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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Act of 1934
Date of Report (Date of earliest event reported) April 22, 1996
PINNACLE BANC GROUP, INC.
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(Exact name of registrant as specified in its charter)
ILLINOIS 0-18283 36-3190818
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(State or other (Commission (I.R.S. Employer
jurisdiction File Number) Identification No.)
of Incorporation)
2215 YORK ROAD, SUITE 208, OAK BROOK, ILLINOIS 60521
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (708) 574-3550
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(Former name or former address, if changed since last report)
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ITEM 5. OTHER EVENTS
On April 22, 1996, Pinnacle Banc Group, Inc. ("Pinnacle") entered into an
Agreement and Plan of Merger (the "Agreement") with Financial Security Corp.
("Financial Security") pursuant to which Pinnacle will acquire Financial
Security. According to the Agreement, Financial Security will merge into
Pinnacle and Security Federal Savings and Loan Association of Chicago, a
wholly-owned subsidiary of Financial Security, will become a subsidiary of
Pinnacle.
Under the terms of the Agreement, holders of Financial Security common
stock will receive $28.50 per share, subject to adjustment, in cash, Pinnacle
common stock, or a combination of cash and common stock. The Agreement specifies
that no more than 45% of the total consideration can be paid in cash.
As of December 31, 1995, Financial Security had total assets of $277
million, loans and deposits of $194 million and stockholders' equity of $39
million.
The Agreement is subject to approval by the shareholders of Pinnacle and
Financial Security and the approval of the appropriate regulatory authorities.
It is anticipated that the transaction will be completed in the third quarter of
1996.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PINNACLE BANC GROUP, INC.
DATED: APRIL 25, 1996 BY: /s/ John J. Gleason, Jr.
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John J. Gleason, Jr.
Vice Chairman and
Chief Executive Officer
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INDEX TO EXHIBITS
Exhibit 1. Agreement and Plan of Merger By and Between
Pinnacle Banc Group, Inc. and Financial Security Corp.
Exhibit 2. Press Release
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EXHIBIT 1
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
PINNACLE BANC GROUP, INC. AND FINANCIAL SECURITY CORP.
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AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
PINNACLE BANC GROUP, INC.
AND
FINANCIAL SECURITY CORP.
DATED AS OF THE 22ND DAY OF APRIL, 1996
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TABLE OF CONTENTS
Page
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ARTICLE I
THE MERGER
Section 1.01 Structure of the Merger................................... 1
Section 1.02 Effect on Outstanding Shares.............................. 2
Section 1.03 Conversion Election Procedures............................ 3
Section 1.04 Exchange Procedures....................................... 6
Section 1.05 Dissenting Shares......................................... 7
Section 1.06 No Fractional Shares...................................... 8
Section 1.07 Closing of Stock Transfer Books........................... 8
Section 1.08 Anti-Dilution Adjustments................................. 9
Section 1.09 Modification of Structure................................. 9
Section 1.10 Taking of Necessary Action................................ 9
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.01 Representations and Warranties of the Seller.............. 9
Section 2.02 Representations and Warranties of the Purchaser........... 23
ARTICLE III
CONDUCT PENDING THE MERGER
Section 3.01 Conduct of the Seller's Business Prior to the
Effective Time............................................ 33
Section 3.02 Forbearance by the Seller................................. 33
Section 3.03 Conduct of the Purchaser's Business Prior to the
Effective Time............................................ 36
ARTICLE IV
COVENANTS
Section 4.01 No Solicitation........................................... 36
Section 4.02 Employees, Employee Benefit Plans and Directors........... 37
Section 4.03 Employee Stock Options.................................... 40
Section 4.04 Access and Information.................................... 40
Section 4.05 Certain Filings, Consents and Arrangements................ 41
Section 4.06 Antitakeover Provisions................................... 42
Section 4.07 Additional Agreements..................................... 42
Section 4.08 Publicity................................................. 42
Section 4.09 Notification of Certain Matters........................... 42
Section 4.10 Indemnification........................................... 43
Section 4.11 Shareholders' Meetings.................................... 44
Section 4.12 Registration Statement.................................... 44
Section 4.13 Affiliate Letters......................................... 45
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Section 4.14 Tax Opinion............................................... 45
Section 4.15 Tax-Free Reorganization Treatment......................... 45
Section 4.16 Listing................................................... 45
Section 4.17 Affiliate Purchases....................................... 46
ARTICLE V
CONDITIONS TO CONSUMMATION
Section 5.01 Conditions to Each Party's Obligations..................... 46
Section 5.02 Conditions to the Obligations of the Purchaser under
this Agreement............................................ 46
Section 5.03 Conditions to the Obligations of the Seller under
this Agreement............................................ 49
ARTICLE VI
TERMINATION
Section 6.01 Termination............................................... 51
Section 6.02 Effect of Termination..................................... 53
Section 6.03 Third Party Termination................................... 53
Section 6.04 Specific Enforceability................................... 54
ARTICLE VII
CLOSING, EFFECTIVE DATE AND EFFECTIVE TIME
Section 7.01 Effective Date and Effective Time......................... 54
Section 7.02 Deliveries at the Closing................................. 54
ARTICLE VIII
OTHER MATTERS
Section 8.01 Certain Definitions; Interpretation....................... 55
Section 8.02 Non-Survival of Representations, Warranties,
Covenants and Agreements.................................. 55
Section 8.03 Amendment................................................. 55
Section 8.04 Waiver.................................................... 55
Section 8.05 Counterparts.............................................. 56
Section 8.06 Governing Law............................................. 56
Section 8.07 Expenses.................................................. 56
Section 8.08 Notices................................................... 56
Section 8.09 Entire Agreement; Etc..................................... 57
Section 8.10 Assignment................................................ 57
Section 8.11 Schedules Not Admissions.................................. 57
LIST OF EXHIBITS
Exhibit A Affiliates Agreement
ii
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This is an AGREEMENT AND PLAN OF MERGER, dated as of the 22nd day of
April, 1996 (this "Agreement"), by and between Pinnacle Banc Group, Inc., an
Illinois corporation (the "Purchaser"), and Financial Security Corp., a Delaware
corporation (the "Seller").
INTRODUCTORY STATEMENT
WHEREAS, the Boards of Directors of the Purchaser and the Seller have
approved, and deem it advisable and in the best interests of their respective
companies and their shareholders to merge with and into Purchaser, upon the
terms and conditions set forth herein;
WHEREAS, it is intended for Federal income tax purposes that the Merger
(as hereinafter defined) shall qualify as a reorganization under the provisions
of Section 368 of the Internal Revenue Code of 1986, as amended (the "Code");
and
WHEREAS, the Purchaser and the Seller desire to make certain
representations, warranties and agreements in connection with the business
combination transaction provided for herein and to prescribe various conditions
to such transaction.
NOW THEREFORE, in consideration of their mutual promises and obligations
hereunder, the parties hereto adopt and make this Agreement and prescribe the
terms and conditions hereof and the manner and basis of carrying it into effect,
which shall be as follows:
ARTICLE I
THE MERGER
SECTION 1.01 STRUCTURE OF THE MERGER. Upon the terms and subject to the
conditions of this Agreement, on the Effective Date (as defined in Section
7.01), Seller shall merge (the "Merger") with and into the Purchaser and such
Merger is intended to qualify as a tax-free reorganization under Section 368(a)
of the Code; the separate existence of Seller shall cease; Purchaser shall be
the surviving corporation in the Merger (the "Surviving Corporation"); and all
property, real, personal and mixed, and all debts due on whatever account,
including subscriptions to shares, and all other choses in action, and all and
every other interest, of or belonging to or due to each of Purchaser and Seller,
shall be taken and deemed to be transferred to and vested in the Surviving
Corporation without further act or deed; and the title to any real estate, or
any interest therein, vested in any of such corporations shall not revert or be
in any way impaired by reason of the Merger; all in accordance with the
applicable laws of the State of Illinois or any other applicable laws. At the
Effective Time (as defined in Section 7.01), the Certificate of Incorporation
and Bylaws of the Purchaser shall become the Certificate of Incorporation and
Bylaws of the Surviving Corporation. At the Effective Time, the directors and
officers of the Purchaser shall become the directors and officers of the
Surviving Corporation.
