $ 1.32 $ 1.67 $ 3.87 $ 1.25
AVERAGE COMMON SHARES OUTSTANDING
Basic 6,749,435 547,792 869,364 10,556,033
Diluted 6,810,266 547,792 869,364 10,616,864
</TABLE>
See accompanying notes to pro forma combined consolidated financial information.
13
<PAGE> 21
SECOND BANCORP, INCORPORATED
PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT
(UNAUDITED)
<TABLE>
<CAPTION>
For the Year Ended
----------------------------------------------------------------------
December 31, 1996 September 30, 1996 (E)
----------------------------------------------------------------------
Second Trumbull Pro Forma
(In thousands, except share and per share data) Bancorp Enfin Financial Combined
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans (including fees):
Taxable $50,621 $2,631 $16,419 $69,671
Exempt from federal income taxes 740 - - 740
Securities: -
Taxable 11,789 120 15,634 27,543
Exempt from federal income taxes 2,205 - - 2,205
Federal funds sold 291 150 - 441
Other - - 66 66
----------------------------------------------------------------------
Total interest income 65,646 2,901 32,119 100,666
INTEREST EXPENSE
Deposits 26,343 1,326 16,419 44,088
Federal funds purchased and securities
sold under agreements to repurchase 3,917 - 449 4,366
Note payable 371 - - 371
Other borrowed funds 144 6 - 150
Federal Home Loan Bank advances 1,010 - 4,168 5,178
----------------------------------------------------------------------
Total interest expense 31,785 1,332 21,036 54,153
----------------------------------------------------------------------
Net interest income 33,861 1,569 11,083 46,513
Provision for loan losses 4,956 56 60 5,072
----------------------------------------------------------------------
Net interest income after
provision for loan losses 28,905 1,513 11,023 41,441
NON-INTEREST INCOME
Service charges on deposit accounts 2,684 140 754 3,578
Trust fees 2,335 - - 2,335
Security gains 462 - - 462
Other operating income 2,998 102 1,071 4,171
----------------------------------------------------------------------
Total non-interest income 8,479 242 1,825 10,546
Non-Interest Expense
Salaries and employee benefits 12,618 716 4,013 17,347
Net occupancy 3,017 164 827 4,008
Equipment 1,546 186 722 2,454
Professional services 1,400 75 171 1,646
Assessment on deposits and other taxes 891 72 1,289 2,252
SAIF Special Assessment - - 2,471 2,471
Amortization of goodwill and other intangibles 864 - 226 1,090
Other operating expenses 5,940 259 1,858 8,057
----------------------------------------------------------------------
Total non-interest expense 26,276 1,472 11,577 39,325
----------------------------------------------------------------------
Income before federal income taxes 11,108 283 1,271 12,662
Income tax expense 2,556 - 437 2,993
----------------------------------------------------------------------
NET INCOME $ 8,552 $ 283 $ 834 $ 9,669
======================================================================
Preferred stock dividend (456) - - (456)
----------------------------------------------------------------------
Net income applicable to common stock $ 8,096 $ 283 $ 834 $ 9,213
======================================================================
EARNINGS PER COMMON SHARE
Basic $ 1.33 $ 0.52 $ 0.96 $ 0.93
Diluted $ 1.27 $ 0.52 $ 0.96 $ 0.92
AVERAGE COMMON SHARES OUTSTANDING
Basic 6,070,666 546,762 869,364 9,876,286
Diluted 6,749,552 546,762 869,364 10,555,172
</TABLE>
See accompanying notes to pro forma combined consolidated financial information.
<PAGE> 22
SECOND BANCORP, INCORPORATED
Pro Forma Combined Consolidated Income Statement
(Unaudited)
<TABLE>
<CAPTION>
For the Year Ended
------------------------------------------------------------------
December 31, 1995 September 30, 1995 (E)
------------------------------------------------------------------
Second Trumbull Pro Forma
(In thousands, except share and per share data) Bancorp Enfin Financial Combined
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income
Loans (including fees):
Taxable $48,303 $2,140 $14,098 $64,541
Exempt from federal income taxes 810 - - 810
Securities: -
Taxable 11,167 100 17,951 29,218
Exempt from federal income taxes 1,635 - - 1,635
Federal funds sold 629 209 4 842
Other - - 64 64
------------------------------------------------------------------
Total interest income 62,544 2,449 32,117 97,110
Interest Expense
Deposits 25,415 1,055 15,844 42,314
Federal funds purchased and securities
sold under agreements to repurchase 4,307 - 1,706 6,013
Note payable 434 - - 434
Other borrowed funds 181 4 - 185
Federal Home Loan Bank advances 466 - 3,768 4,234
------------------------------------------------------------------
Total interest expense 30,803 1,059 21,318 53,180
------------------------------------------------------------------
Net interest income 31,741 1,390 10,799 43,930
Provision for loan losses 3,000 115 60 3,175
------------------------------------------------------------------
Net interest income after
provision for loan losses 28,741 1,275 10,739 40,755
Non-Interest Income
Service charges on deposit accounts 2,406 106 508 3,020
Trust fees 2,227 - - 2,227
Security gains 634 - 202 836
Other operating income 2,278 74 996 3,348
------------------------------------------------------------------
Total non-interest income 7,545 180 1,706 9,431
Non-Interest Expense
Salaries and employee benefits 11,702 667 3,957 16,326
Net occupancy 2,955 155 787 3,897
Equipment 1,340 179 693 2,212
Professional services 1,534 40 191 1,765
Assessment on deposits and other taxes 1,932 82 1,294 3,308
Amortization of goodwill and other intangibles 1,000 - 567 1,567
Other operating expenses 5,563 270 1,829 7,662
------------------------------------------------------------------
Total non-interest expense 26,026 1,393 9,318 36,737
------------------------------------------------------------------
Income before federal income taxes 10,260 62 3,127 13,449
Income tax expense 2,695 - 1,123 3,818
------------------------------------------------------------------
Net income $ 7,565 $ 62 $2,004 $ 9,631
==================================================================
Preferred stock dividend (1,066) - - (1,066)
------------------------------------------------------------------
Net income applicable to common stock $ 6,499 $ 62 $2,004 $ 8,565
==================================================================
Earnings Per Common Share
Basic $ 1.29 $ 0.12 $ 2.31 $ .97
Diluted $ 1.13 $ 0.12 $ 2.31 $ .92
Average Common Shares Outstanding
Basic 5,056,242 537,037 869,364 8,852,623
Diluted 6,685,384 537,037 869,364 10,481,765
</TABLE>
See accompanying notes to pro forma combined consolidated financial information.
15
<PAGE> 23
The table below presents the pro forma combined consolidated risk-based
capital information as of March 31, 1998 as it relates to the mergers and
indicates the pro forma combined risk-based capital ratios will be in excess of
regulatory minimums.
<TABLE>
<CAPTION>
Other Information as of: March 31, 1998 Dec. 31, 1997
(E)
---------------------------------------
Second Trumbull Pro Forma Pro Forma
Bancorp Enfin Financial Adjustments Combined
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(Dollars in thousands)
Tier I risk-based capital $ 75,708 $4,025 $36,494 $(4,766) $111,461
Total risk-based capital $ 82,767 $4,462 $37,964 $(4,766) $120,427
Risk-based assets $634,584 $34,870 $235,550 $ 1,234 $906,238
(Ratio:)
Tier I risk-based capital 11.93% 11.54% 15.49% 12.30%
Total risk-based capital 13.04% 12.80% 16.12% 13.29%
</TABLE>
NOTES TO PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)
(A) The pro forma combined consolidated balance sheet gives effect to the
Merger and the Trumbull Merger at December 31, 1997 on a
pooling-of-interests accounting basis. The capital accounts have been
adjusted to reflect the issuance of 520,402 Shares (based upon an
exchange ratio of .95 Shares for 1 Enfin Share) and 3,286,196 Shares
(based upon an exchange ratio of 3.78 Shares for to 1 Trumbull common
share) in exchange for all of the outstanding Enfin Shares and Trumbull
common shares, respectively.
(B) A liability of $1,009,000 has been recorded in the pro forma combined
consolidated balance sheet to reflect Second Bancorp management's
estimate of anticipated expenses related to the merger of Second
Bancorp and Enfin. This liability resulted in a $844,000 after-tax
adjustment to retained earnings and a $165 adjustment to deferred taxes
in the pro forma combined consolidated balance sheet. The following
table provides detail of the estimated expenses:
(In thousands)
Investment banker and other professional fees $ 530
Personnel related 401
Other 78
------
Total $1,009
======
Personnel related costs consist primarily of expenses related to
employment contracts, severance, and certain retention payments to
employees. Other expenses include primarily conversion related and
other miscellaneous fees and expenses. It is anticipated that the
majority of the expenses will be recognized within a short period after
consummation of the merger of Second Bancorp and Enfin and that all of
the expenses will be recognized by December 31, 1998. Management
continues to review these estimates and there can be no assurance that
the actual costs will not differ in amount and type from the amounts
provided above.
(C) A liability of $4,991,000 has been recorded in the pro forma combined
consolidated balance sheet to reflect Second Bancorp management's
estimate of anticipated expenses related to the Merger and the Trumbull
Merger. This liability resulted in a $4,766,000 after-tax adjustment to
retained earnings and a $1,234,000 adjustment to deferred taxes in the
pro forma combined consolidated balance sheet. The following table
provides detail of the estimated expenses:
16
<PAGE> 24
(In thousands)
Investment banker and other professional fees $1,406
Personnel related 2,148
Other 1,437
------
Total $4,991
======
Personnel related costs consist primarily of expenses related to
employment contracts, severance, and certain retention payments to
employees. Other expenses include termination costs for Trumbull's data
processing agreement, lease terminations for duplicate facilities,
conversion related and other miscellaneous fees and expenses. It is
anticipated that the majority of the expenses will be recognized within
a short period after consummation of the Trumbull Merger and that all
of the expenses will be recognized by December 31, 1998. Management
continues to review these estimates and there can be no assurance that
the actual costs will not differ in amount and type from the amounts
provided above.
(D) The historical share and per share information for the Shares has been
restated for a two-for-one stock split effective May 1, 1997 and a
three-for-two stock split effective May 1, 1995. In addition, the pro
forma basic and diluted per share information has been adjusted for the
exchange ratios described in Note A.
(E) In accordance with the rules of the Securities and Exchange Commission,
Trumbull's selected financial data for the years ended September 30,
1993 through 1997 have been combined with Second Bancorp's selected
financial data for the years ended December 31, 1993 through 1997,
respectively, for purposes of preparing the pro forma financial
information. In addition, Second Bancorp's selected financial data for
the three months ended March 31, 1998 and 1997 was combined with
Trumbull's selected financial statements and financial data for the
three months ended December 31, 1997 and 1996, respectively, for
purposes of preparing the pro forma financial information.
SELECTED FINANCIAL DATA OF SECOND BANCORP, ENFIN AND TRUMBULL
The following table presents selected consolidated financial data for
(a) Second Bancorp on a historical basis, (b) Enfin on a historical basis, (c)
Trumbull on a historical basis and (d) Second Bancorp, Enfin and Trumbull on an
unaudited pro forma basis. The pro forma data in the table assumes that the
acquisitions of both Enfin and Trumbull will be accounted for as
pooling-of-interests. This table should be read in conjunction with the
financial statements and other financial information of Second Bancorp and
Trumbull, respectively, incorporated herein by reference and Enfin included
elsewhere in this Prospectus/Proxy Statement and the unaudited pro forma
combined consolidated financial information giving effect to the Merger and the
Trumbull Merger See "PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)" and "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.". The
unaudited pro forma data presented below is not necessarily indicative of the
results which actually would have been attained if the Merger and the Trumbull
Merger had been consummated in the past or which may be attained in the future.
All share and per share information for Second Bancorp has been restated for a
two-for-one stock split effective May 1, 1997 and a three-for-two stock split
effective May 1, 1995.
17
<PAGE> 25
<TABLE>
<CAPTION>
Three Months Ended Year Ended December 31,
March 31,
---------------------- -----------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------------------- -----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL SECOND BANCORP:
Earnings (In thousands, except per share data)
Net interest income $ 8,881 $ 8,422 $ 34,751 $ 33,861 $ 31,741 $ 30,051 $ 27,263
Provision for loan losses 785 761 3,939 4,956 3,000 2,370 2,555
Net income 2,489 2,150 8,975 8,552 7,565 6,643 6,007
Net income applicable to common
shareholders 2,489 2,150 8,975 8,096 6,499 5,565 4,929
Earnings per common share:
Basic 0.36 0.32 1.33 1.33 1.29 1.11 0.99
Diluted 0.36 0.32 1.32 1.27 1.13 1.00 0.91
Cash dividends declared:
Per common share 0.13 0.12 0.48 0.44 0.38 0.32 0.29
Per preferred share - - - 0.75 1.50 1.50 1.50
Average common shares outstanding
Basic 6,821,478 6,700,006 6,749,435 6,070,666 5,056,242 4,998,408 4,976,278
Diluted 6,926,532 6,801,250 6,810,266 6,749,552 6,685,384 6,624,652 6,597,452
Average Balances
Assets 920,570 868,941 897,104 850,662 807,215 717,904 640,516
Earning assets 861,950 809,673 841,333 792,239 750,355 675,257 602,965
Deposits 674,295 656,087 669,678 663,544 637,453 580,012 532,896
Stockholders' equity 80,718 69,724 73,077 66,149 59,805 54,917 52,491
HISTORICAL ENFIN:
Earnings (In thousands, except per share data)
Net interest income $ 515 434 1,956 1,569 1,390 $ 963 $ 589
Provision for loan losses 14 39 125 56 115 33 253
Net income 131 70 917 283 62 (159) (703)
Earnings per common share:
Basic 0.24 0.13 1.67 0.52 0.12 (0.34) (1.49)
Diluted 0.24 0.13 1.67 0.52 0.12 (0.34) (1.49)
Cash dividends declared per common
share - - - - - - -
Average common shares outstanding
Basic 547,792 547,792 547,792 546,762 537,037 472,368 472,346
Diluted 547,792 547,792 547,792 546,762 537,037 472,368 472,346
Average Balances
Assets 44,031 37,264 40,857 34,510 28,688 23,459 18,419
Earning assets 42,021 35,803 39,354 32,980 27,167 22,028 17,023
Deposits 39,346 33,594 36,936 30,997 25,389 20,688 15,103
Stockholders' equity 4,335 3,377 3,556 3,187 2,940 2,565 3,097
PRO FORMA SECOND BANCORP AND ENFIN COMBINED:
Earnings (In thousands, except per share data)
Net interest income $ 9,396 $ 8,856 $ 36,707 $ 35,429 $ 33,131 $ 31,014 $ 27,852
Provision for loan losses 799 800 4,064 5,012 3,116 2,403 2,808
Net income 2,620 2,220 9,892 8,835 7,627 6,484 5,304
Net income applicable to common
shareholders 2,620 2,220 9,892 8,379 6,561 5,406 4,226
</TABLE>
18
<PAGE> 26
<TABLE>
<CAPTION>
Three Months Ended Year Ended December 31,
March 31,
---------------------- -----------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------------------- -----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings per common share:
Basic 0.36 0.31 1.36 1.27 1.18 0.99 0.78
Diluted 0.35 0.30 1.35 1.22 1.06 0.92 0.75
Average common shares outstanding:
Basic 7,341,880 7,220,408 7,269,837 6,590,090 5,566,427 5,447,158 5,425,007
Diluted 7,446,934 7,321,652 7,330,668 7,268,976 7,195,569 7,073,402 7,046,181
Average Balances
Assets 964,601 906,205 939,458 886,880 838,120 742,612 660,822
Earning assets 903,971 845,476 880,687 825,219 777,522 697,283 619,988
Deposits 713,641 689,681 708,616 694,541 662,842 600,694 547,999
Stockholders' equity 85,053 73,101 76,633 69,336 62,745 57,482 55,588
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Year Ended September 30
December 31,
---------------------- -----------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------------------- -----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL TRUMBULL FINANCIAL:
Earnings (In thousands, except per share data)
Net interest income $ 3,004 $ 2,873 $ 11,976 $ 11,083 $ 10,798 $ 11,911 $ 10,112
Provision for loan losses
60 15 141 60 60 60 72
Income before cumulative effect of
a change in accounting method 916 767 3,365 834 2,004 3,134 3,396
Net income 916 767 3,365 834 2,004 3,003 3,396
Earnings per common share before cumulative
effect of a change in accounting method
Basic 1.05 0.88 3.87 0.96 2.31 3.60 3.91
Diluted 1.05 0.88 3.87 0.96 2.31 3.60 3.91
Cash dividends declared per common
share 0.31 0.45 1.18 0.74 0.70 0.70 0.55
Average common shares outstanding:
Basic 869,364 869,364 869,364 869,364 869,364 869,364 869,364
Diluted 869,364 869,364 869,364 869,364 869,364 869,364 869,364
Average Balances
Assets 474,442 496,455 482,359 493,697 495,011 479,818 345,017
Earning assets 447,485 471,312 458,494 471,411 473,402 461,272 325,017
Deposits 373,767 373,474 372,823 373,927 379,899 386,690 277,178
Stockholders' equity 37,221 34,333 36,369 33,829 33,732 31,659 28,944
</TABLE>
19
<PAGE> 27
<TABLE>
<CAPTION>
Three Months Ended Year Ended December 31, (1)
March 31, (1)
---------------------- ------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------------------- ------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PRO FORMA SECOND BANCORP, ENFIN AND TRUMBULL FINANCIAL
COMBINED:
Earnings (In thousands, except per share data)
Net interest income $ 12,400 $ 11,729 $ 48,683 $ 46,513 $ 43,930 $ 42,925 $ 37,964
Provision for loan losses 859 815 4,204 5,072 3,175 2,463 2,880
Income before cumulative effect
of a change in accounting method 3,536 2,987 13,257 9,669 9,631 9,618 8,700
Net income 3,536 2,987 13,257 9,669 9,631 9,487 8,700
Net income applicable to common
shareholders 3,536 2,987 13,257 9,213 8,565 8,409 7,622
Earnings per common share before
cumulative effect of a change in
accounting method
Basic 0.33 0.28 1.26 0.93 0.97 0.96 0.87
Diluted 0.33 0.28 1.25 0.92 0.92 0.92 0.84
Average common shares outstanding:
Basic 10,628,076 10,506,604 10,556,033 9,876,286 8,852,623 8,733,354 8,711,203
Diluted 10,733,130 10,607,848 10,616,864 10,555,172 10,481,765 10,359,598 10,332,377
Average Balances
Assets 1,439,043 1,402,660 1,421,817 1,380,577 1,333,131 1,222,430 1,005,839
Earning assets 1,351,456 1,316,788 1,339,181 1,296,630 1,250,924 1,158,555 945,005
Deposits 1,087,408 1,063,155 1,081,439 1,068,468 1,042,741 987,384 825,177
Stockholders' equity 122,274 107,434 113,002 103,165 96,477 89,141 84,532
</TABLE>
(1) In accordance with the rules of the Securities and Exchange Commission,
Trumbull's selected financial data for the years ended September 30,
1993 through 1997 have been combined with Second Bancorp's selected
financial data for the years ended December 31, 1993 through 1997,
respectively, for purposes of preparing the pro forma financial
information. In addition, Second Bancorp's selected financial data for
the three months ended March 31, 1998 and 1997 was combined with
Trumbull's selected financial data for the three months ended December
31, 1997 and 1996, respectively, for purposes of preparing the pro
forma financial information.
COMPARATIVE PER SHARE DATA
The following table sets forth certain per share data, adjusted for all
applicable stock splits, relating to net income, cash dividends declared and
book value: (i) on a historical basis for Second Bancorp, Enfin and Trumbull,
(ii) on an unaudited pro forma basis per Share, reflecting Second Bancorp's
consummation of (a) the Merger and (b) the Trumbull Merger, (iii) on an
unaudited pro forma equivalent basis per Enfin Share, reflecting Second
Bancorp's consummation of (a) the Merger and (b) the Trumbull Merger, and (iv)
on an unaudited pro forma equivalent basis per common share of Trumbull,
reflecting Second Bancorp's consummation of the Merger and the Trumbull Merger.
Such unaudited pro forma information has been prepared (i) assuming an Exchange
Ratio of .95 Shares and 3.78 Shares for each Enfin Share and common share of
Trumbull, respectively, outstanding immediately prior to the Merger and the
Trumbull Merger, and (ii) giving effect to the Merger and the Trumbull Merger on
a pooling-of-interests accounting basis. The unaudited pro forma income
statement assumes that the Merger and the Trumbull Merger were consummated as of
the beginning of each of the periods indicated. The unaudited pro forma balance
sheet information assumes the Merger and the Trumbull Merger occurred on
December 31, 1997.
The following information should be read in conjunction with the
historical financial statements of Second Bancorp and Trumbull incorporated by
reference in this Prospectus/Proxy Statement and the historical financial
statements of Enfin included elsewhere in the Prospectus/Proxy Statement and the
unaudited pro forma combined consolidated financial information giving effect to
the Merger and the Trumbull Merger included
20
<PAGE> 28
elsewhere in the Proxy Statement. See "PRO FORMA COMBINED CONSOLIDATED FINANCIAL
INFORMATION (UNAUDITED)" and "SELECTED FINANCIAL DATA OF SECOND BANCORP, ENFIN
AND TRUMBULL" and "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
The earnings data presented below does not include merger-related
charges and/or anticipated cost savings from the consolidation of the operations
of Second Bancorp, Enfin and Trumbull, and is not necessarily indicative of the
results which actually would have been attained had the Merger and the Trumbull
Merger been consummated in the past or which may be attained in the future.
<TABLE>
<CAPTION>
Three Months
Ended March 31, Year ended December 31,
------------------------------------------------
1998 1997 1997 1996 1995
------------------------------------------------
<S> <C> <C> <C> <C> <C>
Second Bancorp Common Stock
Earnings per common share before cumulative effect of accounting changes:
Historical
Basic $ 0.36 $ 0.32 $ 1.33 $ 1.33 $ 1.29
Diluted 0.36 0.32 1.32 1.27 1.13
Pro forma Second Bancorp and Enfin
Basic 0.36 0.31 1.36 1.27 1.18
Diluted 0.35 0.30 1.35 1.22 1.06
Pro forma Second Bancorp, Enfin and Trumbull Financial(1)
Basic 0.33 0.28 1.26 0.93 0.97
Diluted 0.33 0.28 1.25 0.92 0.92
Cash dividends declared per common share (2)
Historical 0.13 0.12 0.48 0.44 0.38
Book value per common share at period-end (1)
Historical 11.85 10.24 11.68 10.34 10.40
Pro forma Second Bancorp and Enfin 11.61 9.97 11.43 10.06 9.99
Pro forma Second Bancorp, Enfin and Trumbull Financial 11.53 10.12 11.35 10.13 10.09
Enfin Common Stock
Earnings per common share before cumulative effect of accounting changes:
Historical
Basic $ 0.24 $ 0.13 $ 1.67 $ 0.52 $ 0.12
Diluted 0.24 0.13 1.67 0.52 0.12
Pro forma equivalent Second Bancorp and Enfin (3)
Basic 0.34 0.29 1.29 1.21 1.12
Diluted 0.33 0.29 1.28 1.16 1.01
Pro forma equivalent Second Bancorp, Enfin and
Trumbull Financial (1) (3)
Basic 0.31 0.27 1.20 0.88 0.92
Diluted 0.31 0.27 1.19 0.87 0.87
Cash dividends declared per common share (2)
Historical - - - - -
Pro forma equivalent 0.12 0.11 0.46 0.42 0.36
</TABLE>
21
<PAGE> 29
<TABLE>
<CAPTION>
Three Months
Ended March 31, Year ended December 31,
------------------------------------------------
1998 1997 1997 1996 1995
------------------------------------------------
<S> <C> <C> <C> <C> <C>
Book value per common share at period-end (1)
Historical 8.04 6.20 7.80 6.11 5.61
Pro forma equivalent Second Bancorp and Enfin (3) 11.03 9.48 10.86 9.55 9.49
Pro forma equivalent Second Bancorp, Enfin
and Trumbull Financial (3) 10.95 9.61 10.78 9.62 9.59
Trumbull Financial
Earnings per common share before cumulative effect of accounting changes:
Historical
Basic $ 1.05 $ 0.88 $ 3.87 $ 0.96 $ 2.31
Diluted 1.05 0.88 3.87 0.96 2.31
Pro forma equivalent Second Bancorp and Trumbull
Financial (4)
Basic 1.36 1.17 5.14 4.80 4.46
Diluted 1.32 1.13 5.10 4.61 4.01
Pro forma equivalent Second Bancorp, Enfin and
Trumbull Financial (1) (4)
Basic 1.25 1.06 4.76 3.52 3.67
Diluted 1.25 1.06 4.73 3.48 3.48
Cash dividends declared per common share (2)
Historical 0.31 0.45 1.18 0.74 0.70
Pro forma equivalent 0.49 0.45 1.81 1.66 1.44
Book value per common share at period-end (1)
Historical 42.89 39.46 42.14 38.91 38.80
Pro forma equivalent Second Bancorp and Trumbull
Financial (4) 43.90 37.70 43.22 38.01 37.76
Pro forma equivalent Second Bancorp, Enfin and Trumbull
Financial (4) 43.59 38.25 42.89 38.30 38.14
</TABLE>
(1) In accordance with the rules of the Securities and Exchange Commission,
Trumbull's financial information for the years ended September 30, 1995
through 1997 have been combined with Second Bancorp's financial
information for the years ended December 31, 1995 through 1997,
respectively.
(2) No assurance can be given that equivalent dividends will be declared in
the future. The amount of future dividends payable by Second Bancorp
will depend upon the earnings and financial condition of Second
Bancorp, and other factors, including applicable regulations and
policies.
(3) The equivalent pro forma combined per share data for Enfin Shares
represents, in the case of book value and earnings per common share,
the pro forma per share data for the Shares multiplied by the Exchange
Ratio (i.e., .95), and in the case of dividends declared, the
historical per share data of the Shares multiplied by the Exchange Rate
(i.e., .95).
(4) The equivalent pro forma combined per share data for Trumbull
represents, in the case of book value and earnings per common share,
the pro forma per share data for the Shares multiplied by the Exchange
Ratio (i.e., 3.78), and in the case of dividends declared, the
historical per share data of the Shares multiplied by the Exchange
Ratio (i.e., 3.78).
Second Bancorp will list the Shares to be issued in the Merger on the
Nasdaq National Market System under the symbol SECD.
22
<PAGE> 30
THE MERGER
INTRODUCTION
This Prospectus/Proxy Statement constitutes both a Prospectus of Second
Bancorp in respect of the Shares to be issued in connection with the Merger and
the Proxy Statement of Enfin for use in connection with the solicitation of
proxies by the Board of Directors of Enfin to be used at the Enfin Special
Meeting. This Prospectus/Proxy Statement is being mailed to shareholders of
Enfin commencing on or about _______ __, 1998.
All information contained in this Prospectus/Proxy Statement relating
to Second Bancorp has been furnished by Second Bancorp, except for the
information relating to Second Bancorp included in the sections of this
Prospectus/Proxy Statement entitled "SUMMARY - Opinion of Austin Associates,
Inc." and "THE MERGER - Opinion of Austin Associates, Inc." which was furnished
by Austin Associates, Inc. All information relating to Enfin has been furnished
by Enfin. The party furnishing any such information is responsible for the
accuracy thereof.
BACKGROUND AND REASONS FOR THE MERGER
SECOND BANCORP. Second Bancorp's long-term business strategies include
the strategy to grow (i) internally by development and sales activity in
currently served markets and by de novo branching into new markets, and (ii)
externally by in-market and near-market branch and whole bank and thrift
acquisitions. In the course of pursuing that growth strategy, Second Bancorp
engaged in regular general and business development discussions with Enfin's
sole banking subsidiary, Enterprise Bank ("Enterprise") beginning in 1996. Those
discussions resulted in several commercial loan participations between the Bank
and Enterprise Bank.
In February of 1998, Second Bancorp was contacted by investment bankers
representing Enfin and was asked to indicate its preliminary interest, or lack
thereof, in pursuing acquisition discussions with Enfin. Based upon management's
review of public source information and considering its existing business
relationship with Enterprise Bank, Second Bancorp indicated an interest in
participating in a competitive bidding process for Enfin. After subsequent
review of a confidential offering memorandum and related information provided by
representatives of Enfin, consultation with financial, tax and legal
representatives and an extensive review of the opportunity by Second Bancorp's
Board of Directors at its February 27, 1998 meeting, Second Bancorp submitted an
indication of interest dated March 2, 1998 to Enfin which lead to formal
acquisition negotiations. After the conduct of a detailed due diligence
examination of Enfin and its subsidiary, Second Bancorp's Board of Directors
approved the definitive terms of the transaction at an extended meeting attended
by all of its directors on March 30, 1998. Second Bancorp and Enfin entered into
the Agreement on April 1, 1998.
Second Bancorp's interest in acquiring Enfin is primarily based upon:
(i) the natural extension of the Bank's commercial lending and small business
financial services business to the demographically attractive Solon, Ohio and
southeastern Cuyahoga County market which a combination of the two companies
represents; (ii) the opportunity to acquire and further develop Enfin's
attractive deposit and loan customer base and to obtain the services of Enfin's
highly qualified and respected commercial loan, retail banking and support
staffs, and (iii) the anticipated enhancement of Second Bancorp's earnings per
share post-acquisition resulting from operating efficiencies created by
combination of the companies.
ENFIN. In January 1997 the Enfin Board discussed the future prospects
of Enfin, particularly in relation to the manner by which stockholder value
could be maximized. The discussion focused upon various alternatives, but
primarily involved a possible sale or merger of Enfin with another financial
institution. Of particular concern was finding an institution that could
maximize the return to shareholders, as well as one that would provide both
excellent service to existing customers and that had similar management and
business philosophies.
In March 1997, prior to Enfin developing or implementing a plan towards
maximizing shareholder value, Enfin was approached by a financial institution
suggesting a possible merger. The Board appointed two of its
23
<PAGE> 31
members to enter into discussions with this company. After several meetings and
the completion of initial due diligence in May 1997, Enfin and the financial
institution determined to enter into a "cooling off" period due to a perceived
inability to resolve certain business issues and the incompatibility of
management styles of the two institutions. No further discussions were held.
In November 1997 Enfin was again approached by another financial
institution. After discussion about the proposal, the Board determined to enter
into discussions with this financial institution regarding a possible strategic
merger of equals. At this time the Board decided to retain Austin Associates,
Inc. to assist it in the evaluation of financial terms being proposed, as well
as the structure of the proposed transaction. After several negotiation sessions
and the completion of due diligence, the Board determined in January 1998 to
pursue other strategic options. This decision was based upon issues raised in
preliminary negotiations of a definitive agreement, the value being proposed and
the marketability of the shares and a perceived possible incompatibility of
management styles, as well as the receipt of an unsolicited letter of interest
from another financial institution with terms significantly better than those
being proposed.
In January 1998, some preliminary discussions were held with the
institution which had provided the letter of interest. The Board, however,
determined at this time, based upon information and the advice of Austin
Associates, Inc. and legal counsel, to pursue a controlled bid process for the
potential sale of Enfin. The directors came to the conclusion that they could
not make informed decisions about the viability of Enfin's options without a
meaningful investigation. As a result, the Board of Directors decided to conduct
a confidential investigation of the possibility of pursuing a merger of Enfin
with another financial institution.
In January and February 1998, after analysis and discussions between
Austin Associates, Inc. and Enfin, six potential purchasers were contacted to
determine their potential interest in acquiring Enfin. Of the organizations
contacted four organizations (including the organization which had submitted
five unsolicited proposals) submitted proposals to acquire Enfin. At a lengthy
meeting on March 5, 1998, the directors carefully reviewed each of the
proposals. Following the extensive review and discussion of the four proposals,
the Board of Directors of Enfin elected to pursue negotiations exclusively with
Second Bancorp. Such decision was based primarily on the perception by the
directors of a material difference between the aggregate value of the Second
Bancorp proposal and the aggregate values of each of the three other proposals.
As the terms and conditions of the transaction with Second Bancorp were
negotiated, the directors supervised the negotiation of material issues and
reviewed the various drafts of the Agreement. The progress of negotiations and
the content of such drafts were considered in detail during meetings of the
Board of Directors on March 20 and April 1, 1998.
In connection with the April 1, 1998 meeting, the directors received
the opinion of Austin Associates, Inc. that the proposed exchange ratio would be
fair to the stockholders of Enfin from a financial point of view. Accordingly,
the Board of Directors approved the terms and conditions of the Agreement and
authorized the execution of the Agreement. The Agreement was executed by Enfin
and Second Bancorp immediately following that meeting.
The terms of the Merger and the Agreement, including the Exchange Ratio
(subject to adjustment, see "THE MERGER Exchange of Enfin Shares") of .950
Shares for each Enfin Share, were the result of arms-length negotiations between
Enfin and Second Bancorp and their respective representatives. In the course of
reaching its decision to approve the Merger and the Agreement, the Board of
Directors of Enfin considered numerous factors, including the following:
(a) economic conditions and prospects for the markets in which Enfin
operates, including competitive pressures in the financial services industry in
general;
(b) the prospect for higher dividends and market liquidity provided by
the Shares;
24
<PAGE> 32
(c) the business, results of operations, asset quality, financial
condition of Second Bancorp, compatibility of management and business
philosophies and services and products offered to customers by Second Bancorp;
and
(d) the opinion rendered by Austin Associates, Inc. to the effect that,
as of April 1, 1998, the Exchange Ratio was fair to the holders of Enfin common
stock from a financial point of view.
OPINION OF AUSTIN ASSOCIATES, INC.
Austin Associates, Inc. is a recognized investment banking firm
regularly engaged in the valuation of financial institutions and other
businesses and their securities in connection with mergers and acquisitions and
in valuation for estate, corporate and other purposes. Enfin selected Austin
Associates, Inc. to serve as financial advisor in connection with the Merger on
the basis of its reputation and qualifications in representing financial
institutions in mergers and acquisitions.
Austin Associates, Inc. has rendered a written opinion to the Board of
Directors of Enfin to the effect that the terms of the Merger are fair from a
financial point of view to the shareholders of Enfin. Austin Associates, Inc.
based its opinion upon, among other things: (1) a comparison of the financial
statements and other financial information concerning Enfin and Second Bancorp
set forth or incorporated by reference in this Prospectus/Proxy Statement; (2)
certain other financial information concerning Enfin, including, but not limited
to, operating budgets and loan loss reserve adequacy reports; (3) financial and
share price data of Enfin, Second Bancorp and comparable banking organizations;
(4) the financial terms, to the extent publicly available, of certain comparable
transactions; (5) the terms of certain other proposals received by Enfin from
other banking institutions; and (6) discussions with the management of Enfin and
Second Bancorp.
The terms of the Merger Agreement were determined by Second Bancorp
and Enfin, and their representatives, after arm's-length negotiations between
the parties. Austin Associates, Inc. participated in the negotiations on behalf
of Enfin.
In connection with rendering its opinion, Austin Associates, Inc.
performed a variety of financial analyses, which are summarized below. Austin
Associates, Inc. believes its analyses must be considered as a whole and that
selecting portions of such analyses, could create an incomplete view of the
analyses and the process underlying the Austin Associates, Inc. opinion. The
preparation of a fairness opinion is a complex process involving subjective
judgments and is not necessarily susceptible to partial analyses or summary
description. In its analyses, Austin Associates, Inc. made numerous assumptions
with respect to industry performance, business and economic conditions, and
other matters, many of which are beyond Enfin's or Second Bancorp's control. Any
estimates contained in Austin Associates, Inc.'s analyses are not necessarily
indicative of future results or values, which may be significantly more or less
favorable than the estimates.
DISCUSSIONS REGARDING A MERGER OF EQUALS. Enfin originally engaged
Austin Associates, Inc. to perform a strategic merger of equals analysis between
Enfin and another banking institution in November of 1997. Austin Associates,
Inc. completed a preliminary merger of equals analysis in December of 1997 and
negotiations followed between Enfin and another institution into January 1998.
After lengthy negotiations, the negotiations with the other institution were
mutually discontinued and Enfin determined to pursue additional strategic
options.
THE PROCESS FOR SOLICITING INTEREST FROM OTHER BANK HOLDING COMPANIES.
In February of 1998, Enfin revised its engagement with Austin Associates, Inc.
to provide for the possible sale of Enfin to another institution. After analysis
and discussions between Austin Associates, Inc. and Enfin, six potential
purchasers were contacted to determine their potential interest in acquiring
Enfin. Of the organizations contacted, four organizations submitted proposals to
acquire Enfin. Enfin's Board selected the Second Bancorp proposal after
extensive deliberation and negotiation.
25
<PAGE> 33
A copy of the opinion of Austin Associates, Inc. dated as of the date
of this Prospectus/Proxy Statement, is attached hereto as Annex B. The opinion
should be read in its entirety for a description of the procedures followed,
assumptions and qualifications made and matters considered by Austin Associates,
Inc. and for a description of the limitations of the opinion.
See "THE MERGER - Opinion of Austin Associates, Inc."
THE FULL TEXT OF THE OPINION OF AUSTIN ASSOCIATES, INC. UPDATED AS OF
THE DATE OF THIS PROSPECTUS/PROXY STATEMENT, WHICH SETS FORTH CERTAIN
ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEWS UNDERTAKEN,
IS ATTACHED AS ANNEX B TO THIS PROSPECTUS/PROXY STATEMENT, AND SHOULD BE READ IN
ITS ENTIRETY. THE SUMMARY OF THE OPINION OF AUSTIN ASSOCIATES, INC. SET FORTH IN
THIS PROSPECTUS/PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
OPINION. AUSTIN ASSOCIATES, INC.'S OPINION SHOULD NOT BE CONSTRUED BY HOLDERS OF
ENFIN'S SHARES AS A RECOMMENDATION AS TO HOW SUCH HOLDERS SHOULD VOTE AT THE
SPECIAL MEETING.
The following is a summary of the material analyses and factors
considered by Austin Associates, Inc. and discussed with Enfin's Board of
Directors, in connection with Austin Associates, Inc.'s opinion dated ______ __,
1998. The analyses has been updated and revised to include the effect of Second
Bancorp's pending merger with Trumbull.
COMPARATIVE TRANSACTIONS. Austin Associates, Inc. reviewed a comparison
of prices paid in selected sale of control transactions announced in Ohio
between January 1, 1997 and March 31, 1998, for banks having assets of up to
$250 million. The 8 transactions reviewed had an average price to book value
ratio of 244 percent and a price to earnings multiple of 23.7 times. The median
multiples were 247.7 percent of book value and 24.0 times earnings. Since
January 1, 1998 Austin Associates, Inc. reviewed 23 transactions nationally for
banks having assets of less than $100 million. The average price to book and
price to earnings multiples for these transaction were 276 percent and 23.9,
respectively. The median price to book and price to earnings multiples were 280
percent and 21.5, respectively. The market value of the consideration to be
received by Enfin shareholders in the Merger is estimated at 355 percent of
Enfin's book value at March 31, 1998, based on an aggregate transaction value of
$15.6 million. The market value of the consideration is estimated to equal 29.8
times Enfin's annualized earnings per share for the quarter ending March 31,
1998 and 50.5 times consolidated normalized earnings per share for the twelve
months ended December 31, 1997. Normalized net income for Enfin excludes the
extraordinary tax benefit of $448,928 and assumes a fully taxable position.
SECOND BANCORP STOCK VALUE. During the last 20 trading days, Second
Bancorp's stock has traded between $27.00 and $37.25 per share with a current
stock price of $30.00. Second Bancorp reported earnings per share of $.36 in the
first quarter of 1998 and $1.36 for the last 12 months ending March 31, 1998. At
$30.00 per share, Second Bancorp's stock value represents 22.1 times last
12-months EPS and 263 percent of March 31, 1998 tangible book value. Austin
Associates, Inc. compared Second Bancorp's stock trading multiples to ten Ohio
banking organizations with assets of between $500 million and $2.0 billion (the
"Peer Group"). As of May 26, 1998, the median price-to-tangible book multiple
for the Peer Group was 302 percent compared to Second Bancorp's multiple of 263
percent. The median price-to-earnings multiple for the Peer Group was 22.4
compared to Second Bancorp's multiple of 22.1. The median dividend yield for the
Peer Group was 1.72 percent compared to Second Bancorp's dividend yield of 1.74
percent. The median return on average assets ("ROA") of the Peer Group for the
last twelve months was 1.34% compared to Second Bancorp's ROA of 1.02%. The
median return on average equity ("ROE") of the Peer Group for the last twelve
months was 13.79% compared to Second Bancorp's ROE of 12.29%.
CONTRIBUTION ANALYSIS. Austin Associates, Inc. compared the pro forma
ownership interest in Second Bancorp that Enfin shareholders would receive, in
the aggregate, to the contribution by Enfin to the total assets, equity and net
income in the combined organization. Assuming an exchange ratio of .95,
(calculated based on a $30.00 stock price for Second Bancorp), Enfin
shareholders would receive 520,402 shares in the aggregate or approximately 4.9
percent of Second Bancorp on a pro forma basis (including Trumbull). Enfin's
contribution of
26
<PAGE> 34
total assets equaled 3.0 percent, the contribution of total tangible equity
equaled 3.8 percent, and the contribution of net income for the three months
ending March 31, 1998 equaled 3.7 percent.
DILUTION ANALYSIS. Austin Associates, Inc. also reviewed the pro forma
effect of the Merger to Enfin's and Second Bancorp's December 31, 1997 and March
31, 1998 earnings per share and book value per share. Enfin recorded normalized
earnings per share in 1997 of $.56 and a tangible book value of $7.80 per share
as of year end 1997. Giving effect to the Merger, the equivalent Enfin earnings
per share would have equaled $1.15, an increase of 103 percent over actual
results. Tangible book value per share would have been $10.51 per share, an
increase of 34.8 percent over actual tangible book value. Giving effect to the
Merger, Second Bancorp's 1997 earnings per share would have been $1.21, a
decrease of $.03 per share or 2.6 percent. Second Bancorp's pro forma tangible
book value per share would have been $11.07, a decrease of $.14 or 1.3 percent.
Enfin recorded year to date earnings per share of $.24 and a book value
of $8.04 per share as of March 31, 1998. Giving effect to the Merger, the
equivalent Enfin earnings per share would have equaled $.31, an increase of 30.9
percent over actual results. Tangible book value per share would have increased
to $10.62 per share, an increase of 32.2 percent over actual book value. Giving
effect to the Merger, Second Bancorp's tangible book value per share as of March
31, 1998 would have been $11.18, a decrease of $.14 or 1.2 percent. First
quarter 1998 earnings per share would have been $.33, a decrease of $.01 or 2.1
percent.
Based on Austin Associates, Inc.'s projected pro forma merger
performance, Enfin's earnings per share would continue to be enhanced over
stand-alone projections by 42 percent in 1999, 41 percent in 2000 and 34 percent
in 2001. Tangible book value per share would also increase over stand-alone
projections by 28 percent in 1999, 25 percent in 2000 and 21 percent in 2001.
Second Bancorp's pro forma earnings per share would decrease by .40 percent in
1999, increase by .10 percent in 2000 and increase by .50 percent in 2001 from
stand-alone projections. Second Bancorp's pro forma tangible book value would
decrease by 1.2 in 1999 and decrease by 1.00 percent in 2001 from stand-alone
projections.
DISCOUNTED CASH FLOW ANALYSIS. Austin Associates, Inc. performed a
discounted cash flow ("DCF") analysis of the value of the stock of Enfin and
Second Bancorp as of March 31, 1998. The discounted cash flow results were based
on projections considered reasonable by Austin Associates, Inc. for the
five-year period beginning March 31, 1998 to March 31, 2003. The DCF value of
Enfin, on a stand-alone basis, was determined to be in the range of $7.5 to
$12.0 million compared to the value of the Merger at $15.6 million. The DCF
value of Second Bancorp, without consideration of the Merger, was determined to
be in the range of $19.17 to $29.56 per share. The Second Bancorp stock price of
$30.00 is slightly above the range of DCF values determined by Austin
Associates, Inc.
DIVIDENDS. Austin Associates, Inc. reviewed the current cash dividends
paid by Enfin and Second Bancorp. Based on the exchange ratio of .95 Shares for
each Enfin Share, equivalent dividends to Enfin shareholders would have been
$.46 per share in 1997 and $.12 for the three month period ending March 31,
1998. Enfin did not pay cash dividends in 1997 or the first quarter of 1998.
The summary set forth above does not purport to be a complete
description of the analyses performed by Austin Associates, Inc. Further, Austin
Associates, Inc. did not conduct a physical inspection of any of the properties
or assets of Enfin or Second Bancorp. Austin Associates, Inc. has assumed and
relied upon the accuracy and completeness of the financial and other information
provided to it or publicly available, has relied upon the representations and
warranties of Enfin and Second Bancorp made pursuant to the Agreement, and has
not independently attempted to verify any of such information. Austin
Associates, Inc. has also assumed that the conditions to the Merger as set forth
in the Agreement would be satisfied and that the Merger would be consummated on
a timely basis in the manner contemplated by the Agreement. No limitations were
imposed by Enfin or Second Bancorp on the scope of Austin Associates, Inc.'s
investigation nor were any specific instructions given to Austin Associates,
Inc. in connection with its fairness opinion.
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<PAGE> 35
For Austin Associates, Inc.'s services as financial advisor, Enfin has
paid Austin Associates, Inc. a total of $25,000 through the date of this
Prospectus/Proxy Statement. In addition, Austin Associates, Inc. will be paid
additional fees at closing based on the total value of the transaction. Assuming
a closing value of $15.6 million, Austin Associates, Inc. will be paid
additional fees of $380,800.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF ENFIN
The Board of Directors of Enfin, based in part upon the fairness
opinion of Austin Associates, Inc., unanimously recommends that the shareholders
of Enfin vote FOR the adoption of the Agreement and the approval of the Merger.
The Board of Directors of Enfin believes that the terms of the Merger are fair
to, and in the best interests of, Enfin's shareholders.
EXCHANGE OF ENFIN SHARES
EXCHANGE OF ENFIN SHARES. At the Effective Time, Enfin will merge with
and into Second Bancorp and Second Bancorp will thereafter be the continuing and
surviving corporation and Enfin's separate corporate existence will terminate.
Also at the Effective Time, each of the outstanding Enfin Shares will be
canceled and extinguished in consideration and exchange for .950 Shares, subject
to certain adjustments (the "Exchange Ratio") as described below:
(i) if the Second Bancorp Closing Price exceeds $30.25, then the
Exchange Ratio shall equal $28.74 divided by the Second
Bancorp Closing Price; and
(ii) if the Second Bancorp Closing Price is less than $24.75, then
the Exchange Ratio shall equal $23.51 divided by the Second
Bancorp Closing Price.
The "Second Bancorp Closing Price" is defined under the Agreement as the average
closing price per Share on The Nasdaq Stock Market (as reported by the Wall
Street Journal or, if not reported thereby, another authoritative source) for
the most recent twenty (20) days on which actual trades of Shares occur ending
on the seventh (7th) day immediately preceding the Effective Time.
As of _________ __, 1998, the last trading day before the printing of
this Prospectus/Proxy Statement, the closing price of the Shares was $__.__. If
the Second Bancorp Closing Price would be $__.__ at the Effective Time, the
shareholders of Enfin would receive ___ Shares for each Enfin Share canceled and
exchanged in the Merger. THIS EXAMPLE IS PRESENTED FOR ILLUSTRATIVE PURPOSES
ONLY AND IS NOT DETERMINATIVE OF WHAT THE SECOND BANCORP CLOSING PRICE MAY BE AT
THE EFFECTIVE TIME.
Pursuant to the Agreement, in no event shall the Exchange Ratio exceed
1.069 Shares. In addition, in the event that Second Bancorp enters into any
change in control or similar type of transaction, the Exchange Ratio cannot be
less than .718. See "THE MERGER - Exchange of Enfin Shares - Termination and
Amendment."
As of the date of this Prospectus/ Proxy Statement, there are 547,792
Enfin Shares issued and outstanding and [6,859,542] Shares issued and
outstanding.
THE BANK MERGER. As soon as practicable after the consummation of the
Merger, Enterprise Bank will be merged with and into the Bank. The Bank will be
the surviving entity of the Bank Merger and Enterprise Bank's separate corporate
existence will cease. After the consummation of the Bank Merger, Enterprise
Bank's single office located in Solon, Ohio will be operated as a branch of the
Bank.
FRACTIONAL SHARES
No fractional Shares will be issued in the Merger. In lieu of any such
fractional Shares, Second Bancorp will pay to each holder of Enfin Shares who
otherwise would be entitled to receive a fraction of a Share an amount
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<PAGE> 36
in cash equal to the product obtained by multiplying (i) the fractional Share
interest to which such holder (after taking into account all Enfin Shares held
at the Effective Time by such holder) would otherwise be entitled by (ii) the
Second Bancorp Closing Price. No interest will be payable with respect to such
payments for fractional Shares.
EXCHANGE OF CERTIFICATES EVIDENCING SHARES AND ENFIN SHARES
As soon as practicable after the consummation of the Merger, each Enfin
shareholder will be advised of such consummation by a letter of transmittal
accompanied by instructions for use in surrendering the certificate or
certificates (the "Certificates") evidencing Enfin Shares to American Stock
Transfer & Trust Company (previously defined as the "Exchange Agent").
CERTIFICATES FOR ENFIN SHARES SHOULD NOT BE FORWARDED TO THE TRANSFER AGENT
UNTIL AFTER RECEIPT OF THE LETTER OF TRANSMITTAL AND SHOULD NOT BE RETURNED TO
ENFIN WITH THE ENCLOSED PROXY. The letter of transmittal will contain
instructions for effecting the surrender of the Certificates in exchange for
certificates evidencing Shares. Upon surrender of a Certificate, together with
such letter of transmittal, duly executed, to the Exchange Agent for exchange
and cancellation, the holder of such Certificate will be entitled to receive a
certificate evidencing the number of whole shares to which such Certificate
holder will have become entitled pursuant to the provisions of the Agreement and
cash in return for any fractional Shares. Unless and until Certificates are
surrendered for exchange, no dividend or other distribution declared or payable
to holders of record of Shares as of any time subsequent to the consummation of
the Merger will be paid to the holder of any such unsurrendered Certificate.
Any shareholder of Enfin who has lost or misplaced a Certificate should
immediately contact S. Casamento of Enfin, 6150 Enterprise Parkway, Solon, Ohio
44139, at (440) 498-1220. A written statement detailing the procedures for
replacing the lost Certificate will be mailed to the shareholder following such
contact.
REPRESENTATIONS, WARRANTIES AND COVENANTS
Each of Second Bancorp and Enfin has made certain representations and
warranties in the Agreement in respect of various matters. Such matters include
but are not limited to, as to each of Second Bancorp and Enfin, representations
and warranties in respect of corporate organization and corporate proceedings,
authority and capital, financial condition and financial statements, past
conduct of business, legal proceedings, regulatory compliance, brokers and
finders' fees, governmental proceedings and business condition and activities
which would affect the accounting treatment of the Merger. In addition, Enfin
has made certain other representations and warranties relating to itself and the
Bank in respect of investments, properties, taxes, contracts, employee benefit
plans, employment agreements, environmental matters, undisclosed liabilities,
loans and allowance for loan losses, insurance and other matters.
Second Bancorp and Enfin have also each made certain covenants in the
Agreement. During the period between April 1, 1998 and the Effective Time, for
example, Enfin must conduct its business only in the ordinary and usual course
consistent with past practice, except to the extent authorized in writing by
Second Bancorp. Enfin has agreed to take all necessary steps to exempt Enfin
from applicable state takeover laws. In addition, Enfin must not solicit or
initiate any proposals or offers from any person, or discuss or negotiate with
any such person or entity, in respect of any acquisition or purchase of all or a
material amount of the assets of, any equity security of, or any merger, tender
offer, consolidation or business combination with, Enfin (collectively, an
"Acquisition Proposal"), subject to the good faith exercise of the fiduciary
duties of the Board of Directors of Enfin. In the event that Enfin becomes aware
of any Acquisition Proposal, it must promptly notify Second Bancorp and keep
Second Bancorp advised as to the status of the Acquisition Proposal. If the
Board of Directors of Enfin accept any Acquisition Proposal (including any
acceptance which occurs after termination of the Agreement pursuant to Section
11(e) and before April 1, 1999), Enfin is required to pay to Second Bancorp
$750,000 upon the execution of any agreement in respect of such Acquisition
Proposal.
Second Bancorp has agreed to (i) honor the indemnification obligations
Enfin and Enterprise Bank have to their officers, directors and employees from
and against certain liabilities and in accordance with the respective
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<PAGE> 37
indemnification provisions of Enfin's and Enterprise Bank's Codes of Regulations
and Ohio law, for a six (6) year period beginning at the Effective Time, (ii)
extend director and officer liability insurance coverage to the officers,
directors and employees of Enfin and Enterprise Bank for a three (3) year period
beginning at the Effective Time and (iii) cause the Bank to offer the existing
employees of Enfin and Enterprise Bank the opportunity to become employees of
Second Bancorp or the Bank or offer severance compensation.
CONDITIONS
The obligation of each of Second Bancorp and Enfin to consummate the
Merger is subject to a number of conditions, including, but not limited to: (i)
the adoption of the Agreement and the approval of the Merger by the affirmative
vote of the holders of two-thirds of the issued and outstanding Enfin Shares;
(ii) the receipt of all necessary regulatory approvals in connection with the
Merger and the Bank Merger; (iii) the Form S-4 Registration Statement under the
Securities Act shall have become effective and no stop orders or similar
retraining orders suspending the effectiveness of the Form S-4 Registration
Statement shall have been issued; (iv) Second Bancorp shall received all state
securities permits and other authorizations in connection with the Merger; (v)
the Shares shall have been approved for listing on The Nasdaq Stock Market; (vi)
there shall not be in effect any governmental order or decision or any federal
or state law or regulation which prevents or materially delays consummation of
the Merger; (vii) Second Bancorp and Enfin shall have received an opinion from
Vorys, Sater, Seymour and Pease LLP to the effect that the Merger will
constitute a tax-free reorganization within the meaning of Section 368(a)(1)(A)
of the Code; (viii) Second Bancorp and Enfin shall have received from Ernst &
Young LLP a letter stating its opinion that, based upon the information
furnished, the transactions contemplated by the Agreement should be accounted
for by Second Bancorp as a pooling of interests for financial statement
reporting purposes and that such accounting treatment is in accordance with
generally accepted accounting principles; and (ix) pursuant to the requirements
of the Ohio Control Share Acquisition Statute, the Merger must be approved by
the affirmative vote of the holders of a majority of the Enfin Shares
represented in person and by proxy at the Separate Meeting, and by a majority of
the portion of such voting power excluding any Enfin Shares owned by executive
officers of Enfin and any director of Enfin who is also an employee of Enfin and
any other "interested shares" (a notice and a proxy for the Separate Meeting
will be mailed to shareholders of Enfin separate and apart from this
Prospectus/Proxy Statement). See "COMPARISON OF RIGHTS OF HOLDERS OF SECOND
BANCORP SHARES AND HOLDERS OF ENFIN SHARES - Anti-Takeover Statutes."
The obligation of Second Bancorp to consummate the Merger is subject to
a number of additional conditions, including, but not limited to: (i) less than
10% of the number of Shares to be issued in the Merger shall be (a) subject to
purchase as fractional Shares and (b) subject to perfected dissenters' rights
pursuant to Ohio Revised Code Section 1701.85; (ii) the representations and
warranties of Enfin contained in the Agreement shall be true and correct in all
material respects at the Effective Time; (iii) all covenants and conditions
required to be performed under the Agreement by Enfin must have been performed;
(iv) a minimum Enfin shareholders' equity in the amount of $4,272,000, exclusive
of certain expenses of the Merger and certain expenses described in the
Agreement; (v) Enterprise Bank's loans, net of allowance for loan losses, shall
not be less than $35,904,000; (vi) the total deposits of Enterprise Bank shall
not be less than $37,697,000; and (vii) the lessor under a lease to which
Enterprise Bank is a party (the "Enfin Lease") shall have consented to the
assignment of the Enfin Lease to Second Bancorp or the Bank.
The obligation of Enfin to consummate the Merger also is subject to a
number of additional conditions, including, but not limited to, (i) the
representations and warranties of Second Bancorp contained in the Agreement
shall be true and correct in all material respects at the Effective Time; (ii)
all covenants and conditions required to be performed under the Agreement by
Second Bancorp must have been performed; (iii) Enfin shall have received the
opinion of Austin Associates, Inc. to the effect that, in its opinion, the
consideration to be paid to Enfin's shareholders in connection with the Merger
is fair to Enfin's shareholders from a financial point of view.
Any of the foregoing conditions may be waived by the party which is
entitled to the benefits thereof.
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<PAGE> 38
REGULATORY APPROVALS
The Merger is subject to the approval of the Federal Reserve Board, the
OCC and the Division. On ________ __, 1998, the Federal Reserve Board approved
the Merger. Such approval is conditioned upon the satisfaction of several common
administrative requirements. The Bank Merger is subject to approval by the OCC
and the Division. Regulatory applications have been filed with the OCC and the
Division seeking approval of the Bank Merger.
EFFECTIVE TIME
Following the satisfaction or waiver of all conditions set forth in the
Agreement, a Certificate of Merger in respect of the Merger will be filed as
soon as practicable with the Ohio Secretary of State, after which the Merger
will be consummated. It is currently anticipated that the Merger will be
consummated in the third quarter of 1998.
TERMINATION AND AMENDMENT
The Agreement may be terminated and the Merger abandoned upon the
occurrence of certain events, including, but not limited to: (i) the mutual
consent and action of the Board of Directors of Second Bancorp and Enfin; (ii)
by either party if the other party has failed to satisfy all of the conditions
of the Agreement and such conditions have not been waived; (iii) by either party
if the Merger is not consummated on or before December 3l, 1998; (iv) by a
majority vote of the Board of Directors of Second Bancorp or Enfin 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 the breach;
and (v) by the vote of a majority of the Board of Directors of Enfin at any time
during the fourth and fifth full days immediately prior to the Effective Time if
(x) the Second Bancorp Closing Price is less than $20 (subject to certain
adjustments set forth in the Agreement) and if the decrease in such price of the
Shares from the price on April 1, 1998, expressed as a percentage exceeds the
percentage decline (if any) in the Nasdaq Stock Market Index for Banks published
in the Wall Street Journal for the period beginning on the date of the Agreement
and ending on the seventh (7th) day immediately preceding the Effective Time,
and (y) Second Bancorp shall not have given written notice to Enfin on the
second or third full day immediately prior to the Effective Time which notice
indicates that Second Bancorp agrees that the Exchange Ratio shall be calculated
by dividing $21.38 by the Second Bancorp Closing Price.
The Agreement may be amended by Second Bancorp and Enfin by action of
their respective Boards of Directors and in an instrument in writing signed by
both Second Bancorp and Enfin. The Agreement may be amended at any time before
or after the Enfin Special Meeting. An amendment of the Agreement which
materially and adversely affects the rights of the shareholders of Enfin and
which takes place after the Enfin Special Meeting, however, will not be made
without further approval of the Enfin shareholders. If necessary, such approval
would be sought at a subsequent meeting of the Enfin shareholders.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
On the Enfin Record Date, the Enfin executive officers and directors,
as a group, owned an aggregate of 181,628 Enfin Shares, which represents 33.2%
of the total of issued and outstanding Enfin Shares.
The Merger Agreement provides that after consummation of the Merger,
Second Bancorp will cause the Bank to increase its number of directors by one
and to elect to the Bank's Board of Directors one person who currently serves on
the Board of Directors of Enfin.
Various employees of Enterprise Bank have entered into agreements with
Enterprise Bank (the "Continuation Agreements") pursuant to which each such
employee has agreed to continue his or her employment with Enterprise Bank until
the Effective Time in return for the payment of lump sum to such employee at the
Effective Time. The amount of the lump sum payments under the Continuation
Agreements will vary depending upon the position occupied by the respective
employee and will be in addition to any salary and benefits currently
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<PAGE> 39
being received by such employees. Also, pursuant to the Continuation Agreements,
each Enterprise Bank employee has agreed to waive any all claims against Second
Bancorp, Enfin, the Bank and Enterprise Bank.
Second Bancorp has agreed to (i) honor the indemnification obligations
Enfin and Enterprise Bank have to their officers, directors and employees from
and against certain liabilities and in accordance with the respective
indemnification provisions of Enfin's and Enterprise Bank's Codes of Regulations
and Ohio law, for a six (6) year period beginning at the Effective Time, (ii)
extend director and officer liability insurance coverage to the officers,
directors and employees of Enfin and Enterprise Bank for a three (3) year period
beginning at the Effective Time and (iii) cause the Bank to increase its number
of directors by one (1) and to elect to the Bank's Board of Directors one person
who currently serves on the Board of Directors of Enfin. Second Bancorp has
agreed to cause the Bank to offer the existing employees of Enfin and Enterprise
Bank the opportunity to become employees of Second Bancorp or the Bank or offer
severance compensation.
MANAGEMENT AND OPERATIONS OF SECOND BANCORP AND THE BANK FOLLOWING THE
CONSUMMATION OF THE MERGER
After the Effective Time, the Board of Directors and executive officers
of Second Bancorp will consist of the same persons who presently serve on the
Board of Directors and as executive officers of Second Bancorp.
Pursuant to the Agreement, Second Bancorp has agreed to cause the Bank
to increase its number of directors by one (1) and to elect to the Bank's Board
of Directors one person who currently serves on the Board of Directors of Enfin.
In addition, Enterprise Bank's current office will become a branch of the Bank
after the consummation of the Bank Merger.
RESALE OF SHARES
The Shares to be issued upon the consummation of the Merger have been
registered with the Commission under the Securities Act and will be freely
transferable, except for Shares received by persons who may be deemed to be
affiliates of Enfin. The term "affiliate" is defined in Rule 145 promulgated
under the Securities Act and generally includes executive officers and
directors. Affiliates may not sell their Shares, except pursuant to an effective
registration statement under the Securities Act covering such Shares or in
compliance with Rule 145 or another applicable exemption from the registration
requirements of the Securities Act. In addition, Enfin and Second Bancorp will
obtain customary agreements with all of their respective directors, officers and
affiliates under which those persons will agree not to dispose of their Shares
in a manner that would adversely affect the ability of Second Bancorp to treat
the Merger as a pooling of interests for accounting purposes.
INCOME TAX CONSEQUENCES
THE FOLLOWING IS A SUMMARY DISCUSSION OF THE MATERIAL FEDERAL INCOME
TAX CONSEQUENCES OF THE MERGER. THIS SUMMARY DOES NOT PURPORT TO DISCUSS ALL
ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE APPLICABLE TO PARTICULAR
SHAREHOLDERS, SOME OF WHOM MAY BE SUBJECT TO SPECIAL RULES, NOR DOES IT ADDRESS
ANY ASPECTS OF STATE, LOCAL OR FOREIGN TAX LAWS. THIS SUMMARY IS BASED UPON
CURRENT LAW, WHICH IS SUBJECT TO CHANGE.
Second Bancorp and Enfin shall have received an opinion of Vorys,
Sater, Seymour and Pease LLP that the Merger will produce the following material
federal income tax consequences:
1. The Merger will constitute a tax-free reorganization under Section
368(a)(l)(A) of the Code.
2. No gain or loss will be recognized by Second Bancorp or Enfin as a
result of the Merger.
3. No gain or loss will be recognized by the Enfin shareholders upon
the receipt of the Shares in exchange for their Enfin Shares.
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4. The basis of the Shares to be received by an Enfin shareholder will
be the same as the basis of the Enfin Shares surrendered by such shareholder in
exchange therefor.
5. The holding period for the Shares to be received by an Enfin
shareholder will include, in each instance, the period during which the Enfin
Shares surrendered in exchange therefor were held, provided the Enfin Shares are
a capital asset in the hands of the Enfin shareholder on the date of the
exchange.
6. Payment of cash to an Enfin shareholder in lieu of fractional Shares
will be treated as if such fractional Shares were distributed as part of the
exchange and then redeemed by Second Bancorp. These cash payments will be
treated as distributions in full payment and exchange for the fractional Shares
redeemed as provided in Section 302(a) of the Code.
7. If an Enfin shareholder dissents to the Merger and receives solely
cash in exchange for such shareholder's Enfin Shares, such cash will be treated
as having been received by such shareholder as a distribution in redemption of
such shareholder's Enfin Shares, subject to the provisions and limitations of
Section 302 of the Code. See "RIGHTS OF DISSENTING SHAREHOLDERS." Unless the
redemption is treated as a dividend under Section 302(d) of the Code, such
shareholder will recognize gain or loss measured by the difference between the
amount of cash received and the tax basis of the Enfin Shares so redeemed. This
gain or loss will be capital gain or loss if the Enfin Shares were held by such
shareholder as a capital asset at the time of the Merger. If, on the other hand,
the redemption is treated as a dividend under Section 302(d) of the Code, the
full amount of cash received by such shareholder will be treated as ordinary
income to the extent of Enfin's current or accumulated earnings and profits.
Under the tests of Section 302 of the Code, the redemption of a
dissenting Enfin shareholder's Enfin Shares generally will be treated as a
dividend unless the redemption (i) results in a "complete termination" of such
shareholder's direct or indirect stock interest in Second Bancorp under Section
302(b)(3) of the Code, (ii) is "substantially disproportionate" with respect to
such shareholder under Section 302(b)(2) of the Code or (iii) is "not
essentially equivalent to a dividend" with respect to such shareholder under
Section 302(b)(1) of the Code.
In order to determine whether there has been a complete termination, a
substantially disproportionate redemption or a redemption not essentially
equivalent to a dividend with respect to a dissenting Enfin shareholder, it is
necessary to consider the Shares owned by persons from whom ownership is
attributed to such shareholder under the rules of Section 318 of the Code. Under
Section 318 of the Code, a shareholder is considered to own shares that are
directly or indirectly owned by certain members of such shareholder's family or
by certain trusts, partnerships or corporations in which such shareholder has an
ownership or beneficial interest. Such shareholder is also considered to own any
shares with respect to which he holds exercisable options. In certain cases, a
dissenting Enfin shareholder may be deemed to own constructively Shares held by
persons who do not exercise dissenters' rights.
BECAUSE OF THE COMPLEXITIES OF THE FEDERAL, STATE AND LOCAL TAX LAWS,
IT IS RECOMMENDED THAT THE ENFIN SHAREHOLDERS CONSULT THEIR OWN TAX ADVISORS
CONCERNING THE APPLICABLE FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF THE
MERGER.
ACCOUNTING TREATMENT
The Merger, if completed as proposed, will qualify as a
pooling-of-interests for financial accounting purposes. The Agreement provides
as a condition to the parties obligations to consummate the Merger that Second
Bancorp and Enfin shall have received a letter from Ernst & Young LLP, dated as
of the Effective Time, to the extent that, for financial reporting purposes, the
Merger qualifies for pooling-of-interests accounting treatment under generally
accepted accounting principles if consummated in accordance with the Agreement.
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<PAGE> 41
MARKET PRICES
The Shares are quoted on the Nasdaq National Market System under the
symbol "SECD." Enfin Shares are not actively traded, have no established public
market and are not listed on any national exchange or quotation system.
The following table sets forth the high and low bid prices for the
Second Bancorp common shares on The Nasdaq Stock Market for the periods
indicated and the cash dividends per Second Bancorp common share declared during
such periods:
<TABLE>
<CAPTION>
CASH DIVIDEND
QUARTER ENDED HIGH LOW DECLARED
------------- ---- --- --------
<S> <C> <C> <C>
March 31, 1996 $14.94 $13.75 $.11
June 30, 1996 $14.13 $12.50 $.11
September 30, 1996 $17.00 $13.63 $.11
December 31, 1996 $16.50 $14.88 $.11
March 31, 1997 $18.50 $15.06 $.12
June 30, 1997 $22.25 $17.75 $.12
September 30, 1997 $24.50 $20.75 $.12
December 31, 1997 $28.00 $21.88 $.12
March 31, 1998 $35.00 $24.88 $.13
June 30, 1998 $__.__ $__.__ $__.__
</TABLE>
The last known sale of Enfin Shares occurred on [February 18, 1998].
The price per Enfin Share in such sale equaled $[10.00].
As of _________ __, 1998, the last trading day before the printing of
this Prospectus/Proxy Statement, the closing price of the Shares was $__.__. If
the Second Bancorp Closing Price is $__.__ at the Effective Time, the
shareholders of Enfin will receive ___ Shares for each Enfin Share canceled and
exchanged in the Merger. This example is presented for illustrative purposes
only and is not determinative of what the Second Bancorp Closing Price may be at
the Effective Time.
NO ASSURANCE CAN BE GIVEN AS TO WHAT THE MARKET PRICE OF THE SHARES
WILL BE IF AND WHEN THE MERGER IS CONSUMMATED OR WHEN THE SHARES ARE ACTUALLY
ISSUED.
RIGHTS OF DISSENTING SHAREHOLDERS
Holders of Enfin Shares who so desire are entitled to relief as
dissenting shareholders under Ohio Revised Code Section 1701.85. A shareholder
of Enfin will be entitled to such relief, however, only if he strictly complies
with all of the procedural and other requirements of Section 1701.85. The
following summary does not purport to be a complete statement of the method of
compliance with Section 1701.85 and is qualified in its entirety by reference to
the copy of Section 1701.85 attached hereto as Annex C.
An Enfin shareholder who wishes to perfect his rights as a dissenting
shareholder in the event the Agreement is adopted and the Merger is approved:
(a) must have been a record holder of the Enfin Shares as to which he
seeks relief on the Enfin Record Date;
(b) must not have voted his Enfin Shares in favor of adoption of the
Agreement and the approval of the Merger; and
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<PAGE> 42
(c) must deliver to Enfin, not later than ten (10) days after the
date of the Enfin Special Meeting, a written demand for
payment of the fair cash value of the Enfin Shares as to which
he seeks relief. Such written demand must state the name of
the shareholder, his address, the number of Enfin Shares as to
which he seeks relief and the amount claimed as the fair cash
value thereof.
A vote against the adoption of the Agreement and the approval of the
Merger will not satisfy the requirements of a written demand for payment. Any
written demand for payment should be mailed or delivered to: Enfin, Inc., 6150
Enterprise Parkway, Solon, Ohio 44139, Attention: S. Casamento by no later than
_______ __, 1998. As the written demand must be delivered no later than within
the ten (10) day period following the Enfin Special Meeting, it is recommended,
although not required, that a shareholder using the mails should use certified
or registered mail, return receipt requested, to confirm that he has made a
timely delivery.
If Enfin sends the dissenting shareholder, at the address specified in
his demand, a request for the certificate(s) representing his shares, such
dissenting shareholder must deliver the certificate(s) to Enfin within 15 days
of the sending of such request. Enfin may endorse the certificate(s) with a
legend to the effect that the shareholder has demanded the fair cash value of
the shares represented by the certificate(s). Failure to deliver the
certificate(s) within 15 days of the request terminates the shareholder's rights
as a dissenting shareholder. Enfin must notify the shareholder of its election
to terminate his rights as a dissenting shareholder within 20 days after the
lapse of the 15 day period.
Unless the dissenting shareholder agrees on the fair cash value per
share of the Enfin Shares, he may, within three (3) months after the service of
the written demand by the shareholder, file a petition in the Court of Common
Pleas of Cuyahoga County, Ohio. If the court finds that the shareholder is
entitled to be paid the fair cash value of any shares, the court may appoint one
or more appraisers to receive evidence and to recommend a decision on the amount
of the fair cash value.
Fair cash value: (i) will be determined as of the day prior to the
Enfin Special Meeting, (ii) will be the amount a willing seller and willing
buyer would accept or pay with neither being under compulsion to sell or buy,
(iii) will not exceed the amount specified in the shareholder's written demand
and (iv) will exclude any appreciation or depreciation in market value resulting
from the Merger. The court will make a finding as to the fair cash value of a
share and render judgment against Enfin for its payment with interest at such
rate and from such date as the court considers equitable. The costs of
proceedings shall be assessed or apportioned as the court considers equitable.
The rights of any dissenting shareholder will terminate if: (a) the
dissenting shareholder has not complied with Section 1701.85, unless Enfin, by
its Board of Directors, waives such failure, (b) Enfin abandons or is finally
enjoined or prevented from carrying out, or the shareholders of Enfin rescind
their adoption of, the Agreement, (c) the dissenting shareholder withdraws his
written demand, with the consent of Enfin, by its Board of Directors, or (d)
Enfin and the dissenting shareholder have not agreed upon the fair cash value
per share of the Enfin Shares and neither has timely filed or joined in a
petition in an appropriate court for a determination of the fair cash value of
the Enfin Shares. For a discussion of the tax consequences to a shareholder who
exercises dissenters' rights, see "THE MERGER - Income Tax Consequences."
Because a proxy which does not contain voting instructions will be
voted for adoption of the Agreement, a shareholder who wishes to exercise
dissenters' rights must either (i) not sign and return his proxy or (ii) if he
signs and returns his proxy, vote against or abstain from voting on the adoption
of the Agreement and the approval of the Merger.
Enfin shareholders who are not in favor of the Merger but who do not
wish to exercise dissenters' rights may, in the alternative, attempt to sell
their Enfin Shares in the open market at the then current market price. There
is, however, no active trading market for Enfin Shares.
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<PAGE> 43
SPECIAL MEETING OF ENFIN SHAREHOLDERS
DATE, TIME AND PLACE
The Enfin Special Meeting will be held on __________ __, 1998,
commencing at _:__ _.m., at the Radisson Hotel, I-271 and Chagrin Blvd.,
Cleveland, Ohio 44122.
PURPOSE OF MEETING
The purpose of the Enfin Special Meeting is to consider and act upon
(i) a proposal to adopt the Agreement and approve the Merger and (ii) such other
business as may properly come before the Enfin Special Meeting and any
adjournment thereof.
SHARES OUTSTANDING AND ENTITLED TO VOTE AND RECORD DATE
The close of business on ________ __, 1998, has been fixed by the Board
of Directors of Enfin as the Enfin Record Date for the determination of holders
of Enfin Shares entitled to notice of and to vote at the Enfin Special Meeting
and any adjournment thereof. At the close of business on the Enfin Record Date,
there were 547,792 Enfin Shares outstanding and entitled to vote and held of
record by 118 shareholders. Each Enfin Share entitles the holder thereof to one
vote on each matter to be submitted to the Enfin shareholders at the Enfin
Special Meeting.
VOTE REQUIRED
The affirmative vote of the holders of two-thirds of the outstanding
Enfin Shares, voting in person or by proxy, will be necessary to adopt the
Agreement and approve the Merger. The affirmative vote, therefore, of the
holders of 365,195 Enfin Shares will be necessary to adopt the Agreement and
approve the Merger. As of the Enfin Record Date, the directors and executive
officers of Enfin owned, in the aggregate, 181,628, or 33.2%, of the outstanding
Enfin Shares. Assuming the affirmative vote of all Enfin Shares owned by the
directors and executive officers of Enfin, the affirmative vote of the holders
of an additional 183,567 Enfin Shares, representing an additional 33.5% of the
outstanding Enfin Shares, will be necessary to adopt the Agreement and approve
the Merger.
The Enfin shareholders present, in person or by proxy, at the Enfin
Special Meeting will constitute a quorum at the Enfin Special Meeting. Each
Enfin shareholder is entitled to one vote for each Enfin Share held. Under Ohio
law, shares which are held by a nominee for a beneficial owner and which are
represented in person or by proxy at the Enfin Special Meeting but which are not
voted with respect to the adoption of the Agreement and the approval of the
Merger ("non-votes") will be counted as present for purposes of establishing a
quorum. The effect of an abstention or non-vote will be the same as a vote
against the adoption of the Agreement and the approval of the Merger. If a proxy
is signed and dated by a shareholder, but no vote is specified thereon, the
shares held by such shareholder will be voted FOR the adoption of the Agreement
and the approval of the Merger.
In addition, as discussed under "COMPARISON OF RIGHTS OF HOLDERS OF
SECOND BANCORP SHARES AND HOLDERS OF ENFIN SHARES -Anti-Takeover Statutes",
under the Ohio Control Share Acquisition Statute, the affirmative vote of the
holders of a majority of the Enfin Shares represented in person and by proxy at
the Separate Meeting, and a majority of the portion of such voting power
excluding any Enfin Shares owned by executive officers of Enfin and any director
of Enfin who is also an employee of Enfin and any other "interested shares", are
required to approve the Merger.
VOTING AND SOLICITATION AND REVOCATION OF PROXIES
A proxy for use at the Enfin Special Meeting accompanies this
Prospectus/Proxy Statement and is solicited by the Board of Directors of Enfin.
A shareholder of Enfin may use his proxy if he is unable to attend the Enfin
Special Meeting in person or wishes to have his Enfin Shares voted by proxy even
if he does attend the Enfin
36
<PAGE> 44
Special Meeting in person. Without affecting any vote previously taken, any
shareholder of Enfin who has executed a proxy may revoke the executed proxy at
any time before the vote by filing with Enfin, at the address of Enfin set forth
on the Notice of Special Meeting, written notice of such revocation; by
executing a later-dated proxy which is received by Enfin prior to the Enfin
Special Meeting; or by attending the Enfin Special Meeting and giving notice of
such revocation in person. Attendance at the Enfin Special Meeting will not, in
and of itself, revoke a proxy. The Enfin Shares represented by each properly
executed proxy received prior to the Enfin Special Meeting and not revoked will
be voted at the Enfin Special Meeting, or any adjournment thereof, as specified
on such proxy or, in the absence of specific instructions to the contrary, will
be voted FOR the adoption of the Agreement and the approval of the Merger.
As of the date of this Prospectus/Proxy Statement, the Board of
Directors of Enfin did not know of any business to be brought before the Enfin
Special Meeting, other than as set forth in this Prospectus/Proxy Statement. If,
however, any matters other than those referred to in this Prospectus/Proxy
Statement should properly come before such Enfin Special Meeting, or any
adjournment thereof, the persons named as proxies in the enclosed proxy intend
to vote the Enfin Shares represented by such proxy on such matters in accordance
with their best judgment in light of the conditions then prevailing.
Enfin will pay the expenses incurred by Enfin in connection with
copying and mailing this Prospectus/Proxy Statement, the accompanying proxy and
any other related materials to the shareholders of Enfin and all other costs
incurred in connection with the solicitation of proxies on behalf of the Board
of Directors of Enfin. Proxies will be solicited by mail and may be further
solicited, for no additional compensation, by officers, directors or employees
of Enfin by further mailing, by telephone or by personal contact. Enfin will
also pay the standard charges and expenses of brokerage houses, voting trustees,
banks, associations and other custodians, nominees and fiduciaries, who are
record holders of Enfin Shares not beneficially owned by them, for forwarding
such materials to and obtaining proxies from the beneficial owners of Enfin
Shares entitled to vote at the Enfin Special Meeting.
BUSINESS OF SECOND BANCORP
Second Bancorp is an Ohio corporation and one-bank holding company
located in Warren, Ohio. The Bank is a state-chartered Ohio commercial bank and
is wholly owned by Second Bancorp. The Bank operates through twenty-six branches
and one loan production office. The Bank offers a wide range of commercial and
consumer banking and trust services primarily to business and individual
customers in various communities in a five county area in northeastern Ohio. At
___________ __, 1998, Second Bancorp had consolidated total assets of $___
million, deposits of $___ million and shareholders' equity of $__ million.
The Bank focuses its marketing efforts primarily on local independent
commercial and professional firms, the individuals who are the owners and
principals of such firms as well as the low-to-moderate to upper income retail
customers in the Bank's trade areas. In recent years, Second Bancorp has
emphasized increased commercial and direct consumer and real estate lending and
market area expansion. The Bank has de-emphasized its previous focus on indirect
consumer loan lending through local automobile dealers.
MARKET AREA
The Bank's primary market area consists of Trumbull, Mahoning, Portage,
Summit and Ashtabula counties in the northeastern corner of Ohio, to the east
and south of the Cleveland metropolitan area. The market economy is heavily
influenced by the manufacturing sector with an emphasis on steel and auto
manufacturing and a variety of related and smaller industries.
COMPETITION
There is significant competition in the financial services industry in
northeastern Ohio among bank holding companies and banks. As a result of
deregulation of the financial services industry, Second Bancorp competes with
providers of financial services such as savings and loan associations, credit
unions, commercial
37
<PAGE> 45
companies, brokerage and securities firms, insurance companies, commercial
finance and leasing companies and the mutual fund industry. Some of Second
Bancorp's competitors, including certain regional bank companies which have
operations in Second Bancorp's market area, have substantially greater resources
than Second Bancorp, and as such, may have higher lending limits and may offer
other services not available through the Bank. Second Bancorp also faces
significant competition, particularly with respect to interest rates paid on
deposit accounts, from well-capitalized local thrift institutions. The Bank
competes on the basis of rates of interest charged on loans, the rates of
interest paid on funds, the availability of services and responsiveness to the
needs of its customers.
The foregoing discussion of the business of Second Bancorp and the Bank
is not complete and Enfin shareholders are referred to Second Bancorp's Annual
Report on Form 10-K for the 1997 fiscal year for a complete discussion of Second
Bancorp's and the Bank's businesses. Second Bancorp's Annual Report on Form 10-K
for 1997 is incorporated by reference into this Prospectus/Proxy Statement.
SECURITY OWNERSHIP OF SECOND BANCORP
As of [December 31, 1997], the table below identifies the persons or
"groups," as the term is used in Section 13(d)(3) of the Exchange Act, who own
of record or beneficially more than the five percent of the Shares and the
number of Shares thereof owned directly or beneficially by all Second Bancorp
directors and officers as a group as of [December 31, 1997] (unless otherwise
indicated).
<TABLE>
<CAPTION>
Name of Record Amount and Nature Percent
Title of Class or Beneficial Owner of Beneficial Ownership of Class
- -------------- ------------------- ----------------------- --------
<S> <C> <C> <C>
Common Stock Market Main & Co. (Nominee for 516,175 (1) 7.50%
Subsidiary Second National Bank's
Trust Department)
Common Stock Second Bancorp's officers and 355,843.972 (3) 5.17%
directors as a group(2)
</TABLE>
- ----------------------
(1) Shares held of record as of [December 31, 1997] in fiduciary capacity
for various trust customers of the Bank. None of the beneficial owners
through the Bank's trust department owns or controls five percent or
more of the Shares of Second Bancorp.
(2) The officer and director group is comprised of 16 individuals.
(3) Officer shareholdings include outstanding stock options exercisable as
of [March 13, 1998]. Figure includes all directly owned Shares and all
Shares deemed beneficially owned by individuals in the officers and
director group, whether or not disclaimed by the officer or director in
question.
38
<PAGE> 46
MANAGEMENT OF SECOND BANCORP
Following the consummation of the Merger, the directors and executive
officer of Second Bancorp will be the same as prior to the Merger. The following
is a list of the directors and executive officers of Second Bancorp, together
with specific information about each of them:
<TABLE>
<CAPTION>
Number and Percentage
Principal Occupation of Shares Owned
During the Past Five Beneficially [As of Director
Name Age Years and Directorships December 31, 1997](1) Since
- ---- --- ----------------------- --------------------- -----
<S> <C> <C> <C>
Alan G. Brant 67 Chairman and President, Second Bancorp and 99,156.35 (2,3,4) 1987
President, Director, and Chief Executive
Officer, the Bank
John A. Anderson 60 Chairman and Chief Executive Officer; The 16,646.534 1987
Taylor-Winfield Corporation, Ravenna
Manufacturing Company and Hubparts, Inc.
John C. Gibson 70 Chairman of the Board, Jack Gibson 24,051.367 (5,6) 1987
Construction Company, Director, Sovereign
Circuits, Inc.
Robert J. Webster 75 Retired. Past President and Chief 43,490 (7) 1987
Executive Officer of Denman Corporation,
manufacturer of automobile tires and
rubber rolls
Norman G. Harbert 64 Chairman and President, and Chief 11,544.868 (8) 1987
Executive Officer of the Hawk Corporation,
owner of several manufacturing firms. Mr.
Harbert is also a director of Caliber
Systems, Inc. and New West Eyeworks.
John L. Pogue 53 Partner, Harrington, Hoppe & Mitchell, LTD 1,645.13 (9) 1987
(attorneys).
Raymond John Wean, III 49 President and Chief Executive Officer of 8,666 (10) 1987
Barto Technical Services, Inc. Prior to
January 1995, President of Danieli Wean, Inc.,
and President and Chief Executive Officer of
Wean, Incorporated, formerly, Wean United, Inc.,
designer and manufacturer of industrial
machinery.
William Hanshaw 45 Executive Officer of Second Bancorp and 19,782.319 (11) --
Senior Vice President of Second National
Bank of Warren
David L. Kellerman 40 Treasurer of Second Bancorp and Executive 16,510.004 (12) --
Vice President, Chief Financial Officer
and Director of Second National Bank of
Warren.
</TABLE>
39
<PAGE> 47
<TABLE>
<CAPTION>
Number and Percentage
Principal Occupation of Shares Owned
During the Past Five Beneficially [As of Director
Name Age Years and Directorships December 31, 1997](1) Since
- ---- --- ----------------------- --------------------- -----
<S> <C> <C> <C>
Diane C. Bastic 54 Executive Officer of Second Bancorp and 37,665.075 (13) --
Senior Vice President of Second National
Bank of Warren.
Christopher Stanitz 49 Executive Vice President and Secretary of 33,135.49 (14) --
Second Bancorp and Vice President of
Second National Bank of Warren.
</TABLE>
(1) Unless otherwise stated, ownership of the Shares is less than 1%.
(2) Includes 15,706 Shares held by Mr. Brant's wife, the beneficial
ownership of which he has disclaimed.
(3) Includes 19,778.35 Shares held for Mr. Brant's benefit by the Bank's
Savings Plan. Mr. Brant is 100% vested in these Shares.
(4) Includes 20,700 Shares representing a like number of currently
exercisable options owned by Mr. Brant.
(5) Includes 1,801.538 Shares owned by, or for the benefit of, Mr. Gibson's
wife, the beneficial ownership of which he has disclaimed.
(6) Includes 4,427.366 Shares which are owned by the Jack Gibson
Construction Company which company is controlled by Mr. Gibson.
(7) Includes 10,232 Shares owned by Mr. Webster's wife, the beneficial
ownership of which he has disclaimed.
(8) Includes 4,043.54 Shares held by the trustee of Mr. Harbert's defined
benefit plan and 2,236.862 Shares held in a personal trust for his
benefit.
(9) Includes 446 Shares held in a SEP IRA account for Mr. Pogue's benefit.
(10) Includes 990 Shares owned by Mr. Wean's wife and 1,980 Shares owned by
his minor children, the beneficial ownership of which he has
disclaimed.
(11) In addition to directly owned Shares, total includes 5,084.59 shares
beneficially owned through Second Bancorp's 401(k) plan, 470 Shares
held in an IRA for his benefit, 6,400 currently exercisable options to
purchase Shares, and 6,500 currently unexercisable options to purchase
Shares.
(12) In addition to directly owned Shares, total includes 2,493.3 Shares
beneficially owned through Second Bancorp's 401(k) plan, 7,000
currently exercisable options to purchase Shares, and 7,000 currently
unexercisable options to purchase Shares.
(13) In addition to directly owned Shares, total includes 11,394.31 Shares
beneficially owned through Second Bancorp's 401(k) plan, 18,400
currently exercisable options to purchase Shares, and 6,500 currently
unexercisable options to purchase Shares.
(14) In addition to directly owned Shares, total includes 3,131.88 Shares
beneficially owned through Second Bancorp's 401(k) plan, 22,900
currently exercisable options to purchase Shares, and 7,000 currently
unexercisable options to purchase Shares.
For detailed information concerning (i) the compensation of executive
officers and directors of Second Bancorp, (ii) certain employment arrangements
and agreements among Second Bancorp, the Bank and certain executive officers and
directors of Second Bancorp and/or the Bank and (iii) transactions among Second
Bancorp, the Bank and certain officers of Second Bancorp and/or the Bank and
other related persons, reference is made to Second Bancorp's Annual Report on
Form 10-K for the year ended December 31, 1997, which is incorporated herein by
reference. See "AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN DOCUMENTS
BY REFERENCE."
40
<PAGE> 48
ENFIN MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
This discussion is intended to focus on certain financial information
regarding Enfin. The purpose of this discussion is to provide the reader with a
more thorough understanding of the financial statements. This discussion should
be read in conjunction with the financial statements and accompanying notes
contained elsewhere in this Proxy Statement/Prospectus.
Management of Enfin is not aware of any market or institutional trends,
events or uncertainties that are expected to have a material effect on
liquidity, capital resources or operations except as discussed herein. Also,
management is not aware of any current recommendations by its regulatory
authorities that would have such effect if implemented.
OVERVIEW
The reported results of Enfin are dependent on a variety of factors,
including the general interest rate environment, competitive conditions in the
industry, governmental policies and regulations and conditions in the markets
for financial assets. Net interest income is the largest component of Enfin's
net income, and consists of the difference between income generated on
interest-earning assets and interest expense incurred on interest-bearing
liabilities. Net interest income is primarily affected by the volumes, interest
rates and composition of interest-earning assets and interest-bearing
liabilities.
AVERAGE BALANCES AND YIELDS. The following tables present for the
periods indicated, the total amount of interest income from average
interest-earning assets and the resultant yields, as well as the interest
expense on average interest-bearing liabilities, expressed both in dollars and
rates, and the net interest margin. Net interest margin refers to the net
interest income divided by total interest-earnings assets and is influenced by
the level and relative mix of interest-earning assets and interest-bearing
liabilities. All average balances are daily average balances. Non-accruing loans
are included in average loan balances.
41
<PAGE> 49
CONSOLIDATED AVERAGE BALANCE SHEET & ANALYSIS OF NET INTEREST INCOME
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------- ------------------------------- -----------------------------------
Average Average Average Average Average Average
(Dollars in thousands) Balance Interest Rate Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
INTEREST EARNING ASSETS
TAXABLE LOANS $34,357 3,267 9.51% $ 28,240 $ 2,631 9.32% $ 21,995 $ 2,140 9.73%
TAXABLE SECURITIES 2,525 162 6.42% 1,890 119 6.30% 1,612 100 6.20%
FEDERAL FUNDS SOLD 2,472 133 5.38% 2,850 150 5.26% 3,560 209 5.87%
------- ----- ---- -------- ------- ---- -------- -------
TOTAL INTEREST EARNING ASSETS 39,354 3,562 9.05% 32,980 2,900 8.79% 27,167 2,449 9.01%
NON-EARNING ASSETS
CASH AND DUE FROM BANKS 1,548 1,539 1,388
PROPERTIES & EQUIPMENT 166 194 228
ACCRUED INTEREST RECEIVABLE 191 168 127
OTHER ASSETS 67 48 80
LESS: RESERVE FOR LOAN LOSSES (469) (419) (302)
------- -------- --------
TOTAL ASSETS $40,857 $ 34,510 $ 28,688
======= ======== ========
INTEREST BEARING LIABILITIES
DEMAND DEPOSITS - INT. BEARING $ 736 17 2.31% $ 946 23 2.43% $ 1,054 25 2.37%
SAVINGS DEPOSITS 10,556 486 4.60% 10,435 465 4.46% 6,533 248 3.80%
TIME DEPOSITS 18,880 1,097 5.81% 14,679 838 5.71% 13,634 782 5.74%
OTHER BORROWED 152 6 3.95% 142 6 4.23% 148 4 2.70%
------- ----- ---- -------- ------- ---- -------- -------
TOTAL INTEREST BEARING LIABILITIES 30,324 1,606 5.30% 26,202 1,332 5.08% 21,369 1,059 4.96%
NON-INTEREST BEARING LIABILITIES
DEMAND DEPOSITS 6,764 4,937 4,168
OTHER LIABILITIES 213 184 211
------- -------- --------
TOTAL OTHER LIABILITIES 6,977 5,121 4,379
STOCKHOLDERS EQUITY 3,556 3,187 2,940
------- -------- --------
TOTAL LIABILITIES & EQUITY $40,857 $ 34,510 $ 28,688
======= ========= =========
NET INTEREST INCOME $ 1,956 $ 1,568 $ 1,390
======== ======== ========
NET INTEREST SPREAD 3.75% 3.71% 4.05%
NET INTEREST MARGIN 4.97% 4.76% 5.12%
</TABLE>
42
<PAGE> 50
RATE VOLUME ANALYSIS OF CHANGES IN INTEREST INCOME & EXPENSE
<TABLE>
<CAPTION>
1997 COMPARED TO 1996 1996 COMPARED TO 1995
DUE TO CHANGE IN DUE TO CHANGE IN
---------------------------------------- ----------------------------------------
(In thousands) VOLUME YIELD/RATE TOTAL VOLUME YIELD RATE TOTAL
---------- --------------- ------------- ----------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN INTEREST
INCOME:
TAXABLE LOANS $ 569.9 $ 66.1 $ 636.0 $ 607.6 $(116.6) $ 491.0
TAXABLE SECURITIES 40.0 3.0 43.0 17.2 1.8 19.0
FEDERAL FUNDS SOLD (19.9) 2.9 (17.0) (41.7) (17.3) (59.0)
------- ------- ------- ------- ------- -------
TOTAL INTEREST EARNING ASSETS 590.0 72.0 662.0 583.1 (132.1) 451.0
INTEREST BEARING LIABILITIES
DEMAND DEPOSITS-INT. BEARING (5.1) (0.9) (6.0) (2.6) 0.6 (2.0)
SAVINGS DEPOSITS 5.4 15.6 21.0 148.1 68.9 217.0
TIME DEPOSITS 239.8 19.2 259.0 59.9 (3.9) 56.0
OTHER BORROWED -- -- -- (0.2) 2.2 2.0
------- ------- ------- ------- ------- -------
TOTAL INTEREST BEARING LIABILITIES 240.1 33.9 274.0 205.2 67.8 273.0
TOTAL EFFECT ON NET INTEREST INCOME $ 349.9 $ 38.1 $ 388.0 $ 377.9 $(199.9) $ 178.0
======= ======= ======= ======= ======= =======
</TABLE>
43
<PAGE> 51
CONSOLIDATED AVERAGE BALANCE SHEET & ANALYSIS OF NET INTEREST INCOME
<TABLE>
<CAPTION>
Three months ended Three months ended
3-31-98 3-31-97
----------------------------------- ----------------------------------
(Dollars in thousands) Average Average Average Average
Balance Interest Rate (1) Balance Interest Rate (1)
------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
ASSETS
INTEREST EARNING ASSETS
TAXABLE LOANS $36,773 $855 9.43% $31,218 $727 9.44%
TAXABLE SECURITIES 2,730 51 7.58% 2,263 35 6.27%
FEDERAL FUNDS SOLD 2,518 34 5.48% 2,322 29 5.07%
------- ---- ------- ----
TOTAL INTEREST EARNING ASSETS 42,021 940 9.07% 35,803 791 8.96%
NON-EARNING ASSETS
CASH AND DUE FROM BANKS 1,737 1,493
PROPERTIES & EQUIPMENT 132 183
ACCRUED INTEREST RECEIVABLE 190 167
OTHER ASSETS 472 49
LESS: RESERVE FOR LOAN LOSSES (521) (431)
------- -------
TOTAL ASSETS $44,031 $37,264
======= =======
INTEREST BEARING LIABILITIES
DEMAND DEPOSITS-INT. BEARING $ 717 4 2.26% $ 851 5 2.38%
SAVINGS DEPOSITS 13,935 138 4.02% 9,796 108 4.47%
TIME DEPOSITS 19,720 282 5.80% 17,074 243 5.77%
OTHER BORROWED 140 1 2.90% 125 1 3.24%
-------- ---- --------
TOTAL INTEREST BEARING LIAB. 34,512 425 4.99% 27,846 357 5.20%
NON-INTEREST BEARING LIABILITIES
DEMAND DEPOSITS 4,974 5,873
ACCRUED EXP. & OTHER LIABILITIES 210 168
------- ------
TOTAL OTHER LIABILITIES 5,184 6,041
SHAREHOLDERS' EQUITY 4,335 3,377
---------- -----
TOTAL LIABILITIES & EQUITY $44,031 $37,264
======= =======
NET INTEREST INCOME $515 $434
NET INTEREST SPREAD 4.08% 3.76%
NET INTEREST MARGIN 4.97% 4.92%
</TABLE>
(1) Annualized
44
<PAGE> 52
RATE VOLUME ANALYSIS OF CHANGES IN INTEREST INCOME & EXPENSE
<TABLE>
<CAPTION>
THREE MONTHS ENDED 3-31-98
COMPARED TO THREE MONTHS ENDED 3-31-97
DUE TO CHANGE IN
----------------------------------
(In thousands) VOLUME YIELD/RATE TOTAL
------ ---------- ------
<S> <C> <C> <C>
INCREASE (DECREASE) IN INTEREST INCOME:
TAXABLE LOANS $524 $(396) $128
TAXABLE SECURITIES 32 (16) 16
FEDERAL FUNDS SOLD 10 (5) 5
---- ----- ---
TOTAL INTEREST EARNING ASSETS 566 (417) 149
INTEREST BEARING LIABILITIES
DEMAND DEPOSITS-INT. BEARING (3) 2 (1)
SAVINGS DEPOSITS 170 (140) 30
TIME DEPOSITS 153 (114) 39
OTHER BORROWED - - -
---- ----- ---
TOTAL INTEREST BEARING LIABILITIES 320 (252) 68
TOTAL EFFECT ON NET INTEREST INCOME $246 $(165) $81
---- ----- ---
</TABLE>
45
<PAGE> 53
COMPARISON OF OPERATING RESULTS FOR THREE MONTHS ENDED MARCH 31, 1998 AND 1997
NET INCOME. Net income for the three months ended March 31, 1998 was
$131,000, an 88.0% increase from $70,000 reported for the comparable period in
1997. Earnings per share for the three months ended March 31, 1998 was $0.24, an
increase of 84.6% over earnings per share of $0.13 for the three months ended
March 31, 1997. The increase in net income was primarily the result of an
increase in net interest income, a reduction in the provision for loan losses
and a reduction in noninterest expense. These increases to earnings were
partially offset by an increase in the provision for income taxes.