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SECTION 1.02 EFFECT ON OUTSTANDING SHARES.
(a) Each share of common stock, $4.69 par value of the Purchaser
("Purchaser Common Stock") that is issued and outstanding immediately prior to
the Effective Time shall continue to be an issued and outstanding share of
Purchaser Common Stock from and after the Effective Time; and
(b) Subject to Sections 1.03(f), 1.06, and 1.08 hereof at the Effective
Time, by virtue of the Merger, each share of common stock, $.01 par value of
Seller ("Seller Common Stock") issued and outstanding immediately prior to the
Effective Time shall cease to be outstanding, shall be deemed surrendered and
each such share shall be converted into and become the right to receive one of
the following:
(i) the right to receive an amount in cash (the "Cash
Distribution(s)") equal to $28.50; or
(ii) the right to receive 0.8803 shares of Purchaser Common Stock
(the "Exchange Ratio") (the "Stock Distribution(s)") subject
to Section 1.02(c); or
(iii) the right to receive an amount in cash equal to 30% of the
Cash Distribution and shares of Purchaser Common Stock equal
to 70% of the Exchange Ratio, (the "Combined Distribution(s)")
subject to Section 1.02(c);
as the holder thereof shall elect or be deemed to have elected pursuant to
Section 1.03 of this Agreement (the aggregate of the Cash Distributions, the
Stock Distributions and the Combined Distributions payable and/or issuable
pursuant to this Agreement at the Effective Time is sometimes hereinafter
collectively referred to as the "Merger Consideration").
Shares of Seller Common Stock held by Seller or any of it Subsidiaries as
defined in Section 2.01(a)(ii) of this Agreement, or by Purchaser or any of its
subsidiaries, in each case other than in a fiduciary capacity or as a result of
debts previously contracted, shall be cancelled after the Effective Time. In
addition, no Dissenting Shares (as defined in Section 1.05 of this Agreement)
shall be converted pursuant to this Section 1.02 but shall be treated in
accordance with the procedures set forth in Section 1.05 of this Agreement.
(c) Notwithstanding Section 1.02(b)(ii) and (iii) above,
(i) if the Purchaser Average Stock Price (as defined below) is
greater than $35.00 per share, then on the business day prior to the Closing
Date, the Exchange Ratio shall be adjusted such that the stock consideration
shall equal $31.00 divided by the Purchaser Average Stock Price, provided that,
if the Purchaser Average Stock Price exceeds $37.00 per share, the Exchange
Ratio shall be .8378 and Purchaser shall have the option of terminating this
Agreement pursuant to Section 6.01(f) hereof; provided, however, that Purchaser
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shall not have an option
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to terminate pursuant hereto if not later than two business days prior to the
Closing Date, Seller has agreed to modify the Exchange Ratio to be the quotient
of $31.00 divided by the Purchaser Average Stock Price; or
(ii) if the Purchaser Average Stock Price is less than $30.00 per
share, then on the business day prior to the Closing Date, the Exchange Ratio
shall be adjusted such that the stock consideration shall equal $26.00 divided
by the Purchaser Average Stock Price, provided that, if the Purchaser Average
Stock Price is less than $28.00 per share, the Exchange Ratio shall be .9286 and
Seller shall have the option of terminating this Agreement pursuant to Section
6.01(g) hereof; provided, however, that Seller shall not have an option to
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terminate pursuant hereto if not later than two business days prior to the
Closing Date Purchaser has agreed to modify the Exchange Ratio to be the
quotient of $26.00 divided by the Purchaser Average Stock Price.
(d) The "Purchaser Average Stock Price" means the average of the closing
prices per share of Purchaser Common Stock reported by the National Association
of Securities Dealers, Inc. ("NASD") on the ten (10) trading days on which one
or more trades actually occurs immediately prior to the second business day
preceding the Closing Date.
SECTION 1.03 CONVERSION ELECTION PROCEDURES.
(a) Concurrently with the mailing to the shareholders of Seller of the
"Proxy Statement" (as defined in Section 2.01(bb) of this Agreement), including
the prospectus contained in the "Registration Statement" (also as defined in
Section 2.01(bb) of this Agreement) and at least thirty-five days prior to an
anticipated Effective Date or on such date as mutually agreed upon by Purchaser
and Seller, Purchaser shall cause the "Exchange Agent" (as defined in this
Section 1.03(a) below) to mail to each holder of record of Seller Common Stock a
form of election in such form as Purchaser and Seller shall mutually agree (an
"Election Form") on which such holder shall make the election as provided for in
Section 1.03(b) of this Agreement. Purchaser shall cause an Election Form and
other appropriate and customary materials for the purpose of making the election
provided for in Section 1.03(b) of this Agreement to be sent to each holder of
Seller Common Stock who Seller advises Purchaser has become a holder of Seller
Common Stock after the record date of the special meeting of shareholders called
to vote upon this Agreement and the Merger. Seller shall have the right to
review both the Election Form and other election materials and provide
reasonable comments thereon. "Exchange Agent" shall mean Harris Trust and
Savings Bank, or such other bank or trust company or affiliate thereof selected
by Purchaser and reasonably acceptable to Seller to effect the exchange of
certificates formerly representing shares of Seller Common Stock (each a
"Certificate," collectively "Certificates") for the Merger Consideration.
(b) Each Election Form shall specify the type(s) and amounts of each such
type of Merger Consideration receivable by the holder of Seller Common Stock in
the Cash Distribution, the Stock Distribution and the Combined Distribution and
shall permit each such holder to elect to receive, as provided in Section 1.02
of this Agreement, (i) the Cash Distribution (in which
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case, such holder's shares of Seller Common Stock shall be deemed to be and
shall be referred to herein as "Cash Election Shares"), (ii) the Stock
Distribution (in which case, such holder's shares of Seller Common Stock shall
be deemed to be and shall be referred to herein as "Stock Election Shares"), or
(iii) the Combined Distribution (in which case, such holder's shares of Seller
Common Stock shall be deemed to be and shall be referred to herein as "Combined
Election Shares").
(c) Any shares of Seller Common Stock with respect to which the holder
thereof shall not, as of the "Election Deadline" (as defined in this Section
1.03(c) below), have made an election to receive either the Cash Distribution,
the Stock Distribution or the Combined Distribution (such holder's shares being
deemed to be and shall be referred to herein as "No Election Shares") by
submission to the Exchange Agent of an effective, properly completed Election
Form shall be deemed to be Stock Election Shares. "Election Deadline" shall mean
5:00 p.m., local time, on the day prior to the date of the special meeting of
shareholders of Seller called to vote upon this Agreement and the Merger or such
other date mutually agreed to by the Seller and Purchaser.
(d) For purposes of Section 1.03(f) of this Agreement, any Dissenting
Shares shall be deemed to be Cash Election Shares; provided, however, that such
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Dissenting Shares shall in all cases be payable in cash and shall not be subject
to pro rata reduction, if required, of the Cash Distribution payable in
conversion of the other Cash Election Shares as set forth in Section 1.03(f) of
this Agreement. In addition, for purposes of Section 1.03(f) of this Agreement,
the number of shares ("Seller Stock Options") of Seller Common Stock that are
issuable upon the exercise of any stock options granted by Seller and disclosed
to Purchaser in writing shall be exchanged pursuant to Section 4.03 and shall
not be subject to any pro rata reduction under Section 1.03(f); provided,
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however, that such Seller Stock Options shall in all cases be payable, upon
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exercise in accordance with the terms of the plan and/or agreement under which
they were issued and/or evidenced, in shares of Purchaser Common Stock.
(e) Any election for purposes of Section 1.03(b) of this Agreement shall
be effective only if the Exchange Agent shall have received the properly
completed Election Form by the Election Deadline. Any Election Form may be
revoked or changed by the person submitting such Election Form or any other
person to whom the shares that are the subject of the Election Form are
subsequently transferred. Such revocation or change shall be effected by written
notice by such person to the Exchange Agent provided such notice is received by
the Exchange Agent at or prior to the Election Deadline. All Election Forms
shall be deemed to be revoked if the Exchange Agent is notified in writing by
either Purchaser or Seller that this Agreement has been terminated in accordance
with its terms (with a copy of such writing to be provided to Purchaser or
Seller, as appropriate). The Exchange Agent shall have reasonable discretion to
determine when any election, modification or revocation is received or whether
any such election, modification or revocation is effective, consistent with the
duty of the Exchange Agent to give effect to such elections, modifications or
revocations to the maximum extent possible.
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(f) As soon as practicable after the Election Deadline, Purchaser shall
cause the Exchange Agent to allocate among the holders of Seller Common Stock
the right to receive the Cash Distribution, as follows:
If the total number of shares of Purchaser Common Stock issuable to
all holders of Stock Election Shares and Combined Election Shares is
insufficient in the reasonable judgment of Muldoon Murphy & Faucette ("MMF") to
allow it to render the opinion required by Section 4.14 of this Agreement, then,
MMF shall notify the Exchange Agent as to the number of additional shares of
Purchaser Common Stock that will be required to be issued in the Merger in order
to allow MMF to render such opinion in its reasonable judgment (the "Minimum
Share Notice"); provided, however, the aggregate Merger Consideration
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(calculated using the Exchange Ratio and the Purchaser Average Stock Price) so
determined consists of at a minimum 55% stock consideration (or such higher
percentage of stock consideration that MMF considers necessary to qualify the
Merger as a tax free reorganization within the meaning of Section 368(a) of the
Code).
Upon receipt of the Minimum Share Notice, the Exchange Agent shall
reallocate the Merger Consideration payable to each holder of Cash Election
Shares pro rata (based upon the number of Cash Election Shares owned by such
holder as compared with the total number of Cash Election Shares owned by all
holders) such that the holders of Cash Election Shares will receive the number
of shares of Purchaser Common Stock which in the aggregate will equal the number
of shares of Purchaser Common Stock set forth in the Minimum Share Notice to the
Exchange Agent and such holders will receive the balance of the Merger
Consideration, if any, to which each such holder is entitled to receive pursuant
to the Merger (determined by (x) computing the value of the Merger Consideration
to which each such holder is entitled to receive pursuant to the Merger by
multiplying the number of shares of Seller Common Stock owned at the Effective
Time by the per share value of the Merger Consideration and (y) subtracting from
the amount determined in (x) above the value of the shares of Purchaser Common
Stock issued pursuant to this Section 1.03(f)) in cash.
(g) The computation of the pro rata computations utilized in the
reallocations and the reallocated payments of the Merger Consideration
contemplated by Section 1.03(f) of this Agreement shall be made by the Exchange
Agent in the reasonable exercise of its discretion.
(h) Each separate entry on the Seller's Shareholder List (as provided
pursuant to Section 1.07 hereof) shall be presumed to represent a separate and
distinct holder of record of Seller Common Stock. Shares held of record by a
bank, trust company, broker, dealer or other recognized nominee shall be deemed
to be held by a single holder unless the nominee advises the Exchange Agent
otherwise in writing. In such case, each of the beneficial owners shall be
treated as a separate holder and either directly or through such nominee may
submit a separate Election Form for shares of Seller Common Stock that are
beneficially owned.
(i) Any provisions of the preceding paragraphs of this Section 1.03 to the
contrary notwithstanding, if a holder of Seller Common Stock in two or more
different names so certifies
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in writing on or before the Election Deadline, such shareholder may submit a
single Election Form for all such shares subject to the certification and shall
be treated for purposes of this Section 1.03 as a single holder.
SECTION 1.04 EXCHANGE PROCEDURES.
(a) At the Effective Time, Purchaser shall have granted the Exchange Agent
the requisite power and authority to effect for Purchaser the issuance of the
number of shares of Purchaser Common Stock to be issued in the Merger and the
payment of the amount of cash to be paid in the Merger. Promptly after
consummation of the Merger, Purchaser shall deposit, or shall cause to be
deposited, with the Exchange Agent, for the benefit of the holders of shares of
Seller Common Stock for exchange in accordance with this Article I, through the
Exchange Agent, (i) certificates evidencing such number of shares of Purchaser
Common Stock equal to the number of shares to be issued pursuant to Section 1.02
and (ii) cash in the amount equal to the aggregate amount of cash to be paid to
shareholders pursuant to Section 1.02 (such certificates for shares of Purchaser
Common Stock, together with any dividends or distributions with respect thereto
and cash, being hereinafter referred to as the "Exchange Fund"). The Exchange
Agent shall, pursuant to irrevocable instructions, deliver the Purchaser Common
Stock and cash contemplated to be issued pursuant to Section 1.02 out of the
Exchange Fund. Except as contemplated by Section 1.06 hereof, the Exchange Fund
shall not be used for any other purpose.
(b) As soon as practicable following the Effective Time, but in no event
later than ten (10) days thereafter, the Exchange Agent shall mail to the
holders of record of a Certificate or Certificates of Seller Common Stock, as
identified on the Seller Shareholder List provided pursuant to Section 1.07
hereof, (1) a letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificate shall pass, only upon
proper delivery of the Certificates to the Exchange Agent and shall be in such
form and have such other provisions as Purchaser and Seller shall mutually agree
upon) and (2) instructions for use in effecting the surrender of the
Certificates in exchange for Certificates evidencing shares of Purchaser Common
Stock or cash. Seller shall have the right to review both the letter of
transmittal and any other transmittal materials prior to the Effective Time and
provide reasonable comments thereon. Upon surrender of a Certificate to the
Exchange Agent together with such letter of transmittal, duly executed, and such
other customary documents in proper form as may be required pursuant to such
instructions, the holder of such Certificates shall be entitled to receive in
exchange therefor (A) certificates evidencing that number of whole shares of
Purchaser Common Stock which such holder has the right to receive in respect of
the shares of Seller Common Stock formerly evidenced by such Certificate, in
accordance with Section 1.02, (B) cash to which such holder is entitled to
receive in accordance with Section 1.02, (C) cash in lieu of fractional shares
of Purchaser Common Stock to which such holder is entitled pursuant to Section
1.06 and (D) any dividends or other distributions to which such holder is
entitled pursuant to Section 1.04, and the Certificate so surrendered shall be
cancelled.
(c) Subject to Section 1.07 hereof, after the Effective Time, each holder
of a Certificate that surrenders such Certificate or in lieu thereof, any
reasonable documentation
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required by the Purchaser for a lost, stolen, or mutilated Certificate (the
"Required Documentation") to the Exchange Agent, with a properly completed and
executed letter of transmittal with respect to such Certificate, will be
entitled to a certificate or certificates representing the stock component of
the Merger Consideration and/or a payment representing the cash component of the
Merger Consideration.