INTEREST INCOME. Interest income for the three months ended March 31,
1998 was $940,000, up 18.9% from $791,000 for the three months ended March 31,
1997. This increase was the result of an increase in earning assets which was
primarily due to growth in loans which generally earned higher rates than other
categories of interest-earning assets.
INTEREST EXPENSE. Interest expense rose to $425,000 for the three
months ended March 31, 1998 from $357,000 for the comparable period in 1997, an
increase of 18.9%. This increase was due to an increase in the average balance
of interest-bearing liabilities, primarily deposits, but was offset somewhat due
to a decrease in the average cost of funds.
Net interest income increased 18.9% to $515,000 in the first three
months of 1998, up from $434,000 in the same period during 1997. This increase
resulted from a 17.4% increase in average earning assets together with an
increase in the net interest margin (FTE) to 4.97% in the first three months of
1998, up 5 basis points from 4.92% for the comparable period in 1997. Enfin
benefited from growth in interest earning assets and decreased costs on
interest-bearing liabilities.
PROVISION FOR LOAN LOSSES. The provision for loan losses decreased to
$14,000 for the three months ended March 31, 1998, down 65.3% from $39,000 for
the same period in 1997. While the overall provision decreased, the allowance as
a percentage of loans increased from 1.37% at March 31, 1997 to 1.44% at March
31, 1998. The decrease in the provision for loan losses was based on
management's analysis of the adequacy of the allowance for loan losses and was
primarily the result of a decrease in the level of non-performing loans .
NONINTEREST INCOME. Noninterest income was $67,000 for the three months
ended March 31, 1998, an increase of 2.8% over $65,000 reported for the
comparable period in 1997.
NONINTEREST EXPENSE. Non-interest expense was $370,000 for the three
months ended March 31, 1998 compared to $390,000 for the comparable period in
1997, or a 4.9% decrease. The decrease was primarily due to a decrease in salary
and employee benefits.
PROVISION FOR INCOME TAXES. The provision for income taxes was $67,000
for the three months ended March 31, 1998, a 100.0% increase from the first
three months of 1997. In 1997, the tax expense was offset by a reduction in the
valuation allowance recorded for the deferred tax asset. In late 1997,
management determined that it was more likely than not that the deferred tax
asset would be realized and eliminated the valuation allowance.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
NET INCOME. Net income for 1997 was $917,000, a 224.2% increase over
earnings for 1996 of $283,000. Earnings per share reported in 1997 were $1.67,
up 221.2% from $0.52 for 1996. This increase in net income was the result of the
combination of an increase in net interest income of $387,000 and a recognition
of a tax benefit of $449,000 which were partially offset by increases to the
provision for loan losses and noninterest expense.
46
<PAGE> 54
INTEREST INCOME. Interest income increased $661,000 or 22.8% in 1997 to
$3,562,000, up from $2,901,000 in 1996. This is primarily due to an increase in
average earning assets and to a lesser degree a 26 basis point increase in the
weighted average yield for interest earning assets. Loans, the largest component
of interest earning assets, represented the majority of the increase in average
balances and experienced a 19 basis point increase in yield from 1996 to 1997.
INTEREST EXPENSE. Total interest expense was $1,606,000 in 1997
compared to $1,332,000 for the year ended December 31, 1996. The increase was
primarily due to an increase in average interest bearing liabilities and due to
a 22 basis point increase in the average rate of interest bearing liabilities.
The increase in time deposits accounted for the majority of the increase in
average interest bearing liabilities and also contributed to the increased cost
of funds with a 10 basis point increase in the rate paid from 1996 to 1997.
PROVISION FOR LOAN LOSSES. The provision for loan losses increased to
$125,000 in 1997 from $56,000 in 1996, a difference of $69,000 or 123.3%. The
increase was due to an increase in the volume of loans, and to a lesser extent
due to increased charge-offs.
NONINTEREST INCOME. For the year ended December 31, 1997, noninterest
income was $235,000, down $7,000 or 2.9% from $242,000 for the prior year. This
decrease was the result of a decrease in service charges and fees of $49,000 or
35.1%, which was partially offset by the $42,000 or 41.3% increase in other
income.
NONINTEREST EXPENSE. Noninterest expense increased $126,000 or 8.6% to
$1,598,000 for the year ended December 31, 1997 from the prior year. The
increase was substantially due to the $97,000 increase in salaries and employee
benefits and represented annual salary adjustments and an increase in the number
of full time equivalents.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
NET INCOME. Net income for 1996 was $283,000, a $221,000 increase over
earnings for 1995 of $62,000. Earnings per share reported in 1996 were $0.52, up
$.40 from $0.12 for 1995. This increase in net income was the result of the
combination of an increase in net interest income, a decrease in the provision
for loan losses and an increase in other income. These contributors to the
increase in earnings were partially offset by an increase in noninterest
expense.
INTEREST INCOME. Interest income increased $451,000 or 18.4% in 1996 to
$2,901,000, up from $2,449,000 in 1995. The increase was completely due to the
increase in average earning assets and was partially offset by a 22 basis point
decrease in the yield on interest earning assets. The increase in loans, the
largest component of interest earning assets, contributed the majority of the
$5.8 million increase in average earning assets which was partially offset by a
41 basis point decline in the yield on loans from 9.73% in 1995 to 9.32% in
1996.
INTEREST EXPENSE. Total interest expense was $1,332,000 in 1996
compared to $1,059,000 for the year ended December 31, 1995. This $273,000 or
25.8% increase was the result of an increase in average interest bearing
liabilities of $4.8 million and a 12 basis point increase in the rates paid on
interest bearing liabilities. The largest contributor to the increase was from
new savings products which provided an increase in average balances of $3.9
million and provided a 66 basis point increase in the cost of savings deposits.
PROVISION FOR LOAN LOSSES. The provision for loan losses decreased to
$56,000 in 1996 from $115,000 in 1995, a difference of $59,000 or 51.6%. The
decline was primarily due to the decline in non-performing loans from 1995 to
1996.
NONINTEREST INCOME. For the year ended December 31, 1996, noninterest
income was $242,000, up $62,000 or 34.6% from $180,000 for the prior year. This
increase was the result of an increase in service charges and fees of $34,000 or
32.0% and an increase in other income of $28,000 or 38.4%.
47
<PAGE> 55
NONINTEREST EXPENSE. Noninterest expenses increased to $1,472,000 in
1996 from $1,393,000 in 1995. This increase of 5.7% was primarily due to an
increase of $50,000 or 7.5% in salaries and employee benefits.
ASSET QUALITY - NON-PERFORMING ASSETS. Non-performing loans consist of
loans past due 90 days or more and loans for which the accrual of interest has
been discontinued. Non-performing loans totaled approximately $275,000 or .76%
of total loans at December 31, 1997, as compared to $380,000 or 1.25% of total
loans at December 31, 1996 and $590,000 or 2.21% at December 31, 1995. The
allowance for loan losses as a percentage of non-performing loans was 186.30%,
112.95% and 64.43% at year end 1997, 1996 and 1995, respectively. The following
table sets forth non-accrual, past due and restructured loans at December 31:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1997 1996 1995
------------------ ------------------ -------------------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
NON-PERFORMING LOANS
LOANS PAST DUE 90 DAYS OR MORE $52 $139 $39
NON-ACCRUAL LOANS 223 241 551
RESTRUCTURED LOANS - - -
------------------ ------------------ -------------------
TOTAL NON-PERFORMING LOANS $275 $380 $590
================== ================== ===================
</TABLE>
Enterprise Bank had identified $223,107, $192,499 and $548,078 as
impaired loans as of December 31, 1997, 1996 and 1995, respectively. The average
balances of impaired loans during 1997, 1996 and 1995 were $238,116, $332,521
and $618,027, respectively. Interest income recognized on impaired loans during
1996 and 1995 was $8,153 and $39,281, all on a cash basis.
The policy for placing loans on nonaccrual status is to cease accruing
interest on loans when management believes that the collection of interest is
doubtful, or when loans are past due as to principal or interest ninety days or
more, except that in certain circumstances interest accruals are continued on
loans deemed by management to be fully collectible. In such cases, the loans are
individually evaluated in order to determine whether to continue income
recognition after ninety days beyond the due dates. When loans are charged-off,
any interest accrued in the current year is charged against interest income.
POTENTIAL PROBLEM LOANS. As of December 31, 1997, there were
approximately $298,733 of loans representing the remaining balances of loans
classified as substandard for regulatory purpose that have not been disclosed
above as a nonperforming or impaired loan. These loans and their potential loss
exposure have been considered by management's analysis of the adequacy of the
allowance for loan losses. These loans do not represent trends or uncertainties
which management expects will materially impact future operating results,
liquidity, or capital resources.
FOREIGN OUTSTANDING. There were no foreign loans outstanding for any
year presented.
48
<PAGE> 56
COMPARISON OF MARCH 31, 1998 AND DECEMBER 31, 1997 FINANCIAL CONDITION
Total assets rose to $44,400,000 at March 31, 1998, compared to
$42,354,000 at December 31, 1997, an increase of $2,046,000 or 4.8%. This
increase in assets was funded by increases in deposits, and shareholders'
equity.
Total securities increased 0.8% to $2,453,000 at March 31, 1998
compared to $2,451,000 at December 31, 1997, as purchases exceeded maturities.
Of the $2,453,000 of total securities on the balance sheet at March 31, 1998,
$250,000, or 10.2%, are classified as held-to-maturity with the remainder
classified as available-for-sale.
Total loans increased $115,000, or 0.31% to $36,531,000 during the
first quarter of 1998 compared to total loans outstanding at December 31, 1997
of $36,416,000. No significant changes in loan demand are anticipated in the
near term.
Total deposits increased approximately $1,779,000 or 4.7%, to
$39,475,000 at March 31, 1998, compared to $37,697,000 at December 31, 1997.
Enfin's stockholders' equity remained relatively stable during the
first quarter of 1998. At March 31, 1998, Enfin had $4,403,000 in shareholders'
equity, which represented 9.9% of total assets at that date. Stockholders'
equity was $4,272,000 at December 31, 1997, which was equal to 10.1% of total
assets as December 31, 1997. Enfin exceeded all regulatory capital requirements
at March 31, 1998. Its ratio of total capital to risk weighted assets was 12.8%
at March 31, 1998, while its Tier 1 risk-based ratio was 11.54%. Regulatory
minimums call for a total risk-based ratio of 8%, at least half of which must be
Tier 1 capital.
ALLOWANCE AND PROVISION FOR LOAN LOSSES. The allowance for loan losses
is maintained at a level considered adequate to cover loan losses that are
currently anticipated based on past loss experience, general economic
conditions, changes in mix and size of the loan portfolio, information about
specific borrower situations, and other factors and estimates that are subject
to change over time. Management periodically reviews selected large loans,
delinquent, impaired and other problem loans, and other selected loans. The
collectibility of these loans is evaluated by considering the current financial
position and performance of the borrower, the estimated fair value of the
collateral, Enfin's collateral position in relation to other creditors,
guarantees, and other potential sources of repayment. Management forms
judgments, which are subjective, as to the probability of loss and the amount of
loss on these loans as well as other loans in the aggregate.
The allowance for loan losses totaled $525,000 at March 31, 1998, which
was 1.44% of total loans net of unearned income. This was up from $512,000 or
1.41% of total loans at December 31, 1997. Loans on nonaccrual status were
approximately $214,000, or .58% of outstanding balances at March 31, 1998,
compared to $262,000 or .82% of total loans at March 31, 1997. This reduction
was due to loan payments on the nonaccrual loans. The allowance for loan losses
as a percentage of non-performing loans was 216.9% at March 31, 1998, compared
to 158.1% at March 31, 1997.
COMPARISON OF DECEMBER 31, 1997 AND 1996 FINANCIAL CONDITION
Total assets of Enfin were $42,354,000 at December 31, 1997 compared to
$36,218,000 at year-end 1996, representing an increase of 16.9%. This growth was
primarily in loans, which were funded by increases in Enfin's deposits from its
local customer base.
Total investment securities increased $202,000, or 9.0%, to $2,451,000
at year-end 1997 from $2,249,000 at year-end 1996.
49
<PAGE> 57
Gross loans totaled $36,416,000 at December 31, 1997, as compared to
$30,284,000 at year-end December 31, 1996, representing an increase of
$6,132,000 or 20.3%.
The mix of Enfin's loan portfolio changed somewhat during 1997, with
commercial loans comprising 83.42% of total loans at December 31, 1997, compared
to 81.25% at year-end 1996. Commercial loans increased $5,773,000, or 23.5%,
ending with a $30,377,000 balance as of December 31, 1997 as compared to
$24,604,000 year-end 1996.
Real estate mortgage loans increased 29.4% from year-end 1996, to
$4,780,000 or 13.12% of total loans at December 31, 1997. Consumer loans
decreased 33.4%, from $1,986,000 at December 31, 1996 to $1,259,000 at December
31, 1997.
Total loans are comprised of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ----------- ----------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
TYPE OF LOANS
COMMERCIAL $30,377 $24,604 $21,204 $14,468 $10,880
CONSUMER 1,259 1,986 2,139 1,461 898
REAL ESTATE 4,780 3,693 3,353 2,830 2,281
LOANS HELD-FOR-SALE - - - - -
------- ------- -------- ------- -------
TOTAL LOANS $36,416 $30,283 $26,696 $18,759 $14,059
======= ======= ======== ======= =======
</TABLE>
AN ANALYSIS OF MATURITY AND INTEREST RATE SENSITIVITY OF COMMERCIAL LOANS AS OF
DECEMBER 31, 1997 FOLLOWS:
<TABLE>
<CAPTION>
ONE YR. ONE TO OVER
(DOLLARS IN THOUSANDS) OR LESS FIVE YRS. FIVE YRS. TOTAL
---------------- ------------------ ----------------- ---------------
<S> <C> <C> <C> <C>
COMMERCIAL LOANS
FIXED RATE $3,629 $3,756 $2,124 $9,509
VARIABLE RATE 10,837 10,031 - 20,868
---------------- ------------------ ----------------- ---------------
TOTAL COMMERCIAL LOANS $14,466 $13,787 $2,124 $30,377
======= ======= ====== =======
</TABLE>
Other assets increased $447,000 from year end 1996 primarily due to the
recognition of the deferred tax asset and reduction of the valuation allowance.
Total deposits increased 15.96% to $37,697,000 at December 31, 1997,
compared to $32,509,000 at December 31, 1996. Noninterest bearing balances grew
to $8,641,000 at December 31, 1997 as compared to $4,898,000 at December 31,
1996. The other areas of deposit growth included savings which grew 2.7% and
certificates of deposit which increased 9.9%. Interest bearing checking accounts
decreased 43.8% from 1996 to 1997. Management set deposit rates with the goal of
increasing time deposits to improve the bank's liability maturity position.
Service charges on demand accounts were structured to be attractive to generate
new deposits.
50
<PAGE> 58
The following is a schedule of average deposit balances as of December
31:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1997 1996 1995
----------------- ---------------- ---------------
<S> <C> <C> <C>
AVERAGE DEPOSIT BALANCES BY TYPE
DEMAND DEPOSITS - NON-INTEREST BEARING $6,764 $4,937 $4,168
DEMAND DEPOSITS - INTEREST BEARING 736 946 1,054
SAVINGS DEPOSITS 10,556 10,435 6,533
TIME DEPOSITS 18,880 14,679 13,634
----------------- ---------------- ---------------
TOTAL DEPOSITS $36,936 $30,997 $25,389
================= ================ ===============
</TABLE>
The following is a schedule of maturities of time deposits in amounts
of $100,000 or more as of December 31, 1997:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
MATURING IN:
<S> <C>
3 MONTHS OR LESS $1,998
3 TO 6 MONTHS 2,325
6 TO 12 MONTHS 1,044
OVER 12 MONTHS 570
-----------------
TOTAL $5,937
=================
</TABLE>
ALLOWANCE AND PROVISION FOR LOAN LOSSES. The allowance for loan losses
is maintained at a level considered adequate to cover loan losses that are
currently anticipated based on past loss experience, general economic
conditions, changes in mix and size of the loan portfolio, information about
specific borrower situations, and other factors and estimates that are subject
to change over time. Management periodically reviews selected large loans,
delinquent, impaired and other problem loans, and other selected loans. The
collectibility of these loans is evaluated by considering the current financial
position and performance of the borrower, the estimated fair value of the
collateral, Enfin's collateral position in relation to other creditors,
guarantees, and other potential sources of repayment. Management forms
judgments, which are subjective, as to the probability of loss and the amount of
loss on these loans as well as other loans in the aggregate.
The allowance for loan losses totaled $512,000 and $429,000 at December
31, 1997 and 1996, respectively. The allowance as a percentage of loans was 1.4%
for both 1997 and 1996 The increase in gross dollars in the allowance was
primarily the result of an increases in the size of the loan portfolio. The
allowance for loan losses as a percentage of non-performing loans was 186.3% at
December 31, 1997 compared to 112.95% at December 31, 1996 and 64.43% at
December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity refers to Enfin's ability to generate sufficient cash to fund
current loan demand, meet deposit withdrawals, pay operating expenses and meet
the other obligations. Enfin's primary sources of liquidity are cash and cash
equivalents and securities available for sale, which totaled $2,948,000 and
$2,202,000, respectively, at year-end 1997. Net income and loan repayments also
serve as forms of liquidity. Other sources of liquidity which Enfin could use to
help to ensure that funds are available when needed include, but are not limited
to, adjustments of interest rates to attract deposits, borrowings at the Federal
Reserve discount window and other borrowings. Management believes that its
sources of liquidity are adequate to meet the needs of Enfin.
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<PAGE> 59
As summarized in the statements of cash flow, the most significant
investing cash flows in 1997 were purchases of available-for-sale securities of
$1.9 million, maturity of available-for-sale securities of $1.2 million and an
increase in net loan obligations of $6.2 million. Enfin's primary financing
activity is accepting deposits, which accounted for a cash infusion of $5.2
million. Cash and cash equivalents decreased from $3.6 million at year-end 1996
to $2.9 million at year-end 1997.
Total stockholders' equity increased from $3,349,000 at December 31,
1996 to $4,272,000 at December 31, 1997. Most of the increase resulted from the
retention of earnings.
Banking regulations have established minimum capital ratios for banks.
As a result, the subsidiary bank must meet a risk-based capital requirement,
which defines the two tiers of capital and compares each to the Bank's
"risk-weighted assets." The Bank's assets and certain off-balance sheet items,
such as loan commitments, are each assigned a risk factor so that assets with
potentially higher credit risk will require more capital support than assets
with lower risk. These regulations require the Bank to have a minimum total
risk-based capital ratio of 8%, at least half of which must be Tier 1 capital.
The Bank's Tier 1 capital is its shareholders' equity before any gain or loss on
securities available-for-sale, while total risk-based capital includes Tier 1
capital and a limited amount of the allowance for loan losses. In addition, a
bank's leverage ratio (which for the Bank equals its shareholders' equity,
before any gain or loss on securities available-for-sale, divided by total
assets) must be maintained at a minimum of 3% to 5%. The following table
summarizes the Bank's capital ratios in comparison with minimum requirements.
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
Amount Percentage Amount Percentage
<S> <C> <C> <C> <C>
Leverage Ratio
Actual $ 3,869 8.92% $ 3,233 9.01%
Minimum required $ 1,301 3.00% $ 1,077 3.00%
Total risk-based capital
Actual $ 4,297 12.58% $ 3,599 12.33
Minimum required $ 2,732 8.00% $ 2,336 8.00%
Tier 1 risk-based capital
Actual $ 3,869 11.33% $ 3,233 11.07%
Minimum required $ 1,366 4.00% $ 1,436 4.00%
Risk adjusted assets $ 34,145 $ 29,199
</TABLE>
The payment of dividends by Enterprise Bank to Enfin is subject to
restrictions by its regulatory authorities, which generally limit dividends to
the current and prior two years retained earnings, as defined by regulation. In
addition, dividend payments may not reduce regulatory capital levels below the
minimum regulatory guidelines discussed above and can not be paid until the
retained deficit is eliminated. The Merger Agreement also sets forth certain
limitations on the payment of dividends by Enfin to its shareholders. See "THE
MERGER--Conditions.
IMPACT OF INFLATION ON CHANGING PRICES
The financial statements included herein have been prepared in
accordance with generally accepted accounting principles, which require Enfin to
measure financial position and operating results in terms of historical dollars,
except for securities available for sale which are carried at fair value.
Changes in the relative value of money due to inflation or recession are
generally not considered.
In Enfin management's opinion, changes in interest rates affect the
financial condition of Enfin to a far greater degree than changes in the
inflation rate. While interest rates are greatly influenced by changes in the
52
<PAGE> 60
inflation rate, they do not move concurrently. Rather, interest rate volatility
is based on changes in the expected rate of inflation, as well as changes in
monetary and fiscal policy. A financial institution's ability to be relatively
unaffected by changes in interest rates is a good indicator of its capability to
perform in today's volatile economic environment. In an effort to protect itself
from the effects of interest rate volatility, Enfin reviews its interest rate
risk position frequently, monitoring its exposure and taking necessary steps to
minimize any detrimental effects on Enterprise Bank's profitability.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Enterprise Bank's primary market risk exposure is interest rate risk
and, to a lesser extent, liquidity risk. All of Enterprise Bank's transactions
are denominated in U.S. dollars with no specific foreign exchange exposure.
Enterprise Bank has no agricultural loan assets and therefore would not have a
specific exposure to changes in commodity prices.
Interest-rate risk ("IRR") is the exposure of a banking organization's
financial condition to adverse movements in interest rates. Accepting this risk
can be an important source of profitability and shareholder value, however
excessive levels of IRR can pose a significant threat to Enterprise Bank's
earnings and capital base. Accordingly, effective risk management that maintains
IRR at prudent levels is essential to Enterprise Bank's safety and soundness.
Evaluating a financial institution's exposure to changes in interest
rates includes assessing both the adequacy of the management process used to
control IRR and the organization's quantitative level of exposure. When
assessing the IRR management process, Enterprise Bank seeks to ensure that
appropriate policies, procedures, management information systems and internal
controls are in place to maintain IRR at prudent levels with consistency and
continuity. Evaluating the quantitative level of IRR exposure requires
Enterprise Bank to assess the existing and potential future effects of changes
in interest rates on its consolidated financial condition, including capital
adequacy, earnings, liquidity, and, where appropriate, asset quality.
The Federal Reserve Board, together with the OCC and the FDIC, adopted
a Joint Agency Policy Statement on Interest-Rate Risk, effective June 26, 1996.
The policy statement provides guidance to examiners and bankers on sound
practices for managing interest rate risk, which will form the basis for ongoing
evaluation of the adequacy of interest-rate risk management at supervised
institutions. The policy statement also outlines fundamental elements of sound
management that have been identified in prior Federal Reserve Board guidance and
discusses the importance of these elements in the context of managing
interest-rate risk. Specifically, the guidance emphasizes the need for active
board of director and senior management oversight and a comprehensive
risk-management process that effectively identifies, measures, and controls
interest-rate risk. Financial institutions derive their income primarily from
the excess of interest collected over interest paid. The rates of interest an
institution earns on its assets and owes on its liabilities generally are
established contractually for a period of time. Since market interest rates
change over time, an institution is exposed to lower profit margins (or losses)
if it cannot adapt to interest-rate changes. For example, assume that an
institution's assets carry intermediate-or long-term fixed rates and that those
assets were funded with short-term liabilities. If market interest rates rise by
the time the short-term liabilities must be refinanced, the increase in the
institution's interest expense on its liabilities may not be sufficiently offset
if assets continue to earn at the long-term fixed rates. Accordingly, an
institution's profits could decrease on existing assets because the institution
will either have lower net interest income or, possibly, net interest expense.
Similar risks exist when assets are subject to contractual interest-rate
ceilings, or rate sensitive assets are funded by longer-term, fixed-rate
liabilities in a decreasing-rate environment. Several techniques might be used
by an institution to minimize interest-rate risk. One approach used by
Enterprise Bank is to periodically analyze its assets and liabilities and make
future financing and investment decisions based on payment streams, interest
rates, contractual maturities, and estimated sensitivity to actual or potential
changes in market interest rates. Such activities fall under the broad
definition of asset/liability management. Enterprise Bank's primary
asset/liability management technique is the measurement of Enterprise Bank's
asset/liability gap-that is, the difference between the cash flow amounts of
interest-sensitive assets and liabilities that will be refinanced (or repriced)
during a given period. For example, if the total assets to be repriced exceeds
the total liabilities repricing for a certain day, month, year, or longer
period, the institution is in an asset-sensitive gap
53
<PAGE> 61
position. In this situation, net interest income would increase if market
interest rates rose or decrease if market interest rates fell. If,
alternatively, more liabilities than assets will reprice, the institution is in
a liability-sensitive position. Accordingly, net interest income would decline
when rates rose and increase when rates fell. Also, these examples assume that
interest-rate changes for assets and liabilities are of the same magnitude,
whereas actual interest-rate changes generally differ in magnitude for assets
and liabilities.
Several ways an institution can manage interest-rate risk include:
selling existing assets or repaying certain liabilities; matching repricing
periods for new assets and liabilities for example, by shortening or lengthening
the maturities and repricing of new loans or investments; hedging existing
assets, liabilities, or anticipated transactions. An institution might also
invest in more complex financial instruments intended to hedge or otherwise
change interest-rate risk. Interest-rate swaps, futures contracts, options on
futures, and other such derivative financial instruments often are used for this
purpose. Because these instruments are sensitive to interest-rate changes, they
require management expertise to be effective. Financial institutions are also
subject to prepayment risk in falling rate environments. For example, mortgage
loans and other financial assets may be prepaid by a debtor so that the debtor
may refund its obligations at new, lower rates. Enterprise Bank has not
purchased derivative financial instruments in the past. Prepayments of assets
carrying higher rates can reduce Enterprise Bank's interest income and overall
asset yields if the funds received can not be reinvested at equivalent or higher
yields. A large portion of an institution's liabilities may be short term or due
on demand, while most of its assets may be invested in long-term loans or
investments. Accordingly, Enterprise Bank seeks to have in place sources of cash
to meet short-term demands. These funds can be obtained by increasing deposits,
borrowing, or selling assets. Also, FHLB advances can be used to meet liquidity
needs.
Commitments to extend credit and standby letters of credit are not
recorded as an asset or liability by Enterprise Bank until the instrument is
exercised.
Enterprise Bank's exposure to market risk is reviewed on a regular
basis by the Asset/Liability Committee. Interest rate risk is the potential of
economic losses due to future interest rate changes. These economic losses can
be reflected as a loss of future net interest income and/or a loss of current
fair market values. The objective is to measure the effect on net interest
income and to adjust the balance sheet to minimize the inherent risk while at
the same time maximize income. Management realizes certain risks are inherent
and that the goal is to identify and minimize the risks. Tools used by
management include the standard GAP report and interest rate shock simulation
report. Enterprise Bank has no market risk sensitive instruments held for
trading purposes. It appears Enterprise Bank's market risk is reasonable at this
time. The condensed GAP report summarizing Enterprise Bank's interest rate
sensitivity is as follows:
54
<PAGE> 62
<TABLE>
<CAPTION>
GAP ANALYSIS, DECEMBER 31, 1997
REPRICING - MATURITY
(DOLLARS IN THOUSANDS) 3 MOS. 3-12 1-5 OVER
ASSETS OR LESS MONTHS YEARS 5 YEARS TOTAL
- ------ ------- ------ ----- ------- -----
<S> <C> <C> <C> <C> <C>
FIXED RATE LOANS/LEASES $ 2,109 $1,794 $4,873 $2,779 $11,555
VARIABLE RATE LOANS/ 12,066 1,529 11,137 -- 24,732
LEASES
FEDERAL FUNDS 1,444 -- -- -- 11,444
U.S. TREASURIES -- 249 -- -- 249
AGENCIES 1,001 1,200 2,201
OTHER INVESTMENTS -- -- -- 233 233
TOTAL 15,619 3,572 17,011 4,212 40,414
====== ===== ====== ===== ======
CUMULATIVE RSA 15,619 19,191 36,202 40,414 40,414
LIABILITIES
TIME DEPOSITS $100K OR MORE 1,998 3,369 570 -- 5,937
OTHER TIME DEPOSITS 2,611 7,671 1,524 303 12,109
MMDA 7,418 -- 1,854 -- 9,272
SAVINGS 233 233 701 -- 1,167
NOW ACCOUNTS 172 172 229 -- 573
-------- ------- ------- ------ -------
TOTAL LIABILITIES 10,434 8,076 4,308 -- 29,058
CUMULATIVE RSL 10,434 18,510 2,818 22,818 22,818
TOTAL ASSETS $42,234
GAP $ 5,185 ($4,504) $12,703 $4,212 $11,356
======== ======= ======= ====== =======
RSA/RSL 1.50 0.44 3.95 N/A 1.39
NET GAP RATIO 12.28% -10.66% 30.08% 9.97% 26.89%
(AS A % OF TOTAL ASSETS)
CUMULATIVE GAP $ 5,185 $681 $13,384 $17,596 $17,596
CUMULATIVE RSA/RSL 1.50 1.04 1.59 1.77 1.77
CUMULATIVE NET GAP RATIO 12.28% 1.61% 31.69% 41.66% 41.66%
</TABLE>
* Loan Totals Do Not Include Commercial Non-Accrual Loans
The business of Enterprise Bank and the composition of its balance
sheet consists of investments in interest-earning assets (primarily loans and to
a lesser extent, securities) which are primarily funded by interest-bearing
liabilities (primarily deposits). Such financial instruments have varying levels
of sensitivity to changes in
55
<PAGE> 63
market interest rates resulting in market risk. All of the financial instruments
of Enterprise Bank are for other than trading purposes.
Interest rate risk results when the maturity or repricing intervals and
interest rate indices of the interest-bearing assets, interest-bearing
liabilities, and off-balance sheet financial instruments are different, creating
a risk that changes in the level of market interest rates will result in
disproportionate changes in the value of, and the net earnings generated from,
Enterprise Bank's interest-bearing assets, interest-bearing liabilities, and
off-balance sheet financial instruments. Enterprise Bank's exposure to interest
rate risk is managed primarily through Enterprise Bank's strategy of selecting
the types and terms of interest-earning assets and interest-bearing liabilities
which generate favorable earnings, while limiting the potential negative effects
of changes in market interest rates. Since Enterprise Bank's primary source of
interest-bearing liabilities is customer deposits, Enterprise Bank's ability to
manage the types and terms of such deposits may be somewhat limited by customer
preferences in the market areas in which Enterprise Bank operates. The rates,
terms and interest rate indices of Enterprise Bank's interest-earning assets
result primarily from Enterprise Bank's strategy of investing in loans and
securities which permit Enterprise Bank to limit its exposure to interest rate
risk, together with credit risk, while at the same time achieving a positive
interest rate spread from the difference between the income earned on
interest-earning assets and the cost of interest-bearing liabilities.
Investment securities, other than those with early call provisions,
generally do not have significant imbedded options and repay pursuant to
specific terms until maturity. While savings and checking deposits generally may
be withdrawn upon the customer's request without prior notice, a continuing
relationship with customers resulting in future deposits and withdrawals is
generally predictable resulting in a dependable and uninterruptible source of
funds. Time deposits generally have early withdrawal penalties.
Enterprise Bank's interest rates are primarily indexed to the prime
rate, with some indexed to the one, three or five year treasury. When such loans
are funded by interest-bearing liabilities which are determined by other
indices, primarily deposits, a changing interest rate environment may result in
different levels of change in the different indices leading to disproportionate
changes in the value of, and the net earnings generated from, Enterprise Bank's
financial instruments. Each index is unique and in influenced by different
external factors, therefore, the historical relationships in various indices may
not necessarily be indicative of the actual change which may result in a
changing interest rate environment.
In addition to periodic gap reports comparing the sensitivity of
interest-earning assets and interest-bearing liabilities to changes in interest
rates, management also utilizes a quarterly report based on a model from the
IBAA Securities which measures Enterprise Bank's exposure to interest rate risk.
The model calculates the effect on net interest income a hypothetical higher and
a lower prime rate would have.
BUSINESS OF ENFIN
On December 27,1989, Enfin was incorporated as an Ohio corporation and
established as a bank holding company. Enfin's business consists of acting as
the holding company for Enterprise Bank, its only subsidiary. Enfin is subject
to regulation, supervision and examination by the Federal Reserve Board.
Enterprise Bank began operations in the spring of 1991 at its current location
in Solon, Ohio. Enterprise Bank is subject to regulation, supervision and
examination by the Division and the FDIC.
Enterprise Bank was formed for the purpose of providing banking
services to small and mid-sized businesses, their owners and employees, and to
executives and professional firms as well as local residents. The goals of
Enterprise Bank include providing responsive and personalized service as a
business oriented community bank. Enterprise Bank offers commercial, commercial
real estate and consumer loan products, various deposit products as well as a
wide variety of other products and services.
Enterprise Bank does not have any branches other than its headquarters.
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<PAGE> 64
MARKET AREA
Enterprise Bank's primary market area consists of Cuyahoga and
surrounding counties in Ohio.
COMPETITION
There is significant competition in the financial services industry in
northeastern Ohio among bank holding companies and banks. As a result of
deregulation of the financial services industry, Enfin competes with providers
of financial services such as savings and loan associations, credit unions,
commercial companies, brokerage and securities firms, insurance companies,
commercial finance and leasing companies and the mutual fund industry. Some of
Enfin's competitors, including certain regional bank companies which have
operations in Enfin's market area, have substantially greater resources than
Enfin, and as such, may have higher lending limits and may offer other services
not available through Enterprise Bank. Enfin also faces significant competition,
particularly with respect to interest rates paid on deposit accounts, from
well-capitalized local thrift institutions. Enterprise Bank competes on the
basis of rates of interest charged on loans, the rates of interest paid on
funds, the availability of services and responsiveness to the needs of its
customers.
LENDING AND INVESTMENTS
Lending products and services include commercial loans and commercial
mortgages, lines of credit and letters of credit, residential mortgages, home
equity lines of credit, home improvement, auto and installment loans, credit
cards and personal lines of credit. Enterprise Bank's lending activity is
directed primarily toward commercial lending to small and medium-sized
businesses in Cuyahoga County and surrounding counties. Although Enterprise Bank
does not provide lease financing directly, it has funded lease transactions by
means of an assignment of the lease, the lease revenue and a security interest
in the leased equipment. Enterprise Bank also participates in state and federal
loan and loan guarantee programs to support and encourage economic development
in its community. These include various loan programs of the Small Business
Administration (the "SBA"), whereby Enterprise Bank may originate loans the
principal of which is guaranteed (up to 90%) by the SBA.
A number of customers have credit needs that exceed the legal lending
limit of Enterprise Bank. Rather than turning these customers away, Enterprise
Bank may sell a participation in the loan to another bank. There are a number of
commercial banks that have purchased participations, and they are generally out
of Enterprise Bank's primary market area. Although Enterprise Bank's principal
goals include serving the credit needs of customers in its market area, it has
from time to time purchased participation interests in loans from other
financial institutions. In these cases the borrower is not a direct customer of
Enterprise Bank, and because of this indirect relationship, participation
activity is very limited and not emphasized in new business development plans.
Enterprise Bank applies largely the same credit quality and other criteria, such
as diversification of type of credit, to loans it purchase as to loans it
originates.
Loans outstanding at December 31, 1997 totaled approximately $36.4
million, an increase of $6.1 million or 20% from December 31, 1996. This
increase is the result of management actively pursuing the development of new
customer relationships, and the acquisition of quality credits in order to
maximize the return on earning assets.
Enterprise Bank generally makes commercial, commercial real estate and
consumer loans to businesses and individuals with whom Enterprise Bank has or
anticipates developing a deposit relationship. Management believes that the loan
portfolio is reasonably diversified and contains no significant concentrations
other than those resulting from Enterprise Bank's emphasis on commercial
lending, which includes commercial real estate lending.
The rates charged to borrowers are priced to provide for an adequate
return and to reflect the risks identified while originating the credit. This
pricing philosophy also takes into account current economic and competitive
conditions, credit and interest rate risks involved with the credit and the
costs of originating and administering extensions of credit. Interest income on
loans is calculated on the simple interest method and accrued as income on a
daily basis.
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<PAGE> 65
COMMERCIAL LOANS. Commercial loans consist of term loans for financing
equipment and other fixed assets, revolving lines of credit and seasonal
inventory loans for working capital, and other short term secured and unsecured
borrowings where the proceeds are used for business purposes. These loans
generally have a maturity of five to seven years or less and bear interest at a
fixed rate or a rate which varies according to a specified indicator or
indicators of prevailing interest rates. As a general proposition, a commercial
loan portfolio has higher credit risk than other forms of credit because of the
concentration of principal in a limited number of loans and borrowers, the
higher average dollar amount of individual loans, the risks associated with
potential reductions in the value of the collateral during periods of economic
downturn and the increased difficulty of evaluating and monitoring these types
of loans. In recognition of this, management takes a conservative approach to
the underwriting of commercial and commercial real estate loans.
Enterprise Bank's underwriting strategy is reflected in the loan policy
which is reviewed by Enterprise Bank's Board annually, and amended if necessary.
The principal criteria used by Enterprise Bank in evaluating commercial loans
include, but are not limited to: the quality of the borrowing entity's
ownership/management team; the borrower's current financial condition; whether
the company has a product or service that it can sell or deliver in sufficient
quantity and margin to generate cash flow; and the existence of a strong
secondary source of repayment, usually in the form of collateral or owner's
guarantee.
Enterprise Bank monitors its commercial and commercial real estate
customer for periodic submission of financial statements, required
documentation, maintenance of insurance and compliance with loan covenants. This
monitoring procedure is administered jointly by the credit department and the
loan document specialist, who prepare monthly reports for management.
COMMERCIAL REAL ESTATE LOANS. Loans are classified as commercial real
estate loans if loan proceeds are used for the construction, purchase, refinance
or improvement of real estate, and if the loan is fully secured by the real
estate being constructed, purchased, refinanced or improved. Commercial real
estate loans are generally granted for a five year term, with the maximum term
being fifteen years. Amortization will vary depending on property type and its
age and condition. The maximum amortization for commercial property is twenty
years, but ten to fifteen years is more common.
These loans are not expected to exceed a seventy-five percent (75%)
loan-to-value ratio, and must be supported by a qualified appraisal. In addition
to a mortgage, real estate loans are typically secured by an assignment of the
underlying lease as well, if the property is not owner-occupied. Enterprise
Bank's policy prohibits granting real estate loans on a non-recourse basis.
Management believes that the real estate portfolio is well diversified
and does not present any greater risk of loss than the commercial loan portfolio
generally. The loan policy of Enterprise Bank has certain specific guidelines
that management feels strengthens the underwriting procedure for commercial real
estate loans and controls the risk of this type of lending.
CONSUMER LOANS. Enterprise Bank makes various types of installment or
consumer loans, including loans made to depositors on the security of their
savings instruments, home equity lines of credit, automobile loans, loans for
boats and recreational vehicles, home improvement loans, demand single payment
maturity loans, amortizing loans secured by listed securities in conformance
with applicable regulations, and unsecured consumer credit through three forms
of credit cards.
Approximately 15.4% of the dollar volume of loans in Enterprise Bank's
loan portfolio as of March 31, 1998, and 16.6% as of December 31, 1997, was
represented by consumer loans, including first and second mortgage loans on
residential property, which loans include both fixed-rate and adjustable-rate
loans.
Residential real estate mortgage loans originated by Enterprise Bank
may be made up to 90% of the appraised value of the property when the loan is
secured by real estate improvements as well as land improved with
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<PAGE> 66
streets, water service, sewer service and other utilities. As of March 31, 1998,
mortgage loans totaling $4.6MM comprised 12.6% of the loan portfolio in terms of
dollar volume.
One-to-four family dwelling loans are amortized over a period of 30
years or less. The weighted average length of time such loans are outstanding is
usually considerably less, as homes are sold or refinanced or the loan is
otherwise paid off prior to the end of the loan term. Real estate loans are
secured by first liens on the real estate, although Enterprise Bank also makes
loans secured by second or lesser liens, depending on the total appraised value
of the security relative to the amount of the more senior liens. The majority of
the mortgage loans Enterprise Bank makes provide for an adjustable rate of
interest in order to allow for adjustment with treasury rate movement.
LOAN COMMITMENT, SOLICITATION AND PROCESSING. The types of loans
offered by Enterprise Bank and other loan terms and conditions are set forth in
Enterprise Bank's lending policy, as amended from time to time by management and
Enterprise Bank's Board of Directors. The types of loans and their terms are
generally based on market conditions, new business development goals and
availability of funds for lending. Management establishes the prime or minimum
rates within the various categories of loans and Enterprise Bank adjusts rates
and fees according to the risk.
Final loan commitments are given only after application materials have
been received and approved consistent with Enterprise Bank's lending policy. The
loan policy requires financial statements prepared in accordance with generally
accepted accounting principles by an independent, certified public accounting
firm. Enterprise Bank generally evaluates five fiscal year-end statements, the
most current interim statements and the personal financial statement and tax
return of the business owner. This quantity of information allows Enterprise
Bank to perform trend analysis. Exceptions to policy, if any, are reported to
Enterprise Bank's Board on a monthly basis.
These commitments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the balance sheet.
Enterprise Bank uses the same credit policies in making commitments and
conditional obligations as it does for on-balance sheet instruments. Enterprise
Bank limits its exposure to loss under these commitments by subjecting them to
credit approval and monitoring procedures. Substantially all of Enterprise
Bank's commitments to extend credit are contingent upon the customer maintaining
specific credit standards and collateral arrangements, as necessary, at the time
of the loan funding. To allow for the funding of loan commitments, management
monitors the liquidity of Enterprise Bank and maintains available funds in the
form of cash on deposit with correspondent banks and in federal funds sold.
SUMMARY OF LOAN LOSS EXPERIENCE. Enterprise Bank management is aware of
the risks inherent in commercial bank lending. Management attempts to limit
those risks by applying stringent underwriting standards to all loan requests,
and by securing loans when made. To provide for potential loan losses,
management makes periodic provisions to an allowance for loan losses in amounts
believed to be sufficient to absorb any future losses recorded.
Enterprise Bank uses the allowance method to provide for loan losses.
Under that method, all loan losses are charged to the allowance and all
recoveries are credited to it. The allowance for loan losses is established
through a provision for loan losses charged to operations. The provision is
based upon management's evaluation of the adequacy of the allowance, which
evaluation occurs monthly and encompasses consideration of local economic
factors, regional banking loan loss experience, changes in the composition and
volume of the loan portfolio and various other factors. A quarterly analysis of
the loan loss reserve is prepared by the credit department and presented to
Enterprise Bank's Board for approval.
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<PAGE> 67
The following table summarizes loan charge-offs by loan type.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1997 1996 1995
------------------ ------------------ -------------------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
BALANCE AT BEGINNING OF PERIOD $429 $380 $270
CHARGE-OFFS:
COMMERCIAL 22 - -
REAL ESTATE - - -
CONSUMER 20 7 5
------------------ ------------------ -------------------
TOTAL CHARGE-OFFS 42 7 5
RECOVERIES:
COMMERCIAL - - -
REAL ESTATE - - -
CONSUMER - - -
------------------ ------------------ -------------------
TOTAL RECOVERIES - - -
NET CHARGE-OFFS 42 7 5
ADDITIONS TO THE ALLOWANCE
125 56 115
------------------ ------------------ -------------------
BALANCE AT END OF PERIOD $512 $429 $380
==== ==== ====
ALLOWANCE FOR LOAN LOSSES TO PERIOD END LOANS
1.41% 1.42% 1.42%
ALLOWANCE FOR LOAN LOSSES TO NON-PERFORMING LOANS
186.30% 112.95% 64.43%
CHARGE-OFFS:
COMMERCIAL 0.07% - -
REAL ESTATE - - -
CONSUMER 0.06% 0.03% 0.02%
TOTAL NET CHARGE-OFFS TO AVERAGE LOANS
0.12% 0.03% 0.02%
</TABLE>
The following table presents the aggregate amounts of non-performing
assets as of March 31, 1998 and December 31, 1997 and 1996:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997 1996
(In thousands)
<S> <C> <C> <C>
Non-performing Loans
Loans past due 90 days or more $ 28 $ 52 $139
Non-accrual loans 214 223 241
----- ----- -----
Total non-performing loans $242 $275 $380
==== ==== ====
</TABLE>
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In addition to the diligence exercised in the underwriting process and
the periodic provisions to the allowance for loan losses, management has
developed a classified loan report which is presented monthly to the Board of
Directors of Enterprise Bank. This report analyzes accounts which may not have
exhibited any of the attributes of a problem credit, such as delinquent
payments, but which warrant the ongoing attention of management due to the
nature of the credit, the current financial condition of the borrower, or other
relevant circumstances, so that the credit does not deteriorate prior to
management implementing efforts to strengthen the credit. These accounts, which
totaled approximately $463,000 at December 31, 1997 and $455,000 at March 31,
1998, are not expected to have a material effect on the financial condition or
liquidity of Enterprise Bank. Enterprise Bank believes that these loans are
adequately secured and that they do not present a risk of material loss.
Enterprise Bank has an internal loan review system which is
administered by the credit department. Under this system loans are reviewed to
measure compliance with covenants and reporting requirements, and to evaluate
whether the borrower's condition has changed. If there is doubt about the
company's ability to repay the loan according to the original terms, the loan
risk classification may be downgraded. In that event, the loan and the
borrower's financial condition would then be reviewed monthly and discussed with
Enterprise Bank's Board.
In addition, Enterprise Bank has retained an independent consultant who
conducts an annual review of the loan portfolio in order to evaluate its quality
and to assess the adequacy of Enterprise Bank's loan loss reserves and lending
practices.
Enterprise Bank's collection procedures provide that when a loan is ten
days or more delinquent, the borrower is contacted by mail or phone. A late
charge is assessed after the loan becomes more than ten days delinquent. If
delinquency continues, additional efforts are made to contact the borrower.
Delinquent loans are required to be reported in Enterprise Bank's reports of
condition filed with federal bank regulatory authorities. Delinquent loans are
reported as past due (which, depending upon the type and length of time the loan
has been outstanding, are loans that are more than 30 days delinquent), or
nonaccrual. Enterprise Bank generally stops accruing interest on loans when it
determines that a reasonable doubt exists as to the collectability of additional
interest. Past due loans must be reported regardless of whether they are
guaranteed by the government or others. Under federal banking regulations, a
bank's regulatory capital requirement is based in part upon its level of
restructured and delinquent loans.
The following is a summary of management's allocation of the allowance for loan
losses.
<TABLE>
<CAPTION>
(Dollars in thousands) YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
--------------------------------------------------------------------------------------------
LOAN BY LOAN BY LOAN BY LOAN BY LOAN BY
TYPE/TOT. TYPE/TOT. TYPE/TOT. TYPE/TOT. TYPE/TOT.
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALLOCATION OF THE
ALLOWANCE FOR LOAN LOSSES
COMMERCIAL $467 83.42% $382 81.25% $330 79.43% $214 77.12% $179 77.39%
REAL ESTATE 21 13.12% 13 12.19% 13 12.56% 11 15.09% 10 16.22%
CONSUMER 24 3.46% 34 6.56% 37 8.01% 30 7.79% 17 6.39%
UNALLOCATED -- N/A -- N/A -- N/A 15 N/A 3 N/A
---- ----- ---- ----- ---- ----- ---- ----- ---- -----
TOTALS $512 100.00% $429 100.00% $380 100.00% $270 100.00% $209 100.00%
==== ==== ==== ==== ====
</TABLE>
INVESTMENTS. Enterprise Bank invests primarily in debt instruments
guaranteed by government or government-sponsored agencies such as Treasury
securities and FNMA, GNMA and Freddie Mac securities. Management has chosen to
invest in these types of securities due to their creditworthiness, protection of
principal, liquidity and available rates of return. As a member of the Federal
Reserve System and Federal Home Loan Bank, Enterprise Bank is required to own
stock in each as well.
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<PAGE> 69
The following information summarizes the composition and maturity
schedule of the investment portfolio as of December 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
1997 1996 1995
----------------------- ------------------------ -----------------------
Carrying Yield Carrying Yield Carrying Yield
(In thousands) Value Value Value
-------- ---------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
U.S. TREASURIES AND OTHER
U.S. GOVERNMENT AGENCIES
UNDER 1 YEAR $ 249 5.13% $ 751 6.79% $ 975 5.31%
1 TO 5 YEARS 1,001 6.57% 1,499 6.79% 510 7.37%
5 TO 10 YEARS 1,200 6.70% -- -- -- --
OVER 10 YEARS -- -- -- -- -- --
------ ------ ------- ------ ------ ----
TOTAL 2,450 6.49% 2,250 6.79% 1,485 6.02%
EQUITY SECURITIES 233 6.47% 123 6.00% 109 6.00%
TOTAL SECURITIES $2,683 6.49% $2,373 6.75% $1,594 6.02%
====== ====== ======
</TABLE>
DEPOSITS AND BORROWINGS
Core deposit account activity is a primary funding source for loan
growth. As defined by Enterprise Bank, core deposits include demand deposit,
negotiable order of withdrawal ("NOW"), money market, savings and local
certificate of deposit accounts. At December 31, 1997, such core deposits
totaled approximately $32,377,000, or 86% of total deposits. The balance of
Enterprise Bank's deposits of $5,320,0000 or 14% of total deposits, were
provided by deposit brokers and out-of-area institutions.
While brokered deposits have provided needed liquidity, the interest
rates associated with such nontraditional deposits are typically higher than
those offered for similar deposits to those customers in Enterprise Bank's
immediate trade area. However, Enterprise Bank's expenses related to gathering
non-traditional deposits are limited as no advertising is needed to solicit
these readily available deposits. Therefore, Enterprise Bank's cost of obtaining
these non-traditional deposits is lower than typically associated with local
retail deposits.
As a member in good standing of the FHLB of Cincinnati, Enterprise Bank
is authorized to apply for advances, provided that certain standards of credit
worthiness and certain collateralization criteria has been met.
SECURITY OWNERSHIP OF ENFIN
Set forth below is the amount of Enfin Shares beneficially owned by
each director and by all directors and executive officers as a group on the
Enfin Record Date:
The following table sets forth the name and title of the directors and
executive officers of Enfin, together with the number and percentage of Enfin
Shares owned by each as of the Enfin Record Date, except to the extent their
ownership does not exceed one percent (1 %) of Enfin's stock. The table also
reflects the common stock ownership of all executive officers of Enfin and
Enterprise Bank, and all directors of Enfin as a group.
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<PAGE> 70
<TABLE>
<CAPTION>
Name Number of Shares Percentage
---- ---------------- ----------
<S> <C> <C>
Monte Ahuja, Director 44,000 8.03%
Larry David, Director 43,050 (1) 7.86%
Jeffrey Reitzes 3,000 1%
John F. Sustar, Director 22,550 (2) 4.12%
Robert N. Sustar, Director and Chairman 22,063 (3) 4.03%
Paul L. Seegott, Director 40,050 7.3%
John Veres 3,125 1%
Frank S. Wade, Chief Financial Officer 750 1%
Stacy Casamento, Chief Financial Officer 1,020 (4) 4%
R. Corbin Washington, Interim President 2,020 1%
and Senior Lending Officer
All Enfin directors and Bank executive 181,628 33.2%
officers as a Group (10 people)
</TABLE>
- --------------------
(1) Mr. Davis owns 38,000 shares jointly with his wife.
(2) Mr. John Sustar owns 4,000 shares jointly with his wife with the
remaining 18,000 shares owned solely by his wife.
(3) Mr. Robert Sustars wife owns 1,250 shares and dependent children own
5,000 shares.
(4) Mrs. Casamento owns 1,000 shares jointly with her husband.
DESCRIPTION OF SECOND BANCORP SHARES
The following is a summary of the material attributes of the Shares:
GENERAL
Second Bancorp is authorized to issue 20,000,000 Shares, each without
par value, of which [6,859,542] Shares were issued and outstanding on [June 10,
1998]. The Shares are quoted on The Nasdaq National Market System.
Holders of the Shares are entitled: (1) to receive dividends when and
as declared by the Board of Directors out of funds legally available for
distribution; (2) to one vote per Share on each matter properly submitted to
shareholders for their vote; and (3) to participate ratably in the net assets of
Second Bancorp in the event of liquidation, after the payment of liabilities.
Holders of the Shares have the right to vote cumulatively for the election of
directors. Holders of the Shares do not have preemptive or conversion rights and
are not subject to further calls or assessments by Second Bancorp.
Second Bancorp has the right to repurchase, if and when any shareholder
desires to sell, or on the happening of any event is required to sell, Shares
previously issued; however, Second Bancorp may not repurchase its Shares if
immediately thereafter its assets would be less than its liabilities plus its
stated capital, if any, or if Second Bancorp is insolvent or would be rendered
insolvent by such a purchase.
DIVIDEND RIGHTS
As an Ohio corporation, Second Bancorp, may, in the discretion of its
Board of Directors, generally pay dividends to its shareholders provided that
the dividend does not exceed the combination of the surplus of Second Bancorp
(defined generally as the excess of Second Bancorp's assets plus stated capital
over its liabilities).
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<PAGE> 71
The ability of Second Bancorp to obtain funds for the payment of
dividends and for other cash requirements is largely dependent on the amount of
dividends which may be declared by the Bank. In addition, the Federal Reserve
Board expects Second Bancorp to serve as a source of strength to the Bank, which
may require it to retain capital for further investments in the Bank, rather
than for dividends for shareholders of Second Bancorp.
The Bank may not pay dividends to Second Bancorp out of its surplus if,
after paying such dividends, it would fail to meet the required minimum levels
under certain risk-based capital guidelines and minimum leverage ratio
requirements established by the FDIC. In addition, the Bank must have the
approval of its regulatory authorities if a dividend in any year would cause the
total dividends for that year to exceed the sum of the current year's net
profits and the retained net profits for the preceding two years, less required
transfers to surplus. Payment of dividends by the Bank may be restricted at any
time at the discretion of the regulatory authorities, if they deem such
dividends to constitute an unsafe and/or unsound banking practice or if
necessary to maintain adequate capital for the Bank. These provisions could have
the effect of limiting Second Bancorp's ability to pay dividends on its
outstanding Shares.
DIRECTOR AND OFFICER LIABILITY AND INDEMNIFICATION
Article Seventh of the Second Bancorp Articles provides that Second
Bancorp shall indemnify, to the fullest extent permitted by the laws of the
State of Ohio, any director, officer, employee or agent of Second Bancorp for
any costs or expenses incurred by him in his capacity, or arising out of his
status, as a director, officer, employee or agent of Second Bancorp. Such
indemnification is not exclusive of any other rights to which any such
indemnified person may be entitled, as a matter of law or otherwise.
Section 1701.13(E) of the Ohio Revised Code (which is applicable to
Second Bancorp) permits a corporation to indemnify its officers and directors
and to pay their expenses subject to certain limitations and exceptions. Section
1701.13(E) of the Ohio Revised Code is very similar, but not identical, to the
language contained in Article Seventh of the Second Bancorp Articles.
Second Bancorp has purchased a liability insurance policy which insures
directors and officers of Second Bancorp against certain liabilities which might
be incurred by them in such capacities.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "1933 Act"), may be permitted to directors,
officers or persons controlling Second Bancorp pursuant to the foregoing
provisions, Second Bancorp has been informed that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the 1933 Act and is, therefore, unenforceable.
PROVISIONS IN THE AMENDED ARTICLES AND AMENDED REGULATIONS WHICH MAY BE DEEMED
TO HAVE ANTI-TAKEOVER EFFECTS
The Amended Articles and the Amended Regulations of Second Bancorp
contain the following provisions which may be deemed to have anti-takeover
effects:
SUPERMAJORITY VOTE AND FAIR PRICE PROVISION. Under the Second Bancorp
Articles, the following actions ("Business Combinations") require the
affirmative vote of the holders of 75% of the voting power of Second Bancorp:
(i) any merger or consolidation of Second Bancorp or any subsidiary of Second
Bancorp with any person who holds 10% or more of the voting power of Second
Bancorp (a "Related Person") or any affiliates of any Related Person; (ii) any
sale lease, exchange, mortgage, pledge, transfer or other disposition to or with
any Related Person or any affiliate of any Related Person of any assets of
Second Bancorp having an aggregate fair market value equal to 10% or more of the
consolidated net worth of Second Bancorp; (iii) the issuance or transfer by
Second Bancorp of any securities of Second Bancorp or any subsidiary of Second
Bancorp to any Related Person or any affiliate of any Related Person in exchange
for cash, securities or other property (or a combination thereof) having an
aggregate fair market value equal to 10% of the consolidated net worth of Second
Bancorp; (iv) the
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<PAGE> 72
adoption of any plan or proposal for the liquidation or dissolution of Second
Bancorp; (v) any reclassification of securities of Second Bancorp or any merger
or consolidation of Second Bancorp with any of its subsidiaries or any other
transaction which has the effect of increasing the proportionate number of the
outstanding Shares of any class of equity security of Second Bancorp or any
subsidiary of Second Bancorp which is directly or indirectly owned by any
Related Person or any affiliate of any Related Person; and (vi) an amendment of
Article Sixth, Article Seventh and Article Eighth of the Second Bancorp
Articles. In addition, if certain "minimum price requirements" are not complied
with in connection with any Business Combination, such Business Combination may
not be consummated. However, if the Business Combination is approved by
two-thirds of the continuing directors of Second Bancorp, then any such Business
Combination is not required to satisfy the "minimum price requirements" and is
only required to be approved by the shareholders of Second Bancorp holding a
majority of its voting power.
The Second Bancorp Regulations may be amended by the affirmative vote
of a majority of the voting power of Second Bancorp, except that any amendment
of Article III, Section 1 (Number of Directors) and Article VI (Indemnification
of Directors and Officers) requires the affirmative vote of 75% of the voting
power of Second Bancorp.
CLASSIFICATION OF DIRECTORS. The Second Bancorp Articles classify the
Board of Directors by providing for two classes of directors with each class
serving a two-year term.
OHIO STATUTES THAT HAVE ANTI-TAKEOVER EFFECTS
Second Bancorp is an Ohio chartered corporation and, therefore, is
subject to the provisions of Section 1701.831 of the Ohio Revised Code (the
"Ohio Control Share Acquisition Statute"). Pursuant to the Ohio Control Share
Acquisition Statute, the "control share acquisition" of an Ohio issuing public
corporation shall be made only with the prior authorization of the shareholders
of the issuing public corporation in accordance with the provisions of the Ohio
Control Share Acquisition Statute. A "control share acquisition" is defined to
mean the acquisition, directly or indirectly, by any person of shares of an
issuing public corporation that, when added to all other shares of the issuing
public corporation such person owns, would entitle such person, directly or
indirectly, to exercise voting power in the election of directors within the
following ranges: more than 20%, more than 33-l/3%, and a majority. The control
share acquisition must be approved in advance by the holders of at least a
majority of the voting power of the Ohio issuing public corporation in the
election of directors represented at a meeting at which a quorum is present and
by the holders of a majority of such voting power remaining after excluding the
voting shares owned by the acquiring shareholder and certain "interested
shares," including shares owned by officers elected or appointed by the
directors of the issuing public corporation and by directors of the issuing
public corporation who are also employees of the issuing public corporation.
"Interested shares" also include those shares acquired by a person or group
between the date of the first disclosure of a proposed control share acquisition
or change-in-control transaction and the date of the special meeting of
shareholders held pursuant to the Ohio Control Share Acquisition Statute. Shares
acquired during that period by a person or group will be deemed "interested
shares" only if (i) the amount paid for the shares by such person or group
exceeds $250,000 or (ii) the number of shares acquired by such person or group
exceeds 1/2 of 1% of the outstanding voting shares. See "COMPARISON OF RIGHTS OF
HOLDERS OF SECOND BANCORP SHARES AND ENFIN SHARES - Anti-Takeover Statutes."
Second Bancorp is also subject to Chapter 1704 of the Ohio Revised Code
(the "Ohio Merger Moratorium Statute") which prohibits certain business
combinations and transactions between "an issuing public corporation" (Second
Bancorp is one) and a beneficial owner of shares representing 10% or more of the
voting power of the corporation (an "Interested Shareholder") for at least three
years after the Interested Shareholder becomes such, unless the Board of
Directors of Second Bancorp approves either (i) the transaction or (ii) the
acquisition of the Shares that resulted in the person becoming an "Interested
Shareholder", in each case before the Interested Shareholder became such.
Examples of transactions regulated by the Ohio Merger Moratorium Statute include
asset sales, mergers, consolidations, loans, voluntary dissolutions, and the
transfer of shares ("Moratorium Transactions"). After the three-year period, a
Moratorium Transaction may take place provided that certain
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conditions are satisfied, including that (a) the Board of Directors approves the
transaction, (b) the transaction is approved by the holders of shares with at
least two-thirds of the voting power of Second Bancorp (or a different
proportion set forth in the articles of incorporation) including a majority of
the outstanding common shares after excluding shares controlled by the
Interested Shareholder, or (c) the business combination results in shareholders,
other than the Interested Shareholder, receiving a "fair price" plus interest
for their shares.
Ohio law provides that an offeror may not make a tender offer or
request or invitation for tenders that would result in the offeror beneficially
owning more than ten percent of any class of the target company's equity
securities unless such offeror files certain information with the Ohio Division
of Securities (the "Securities Division") and provides such information to the
target company and the offerees within Ohio. The Securities Division may suspend
the continuation of the control bid if the Securities Division determines that
the offeror's filed information does not provide full disclosure to the offerees
of all material information concerning the control bid. The statute also
provides that an offeror may not acquire any equity securities of a target
company within two years of the offeror's previous acquisition of any equity
security of the same target company pursuant to a control bid unless the Ohio
offerees may sell such security to the offeror on substantially the same terms
as provided by the previous control bid.
Pursuant to Ohio Revised Code Section 1707.043, a public corporation
incorporated in Ohio may recover profits that a shareholder makes from the sale
of the corporation's securities within 18 months after making a proposal to
acquire control or publicly disclosing the possibility of a proposal to acquire
control. The corporation may not, however, recover from a person who proves
either (i) that his sole purpose in making the proposal was to succeed in
acquiring control of the corporation and there were reasonable grounds to
believe that he would acquire control of the corporation or (ii) that his
purpose was not to increase any profit or decrease any loss in the stock of the
corporation. Also, before the corporation may obtain any recovery, the aggregate
amount of the profit realized by such person must exceed $250,000. Any
shareholder may bring an action on behalf of the corporation if a corporation
refuses to bring an action to recover these profits. The party bringing such an
action may recover his attorneys' fees if the court having jurisdiction over
such action orders recovery of any profits. An Ohio corporation may elect not to
be covered by the "anti-greenmail" statute with an appropriate amendment to its
articles of incorporation. Second Bancorp has not taken any corporate action to
opt out of the "anti-greenmail" statute.
COMPARISON OF RIGHTS OF HOLDERS OF SECOND BANCORP SHARES
AND HOLDERS OF ENFIN SHARES
GENERAL
As a result of the Merger, all of the holders of Enfin Shares will
become shareholders of Second Bancorp, except holders of Enfin Shares who
exercise and perfect dissenters' rights. There are certain differences between
the rights of holders of the Shares and the rights of holders of Enfin Shares
arising from the distinctions between the Second Bancorp Articles and the Second
Bancorp Regulations and the Enfin Articles and Enfin Regulations. However, the
rights of holders of the Shares and those of holders of Enfin Shares are similar
in many material respects. The differences are addressed below.
BOARD OF DIRECTORS
GENERAL. The Second Bancorp Articles provide for a Board of Directors
consisting of not more than eighteen (18) and not less than six (6) directors,
classified into two classes with each class serving a term of two years. Second
Bancorp currently has seven (7) directors. The Enfin Regulations provide for a
Board of Directors consisting of nine directors divided into three (3) classes
with each class serving three (3) years.
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The Second Bancorp Regulations require the affirmative vote of 75% of
the voting power of Second Bancorp to change the number of directors. In
addition, a majority of the Second Bancorp directors then in office may change
the number of directors of Second Bancorp by no more than two (2) directors
during any year. Under the Enfin Regulations, a majority of the directors may
change the number of directors to no less than nine (9) and no more than fifteen
(15).
REMOVAL. A Second Bancorp director may be removed (i) by the directors
if such director is found by a court to be of unsound mind or if he is
adjudicated, bankrupt or he fails to meet the qualifications set forth in
Section 1701.53(B)(2) or (ii) with or without cause by the affirmative vote of
the holders of a majority of the voting power of Second Bancorp entitled to
elect directors, except that, unless all directors are removed, no individual
director shall be removed if the votes of a sufficient number of Shares are cast
against his removal that, if cumulatively voted at an election of all of the
directors, would be sufficient to elect at least one director. The Enfin
Regulations provide that all of the directors may be removed from office,
without assigning any cause, by the vote of the holders of 75% of the voting
power of Enfin entitled to elect directors, except that, unless all directors
are removed, no individual director shall be removed if the votes of a
sufficient number of Enfin Shares are cast against his removal that, if
cumulatively voted at an election of all of the directors, would be sufficient
to elect at least one director.
VACANCIES. Pursuant to the Second Bancorp Regulations, vacancies on the
Board of Directors of Second Bancorp, including vacancies resulting from a
Board-created increase in the number of directors, may be filled by Second
Bancorp's Board of Directors, acting by a vote of the majority of the directors
then in office, even if less than a quorum or by a sole remaining director. Any
Second Bancorp director chosen to fill a vacancy shall serve until the next
election of the class for which such director was chosen and until his successor
is elected and qualified. Under the Enfin Regulations, the remaining directors,
though less than a majority of the whole authorized number of directors, may, by
a vote of the majority of their number, fill any vacancy in the Board of
Directors for the unexpired term. Any director so chosen shall serve until the
next election of directors by shareholders.
VOTING RIGHTS
CUMULATIVE VOTING. The holders of the Shares and the holders of Enfin
Shares have cumulative voting rights.
SPECIAL VOTING REQUIREMENTS. The Second Bancorp Articles contain
special voting requirements which may be deemed to have anti-takeover effects.
The following actions ("Business Combinations") require the affirmative vote of
the holders of 75% of the voting power of the Shares: (i) any merger or
consolidation of Second Bancorp or any subsidiary of Second Bancorp with any
person who holds 10% or more of the voting power of Second Bancorp (a "Related
Person") or any affiliates of any Related Person; (ii) any sale lease, exchange,
mortgage, pledge, transfer or other disposition to or with any Related Person or
any affiliate of any Related Person of any assets of Second Bancorp having an
aggregate fair market value equal to 10% or more of the consolidated net worth
of Second Bancorp; (iii) the issuance or transfer by Second Bancorp of any
securities of Second Bancorp or any subsidiary of Second Bancorp to any Related
Person or any affiliate of any Related Person in exchange for cash, securities
or other property (or a combination thereof) having an aggregate fair market
value equal to 10% of the consolidated net worth of Second Bancorp; (iv) the
adoption of any plan or proposal for the liquidation or dissolution of Second
Bancorp; (v) any reclassification of securities of Second Bancorp or any merger
or consolidation of Second Bancorp with any of its subsidiaries or any other
transaction which has the effect of increasing the proportionate number of the
outstanding Shares of any class of equity security of Second Bancorp or any
subsidiary of Second Bancorp which is directly or indirectly owned by any
Related Person or any affiliate of any Related Person; and (vi) an amendment of
Article Sixth, Article Seventh and Article Eighth of the Second Bancorp
Articles. In addition, if certain "minimum price requirements" are not complied
with in connection with any such Business Combination, any such Business
Combination may not be consummated. However, if any such Business Combination is
approved by two-thirds of the continuing directors of Second Bancorp, then any
such
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Business Combination is not required to satisfy the "minimum price requirements"
and is only required to be approved by the shareholders of Second Bancorp
holding a majority of its voting power.
In contrast, under Ohio law, the affirmative vote of holders of at
least two-thirds of the voting power of Enfin would be required to approve any
merger, business combination or similar transaction involving Enfin, except a
dissolution of Enfin or a change of the number of directors of Enfin, each of
which requires the approval of holders of at least a majority of the voting
power of Enfin.
The Second Bancorp Regulations may be amended by the affirmative vote
of a majority of the voting power of Second Bancorp, except that any amendment
of Article III, Section 1 (Number of Directors) and Article VI (Indemnification
of Directors and Officers) requires the affirmative vote of 75% of the voting
power of Second Bancorp. The Enfin Regulations may be amended by the affirmative
vote of a majority of the voting power of Enfin as long as three-fourth of the
directors of Enfin approve such amendment. If three-fourths of the Enfin
directors no not recommend an amendment of the Enfin Regulations, such an
amendment would require the affirmative vote of 75% of the voting power of
Enfin.
VOTE TO CALL A SPECIAL MEETING. The Second Bancorp Regulations require
the affirmative vote of 25% of the voting power of Second Bancorp to call a
special meeting of shareholders. The Enfin Regulations require affirmative vote
of 50% of the voting power of Enfin to call a special meeting of shareholders.
ANTI-TAKEOVER PROVISIONS
The Enfin Articles and Enfin Regulations contain no provisions similar
to the Supermajority Provision and Fair Price provision contained in the Second
Bancorp Articles. See, "DESCRIPTION OF SECOND BANCORP SHARES - Provisions in the
Second Bancorp Articles and Second Bancorp Regulations which may be deemed to
have Anti-Takeover Effects."
PREEMPTIVE RIGHTS
The shareholders of Second Bancorp and Enfin do not have preemptive
rights.
DIVIDENDS
As Ohio corporations, Enfin and Second Bancorp, may, in the discretion
of their respective Board of Directors, generally pay dividends to their
shareholders provided that the any such dividends do not exceed the combination
of their surplus (defined generally as the excess of the corporation's assets
plus stated capital over its liabilities). Second Bancorp's surplus at _______
__, 1998 was $________. Enfin's surplus at ______ __, 1998 was $_______.
The ability of Second Bancorp and Enfin to obtain funds for the payment
of dividends and for other cash requirements is largely dependent on the amount
of dividends which may be declared by the Bank and Enterprise Bank,
respectively. In addition, the Federal Reserve Board expects Second Bancorp and
Enfin to serve as sources of strength to their subsidiary banks, which may
require them to retain capital for further investments in their subsidiary
banks, rather than for dividends for their shareholders.
Neither the Bank nor Enterprise Bank may pay dividends out of their
surplus if, after paying such dividends, they would fail to meet the required
minimum levels under certain risk-based capital guidelines and minimum leverage
ratio requirements established by the FDIC. In addition, the Bank and Enterprise
Bank must have the approval of their respective regulatory authorities if a
dividend in any year would cause the total dividends for that year to exceed the
sum of their current year's net profits and the retained net profits for the
preceding two years, less required transfers to surplus. Payment of dividends by
the Bank and Enterprise Bank may be restricted at any time at the discretion of
their respective regulatory authorities, if such regulatory authorities deem
such dividends to constitute unsafe and/or unsound banking practices or if
necessary to maintain adequate capital.
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ANTI-TAKEOVER STATUTES
The Ohio Control Share Acquisition Statute, the Ohio Merger Moratorium
Statute and the Ohio Tender Offer Procedures apply to both Second Bancorp and
Enfin. See "DESCRIPTION OF SECOND BANCORP SHARES - Ohio Statutes that have
Anti-Takeover Effects."
Pursuant to the Ohio Control Share Acquisition Statute, the "control
share acquisition" of an Ohio issuing public corporation shall be made only with
the prior authorization of the shareholders of the issuing public corporation in
accordance with the provisions of the Ohio Control Share Acquisition Statute. A
"control share acquisition" is defined to mean the acquisition, directly or
indirectly, by any person of shares of an issuing public corporation that, when
added to all other shares of the issuing public corporation such person owns,
would entitle such person, directly or indirectly, to exercise voting power in
the election of directors within the following ranges: more than 20%, more than
33-l/3%, and a majority. Second Bancorp and Enfin are proceeding on the
assumption that the proposed acquisition by Second Bancorp of Enfin through the
Merger may be deemed to be a "control share acquisition" under the Ohio Control
Share Acquisition Statute.
The Ohio Control Share Acquisition Statute requires that the acquiring
person must deliver an acquiring person statement to the issuing public
corporation. The issuing public corporation must then call a special meeting of
its shareholders to vote upon the proposed acquisition within 50 days after
receipt of such acquiring person statement, unless the acquiring person agrees
to a later date. Enfin received an acquiring person statement from Second
Bancorp on ________, 1998, a copy of which is attached hereto as Annex D, and
Enfins' shareholders will have the opportunity to vote upon Second Bancorp's
proposed acquisition at the Separate Meeting.
The Ohio Control Share Acquisition Statute further specifies that the
shareholders of the Ohio issuing public corporation must approve the proposed
control share acquisition by certain percentages at a special meeting of
shareholders at which a quorum is present. Accordingly, in order to comply with
the Ohio Control Share Acquisition Statute, Second Bancorp may only acquire
Enfin through the Merger upon the affirmative vote of (i) a majority of the
voting power of Enfin that is represented in person or by proxy at the Separate
Meeting, and (ii) a majority of the voting power of Enfin Shares that is
represented in person or by proxy at the Separate Meeting, excluding those Enfin
Shares deemed to be "interested shares" for purposes of the Ohio Control Share
Acquisition Statute.
"Interested shares" are defined under the Ohio Control Share
Acquisition Statute to mean shares in respect of which the voting power is
controlled by any of the following persons: (1) an acquiring person (in this
case, Second Bancorp); (2) any officer of Enfin; and (3) any director of Enfin
who is also an employee of Enfin. "Interested shares" also include Enfin Shares
that are acquired by any person after the date of the first public disclosure of
the proposed Merger (in this case, April 1, 1998) and the date of the Separate
Meeting, if either (i) the aggregate consideration paid by such person, and any
person acting in concert with him, for such Enfin Shares exceeds $250,000, or
(ii) the number of Enfin Shares acquired by such person, and any person acting
in concert with him, exceeds one-half of one percent of the outstanding Enfin
Shares. In order to determine whether any Enfin Shares acquired after April 1,
1998 constitute "interested shares" pursuant to the preceding sentence, Enfin
will examine its stock records as of April 1, 1998, as of the Enfin Record Date
and as of the last business day preceding the Separate Meeting. If any record
holder (other than a broker, bank or other nominee) has increased his ownership
interest by more than one-half of one percent of the outstanding Enfin Shares,
or by a number of Enfin Shares in excess of $250,000 divided by the book value
of an Enfin Share during the period from April 1, 1998 through the Enfin Record
Date, such additional Enfin Shares held by such holder will be deemed
"interested shares" upon receipt by Enfin of a validly executed proxy card from
such a record holder. A record holder may rebut a presumption that Enfin Shares
are "interested shares" by providing Enfin with documentation satisfactory to
Enfin's legal counsel establishing that such Enfin Shares are not "interested
shares" within the definition of Section 1701.01(CC)(2) of the Ohio Revised
Code.
As of the Enfin Record Date, _____ of the Enfin Shares held by employee
directors and officers of Enfin would be "interested shares" under the Ohio
Control Share Acquisition Statute. Except as set forth in the
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preceding paragraph, all other Enfin Shares will be presumed to be disinterested
shares unless Enfin acquires actual knowledge of facts that evidence such shares
must be deemed "interested shares."
DIRECTOR AND OFFICER LIABILITY AND INDEMNIFICATION
SECOND BANCORP. Article Seventh of the Second Bancorp Articles provides
that Second Bancorp shall indemnify, to the full extent permitted by the laws of
the State of Ohio, any director, officer, employee or agent of Second Bancorp
for any costs or expenses incurred by him in his capacity, or arising out of his
status, as a director, officer, employee or agent of Second Bancorp. Such
indemnification is not exclusive of any other rights to which any such
indemnified person may be entitled, as a matter of law or otherwise.
Section 1701.13(E) of the Ohio Revised Code (which is applicable to
Second Bancorp) permits a corporation to indemnify its officers and directors
and to pay their expenses subject to certain limitations and exceptions. Section
1701.13(E) of the Ohio Revised Code is very similar, but not identical, to the
language contained in Article Seventh of the Second Bancorp Articles.
Second Bancorp has purchased a liability insurance policy which insures
directors and officers of Second Bancorp against certain liabilities which might
be incurred by them in such capacities.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "1933 Act"), may be permitted to directors,
officers or persons controlling Second Bancorp pursuant to the foregoing
provisions, Second Bancorp has been informed that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the 1933 Act and is, therefore, unenforceable.
ENFIN. Under Ohio law, Ohio corporations are authorized to indemnify
directors, officers, employees, and agents within prescribed limits and must
indemnify them under certain circumstances. Ohio law does not provide statutory
authorization for a corporation to indemnify directors, officers, employees, and
agents for settlements, fines, or judgments in the context of derivative suits.
It provides, however, that directors (but not officers, employees, and agents)
are entitled to mandatory advancement of expenses, including attorneys' fees,
incurred in defending any action, including derivative actions, brought against
the director, provided the director agrees to cooperate with the corporation
concerning the matter and to repay the amount advanced if it is proved by clear
and convincing evidence that his act or failure to act was done with deliberate
intent to cause injury to the corporation or with reckless disregard for the
corporation's best interests.
Ohio law does not authorize payment of expenses or judgments to a
director, officer, employee, or agent after a finding of negligence or
misconduct in a derivative suit absent a court order. Indemnification is
required, however, to the extent such person succeeds on the merits. In all
other cases, if a director, officer, employee, or agent acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interests
of the corporation, indemnification is discretionary except as otherwise
provided by a corporation's articles, code of regulations, or by contract and
except with respect to the advancement of expenses of directors.
Under Ohio law, a director is not liable for monetary damages unless it
is proved by clear and convincing evidence that his action or failure to act was
undertaken with deliberate intent to cause injury to the corporation or with
reckless disregard for the best interests of the corporation. There is, however,
no comparable provision limiting the liability of officers, employees, or agents
of a corporation. The statutory right to indemnification is not exclusive in
Ohio, and Ohio corporations may, among other things, procure insurance for such
persons.
Enfin's Regulations provide that Enfin (i) must indemnify a director as
provided under Ohio law discussed above, (ii) may indemnify an officer or
employee as so provided, and (iii) may indemnify a director, officer or
employee, as provided by Ohio law for actions by or in the right of the Company,
who was or is a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that he is or was a director, officer, employee or agent of Enfin.
In addition, the Regulations: require indemnification for reasonable expenses
(including attorney's fees) in the successful defense
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of any such actions; and allow Enfin to purchase and maintain insurance or
furnish similar protection on behalf of such persons against any liability
asserted against or incurred by any such person in any such capacity, or arising
out of his status as such, regardless of whether Enfin would have the power to
indemnify such person. Accordingly, Enterprise Bank maintains liability
insurance coverage for its directors and officers. The Regulations provide also
that violations of federal or state banking laws are neither indemnifiable nor
insurable. It has been Enfin's policy to provide indemnification to its
directors, officers and employees to the fullest extent permitted by Ohio law
and to provide advancement of expenses, including attorneys' fees, incurred in
defending any action.
Under the Agreement, Second Bancorp has agreed to honor the
indemnification obligations of Enfin and Enterprise Bank to their officers,
directors and employees from and against certain liabilities and in accordance
with the respective indemnification provisions of Enfin's and Enterprise Bank's
Codes of Regulations and Ohio law, for a six (6) year period beginning at the
Effective Time. In addition, Second Bancorp has agreed to extend director and
officer liability insurance coverage for the officers, directors and employees
of Enfin and Enterprise Bank for a three (3) year period beginning at the
Effective Time.
REGULATION OF FINANCIAL INSTITUTIONS
Second Bancorp and Enfin, as bank holding companies, and the Bank and
Enterprise Bank, as a nationally-chartered bank and a state-chartered bank, are
regulated extensively under federal and state law. Second Bancorp and Enfin are
subject to regulation, supervision and examination by the Federal Reserve Board.
The Bank is subject to regulation by the OCC and the FDIC and Enterprise Bank is
subject to regulation, supervision and examination by the Division and the FDIC.
The following information describes certain federal and Ohio statutory and
regulatory provisions and is qualified in its entirety by reference to the
particular statutory or regulatory provisions.
REGULATION OF BANK HOLDING COMPANIES
Second Bancorp and Enfin are registered with the Federal Reserve Board
as bank holding companies under the Bank Holding Company Act of 1956, as amended
(the "BHCA"). Bank holding companies and their activities are subject to
extensive regulation by the Federal Reserve Board. Bank holding companies are
required to file reports with the Federal Reserve Board and such additional
information as the Federal Reserve Board may require, and are subject to regular
inspections by the Federal Reserve Board. The Federal Reserve Board also has
extensive enforcement authority over bank holding companies, including, among
other things, the ability to assess civil money penalties, to issue cease and
desist or removal orders and to require that a holding company divest
subsidiaries (including its bank subsidiaries). In general, enforcement actions
may be initiated for violations of law and regulations and unsafe or unsound
practices.
Under Federal Reserve Board policy, a bank holding company is expected
to act as a source of financial strength to each subsidiary bank and to commit
resources to support such subsidiary banks. Under this policy the Federal
Reserve Board may require a bank holding company to contribute additional
capital to an undercapitalized subsidiary bank.
The BHCA requires the prior approval of the Federal Reserve Board in
any case where a bank holding company proposes to acquire direct or indirect
ownership or control of more than 5% of the voting shares of any bank that is
not already majority-owned by it, to acquire all or substantially all of the
assets of another bank or bank holding company, or to merge or consolidate with
any other bank holding company. Section 4 of the BHCA also prohibits a bank
holding company, with certain exceptions, from acquiring more than 5% of the
voting shares of any company that is not a bank and from engaging in any
business other than banking or managing or controlling banks. The primary
exception allows the ownership of shares by a bank holding company in any
company the activities of which the Federal Reserve Board has determined to be
so closely related to banking or to managing or controlling banks as to be a
proper incident thereto. The Federal Reserve Board has by regulation determined
that certain activities are closely related to banking within the meaning of the
BHCA. These activities include: operating a savings association, mortgage
company, finance company, credit card company or factoring
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company; performing certain data processing operations; providing investment and
financial advice; and acting as an insurance agent for certain types of
credit-related insurance.
Subsidiary banks of a bank holding company are subject to certain
restrictions imposed by the Federal Reserve Act on maintenance of reserves
against deposits, extensions of credit to the bank holding company or any of its
subsidiaries, on investments in the stock or other securities of the bank
holding company or its subsidiaries and on the taking of such stock or
securities as collateral for loans to any borrower. Further, a bank holding
company and its subsidiaries are prohibited from engaging in certain tie-in
arrangements in connection with any extension of credit, lease or sale of
property or furnishing of any services. Various consumer laws and regulations
also affect the operations of these subsidiaries.
TRANSACTIONS WITH AFFILIATES
Sections 23A and 23B of the Federal Reserve Act (the "FRA") restrict
transactions by insured depository institutions and their subsidiaries with
their affiliates. An affiliate of an institution is any company or entity which
controls, is controlled by or is under common control with the institution.
Generally, Sections 23A and 23B (i) limit the extent to which an institution or
its subsidiaries may engage in "covered transactions" with any one affiliate to
an amount equal to 10% of such institution's capital stock and surplus (i.e.,
tangible capital) and (ii) require that all such transactions be on terms
substantially the same, or at least as favorable to the institution or
subsidiary, as those provided to a non-affiliate. The term "covered transaction"
includes the making of loans, purchase of assets, issuance of a guarantee and
other similar types of transactions.
A financial institution's authority to extend credit to executive
officers, directors and greater than 10% shareholders, as well as entities such
persons control, is subject to Sections 22(g) and 22(h) of the FRA and
Regulation O promulgated thereunder by the Federal Reserve Board. Among other
things, such loans must be made on terms substantially similar to those offered
to unaffiliated individuals, the amount of loans an institution may make to such
persons is based, in part, on the institution's capital position, and certain
approval procedures must be followed in making such loans.
REGULATION OF NATIONALLY CHARTERED BANKS
The Bank is subject to regulation under the National Banking Act and is
periodically examined by the OCC and is subject, as a member bank, to the rules
and regulations of the Federal Reserve Board. The Bank is an insured institution
and a member of the Bank Insurance Fund ("BIF") and also has approximately $[__]
million in deposits acquired through acquisitions of branches of savings and
loan institutions that are insured through the Savings Association Insurance
Fund ("SAIF"). As a result, the Bank also is subject to regulation by the FDIC.
The establishment of branches of the Bank is subject to approval of the OCC.
REGULATION OF OHIO STATE CHARTERED BANKS
State chartered banking corporations are subject to federal and state
regulation of their business and activities by the FDIC and the Division. Ohio
statutes and regulations prohibit a bank from engaging in any activities deemed
to constitute unsafe or unsound banking practices, govern many aspects of the
activities and operations of the bank, including capital levels, range of
permissible activities and expansion. Ohio law also provides for prior Division
approval of bank acquisitions and prior approval of certain voting security
acquisitions of 10% or more of an institution's voting securities. These state
laws are in addition to Ohio laws affecting acquisitions of corporations
generally.
FEDERAL DEPOSIT INSURANCE CORPORATION
The FDIC is an independent federal agency which insures the deposits,
up to prescribed statutory limits, of federally-insured banks and savings
associations and safeguards the safety and soundness of the financial
institution industry. Two separate insurance funds are maintained and
administered by the FDIC. In general, banking institutions are members of BIF
and savings associations are SAIF members. The insurance fund
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conversion provisions do not prohibit a SAIF member from either converting to a
bank charter, as long as the resulting bank remains a SAIF member, or merging
with a bank, as long as the bank continues to pay the SAIF insurance assessments
on the deposits acquired. Exit and entrance fees must be paid to the FDIC in
full conversions.
Insurance premiums for SAIF and BIF members are determined during each
semi-annual assessment period based upon the members' respective categorization
as either (1) well capitalized, (2) adequately capitalized or (3)
undercapitalized. An institution is also assigned by the FDIC to one of three
supervisory subgroups within each capital group. The supervisory subgroup to
which an institution is assigned is based on a supervisory evaluation provided
to the FDIC by the institution's primary federal regulator and information which
the FDIC determines to be relevant to the institution's financial condition and
the risk posed to the deposit insurance funds (which may include, if applicable,
information provided by the institution's state supervisor). An institution's
assessment rate depends on the capital category and supervisory category to
which it is assigned.
Insurance of deposits may be terminated by the FDIC upon a finding that
the institution has engaged in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations, or has violated any applicable law,
regulation, rule, order or condition imposed by the FDIC.
INTERSTATE BANKING AND BRANCHING
In 1994, the Riegle-Neal Act was enacted to ease restrictions on
interstate banking. Effective September 29, 1995, the Riegle-Neal Act allows the
Federal Reserve Board to approve an application of an adequately capitalized and
adequately managed bank holding company to acquire control of, or acquire all or
substantially all of the assets of, a bank located in a state other than such
holding company's home state, without regard to whether the transaction is
prohibited by the laws of any state. The Federal Reserve Board may not approve
the acquisition of a bank that has not been in existence for the minimum time
period (not exceeding five years) specified by the statutory law of the host
state. The Riegle-Neal Act also prohibits the Federal Reserve Board from
approving an application if the applicant (and its depository institution
affiliates) controls or would control more than 10% of the insured deposits in
the United States or 30% or more of the deposits in the target bank's home state
or in any state in which the target bank maintains a branch. The Riegle-Neal Act
does not affect the authority of states to limit the percentage of total insured
deposits in the state which may be held or controlled by a bank or bank holding
company to the extent such limitation does not discriminate against out-of-state
banks or bank holding companies. Individual states may also waive the 30%
statewide concentration limit contained in the Riegle-Neal Act.
Additionally, beginning on June 1, 1997, the federal banking agencies
were authorized to approve interstate merger transactions without regard to
whether such transaction is prohibited by the law of any state, unless the home
state of one of the banks opts out of the Riegle-Neal Act by adopting a law
after the date of enactment of the Riegle-Neal Act and prior to June 1, 1997
which applies equally to all out-of-state banks and expressly prohibits merger
transactions involving out-of-state banks. A state could have permitted such
transactions before such time by enacting authorizing legislation. Interstate
acquisitions of branches are permitted only if the law of the state in which the
branch is located permits such acquisitions. Interstate mergers and branch
acquisitions will also be subject to the nationwide and statewide insured
deposit concentration amounts described above.
The Riegle-Neal Act authorizes the FDIC to approve interstate branching
de novo by national and state banks, respectively, only in states which
specifically allow for such branching. The Riegle-Neal Act also required the
appropriate federal banking agencies to prescribe regulations by June 1, 1997
which prohibited any out-of-state bank from using the interstate branching
authority primarily for the purpose of deposit production. These regulations
include guidelines to ensure that interstate branches operated by an
out-of-state bank in a host state are reasonably helping to meet the credit
needs of the communities which they serve.
73
<PAGE> 81
REGULATORY CAPITAL
The Federal Reserve Board has adopted risk-based capital guidelines for
bank holding companies. The guidelines provide a systematic analytical framework
which makes regulatory capital requirements sensitive to differences in risk
profiles among banking organizations, takes off-balance sheet exposures
expressly into account in evaluating capital adequacy, and minimizes
disincentives to holding liquid, low-risk assets. Capital levels as measured by
these standards also are used to categorize financial institutions for purposes
of certain prompt corrective action regulatory provisions. See "REGULATION OF
FINANCIAL INSTITUTIONS - Prompt Corrective Regulatory Action."
The minimum guideline for the ratio of total capital ("Total Capital")
to risk-weighted assets (including certain off-balance sheet items such as
standby letters of credit) is 8% ("Total Risk-Based Capital"). This Total
Risk-Based Capital ratio must be at least 10% to be considered well capitalized.
At least half of the minimum Total Risk-Based Capital ratio (4%) must be
composed of common stockholders' equity, minority interests in the equity
accounts of consolidated subsidiaries and a limited amount of perpetual
preferred stock, less goodwill and certain other intangibles ("Tier 1 Risk-Based
Capital"). To be considered well capitalized, the Tier 1 Risk-Based Capital
ratio must be at least 6%. See "REGULATION OF FINANCIAL INSTITUTIONS - Prompt
Corrective Regulatory Action." The remainder of Total Risk-Based Capital may
consist of subordinated debt, other preferred stock and a limited amount of loan
and lease loss allowance.
The Federal Reserve Board also has established minimum leverage ratio
guidelines for bank holding companies. The guidelines provide for a minimum
ratio of Tier 1 Risk-Based Capital to average assets (excluding the loan and
lease loss allowance, goodwill and certain other intangibles) ("Leverage Ratio")
of 3% for bank holding companies that meet certain criteria, including having
the highest regulatory rating. To be considered well capitalized, the Leverage
Ratio must be at least 5%. The guidelines further provide that bank holding
companies making acquisitions will be expected to maintain strong capital
positions substantially above the minimum levels.
Second Bancorp and Enfin are in compliance with the current capital
guideline ratios. As of __________, 1998, Second Bancorp and Enfin had Total
Risk-Based Capital Ratios of ______% and ___% respectively, Tier 1 Risk-Based
Capital Ratios of ______% and _____%, respectively, and Leverage Ratios of
______% and _____%, respectively. Second Bancorp anticipates that it will
continue to meet current capital guideline ratios after the consummation of the
Merger and the Trumbull Merger.
The Bank and Enterprise Bank are subject to similar capital
requirements adopted by the OCC and the Federal Reserve Board, respectively. At
__________, 1998, the Bank and Enterprise Bank satisfied these minimum capital
ratio requirements under the applicable capital ratio guidelines. Failure by the
Bank or Enterprise Bank to comply in the future with the applicable capital
standards may subject the institutions to sanctions and limitations upon
operations.
PROMPT CORRECTIVE REGULATORY ACTION
The federal banking agencies have established a system of prompt
corrective action to resolve certain of the problems of undercapitalized
institutions. This system is based on five capital level categories for insured
depository institutions - "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," and "critically
undercapitalized." The federal banking agencies may (or in some cases must) take
certain supervisory actions depending upon an insured institution's capital
level. For example, the banking agencies must appoint a receiver or conservator
for an institution within 90 days after it becomes "critically undercapitalized"
unless the institution's primary regulator determines, with the concurrence of
the FDIC, that other action would better achieve regulatory purposes. Banking
operations otherwise may be significantly affected depending on an institution's
capital category. For example, an institution that is not "well capitalized"
generally is prohibited from accepting brokered deposits and offering interest
rates on deposits higher than the prevailing rate in its market, and the holding
company of any undercapitalized depository institution must guarantee, in part,
certain aspects of such depository institution's capital plan for such plan to
be acceptable.
74
<PAGE> 82
Under the final rules implementing the prompt corrective action
provisions, a financial institution that has a Total Risk-Based Capital of 10%
or greater, a Tier 1 Risk-Based Capital ratio of 6% or greater and a Leverage
Ratio of 5% or greater is deemed to be "well capitalized." An institution with a
Total Risk-Based Capital ratio of 8% or greater, a Tier 1 Risk-Based Capital
ratio of 4% or greater and a Leverage Ratio of 4% or greater (or a Leverage
Ratio of 3% or greater and a CAMEL 1 rating), is considered to be "adequately
capitalized." An institution that has a Total Risk-Based Capital of less than
8%, a Tier 1 Risk-Based Capital ratio of less than 4%, and a Leverage Ratio that
is less than 4% (or a Leverage Ratio of less than 3% and a CAMEL 1 rating), is
considered "undercapitalized." An institution that has a Total Risk-Based
Capital less than 6%, a Tier 1 Risk-Based Capital ratio of less than 3% or a
Leverage Ratio that is less than 3% is considered to be "significantly
undercapitalized." An institution that has tangible equity (core capital minus
intangible assets other than qualifying supervisory goodwill and purchased
mortgage servicing rights) to total assets ratio equal to or less than 2% is
deemed to be "critically undercapitalized."
LIMITS ON DIVIDENDS AND OTHER PAYMENTS
There are various legal limitations on the extent to which subsidiary
banks may finance or otherwise supply funds to their parent holding companies.
Under federal and Ohio law, subsidiary banks may not, subject to certain limited
exceptions, make loans or extensions of credit to, or investments in the
securities of, their bank holding companies. Subsidiary banks are also subject
to collateral security requirements for any loans or extension of credit
permitted by such exceptions.
The ability of a bank holding company to obtain funds for the payment
of dividends and for other cash requirements is largely dependent on the amount
of dividends which may be declared by its subsidiary banks. However, the Federal
Reserve Board expects a bank holding company to serve as a source of strength to
its subsidiary banks, which may require it to retain capital for further
investment in the subsidiaries, rather than for dividends for shareholders of
the bank holding company. Neither the Bank nor Enterprise Bank may pay dividends
to Second Bancorp and Enfin, respectively, if, after paying such dividends,
either the Bank or Enterprise Bank would fail to meet the required minimum
levels under the risk-based capital guidelines and the minimum leverage ratio
requirements. In addition, Enterprise Bank must have the approval of the
Division if a dividend in any year would cause the total dividends for that year
to exceed the sum of the current year's net profits and the retained net profits
for the preceding two years, less required transfers to surplus. Payment of
dividends by the Bank and Enterprise Bank may be restricted at any time at the
discretion of their applicable regulatory authorities, if they deem such
dividends to constitute an unsafe and/or unsound banking practice. These
provisions could have the effect of limiting the Second Bancorp's ability to pay
dividends on the Shares.
The foregoing discussion of the regulation of Second Bancorp, Enfin,
the Bank and Enterprise Bank is not complete. Enfin shareholders are referred to
Second Bancorp's Annual Report on Form 10-K for the 1997 fiscal year for a
complete discussion of the regulation of Second Bancorp's and the Bank's
businesses. Second Bancorp's Annual Report on Form 10-K for 1997 is incorporated
by reference into this Prospectus/Proxy Statement.
LEGAL MATTERS
The federal income tax consequences of the Merger, along with other
legal matters in connection with the Merger, will be passed upon for Second
Bancorp by Vorys, Sater, Seymour and Pease LLP. Certain legal matters in
connection with the Merger will be passed upon for Enfin by Brouse & McDowell,
L.P.A. Neither Vorys, Sater, Seymour and Pease LLP nor Brouse & McDowell, L.P.A.
have received nor will they receive a substantial interest, direct or indirect,
in Second Bancorp or Enfin, nor were their counsel compensated on a contingency
fee basis for the rendering of their services.
EXPERTS
The consolidated financial statements of Second Bancorp at December 31,
1997 and 1996, and for each of the three years in the period ended December 31,
1997, incorporated by reference in this Prospectus/Proxy Statement, have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon
75
<PAGE> 83
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Enfin at December 31, 1997,
and for each of the three years ended December 31, 1997, included in this
Prospectus/Proxy Statement, have been audited by Crowe, Chizek and Company LLP,
as set forth in its report thereon included herein. The consolidated financial
statements of Enfin audited by Crowe, Chizek and Company LLP have been included
in reliance upon such report given upon their authority as an expert in
accounting and auditing.
The consolidated financial statements of The Trumbull Savings and Loan
Company at September 30, 1997, and for each of the three years ended September
30, 1997, incorporated into this Prospectus/Proxy Statement by reference, have
been audited by Crowe, Chizek and Company LLP, as set forth in its report
thereon. The financial statements of The Trumbull Savings and Loan Company
audited by Crowe, Chizek and Company LLP have been included in reliance upon
such report given upon their authority as an expert in accounting and auditing.
76
<PAGE> 84
INDEX TO FINANCIAL STATEMENTS OF ENFIN
<TABLE>
<S> <C>
Report of Independent Auditors............................................................................ F-2
Consolidated Statements of Financial Condition at December 31, 1997 and 1996.............................. F-3
Consolidated Statements of Income for the years ended December 31, 1997, 1996 and 1995.................... F-4
Consolidated Statements of Changes in Shareholders' Equity for the years ended
December 31, 1997, 1996 and 1995..................................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995................ F-6
Notes to Consolidated Financial Statements................................................................ F-7
Unaudited Consolidated Balance Sheets at March 31, 1998 and December 31, 1997............................. F-23
Unaudited Consolidated Statements of Income for the three months ended March 31, 1998
and March 31, 1997................................................................................... F-24
Unaudited Consolidated Statements of Changes in Stockholders' Equity for the three months
ended March 31, 1998 and March 31, 1997.............................................................. F-25
Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 1998
and March 31, 1997................................................................................... F-26
Notes to Unaudited Consolidated Financial Statements...................................................... F-27
</TABLE>
- --------------------------------------------------------------------------------
F-1
<PAGE> 85
REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
Enfin, Inc.