(d) Each outstanding Certificate, until duly surrendered to the Exchange
Agent, shall be deemed to evidence ownership of the Merger Consideration into
which the stock previously represented by such Certificate shall have been
converted pursuant to this Agreement.
(e) After the Effective Time, holders of Certificates shall cease to have
rights with respect to the stock previously represented by such Certificates,
and their sole rights shall be to exchange such Certificates for the Merger
Consideration issuable or payable in the Merger. After the closing of the
transfer books as described in Section 1.07 hereof, there shall be no further
transfer on the records of Seller of Certificates, and if such Certificates are
presented to Seller for transfer, they shall be cancelled against delivery of
the Merger Consideration. Neither Purchaser nor the Exchange Agent shall be
obligated to deliver the Merger Consideration to which any former holder of
Seller Common Stock is entitled as a result of the Merger until such holder
surrenders the Certificates or the Required Documentation as provided herein. No
interest will be accrued or paid on the cash component of the Merger
Consideration. No dividends or distributions declared after the Effective Time
on the Purchaser Common Stock representing the stock component of the Merger
Consideration will be remitted to any person entitled to receive such stock
component of the Merger Consideration under this Agreement until such person
surrenders the Certificate representing the right to receive such Purchaser
Common Stock or furnishes the Required Documentation, at which time such
dividends or declarations shall be remitted to such person, without interest and
less any taxes that may have been imposed thereon. Neither the Exchange Agent
nor any party to this Agreement nor any affiliate thereof shall be liable to any
holder of stock represented by any Certificate for any Merger Consideration
issuable or payable in the Merger that is paid to a public official pursuant to
applicable abandoned property, escheat or similar laws without interest on the
cash component, but with accrued but unpaid dividends on the Purchaser Common
Stock.
(f) Any portion of the Exchange Fund which remains undistributed to
holders of Seller Common Stock for eighteen (18) months after the Effective Time
shall be delivered to Purchaser, upon demand and any holders of Seller Common
Stock who have not theretofore complied with this Article I shall thereafter
look only to Purchaser for the Merger Consideration to which they are entitled
without interest on the cash component, but with accrued and unpaid dividends on
the Purchaser Common Stock.
SECTION 1.05 DISSENTING SHARES.
(a) Notwithstanding any other provision of this Agreement to the
contrary, any holder of Seller Common Stock otherwise entitled to receive Merger
Consideration for each of his or her shares shall be entitled to demand payment
of the fair cash value of such shares as
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specified in Section 262 of the Delaware General Corporation Law ("DGCL") if the
holder follows the procedure specified therein. These shares shall hereafter be
specified as "Dissenting Shares." Any holders of Dissenting Shares shall be
entitled to payment for such shares only to the extent permitted by and in
accordance with the provisions of such law, and Purchaser shall cause the
surviving corporation to pay such consideration with funds provided by the
Purchaser. Any Dissenting Share shall not, after the Effective Time, be entitled
to vote for any purpose or receive any dividends or other distributions and
shall not be converted into the Merger Consideration as provided in Section 1.02
hereof; provided, however, that shares of Seller Common Stock held by a
dissenting stockholder who subsequently withdraws a demand for payment, fails to
comply fully with the requirements of the DGCL, or otherwise fails to establish
the right to such stockholder to be paid for fair cash value of such
stockholder's shares under the DGCL shall be deemed to be converted into the
right to receive the Merger Consideration in cash pursuant to the terms and
conditions specified herein.
(b) Each party hereto shall give the other prompt notice of any
written demands for the payment of the fair value of any shares, withdrawals of
such demands, and any other instruments, served pursuant to the DGCL received by
such party, and Seller shall give Purchaser the opportunity to participate in
all negotiations and proceedings with respect to such demands. Seller shall not
voluntarily make any payment with respect to any demands for payment of fair
value and shall not, except with the prior written consent of Purchaser, which
consent shall not be unreasonably withheld, settle or offer to settle any such
demands.
SECTION 1.06 NO FRACTIONAL SHARES. Notwithstanding any other provision
of this Agreement, neither certificates nor scrip for fractional shares of
Purchaser Common Stock shall be issued in the Merger. Each holder who otherwise
would have been entitled to a fraction of a share of Purchaser Common Stock
shall receive in lieu thereof cash (without interest) in an amount determined by
multiplying the fractional share interest to which such holder would otherwise
be entitled by the Purchaser Average Stock Price. No such holder shall be
entitled to dividends, voting rights or any other rights in respect of any
fractional share.
SECTION 1.07 CLOSING OF STOCK TRANSFER BOOKS.
(a) The stock transfer books of Seller shall be closed at the end of
business on the business day immediately preceding the Closing Date. In the
event of a transfer of ownership of Seller Common Stock which is not registered
in the transfer records prior to the closing of such record books, the Merger
Consideration issuable or payable with respect to such stock may be delivered to
the transferee, if the Certificate or Certificates representing such stock is
presented to the Exchange Agent accompanied by all documents required to
evidence and effect such transfer and all applicable stock transfer taxes are
paid.
(b) At the Effective Time, Seller shall provide Purchaser with a complete
and verified list of registered holders of Seller Common Stock based upon its
stock transfer books as of the closing of said transfer books, including the
names, addresses, certificate numbers and taxpayer identification numbers of
such holders (the "Seller Shareholder List"). Purchaser and the
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Exchange Agent shall be entitled to rely upon the Seller Shareholder List to
establish the identity of those persons entitled to the Merger Consideration
specified in this Agreement, which list shall be conclusive with respect
thereto.
SECTION 1.08 ANTI-DILUTION ADJUSTMENTS. If between the date of this
Agreement and the Effective Time a share of Purchaser Common Stock shall be
changed into a different number of shares of Purchaser Common Stock or a
different class of shares by reason of reclassification, recapitalization,
split-up, combination, exchange of shares or readjustment, or if a stock
dividend thereon shall be declared with a record date within such period, then
appropriate and proportionate adjustment or adjustments will be made to the
stock component of the Merger Consideration to reflect such split, combination,
dividend or other distribution.
SECTION 1.09 MODIFICATION OF STRUCTURE. Notwithstanding any provision
of this Agreement to the contrary, Purchaser may elect to modify the structure
of the transactions contemplated hereby so long as (i) there are no material
adverse federal or state income tax consequences to the Seller and its
stockholders or to holders of options to purchase Seller Common Stock as a
result of such modification; (ii) the consideration to be paid to holders of
Seller Common Stock or Seller Stock Options under this Agreement is not thereby
changed in kind or reduced in amount because of such modification; (iii) such
modification will not be likely to delay materially or jeopardize receipt of any
required regulatory approvals; and (iv) opinions as to these conditions being
met are supplied to Seller by a public accountant and law firm, in a form
acceptable to Seller but at the sole expense of Purchaser.
SECTION 1.10 TAKING OF NECESSARY ACTION. In case at any time after the
Effective Time any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest Purchaser with full title to all
properties, assets, rights, approvals, immunities and franchises of Seller and
its Subsidiaries, the officers and directors of Purchaser shall take all such
necessary action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
SECTION 2.01 REPRESENTATIONS AND WARRANTIES OF THE SELLER. The Seller
represents and warrants to the Purchaser that, except as specifically disclosed
in the schedules of the Seller delivered to the Purchaser prior to the execution
hereof (and making specific reference to the Section or Sections of this
Agreement for which an exception is taken) (such schedules, as amended from time
to time in the manner provided for in Section 4.09 hereof, shall hereafter be
referred to as the "Disclosure Schedules"):
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<PAGE> 14
(a) Organization.