Solon, Ohio
We have audited the accompanying consolidated balance sheets of Enfin, Inc. as
of December 31, 1997 and 1996, and the related consolidated statements of
income, changes in stockholders' equity and cash flows for each of three years
in the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Enfin, Inc. as of December 31,
1997 and 1996 and results of its operations and its cash flows for each of the
three years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.
/s/ Crowe, Chizek and Company LLP
---------------------------------
Crowe, Chizek and Company LLP
Cleveland, Ohio
February 12, 1998, except for
Note 15, as to which the date is April 2, 1998
- --------------------------------------------------------------------------------
F-2
<PAGE> 86
ENFIN, INC.
CONSOLIDATED BALANCE SHEETS
YEARS ENDED DECEMBER 31, 1997 AND 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
ASSETS
Cash and demand balances due from bank $ 1,420,180 $ 1,588,314
Interest-bearing deposits with financial institutions 84,371 105,450
Federal funds sold 1,443,534 1,904,222
------------ ------------
Total cash and cash equivalents 2,948,085 3,597,986
Securities available for sale, at fair value 2,201,699 1,499,523
Securities held to maturity (Fair value of
$249,609 and $752,100 at December 31, 1997
and 1996, respectively) 249,454 749,809
Federal Reserve Bank stock 123,300 123,300
Federal Home Loan Bank Stock 109,700
Total loans 36,416,321 30,283,545
Allowance for loan losses (512,320) (429,224)
------------ ------------
Loans, net 35,904,001 29,854,321
Premises and equipment, net 137,534 188,695
Accrued interest receivable 196,810 168,306
Other assets 483,331 35,823
------------ ------------
Total assets $ 42,353,914 $ 36,217,763
============ ============
LIABILITIES
Deposits:
Demand - noninterest bearing $ 8,641,042 $ 4,898,200
Demand - interest bearing 571,592 1,017,214
Savings 10,437,937 10,167,893
Time deposits 18,046,183 16,425,717
------------ ------------
Total deposits 37,696,754 32,509,024
Accrued interest and other liabilities 385,176 359,733
------------ ------------
Total liabilities 38,081,930 32,868,757
Commitments and contingencies
STOCKHOLDERS' EQUITY
Common stock: $1.00 stated value, authorized shares -
1,535,000; issued and outstanding - 547,792) 547,792 547,792
Paid in capital 4,634,721 4,634,721
Retained deficit (916,086) (1,833,027)
Unrealized gain on securities available for sale 5,557 (480)
------------ ------------
Total stockholders' equity 4,271,984 3,349,006
------------ ------------
Total liabilities and stockholders' equity $ 42,353,914 $ 36,217,763
============ ============
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
F-3
<PAGE> 87
ENFIN, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Interest income
Interest and fees on loans $3,266,877 $2,631,333 $2,139,920
Interest on securities (taxable) 159,579 116,539 92,644
Interest on federal funds sold 132,532 150,228 208,995
Interest on deposits with financial institutions 2,694 2,242 7,157
---------- ---------- ----------
Total interest income 3,561,682 2,900,342 2,448,716
---------- ---------- ----------
Interest expense
Interest on deposits 1,600,145 1,326,034 1,054,661
Interest on short-term borrowings 5,713 5,652 3,906
---------- ---------- ----------
Total interest expense 1,605,858 1,331,686 1,058,567
---------- ---------- ----------
Net interest income 1,955,824 1,568,656 1,390,149
Provision for loan losses 125,107 56,034 115,727
---------- ---------- ----------
Net interest income after provision for loan losses 1,830,717 1,512,622 1,274,422
---------- ---------- ----------
Noninterest income
Service charges on deposit accounts 90,862 139,907 106,018
Other income 144,049 101,941 73,634
---------- ---------- ----------
Total noninterest income 234,911 241,848 179,652
---------- ---------- ----------
Noninterest expense
Salaries and employee benefits 813,372 716,485 666,456
Occupancy expense 170,674 164,056 155,065
Furniture and equipment 73,037 76,929 80,669
Data processing expense 110,002 108,706 98,247
FDIC deposit insurance expense 4,238 8,478 31,512
State franchise and other taxes 85,675 63,053 50,384
Regulatory and professional fees 60,197 74,784 40,166
Other operating expenses 280,420 259,104 269,553
---------- ---------- ----------
Total noninterest expense 1,597,615 1,471,595 1,392,052
---------- ---------- ----------
Net income before income taxes 468,013 282,875 62,022
Income tax benefit 448,928
---------- ---------- ----------
Net income $ 916,941 $ 282,875 $ 62,022
========== ========== ==========
Net income per share $ 1.67 $ .52 $ .12
========== ========== ==========
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
F-4
<PAGE> 88
ENFIN, INC.
CONSOLIDATED STATEMENTS OF CHANGE IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Unrealized
Gain/(Loss)
on Securities Total
Common Paid in Retained Available Stockholders'
Stock Capital Deficit for Sale Equity
----- ------- ------- -------- ------
<S> <C> <C> <C> <C> <C>
BALANCE,
JANUARY 1, 1995 $ 472,368 $ 4,229,545 $(2,177,924) $ 2,523,989
Net Income 62,022 62,022
Issuance of 72,184
shares of common
stock 72,184 384,116 456,300
Change in fair value
of securities
available for sale $ 10,498 10,498
--------- ----------- ----------- ----------- -----------
BALANCE,
DECEMBER 31, 1995 544,552 4,613,661 (2,115,902) 10,498 3,052,809
----------- ----------- ----------- -----------
Net income 282,875 282,875
Issuance of 3,240
shares of common
stock 3,240 21,060 24,300
Change in fair value
of securities
available for sale (10,978) (10,978)
--------- ----------- ----------- ----------- -----------
BALANCE,
DECEMBER 31, 1996 547,792 4,634,721 (1,833,027) (480) 3,349,006
Net income 916,941 916,941
Change in fair value
of securities
available for sale 6,037 6,037
--------- ----------- ----------- ----------- -----------
BALANCE,
DECEMBER 31, 1997 $ 547,792 $ 4,634,721 $ (916,086) $ 5,557 $ 4,271,984
========= =========== =========== =========== ===========
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
F-5
<PAGE> 89
ENFIN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 916,941 $ 282,875 $ 62,022
Adjustments to reconcile net income
to net cash from operating activities
Depreciation and amortization 62,948 67,995 67,815
Provision for loan losses 125,107 56,034 115,727
Net accretion on investments 3,192 (25,941) (52,445)
Changes in
Deferred taxes and valuation allowance (454,852)
Interest receivable (15,764) (29,192) (65,037)
Interest payable 16,267 10,723 34,543
Deferred loan fees 23,632 (9,534) 2,884
Other assets (5,396) (6,124) 34,692
Other liabilities 9,176 109,788 (76,769)
----------- ----------- -----------
Net cash from operating activities 681,251 456,624 123,432
----------- ----------- -----------
CASH FLOWS USED IN INVESTING ACTIVITIES
Proceeds from maturities of investment
securities held to maturity 750,000 1,500,000 1,000,000
Purchase of investment securities held to maturity (248,976) (1,249,156) (946,257)
Purchase of securities available for sale (1,900,000) (1,500,000) (500,078)
Proceeds from maturities of securities
available for sale 1,200,000 500,000
Purchase of Federal Reserve Bank stock (14,400) (12,900)
Purchase of Federal Home Loan Bank stock (109,700)
Net increase in loans (6,198,419) (3,584,481) (7,945,580)
Premises and equipment expenditures, net (11,787) (50,122) (22,471)
----------- ----------- -----------
Net cash used in investing activities (6,518,882) (4,398,159) (8,427,286)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 5,187,730 4,895,694 5,711,093
Proceeds from issuance of common stock 24,300 456,300
----------- ----------- -----------
Net cash from financing activities 5,187,730 4,919,994 6,167,393
----------- ----------- -----------
Net change in cash and cash equivalents (649,901) 978,459 (2,136,461)
Cash and cash equivalents at beginning of period 3,597,986 2,619,527 4,755,988
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,948,085 $ 3,597,986 $ 2,619,527
=========== =========== ===========
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
F-6
<PAGE> 90
ENFIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies followed by
Enfin, Inc.:
Principles of Consolidation: The consolidated financial statements include the
accounts of Enfin, Inc. (the "Company") and its wholly owned subsidiary,
Enterprise Bank (the "Bank"). All significant intercompany balances and
transactions have been eliminated in consolidation.
Nature of Operations: Enfin, Inc. is a bank holding company primarily engaged in
the business of commercial and retail banking, with operations conducted through
its main office in Solon, Ohio. Lake, Cuyahoga and Geauga counties in Ohio
provide the source for substantially all of the Company's deposit and loan
activities. The majority of the Company's income is derived from commercial
business lending activities and additional income is derived from retail lending
activities and investments.
Cash And Cash Equivalents: Cash and cash equivalents include cash, non-interest
bearing deposits with bank, the demand portion of interest bearing deposits in
banks and federal funds sold. The Company reports net cash flows for customer
loan and deposit transactions.
For the years ended 1997, 1996 and 1995 the Company paid interest of $1,589,592,
$1,320,963 and $1,024,024 respectively. No income taxes were paid in 1997, 1996
or 1995.
Use of Estimates in Preparation of Financial Statements: In preparing financial
statements, management must make estimates and assumptions. These estimates and
assumptions affect the amounts reported for assets, liabilities, revenues and
expenses as well as affecting the disclosures provided. Future results could
differ from current estimates. Areas involving the use of management's estimates
and assumptions primarily include the allowance for loan losses, fair value of
certain securities and the fair value of financial instruments. All of these
estimates are susceptible to change in the near term.
Securities: Securities are classified into held-to-maturity and available for
sale categories. The held-to-maturity securities are those which management has
the positive intent and the Company has the ability to hold to maturity, and are
reported at cost adjusted for amortization of premiums and accretion of
discounts. Available-for-sale securities are those which the Company may decide
to sell if needed for liquidity, asset-liability management, or other reasons.
Available-for-sale securities are reported at fair value, with unrealized gains
or losses included as a separate component of equity, net of tax. Gains or
losses on disposition are based on net proceeds and the adjusted carrying amount
of securities sold, using the specific identification method.
- --------------------------------------------------------------------------------
F-7
<PAGE> 91
ENFIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Interest and Fees on Loans: Interest income on loans is accrued primarily over
the term of the loans based on the principal balances of loans outstanding. Fees
and costs associated with originating or acquiring loans are deferred and
amortized as an adjustment to the loan yield over the life of the respective
loans. The net amount of fees and costs deferred is reported in the balance
sheet as part of loans.
The accrual of interest on loans is suspended when, in management's opinion, the
collection of all or a portion of the loan principal has become doubtful. When a
loan is placed on non-accrual status, accrued and unpaid interest at risk is
charged against income. Payments received on non-accrual loans are applied
against principal until recovery of the remaining balance is reasonably assured.
Allowance for Loan Losses: Because some loans may not be repaid in full, an
allowance for loan losses is recorded. This allowance is increased by provisions
charged to earnings and is reduced by loan charge-offs, net of recoveries.
Estimating the risk of loss on any loan is necessarily subjective. Accordingly,
the allowance is maintained by management at a level considered adequate to
cover possible losses that are currently anticipated based on management's
evaluation of several key factors including information about specific borrower
situations, their financial position and collateral values, current economic
conditions, change in the mix and levels of the various types of loans, past
charge-off experience and other pertinent information. The allowance for loan
losses is based on estimates using currently available information, and ultimate
losses may vary from current estimates due to changes in circumstances. These
estimates are reviewed periodically and, as adjustments become necessary, they
are reported in earnings in the periods in which they become known. While
management may periodically allocate portions of the allowance for specific
problem situations, the entire allowance is available for any charge-offs that
occur. Charge-offs are made against the allowance for loan losses when
management concludes that loan amounts are likely to be uncollectible. After a
loan is charged-off, collection efforts continue and future recoveries may
occur.
Loans considered to be impaired are reduced to the present value of expected
future cash flows or to the fair value of collateral, by allocating a portion of
the allowance for loan losses to such loans. If these allocations cause the
allowance for loan losses to require an increase, such increase is reported as a
reduction in the unallocated portion of the allowance or as an increase to the
provision for loan losses.
- --------------------------------------------------------------------------------
F-8
<PAGE> 92
ENFIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The carrying values of impaired loans are periodically adjusted to reflect cash
payments, revised estimates of future cash flows, and increases in the present
value of expected cash flows due to the passage of time. Cash payments
representing interest income are reported as such. Other cash payments are
reported as reductions in carrying value, while increases or decreases due to
changes in estimates of future payments and due to the passage of time are
reported as an increase in the unallocated portion of the allowance for loan
losses or a reduction in the provision for loan losses.
Premises and Equipment: Leasehold improvements and equipment are stated at cost
less accumulated depreciation. Depreciation is computed using the straight-line
method with useful lives ranging from three to ten years. Maintenance and
repairs are expensed, and major improvements are capitalized. At the time of
sale or disposition of an asset, the applicable cost and accumulated
depreciation amounts are removed from the accounting records.
Income Taxes: The Bank follows the liability method in accounting for income
taxes. The liability method provides that deferred tax assets and liabilities
are recorded based on the difference between the tax basis of assets and
liabilities and their carrying amounts for financial reporting purposes,
referred to as "temporary differences."
Due to net operating losses for each of the years since inception through
December 31, 1994, a valuation allowance equal to the net deferred tax asset was
recorded at December 31, 1996. Therefore, no deferred tax asset or income tax
benefit has been recognized by the Company in years prior to 1997.
Earnings per common share: Earnings per common share are computed based on the
weighted average number of shares outstanding. The weighted average shares
outstanding at December 31, 1997, 1996 and 1995 were 547,792, 546,762 and
537,037 respectively.
Concentrations of Credit Risk: The Bank grants commercial, real estate and
installment loans to customers primarily in Solon, Ohio and the Cleveland, Ohio
metropolitan area. Commercial loans comprise approximately 86.6% of the loan
portfolio. Included in commercial loans are multi-unit apartment loans
representing approximately 2.7% of the loan portfolio at December 31, 1997.
Commercial loans include secured and unsecured borrowings of businesses.
Real estate mortgage loans account for approximately 9.8% of loans and include
first and second mortgage loans on residential properties. The remaining 3.6% of
the loan portfolio is comprised of consumer installment and credit card loans.
The consumer installment loans are secured primarily by automobiles. At December
31, 1997, approximately 5% of the Bank's total outstanding loans were unsecured.
Financial Statement Presentation: Certain previously reported consolidated
financial statement amounts have been reclassified to conform to the 1997
presentation.
- --------------------------------------------------------------------------------
F-9
<PAGE> 93
ENFIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
- --------------------------------------------------------------------------------
NOTE 2 - SECURITIES
The amortized cost and estimated fair value of securities are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
DECEMBER 31, 1997:
Available for sale:
U.S. Government Agencies $ 2,196,142 $ 5,557 $ 2,201,699
============= ============== ==============
Held to maturity:
U.S. Treasury securities $ 249,454 $ 155 $ 249,609
============= ============== ==============
DECEMBER 31, 1996:
Available for sale:
U.S. Government Agencies $ 1,500,003 $ 3,622 $ (4,102) $ 1,499,523
============= ============== ============= ==============
Held to maturity:
U.S. Treasury securities $ 249,809 $ 191 $ 250,000
U.S. Government Agencies 500,000 2,100 502,100
------------- -------------- --------------
$ 749,809 $ 2,291 $ 752,100
============= ============== ==============
</TABLE>
Contractual maturities of debt securities at year-end 1997 were as follows:
<TABLE>
<CAPTION>
Available for sale securities Hold to maturity securities
----------------------------- ---------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---- ----- ---- -----
<S> <C> <C> <C> <C>
Due in one year or less $ 249,454 $ 249,609
Due from one to five years $ 998,471 $ 1,001,200
Due from five to ten years 1,197,671 1,200,499
--------------- -------------- -------------- ---------------
$ 2,196,142 $ 2,201,699 $ 249,454 $ 249,609
=============== ============== ============== ===============
</TABLE>
No securities were sold during 1997, 1996 or 1995.
Securities with an approximate carrying value of $2,214,000 and $1,253,000 at
December 31, 1997 and 1996, respectively, were pledged to secure public
deposits, borrowings and for other purposes as required or permitted by law.
- --------------------------------------------------------------------------------
F-10
<PAGE> 94
ENFIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
- --------------------------------------------------------------------------------
NOTE 3 - LOANS
Loans at December 31, 1997 and 1996, net of deferred fees and costs, consisted
of the following:
1997 1996
---- ----
Commercial loans $ 31,534,888 $ 25,084,324
Real estate mortgage loans 2,277,795 1,907,982
Consumer loans 1,317,194 1,979,003
--------------- ----------------
Total loans $ 36,416,321 $ 30,283,545
=============== ================
Certain officers, directors and companies with which they are affiliated have
borrowed funds from the Company. These loans totaled approximately $418,000 and
$276,000 at December 31, 1997 and 1996, respectively.
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
A summary of the activity in the allowance for loan losses follows:
1997 1996 1995
---- ---- ----
Balance - January 1 $429,224 $380,167 $269,640
Provision for loan losses 125,107 56,034 115,727
Loans charged-off (42,011) (6,977) (5,200)
-------- -------- --------
Balance - December 31 $512,320 $429,224 $380,167
======== ======== ========
- --------------------------------------------------------------------------------
F-11
<PAGE> 95
ENFIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
- --------------------------------------------------------------------------------
NOTE 4 - ALLOWANCE FOR LOAN LOSSES (CONTINUED)
Information regarding impaired loans is as follows for the year ended December
31:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Balance of impaired loans at December 31, $223,107 $192,499
Less portion for which no allowance for loan
losses is allocated -- --
-------- --------
Portion of impaired loan balance for which an
allowance for loan losses is allocated $223,107 $192,499
======== ========
Portion of allowance for loan losses allocated
to the impaired loan balance $ 37,343 $ 28,506
======== ========
Average investment in impaired
loans for the year $238,116 $332,521 $618,027
======== ======== ========
Interest income recognized during impairment $ -- $ 7,413 $ 39,281
======== ======== ========
Cash basis interest income recognized $ -- $ 8,153 $ 39,281
======== ======== ========
</TABLE>
NOTE 5 - PREMISES AND EQUIPMENT
At December 31, 1997 and 1996, premises and equipment consisted of the
following:
1997 1996
---- ----
Leasehold improvements $ 228,952 $ 228,952
Furniture and equipment 335,179 323,583
--------- ---------
Totals 564,131 552,535
Accumulated depreciation (426,597) (363,840)
--------- ---------
Total premises and equipment, net $ 137,534 $ 188,695
========= =========
- --------------------------------------------------------------------------------
F-12
<PAGE> 96
ENFIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
- --------------------------------------------------------------------------------
NOTE 5 - PREMISES AND EQUIPMENT (CONTINUED)
The banking facility is leased under an operating lease expiring in 2011 from a
limited partnership operated by certain directors of the Company. The agreement
contains one 10 year renewal option at the option of the Bank. On a five year
basis, the minimum rental payments due are adjusted for the percentage increase
in the consumer price index with a required minimum increase of 10%. At December
31, 1997, the estimated minimum rental payments under this agreement are as
follows:
1998 $ 137,368
1999 137,368
2000 137,368
2001 146,526
2002 151,105
Thereafter 1,334,758
--------------
$ 2,044,493
Rental expense included in occupancy expense amounted to $137,368, $131,185 and
$118,820 in 1997, 1996 and 1995 respectively.
NOTE 6 - INTEREST-BEARING DEPOSITS
At December 31, 1997, the scheduled maturities of time deposits were as follows:
1998 $ 15,648,876
1999 1,450,284
2000 643,555
2001 245,762
2002 57,706
--------------
$ 18,046,183
- --------------------------------------------------------------------------------
F-13
<PAGE> 97
ENFIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
- --------------------------------------------------------------------------------
NOTE 6 - INTEREST-BEARING DEPOSITS (CONTINUED)
Interest expense on deposits is summarized below for the years ended December
31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Interest-bearing demand $ 17,538 $ 23,059 $ 25,485
Savings 486,066 465,425 248,589
Time
Denominations under $100,000 764,706 564,398 544,138
Denominations of $100,000 or more 331,835 273,152 236,449
---------- ---------- ----------
Total interest-on deposits $1,600,145 $1,326,034 $1,054,661
========== ========== ==========
</TABLE>
Certain directors and companies with which they are affiliated have deposits
with the Company. These deposits totaled approximately $674,000 at December 31,
1997.
The Bank had brokered time deposits of $5,316,873 and $3,245,111 at December 31,
1997 and 1996, respectively. These deposits represent funds which the Bank
obtained, directly or indirectly, through a deposit broker or institutional
depositors. A deposit broker places deposits from third parties with insured
depository institutions or places deposits with an institution for the purpose
of selling an interest in those deposits to third parties.
Substantially all of the brokered deposits mature in 1998.
- --------------------------------------------------------------------------------
F-14
<PAGE> 98
ENFIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
- --------------------------------------------------------------------------------
NOTE 7 - INCOME TAXES
The provision for income taxes consists of the following:
1997 1996 1995
---- ---- ----
Current tax expense $ 5,894 $ -- $ --
Deferred tax expense 154,540 97,853 27,264
Change in valuation allowance (609,362) (97,853) (27,264)
--------- -------- --------
Total income tax benefit $(448,928) $ -- $ --
========= ======== ========
The primary cause for the differences between the Company's effective tax rate
of 0% and the statutory tax rate of 34% in 1996 and 1995 is the change in the
valuation allowance against the net deferred tax asset.
At December 31, 1997, the Company had operating loss carryforwards of
approximately $769,000 which can be used to offset future taxable income. The
carryforwards are due to expire, for tax purposes, as follows:
Net Operating
Loss Carryforward
-----------------
2008 $ 625,000
2009 144,000
----------
$ 769,000
==========
The sources of gross deferred tax assets and gross deferred tax liabilities at
December 31, are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Items giving rise to deferred tax assets
Allowance for loan losses in excess of tax reserve $ 161,144 $ 118,622
Operating loss carryforward 261,390 477,203
Depreciation 13,647 8,316
Deferred Loan Fees 15,285 5,221
AMT Credit 4,886
--------- ---------
Gross deferred tax assets 456,352 609,362
--------- ---------
Items giving rise to deferred tax liabilities
FHLB stock dividends (1,530) --
--------- ---------
Gross deferred tax liabilities (1,530) --
--------- ---------
Valuation allowances for deferred tax assets -- (609,362)
--------- ---------
Net deferred tax assets $ 454,822 $ --
========= =========
</TABLE>
- --------------------------------------------------------------------------------
F-15
<PAGE> 99
ENFIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
- --------------------------------------------------------------------------------
NOTE 7 - INCOME TAXES (CONTINUED)
A valuation allowance was recorded against the net deferred tax asset in 1996
due to prior operating losses and the resulting net operating carry forward. The
valuation allowance was eliminated in 1997 based on the Company's improved
financial performance and management's conclusion that the realization of the
deferred tax asset was more likely than not.
NOTE 8 - COMMITMENTS, OFF BALANCE SHEET RISK AND CONTINGENCIES
The Bank is a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet financing needs of its customers. These
financial instruments include commitments to make loans and standby letters of
credit. The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to make loans and
standby letters of credit is represented by the contractual amount of those
instruments. The Bank follows the same credit policy to make such commitments as
is followed for those loans recorded in the financial statements.
The Bank has outstanding commitments, customers' unused lines of credit and
standby letters of credit. As of December 31, 1997, $845,059 of commitments to
extend credit were at fixed rates ranging from 8.25% to 10.75%. The commitment
period for fixed rate loans was 60 days. $8,301,196 of commitments had variable
rates ranging from 8.25% to 10.5% at December 31, 1997. The commitment periods
for all variable rate loans were less than one year.
Since many commitments to make loans expire without being used, the amount does
not necessarily represent future cash commitments. The Bank does not anticipate
any significant losses as a result of these commitments. In addition,
commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Collateral
obtained upon the exercise of the commitment is determined using the Bank's
evaluation of the borrower, and may include business assets, real estate and
other items.
At December 31, 1997 and 1996, the Bank was required to have approximately
$80,000 and $30,000, respectively, of cash on hand or on deposit with the
Federal Reserve Bank to meet regulatory reserve requirements. These balances do
not earn interest.
- --------------------------------------------------------------------------------
F-16
<PAGE> 100
ENFIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
- --------------------------------------------------------------------------------
NOTE 9 - OTHER OPERATING EXPENSE
Other operating expenses are summarized as follows:
1997 1996 1995
---- ---- ----
Credit card $ $ 72,325 $ 57,639 $ 36,555
Postage and delivery 46,242 39,911 33,979
Other expense 161,853 161,554 199,019
-------- -------- --------
$280,420 $259,104 $269,553
======== ======== ========
NOTE 10 - REGULATORY MATTERS
Dividends paid by the Bank are the primary source of funds available to the
Company for the payments of dividends to stockholders. The payment of dividends
by the subsidiary Bank to the Company is subject to restrictions by regulatory
authorities. As a practical matter, dividend payments cannot reduce regulatory
capital levels below minimum established guidelines. At December 31, 1997, based
on regulatory restrictions, no dividends were allowed to be paid.
The Bank is subject to regulatory capital requirements administered by federal
banking agencies. Capital adequacy guidelines and prompt corrective action
regulations involve quantitative measures of assets, liabilities, and certain
off-balance-sheet items calculated under regulatory accounting practices.
Capital amounts and classifications are also subject to qualitative judgments by
regulators about components, risk weightings, and other factors, and the
regulators can lower classifications in certain cases. Failure to meet various
capital requirements can initiate regulatory action that could have a direct
material effect on the financial statements.
The prompt corrective action regulations provide five classifications, including
well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized, although these terms are not
used to represent overall financial condition. If adequately capitalized,
regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset growth and
expansion, and plans for capital restoration are required. The minimum
requirements are:
- --------------------------------------------------------------------------------
F-17
<PAGE> 101
ENFIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
- --------------------------------------------------------------------------------
NOTE 10 - REGULATORY RESTRICTIONS ON SUBSIDIARY DIVIDENDS (CONTINUED)
Capital to risk-
weighted assets
---------------
Tier 1 capital
Total Tier 1 to average assets
----- ------ -----------------
Well capitalized 10% 6% 5%
Adequately capitalized 8% 4% 4%
Undercapitalized 6% 3% 3%
At year end, Bank actual capital levels (in thousands) and minimum required
levels were:
<TABLE>
<CAPTION>
Minimum Required
To Be Well
Minimum Required Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Regulations
------ ----------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
1997
Total capital
(to risk weighted assets) $4,297 12.58% 2,732 8% 3,415 10%
Tier 1 capital
(to risk weighted assets) 3,869 11.33% 1,366 4% 2,049 6%
Tier 1 capital (to average assets) 3,869 8.92% 1,735 4% 2,169 5%
</TABLE>
At year-end 1997 the Bank was categorized as well capitalized.
NOTE 11 - EMPLOYEE BENEFIT PLAN
The Company has a contributory 401(k) plan covering substantially all employees.
Eligibility requirements for the plan are one year of service and at least 21
years of age. This is a salary deferral plan, which calls for matching
contributions by the Bank based on a percentage (50%) of each participant's
voluntary contribution (limited to a maximum of $2,000). In addition to the
Bank's required matching contribution, a contribution to the plan may be made at
the discretion of the Board of Directors. Employee voluntary contributions are
vested at all times, whereas employer contributions are 20% vested after two
years of service and vesting increases 20% per year through year six when the
employer contributions are fully vested. The Company's matching and
discretionary contributions were $11,554 and $4,479 and $5,346 for the years
ended December 31, 1997,1996 and 1995 respectively.
NOTE 12 - FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires
that the Corporation disclose the estimated fair values of its financial
instruments. The following table shows those values and the related carrying
values. Items which are not financial instruments are not included.
- --------------------------------------------------------------------------------
F-18
<PAGE> 102
ENFIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
- --------------------------------------------------------------------------------
NOTE 12 - FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
----------------- -----------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 2,948,085 $ 2,948,000 $ 3,597,986 $ 3,598,000
Securities 2,451,153 2,451,000 2,249,332 2,252,000
Loans, net 35,904,001 35,686,000 29,854,321 29,794,000
Federal Home Loan Bank Stock 109,700 110,000
Federal Reserve Bank Stock 123,300 123,000 123,300 123,000
Accrued interest receivable 196,810 197,000 168,306 168,000
Demand and savings deposits (19,650,571) (19,651,000) (16,083,307) (16,083,000)
Time deposits (18,046,183) (18,126,000) (16,425,717) (16,519,000)
Accrued interest payable (116,315) (116,000) (100,048) (100,000)
</TABLE>
While these estimates of fair value are based on management's judgment of the
most appropriate factors, there is no assurance that were the Company to have
disposed of such items at December 31, 1997, the estimated fair values would
necessarily have been realized at that date, since market values may differ
depending on various circumstances. The estimated fair values at December 31,
1997 should not necessarily be considered to apply at subsequent dates.
For purposes of the above disclosures of estimated fair value, the following
assumptions were used. The estimated fair value for cash and cash equivalents,
accrued interest receivable and accrued interest payable is considered to
approximate cost due to the short term nature of these instruments. The
estimated fair value for securities is based on quoted market values for the
individual securities or for equivalent securities. Loans were segregated into
two main groups: those with adjustable rates and those with fixed rates. The
fixed and adjustable rate loans were further divided between loan categories and
an estimated fair value was determined using a discounted cash flow analysis.
The estimated fair value of Federal Reserve Bank stock and Federal Home Loan
Bank stock is considered to approximate cost since it may be redeemed at par
under certain circumstances. The estimated fair value of demand and savings
deposits, which have no stated maturity, is equal to the amount payable. The
estimated fair value for time deposits is based on estimates of the rate the
Company would pay on such deposits, applied for the time period until maturity
using a discounted cash flow analysis. The estimated fair value of commitments
is not materially different than the nominal value.
Other assets and liabilities of the Company that are not defined as financial
instruments are not included in the above disclosures, such as property and
equipment. Also, nonfinancial instruments typically not recognized in financial
statements nevertheless may have value but are not included in the above
disclosures. These include, among other items, the estimated earnings power of
core deposit accounts, the trained work force, customer goodwill and similar
items.
- --------------------------------------------------------------------------------
F-19
<PAGE> 103
ENFIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
- --------------------------------------------------------------------------------
NOTE 13 - PARENT COMPANY
Condensed financial information of Enfin, Inc. (parent company only) follows:
CONDENSED BALANCE SHEET
December 31,
1997 1996
---- ----
ASSETS
Cash and cash equivalents $ 99,699 $ 105,589
Investment in Bank subsidiary 4,106,176 3,241,417
Other assets 66,109 2,000
---------- ----------
$4,271,984 $3,349,006
========== ==========
STOCKHOLDER'S EQUITY $4,271,984 $3,349,006
========== ==========
CONDENSED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year ended December 31,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Income
Interest $ 2,288 $ 2,242 $ 7,157
Expenses 10,178 4,425 3,232
--------- --------- -------
Income (loss) before income taxes and
equity in undistributed earnings
of subsidiary (7,890) (2,183) 3,925
Income tax benefit 66,109 -- --
--------- --------- -------
Income (loss) before equity in undistributed
earnings of subsidiary 58,219 (2,183) 3,925
Equity in undistributed earnings of subsidiary 858,722 285,058 58,097
--------- --------- -------
Net income $ 916,941 $ 282,875 $62,022
========= ========= =======
</TABLE>
- --------------------------------------------------------------------------------
F-20
<PAGE> 104
ENFIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
- --------------------------------------------------------------------------------
NOTE 13 - PARENT COMPANY (CONTINUED)
CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 916,941 $ 282,875 $ 62,022
Equity in undistributed earnings
of subsidiary (858,722) (285,058) (58,097)
Other (64,109) (1,444) 21,392
------------- -------------- ---------------
Net cash from operating activities (5,890) (3,627) 25,317
------------- -------------- ---------------
Cash flows from investing activities
Capital contributed to subsidiary - - (480,000)
------------- -------------- ---------------
Net cash from investing activities - - (480,000)
------------- -------------- ---------------
Cash flows from financing activities
Proceeds from issuance of common stock - 24,300 456,300
------------- -------------- ---------------
Net cash from financing activities - 24,300 456,300
------------- -------------- ---------------
Change in cash and cash equivalents (5,890) 20,673 1,617
Cash and cash equivalents at beginning of year 105,589 84,916 83,299
------------- -------------- ---------------
Cash and cash equivalents at end of year $ 99,699 $ 105,589 $ 84,916
============= ============== ===============
</TABLE>
NOTE 14 - QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a consolidated summary of quarterly information in thousands
(except for per share data)
Quarters Ended
March 31 June 30 Sept 30 Dec 31
-------- ------- ------- ------
1997
Interest income $791 $861 $941 $969
Net interest income 433 468 513 542
Provision for loan losses 39 30 37 19
Net Income 70 76 120 651
Earnings per common share 0.13 0.14 0.21 1.19
- --------------------------------------------------------------------------------
F-21
<PAGE> 105
ENFIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
- --------------------------------------------------------------------------------
NOTE 14 - QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED)
Quarters Ended
March 31 June 30 Sept 30 Dec 31
-------- ------- ------- ------
1996
Interest income $ 678 $ 759 $ 707 $ 757
Net interest income 371 437 359 402
Provision for loan losses 28 28 -- --
Net income 44 65 92 82
Earnings per common share $0.08 $0.12 $0.17 $0.15
NOTE 15 - SUBSEQUENT EVENT
On April 1, 1998, the Company and Second Bancorp Incorporated (Second Bancorp)
entered into a plan and agreement of merger. The transaction is structured as a
tax-free exchange of stock and is expected to be accounted for using the
pooling-of-interests method of accounting. The exchange ratio at which the
Company common shares will be exchanged for Second Bancorp common shares will be
a fixed exchange of 0.95 shares of Second Bancorp common stock for each share of
Enfin, Inc. common stock. Should the "Corporation Closing Price" (as defined by
the average closing price per share of Second Bancorp common shares reported in
the Wall Street Journal for the most recent 20 days on which actual trades of
shares occur, ending on the seventh date immediately preceding the closing date)
of Second Bancorp common shares exceed $30.25 per share, the exchange ratio will
equal $28.74 divided by the corporation closing price. If the corporation
closing price of Second Bancorp common shares is less than $24.75, the exchange
ratio will equal $23.51 divided by the corporation closing price. In any event,
the exchange ratio shall not be greater than 1.069 or, in the event Second
Bancorp would enter into a change in control transaction, be less than 0.718 per
share. Should Enfin stockholders fail to approve the merger and accept a
subsequent acquisition proposal prior to April 1, 1999, the Company promises to
pay Second Bancorp $750,000 upon Second Bancorp's demand. The Second Bancorp
common shares to be issued to the Company stockholders will be registered with
the Securities and Exchange Commission. The merger is expected to be consummated
during the third quarter of 1998 and is subject to approvals by various
regulatory authorities and by the stockholders of the Company.
- --------------------------------------------------------------------------------
F-22
<PAGE> 106
ENFIN, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
MARCH 31, 1998 AND DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---- ----
<S> <C> <C>
ASSETS
Cash and demand balances due from bank $ 2,258,689 $ 1,420,180
Interest-bearing deposits with financial institutions 85,057 84,371
Federal funds sold 2,607,263 1,443,534
------------ ------------
Total cash and cash equivalents 4,951,009 2,948,085
Securities available for sale, at fair value 2,203,331 2,201,699
Securities held to maturity (Fair value of
$250,000 and $249,609 at March 31, 1998
and December 31, 1997, respectively) 249,725 249,454
Federal Reserve Bank stock 123,300 123,300
Federal Home Loan Bank Stock 111,600 109,700
Total loans 36,530,858 36,416,321
Allowance for loan losses (525,048) (512,320)
------------ ------------
Loans, net 36,005,810 35,904,001
Premises and equipment, net 122,327 137,534
Accrued interest receivable 190,481 196,810
Other assets 442,372 483,331
------------ ------------
Total assets $ 44,399,955 $ 42,353,914
============ ============
LIABILITIES
Deposits:
Demand - noninterest bearing $ 4,970,438 $ 8,641,042
Demand - interest bearing 820,714 571,592
Savings 14,032,005 10,437,937
Time deposits 19,652,149 18,046,183
------------ ------------
Total deposits 39,475,306 37,696,754
Accrued interest on other liabilities 521,755 385,176
------------ ------------
Total liabilities 39,997,061 38,081,930
Commitments and contingencies
STOCKHOLDERS' EQUITY
Common stock: $1.00 stated value, authorized shares -
1,535,000; issued and outstanding - 547,792) 547,792 547,792
Paid in capital 4,634,721 4,634,721
Retained deficit (785,176) (916,086)
Unrealized gain on securities available for sale 5,557 5,557
------------ ------------
Total stockholders' equity 4,402,894 4,271,984
------------ ------------
Total liabilities and stockholders' equity $ 44,399,955 $ 42,353,914
============ ============
</TABLE>
- --------------------------------------------------------------------------------
F-23
<PAGE> 107
ENFIN, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the three months ended
March 31,
1998 1997
---- ----
<S> <C> <C>
Interest income
Interest and fees on loans $854,991 $727,252
Interest on securities (taxable) 50,484 33,800
Interest on federal funds sold 34,020 29,109
Interest on deposits with financial institutions 623 575
-------- --------
Total interest income 940,118 790,736
-------- --------
Interest expense
Interest on deposits 423,515 355,921
Interest on short-term borrowings 1,267 1,349
-------- --------
Total interest expense 424,782 357,270
-------- --------
Net interest income 515,336 433,466
Provision for loan losses 13,524 38,990
-------- --------
Net interest income after provision for loan losses 501,812 394,476
-------- --------
Noninterest income
Service charges on deposit accounts 29,351 30,782
Other income 37,382 34,102
-------- --------
Total noninterest income 66,733 64,884
-------- --------
Noninterest expense
Salaries and employee benefits 179,217 200,076
Occupancy expense 42,003 42,198
Furniture and equipment 17,277 18,115
Data processing expense 29,322 27,835
FDIC deposit insurance expense 1,196 993
State franchise and other taxes 20,266 20,921
Regulatory and professional fees 17,196 11,929
Other operating expenses 64,320 67,656
-------- --------
Total noninterest expense 370,797 389,723
-------- --------
Net income before income taxes 197,748 69,637
Provision for income taxes 66,838 --
-------- --------
Net income $130,910 $ 69,637
======== ========
Net income per share $ 0.24 $ 0.13
======== ========
</TABLE>
- --------------------------------------------------------------------------------
F-24
<PAGE> 108
ENFIN, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the three months ended
March 31,
1998 1997
---- ----
<S> <C> <C>
BALANCES AT JANUARY 1 $4,271,984 $ 3,349,006
Net Income 130,910 69,637
Change in fair value of securities available for sale -- (19,570)
---------- -----------
BALANCE AT MARCH 31 $4,402,894 $ 3,399,073
========== ===========
</TABLE>
- --------------------------------------------------------------------------------
F-25
<PAGE> 109
ENFIN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the three months ended
March 31,
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 130,910 $ 69,637
Adjustments to reconcile net income
to net cash from operating activities
Depreciation and amortization 15,207 15,565
Provision for loan losses 13,524 38,990
Net accretion on investments (1,315) (92)
FHLB stock dividend (1,900)
Changes in
Interest receivable (6,411) (3,098)
Interest payable 1,413 12,127
Deferred loan fees (11,573) 4,977
Other assets 53,699 (26,946)
Other liabilities 135,166 (59,211)
----------- -----------
Net cash from operating activities 328,720 51,949
----------- -----------
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchase of securities available for sale (1,005,453)
Proceeds from maturities/calls of securities
available for sale 1,004,865 500,000
Purchase of Federal Home Loan Bank stock (52,600)
Net increase in loans (103,760) (1,824,701)
----------- -----------
Net cash used in investing activities (104,348) (1,377,301)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 1,778,552 3,014,462
----------- -----------
Net cash from financing activities 1,778,552 3,014,462
----------- -----------
Net change in cash and cash equivalents 2,002,924 1,689,110
Cash and cash equivalents at beginning of period 2,948,085 3,597,986
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,951,009 $ 5,287,096
=========== ===========
</TABLE>
- --------------------------------------------------------------------------------
F-26
<PAGE> 110
ENFIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1998
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These interim financial statements are prepared without audit and reflect all
adjustments which, in the opinion of management, are necessary to present fairly
the financial position of Enfin at March 31, 1998 and its results of operations
and cash flows for the periods presented. All such adjustments are of a normal
recurring nature. The financial statements do not purport to contain all the
necessary financial disclosures required by generally accepted accounting
principles that might otherwise be necessary in the circumstances and should be
read in conjunction with the December 31, 1997 audited financial statements.
The provision from income taxes is based upon the effective tax rate expected to
be applicable for the entire year.
Earnings per share are calculated on the basis of the weighted average number of
shares outstanding. The weighted average number of shares used in the
computation for both 1998 and 1997 was 547,792.
- --------------------------------------------------------------------------------
F-27
<PAGE> 111
ENFIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1998
- --------------------------------------------------------------------------------
NOTE 2 - SECURITIES
The amortized cost and estimated fair value of securities are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
March 31, 1998:
Available for sale:
U.S. Government Agencies $ 2,197,774 $ 5,557 $ 2,203,331
============= ============== ==============
Held to maturity:
U.S. Treasury securities $ 249,725 $ 275 $ 250,000
============= ============== ==============
December 31, 1997:
Available for sale:
U.S. Government Agencies $ 2,196,142 $ 5,557 $ 2,201,699
============= ============== ==============
Held to maturity:
U.S. Treasury securities $ 249,454 $ 155 $ 249,609
============= ============== ==============
</TABLE>
Contractual maturities of debt securities at March 31, 1998 were as follows:
<TABLE>
<CAPTION>
Available-for-sale securities Held-to-maturity securities
----------------------------- ---------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---- ----- ---- -----
<S> <C> <C> <C> <C>
Due in one year or less $ 249,725 $ 250,000
Due from one to five years $ 1,000,000 $ 1,107,874
Due from five to ten years 1,197,774 1,195,457
--------------- -------------- -------------- ---------------
$ 2,197,774 $ 2,203,331 $ 249,725 $ 250,000
=============== ============== ============== ===============
</TABLE>
No securities were sold during 1998 or 1997.
- --------------------------------------------------------------------------------
F-28
<PAGE> 112
ENFIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1998
- --------------------------------------------------------------------------------
NOTE 3 - LOANS
Loan balances are summarized as follows:
March 31, December 31,
1998 1997
---- ----
Commercial loans $ 30,913,660 $ 31,534,888
Real estate mortgage loans 4,590,111 3,564,239
Consumer loans 1,027,087 1,317,194
--------------- ----------------
Home equity loans
Total loans $ 36,530,858 $ 36,416,321
=============== ================
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
The activity in the allowance for loan losses for the three months ended March
31, 1998 and 1997 is summarized as follows:
1998 1997
---- ----
Balance - January 1 $512,320 $429,224
Provision for loan losses 13,524 38,990
Loans charged-off (796) (27,387)
-------- --------
Balance - March 31 $525,048 $440,827
======== ========
- --------------------------------------------------------------------------------
F-29
<PAGE> 113
ENFIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1998
- --------------------------------------------------------------------------------
NOTE 5 - COMMITMENTS, OFF BALANCE SHEET RISK AND CONTINGENCIES
The Bank is a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet financing needs of its customers. These
financial instruments include commitments to make loans and standby letters of
credit. The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to make loans and
standby letters of credit is represented by the contractual amount of those
instruments. The Bank follows the same credit policy to make such commitments as
is followed for those loans recorded in the financial statements.
The Bank has outstanding commitments, customers' unused lines of credit and
standby letters of credit. As of March 31, 1998 and December 31, 1997, $916,675
and $845,059, respectively, of commitments to extend credit were at fixed rates
ranging from 8.25% to 10.75%. The commitment period for fixed rate loans was 60
days. As of March 31, 1998 and December 31, 1997, $7,280,620 and $8,301,196,
respectively, of commitments had variable rates ranging from 8.25% to 10.75%.
The commitment periods for all variable rate loans were less than one year.
Since many commitments to make loans expire without being used, the amount does
not necessarily represent future cash commitments. The Bank does not anticipate
any significant losses as a result of these commitments. In addition,
commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Collateral
obtained upon the exercise of the commitment is determined using the Bank's
evaluation of the borrower, and may include business assets, real estate and
other items.
- --------------------------------------------------------------------------------
F-30
<PAGE> 114
ENFIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1998
- --------------------------------------------------------------------------------
NOTE 6 - ACQUISITION
On April 1, 1998, the Company and Second Bancorp Incorporated (Second Bancorp)
entered into a plan and agreement of merger. The transaction is structured as a
tax-free exchange of stock and is expected to be accounted for using the
pooling-of-interests method of accounting. The exchange ratio at which the
Company common shares will be exchanged for Second Bancorp common shares will be
a fixed exchange of 0.95 shares of Second Bancorp common stock for each share of
Enfin, Inc. common stock. Should the "Corporation Closing Price" (as defined by
the average closing price per share of Second Bankcorp common shares reported in
the Wall Street Journal for the most recent 20 days on which actual trades of
shares occur, ending on the seventh date immediately preceding the closing date)
of Second Bancorp common shares exceed $30.25 per share, the exchange ratio will
equal $28.74 divided by the corporation closing price. If the corporation
closing price of Second Bancorp common shares is less than $24.75, the exchange
ratio will equal $23.51 divided by the corporation closing price. In any event,
the exchange ratio shall not be greater than 1.069 or, in the event Second
Bancorp would enter into a change in control transaction, be less than 0.718 per
share. Should Enfin stockholders fail to approve the merger and accept a
subsequent acquisition proposal prior to April 1, 1999, the Company promises to
pay Second Bancorp $750,000 upon Second Bancorp demand. The Second Bancorp
common shares to be issued to the Company stockholders will be registered with
the Securities and Exchange Commission. The merger is expected to be consummated
during the third quarter of 1998 and is subject to approvals by various
regulatory authorities and by the stockholders of the Company.
- --------------------------------------------------------------------------------
F-31
<PAGE> 115
ANNEX A
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER ("Agreement"), entered into
as of April 1, 1998, by and between Second Bancorp Incorporated, an Ohio
corporation (the "Corporation"), and Enfin, Inc., an Ohio corporation ("Enfin")
(the Corporation and Enfin are sometimes hereinafter collectively referred to as
the "Constituent Corporations");
W I T N E S S E T H:
WHEREAS, the Boards of Directors of Enfin and the Corporation
have determined that it is in the best interests of their respective
shareholders for Enfin to merge with the Corporation (the "Merger"), upon the
terms and subject to the conditions set forth herein and pursuant to the terms
of this Agreement;
WHEREAS, the Boards of Directors of Enfin and the Corporation
have approved this Agreement and the consummation of the transactions
contemplated hereby;
WHEREAS, after the Merger, Enterprise Bank, an Ohio banking
corporation wholly owned by Enfin (the "Bank"), will merge with and into The
Second National Bank of Warren, a national banking association wholly owned by
the Corporation ("Second National");
WHEREAS, as a result of the Merger, in accordance with the
terms of this Agreement, Enfin will cease to have a separate corporate
existence, and shareholders of Enfin will receive from the Corporation for each
common share, without par value, of Enfin (the "Enfin Shares") common shares, no
par value, of the Corporation in the amount calculated in accordance with this
Agreement;
WHEREAS, Enfin has previously provided to the Corporation a
schedule disclosing additional information about Enfin (hereinafter referred to
in this Agreement as the "Enfin Disclosure Schedule");
NOW, THEREFORE, in consideration of the premises and the
respective representations, warranties, covenants, agreements, and conditions
hereinafter set forth, Enfin and the Corporation, intending to be legally bound
hereby, agree as follows:
A-1
<PAGE> 116
ARTICLE ONE
The Merger
1.01. Merger; Surviving Corporation
At the time when the Merger shall become effective (sometimes
hereinafter called the "Merger Date"), Enfin will merge into the Corporation and
the Corporation will be the continuing and surviving corporation in the Merger,
will continue to exist under the laws of the State of Ohio, and will be the only
one of the Constituent Corporations to continue its separate corporate existence
after the Merger Date. As used in this Agreement, the term "Surviving
Corporation" refers to the Corporation at and after the Merger Date.
1.02. Effective Time
The Merger shall become effective upon the later of (a) the
filing of the Certificate of Merger with the Secretary of State of the State of
Ohio or (b) at such time thereafter as is agreed to in writing by the parties
hereto and so provided in the Certificate of Merger.
1.03. Effects of the Merger
At the Merger Date:
(a) the articles of the Corporation as in effect
immediately prior to the Merger Date shall be the
articles of the Surviving Corporation
(b) the regulations of the Corporation as in effect
immediately prior to the Merger Date shall be the
regulations of the Surviving Corporation; and
(c) the directors and officers of the Corporation
immediately prior to the Merger Date 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 Articles of Incorporation and
Regulations.
ARTICLE TWO
Conversion Of Shares; Exchange Of Certificates
2.01. Conversion of Enfin Shares
As of the Merger Date, by virtue of the Merger and without any
action on the part of the holder of common shares, without par value, of Enfin
("Enfin Shares"):
(a) Conversion of Enfin Common Shares. Subject to Section
2.02, each Enfin Share issued and outstanding
immediately prior to the Merger Date shall be
A-2
<PAGE> 117
canceled and extinguished and in substitution
therefor, the holders of Enfin Shares shall be
entitled to receive that number of fully paid and
nonassessable common shares, no par value, of the
Corporation ("Shares") which is equal to the Exchange
Ratio determined in accordance with Section 2.01(b).
All such Enfin Shares shall no longer be outstanding
and each certificate previously representing any such
shares shall thereafter represent the Shares into
which such Enfin Shares have been converted.
Certificates previously representing Enfin Shares
shall be exchanged for certificates representing
whole Shares (and cash in lieu of fractional shares)
issued in consideration therefor upon the surrender
of such certificates in accordance with Section 2.02,
without interest.
(b) As used in this Agreement:
(i) Exchange Ratio shall mean .950 Shares;
except that, if the "Corporation Closing
Price" (defined below) is greater than
$30.25 or less than $24.75, the Exchange
Ratio shall be changed as follows:
(A) If the Corporation Closing Price
exceeds $30.25, then the Exchange
Ratio shall equal $28.74 divided by
the Corporation Closing Price
(B) If the Corporation Closing Price is
less than $24.75, then the Exchange
Ratio shall equal $23.51 divided by
the Corporation Closing Price; and
(C) Except that, the Exchange Ratio
shall not in any case be greater
than 1.069, provided further, in
the event of an announcement of the
Corporation entering into a change
in control transaction, the
Exchange Ratio shall not be less
than .718.
(ii) "Corporation Closing Price" shall mean the
average closing price per Share on The
Nasdaq Stock Market (as reported by The Wall
Street Journal or, if not reported thereby,
another authoritative source) for the most
recent twenty (20) days on which actual
trades of Shares occur ending on the seventh
(7th) day immediately preceding the Closing
Date (as defined below).
A-3
<PAGE> 118
2.02. Exchange of Certificates
(a) Exchange Agent. As of the Merger Date, the
Corporation shall deposit, or shall cause to be
deposited, with American Stock Transfer & Trust
Company (the "Exchange Agent"), for the benefit of
the holders of certificates which immediately prior
to the Merger Date evidenced Enfin Shares (the "Enfin
Certificates"), for exchange in accordance with this
Article Two, certificates representing the Shares and
an amount of cash necessary to pay cash in lieu of
fractional shares in accordance with Section 2.02(e)
(such certificates for Shares, together with any
dividends or distributions with respect thereto, and
such cash for fractional share interests being
hereinafter referred to as the "Exchange Fund")
issuable pursuant to Section 2.01 in exchange for
such Enfin Shares.
(b) Exchange Procedures. As soon as reasonably
practicable after the Merger Date, but not later than
10-days after the Merger Date, the Exchange Agent
shall mail to each holder of record of Enfin Shares
immediately prior to the Merger Date whose shares
were converted into Shares pursuant to Section 2.01,
(i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and
title to the Enfin Certificates shall pass, only upon
delivery of such certificates to the Exchange Agent,
and which shall be in such form and have such other
provisions as the Corporation may reasonably specify)
and (ii) instructions for use in effecting the
surrender of the Enfin Certificates in exchange for
certificates representing Shares. Upon surrender by
such holder of an Enfin Certificate or Certificates
evidencing all Enfin Shares standing in such holder's
name for cancellation to the Exchange Agent together
with such letter of transmittal, duly executed, the
holder of such Enfin Certificate or Certificates
shall be entitled to receive in exchange therefor a
certificate representing that number of whole Shares
which such holder has the right to receive in respect
of the Enfin Certificate or Certificates surrendered
pursuant to the provisions of this Article Two (after
taking into account all Enfin Shares then held by
such holder), and the Enfin Certificate or
Certificates so surrendered shall forthwith be
canceled. In the event of a transfer of ownership of
Enfin Shares which is not registered in the transfer
records of Enfin, a certificate representing the
proper number of Shares may be issued to a transferee
if the Enfin Certificate representing such Enfin
Shares is presented to the Exchange Agent,
accompanied by all documents required to evidence and
effect such transfer and by evidence that any
applicable stock transfer taxes have been paid. Until
surrendered as contemplated by this Section 2.02,
each Enfin Certificate shall be deemed at any time
after the Merger Date for all corporate purposes
(except as provided in Section 2.02(c)) to represent
only the number of whole Shares into which the Enfin
Shares represented by such certificate or
certificates have been converted as provided in this
Article Two and the
A-4
<PAGE> 119
right to receive upon such surrender cash in lieu of
any fractional Shares as contemplated by this Section
2.02.
(c) Distributions with Respect to Unexchanged Shares;
Voting. Dividends or other distributions declared or
made after the Merger Date with respect to Shares
with a record date after the Merger Date shall be
paid to the holder of any unsurrendered Enfin
Certificate with respect to the Shares represented
thereby and any cash payment in lieu of fractional
shares shall be paid to any such holder pursuant to
Section 2.02(e), only after surrender of such
certificate by the holder thereof. Subject to the
effect of applicable laws, following surrender of any
such Enfin Certificate, there shall be paid to the
holder of the certificates representing whole Shares
issued in exchange therefor, without interest, (A) as
promptly as practicable after the time of such
surrender, the amount of any cash payable with
respect to a fractional Share to which such holder is
entitled pursuant to Section 2.02(e) and the amount
of dividends or other distributions with a record
date after the Merger Date theretofore paid (but
withheld pursuant to the immediately preceding
sentence) with respect to such whole Shares, and (B)
at the appropriate payment date, the amount of
dividends or other distributions with a record date
after the Merger Date but prior to surrender and a
payment date subsequent to surrender payable with
respect to such whole Shares.
(d) No Further Ownership Rights in Enfin Shares. All
Shares issued upon conversion of Enfin Shares in
accordance with the terms hereof (including any cash
paid pursuant to Section 2.02(c) or 2.02(e)) shall be
deemed to have been issued in full satisfaction of
all rights pertaining to such Enfin Shares,
respectively, subject, however, to the Surviving
Corporation's obligation to pay any dividends or make
any other distributions with a record date prior to
the Merger Date which may have been declared or made
by Enfin on such Enfin Shares in accordance with the
terms of this Agreement on or prior to the Merger
Date and which remain unpaid at the Merger Date. If,
after the Merger Date, Enfin Certificates are
presented to the Surviving Corporation for any
reason, they shall be canceled and exchanged as
provided in this Article Two.
(e) No Fractional Shares.
(i) No certificates or scrip representing
fractional Shares shall be issued upon the
surrender for exchange of Enfin Certificates
evidencing Enfin Shares, and such fractional
share interests will not entitle the owner
thereof to vote or to any rights of a
shareholder of the Surviving Corporation.
A-5
<PAGE> 120
(ii) Each holder of Enfin Shares who would
otherwise be entitled to receive a
fractional Share shall receive from the
Exchange Agent an amount in cash equal to
the product obtained by multiplying (a) the
fractional Share interest to which such
holder (after taking into account all Enfin
Shares held at the Merger Date by such
holder) would otherwise be entitled by (b)
the Corporation Closing Price. No interest
shall be payable with respect to such cash
payment.
(f) Termination of Exchange Fund. Any portion of the
Exchange Fund which remains undistributed to the
shareholders of Enfin for six months after the Merger
Date shall be delivered to the Surviving Corporation,
upon demand, and any shareholders of Enfin who have
not theretofore complied with this Article Two shall
thereafter look only to the Surviving Corporation for
payment of their claim for Shares, any cash in lieu
of fractional Shares and any dividends or
distributions with respect to Shares, without
interest.
(g) No Liability. None of the Corporation, Enfin, the
Exchange Agent or the Surviving Corporation shall be
liable to any holder of Enfin Shares, or Shares, as
the case may be, for such Shares (or dividends or
distributions with respect thereto) or cash in lieu
of fractional shares delivered to a public official
pursuant to any applicable abandoned property,
escheat or similar law.
(h) Stock Transfer Books. The stock transfer books of
Enfin shall be closed as of the close of business on
the day that is two (2) days prior to the Closing
Date. After the Closing Date, there shall be no
further registration of transfers on the stock
transfer books of the Surviving Corporation of the
Enfin Shares, which were outstanding immediately
prior to the Merger Date.
(i) If there shall be delivered to the Exchange Agent by
any person who is unable to produce any such
certificate for Enfin Shares for surrender to such
agent in accordance with this Section 2.02:
(a) Evidence to the satisfaction of the
Corporation that such certificate has been
lost, wrongfully taken, or destroyed;
(b) Such security or indemnity as may be
requested by the Corporation to save it
harmless; and
(c) Evidence to the satisfaction of the
Corporation that such person was the owner
of the shares theretofore represented by
each such certificate claimed by him to be
lost, wrongfully taken or destroyed
A-6
<PAGE> 121
and that he is the person who would be
entitled to present such certificate for
exchange pursuant to this Merger Agreement;
then the Exchange Agent, in the absence of actual
notice to it that any Enfin Shares theretofore
represented by any such certificate have been
acquired by a bona fide purchaser, shall deliver to
such person the Shares (and cash in lieu of
fractional shares) that such person would have been
entitled to receive upon surrender of each such lost,
wrongfully taken, or destroyed certificate.
(j) The Corporation may from time to time, in the case of
one or more persons, waive one or more of the rights
provided to it in this Article Two of this Merger
Agreement to withhold certain payments, deliveries
and distributions; and no such waiver shall
constitute a waiver of its rights thereafter to
withhold any such payment, delivery or distribution
in the case of any person.
(k) Anything contained in this Merger Agreement or
elsewhere to the contrary notwithstanding, if any
person shall perfect dissenters' rights in respect of
one or more Enfin Shares in accordance with Ohio
Revised Code Section 1701.85 (sometimes hereinafter
called the "Statute"), then:
(a) Each such Enfin Share shall nevertheless be
deemed to be extinguished at the Merger Date
as provided elsewhere in this Agreement;
(b) Each person perfecting such dissenter's
rights shall thereafter have only such
rights (and shall have such obligations) as
are provided in the Statute, and [unless
such rights and such obligations of such
person are terminated in accordance with
division (D) of Section 1701.85] the
Corporation shall not be required to deliver
any Shares or cash payments to such person
in substitution for each such Enfin Share in
accordance with this Agreement.
No person entitled to relief as a dissenting
shareholder shall be entitled to submit a letter of
transmittal, and any letter of transmittal submitted
by a dissenting shareholder shall be invalid.
(l) In the event the Corporation changes (or establishes
a record date for changing) the number of shares of
the Corporation's Shares issued and outstanding prior
to the Merger Date as a result of a stock split,
stock dividend, recapitalization or similar
transaction with respect to the outstanding
Corporation Shares and the record date therefor shall
be prior to the Merger Date, or exchanges the
Corporation Shares for a different number or kind of
shares or securities or is involved in any
transaction
A-7
<PAGE> 122
resulting in any of the foregoing, the Exchange Ratio
shall be proportionately adjusted.
2.03. Corporation Shares
The issued and outstanding Shares of the Corporation
immediately prior to the Merger Date shall continue to be issued and
outstanding.
ARTICLE THREE
Warranties of Enfin
3.01. Warranties of Enfin
In order to induce the Corporation to enter into this
Agreement and to perform its obligations hereunder, Enfin hereby warrants and
represents to the Corporation that:
(a) Corporate Status. Enfin is an Ohio corporation and
registered bank holding company under the Bank
Holding Company Act of 1956, duly organized, validly
existing, and in good standing under the laws of Ohio
and has the full power and authority, corporate or
otherwise, to own its property, to carry on its
business as presently conducted, and to enter into
and perform the transactions contemplated in this
Agreement. Copies of the articles and regulations of
Enfin and all amendments thereto have been delivered
to the Corporation by Enfin in Section 3.01(a) of the
Enfin Disclosure Schedule. The corporate minute books
of Enfin and the Bank contain, in all material
respects, records of all meetings and other corporate
actions of their respective shareholders, Boards of
Directors and Committees of Directors. Enfin owns
100% of the outstanding common shares of Enterprise
Bank, an Ohio banking corporation (the "Bank"). The
Bank is a corporation, duly organized, validly
existing, and in good standing under the laws of Ohio
and has the full power and authority, corporate or
otherwise, to own its property, and to carry on its
business activities as such activities are presently
conducted. Neither Enfin nor the Bank is qualified to
do business in any other state or is required to be
qualified to do business in any other state. Copies
of the articles and regulations and any bylaws of the
Bank and all amendments thereto have been delivered
to the Corporation in Section 3.01(a) of the Enfin
Disclosure Schedule. The Bank is a member bank of the
Federal Reserve System.
(b) Capitalization. The authorized capital of Enfin
consists solely of 1,535,000 common shares, without
par value, and having $1.00 stated value per share,
of which 547,792 Enfin Shares are issued and
outstanding. All Enfin Shares are validly issued,
fully paid, and non-assessable, and no Enfin Shares
have been issued in violation of the preemptive
rights of any person.
A-8
<PAGE> 123
Enfin has no commitment or obligation to issue,
deliver or sell, under any warrant, subscription,
option, stock purchase plan, stock incentive plan,
conversion right or otherwise, or to purchase, redeem
or otherwise acquire, any of the Enfin Shares. All
Enfin Shares have been issued in full compliance with
all applicable federal and state securities laws.
(c) Corporate Proceedings. All corporate proceedings of
Enfin necessary to authorize the execution, delivery,
and performance of this Agreement by Enfin and the
consummation of the transactions contemplated hereby
have been duly and validly taken except for the
authorization by the shareholders of Enfin. This
Agreement has been validly executed by duly
authorized officers of Enfin.
(d) Authority. This Agreement constitutes the legal,
valid, and binding obligation of Enfin, enforceable
against Enfin in accordance with its terms. Enfin has
the absolute and unrestricted right, power,
authority, and capacity to execute and deliver this
Agreement and, subject to the required adoption of
this Agreement by the Enfin shareholders and the
required regulatory approvals, to perform its
obligations under this Agreement.
(e) Financial Statements of Enfin. Enfin has furnished to
the Corporation, consolidated financial statements of
Enfin consisting of consolidated balance sheets as of
December 31, 1995, 1996 and 1997 (December 31, 1997
is referred to herein as the "Balance Sheet Date"),
and the related consolidated statements of income,
changes in stockholders' equity and cash flows for
the years then ended including accompanying notes and
the report thereon of Crow, Chizek and Company, LLP
(the "Enfin Financial Statements"). The Enfin
Financial Statements were prepared in accordance with
generally accepted accounting principles consistently
applied with prior periods and present fairly the
financial position of Enfin at the dates indicated
and the results of its operations and its cash flows
for the years then ended.
(f) Absence of Undisclosed Liabilities. Except as
disclosed in Section 3.01(f) of the Enfin Disclosure
Schedule, neither Enfin nor the Bank had any debt,
obligation, guarantee, or liability at the Balance
Sheet Date, whether absolute, accrued, contingent, or
otherwise (in excess of $10,000 in the aggregate),
which is not adequately reflected and reserved in the
Enfin Financial Statements. All debts, liabilities,
guarantees and obligations of Enfin and the Bank
incurred after the Balance Sheet Date, have been
incurred in the ordinary course of business and are
usual and normal in amount both individually and in
the aggregate. Except as disclosed in Section 3.01(f)
of the Enfin Disclosure Schedule, neither Enfin nor
the Bank is in default or breach of any material
agreement to which Enfin or the Bank is a party. To
the best knowledge of Enfin and the Bank, no
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other party to any material agreement to which Enfin
or the Bank is a party is in default or breach of
such agreement.
(g) Absence of Changes. Except as set forth in Section
3.01(g) of the Enfin Disclosure Schedule, since the
Balance Sheet Date: (i) the businesses of Enfin and
the Bank have been conducted only in their historic,
ordinary course; (ii) there has been no material
adverse change in the assets, liabilities, deposits,
business, operations or prospects of Enfin or the
Bank; (iii) there has been no damage, destruction,
loss, or event (whether or not insured against) which
in the aggregate has had or might reasonably be
expected to have a material adverse effect on the
business or operations of Enfin or the Bank; (iv)
neither Enfin nor the Bank has taken or permitted any
action which would prevent the Merger from being
accounted for as a pooling of interests; (v) neither
Enfin nor the Bank has made any material investment
(except investments made in the ordinary course of
business) or capital expenditures in excess of
$20,000 in the aggregate or commitment for any
additions to the property, plant or equipment in
excess of $20,000 in the aggregate; and (vi) Enfin
has not declared or paid any dividends.
(h) Loan Documentation. The documentation ("Loan
Documentation") governing or relating to the loan and
credit-related assets ("Loan Assets") representing
the loan portfolio of the Bank is legally sufficient
for the purposes intended thereby and creates
enforceable rights of the Bank in accordance with the
terms of such Loan Documentation, subject to
applicable bankruptcy, insolvency, reorganization and
moratorium laws and other laws of general
applicability affecting the enforcement of creditors'
rights generally, and the effect of rules of law
governing specific performance, injunctive relief and
other equitable remedies on the enforceability of
such documents. Except as set forth in Section
3.01(h) of the Enfin Disclosure Schedule, no debtor
under any of the Loan Documentation has asserted any
claim or defense with respect to the subject matter
thereof.
(i) Allowance for Loan Losses. Except as set forth in
Section 3.01(h) of the Enfin Disclosure Schedule,
there is no loan which was made by the Bank and which
is reflected as an asset of the Bank on the Enfin
Financial Statements that (i) is sixty (60) days or
more delinquent or (ii) has been classified by
examiners (regulatory or internal) as "Substandard,"
"Doubtful" or "Loss."
(j) Reports and Records. Enfin and the Bank have filed
all reports and maintained all records required to be
filed or maintained by them under various rules and
regulations of the Federal Deposit Insurance
Corporation ("FDIC"), the Board of Governors of the
Federal Reserve ("Federal Reserve") or the Ohio
Division of Financial Institutions ("Division"). All
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such documents and reports complied in all material
respects with applicable requirements of law and
regulations in effect at the time of filing such
documents and contained in all material respects the
information required to be stated therein. None of
such documents, when filed, contained any untrue
statement of a material fact or omitted to state a
material fact required to be stated therein or
necessary in order to make the statements therein, in
light of the circumstances under which they were
made, not misleading.
(k) Taxes. Enfin and the Bank have timely filed all
returns, statements, reports and forms (the "Tax
Returns") with respect to all federal, state, local
and foreign income, gross income, gross receipts,
gains, premium, sales, use, ad valorem, transfer,
franchise, profits, withholding, payroll, employment,
excise, severance, stamp, occupation, license, lease,
environmental, customs, duties, property, windfall
profits and all other taxes (including any interest,
penalties or additions to tax with respect thereto,
individually, a "Tax" and, collectively, "Taxes")
required to be filed with the appropriate tax
authority through the date of this Agreement, and
shall timely file all such Tax Returns required to be
filed on or before the Closing Date. Such Tax Returns
are and will be true, correct and complete in all
material respects. Enfin and the Bank have paid and
discharged all Taxes due from them, other than such
Taxes that are adequately reserved as shown on the
Enfin Financial Statements. Neither the Internal
Revenue Service nor any other taxing agency or
authority, domestic or foreign, has asserted, is now
asserting or, to the knowledge of Enfin, is
threatening to assert against Enfin or the Bank any
deficiency or claim for additional Taxes. There are
no unexpired waivers by Enfin or the Bank of any
statute of limitations with respect to Taxes. The
accruals and reserves for Taxes reflected in the
Enfin Financial Statements are adequate for the
periods covered. Enfin and the Bank have withheld or
collected and paid over to the appropriate
governmental authorities or are properly holding for
such payment all Taxes required by law to be withheld
or collected. There are no liens for Taxes upon the
assets of Enfin or the Bank, other than liens for
current Taxes not yet due and payable. Neither Enfin
nor the Bank has agreed to make, or is required to
make, any adjustment under Section 481(a) of the
Internal Revenue Code of 1986, as amended ("IRC").
Neither Enfin nor the Bank is a party to any
agreement, contract, arrangement or plan that has
resulted, or could result, individually or in the
aggregate, in the payment of "excess parachute
payments" within the meaning of Section 280G of the
IRC.
(l) Property and Title. Neither Enfin nor the Bank owns
any real property. Enfin is a tenant under a Lease,
dated April 25, 1991, as amended ("Enfin Lease"),
pertaining to, and is in rightful possession of, the
real property located at 6150 Enterprise Parkway,
Solon, Ohio (the "Enfin Real
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Properties"), which constitute all of the real
property and interests in real property used in
Enfin's and the Bank's businesses. A copy of the
Enfin Lease has been provided to the Corporation in
Section 3.01(l) of the Enfin Disclosure Schedule.
Such leasehold interest has not been assigned or
subleased and is free and clear of all mortgages,
liens, security interests, defects, encumbrances,
easements, restrictions, reservations, conditions,
covenants, or agreements, encroachments, rights of
way and zoning laws except (i) those set forth in the
Enfin Financial Statements or Section 3.01(l) of the
Enfin Disclosure Schedule; (ii) easements,
restrictions, reservations, conditions, covenants,
rights of way, zoning laws and other defects and
irregularities in title and encumbrances which do not
materially impair the use thereof for the purposes
for which they are held; and (iii) the lien of
current taxes not yet due and payable. Enfin and the
Bank own, and are in rightful possession of, and have
good title to, all of the other assets indicated in
the Enfin Financial Statements, free and clear of all
mortgages, security interests, liens, pledges,
options, hypothecations, charges, encumbrances, or
interests of any persons whatsoever except those
described in the Enfin Financial Statements or
Section 3.01(l) of the Enfin Disclosure Schedule and
except for those assets disposed of in the ordinary
course of business. All of the assets of Enfin and
the Bank are in good operating condition and repair,
ordinary wear and tear excepted, and are adequate to
continue to conduct Enfin's and the Bank's businesses
as such businesses are presently being conducted.
(m) Legal Proceedings. Except as set forth in Section
3.01(m) of the Enfin Disclosure Schedule, there are
no actions, suits, proceedings, claims, or
investigations pending, or, to the best knowledge of
Enfin and the Bank, threatened in any court, before
any governmental agency or instrumentality or in any
arbitration proceeding (i) against or by Enfin or the
Bank; or (ii) against or by Enfin or the Bank which
would prevent the consummation of this Agreement or
of any of the transactions contemplated hereby or
declare the same to be unlawful or cause the
rescission thereof. Except as set forth in Section
3.01(m) of the Enfin Disclosure Schedule, neither
Enfin nor the Bank is a party to any judgment, order,
writ, injunction, or decree of any court or
governmental entity which affects the businesses,
operations, properties or financial condition of
Enfin or the Bank.
(n) No Conflict. Neither the execution or delivery of
this Agreement by Enfin nor consummation of the
transactions contemplated by this Agreement
(including the Merger of the Bank and Second
National) will (i) violate any provision of or result
in the breach of or default (or which with notice or
lapse of time would result in a default) under: (a)
any provision of any federal, state or local law,
regulation, ordinance, order, rule or administrative
ruling of any governmental authority or
instrumentality applicable to Enfin or the Bank or
any of their respective properties so long
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as the approvals of the Federal Reserve, the Office
of the Comptroller of the Currency ("Comptroller")
and the Division are obtained; (b) the articles or
the regulations of Enfin or the Bank; (c) any
material written agreement or instrument to which
Enfin or the Bank is a party or by which it may be
bound; or (d) any order, judgment, writ, injunction,
or decree of any court, arbitration panel, or any
governmental agency or instrumentality applicable to
Enfin or the Bank; (ii) result in the creation or
acceleration of any security interest, claim, lien,
charge, or encumbrance upon any property of Enfin or
the Bank; or (iii) violate the terms or conditions of
or result in the cancellation, modification,
revocation, or suspension of any license, approval,
certificate, permit, or authorizations held by Enfin
or the Bank.
(o) Bank. Except for the common shares of the Bank and
except as disclosed in Section 3.01(o) of the Enfin
Disclosure Schedule or the Enfin Financial
Statements, Enfin does not own, directly or
indirectly, any shares of any corporation or any
interest or investment in any limited liability
company, partnership, business trust, or other
unincorporated entity. Enfin owns directly 100% of
the common shares of the Bank, all of which common
shares are fully paid and nonassessable (except that
the common shares of the Bank are subject to
assessment pursuant to Ohio Revised Code Section
1121.52 if the Bank's capital is impaired) and are
owned by Enfin free and clear of any adverse
interest, claim, lien, encumbrance, or restrictive
agreement with respect thereto.
(p) Brokers, Finders, and Others. Except for the fee paid
or payable to Austin Associates, Inc., there are no
fees or commissions of any sort whatsoever claimed
by, or payable by Enfin or the Bank to, any broker,
finder, intermediary, or any other similar person in
connection with effecting this Agreement or the
transactions contemplated hereby.
(q) Employment Agreements. Except as disclosed in Section
3.01(q) of the Enfin Disclosure Schedule, neither
Enfin nor the Bank is a party to any employment or
consulting agreements not terminable at will. Neither
Enfin nor the Bank is a party to, or negotiating, any
collective bargaining agreements, nor are any of its
employees represented by any labor union or similar
organization. Enfin and the Bank are in compliance
with all applicable laws respecting employment and
employment practices, terms and conditions of
employment and wages and hours, and neither Enfin nor
the Bank has engaged in any unfair labor practice.
(r) Pension, Profit Sharing and Retirement and Employee
Benefit Plans. Except as set forth in the Enfin
Disclosure Schedule, neither Enfin nor the Bank is a
party to, or is obligated by, any agreement to make
contributions to or to provide benefits under any
pension, retirement, profit sharing, welfare or other
employee benefit plan, as defined in Section 3(3) of
the
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Employee Retirement Income Security Act of 1974, as
amended ("ERISA").
(i) Enfin and the Bank have performed all
obligations required to be performed by them
under, and are not in default under or in
violation of, and have no knowledge of any
such default or violation by any other party
to, the Enterprise Bank 401(K) Plan (the
"Bank's Retirement Plan"), any welfare plans
or other employee benefit plans ("Welfare
Plans") offered to their respective
employees.
(ii) Enfin and the Bank have made available to
the Corporation, with respect to the Bank's
Retirement Plan and all Welfare Plans (to
the extent available on the date of this
Agreement), accurate and complete copies of
all current plan documents, including
amendments and related trusts, if any,
summary plan descriptions, the most recent
annual actuarial valuation reports, if any,
the last filed Form 5500, the most recent
completed annual and periodic accounting of
related Bank Retirement Plan assets, if any,
all rulings, if any, of the Internal Revenue
Service (the "IRS"), the documents relating
to the most recent request for an IRS
determination letter if such a determination
is necessary, and the most recent IRS
determination letters, if any.
(iii) The Bank's Retirement Plan is an "employee
pension benefit plan," within the meaning of
Section 3(2) of ERISA which meets the
requirements for qualification under Section
401(a) of the Internal Revenue Code of 1986,
as amended, (the "Code") in all material
respects and the trust which forms a part of
the Bank's Retirement Plan is now, and since
the date of the most recent determination
letter has been, exempt from taxation under
Section 501(a) of the Code.
(iv) The IRS has issued a favorable determination
letter with respect to the qualification of
the Bank's Retirement Plan and has not taken
any action to revoke such letter.
(v) Neither Enfin nor the Bank currently
maintains or has any obligation to
contribute to, and has never maintained or
had any obligation to contribute to, any
employee pension benefit plan which is
subject to the provisions of Title IV of
ERISA.
(vi) Neither the Bank nor any other "disqualified
person" or "party in interest" (as defined
in Section 4975 of the Code and Section
3(14) of ERISA, respectively) has engaged in
any "prohibited
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transaction," as such term is defined in
Section 4975 of the Code and Section 406 of
ERISA, which could subject the Bank's
Retirement Plan (or its related trust), any
Welfare Plans, the Bank, Enfin, or any other
plan fiduciary, to any excise tax or civil
penalty imposed under Section 4975(a) of the
Code or Section 502(i) of ERISA.
(vii) There are no actions, suits or claims
pending (other than routine claims for
benefits) or, to the best of Enfin's or the
Bank's knowledge, threatened against the
Bank's Retirement Plan or any Welfare Plan
or against the assets of the Bank's
Retirement Plan or the assets of any Welfare
Plan.
(viii) The Bank's Retirement Plan is not a
"multiple employer plan" within the meaning
of the Code or ERISA or the regulations
promulgated thereunder or a "multiemployer
plan" as defined in Section 3(37) of ERISA.
(ix) The Bank's Retirement Plan and the Welfare
Plans have been operated in accordance with
their provisions and in compliance with the
rules and regulations governing employee
benefit plans, including, without
limitation, the rules and regulations
promulgated by the Department of Labor, and
the Department of the Treasury pursuant to
the provisions of ERISA and the Code.
(s) Licenses, Permits, etc. Enfin and the Bank possess
all of the rights, privileges, licenses, permits, and
governmental authorizations required to operate their
respective businesses. Enfin and the Bank have
complied with all laws, regulations, orders,
licenses, permits, and government authorizations
applicable to them and to the conduct of their
respective businesses.
(t) Action Since the Balance Sheet Date. Since the
Balance Sheet Date, neither Enfin nor the Bank has
taken any action which would have violated Section
5.05(b) of this Agreement if this Agreement had been
entered into on the Balance Sheet Date, except as set
forth in Section 3.01(t) of the Enfin Disclosure
Schedule.
(u) Insurance. The Bank is an insured bank under the
Federal Deposit Insurance Act. Enfin and the Bank
have in effect insurance coverage with reputable
insurers, in amounts and against risks customarily
carried by comparable businesses. Section 3.01(u) of
the Enfin Disclosure Schedule sets forth a
description of all insurance policies maintained by
Enfin and the Bank.
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(v) Governmental Proceedings. No consent, approval,
authorization of or filing with any governmental
authority is required on the part of Enfin or the
Bank in connection with the execution or delivery of
this Agreement or the consummation of the
transactions contemplated hereby, except for the
approval of the Federal Reserve, the Comptroller and
of the Ohio Superintendent of Financial Institutions.
(w) Contracts. Section 3.01(w) of the Enfin Disclosure
Schedule sets forth a list, identifying by dates,
subject matter and parties, all contracts, agreements
and instruments to which Enfin or the Bank is a party
or by which either of them are bound, and which are
material to their respective businesses or which are
not in the ordinary course of their respective
businesses. Copies of all such contracts, agreements
and instruments have been delivered to the
Corporation.
(x) Environmental Matters. Except as otherwise disclosed
on Section 3.01(x) of the Enfin Disclosure Schedule:
(i) Enfin and the Bank are and have been at all times
in compliance in all material respects with all
applicable Environmental Laws, and Enfin and the Bank
have not engaged in any activity in violation of any
applicable Environmental Law; (ii) no investigations,
inquiries, orders, hearings, actions or other
proceedings by or before any court or governmental
agency are pending or, to the knowledge of Enfin,
threatened in connection with any of Enfin's and
Bank's activities, any real properties owned or
leased by the Bank or Enfin ("Bank Real Properties")
or improvements thereon, and any real properties in
respect of which the Bank holds a mortgage or
mortgages (hereinafter referred to as the "Bank Real
Estate Collateral"); (iii) no claims at any time have
been made or threatened by any third party against
Enfin or the Bank, or with respect to the Bank Real
Properties or improvements thereon, or the Bank Real
Estate Collateral, relating to damage, contribution,
cost recovery, compensation, loss or injury resulting
from any Hazardous Substance; (iv) no Hazardous
Substances have been integrated into the Bank Real
Properties or improvements thereon, or the Bank Real
Estate Collateral or any component thereof in such
manner or quantity as may reasonably be expected to
or in fact would pose a threat to human health or the
value of the real property and improvements; (v) to
the knowledge of Enfin no portion of the Bank Real
Properties or improvements thereon, or the Bank Real
Estate Collateral is located within 2000 feet of (A)
a release of Hazardous Substance which has been
reported or is required to be reported under any
Environmental Law or (B) the location of any site
used, in the past or presently, for the disposal of
any Hazardous Substances; and (vi) neither Enfin nor
the Bank has knowledge that (A) any of the Bank Real
Properties or improvements thereon, or the Bank Real
Estate Collateral has been used for the storage or
disposal of Hazardous Substances or has been
contaminated by Hazardous Substances, (B) any of
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its business operations have contaminated lands,
waters or other property of others with Hazardous
Substances, except routine, office-generated solid
waste, or (C) any of the Bank Real Properties or
improvements thereon, or the Bank Real Estate
Collateral have in the past or presently contain
underground storage tanks, asbestos materials, or
PCB-containing equipment.
For purposes of this Agreement, (i) "Environmental
Law" means the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), 42 U.S.C.
Section 9601 et seq., the Resource Conservation and
Recovery Act, 42 U.S.C. Section 6901 et seq., the
Hazardous Materials Transportation Act, 49 U.S.C.
Section 1802 et seq., the Toxic Substances Control
Act, 15 U.S.C. Section 2601 et seq., the Federal
Water Pollution Control Act, 33 U.S.C. Section 1251
et seq., the Clean Water Act, 33 U.S.C. Section 1321
et seq., the Clean Air Act, 42 U.S.C. Section 7401 et
seq., regulations promulgated thereunder, and any
other federal, state, county, municipal, local or
other statute, law, ordinance or regulation which may
relate to or deal with human health or the
environment, all as any be from time to time amended,
and (ii) "Hazardous Substances" means, at any time:
(a) any "hazardous substance" as defined in Section
101(14) of CERCLA or regulations promulgated
thereunder; (b) any "solid waste," "hazardous waste,"
or "infectious waste," as such terms are defined in
any other Environmental Law at such time; (c)
asbestos, urea-formaldehyde, polychlorinated
biphenyls ("PCBs"), nuclear fuel or material,
chemical waste, radioactive material, explosives,
known carcinogens, petroleum products and
by-products, and other dangerous, toxic or hazardous
pollutants, contaminants, chemical, materials or
substances listed or identified in, or regulated by,
any Environmental Law; and (d) any additional
substances or materials which at such time are
classified or considered to be hazardous or toxic
under any Environmental Law.
(y) Pooling. Neither Enfin nor the Bank has taken,
permitted or agreed to take any action that would
prevent the Corporation from accounting for the
business combination to be effected by the Merger as
a "pooling of interests."
(z) Disclosure. No representation or warranty by Enfin
contained in this Agreement, and no statement
contained in the Enfin Disclosure Schedule or other
written material furnished by Enfin to the
Corporation pursuant hereto contains any untrue
statement of a material fact or omits to state a
material fact necessary to make the statements
contained therein and herein not misleading, in the
light of such circumstances.
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ARTICLE FOUR
Warranties of the Corporation
4.01. Warranties of the Corporation
In order to induce Enfin to enter into this Agreement and to
perform its obligations hereunder, the Corporation hereby warrants and
represents to Enfin that:
(a) Corporate Status. The Corporation is a corporation
duly organized, validly existing, and in good
standing under the laws of the state of Ohio. The
Corporation has the full corporate power and
authority to own its property, to carry on its
business as presently conducted and to enter into and
perform this Agreement and the transactions
contemplated hereby. Second National is a national
banking association and has the full power and
authority, corporate or otherwise, to own its
property and to carry on its business activities as
such activities are presently conducted.
(b) Corporate Proceedings. All corporate proceedings of
the Corporation necessary to authorize the execution,
delivery, and performance of this Agreement by the
Corporation and the consummation of the transactions
contemplated by this Agreement have been duly and
validly taken. This Agreement has been validly
executed by duly authorized officers of the
Corporation.
(c) Capitalization. The authorized capital of the
Corporation consists solely of 20,000,000 common
shares, no par value (the "Shares"), of which
6,881,089 Shares are issued and outstanding. All of
the Shares are validly issued, fully paid, and
non-assessable, and no Shares have been issued in
violation of the preemptive rights of any person.
Except as disclosed in the disclosure letter executed
by the Corporation dated and delivered to Enfin on
April 1, 1998 (the "Corporation Disclosure Letter"),
the Corporation has no commitment or obligation to
issue, deliver or sell, under any warrant,
subscription, option, stock purchase plan, stock
incentive plan, conversion right or otherwise, or to
purchase, redeem or otherwise acquire, any of the
Shares. When issued to the former Enfin shareholders
in accordance with this Agreement, the Shares will be
validly issued, fully paid, nonassessable and not
issued in violation of the preemptive rights of any
person.
(d) Authority. This Agreement constitutes the legal,
valid, and binding obligation of the Corporation,
enforceable against the Corporation in accordance
with its terms. The Corporation has the absolute and
unrestricted right, power, authority, and capacity to
execute and deliver this Agreement and, subject to
the required regulatory approvals, to perform its
obligations under this Agreement.
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(e) No Conflict. Neither the execution and delivery of
this Agreement nor the consummation of the
transactions contemplated herein will conflict with
or result in the breach of the terms, conditions, or
provisions of the Corporation's or its subsidiary's
articles, regulations, or by-laws, any material
agreement, instrument or restriction to which the
Corporation or its subsidiary is a party or by which
the Corporation or its subsidiary or its or their
assets is or may be bound; or the terms of any law,
rule or regulation or any governmental agency or
authority to which the Corporation or its subsidiary
may be subject, nor constitute a default or event of
default under any such material agreement,
instrument, restriction, law, rule or regulation.
(f) Financial Statements of the Corporation. The
Corporation has furnished to Enfin, consolidated
financial statements of the Corporation consisting of
consolidated balance sheets as of December 31, 1995,
1996 and 1997 (December 31, 1997 is referred to
herein as the "Financial Statement Date") and the
related consolidated statements of income,
shareholders' equity and cash flows for the years
then ended including accompanying notes and the
report thereon of Ernst & Young LLP (the
"Corporation's Financial Statements"). The
Corporation's Financial Statements were prepared in
conformity with generally accepted accounting
principles consistently applied with prior periods
and present fairly, in all material respects, the
consolidated financial condition of the Corporation
and its subsidiary at the dates indicated and the
results of their operations and cash flows for the
periods then ended.
(g) Absence of Changes. Since the Financial Statement
Date: (i) the businesses of the Corporation and its
subsidiary have been conducted only in their
historic, ordinary course; (ii) there has been no
material adverse change in the assets, liabilities,
business or operations of the Corporation or its
subsidiary; and (iii) there has been no damage,
destruction, loss, or event (whether or not insured
against) which in the aggregate has had or might
reasonably be expected to have a material adverse
effect on the business or operations of the
Corporation or its subsidiary.
(h) Pooling. Neither the Corporation nor its subsidiary
has taken or permitted any action which would prevent
the Merger from being accounted for as a pooling of
interests.
(i) Legal Proceedings. Except as disclosed in the
Corporation Disclosure Letter, there are no actions,
suits, proceedings, claims, or investigations
pending, or to the best knowledge of the Corporation
and its subsidiary, threatened in any court, before
any governmental agency or instrumentality or in any
arbitration proceeding (i) against or by the
Corporation or its
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subsidiary, which would have a material adverse
effect upon their respective business, prospects,
condition (financial or otherwise) or any of their
properties; or (ii) against or by the Corporation or
its subsidiary which would prevent the consummation
of this Agreement or of any of the transactions
contemplated hereby or declare the same to be
unlawful or cause the rescission thereof. Neither the
Corporation nor its subsidiary is a party to any
judgment, order, writ, injunction, or decree of any
court or governmental entity, which materially
adversely affects the business, operations,
properties or financial condition of the Corporation
or its subsidiary.
(j) SEC Reports and Records. The Shares are registered
with the Securities and Exchange Commission ("SEC")
pursuant to Section 12(g) of the Securities Exchange
Act of 1934 (the "1934 Act"). The Corporation has
filed all reports and proxy materials required to be
filed by it with the SEC pursuant to the 1934 Act.
None of such documents, when filed, contained any
untrue statement of a material fact or omitted to
state a material fact required to be stated therein
or necessary in order to make the statements therein,
in light of the circumstances under which they were
made, not misleading.
(k) Reports and Records. The Corporation and its
subsidiary have filed all reports and maintained all
records required to be filed or maintained by them
under various rules and regulations of the Federal
Reserve or the Office of the Comptroller of the
Currency. All such documents and reports complied in
all material respects with applicable requirements of
law and regulations in effect at the time of filing
such documents and contained in all material respects
the information required to be stated therein. None
of such documents, when filed, contained any untrue
statement of a material fact or omitted to state a
material fact required to be stated therein or
necessary in order to make the statements therein, in
light of the circumstances under which they were
made, not misleading.
(l) Brokers, Finders, and Others. There are no fees or
commissions of any sort whatsoever claimed by, or
payable by the Corporation to, any broker, finder,
intermediary, or any other similar person in
connection with effecting this Agreement or the
transactions contemplated hereby.
(m) Governmental Proceedings. No consent, approval,
authorization of or filing with any governmental
authority is required on the part of the Corporation
or any of its subsidiaries in connection with the
execution or delivery of this Agreement or the
consummation of the transactions contemplated hereby,
except for the approval of the Federal Reserve, the
Office of the Comptroller of the Currency
("Comptroller"), and the SEC.
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(n) Disclosure. No representation or warranty by the
Corporation contained in this Agreement, and no
statement contained in any certificate or other
document (including the Corporation Disclosure
Letter) furnished by the Corporation to Enfin
pursuant hereto contains any untrue statement of a
material fact or omits to state a material fact
necessary to make the statements contained therein
and herein not misleading, in the light of such
circumstances.
ARTICLE FIVE
Further Covenants of Enfin
5.01. Necessary Further Action
Enfin will enter into and take all necessary action to
consummate the transactions contemplated in this Agreement.
5.02. Enfin Covenants
Enfin covenants that:
(a) Subject to its fiduciary obligations under Ohio law,
the Board of Directors of Enfin will recommend the
approval of this Agreement and the transactions
contemplated hereby to Enfin shareholders.
(b) Enfin will call a meeting of its shareholders to be
held as soon as practicable after the registration
statement is declared effective by the SEC, for the
purpose of approving this Agreement and the
transactions contemplated hereby and will use its
best efforts to obtain such shareholder approval.
Enfin will prepare appropriate proxy solicitation
materials in respect of the meeting of its
shareholders, which materials will include a proxy
statement of Enfin ("Proxy Statement") and which will
be part of the submission by the Corporation to the
SEC of a registration statement ("Registration
Statement") under the Securities Act of 1933, as
amended ("Securities Act").
5.03. Cooperation in Bank Merger
Enfin and the Bank will cooperate with the Corporation and
take all actions reasonably requested by the Corporation to assist the
Corporation in securing all required regulatory approvals to merge the Bank with
and into the Corporation's existing banking subsidiary, Second National, and to
take such corporate actions as are necessary or desirable to implement such
merger, provided such actions shall be conditioned upon the consummation of the
Merger.
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5.04. Cooperative Action
Enfin and the Corporation will take all further action and
execute all additional documents, agreements and instruments which may be
reasonably required, in the opinion of counsel for Enfin and counsel for the
Corporation, to satisfy all legal requirements of the State of Ohio and the
United States, so that this Agreement and the transactions contemplated hereby
will become effective.
5.05. Operation of Business
Enfin covenants with the Corporation that throughout the
period from the date of this Agreement to and including the Closing:
(a) Conduct of Business. Enfin's business and the
business of the Bank will be conducted only in the
ordinary and usual course and in the same manner such
businesses have previously been conducted.
(b) Changes in Business and Capital Structure. Except
with the consent of the Corporation, Enfin will not,
and will cause the Bank not to: (i) sell, transfer,
mortgage, pledge, or subject to any lien or otherwise
encumber any of its assets, tangible or intangible,
except in the ordinary course of business for full
and fair consideration actually received; (ii) make
any capital expenditure or capital additions or
betterments which, in the aggregate, exceed $20,000;
(iii) become bound by, enter into, or perform any
material contract, commitment, or transaction which
is other than in the ordinary course of its business
or which would cause or result in its being unable to
perform its obligations under this Agreement; (iv)
declare or pay any dividends or make any
distributions on its common shares issued and
outstanding other than those payable by the Bank to
Enfin which are consistent with the past practice of
Enfin and the Bank; (v) purchase, redeem, retire or
otherwise acquire any of its capital shares; (vi)
issue or grant any option or right to acquire any of
its capital shares or effect any stock split,
recapitalization, combination, exchange of shares,
readjustment or other reclassification; (vii) amend
its articles, regulations or by-laws; (viii) merge or
consolidate with any other corporation or otherwise
reorganize; (ix) pay any bonus, wage or salary
increase except in the ordinary course of business
based upon historic practices and within accruals for
the same established by Enfin and as set forth in
Section 5.05(b) of the Enfin Disclosure Schedule; or
enter into any employment agreement with any officer,
director or employee which is not terminable, with or
without cause, without penalty, premiums or other
payment upon 30 days or less notice; (x) incur any
material obligation or liability other than current
liabilities and obligations incurred in the ordinary
course of business; (xi) waive or cancel any right of
material value or material debts; (xii) take any
action that would result in any of its
representations or
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warranties contained in this Agreement not being true
and correct; or (xiii) cause any material adverse
change in the amount or general composition of
deposit liabilities; (xiv) make any material
investment (except in the ordinary course of
business); (xv) enter into any agreement to do any of
the foregoing.
(c) Continuing Business. Enfin will cause Enfin and the
Bank to have at the last day of the month preceding
the Closing Date:
(i) total shareholders' equity of Enfin of not
less than $4,272,000;
(ii) loans, net of allowance for loan losses, of
the Bank of not less than $35,904,000; and
(iii) total deposits of the Bank of not be less
than $37,697,000;
all as calculated in accordance with generally
accepted accounting principles, except that the
legal, accounting and investment banking fees of
Enfin associated with the transactions contemplated
by this Agreement of not more than $450,000 in the
aggregate and the costs of converting Enfin's data
processing system described in Section 6.07, will not
be deemed as expenses for calculating any of the
above.
(d) Maintenance of Property. Enfin and the Bank will use
their best efforts to maintain and keep their
respective property and facilities in their present
condition and working order, ordinary wear and tear
excepted.
(e) Performance of Obligations. Enfin and the Bank will
perform all of their obligations under all agreements
relating to or affecting their properties, rights,
and business.
(f) Maintenance of Business Organization. Enfin and the
Bank will use their best efforts to maintain and
preserve their respective business organizations
intact; to retain present key employees; and to
maintain the respective relationships of customers,
suppliers and others having business relationships
with them. Enfin will not, and will cause the Bank
not to, take any action or omit to take any action
which would terminate or enable any employee of Enfin
or the Bank to terminate their employment or
employment agreement without cause and continue
thereafter to receive compensation.
(g) Insurance. Enfin and the Bank will maintain insurance
coverage with reputable insurers, which in respect of
amounts, premiums, types and risks insured, were
maintained by them at the Balance Sheet Date.
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(h) Access to Information. Enfin and the Bank will take
all action necessary to (i) afford the officers and
designated representatives of the Corporation full
access during normal business hours upon reasonable
notice to all of Enfin's and the Bank's properties,
books, records, tax returns and reports, financial
statements, contracts and commitments, and any work
papers relating to any of the foregoing; (ii) furnish
to the Corporation all such documents, copies of
documents, and information concerning its affairs as
the Corporation may reasonably request; and (iii)
afford full access to the Corporation to Enfin's and
the Bank's officers, directors, employees and agents
in order that the Corporation may have full
opportunity to make such investigation as it shall
desire to make of the business and affairs of Enfin
and the Bank.
(i) Savings Plans. Enfin has a qualified, tax-exempt
profit sharing plan with a cash-or-deferred feature
qualifying under Section 401(k) of the IRC ("Enfin
401K Plan"). With respect to the Enfin 401K Plan, and
consistent with past practices, the participant
salary deferral contributions under Section 401(k) of
the IRC and employer matching contributions under
Section 401(m) of the IRC may continue through the
Closing.
5.06. Notification
Between the date of this Agreement and the Closing Date, Enfin
will promptly notify the Corporation in writing if Enfin becomes aware of any
fact or condition that causes or constitutes a breach of any of its
representations and warranties as of the date of this Agreement, or if it
becomes aware of the occurrence after the date of this Agreement of any fact or
condition that would (except as expressly contemplated by this Agreement) cause
or constitute a breach of any such representation or warranty had such
representation or warranty been made as of the time of occurrence or discovery
of such fact or condition. Should any such fact or condition require any change
in the Enfin Disclosure Schedule, Enfin will promptly deliver to the Corporation
a supplement to the Enfin Disclosure Schedule specifying such change. During the
same period, Enfin will promptly notify the Corporation of the occurrence of any
breach of any covenant of this Agreement or of the occurrence of any event that
may make the satisfaction of the conditions in this Agreement impossible or
unlikely.
5.07. Acquisition Proposals
(a) From and after the date hereof, unless the directors of
Enfin determine in good faith that such action is required for them to fulfill
their fiduciary duties and obligations to the Enfin shareholders and other
constituencies under Ohio law and Enfin gives prior notice to the Corporation of
such action, Enfin will not, directly or indirectly, through any of its
officers, directors, employees, agents or advisors or other representatives or
consultants, solicit or initiate or knowingly encourage, including by means of
furnishing information, any proposals or offers from any person relating to any
acquisition or purchase of all or a material amount of the assets of, or any
securities of, or any merger, tender offer, consolidation or business
combination with,
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Enfin or the Bank (an "Acquisition Proposal"). Enfin shall promptly notify the
Corporation, orally and in writing, if any such proposal or offer is made and
shall, in any such notice, indicate the identity and terms and conditions of any
proposal or offer, or any such inquiry or contact. Enfin shall keep the
Corporation advised of the progress and status of any such proposals or offers.