------------
(i) The Seller is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware. Except for the Seller
Bank as defined in this Section 2.01(a), Seller has no direct subsidiaries. The
Seller is duly qualified to do business and is in good standing in Illinois and
in each other jurisdiction in which the nature of the business conducted or the
properties or assets owned or leased by it makes such qualification necessary,
except for such failure to qualify or be in such good standing which, when taken
together with all such failures, would not have a Material Adverse Effect as
hereinafter defined in Section 2.01(h) on the Seller. The Seller is a registered
savings and loan holding company under the Home Owners' Loan Act, as amended
("HOLA"). The Seller has the corporate power and authority (including all
federal, state, local and foreign government authority) to carry on its business
as it is now conducted and to own, lease and operate its properties.
(ii) Security Federal Savings and Loan Association of Chicago (the
"Seller Bank") is a federally chartered stock savings and loan association duly
organized, validly existing and in good standing under the laws of the United
States. Security Federal Service Corp. is a wholly owned subsidiary of Seller
Bank and is a corporation duly organized, validly existing and in good standing
under the laws of the State of Illinois. (Seller Bank and Security Federal
Service Corp. are sometimes referred to herein each as a "Subsidiary" and
together as the "Subsidiaries"). Each of the Subsidiaries has the corporate
power and authority to carry on its business as it is now conducted and to own,
lease and operate its properties, and is duly qualified to do business and is in
good standing in each jurisdiction in which the nature of the business conducted
or the properties or assets owned or leased by it makes such qualification
necessary, except where the absence thereof, would not, individually or in the
aggregate, have a Material Adverse Effect as hereinafter defined in Section
2.01(h) on the Seller. Each subsidiary of Seller Bank, as defined in Section
2.01(a)(ii), is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction in which the subsidiary is
incorporated. Seller Bank's deposits are insured by the Savings Association
Insurance Fund ("SAIF") of the Federal Deposit Insurance Corporation ("FDIC") to
the maximum extent permitted by law.
(iii) The Disclosure Schedule 2.01(a) sets forth all of the
Subsidiaries of the Seller and all entities (whether corporations, partnerships,
or similar organizations), including the corresponding percentage ownership, in
which the Seller owns, directly or indirectly, 10% or more of the debt, equity
or other proprietary interests as of the date of this Agreement and indicates
for each such entity, as of such date, its jurisdiction of organization. The
Seller owns, either directly or indirectly, all of the outstanding capital stock
of each of the Subsidiaries free and clear of any claim, lien or encumbrance.
Except for Seller Bank, no Subsidiary of the Seller is an "insured depository
institution" as defined in the Federal Deposit Insurance Act, as amended, and
applicable regulations thereunder. All of the shares of capital stock of each of
the Subsidiaries held by the Seller or by another Subsidiary of the Seller are
fully paid, nonassessable and not subject to any preemptive rights and, except
as set forth in the Disclosure Schedule 2.01(a), are owned by the Seller or a
Subsidiary of the Seller free and clear of any claims, liens, encumbrances or
restrictions (other than those imposed by applicable federal and state
securities
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laws) and there are no agreements or understandings with respect to the voting
or disposition of any such shares so held.
(b) Capital Structure.
-----------------
(i) The authorized capital stock of the Seller consists of
three-million (3,000,000) shares of Seller Common Stock, par value $.01 per
share (the "Seller Common Stock") and one million (1,000,000) shares of
preferred stock, par value $.01 per share (the "Seller Preferred Stock"). As of
the date hereof: (A) 1,550,846 shares of Seller Common Stock were issued and
outstanding (which includes outstanding share awards under the Security Federal
Savings and Loan Association Recognition and Retention Plans ("ARP"), and the
Financial Security Corp. 1995 Long Term Incentive Plan) (the "Incentive Plan"),
and no shares of Seller Preferred Stock were issued or outstanding; (B) 103,531
shares of Seller Common Stock were subject to outstanding stock option awards;
(C) no shares of Seller Preferred Stock were reserved for issuance; (D) 246,082
shares of Seller Common Stock were held by the Seller in its treasury (which are
not included in aforesaid shares which are issued and outstanding), and (E)
58,941 share awards and 84,699 options in the Incentive Plan were authorized but
have not been granted. All outstanding shares of Seller Common Stock are validly
issued, fully paid and nonassessable and not subject to any preemptive rights.
The Disclosure Schedule 2.01(b) sets forth a complete and accurate list of all
options, warrants, calls, or commitments or other agreements to purchase Seller
Common Stock outstanding, including the dates of grant, exercise prices, dates
of vesting, dates of termination and shares subject to option for each grant.
(ii) As of the date of this Agreement, except for this Agreement and
as set forth in the Disclosure Schedule 2.01(b), neither the Seller nor any of
its Subsidiaries is a party to or is bound by any outstanding subscriptions,
options, warrants, calls, rights, convertible securities, commitments or
agreements of any character obligating the Seller or any of its Subsidiaries to
issue, deliver or sell, or cause to be issued, delivered or sold, any additional
shares of capital stock of the Seller or any of its Subsidiaries or obligating
the Seller or any of its Subsidiaries to grant, extend or enter into any such
option, warrant, call, right, convertible security, commitment or agreement. As
of the date hereof, there are no outstanding contractual obligations of the
Seller or any of its Subsidiaries to repurchase, redeem or otherwise acquire any
shares of capital stock of the Seller or any of its Subsidiaries.
(c) Authority. The Seller has all requisite corporate power and authority
---------
to enter into this Agreement and, subject to approval of this Agreement by the
requisite vote of the shareholders of the Seller and approval of regulators, to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement, and, subject to the approval of this Agreement by the requisite
vote of the shareholders of the Seller and approval of regulators, the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of the Seller. This Agreement has
been duly executed and delivered by the Seller and, assuming due execution and
delivery by the Purchaser constitutes a valid and binding obligation of the
Seller, enforceable in accordance with its terms subject to applicable
conservatorship, receivership, bankruptcy, insolvency and similar laws
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<PAGE> 16
affecting creditors' rights and remedies generally, and subject, as to
enforceability, to general principles of equity (including without limitation
specific performance), whether applied in a court of law or a court of equity.
(d) Shareholder Approvals. The Board of Directors of the Seller has
----------------------
directed that this Agreement and the transactions contemplated hereby be
submitted to the Seller's shareholders for approval at a meeting of such
shareholders and, except for adoption of this Agreement by the requisite vote of
the Seller's shareholders, no other shareholder action is necessary to approve
this Agreement and to consummate the transactions contemplated hereby. The Board
of Directors will recommend that the shareholders approve the transaction
subject to their fiduciary duties and will exempt the transaction from Section
203 of DGCL. The approval of the majority of the outstanding shares of Seller
Common Stock entitled to vote is required for approval of this Agreement and to
consummate the transactions contemplated hereby. The Board of Directors of the
Seller has received the opinion of Hovde Financial, Inc. to the effect that the
Merger Consideration to be received by the shareholders of the Seller is fair,
from a financial point of view, to such shareholders.
(e) No Violations. Subject to approval of this Agreement by the Seller's
--------------
shareholders and the regulatory agencies referred to in Section 2.01(g)(ii), the
execution, delivery and performance of this Agreement by the Seller do not, and
the consummation of the transactions contemplated hereby by the Seller will not,
constitute (i) a breach or violation of, or a default under, any law, rule or
regulation or any judgment, decree, order, governmental permit or license, or
agreement, indenture or instrument of the Seller or any Subsidiary of the Seller
or to which the Seller or any of its Subsidiaries (or any of their respective
properties) is subject, which breach, violation or default would, individually
or in the aggregate, have a Material Adverse Effect as hereinafter defined in
Section 2.01(h) on Seller or on Seller's ability to consummate the transactions
contemplated hereby, (ii) a breach or violation of, or a default under, the
certificate or articles of incorporation or Bylaws of the Seller or any
Subsidiary of the Seller or (iii) a breach or violation of, or a default under
(or an event which with due notice or lapse of time or both would constitute a
default under), or result in the termination of, accelerate the performance
required by, or result in the creation of any lien, pledge, security interest,
charge or other encumbrance upon any of the properties or assets of the Seller
or any Subsidiary of the Seller under, any of the terms, conditions or
provisions of any note, bond, indenture, deed of trust, loan agreement or other
agreement, instrument or obligation to which the Seller or any Subsidiary of the
Seller is a party, or to which any of their respective properties or assets may
be bound or affected, except for any of the foregoing that, individually or in
the aggregate, would not have a Material Adverse Effect on the Seller.
(f) Consents. Except as referred to herein or in connection, or in
--------
compliance, with the Securities Act of 1933, as amended (the "Securities Act"),
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the HOLA,
the Bank Merger Act, as amended (the "BMA"), the rules and regulations of the
Federal Reserve Board, the rules and regulations of the Office of Thrift
Supervision ("OTS"), and the environmental, corporation, securities or blue sky
laws or regulations of the various states, no filing or registration with, or
authorization, consent
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<PAGE> 17
or approval of, any public body or authority is necessary for the consummation
by the Seller of the Merger or the other transactions contemplated by this
Agreement, other than filings, registrations, authorizations, consents or
approvals the failure to make or obtain would not have a Material Adverse Effect
on the Seller.
(g) Reports.
-------
(i) As of their respective dates, neither the Seller's Annual Report
on Form 10-KSB for the fiscal year ended December 31, 1995, nor any other
document filed subsequent to December 31, 1995 under Section 13(a), 13(c), 14 or
15(d) of the Exchange Act, each in the form (including any documents
specifically incorporated by reference therein) filed with the Securities and
Exchange Commission ("SEC") (collectively, the "Seller's Reports"), contained or
will contain any untrue statement of a material fact or omitted or will omit to
state a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they were
made, not misleading, provided, however, that no representation is made herein
with respect to any Exhibits to the Seller's Reports that are not specifically
incorporated by reference therein and that Seller's amendment of any Seller's
Report, in and of itself, in response to SEC comments will not be violative of
this section. Each of the balance sheets of the Seller or its Subsidiaries
contained or specifically incorporated by reference in the Seller's Reports
(including in each case any related notes and schedules) fairly presented the
financial position of the entity or entities to which it relates as of its date
and each of the statements of income and of changes in shareholders' equity and
of cash flows of the Seller or its Subsidiaries, contained or specifically
incorporated by reference in the Seller's Reports (including in each case any
related notes and schedules) (collectively the "Financial Statements"), fairly
presented the results of operations, shareholders' equity and cash flows, as the
case may be, of the entity or entities to which it relates for the periods set
forth therein (subject, in the case of unaudited interim statements, to normal
year-end audit adjustments), in each case in accordance with generally accepted
accounting principles ("GAAP") consistently applied during the periods involved,
except as may be noted therein.
(ii) The Seller and each of its Subsidiaries have each filed all
material reports, registrations and statements, together with any amendments
required to be made with respect thereto, that they were required to file since
December 31, 1995 with (A) the SEC, (B) the OTS, (C) the FDIC, (D) any state
banking commission or other banking regulatory authority (collectively, the
"Regulatory Agencies") and (E) the National Association of Securities Dealers,
Inc. and any other self-regulatory organization ("SRO"), and have paid all fees
and assessments due and payable in connection therewith, except for those fees
and assessments that would not be material.
(h) Absence of Certain Changes or Events. Except as disclosed in the
--------------------------------------
Seller's Reports filed prior to the date of this Agreement, (i) from December
31, 1995 to the date hereof, the Seller and its Subsidiaries have not, except as
set forth in the Disclosure Schedule 2.01(h), incurred any material liability,
other than in the ordinary course of their business consistent with past
practice, and (ii) since December 31, 1995, there has not been any condition,
event, change
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<PAGE> 18
or occurrence that, individually or in the aggregate, has had, or is reasonably
likely to have, a Material Adverse Effect on the Seller or a Subsidiary.
Material Adverse Effect, with respect to a person, means a material adverse
effect upon (A) the business, properties, assets, financial condition or results
of operations, in each case, of the Seller or its Subsidiaries or Purchaser or
its subsidiaries, as appropriate either individually or taken as a whole, or (B)
the ability of such person to consummate the transactions contemplated by this
Agreement; it being understood that a Material Adverse Effect shall not include:
(i) a change with respect to, or effect on, the Seller and its Subsidiaries
resulting from a change in law, rule, regulation, generally accepted accounting
principles or regulatory accounting principles, including any change in the
treatment of bad debt reserves as such would apply to the financial statements
of the Seller on a consolidated basis; (ii) a change with respect to, or effect
on, the Seller and its Subsidiaries resulting from expenses (such as legal,
accounting and investment bankers' fees) incurred in connection with this
Agreement or the transactions contemplated hereby; (iii) a change with respect
to, or effect on, the Seller or its Subsidiaries resulting from any other matter
affecting depository institutions generally including, without limitation,
changes in general economic conditions and changes in prevailing interest and
deposit rates; or (iv) any one-time special insurance premium assessed by the
FDIC on deposits insured by the SAIF.
(i) Taxes. All federal, state, and local tax returns required to be filed
-----
by or on behalf of the Seller or any of its Subsidiaries have been timely filed
or requests for extensions have been timely filed (and any such extension shall
have been granted and not have expired). All taxes, owed by Seller or any of its
Subsidiaries (whether or not shown on the returns) and all taxes required to be
shown on returns for which extensions have been granted, have been paid in full
or adequate provision has been made for any such taxes on the Seller's balance
sheet as of December 31, 1995 (in accordance with GAAP). Since December 31,
1995, there has been no audit examination of the Seller by the Internal Revenue
Service ("IRS) and the latest audit examination of the Seller by the applicable
taxing authority of the State of Illinois was October 26, 1995 for the tax years
ended 1990, 1991, 1992 and 1993. Except as set forth in Disclosure Schedule
2.01(i), as of the date of this Agreement, there is no audit examination,
deficiency, claim, or refund litigation with respect to any taxes of the Seller
or any of its Subsidiaries, and no claim or assessment has been made by any
authority in a jurisdiction where the Seller or any of its Subsidiaries do not
file tax returns and the Seller or any such Subsidiary is subject to taxation.
All taxes, interest, additions, and penalties due with respect to completed and
settled examinations or concluded litigation relating to the Seller or any of
its Subsidiaries have been paid in full or adequate provision has been made for
any such taxes on the Seller's balance sheet as of December 31, 1995 (in
accordance with GAAP). Except as set forth in Disclosure Schedule 2.01(i), the
Seller and its Subsidiaries have not executed an extension or waiver of any
statute of limitations on the assessment or collection of any material tax due
that is currently in effect. Except as set forth in Disclosure Schedule 2.01(i),
the Seller and each of its Subsidiaries have withheld and paid all taxes
required to have been withheld and paid in connection with amounts paid or owing
to any employee, independent contractor, creditor, shareholder or other third
party, and the Seller and each of its Subsidiaries have timely complied with all
applicable information reporting requirements under Part III, Subchapter A of
Chapter 61 of the Code and similar applicable state and local information
reporting requirements, except in each case for such failure
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<PAGE> 19
to withhold, pay or comply that would not, individually or in the aggregate,
result in a Material Adverse Effect on the Seller.