(b) If the Board of Directors of Enfin or the Bank accept in
any manner an Acquisition Proposal (including any acceptance which occurs after
termination of this Agreement by Enfin pursuant to Section 11.01(e) and before
April 1, 1999), Enfin shall pay to the Corporation $750,000 in immediately
available federal funds upon the execution of any agreement in respect of the
Acquisition Proposal.
5.08. Delivery of Information
Enfin will promptly furnish to the Corporation all information
regarding Enfin's assets, properties, business, affairs, operations, condition
(financial or otherwise), prospects and corporate organization as shall be
required by the rules and regulations under the Securities Act or by the SEC for
inclusion in the Registration Statement and shall otherwise assist the
Corporation in the preparation and filing of the Registration Statement.
5.09. Accuracy of Information
Enfin agrees that none of the information supplied by it for
inclusion in the Registration Statement shall, at (i) the time of the
Registration Statement and each amendment and supplement thereto, if any,
becomes effective under the Securities Act, (ii) the date of mailing of the
proxy statement-prospectus (or any amendment or supplement thereto) to its
shareholders, (iii) the time of its shareholders meeting, and (iv) at the Merger
Date 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 were made,
not false or misleading. If at any time prior to the Merger Date any event or
circumstances relating to Enfin or any of its officers or directors should be
discovered which should be set forth in an amendment to the Registration
Statement or a supplement to the proxy statement-prospectus, Enfin shall
promptly inform the Corporation.
5.10. Affiliates Compliance with The Securities Act
(a) Within 30 days after the date of this Agreement,
Enfin shall identify to the Corporation all persons
whom Enfin 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 SEC
(the "Rule 145 Affiliates"). Thereafter and until the
Merger Date, Enfin shall identify to the Corporation
each additional person whom it reasonably believes to
have thereafter become its Rule 145 Affiliate.
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(b) Enfin shall use its diligent efforts to cause each
person who is identified as a Rule 145 Affiliate
pursuant to clause (a) above to deliver to the
Corporation not later than the date on which the
Merger is approved by Enfin's shareholders, a written
agreement, substantially in the form of Exhibit 5.10.
Because the Merger is intended to qualify for
"pooling-of-interests" accounting treatment, the
Shares received by such Rule 145 Affiliates in the
Merger shall not be transferable from 30 days before
the Merger Date until such time as financial results
covering at least 30 days of post-Merger operations
have been published within the meaning of Section
201.01 of the SEC's Codification of Financial
Reporting Policies, regardless of whether each such
Rule 145 Affiliate has provided the written agreement
referred to in this Section, and the certificates
representing such shares will bear an appropriate
restrictive legend.
5.11. Takeover Statutes and Provisions
Enfin shall take all necessary steps to (i) exempt Enfin, this
Agreement 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 articles and regulations, as applicable, by action of the Board of Directors
of Enfin or otherwise, and (ii) assist in any challenge by the Corporation to
the applicability to the Merger of any state takeover law.
ARTICLE SIX
Further Covenants of the Corporation
6.01. Current Information
The Corporation shall furnish to Enfin promptly after such
documents are available: (i) all reports, proxy statements or other
communications by the Corporation to its shareholders generally, and (ii) all
press releases relating to any transactions.
6.02. Indemnification.
Except as may be limited by applicable law, for a period of
six years after the Closing, the Corporation hereby agrees to honor the terms of
the indemnification provisions of Article Five of Enfin's Amended and Restated
Code of Regulations, and Article VI of the Bank's Code of Regulations, copies of
which are attached hereto as Exhibit 6.02, which are provided to Enfin's and the
Bank's directors, officers and employees, for matters occurring prior to the
Closing. Moreover, directors, officers and employees of Enfin and the Bank who
become directors, officers and employees of the Corporation or Second National
following the Closing will be indemnified to the same extent indemnification is
provided to other persons working in similar capacities for the Corporation and
Second National following the Closing. For a period of up to three years
following the Closing, the Corporation will use its best efforts to maintain in
effect the current insurance policies maintained by Enfin and the Bank (or
substitute policies with
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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 Closing. The provisions under this Section 6.02 shall inure
to the benefit of those parties who are the beneficiaries thereof and shall be
deemed to be contractual rights, enforceable by the beneficiaries.
6.03. Director Position
Following the Closing, the Corporation will cause Second
National (a) to increase the number of its Directors by one and elect to Second
National's Board of Directors one person who currently serves on the Board of
Directors of Enfin; and (b) to create an Advisory Board for the activities of
Second National in Solon, Ohio.
6.04. Regulatory Applications; Registration Statement;
Proxy Statement-Prospectus
(a) Registration Statement, Proxy Statement.
The Corporation will, as soon as practicable but not
later than 60-days after the date hereof, prepare and
file with the SEC a registration statement on Form
S-4 ("Registration Statement"), and any required
amendments thereto, will use all reasonable efforts
to have the Registration Statement declared effective
by the SEC as promptly as practicable and will
maintain the effectiveness of such Registration
Statement. The Corporation will also take any action
required to be taken under any applicable state blue
sky or securities laws in connection with the
issuance of the Corporation Shares. Enfin shall
promptly furnish the Corporation all information
concerning Enfin and the Bank, and the holders of
Enfin's capital stock and shall promptly take any
action as the Corporation may reasonably request in
connection with any such action.
(b) The Corporation 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 the Corporation shall
include (i) all expenses for its own legal counsel
and other expenses incurred by the Corporation
incident to the preparation and filing of
applications on its behalf and on behalf of Enfin and
other requests for regulatory consents and approvals
with the appropriate regulatory agencies as
contemplated by this Agreement; (ii) all expenses for
its own legal counsel and all other expenses incurred
in connection with the registration of the Shares
under the federal and state securities laws and (iii)
all printing and mailing expenses of the parties for
the Registration Statement and the Proxy Statement of
Enfin. The expenses to be assumed by the Corporation
shall not include any legal, accounting or other
expenses incurred by Enfin in connection with its own
corporate proceedings or incident to the transactions
contemplated by this Agreement.
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(c) The Corporation shall file an additional listing
application with the National Association of
Securities Dealers, Inc. (the "NASD") for the Shares
to be issued in the Merger at the time prescribed by
applicable rules and regulations. In addition, the
Corporation will use its best efforts to maintain its
listing on the NASDAQ Stock Market.
6.05. Opportunity of Employment; Benefits
(a) The Corporation shall cause Second National to offer
the existing employees of Enfin and the Bank the
opportunity to become employees of the Corporation or
Second National or offer severance compensation to
employees of Enfin and the Bank who are not offered
employment in accordance with the Enfin employee
severance plan set forth in Section 6.05 of the
Corporation Disclosure Letter. The Corporation agrees
to cause Second National to assume the agreements
established by Enfin with certain of its key
employees concerning bonuses for continued employment
through the Closing Date as set forth in Section 6.05
to the Enfin Disclosure Schedule.
(b) Nothing in this section or elsewhere in this
Agreement shall be deemed to be a contract of
employment or be construed to give said employees any
rights other than as employees at will under Ohio law
and said employees shall not be deemed to be
third-party beneficiaries of this provision. In
addition, as of the Closing Date, the Corporation
shall cause Second National to assume the employment
agreements of R. Corbin Washington and Stacy
Casamento unless alternative agreements are made with
them.
(c) Employees of Enfin and the Bank who become employees
of the Corporation or Second National will have their
years of service credited toward eligibility and
vesting in the Corporation or Second National's
benefit plans generally made available to its
employees and will be entitled to participate in,
subject to the terms of, such benefit plans.
Employees hired by the Corporation or Second National
will be provided with such coverage under the
Corporation or Second National health care plan as
they then provide their employees generally, with all
service with Enfin and the Bank credited for purposes
of determining such employee's eligibility to
participate in such plan and without any "prior
existing condition" exclusion.
6.06. Notification
Between the date of this Agreement and the Closing Date, the
Corporation will promptly notify Enfin in writing if the Corporation becomes
aware of any fact or condition that causes or constitutes a breach of any of its
representations and warranties as of the date of this Agreement, or if it
becomes aware of the occurrence after the date of this Agreement of any fact or
condition that would (except as expressly contemplated by this Agreement) cause
or constitute
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a breach of any such representation or warranty had such representation or
warranty been made as of the time of occurrence or discovery of such fact or
condition. Should any such fact or condition require any change in the
Corporation Disclosure Schedule, the Corporation will promptly deliver to Enfin
on a supplement to the Corporation Disclosure Schedule specifying such change.
During the same period, the Corporation will promptly notify Enfin of the
occurrence of any breach of any covenant of this Agreement or of the occurrence
of any event that may make the satisfaction of the conditions in this Agreement
impossible or unlikely.
6.07. Data Processing System Conversion
Enfin has disclosed to the Corporation that Enfin must convert
its current data processing system on or before August 31, 1998, and that the
conversion process must begin no later than August 15, 1998 (and possibly
sooner) to ensure completion by the deadline. Between the date of this Agreement
and August 1, 1998, Enfin and the Corporation will discuss the options available
to Enfin, including the possibility that Enfin and the Corporation could enter
into an agreement before the Closing Date for the Corporation to convert and
provide data processing services to Enfin and the Bank. The decision regarding
the manner in which to convert will be Enfin's. If the Closing Date does not
occur prior to August 15, 1998, unless through the sole fault of Enfin or the
Bank, the Corporation agrees that the costs associated with Enfin's conversion
shall be excluded from the calculation of Enfin's shareholders' equity under
Sections 5.05(c) and 8.01(h).
ARTICLE SEVEN
Further Obligations of the Parties
7.01. Satisfaction of Conditions
The Corporation and Enfin shall each use its best efforts to
satisfy all of the conditions to this transaction and to cause the consummation
of the transactions described in this Agreement, including making all
governmental applications, notices, and filings and taking all steps to secure
promptly all government consents, rulings, and approvals which are necessary for
the performance by each party of each of its obligations under this Agreement
and the transactions contemplated thereby.
7.02. Confidentiality
The Corporation and Enfin agree for themselves, and their
representatives, successors and assigns, that any and all information each
obtains (including information obtained by their subsidiaries) from the other
will be kept strictly confidential and not be disclosed by them or their
representatives, agents, successors and assigns to any other person or group,
except among their attorneys, accountants and other representatives; except for
any disclosure of such information to which the other consents in writing or
which in the opinion of counsel for the disclosing party is required to be made
under the Securities Act, the Securities and Exchange Act of 1934, as amended,
or other applicable laws or orders in order to permit any transaction in their
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securities; and except for information already in the public domain not as a
result of the actions of the disclosing person or its representatives in
violation of this provision. In the event that the transactions contemplated by
this Agreement shall fail to be consummated for any reason, each party to this
Agreement shall promptly cause all information relating to the other party, and
furnished by the other party or prepared pursuant to information provided by the
other party regardless of who prepared the information, to be returned to the
other party or be destroyed.
7.03. Press Releases
The Corporation and Enfin shall not make any press release or
other public announcement concerning the transactions contemplated by this
Agreement without the consent of the other party hereto as to the form and
contents of such press release or announcement, except to the extent that such
press release or announcement may be required by law to be made before such
consent can be obtained.
7.04. Regulatory Applications
The Corporation and Enfin shall (a) promptly file all reports
and applications required to be filed with the SEC, 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 Merger Date.
7.05. Accounting and Tax Treatment
Enfin and the Corporation each agrees not to take any actions
subsequent to the date of this Agreement that would adversely affect the ability
of the Surviving Corporation to treat the Merger as a "pooling-of-interests" in
accordance with GAAP or the characterization of the Merger as a tax-free
reorganization under Section 368(a) of the Internal Revenue Code of 1986, as
amended, ("IRC"). Enfin and the Corporation each agrees to take such action as
may be reasonably required, if such action may be reasonably taken to reverse
the impact of any past actions which would adversely impact the ability of the
Surviving Corporation to treat the Merger as a "pooling-of-interests" for
accounting purposes or of the Merger to be characterized as a tax-free
reorganization under Section 368(a) of the IRC.
ARTICLE EIGHT
Conditions Precedent to the Obligations of the Parties
8.01. Conditions to Obligations of the Corporation
The obligations of the Corporation under this Agreement shall
be subject to the satisfaction of each of the following conditions precedent:
(a) The representations and warranties of Enfin set forth
in this Agreement shall be true and complete in all
material respects at the Closing Date as
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though such representations and warranties were also
made as of the Closing Date, except to the extent
such representation or warranty is by its express
provision made as of a specified date, except, both
on the date of this Agreement and at the Merger Date,
to the extent that the untruthfulness or inaccuracy
of the representations or warranties of Enfin,
individually or in the aggregate, shall not have a
Material Adverse Effect on Enfin or the Corporation.
(b) Enfin shall have performed all of its covenants and
obligations under this Agreement to be performed on
or prior to the Closing Date, including those
relating to the Closing.
(c) In the aggregate, less than ten percent (10%) of the
Shares to be issued shall be (i) subject to purchase
as fractional shares and (ii) proposed to be issued
to shareholders of Enfin who have taken such actions
as are required by Ohio Revised Code Section 1701.85
to be entitled to relief as a dissenting shareholder
in connection with the transactions contemplated by
this Agreement.
(d) There shall not be any action or proceeding commenced
by or before any court or governmental agency or
authority in the United States, or threatened by any
governmental agency or authority in the United
States, that challenges or seeks to prevent or delay
the consummation of the Merger or seeks to impose
material limitations on the ability of the
Corporation to exercise full rights of ownership of
the assets or business of the Bank.
(e) There shall not be in effect, any federal or state
law, rule, regulation, order or statement of policy
that, in the reasonable judgment of the Corporation,
would: (i) prevent or materially delay the
consummation of the Merger or the merger of the Bank
and Second National or materially interfere with the
operation of the business of the Bank; (ii) have a
Material Adverse Effect on the ability of the
Corporation to enjoy the material economic benefits
of the Merger; or (iii) impose any material adverse
condition, limitation or requirement on the
Corporation in connection with the Merger or the
merger of the Bank and Second National.
(f) The landlord shall have consented to the assignment
of the Enfin Lease to the Corporation or Second
National, at the designation of the Corporation.
(g) At the last day of the month preceding the Closing
Date as calculated in accordance with generally
accepted accounting principles (except that the
legal, accounting and investment banking fees of
Enfin associated with the transactions contemplated
by this Agreement of not more than $450,000 in the
aggregate and the costs of converting Enfin's data
processing system described in Section 6.07, will not
be deemed as expenses for calculating
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any of the following): (i) the shareholders' equity
of Enfin shall not be less than $4,272,000; (ii) the
loans, net of the allowance for loan losses, of the
Bank shall be not less than $35,904,000; and (iii)
the total deposits of the Bank shall be not less than
$37,697,000.
8.02. Conditions to the Obligations of Enfin
The obligations of Enfin under this Agreement shall be subject
to satisfaction of each of the following conditions precedent:
(a) The representations and warranties of the Corporation
set forth in this Agreement shall be true and
complete in all respects as though such
representations and warranties were also made as of
the Closing Date (except to the extent such
representation or warranty is by its express
provision made as of a specified date), except, both
on the date of this Agreement and at the Closing
Date, to the extent that the untruthfulness or
inaccuracy of the representations or warranties of
the Corporation, individually or in the aggregate,
shall not have a Material Adverse Effect on the
Corporation.
(b) The Corporation shall have performed all of its
covenants and obligations under this Agreement to be
performed by it on or prior to the Closing Date,
including those related to the Closing.
(c) Enfin shall have received a letter from Austin
Associates, Inc., as of the date of the Merger
Agreement and as of the date of the effectiveness of
the Registration Statement, to the effect that, in
its opinion, the consideration to be paid to Enfin's
shareholders in connection with the transaction
contemplated hereby is fair to Enfin's shareholders
from a financial point of view.
8.03. Mutual Conditions
The obligations of Enfin and the Corporation under this
Agreement shall be subject to the satisfaction of each of the following
conditions precedent:
(a) All necessary governmental approvals, consents,
rulings, and notices pertaining to the Merger and the
merger of the Bank and Second National shall have
been received, and such approvals and consents shall
not be the subject of any unresolved proceeding
contesting such approval or consent maintained by
federal or state governmental authority or third
party and no such approval shall have imposed any
condition, requirement or restriction which the Board
of Directors of the Corporation reasonably determines
in good faith would so materially adversely impact
the economic or business
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benefits of the Merger to it as to render inadvisable
the consummation of the Merger.
(b) The shareholders of Enfin shall have duly adopted
this Agreement by the required vote.
(c) The Registration Statement shall have become
effective under the Securities Act and no stop orders
or similar restraining orders suspending the
effectiveness of the Registration Statement shall
have been issued and no proceedings for that purpose
shall have been initiated or, to the knowledge of the
parties, threatened by the SEC.
(d) The Corporation shall have received all state
securities and "blue sky" permits and other
authorizations and approvals necessary to consummate
the Merger and the transactions contemplated hereby
and no order restraining the ability of the
Corporation to issue Shares pursuant to the Merger
shall have been issued and no proceedings for that
purpose shall have been initiated or threatened by
any state securities administrator.
(e) The Shares to be issued by the Corporation pursuant
to the Merger shall have been approved for listing on
the NASDAQ Stock Market subject to official notice of
issuance.
(f) There shall not be in effect an order or decision of
a court of competent jurisdiction which prevents or
materially delays the consummation of the Merger or
the merger of the Bank and Second National.
(g) There shall not be in effect any federal or state
law, rule or regulation which prevents or materially
delays consummation of the Merger or the merger of
the Bank and Second National.
(h) The Corporation and Enfin shall have received an
opinion of Vorys, Sater, Seymour and Pease LLP,
reasonably satisfactory in form and substance to the
Corporation 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.
(i) The Corporation and Enfin shall have received from
Ernst & Young LLP, a letter dated the Closing Date,
stating its opinion that, based upon the information
furnished, the transactions contemplated by this
Agreement should be accounted for by the Corporation
as a pooling of interests for financial statement
reporting purposes and that such accounting treatment
is in accordance with generally accepted accounting
principles.
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ARTICLE NINE
Closing
9.01. Closing
The closing (the "Closing") of the transactions contemplated
by this Agreement shall be held at the offices of the Corporation, 108 Main
S.W., Warren, Ohio 44481 commencing at 10:00 a.m., local time on the date
designated by the Corporation but not before 15 days after the Federal Reserve
shall have approved the merger of Enfin and the Corporation and not later than
30 days after all regulatory approvals have been obtained. Time shall be of the
essence of this Agreement. The date of the Closing is sometimes herein called
the "Closing Date."
9.02. Closing Transactions Required of the Corporation
At the Closing, the Corporation shall cause all of the
following to be delivered to Enfin:
(a) A Certificate of Merger duly executed by the
Corporation in accordance with Section 1701.81 of the
Ohio Revised Code and in appropriate form for filing
with the Ohio Secretary of State.
(b) A certificate of the chairman of the board of
directors, the president or a vice president of the
Corporation, dated as of the Closing Date and
certifying that (i) the warranties and
representations of the Corporation set forth in this
Agreement are true and complete in all material
respects as of the Closing Date, except to the extent
such representation or warranty is by its express
provision made as of a specified date; and (ii) the
Corporation has caused all of its covenants set forth
in this Agreement to be fully performed and
satisfied.
(c) Copies of resolutions adopted by the directors of the
Corporation, approving this Agreement and authorizing
the consummation of the transactions described herein
accompanied by a certificate of the secretary or
assistant secretary of the Corporation dated as of
the Closing Date and certifying (1) the date and
manner of adoption of each such resolution; and (2)
that each such resolution is in full force and
effect, without amendment, as of the Closing Date.
(d) The written opinion of Vorys, Sater, Seymour and
Pease LLP, or other counsel satisfactory to Enfin,
addressed to Enfin to the effect of the opinions set
forth in Exhibit 9.02(d) hereto.
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9.03. Closing Transactions Required of Enfin
At the Closing, Enfin shall cause all of the following to be
delivered to the Corporation:
(a) A Certificate of Merger duly executed by Enfin in
accordance with Section 1701.81 of the Ohio Revised
Code and in appropriate form for filing with the Ohio
Secretary of State.
(b) A certificate of the chairman of the board of
directors, the president or a vice president of
Enfin, dated as of the Closing Date and certifying
that (i) the warranties and representations of Enfin
set forth in this Agreement are true and complete in
all material respects as of the Closing Date, except
to the extent such representation or warranty is by
its express provision made as of a specified date;
and (ii) Enfin has caused all its covenants set forth
in this Agreement to be fully performed and
satisfied.
(c) Copies of all resolutions adopted by the directors
and shareholders of Enfin approving and adopting this
Agreement and authorizing the consummation of the
transactions described therein, accompanied by a
certificate of the secretary or the assistant
secretary of Enfin, dated as of the Closing Date, and
certifying (i) the date and manner of the adoption of
each such resolution, and (ii) that each such
resolution is in full force and effect, without
amendment, as of the Closing Date.
(d) The written opinion of Brouse & McDowell, or other
counsel satisfactory to the Corporation, addressed to
the Corporation to the effect of the opinions set
forth in Exhibit 9.03(d) hereto.
(e) The original, complete minute books of Enfin and the
Bank containing at least the Articles, the Code of
Regulations (and bylaws if any) and all of the
minutes and actions of the shareholders, directors
and committees of directors and share transfer and
registration records of Enfin and the Bank.
(f) The assignment of the Enfin Lease, duly executed by
Enfin and with the consent of the landlord, to the
Corporation or Second National, as designated by the
Corporation.
ARTICLE TEN
Non-Survival of Warranties
10.01. Non-Survival of Warranties
The representations and warranties of the Corporation and
Enfin set forth in this Agreement, or in any document delivered pursuant to the
terms hereof or in connection with the
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transactions contemplated hereby, shall not survive the Closing and the
consummation of the transactions referred to herein. Notwithstanding this
provision, if the Merger is consummated, Sections 2.02, 5.07, 6.02, 6.03 and
6.05 will survive the Merger Date.
ARTICLE ELEVEN
Termination
11.01. Termination
Notwithstanding favorable action on this Agreement by the
boards of directors of the parties hereto or the shareholders of Enfin, this
Agreement may be terminated and the Merger abandoned:
(a) By the mutual consent and action of the boards of
directors of Enfin and the Corporation at any time;
(b) By Enfin at the Closing if any of the conditions
precedent to its obligations set forth in Sections
8.02 and 8.03 of this Agreement shall not have been
performed and satisfied or if Enfin shall not have
expressly waived satisfaction thereof;
(c) By the Corporation at or prior to the Closing if any
of the conditions precedent to its obligations set
forth in Sections 8.01 and 8.03 of this Agreement
shall not have been performed and satisfied or if the
Corporation shall not have expressly waived
satisfaction thereof; and
(d) By Enfin or the Corporation if, for reasons beyond
the reasonable control of the terminating party, the
Closing shall not have been consummated on or before
December 31, 1998, unless otherwise agreed to by the
parties hereto in writing.
(e) by the vote of a majority of the Board of Directors
of either Enfin or the Corporation 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;
(f) by the vote of a majority of the Board of Directors
of Enfin at any time during the fourth and fifth full
days immediately prior to the Merger Date with
immediate notice to the Corporation, if (x) the
Corporation Closing Price is less than $20 (subject
to adjustment pursuant to Section 2.02(l)) and if the
decrease in such price of the Shares from the price
on April 1, 1998, expressed as a percentage exceeds
the percentage decline (if any) in the NASDAQ Stock
Market Index for Banks published in the Wall Street
Journal for the period beginning on the date of this
Agreement and ending
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on the seventh (7th) day immediately preceding the
Closing Date, and (y) the Corporation shall not have
given written notice to Enfin on the second or third
full day immediately prior to the Merger Date which
notice indicates that the Corporation agrees that the
Exchange Ratio shall be calculated by dividing $21.38
by the Corporation Closing Price.
(g) by the Corporation if the Board of Directors of Enfin
fails to recommend the Merger or withdraws its
recommendation of the Merger.
11.02. Notice of Termination
In the event of any termination of this Agreement pursuant to
Section 11.01, the terminating party shall give written notice of such
termination to the other party to this Agreement and upon the giving of such
notice, such termination shall automatically become effective. Such termination
shall have no effect upon (a) the rights or remedies of the terminating party,
including those for breach occurring prior to termination; or (b) the obligation
of Enfin to pay the fee set forth in Section 5.07(b).
ARTICLE TWELVE
Miscellaneous
12.01. Notices
All notices, requests, demands, and other communications
required or permitted to be given under this Agreement shall be given in writing
and shall be deemed to have been given if delivered by hand, by express service
or sent by certified mail, postage prepaid, return receipt requested, to the
following addresses:
If to Enfin, to:
6150 Enterprise Parkway
Solon, Ohio 44139
Attention: Frank S. Wade, President
Robert N. Sustar
10040 Aurora-Hudson Road
Streetsboro, Ohio 44241
Kevin C. O'Neil
Brouse & McDowell
500 First National Tower
Akron, Ohio 44308
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If to the Corporation, to:
108 Main Avenue, S.W.
P.O. Box 1311
Warren, Ohio 44482
Attention: Chairman and President
with a copy to:
Charles S. DeRousie
Vorys, Sater, Seymour and Pease LLP
52 East Gay Street
P.O. Box 1008
Columbus, OH 43216-1008
Any party to this Agreement may, by notice given in accordance with this
section, designate a new address for notices, requests, demands, and other
communications to such party.
12.02. Counterparts
This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be a duplicate original, but all of which taken
together shall be deemed to constitute a single instrument.
12.03. Entire Agreement
This Agreement (including each exhibit and schedule provided
pursuant hereto) constitutes the entire agreement between the parties hereto in
respect of the subject matter of this Agreement (including each exhibit and
schedule) and supersedes all prior and contemporaneous agreements between the
parties hereto in connection with the subject matter of this Agreement,
including the Letter Agreement dated March 2, 1998 executed by the Corporation
and accepted by Enfin and the Confidentiality Agreements dated February 13 and
March 18, 1998, by and between the Corporation and Enfin.
12.04. Successors and Assigns
This Agreement shall inure to the benefit of and be binding
upon the respective successors and assigns (including successive, as well as
immediate, successors and assigns) of the parties hereto. This Agreement may not
be assigned by either party hereto without the prior written consent of the
other party.
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12.05. Captions
The captions contained in this Agreement are included only for
convenience of reference and do not define, limit, explain, or modify this
Agreement or its interpretation, construction, or meaning and are in no way to
be construed as part of this Agreement.
12.06. Governing Law
This Agreement shall be governed by and construed in
accordance with the laws of the state of Ohio, without giving effect to
principles of conflicts or choice of laws.
12.07. Payment of Fees and Expenses
Except as otherwise agreed in writing or stated herein, each
party hereto shall pay all costs and expenses, including legal and accounting
fees, and all expenses relating to its performance of, and compliance with, its
undertakings herein.
12.08. Amendment
From time to time and at any time prior to the Merger Date,
this Agreement may be amended only by an agreement in writing executed in the
same manner as this Agreement, after authorization of such action by the Boards
of Directors of the Constituent Corporations; but no such amendment shall alter
or change the amount or kind of shares, evidences of indebtedness, other
securities, cash, rights or any other property to be received by the Enfin
shareholders or materially adversely affect the shareholders of Enfin without
their approval or be prohibited by law.
12.09. Waiver
The rights and remedies of the parties to this Agreement are
cumulative and not alternative. Neither the failure nor any delay by any party
in exercising any right, power, or privilege under this Agreement or the
documents referred to in this Agreement will operate as a waiver of such right,
power, or privilege, and no single or partial exercise of any such right, power,
or privilege will preclude any other or further exercise of such right, power,
or privilege or the exercise of any other right, power or privilege.
12.10. Disclosure Schedule and Letter
In the event of any inconsistency between the statements in
the body of this Agreement and those in the respective Disclosure Schedule or
Letter (other than an exception expressly set forth as such in the Disclosure
Schedule or Letter with respect to a specifically identified representation or
warranty), the statements in the body of this Agreement will control.
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12.11. No Third-Party Rights
Except as specifically set forth herein, nothing expressed or
referred to in this Agreement will be construed to give any person other than
the parties to this Agreement any legal or equitable right, remedy, or claim
under or with respect to this Agreement or any provision of this Agreement. This
Agreement and all of its provisions and conditions are for the sole and
exclusive benefit of the parties to this Agreement and their successors and
assigns.
12.12. Severability
If any provision of this Agreement is held invalid or
unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.
12.13. Certain Definitions.
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 1934 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" or "material adverse
change" on Enfin or the Corporation means a material adverse effect
after the date of this Agreement (other than as a result of changes (x)
in banking laws or regulations of general applicability or
interpretations thereof by court or governmental entities, (y) in
generally accepted accounting principles, or (z) that should, under the
circumstances, reasonably have been anticipated in light of disclosures
made in the Corporation's SEC filings made prior to the date of the
Agreement, in the Enfin Disclosure Letter or the Corporation Disclosure
Letter, or in other writings delivered by one party to the other prior
to the date of this Agreement) on the respective condition (financial
and otherwise), results of operations, or business of Enfin and the
Bank or the Corporation and its subsidiary, as the case may be, taken
as a whole, or on the ability of Enfin or the Corporation, as the case
may be, to consummate the transactions contemplated hereby.
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12.14. 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 Enfin or the Corporation pursuant to Section 11.01(e) 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 11.01(e), 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.
12.15. 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 Article Eleven, a
party may seek monetary damages against a breaching party for any willful breach
of this Agreement.
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IN WITNESS WHEREOF, this Agreement and Plan of Merger has been
executed on behalf of Second Bancorp Incorporated and Enfin, Inc. to be
effective as of the date set forth in the first paragraph above.
ATTEST: SECOND BANCORP INCORPORATED
/s/ Christopher Stanitz By: /s/ Alan G. Brant
- ----------------------- -----------------
Title: Alan G. Brant, Chairman and President
ATTEST: ENFIN, INC.
/s/ Robert N. Sustar By: /s/ Frank S. Wade
- -------------------- -----------------
Title: Frank S. Wade, President
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ANNEX B
FAIRNESS OPINION OF AUSTIN ASSOCIATES, INC.
________ __, 1998
Board of Directors
Enfin, Inc.
6150 Enterprise Parkway
Solon, Ohio 44139
Members of the Board:
You have requested our opinion as to the fairness, from a financial
point of view, to Enfin, Inc. ("Enfin") and its shareholders of the terms of the
Agreement and Plan of Merger dated as of April 1, 1998 ("Agreement") between
Enfin and Second Bancorp Incorporated ("Second"). The Agreement provides for the
merger of Enfin with and into Second (the "Merger").
The financial terms of the Agreement provide for each outstanding share
of Enfin common stock to be converted into shares of Second common stock. The
number of shares of Second stock into which each Enfin share will be converted
shall be equal to .95 (the "Exchange Ratio"). Provided, however, if the Second
Closing Price, as defined in the Agreement is less than $24.75, the Exchange
ratio shall equal $23.51 divided by the Second Closing Price; and if the Second
Closing Price is greater than $30.25 the Exchange Ratio shall equal $28.74
divided by the Second Closing Price. In no event shall the Exchange Ratio be
greater than 1.069 or, in the event of an announced change of control
transaction, shall the Exchange Ratio be less than .718. The Board of Directors
maintains certain termination rights if the Second Closing Price is less than
$20.00.
In carrying out our engagement, we have reviewed and analyzed material
bearing upon the financial and operating condition of Enfin and Second,
including but not limited to the following: (i) the Agreement; (ii) the audited
financial statements of Enfin and Second for the periods ending December 31,
1994 through 1997 and the unaudited financial statements of Enfin and Second for
the three months ending March 31, 1998; (iii) certain other publicly available
information regarding Enfin and Second; (iv) publicly available information
regarding the performance of certain other companies whose business activities
were believed by Austin Associates to be generally comparable to those of Enfin
and Second; (v) the financial terms, to the extent publicly available, of
certain comparable transactions; and (vi) such other analysis and information as
we deemed relevant.
In our review and analysis, we relied upon and assumed the accuracy and
completeness of the financial and other information provided to us or publicly
available, and have not attempted to verify the same. We have made no
independent verification as to the status of individual loans made by Enfin or
Second, and have instead relied upon representations and information concerning
loans of Enfin and Second in the aggregate. In rendering our opinion, we have
assumed that the transaction will be a tax-free reorganization with no material
adverse tax consequences to Enfin or Second, or to Enfin shareholders receiving
Second stock. In addition, we have assumed in the course of obtaining the
necessary regulatory approvals for the transaction, no condition will be imposed
that will have a material adverse effect on the contemplated benefits of the
transaction to Enfin and its shareholders.
Based upon our analysis and subject to the qualifications described
herein, we believe that as of the date of this letter, the terms of the
Agreement are fair, from a financial point of view, to Enfin and its
shareholders.
For our services in rendering this opinion, Enfin will pay us a fee and
indemnify us against certain liabilities.
/s/ Austin Associates, Inc.
---------------------------
Austin Associates, Inc.
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<PAGE> 158
ANNEX C
OHIO REVISED CODE
TITLE XVII CORPORATIONS-PARTNERSHIPS
CHAPTER 1701: GENERAL CORPORATION LAW
SECTION 1701.85 QUALIFICATIONS OF AND PROCEDURES FOR DISSENTING SHAREHOLDERS
(A)(1) A shareholder of a domestic corporation is entitled to relief as
a dissenting shareholder in respect of the proposals described in sections
1701.74, 1701.76, and 1701.84 of the Revised Code, only in compliance with this
section.
(2) If the proposal must be submitted to the shareholders of the
corporation involved, the dissenting shareholder shall be a record holder of the
shares of the corporation as to which he seeks relief as of the date fixed for
the determination of shareholders entitled to notice of a meeting of the
shareholders at which the proposal is to be submitted, and such shares shall not
have been voted in favor of the proposal. Not later than ten days after the date
on which the vote on the proposal was taken at the meeting of the shareholders,
the dissenting shareholder shall deliver to the corporation a written demand for
payment to him of the fair cash value of the shares as to which he seeks relief,
which demand shall state his address, the number and class of such shares, and
the amount claimed by him as the fair cash value of the shares.
(3) The dissenting shareholder entitled to relief under division (C) of
section 1701.84 of the Revised Code in the case of a merger pursuant to section
1701.80 of the Revised Code and a dissenting shareholder entitled to relief
under division (E) of section 1701.84 of the Revised Code in the case of a
merger pursuant to section 1701.801 of the Revised Code shall be a record holder
of the shares of the corporation as to which he seeks relief as of the date on
which the agreement of merger was adopted by the directors of that corporation.
Within twenty days after he has been sent the notice provided in section 1701.80
or 1701.801 of the Revised Code, the dissenting shareholder shall deliver to the
corporation a written demand for payment with the same information as that
provided for in division (A)(2) of this section.
(4) In the case of a merger or consolidation, a demand served on the
constituent corporation involved constitutes service on the surviving or the new
entity, whether the demand is served before, on, or after the effective date of
the merger or consolidation.
(5) If the corporation sends to the dissenting shareholder, at the
address specified in his demand, a request for the certificates representing the
shares as to which he seeks relief, the dissenting shareholder, within fifteen
days from the date of the sending of such request, shall deliver to the
corporation the certificates requested so that the corporation may forthwith
endorse on them a legend to the effect that demand for the fair cash value of
such shares has been made. The corporation promptly shall return such endorsed
certificates to the dissenting shareholder, at the option of the corporation,
exercised by written notice sent to the dissenting shareholder within twenty
days after the lapse of the fifteen-day period, unless a court for good cause
shown otherwise directs. If shares represented by a certificate on which such a
legend has been endorsed are transferred, each new certificate issued for them
shall bear a similar legend, together with the name of the original dissenting
holder of such shares. Upon receiving a demand for payment for a dissenting
shareholder who is the record holder of uncertificated securities, the
corporation shall make an appropriate notation of the demand for payment in its
shareholder records. If uncertificated shares for which payment has been
demanded are to be transferred, any new certificate issued for the shares shall
bear the legend required for certificated securities as provided in this
paragraph. A transferee of the shares so endorsed, or of uncertificated
securities where such notation has been made, acquires only such rights in the
corporation as the original dissenting holder of such shares had immediately
after the service of a demand for payment of the fair cash value of the shares.
A request under this paragraph by the corporation is not an admission by the
corporation that the shareholder is entitled to relief under this section.
(B) Unless the corporation and the dissenting shareholder have come to
an agreement on the fair cash value per share of the shares as to which the
dissenting shareholder seeks relief, the dissenting shareholder or the
corporation, which in the case of a merger or consolidation may be the surviving
or new entity, within three
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months after the service of the demand by the dissenting shareholder, may file a
complaint in the court of common pleas of the county in which the principal
office of the corporation that issued the shares is located or was located when
the proposal was adopted by the shareholders of the corporation, or, if the
proposal was not required to be submitted to the shareholders, was approved by
the directors. Other dissenting shareholders, within that three-month period,
may join as plaintiffs or may be joined as defendants in any such proceeding,
and any two or more such proceedings may be consolidated. The complaint shall
contain a brief statement of the facts including the vote and the facts
entitling the dissenting shareholder to the relief demanded. No answer to such a
complaint is required. Upon the filing of such a complaint, the court, on motion
of the petitioner, shall enter an order fixing a date for a hearing on the
complaint and requiring that a copy of the complaint and a notice of the filing
and of the date for hearing be given to the respondent or defendant in the
manner in which summons is required to be served or substituted service is
required to be made in other cases. On the day fixed for the hearing on the
complaint or any adjournment of it, the court shall determine from the complaint
and from such evidence as is submitted by either party whether the dissenting
shareholder is entitled to be paid the fair cash value of any shares and, if so,
the number and class of such shares. If the court finds that the dissenting
shareholder is so entitled, the court may appoint one or more persons as
appraisers to receive evidence and to recommend a decision on the amount of the
fair cash value. The appraisers have such power and authority as is specified in
the order of their appointment. The court thereupon shall make a finding as to
the fair cash value of a share and shall render judgment against the corporation
for the payment of it, with interest at such rate and from such date as the
court considers equitable. The costs of the proceeding, including reasonable
compensation to the appraisers to be fixed by the court, shall be assessed or
appointed as the court considers equitable. The proceeding is a special
proceeding and final orders in it may be vacated, modified, or reversed on
appeal pursuant to the rules of Appellate Procedure and, to the extent not in
conflict with those rules, Chapter 2505. of the Revised Code. If, during the
pendency of any proceeding instituted under this section, a suit or proceeding
is or has been instituted to enjoin or otherwise to prevent the carrying out of
the action as to which the shareholder has dissented, the proceeding instituted
under this section shall be stayed until the final determination of the other
suit or proceeding. Unless any provision in division (D) of this section is
applicable, the fair cash value of the shares that is agreed upon by the parties
or fixed under this section shall be paid within thirty days after the date of
final determination of such value under this division, the effective date of the
amendment to the articles, or the consummation of the other action involved,
whichever occurs last. Upon the occurrence of the last such event, payment shall
be made immediately to a holder of uncertificated securities entitled to such
payment. In the case of holders of shares represented by certificates, payment
shall be made only upon and simultaneously with the surrender to the corporation
of the certificates representing the shares for which the payment is made.
(C) If the proposal was required to be submitted to the shareholders of
the corporation, a fair cash value as to those shareholders shall be determined
as of the date prior to the day on which the vote by the shareholders was taken
and, in the case of a merger pursuant to section 1701.80 or 1701.801 of the
Revised Code, fair cash value as to shareholders of a constituent subsidiary
corporation shall be determined as of the day before the adoption of the
agreement of merger by the directors of the particular subsidiary corporation.
The fair cash value of a share for the purposes of this section is the amount
that a willing seller who is under no compulsion to sell would be willing to
accept and that a willing buyer who is under no compulsion to purchase would be
willing to pay, but in no event shall the fair cash value of a share exceed the
amount specified in the demand of the particular shareholder. In computing such
fair cash value, any appreciation or depreciation in market value resulting from
the proposal submitted to the directors or to the shareholders shall be
excluded.
(D)(1) The right and obligation of a dissenting shareholder to receive
such fair cash value and to sell such shares as to which he seeks relief, and
the right and obligation of the corporation to purchase such shares and to pay
the fair cash value of them terminates if any of the following applies:
(a) The dissenting shareholder has not complied with this
section, unless the corporation by its directors waives such failure;
(b) The corporation abandons the action involved or is finally
enjoined or prevented from carrying it out, or the shareholders rescind
their adoption of the action involved;
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(c) the dissenting shareholder withdraws his demand, with the
consent of the corporation by its directors;
(d) The corporation and the dissenting shareholder have not
come to an agreement as to the fair cash value per share, and neither
the shareholder nor the corporation has filed or jointed in a complaint
under division (B) of this section within the period provided in that
division.
(2) For purposes of division (D)(1) of this section, if the merger or
consolidation has become effective and the surviving or new entity is not a
corporation, action required to be taken by the directors of the corporation
shall be taken by the general partners of a surviving or new partnership or the
comparable representatives of any other surviving or new entity.
(E) From the time of the dissenting shareholder's giving of the demand
until either the termination of the rights and obligations arising from it or
the purchase of the shares by the corporation, all other rights accruing from
such shares, including voting and dividend or distribution rights, are
suspended. If during the suspension, any dividend or distribution is paid in
money upon shares of such class or any dividend, distribution, or interest is
paid in money upon any securities issued in extinguishment of or in substitution
for such shares, an amount equal to the dividend, distribution, or interest
which, except for the suspension, would have been payable upon such shares or
securities, shall be paid to the holder of record as a credit upon the fair cash
value of the shares. If the right to receive fair cash value is terminated other
than by the purchase of the shares by the corporation, all rights of the holder
shall be restored and all distributions which, except for the suspension, would
have been made shall be made to the holder of record of the shares at the time
of termination.
C-3
<PAGE> 161
ANNEX D
ACQUIRING PERSON STATEMENT
1. The identity of the "Acquiring Person" is Second Bancorp Incorporated,
a corporation organized and existing under the laws of the State of
Ohio and registered as a bank holding company under the Bank Holding
Company Act of 1956, as amended (the "Acquiring Person").
2. This Acquiring Person Statement is being given by the Acquiring Person
pursuant to Section 1701.831 of the Ohio Revised Code
3. The number of common shares, $10.00 stated value, of Enfin, Inc., a
corporation organized and existing under the laws of the State of Ohio
and a bank holding company, owned, directly or indirectly, by the
Acquiring Person on the date of this statement is: None.
4. The range of voting power, described in division (Z)(1) of Section
1701.01 of the Ohio Revised Code, under which the proposed control
share acquisition will, if and on the date it is consummated, fall is:
(c) a majority or more of such voting power.
5. The proposed control share acquisition is to be consummated on the
terms contained in the Plan Agreement and Plan of Merger (the
"Agreement"), a copy of which is attached to the Proxy Statement of
Enfin dated _______ __, 1998 as Annex A.
6. The acquiring Person hereby represents that the proposed control share
acquisition, if consummated in accordance with the terms of the
Agreement, will not be contrary to law and hereby further represents
that the Acquiring Person has the financial capacity to make the
proposed control share acquisition.
IN WITNESS WHEREOF, the undersigned has caused this Acquiring Person Statement
to be executed and delivered to Enfin, Inc. this ___ day of ________, 1998.
SECOND BANCORP INCORPORATED
By: ______________________
Name:
Title:
D-1
<PAGE> 162
INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION OF DIRECTORS AND OFFICERS
See "DESCRIPTION OF SECOND BANCORP SHARES - Director and Officer
Liability and Indemnification" included in the Prospectus/Proxy Statement
portion of this Registration Statement.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
Document Exhibit Document Reference
- -------- ------- ------------------
<S> <C> <C>
Agreement and Plan of Merger (excluding exhibits) dated April 1, 1998,
by and between Second Bancorp Incorporated and Enfin, Inc. (set forth
as Annex A to the Prospectus/Proxy Statement included in this
Registration Statement).............................................. 2.1 Included as Annex A
Agreement and Plan of Merger (excluding exhibits) dated as of May 4,
1998, by and between Second Bancorp Incorporated and Trumbull
Financial Corporation................................................ 2.2 Incorporated by Reference (1)
Amended Articles of Incorporation of Second Bancorp Incorporated........ 3.1 *
Code of Regulations of Second Bancorp Incorporated...................... 3.2 Incorporated by Reference(2)
Stock Option Agreement, dated as of May 4, 1998, by and between Second
Bancorp Incorporated and Trumbull Financial Corporation.............. 4.1 Incorporated by Reference (1)
Description of Second Bancorp Incorporated's common shares.............. 4.2 Incorporated by Reference(3)
Form of opinion of Vorys, Sater, Seymour and Pease LLP as to the
legality of the securities being issued.............................. 5 *
Form of opinion of Vorys, Sater, Seymour and Pease LLP as to
tax matters.......................................................... 8 **
Amended Stock Option Incentive Plan..................................... 10.1 Incorporated by Reference(2)
Form of Incentive Stock Option Agreement................................ 10.2 Incorporated by Reference(2)
Stock Appreciation Rights Agreement by and between Second Bancorp
Incorporated and Alan G. Brant, dated April 1, 1987, as amended...... 10.3 Incorporated by Reference(2)
Form of Amendment to April 1, 1987 Stock Appreciation Rights Agreement
by and between Second Bancorp Incorporated and Alan G. Brant,
effective December 18, 1996.......................................... 10.4 Incorporated by Reference(5)
Employment Agreement by and between Second Bancorp Incorporated and Alan
G. Brant, dated April 1, 1985........................................ 10.5 Incorporated by Reference(2)
Amendments to Employment Agreement by and between Second Bancorp
Incorporated and Alan G. Brant, dated April 1, 1985.................. 10.6 Incorporated by Reference(4)
Consulting Agreement by and between Second Bancorp Incorporated and Alan
G. Brant, dated April 1, 1985........................................ 10.7 Incorporated by Reference(2)
Amendment to Consulting Agreement by and between Second Bancorp
Incorporated and Alan G. Brant, dated April 1, 1985.................. 10.8 Incorporated by Reference(4)
Deferred Compensation Agreement between Second Bancorp Incorporated and
Alan G. Brant, dated November 9, 1995................................ 10.9 Incorporated by Reference(4)
Lease Agreement between Arden Associates Limited Partnership and The
Second National Bank of Warren, dated October 1, 1979................ 10.10 Incorporated by Reference(2)
Amendment to Lease Agreement between Arden Associates Limited
Partnership and the Second National Bank of Warren................... 10.11 Incorporated by Reference(4)
Form of Amended Management Severance Agreement with executive officers.. 10.12 Incorporated by Reference(4)
Subsidiaries of Second Bancorp Incorporated............................. 21 Incorporated by Reference(5)
Consent of Ernst & Young LLP (with respect to Second Bancorp
Incorporated)........................................................ 23.1 *
</TABLE>
II-1
<PAGE> 163
<TABLE>
<S> <C> <C>
Consent of Crowe Chizek and Company LLP (with respect to Enfin, Inc.)... 23.2 *
Consent of Crowe Chizek and Company LLP (with respect to Trumbull
Financial Corporation)............................................... 23.3 *
Form of Consent of Austin Associates, Inc............................... 23.4 *
Consent of Vorys, Sater, Seymour and Pease LLP (with respect to its
opinion relating to the legality of the securities being issued)..... 23.5 Included in Exhibit 5
Consent of Vorys, Sater, Seymour and Pease LLP (with respect to tax
Opinion)............................................................. 23.6 Included in Exhibit 8
A power of attorney where various individuals authorize the signing of
their names to any and all amendments to this registration Statement
and other documents submitted in connection herewith is contained on
the first page of the signature pages following Part II of this
Registration Statement............................................... 24 Included in Part II of Registration
Statement on page II-4
Form of Fairness Opinion of Austin Associates, Inc. (set forth in
Annex B to the Prospectus/Proxy Statement included in this
Registration Statement).............................................. 99.1 Included in Annex B
Form of Proxy Card...................................................... 99.2 *
Form of Letter to Enfin, Inc. Shareholders............................. 99.3 *
Form of Notice of Special Meeting of Enfin, Inc. Shareholders........... 99.4 *
Form of Acquiring Person Statement (set forth in Annex D to the
Prospectus/Proxy Statement included in this Registration Statement).. 99.5 Included as Annex D
Form of Notice for the Separate Special Meeting of Enfin, Inc.
Shareholders to satisfy the requirements of the Ohio Control Share
Acquisition Statute.................................................. 99.6 *
Form of Proxy to be used in connection with the Separate
Special Meeting of Enfin, Inc. Shareholders to satisfy the
requirements of the Ohio Control Share Acquisition Statute........... 99.7 *
</TABLE>
- -----------------------------
*Filed herewith.
**To be filed by amendment.
(1) Filed with the Securities and Exchange Commission as an exhibit to a
Registration Statement on Form S-4, Registration No. 333-__________.
(2) Incorporated by reference to the exhibit filed with the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1994.