(j) Absence of Claims. Except as set forth in Disclosure Schedule 2.01(j),
-----------------
neither Seller, nor any of its Subsidiaries, nor any of their respective
directors and officers is a party to any pending litigation, legal,
administrative, arbitration or other proceeding, before any court or
governmental agency ("Claim"), and Seller is not aware of any threatened Claim
against Seller, or any of its Subsidiaries, which are reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect on the
Seller or its Subsidiaries or to materially hinder or delay consummation of the
transactions contemplated hereby. Except as set forth in Disclosure Schedule
2.01(j), there are no orders of any regulatory or governmental authorities or
any judgments against the Seller or any of its Subsidiaries, directors or
officers which are reasonably likely, individually or in the aggregate, to have
a Material Adverse Effect on Seller or its Subsidiaries or to materially hinder
or delay consummation of the transaction contemplated hereby.
(k) Absence of Regulatory Actions. Except as set forth in Disclosure
--------------------------------
Schedule 2.01(k), and excluding reports of examination by Regulatory Agencies,
neither the Seller nor any of its Subsidiaries is a party to any cease and
desist order, written agreement or memorandum of understanding with, or a party
to any commitment letter or similar written undertaking to, or is subject to any
order or directive by, or is a recipient of any extraordinary supervisory letter
from, federal or state governmental authorities charged with the supervision or
regulation of depository institutions or depository institution holding
companies or engaged in the insurance of bank and/or savings and loan deposits
("Regulatory Agency") nor has it been advised by any Regulatory Agency that it
is contemplating issuing or requesting (or is considering the appropriateness of
issuing or requesting) any such order, directive, written agreement, memorandum
of understanding, extraordinary supervisory letter, commitment letter or similar
written undertaking.
(l) Agreements.
----------
(i) Except for this Agreement and except as disclosed in Disclosure
Schedule 2.01(l), neither the Seller nor any of its Subsidiaries is a party to a
written or, to the Seller's knowledge, oral (A) agreement (other than data
processing, software programming and licensing contracts entered into in the
ordinary course of business and customary real estate brokerage commissions in
connection with the sale of REO) not terminable on thirty (30) days' or less
notice, and providing for payments in excess of $50,000 per annum, (B) agreement
with any executive officer or other key employee of the Seller or any of its
Subsidiaries the benefits of which are contingent, or the terms of which are
materially altered, upon the occurrence of a transaction involving the Seller or
any of its Subsidiaries of the nature contemplated by this Agreement, (C)
agreement with respect to any executive officer or employee of the Seller or any
of its Subsidiaries providing for other than at-will employment, (D) agreement
or plan, including any stock option plan, stock appreciation rights plan,
restricted stock plan, stock purchase plan, or any other non-qualified
compensation plan, any of the benefits of which will be increased, or
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<PAGE> 20
the vesting of the benefits of which will be accelerated, by the occurrence of
any of the transactions contemplated by this Agreement or the value of any of
the benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement, or (E) agreement containing covenants that limit
the ability of the Seller or any of its Subsidiaries to compete in any line of
business or with any person, or that involve any restriction on the geographic
area in which or method by which, the Seller (including any successor thereof)
or any of its Subsidiaries may carry on its business (other than as may be
required by law or any regulatory agency).
(ii) Neither the Seller nor any of its Subsidiaries is in default
under or in violation of any provision, and is not aware of any fact or
circumstance that has been or could be alleged to constitute a default or
violation, of its Certificate of Incorporation or Bylaws or any note, bond,
indenture, mortgage, deed of trust, loan agreement or other agreement to which
it is a party or by which it is bound or to which any of its respective
properties or assets is subject, other than such defaults or violations as could
not reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect on Seller or Seller Bank and has not waived and will not waive
prior to the Effective Time, any material right under any material contract or
commitment.
(m) Labor Matters. Neither the Seller nor any of its Subsidiaries is a
--------------
party to, or is bound by, any collective bargaining agreement, contract, or
other agreement or understanding with a labor union or labor organization with
respect to its employees. Neither the Seller nor any of its Subsidiaries is the
subject of any proceeding asserting that it has committed an unfair labor
practice or seeking to compel it or any such Subsidiary to bargain with any
labor organization as to wages and conditions of employment, nor is the
management of the Seller aware of any strike, other labor dispute or
organizational effort involving the Seller or any of its Subsidiaries that is
pending or threatened that individually or in the aggregate would result in a
Material Adverse Effect on the Seller.
(n) Employee Benefit Plans.
----------------------
(i) Disclosure Schedule 2.01(n) contains a complete list of all
employee, retiree or director pension, retirement, stock option, stock purchase,
restricted stock, stock ownership, savings, stock appreciation right, profit
sharing, deferred compensation, supplemental income, supplemental retirement,
consulting, bonus, group insurance, key executive officer insurance, severance
and any other benefit plans, employment contracts (providing termination, change
in control, or severance payments), agreements, arrangements, or policies
including, but not limited to, employee benefit plans, as defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), incentive and welfare policies, contracts, plans and arrangements and
all trust agreements related thereto, maintained or which have been maintained
or to which Seller or any of its Subsidiaries is or has been a party or subject
with respect to any present or former directors, officers, or other employees of
the Seller or any of its Subsidiaries (hereinafter referred to collectively as
the "Employee Plans"), except for any such plans, contracts, agreements or
arrangements involving liabilities or expenses not exceeding $10,000
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<PAGE> 21
individually or in the aggregate. All of the Employee Plans comply in all
material respects with all applicable requirements of ERISA, the Code and other
applicable laws, orders, rules and regulations; neither the Seller nor any of
its Subsidiaries has engaged in a "prohibited transaction" (as defined in
Section 406 of ERISA or Section 4975 of the Code) with respect to any Employee
Plan. Seller and its Subsidiaries have complied with the health care
continuation coverage requirements of Section 4980B of the Code and Sections 601
through 608 of ERISA. No liability to the Pension Benefit Guaranty Corporation
has been incurred and, except as described on Disclosure Schedule 2.01(n), there
exists no fact or circumstance which would cause the Seller to incur any such
liability with respect to any Employee Plan which is subject to Title IV of
ERISA ("Pension Plan"), or with respect to any "single-employer plan" (as
defined in Section 4001(a)(15) of ERISA) currently or formerly maintained by the
Seller or any entity which is considered one employer with the Seller under
Section 4001 of ERISA or Section 414 of the Code (an "ERISA Affiliate"). Except
as described on Disclosure Schedule 2.01(n), no Pension Plan had an "accumulated
funding deficiency" (as defined in Section 302 of ERISA (whether or not waived)
as of the last day of the end of the most recent plan year ending prior to the
date hereof; the present value of the "benefit liabilities" (as defined in
Section 4001(a)(16) of ERISA) under each Pension Plan as of the date hereof,
calculated on the basis of the actuarial assumptions used in the most recent
actuarial valuation for such Pension Plan as of the date hereof does not exceed
the fair market value of the assets of such Pension Plan, and no notice of a
"reportable event" (as defined in Section 4043 of ERISA) for which the 30-day
reporting requirement has not been waived has been required to be filed for any
Pension Plan within the 12-month period ending on the date hereof. Neither the
Seller nor any Subsidiary of the Seller has provided, or is required to provide,
security to any Pension Plan or to any single-employer plan of an ERISA
Affiliate pursuant to Section 401(a)(29) of the Code. Neither the Seller, its
Subsidiaries, nor any ERISA Affiliate currently contributes or, since December
31, 1988, has contributed to any multiemployer plan, as defined in Section 3(37)
of ERISA. Except as disclosed on Disclosure Schedule 2.01(n), each Employee Plan
of the Seller or of any of its Subsidiaries which is an employee "pension
benefit plan" (as defined in Section 3(2) of ERISA) and which is intended to be
qualified under Section 401(a) of the Code (a "Qualified Plan") has received a
favorable determination letter from the IRS that the pension benefit plan meets
the Tax Reform Act of 1986 and all applicable legislative and regulatory
requirements for tax qualification that became effective at the time that the
determination letter was issued and the Seller and its Subsidiaries are not
aware of any circumstances which would result in revocation of any such
favorable determination letter. Each Qualified Plan which is an "employee stock
ownership plan" (as defined in Section 4975(e)(7) of the Code) has satisfied all
of the applicable requirements of Sections 409 and 4975(e)(7) of the Code and
the regulations thereunder in all material respects and any assets of any such
Qualified Plan that are not allocated to participants' individual accounts are
pledged as security for, and subject to the provisions of Section 4.02(e) of
this Agreement may be applied to satisfy, any securities acquisition
indebtedness.