(3) Incorporated by reference to the exhibit filed with the Registrant's
Registration Statement on Form S-4 (Registration No. 33-09239) under
the caption "Description of Holding Shares" as filed on October 2,
1986, including all amendments filed for the purpose of updating such
information.
(4) Incorporated by reference to the exhibit filed with the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1995.
(5) Incorporated by reference to the exhibit filed with the Registrant's
Annual Report on Form 10-K filed for the year ended December 31, 1997.
UNDERTAKINGS
(1) The undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report pursuant to section 13(a) or section
15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's
II-2
<PAGE> 164
annual report pursuant to section 15(d) of the Securities Exchange Act of 1934)
that is incorporated by reference in the registration statement shall be deemed
to be initial bona fide offering thereof.
(2) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder through
use of a prospectus which is part of this registration statement, by any person
or party who is deemed to be an underwriter within the meaning of Rule 145(c),
the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form.
(3) The registrant undertakes that every prospectus (i) that is
filed pursuant to paragraph (2) immediately preceding, or (ii) that purports to
meet the requirements of section 10(a)(3) of the Securities Act of 1933 and is
used in connection with an offering of securities subject to rule 415, will be
filed as a part of an amendment to the registration statement and will not be
used until such amendment is effective, and that, for purposes of determining
any liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(4) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
(5) The undersigned Registrant hereby undertakes to supply by
means of a post-effective amendment all information concerning a transaction,
and the company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(6) The undersigned Registrant hereby undertakes to deliver or
cause to be delivered with the prospectus, to each person to whom the prospectus
is sent or given, the latest annual report to security holders that is furnished
pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the
Securities Exchange Act of 1934; and, where interim financial information
required to be present by Article 3 of Regulation S-X are not set forth in the
prospectus, to deliver, or cause to be delivered to each person to whom the
prospectus is sent or given, the latest quarterly report that is specifically
incorporated by reference in the prospectus to provide such interim financial
information.
(7) The undersigned Registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the prospectus
pursuant to Items 4, 10(b), 11 or 13 of this Form within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registrant statement
through the date of responding to the request.
II-3
<PAGE> 165
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
the requirements for filing on Form S-4, and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Warren, State of Ohio, on June 10, 1998.
SECOND BANCORP INCORPORATED
/s/ Alan G. Brant
---------------------------------------
By: A.G. Brant, Chairman and President
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints ALAN G. BRANT his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign and
execute on behalf of the undersigned any and all amendments to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and necessary to be done in connection
with any such amendments, as fully to all intents and purposes as he might or
could do in person, and does hereby ratify and confirm all that said
attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Principal Executive Officer:
/s/ Alan G. Brant. Date: June 10, 1998
- --------------------------------------------
Alan G. Brant
Chairman and President
Principal Financial Officer and Principal Accounting Officer:
/s/ David L. Kellerman Date: June 10, 1998
- --------------------------------------------
David L. Kellerman
Chief Financial Officer and
Principal Accounting Officer
/s/ John C. Gibson, Sr. Date: June 10, 1998
- --------------------------------------------
John C. Gibson, Sr., Director
/s/ John A. Anderson Date: June 10, 1998
- --------------------------------------------
John A. Anderson, Director
/s/ Robert J. Webster Date: June 10, 1998
- --------------------------------------------
Robert J. Webster, Director
/s/ Norman C. Harbert Date: June 10, 1998
- --------------------------------------------
Norman C. Harbert, Director
/s/ John L. Pogue. Date: June 10, 1998
- --------------------------------------------
John L. Pogue, Director
/s/ Raymond John Wean, III Date: June 10, 1998
- --------------------------------------------
Raymond John Wean, III, Director
II-4
<PAGE> 1
Exhibit 3.1
AMENDED ARTICLES OF INCORPORATION OF
SECOND BANCORP INCORPORATED
The undersigned, acting as the incorporator of a corporation
for profit under the general corporation laws of the State of Ohio, adopts the
following Articles of Incorporation:
FIRST: The name of the Corporation shall be Second Bancorp
Incorporated.
SECOND: The place in Ohio where its principal office is to be located
is at 108 Main Avenue S.W., in the City of Warren, Trumbull
County, Ohio, but the Corporation may establish and maintain
its principal office, or other offices, at other places in the
United States of America, as its Board of Directors may from
time to time determine.
THIRD: The purpose of which the Corporation is formed is to engage in
business as a "bank holding company" in accordance with, and
to the extent permitted by, the Bank Holding company Act of
1956 (Pub. Law 511, 84th Cong. 2d Sess., approved May 9th,
1956) as amended, and consistent therewith to engage in any
other lawful act or activity for which corporations may be
formed under Chapter 1701 of the Ohio Revised Code, to the
extent that such act or activity is not then prohibited by the
Bank Holding Company Act of 1956, as amended. The Corporation
may from time to time, pursuant to authorization by the Board
of Directors and without action by the shareholders, purchase
or otherwise acquire shares of the Corporation of any class or
classes in such manner, upon such terms and in such amounts as
the Board of Directors shall determine; subject, however, to
such limitation or restriction, if any, as is contained in the
express terms of any class of shares of the Corporation
outstanding at the time of the purchase or acquisition in
question.
FOURTH: The maximum number of capital shares which this Corporation is
authorized to issue or to have outstanding at any time shall
be twenty million (20,000,000) shares, all of which shall be
common shares. The shares will have no par value stated. The
Board of Directors of the Corporation is hereby empowered to
issue from time to time shares of its capital shares, whether
now or hereafter authorized. No holders of any class of shares
of the Corporation shall have any preemptive rights to
purchase or to have offered to them for purchase any shares or
other securities of the Corporation."
FIFTH: The amount of stated capital with which this Corporation will
begin business shall be five hundred dollars ($500.00).
SIXTH: (A) The number of directors constituting the Board of
Directors shall be such number, not more than eighteen (18),
as shall be fixed from time to time in accordance with the
Regulations of the Corporation and the number so fixed shall
constitute the Board of Directors until the number of
directors is thereafter changed pursuant to the provisions of
the Regulations, but the number thereof shall in no event be
less than six (6) and the number of directors in each class
shall in no event be less than three (3).
(B) The Board of Directors shall be and is divided
into two classes, Class I and Class II, which shall be as
nearly equal in number as possible. Each director shall
<PAGE> 2
serve for a term ending on the date of the second annual
meeting following the annual meeting at which such director
was elected, provided, however, that each initial director in
Class I shall hold office until the annual meeting of
shareholders in 1987; and each initial director in Class II
shall hold office until the annual meeting of shareholders in
1988.
(C) In the event of any increase or decrease in the
authorized number of directors, (i) each director then serving
as such shall nevertheless continue as a director of the class
of which he or she is a member until the expiration of his or
her current term, or his or her prior death, retirement,
resignation or removal and (ii) the newly created or
eliminated directorship resulting from such increase or
decrease shall be apportioned by the Board of Directors among
the two classes of directors so as to maintain such classes as
nearly equal as possible.
(D) Notwithstanding any of the foregoing provisions
of this Article SIXTH, each director shall serve until his or
her successor is elected and qualified or until his or her
death, retirement, resignation, or removal. Should a vacancy
occur or be created, whether arising through death,
resignation or removal of a director, or through an increase
in the number of directors of any class, such vacancy shall be
filled by a majority vote of the remaining directors of the
class in which such vacancy occurs, or by the sole remaining
director of the class if only one such director remains, or by
the majority vote of the remaining directors of the other
class if there be no remaining member of the class in which
the vacancy occurs. A director so elected to fill a vacancy
shall serve for the remainder of the then present term of
office of the class to which he or she was elected.
(E) Wherever the term "Board of Directors" is used in
these Articles of Incorporation, such terms shall mean the
Board of Directors of the Corporation; provided, however,
that, to the extent any committee of directors of the
Corporation is lawfully entitled to exercise the powers of the
Board of Directors, such committee, to the extent provided by
resolution of the Board of Directors or the Regulations, may
exercise any power or authority of the Board of Directors
under these Articles of Incorporation in management of the
business and affairs of the Corporation, including without
limitation, the declaration of a dividend or the authorization
of the issuance of shares.
SEVENTH: Each person who is or was a director, officer,
employee or agent of the Corporation shall be indemnified by
the Corporation to the full extent permitted by the
corporation laws of the State of Ohio, now or hereafter in
force, against any liability, cost or expense incurred by him
in his capacity as a director, officer, employee, or agent, or
arising out of his status as a director, officer, employee, or
agent. The corporation may, but shall not be obligated to
maintain insurance at its expense, to protect itself and any
such person against any such liability cost or expense. The
rights of indemnification provided in this Article SEVENTH
shall be in addition to any rights to which any person
concerned may otherwise be entitled by the Regulations of the
Corporation from time to time in effect, by contract or as a
matter of law, and shall inure to the benefit of the heirs,
executors and administrators of any such person.
EIGHTH: 1) A. In addition to any affirmative vote required by
law:
(i) any merger or consolidation of the
Corporation or any Subsidiary (as hereinafter
defined) with (a) any Related Person (as hereinafter
defined) or (b)
2
<PAGE> 3
any other corporation (whether or not itself a
Related Person) which is, or after such merger or
consolidation would be, an Affiliate (as hereinafter
defined) of a Related Person; or
(ii) any sale, lease, exchange, mortgage,
pledge, transfer or other disposition (in one
transaction of a series of transactions) to or with
any Related Person or any Affiliate of any Related
Person of any assets of the Corporation or any
Subsidiary having an aggregate Fair Market Value (as
hereinafter defined) equal to 10% or more of the
consolidated net worth of the Corporation; or
(iii) the issuance or transfer by the
Corporation or any Subsidiary (in one transaction or
a series of transactions) of any securities of the
Corporation or any Subsidiary to any Related Person
or any Affiliate of any Related Person in exchange
for cash, securities or other property (or a
combination thereof) having an aggregate Fair Market
Value equal to 10% or more of the consolidated net
worth of the Corporation; or
(iv) the adoption of any plan or proposal
for the liquidation or dissolution of the Corporation;
or
(v) any reclassification of securities
(including any reverse share split), or
recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its
Subsidiaries or any other transaction (whether or not
with or into or otherwise involving a Related Person)
which has the effect, directly or indirectly, of
increasing the proportionate share of the outstanding
shares of any class of Equity Security (as hereinafter
defined) of the Corporation or any Subsidiary which is
directly or indirectly owned by any Related Person or
any Affiliate of any Related Person, shall require the
affirmative vote of the holders of at least 75% of the
voting power of the then outstanding shares of capital
shares of the Corporation entitled to vote generally
in the election of directors. Such affirmative vote
shall be required notwithstanding the fact that no
vote may be required or that a lesser percentage may
be specified, by law or otherwise.
B. The term "Business Combination" used in
this Article EIGHTH shall mean any transaction which
is referred to in any one or more of clauses (i)
through (v) of paragraph A of this Section.
2) Notwithstanding the requirements of the previous
Section, no Business Combination between the Corporation (or
any Subsidiary) and a Related Person or any Affiliate of a
Related Person may be effected unless all of the following
conditions are met:
A. The aggregate amount of the cash and the
Fair Market Value as of the date of the consummation
of the Business Combination of consideration other
than cash to be received per share by holders of any
class of Equity Security in such Business Combination
shall be at least equal to the highest per share
price (including any brokerage commissions, transfer
taxes and soliciting dealer's fees) paid by the
Related Person for any shares of the same class of
Equity Security previously acquired by it, plus
interest on such amount compounded annually from the
date that the Related Person became a Related Person
(the "Determination
3
<PAGE> 4
Date") through the date of consummation of the
Business Combination (the "Consummation Date") at the
rate publicly announced as the "Prime Rate" of
interest (announced by such major bank as may be
selected by a majority of the Continuing Directors),
from time to time in effect, less the aggregate
amount of any cash dividends paid and the Fair Market
Value of any dividends paid in other than cash on
each share from the Determination Date through the
Consummation Date, up to, but not exceeding, the
amount of interest payable per share.
B. The consideration to be received by
holders of a particular class of Equity Security
shall, except to the extent a shareholder agrees
otherwise, be in cash or in the same form as the
Related Person has previously paid for shares of such
class of Equity Security. If the Related Person has
paid for shares of any class of Equity Security with
varying forms of consideration, the form of
consideration for such class of Equity Security. If
the Related Person has paid for shares of any class
of Equity Security with varying forms of
consideration, the form of consideration for such
class of Equity Security shall be either cash or in
the form used to acquire the largest number of shares
of such class of Equity Security previously acquired
by it. The price determined in accordance with
paragraph A of this Section shall be subject to
appropriate adjustment in the event of any share
dividend, share split, combination of shares or
similar event.
3) The provisions of Sections (1) and (2) of this
Article EIGHTH shall not apply to a Business Combination if:
A. The Continuing Directors of the
Corporation by a two-thirds vote (i) have expressly
approved a memorandum of understanding with the
Related Person with respect to the Business
Combination prior to the time that the Related Person
became a Related Person and the Business Combination
is effected on substantially the same terms and
conditions as are provided by the memorandum of
understanding, or (ii) have otherwise approved the
Business Combination (this provision is incapable of
satisfaction unless there is at least one Continuing
Director); or
B. The Business Combination is solely
between the Corporation and another corporation, one
hundred percent of the Voting Shares of which is
owned directly or indirectly by the Corporation.
In the event the Continuing Directors shall
approve a Business Combination as set forth in
paragraph A above, or the Business Combination is
solely between the Corporation and another
corporation described in paragraph B above, such
Business Combination shall require only such
shareholder vote, if any, as is required by law.
4) For the purpose of this Article EIGHTH:
A. "Person" shall mean any individual,
firm, corporation or other entity.
B. "Related Person" shall mean any Person
who or which:
4
<PAGE> 5
(i) is the beneficial owner, directly or
indirectly, of 10% or more of the voting power of
the outstanding Voting Shares; or
(ii) is an Affiliate or Associate of the
Corporation and at any time within the two-year
period immediately prior to the date in question was
the beneficial owner, directly or indirectly, of 10%
or more of the voting power of the then outstanding
Voting Shares; or
(iii) is an assignee of or has otherwise
succeeded to any shares of Voting Shares which were
at any time within the two-year period immediately
prior to the date in question beneficially owned by
any Related Person, if such assignment or succession
shall have occurred in the course of a transaction or
series of transactions not involving a public
offering within the meaning of the Securities Act of
1933, as amended.
Provided, however, that the term "Related Person"
shall not include (i) the Corporation or any
Subsidiary, (ii) any one or any group of the
Continuing Directors, or (iii) any profit-sharing,
employee shares ownership or other employee benefit
plan of the corporation or any Subsidiary of the
Corporation or any trustee of or other fiduciary with
respect to any such plan when acting in that
capacity.
C. A Person shall be a "beneficial owner"
of any Voting Shares:
(i) which such Person or any of its
Affiliates or Associates (as hereinafter defined)
beneficially owns, directly or indirectly; or
(ii) which such Person or any of its
Affiliates or Associates has (a) the right to acquire
(whether such right is exercisable immediately or
only after the passage of time) pursuant to any
agreement, arrangement or understanding or upon the
exercise of conversion rights, exchange rights,
warrants or options, or otherwise, or (b) the right
to vote pursuant to any agreement, arrangement or
understanding; or
(iii) which is beneficially owned, directly
or indirectly, by any other Person with which such
Person or any of its Affiliates or Associates has any
agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing of
any shares of Voting Shares.
D. For the purpose of determining whether a
Person is a Related Person pursuant to paragraph B of
this Section, the number of shares of Voting Shares
deemed to be outstanding shall include shares deemed
owned through application of paragraph C of this
Section, but shall not include any other shares of
Voting Shares which may be issuable pursuant to any
agreement, arrangement or understanding, or upon
exercise of conversion rights, warrants or options,
or otherwise.
5
<PAGE> 6
E. "Affiliate" or "Associate" shall have the
respective meanings ascribed to such terms in Rule
12b-2 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as in effect on
January 1, 1986.
F. "Subsidiary" means any corporation of
which a majority of any class of Equity Security is
owned, directly or indirectly, by the Corporation;
provided, however, that for the purposes of the
definition of Related Person set forth in paragraph B
of this Section, the term "Subsidiary" shall mean
only a corporation of which a majority of each class
of Equity Security is owned, directly or indirectly,
by the Corporation.
G. "Continuing Director" means any member of
the Board of Directors who is unaffiliated with the
"Related Person" and was a member of the Board of
Directors prior to the time that the Related Person
became a Related Person, and any successor of a
Continuing Director who is unaffiliated with the
Related Person and is recommended to succeed a
Continuing Director by two-thirds of the Continuing
Directors then on the Board of Directors.
H. "Fair Market Value" means: (1) in the
case of stock, the highest closing sales price during
the 30-day period immediately preceding the date in
question of a share of such stock on the Composite
Tape for New York Stock Exchange -- Listed Stocks,
or, if such stock is not quoted on the composite
Tape, on the New York Stock Exchange, or, if such
stock is not listed on the Exchange, on the principal
United States securities exchange registered under
the Securities Exchange Act of 1934 on which such
stock is listed, or, if such stock is not listed on
any such exchange, the highest closing bid quotation
with respect to a share of such stock during the
30-day period preceding the date in question on the
National Association of Securities Dealers, Inc.
Automated Quotations Systems or any system then in
use, or if no such quotations are available, the fair
market value on the date in question of a share of
such stock as determined by a two-thirds vote of the
Continuing Directors; and (ii) in the case of
property other than cash or stock, the fair market
value of such property on the date in question as
determined by a two-thirds vote of the Continuing
Directors.
I. In the event of any Business Combination
in which the Corporation survives, the phrase
"consideration other than cash to be received" as
used in paragraph A of this Section shall include the
shares of any class of Equity Security retained by
the holders of such shares.
J. "Equity Security" shall have the meaning
ascribed to such term in Section 3(a)(11) of the
Securities Exchange Act of 1934, as in effect on
January 1, 1986.
K. "Voting Shares" means shares of any
Equity Security of a corporation which are entitled
to vote in the election of Directors of such
corporation.
L. The phrase "series of related
transactions" shall be deemed to include not only a
series of transactions with the same Related Person
but also a
6
<PAGE> 7
series of separate transactions with a Related Person
or any Affiliate or Associate of such Related Person.
5) The Continuing Directors shall, by two-thirds
vote, have the power and duty to determine for the purposes of
this Article EIGHTH on the basis of information known to them
after reasonable inquiry, (A) whether a Person is a Related
Person, (B) the number of shares of Voting Shares beneficially
owned by any Person, (C) whether a Person is an Affiliate or
Associate of another, (D) whether the assets which are the
subject of any Business Combination have, or the consideration
to be received for the issuance or transfer of securities by
the Corporation or any Subsidiary in any Business Combination
has, an aggregate Fair Market Value equal to 10% or more of
the consolidated net worth of the corporation. The Continuing
Directors shall, by two-thirds vote, have the further power to
interpret all other terms and provisions of this Article
EIGHTH.
6) Nothing contained in this Article EIGHTH shall be
construed to relieve any Related Person from any fiduciary
obligation imposed by law.
NINTH: Notwithstanding any statutory provision now or hereafter in
force requiring for any purpose the vote, consent, waiver or
release of the holders of shares entitling them to exercise
two-thirds, or any other proportion, of the voting power of
the Corporation or of any class or classes of shares thereof,
such action, unless otherwise expressly required by statute or
by these Articles, may be taken by the vote, consent, waiver
or release of the holders of shares entitling them to exercise
a majority of the voting power of the Corporation or of such
class or classes. Each of Articles SIXTH, SEVENTH and EIGHTH
and this Article NINTH, of these Articles of Incorporation may
be amended at any regular or special meeting of the
shareholders only by the affirmative vote of the holders of at
least 75% of the voting power of the outstanding shares of
this Corporation.
TENTH: Any and every statute of the State of Ohio hereafter
enacted, whereby the rights, powers or privileges of
corporations or of the shareholders of corporations organized
under the laws of the State of Ohio are increased or
diminished or in any way affected, or whereby effect is given
to the action taken by any number, less than all, of the
shareholders of any such corporation, shall apply to the
Corporation and shall be binding not only upon the
Corporation, but upon every shareholder of the Corporation to
the same extent as if such statute had been in force at the
date of filing these Articles of Incorporation of the
Corporation in the office of the Secretary of State of Ohio.
The right to alter, amend, change or repeal any clause or
provision of these Articles of Incorporation, in the manner
now or hereafter prescribed by law, is hereby reserved to the
Corporation; and all rights conferred on officers, Directors
and shareholders herein are granted subject to such
reservation.
7
<PAGE> 1
Exhibit 5
614-464-6400
_______ __, 1998
Enfin, Inc.
6150 Enterprise Parkway
Solon, OH 44139
Re: Merger of Enfin, Inc. with Second Bancorp Incorporated
Gentlemen:
We have acted as special counsel for Second Bancorp
Incorporated, an Ohio corporation and bank holding company (the "Corporation"),
in connection with the proposed acquisition by the Corporation of Enfin, Inc.,
an Ohio corporation ("Enfin"), through the merger of Enfin with and into the
Corporation. This merger is referred to in this opinion as the "Merger".
In connection therewith, we have examined the original or a
copy of the following:
1. The Agreement and Plan of Merger (the "Merger
Agreement"), dated April 1, 1998, by and between the
Corporation and Enfin;
2. A Certificate of Good Standing as to the Corporation
issued by the Ohio Secretary of State as of
_____________;
3. A Certificate of the Chairman and Secretary of the
Corporation as to factual matters.
We have also examined such authorities of law as we have deemed relevant as a
basis for this opinion. Unless otherwise indicated, capitalized terms used but
not defined herein shall have the meanings given to such terms in the Agreement.
In our examinations and in rendering the opinions set forth
below, we have assumed, without verification or investigation: (A) the
genuineness of all signatures on all documents, other than those on behalf of
the Corporation; (B) the authenticity of all documents submitted to us as
originals and, except with respect to the documents referred to in (D) below,
due authorization, completion, execution, acknowledgment and delivery thereof;
(C) the conformity to the original documents of all documents submitted to us as
copies and the authenticity of the originals of such copies; (D) the due and
effective authorization, completion, execution and delivery by Enfin of the
Merger Agreement; (E) that Enfin has full power, authority and legal right under
its governing documents, corporate legislation and the laws of its jurisdiction
of incorporation to enter into and perform its respective obligations under such
document(s); (F) that the Merger Agreement constitutes valid and binding
obligations of Enfin, enforceable against Enfin in accordance with its terms;
(G) the correctness and completeness of all statements of fact set forth in
certificates and other documents examined and relied on by us in connection with
the rendering of this opinion, including without limitation certificates of
officers of the Corporation and public officials; and (H) that the performance
by Enfin under the Merger Agreement will be performed in accordance with
applicable law.
<PAGE> 2
Whenever any matter is indicated to be "to our knowledge", or
qualified by words of similar import, we are referring to the actual knowledge
of the Vorys, Sater, Seymour and Pease LLP attorneys who have represented the
Corporation in connection with the execution and delivery of the Merger
Agreement. Except as to matters within our actual knowledge, as to factual
matters relevant to our opinion, we have relied solely upon certificates of
officers of the Corporation and public officials. We have not undertaken any
examination or inquiry to determine the existence or absence of any facts other
than that recited herein, and no inference as to our knowledge concerning such
facts should be drawn.
By the phrase "validly authorized by all necessary corporate
action of the Corporation", we mean all necessary corporate action of the
Corporation under Ohio Revised Code ("ORC") Ch. 1701 (the Ohio General
Corporation Law) and the Articles and Regulations of the Corporation. By the
phrase "corporate power and authority", we mean power and authority under ORC
Ch. 1701 and the Articles and Regulations of the Corporation. As to questions of
fact relevant to our opinion regarding the good standing of the Corporation, we
have relied solely on the certificates of the Ohio Secretary of State described
at items __ through __ above.
Based upon and subject to the foregoing and the further
limitations, qualifications and exceptions set forth herein, as of the date
hereof, we are of the opinion that:
1. The Corporation is a corporation validly existing under
the laws of the State of Ohio and in good standing on the records of the
Secretary of State of Ohio.
2. The execution and delivery of, and the performance of its
obligations under, the Merger Agreement are validly authorized by all necessary
corporate action of the Corporation. The Agreement has been validly executed and
delivered by the Corporation. The Agreement constitutes a valid and binding
obligation of the Corporation, enforceable in accordance with its terms.
3. The execution and delivery of the Agreement by the
Corporation and the consummation and performance thereof do not violate any
provision of either the Corporation's articles or regulations and do not violate
any order, writ, judgment, injunction, decree, determination or award which is
presently in effect and known by us and to which the Corporation or its
subsidiary is a party.
4. No authorization or approval of any governmental
department, agency or instrumentality of the United States or of any state which
has not been obtained by the Corporation is necessary for the execution or
delivery of, or the performance of its obligations under, the Agreement by the
Corporation or otherwise is necessary to effect the Merger in accordance with
the terms of the Agreement.
5. The Shares to be issued in connection with the Merger in
accordance with Article Two of the Agreement, when so issued, will be duly
authorized, validly issued, fully paid, non-assessable, and issued free of
preemptive rights of any person.
Our opinions expressed herein are qualified to the extent that
the validity, binding nature and enforceability of any of the terms of the Plan
and the Merger Agreement may be limited or otherwise affected by: (A)
bankruptcy, insolvency, fraudulent conveyance, moratorium, reorganization or
similar laws of general application now or hereafter in effect affecting the
rights and remedies of creditors and the obligations of debtors; (B) general
principles of equity, regardless of whether considered in a proceeding in equity
or at law; (C) the availability of the remedy of specific enforcement or
injunctive or other equitable
2
<PAGE> 3
relief, as such remedies are subject to standards of equity jurisdiction,
equitable defenses and the discretion of the court before which any proceeding
therefor may be brought; and (D) limitations of public policy.
In addition, we express no opinion as to the enforceability of
rights, provisions or interests to the extent, if any, dependent upon the
enforceability of any provision for the award of attorneys' fees to an opposing
party.
This opinion is limited to the laws of the United States and
the State of Ohio having effect as of the date hereof. This opinion is furnished
by us to Enfin pursuant to Section 9.02(d) of the Merger Agreement, solely in
that connection, upon the understanding that we are not hereby assuming any
professional responsibility to any other person whatsoever. Without limiting the
foregoing, this opinion may not be assigned, used, circulated, quoted or
otherwise referred to by you for any other purpose without our specific prior
written consent.
We hereby consent to the filing of this opinion as part of the
above-referenced Registration Statement and amendments thereto and to the
reference to us in the Prospectus Information Statement under the caption "Legal
Matters."
Very truly yours,
/s/ Vorys, Sater, Seymour and Pease LLP
---------------------------------------
VORYS, SATER, SEYMOUR AND PEASE LLP
3
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) and related Prospectus of Second Bancorp
Incorporated for the registration of 586,000 shares of its common stock for the
merger of Enfin, Inc. and to the incorporation by reference therein of our
report dated January 19, 1998, with respect to the consolidated financial
statements of Second Bancorp Incorporated included in its Annual Report (Form
10-K) for the year ended December 31, 1997, filed with the Securities and
Exchange Commission.
/s/ ERNST & YOUNG LLP
---------------------
Ernst & Young LLP
Cleveland, Ohio
June 10, 1998
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation in this registration statement of Second
Bancorp, Incorporated on Form S-4, of our report dated February 12, 1998, except
for Note 15 as to which the date is April 2, 1998 on the consolidated financial
statements of Enfin, Inc. as of December 31, 1997 and 1996 and for each of the
three years in the period ended December 31, 1997. We also consent to the
reference to our firm under the heading "Experts" in the prospectus, which is
part of this registration statement.
/s/ CROWE, CHIZEK AND COMPANY LLP
---------------------------------
Crowe, Chizek and Company LLP
Cleveland, Ohio
June 8, 1998
<PAGE> 1
Exhibit 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in this registration statement of
Second Bancorp, Incorporated on Form S-4, of our report dated October 31, 1997
on the financial statements of The Trumbull Savings and Loan Company as of
September 30, 1997 and 1996 and for each of the three years in the period ended
September 30, 1997. We also consent to the reference to our firm under the
heading "Experts" in the prospectus, which is part of this registration
statement.
/s/ CROWE, CHIZEK AND COMPANY LLP
---------------------------------
Crowe, Chizek and Company LLP
Cleveland, Ohio
June 8, 1998
<PAGE> 1
Exhibit 23.4
CONSENT OF AUSTIN ASSOCIATES, INC.
We consent to the inclusion in this Registration Statement on Form S-4 of Second
Bancorp Incorporated of our opinion set forth as Annex B to the Prospectus and
Proxy Statement, which is part of the Registration Statement, and to the
reference to our firm and summarization of our opinion in the Prospectus and
Proxy Statement under the captions "Opinion of Austin Associates, Inc."
/s/ AUSTIN ASSOCIATES, INC.
-----------------------------
Austin Associates, Inc.
Toledo, Ohio
June 8, 1998
<PAGE> 1
Exhibit 99.2
REVOCABLE PROXY
ENFIN, INC.
SPECIAL MEETING OF SHAREHOLDERS
________, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS OF ENFIN, INC.
The undersigned hereby appoints __________, ______ and ___________, or
any one of them, with full powers of substitution and resubstitution, to act as
proxy or proxies for the undersigned, to vote all common shares of Enfin, Inc.
("Enfin") which the undersigned is entitled to vote at the special meeting of
shareholders (the "Special Meeting"), to be held at the Radison Hotel, I-271 and
Chagrin Blvd., Cleveland, Ohio on ________ __, 1998 at __:_0 p.m., and at any
and all adjournments thereof, as follows:
1. Proposal to approve the Agreement and Plan of Merger, dated as of April
1,1998, between Second Bancorp Incorporated ("Second Bancorp") and
Enfin (the "Agreement") and the transactions contemplated thereby.
Pursuant to the Agreement, Enfin will merge with and into Second
Bancorp (the "Merger"). At the time the Merger becomes effective, each
common share, $10 par value, of Enfin will be canceled and converted by
virtue of the Merger into .95 (the "Exchange Ratio") of a common share,
without par value, of Second Bancorp. The Exchange Ratio is subject to
adjustment, and consummation of the Merger is subject to various
conditions, as set forth in the Agreement attached as part of the
accompanying Prospectus/Proxy Statement.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
2. In their discretion, upon such other matters as may properly come
before the Special Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ADOPTION OF THE
AGREEMENT. THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE
SPECIFIED, THIS PROXY WILL BE VOTED FOR THE PROPOSITION STATED. IF ANY OTHER
BUSINESS IS PRESENTED AT THE SPECIAL MEETING, THIS PROXY WILL BE VOTED BY THOSE
NAMED IN THIS PROXY IN ACCORDANCE WITH THE DETERMINATION OF A MAJORITY OF THE
BOARD OF DIRECTORS. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO
OTHER BUSINESS TO BE PRESENTED AT THE SPECIAL MEETING. THIS PROXY CONFERS
DISCRETIONARY AUTHORITY ON THE HOLDERS THEREOF TO VOTE WITH RESPECT TO MATTERS
INCIDENT TO THE CONDUCT OF THE SPECIAL MEETING.
Should the undersigned be present and elect to vote at the Special
Meeting or at any adjournment thereof and after notification to the Secretary of
Enfin at the Special Meeting of the shareholder's decision to terminate this
proxy, then the powers of said attorneys and proxies shall be deemed terminated
and of no further force and effect.
<PAGE> 2
The undersigned acknowledges receipt from Enfin prior to the
execution of this proxy of Notice of the Special Meeting and a Proxy
Statement/Prospectus dated ______ __, 1998.
PLEASE COMPLETE, DATE, SIGN AND MAIL
THIS PROXY PROMPTLY IN THE
ACCOMPANYING POSTAGE PREPAID ENVELOPE.
Dated: ____________________, 1998
Number of Shares:
_________________________________
PRINT NAME OF SHAREHOLDER
_________________________________
SIGNATURE OF SHAREHOLDER
_________________________________
PRINT NAME OF SHAREHOLDER
_________________________________
SIGNATURE OF SHAREHOLDER
PLEASE SIGN EXACTLY AS YOUR NAME
APPEARS ON THE ENVELOPE IN WHICH THIS
CARD WAS ENTITLED. WHEN SIGNING AS
ATTORNEY, EXECUTOR, TRUSTEE OR
GUARDIAN, PLEASE GIVE YOUR FULL TITLE.
IF SHARES ARE HELD JOINTLY, EACH
HOLDER SHOULD SIGN.
2
<PAGE> 1
Exhibit 99.3
ENFIN, INC.
6150 ENTERPRISE PARKWAY
SOLON, OHIO 44139
__________ __, 1998
Dear Shareholder:
Recently, we mailed to you a Notice of a Special Meeting of
Shareholders of Enfin, Inc. ("Enfin") to be held at the Radison Hotel, I-271 and
Chagrin Blvd., Cleveland, Ohio on ______ __, 1998 at _:_0 _.m., and at any
adjournments thereof (the "Special Meeting"). The purpose of the Special Meeting
is to submit to shareholders for approval and adoption the Agreement and Plan of
Merger dated as of April 1, 1998, between Second Bancorp Incorporated ("Second
Bancorp") and Enfin (the "Agreement"), and the transactions contemplated
thereby, including the merger of Enfin into Second Bancorp (the "Merger").
The transactions contemplated by the Agreement also include, for
purposes of Ohio law, the "control share acquisition" by Second Bancorp of more
than a majority of the voting power of Enfin. Such control share acquisition
will occur by operation of law on the effective date of the Merger. A
PECULIARITY OF OHIO LAW REQUIRES A SEPARATE VOTE OF SHAREHOLDERS OF ENFIN ON THE
CONTROL SHARE ACQUISITION BY SECOND BANCORP.
Accordingly, we have enclosed a Notice of a SEPARATE SPECIAL MEETING to
be convened immediately before the Special Meeting for the purpose of submitting
the control share acquisition by Second Bancorp of more than a majority of the
voting power of Enfin to the shareholders of Enfin for approval (the "Control
Share Acquisition Special Meeting"). Such control share acquisition must be
approved by a majority of the voting power of Enfin represented in person or by
proxy at the Control Share Acquisition Special Meeting and a majority of such
voting power, excluding any Enfin common shares owned by an officer of Enfin or
by any director of Enfin who is also an employee of Enfin and excluding certain
other Enfin Common Shares.
As a result of the foregoing, THE ENCLOSED NOTICE IS SUBMITTED TO YOU
IN ADDITION TO THE NOTICE MAILED SEPARATELY TO YOU. PLEASE NOTE THAT THE
ENCLOSED YELLOW PROXY WITH RESPECT TO THE CONTROL SHARE ACQUISITION SPECIAL
MEETING IS SEPARATE FROM AND IN ADDITION TO THE BLUE PROXY ENCLOSED IN THE
SEPARATE MAILING RELATED TO THE SPECIAL MEETING.
PLEASE RETURN, THEREFORE, TWO PROXIES,
ONE BLUE PROXY FOR THE SPECIAL MEETING AND
ONE YELLOW PROXY FOR THE CONTROL SHARE
ACQUISITION MEETING.
If you have any questions about the foregoing, please call S.
Casamento, Chief Financial Officer of Enfin, at (440) 498-1220.
Very truly yours,
Frank S. Wade, Chief Executive Officer
<PAGE> 1
Exhibit 99.4
ENFIN, INC.
6150 ENTERPRISE PARKWAY
SOLON, OHIO 44139
(440) 498-1220
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
____________ __, 1998
NOTICE IS HEREBY GIVEN that a special meeting of shareholders of Enfin,
Inc., an Ohio corporation and bank holding company ("Enfin"), will be held at
the Radison Hotel, I-271 and Chagrin Blvd., Cleveland, Ohio _____, on ____ __,
1998, at _:__ p.m., (the "Enfin Special Meeting"), for the following purposes,
each of which is described in the accompanying Prospectus/Proxy Statement:
1. To consider and vote upon a proposed merger (the "Merger") of
Enfin and Second Bancorp Incorporated, a bank holding company
incorporated under Ohio law ("Second Bancorp"), pursuant to
an Agreement and Plan of Merger (the "Agreement"), dated
April 1, 1998, by and between Enfin and Second Bancorp.
Pursuant to the terms of the Agreement, if the Agreement and
the Merger are adopted by the affirmative vote of the holders
of two-thirds of the issued and outstanding common shares of
Enfin (the "Enfin Shares") and if all other conditions to the
consummation of the Merger are satisfied, the following will
occur: (i) Enfin will be merged with and into Second Bancorp
and Second Bancorp will be the surviving entity of the Merger
and Enfin's corporate existence shall terminate; and (ii)
upon the date that the Merger becomes effective, each of the
outstanding Enfin Shares will be canceled and extinguished in
consideration and exchange for .950 Second Bancorp common
shares (the "Exchange Ratio"), subject to adjustment,
depending upon the future price activity of Second Bancorp's
common shares as more fully described in the accompanying
Prospectus/Proxy Statement. Regardless of changes in the
price of the Second Bancorp common shares, the Exchange Ratio
shall not exceed 1.069 Second Bancorp common shares.
2. To transact such other business as may properly come before
the Enfin Special Meeting or any adjournments thereof.
A copy of the Agreement is attached to the accompanying
Prospectus/Proxy Statement as Annex A.
Only shareholders of Enfin of record at the close of business on
_________ __, 1998, will be entitled to receive notice of and to vote at the
Enfin Special Meeting and at any adjournments thereof. Whether or not you expect
to attend the Enfin Special Meeting, we urge you to consider the accompanying
Prospectus/Proxy Statement carefully and to SIGN, DATE AND PROMPTLY RETURN THE
ENCLOSED PROXY SO THAT YOUR SHARES MAY BE VOTED IN ACCORDANCE WITH YOUR WISHES
AND THE PRESENCE OF A QUORUM MAY BE ASSURED. The giving of a Proxy does not
affect your right to vote in person in the event you attend the Enfin Special
Meeting.
THE AGREEMENT MUST BE APPROVED AND ADOPTED BY THE AFFIRMATIVE VOTE OF
THE HOLDERS AT LEAST TWO THIRDS OF THE ISSUED AND OUTSTANDING ENFIN COMMON
SHARES ENTITLED TO VOTE. IN ADDITION, THE CONTROL SHARE ACQUISITION BY SECOND
BANCORP OF MORE THAN A MAJORITY OF THE VOTING POWER OF ENFIN PURSUANT TO THE
AGREEMENT MUST BE APPROVED BY A MAJORITY OF THE VOTING POWER OF ENFIN
REPRESENTED IN PERSON OR BY PROXY AT A SEPARATE CONTROL SHARE
<PAGE> 2
ACQUISITION SPECIAL MEETING, AND A MAJORITY OF THE PORTION OF SUCH VOTING POWER,
EXCLUDING ANY ENFIN SHARES OWNED BY ANY OFFICER OF ENFIN OR ANY DIRECTOR OF
ENFIN WHO IS ALSO AN EMPLOYEE OF ENFIN AND ANY OTHER INTERESTED SHARES. A NOTICE
AND A PROXY FOR SUCH SEPARATE CONTROL SHARE ACQUISITION SPECIAL MEETING WILL BE
MAILED TO SHAREHOLDERS OF ENFIN SEPARATE AND APART FROM THIS PROSPECTUS/PROXY
STATEMENT. THE SEPARATE CONTROL SHARE ACQUISITION MEETING WILL BE HELD ON THE
SAME DAY AND AT THE SAME PLACE AS THE ENFIN SPECIAL MEETING AND WILL IMMEDIATELY
PRECEDE THE ENFIN SPECIAL MEETING. IN THE EVENT THERE ARE NOT SUFFICIENT VOTES
TO APPROVE THE FOREGOING PROPOSAL AT THE TIME OF THE SEPARATE CONTROL SHARE
ACQUISITION SPECIAL MEETING OR AT THE ENFIN SPECIAL MEETING, THE MEETINGS MAY BE
ADJOURNED BY A MAJORITY OF THE VOTES CAST IN ORDER TO PERMIT FURTHER
SOLICITATION OF PROXIES BY ENFIN.
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. EACH
SHAREHOLDER, WHETHER OR NOT HE OR SHE PLANS TO ATTEND THE ENFIN SPECIAL MEETING
IS REQUESTED TO SIGN, DATE AND RETURN THE ENCLOSED BLUE PROXY FOR THE ENFIN
SPECIAL MEETING WITHOUT DELAY IN THE ENCLOSED POSTAGE-PAID ENVELOP. ANY PROXY
GIVEN BY A SHAREHOLDER MAY BE REVOKED BEFORE IT IS EXERCISED BY SUBMITTING A
LATER DATED PROXY, BY ATTENDING THE SPECIAL MEETING AND VOTING IN PERSON OR BY
GIVING NOTICE OF REVOCATION TO ENFIN IN A WRITING ADDRESSED TO AND RECEIVED BY
THE SECRETARY OF ENFIN BEFORE THE ENFIN SPECIAL MEETING.
By Order of the Board of Directors
Frank S. Wade,
Chief Executive Officer
Solon, Ohio
_______ __, 1998
PLEASE DO NOT FORWARD YOUR ENFIN CERTIFICATES AT THIS TIME.
2
<PAGE> 1
Exhibit 99.6
ENFIN, INC.
6150 ENTERPRISE PARKWAY
SOLON, OHIO 44139
(440) 498-1220
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
ON CONTROL SHARE ACQUISITION
____ __, 1998
NOTICE IS HEREBY GIVEN that a special meeting of shareholders (the
"Control Share Acquisition Special Meeting") of Enfin, Inc. ("Enfin") will be
held on ______ __, 1998, at _:_0 p.m., at the Radison Hotel, I-271 and Chagrin
Blvd., Cleveland, Ohio, for the following purposes:
1. To consider and vote upon the control share acquisition of
more than a majority of the voting power of Enfin, Inc. by
Second Bancorp Incorporated ("Second Bancorp") pursuant to and
in accordance with the Agreement and Plan of Merger dated as
of April 1, 1998, by and between Enfin and Second Bancorp (the
"Agreement"), a copy of which has been mailed to Enfin's
shareholders under separate cover, together with a
Prospectus/Proxy Statement dated _________ __, 1998 (the
"Prospectus/Proxy Statement").
2. To transact such other business as may properly come before
the Control Share Acquisition Special Meeting or at any
adjournments thereof.
Included with this Notice is a copy of the Acquiring Person Statement
delivered to Enfin by Second Bancorp pursuant to Section 1701.831 of the Ohio
Revised Code. Pursuant to the Code of Regulations of Enfin, the Board of
Directors has fixed _____ __, 1998, as the record date for the determination of
shareholders entitled to receive notice of, and to vote at, the Control Share
Acquisition Special Meeting and at any adjournments thereof. Any action may be
taken on either of the foregoing proposals at the Control Share Acquisition
Special Meeting on the date specified above, or on any date or dates to which,
by original or later adjournment, the meeting may be adjourned. Only holders of
record of Enfin common shares at the close of business on the record date will
be entitled to vote at the Control Share Acquisition Special Meeting or any
adjournments thereof.
THE CONTROL SHARE ACQUISITION MUST BE APPROVED AND ADOPTED BY THE
AFFIRMATIVE VOTE OF A MAJORITY OF THE VOTING POWER OF ENFIN REPRESENTED IN
PERSON OR BY PROXY AT THE CONTROL SHARE ACQUISITION SPECIAL MEETING, AND A
MAJORITY OF THE PORTION OF SUCH VOTING POWER EXCLUDING ANY ENFIN COMMON SHARES
OWNED BY AN OFFICER OF ENFIN OR BY ANY DIRECTOR OF ENFIN WHO IS ALSO AN EMPLOYEE
OF ENFIN AND EXCLUDING CERTAIN OTHER ENFIN COMMON SHARES. IN THE EVENT THERE ARE
NOT SUFFICIENT VOTES TO APPROVE THE FOREGOING PROPOSAL AT THE TIME OF THE
CONTROL SHARE ACQUISITION SPECIAL MEETING, THE CONTROL SHARE ACQUISITION SPECIAL
MEETING MAY BE ADJOURNED BY A MAJORITY OF VOTES PRESENT AT THE CONTROL SHARE
ACQUISITION MEETING IN ORDER TO PERMIT FURTHER SOLICITATION OF PROXIES BY ENFIN.
Your vote is important regardless of the number of shares you own. Each
shareholder, whether or not he or she plans to attend the Control Share
Acquisition Special Meeting, is requested to sign, date and return the enclosed
proxy card without delay in the enclosed postage paid envelope. Any proxy given
by a shareholder may be revoked before it is exercised by submitting a later
dated proxy, by attending the Control Share Acquisition Special Meeting and
voting in person or by giving notice of revocation to Enfin in writing and
addressed to and received by the Secretary of Enfin before the Control Share
Acquisition Special Meeting.
<PAGE> 2
Because of a peculiarity of Ohio law, Enfin is required to hold
separate special meetings to consider and vote upon (i) the control share
acquisition of Enfin by Second Bancorp and (ii) the merger of Enfin into Second
Bancorp, despite the fact that both such proposals are addressed by the
Agreement and the Prospectus/Proxy Statement. The Control Share Acquisition
Special Meeting will be held immediately prior to the Special Meeting relating
to the proposed merger. Therefore, the enclosed yellow proxy with respect to the
Control Share Acquisition Special Meeting is separate from and in addition to
the blue proxy enclosed in the separate mailing relating to the Special Meeting
for the merger. PLEASE COMPLETE AND RETURN BOTH THE YELLOW AND THE BLUE PROXIES.
THE BOARD OF DIRECTORS OF ENFIN UNANIMOUSLY RECOMMENDS THAT YOU VOTE
FOR THE CONTROL SHARE ACQUISITION BY SECOND BANCORP OF MORE THAN A MAJORITY OF
THE VOTING POWER OF ENFIN.
By Order of the Board of Directors
Frank S. Wade, Chief Executive Officer
Solon, Ohio
_______ __, 1998
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<PAGE> 1
Exhibit 99.7
REVOCABLE PROXY
ENFIN, INC.
SPECIAL MEETING OF SHAREHOLDERS
ON
THE CONTROL SHARE ACQUISITION OF
ENFIN, INC. BY SECOND BANCORP INCORPORATED
_________ __, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS OF ENFIN, INC.
The undersigned hereby appoints _____________, ______________ and
______________, or any one of them, with full powers of substitution and
resubstitution, to act as proxy or proxies for the undersigned, to vote all of
the common shares of Enfin, Inc. ("Enfin") which the undersigned is entitled to
vote at the Special Meeting of the Shareholders of Enfin to be held at the
Radison Hotel, I-271 and Chagrin Blvd., Cleveland, Ohio, on ______ __, 1998, at
_:_0 p.m., and at any and all adjournments thereof (the "Control Share
Acquisition Special Meeting"), as follows:
1. The approval of the control share acquisition by Second Bancorp
Incorporated ("Second Bancorp") of more than a majority of the voting
power of Enfin, pursuant to and in accordance with the Agreement and
Plan of Merger dated as of April 1, 1998, by and between Enfin and
Second Bancorp (the "Agreement").
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
2. In their discretion, upon such other matters as may properly come
before the Control Share Acquisition Special Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO APPROVE
THE CONTROL SHARE ACQUISITION BY SECOND BANCORP.
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE
SPECIFIED, THIS PROXY WILL BE VOTED FOR THE PROPOSITION STATED. IF ANY OTHER
BUSINESS IS PRESENTED AT THE CONTROL SHARE ACQUISITION SPECIAL MEETING, THIS
PROXY WILL BE VOTED BY THOSE NAMED IN THIS PROXY IN ACCORDANCE WITH THE
DETERMINATION OF A MAJORITY OF THE BOARD OF DIRECTORS. AT THE PRESENT TIME, THE
BOARD OF DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE PRESENTED AT THE CONTROL
SHARE ACQUISITION SPECIAL MEETING. THIS PROXY CONFERS DISCRETIONARY AUTHORITY ON
THE HOLDERS THEREOF TO VOTE WITH RESPECT TO MATTERS INCIDENT TO THE CONDUCT OF
THE CONTROL SHARE ACQUISITION SPECIAL MEETING.
Should the undersigned be present and elect to vote at the Control
Share Acquisition Special Meeting or at any adjournment thereof and after
notification to the Secretary of Enfin at the Control Share Acquisition Special
Meeting of the shareholder's decision to terminate this proxy, then the powers
of said attorneys and proxies shall be deemed terminated and of no further force
and effect.
<PAGE> 2
The undersigned acknowledges receipt from Enfin prior to the execution
of this proxy of the Notice of the Control Share Acquisition Special Meeting and
a Proxy Statement/Prospectus dated ______ __, 1998.
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS
PROXY PROMPTLY IN THE ACCOMPANYING POSTAGE
PREPAID ENVELOPE.
Dated: ____________________, 1998
Number of Shares:
__________________________________________
PRINT NAME OF SHAREHOLDER
__________________________________________
SIGNATURE OF SHAREHOLDER
__________________________________________
PRINT NAME OF SHAREHOLDER
__________________________________________
SIGNATURE OF SHAREHOLDER
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS
ON THE ENVELOPE IN WHICH THIS CARD WAS
ENTITLED. WHEN SIGNING AS ATTORNEY,
EXECUTOR, TRUSTEE OR GUARDIAN, PLEASE GIVE
YOUR FULL TITLE. IF SHARES ARE HELD
JOINTLY, EACH HOLDER SHOULD SIGN.
2