(ii) There is no pending or, to the Seller's knowledge, threatened
litigation, administrative action or proceeding relating to any Employee Plan
and the Seller has not received any notification from any federal, state or
local agency or department asserting that any Employee Plan is not in compliance
with any of the statutes, regulations or ordinances that such
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<PAGE> 22
governmental authority enforces. There has been no announcement or commitment by
the Seller or any Subsidiary of the Seller to create an additional Employee
Plan, or to amend an Employee Plan except for amendments required by applicable
law which do not materially increase the cost of such Employee Plan and except
for any plans or amendments expressly described herein or on Disclosure Schedule
2.01(n); and, except as set forth in Disclosure Schedule 2.01(n), the Seller and
its Subsidiaries do not have any obligations for post-retirement or
post-employment benefits under any Employee Plan (exclusive of any coverage
mandated by the Consolidated Omnibus Reconciliation Act of 1986 ("COBRA").
(iii) With respect to each Employee Plan to the extent applicable,
the Seller has supplied to the Purchaser a true and complete copy of (A) the
most recent annual report on the applicable form of the Form 5500 series filed
with the IRS with all the attachments filed, (B) such Employee Plan, including
amendments thereto, (C) each trust agreement and insurance contract relating to
such Employee Plan, including amendments thereto, (D) the most recent summary
plan description for such Employee Plan, including amendments thereto, if the
Employee Plan is subject to Title I of ERISA, (E) the most recent actuarial
report or valuation if such Employee Plan is a Pension Plan and (F) the most
recent determination letter issued by the IRS if such Employee Plan is a Pension
Plan and Qualified Plan.
(o) Title to Assets. Except as set forth in Disclosure Schedule 2.01(o),
---------------
the Seller and each of its Subsidiaries has insurable title (subject only to
standard title insurance policy exceptions as determined by customary practices
in the area in which such properties are located) to its owned real properties
(other than real estate owned as a result of foreclosure, transfer in lieu of
foreclosure or other transfer in satisfaction of a debtor's obligation
previously contracted), except for Liens, as defined below, or such other
defects arising by operation of law or which would not, individually or in the
aggregate, have a Material Adverse Effect on the Seller. Liens shall mean any
claim, encumbrance, or charge on property for payment of a debt, obligation or
duty. Each of the Seller and its Subsidiaries has good and valid title to its
owned personal property free and clear of all Liens, except for Liens, or other
defects arising by operation of law or which would not, individually or in the
aggregate, have a Material Adverse Effect on the Seller.
(p) Fees. Except as set forth in Disclosure Schedule 2.01(p) and other
----
than financial advisory services performed for the Seller by Hovde Financial,
Inc. ("Hovde"), the terms of which are set forth in Disclosure Schedule 2.01(p),
neither the Seller nor any of its Subsidiaries, nor to Seller's knowledge any of
their respective officers, directors, employees or agents, has employed any
broker or finder or incurred any liability for any financial advisory fees,
brokerage fees, commissions, or finder's fees, and no broker or finder has acted
directly or indirectly for the Seller or any Subsidiary of the Seller, in
connection with this Agreement or the transactions contemplated hereby. The
Seller shall pay all costs and expenses prior to the Closing Date for services
rendered by Hovde pursuant to the terms set forth in Disclosure Schedule
2.01(p). The Seller shall not be liable for any financial services advisory fees
incurred by the Purchaser.
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<PAGE> 23
(q) Compliance with Laws. The Seller and the Subsidiaries hold all
----------------------
licenses, certificates, permits, franchises and rights from all appropriate
federal, state or other public authorities necessary for the conduct of its and
their business as it is presently conducted except where the absence thereof
would not, individually or in the aggregate, have a Material Adverse Effect on
the Seller or materially delay the Merger. Each of the Seller and the
Subsidiaries has conducted its business so as to comply in all respects with all
applicable federal, state and local statutes, ordinances, regulations or rules,
except for possible violations which would not, individually or in the
aggregate, have a Material Adverse Effect on the Seller; and neither the Seller
nor any of the Subsidiaries is presently charged with, or, to the Seller's
knowledge, under governmental investigation with respect to, any actual or
alleged material violations of any statute, ordinance, regulation or rule, and
neither the Seller nor either of the Subsidiaries is the subject of any pending
or, to the Seller's knowledge, threatened material proceeding by any regulatory
authority having jurisdiction over its business, properties or operations.
Except as set forth in Disclosure Schedule 2.01(q), to the best of Seller's
knowledge no federal, state or local government, agency, commission or entity
has initiated any formal proceeding or inquiry into the business or operations
of Seller or Seller Bank within the past five years.
(r) Environmental Matters.
---------------------
(i) For purposes of this Agreement, the following terms shall
have the following respective meanings:
(A) "Environmental Law(s)" means any law, regulation, rule,
ordinance or similar requirement which governs or protects the environment
enacted by the United States, any state, or any county, city or agency or
subdivision of the United States or any state.
(B) "Hazardous Material(s)" means any material or substance:
(1) which is a "hazardous substance," "pollutant," or "contaminant," pursuant to
the Comprehensive Environmental Response Compensation and Liability Act
("CERCLA") (42 U.S.C. 9601 et seq.) as amended and regulations promulgated
-- ---
thereunder; (2) containing gasoline, oil, diesel fuel or other petroleum
products; (3) which is "hazardous waste" pursuant to the Federal Resource
Conservation and Recovery Act ("RCRA") (42 U.S.C. Section 6901 et seq.) as
-- ---
amended and regulations promulgated thereunder; (4) containing polychlorinated
biphenyls (PCBs); (5) containing asbestos; (6) which is radioactive; (7) the
presence of which requires investigation or remediation under any Environmental
Law (defined above); or (8) which is defined or identified as a "hazardous
waste," "hazardous substance," "pollutant," "contaminant," or "biologically
Hazardous Material" under any Environmental Law.
(C) "Properties" means (1) the real estate owned or leased by
the Seller and the Subsidiaries or, with respect to the Purchaser, by the
Purchaser and its subsidiaries and used as a banking related facility; (2) other
real estate owned ("OREO") by the Seller or the Subsidiaries as defined by any
other federal or state financial institution regulatory agency with regulatory
authority for the Seller or the Subsidiaries; (3) real estate that is in the
process of pending foreclosure or forfeiture proceedings conducted by the Seller
or the Subsidiaries; (4) real
19
<PAGE> 24
estate that is held in trust for others by the Subsidiaries of the Seller; and
(5) real estate owned or leased by a partnership or joint venture in which the
Seller or a Subsidiary has an ownership interest.
(ii) Except as disclosed in Schedule 2.01(r), to the best knowledge
of the Seller after due inquiry, there are no present conditions on the
Properties or to the best of Seller's knowledge properties with respect to which
Seller or its Subsidiaries has a mortgage interest, involving or resulting from
a past or present storage, spill, discharge, leak, emission, injection, escape,
dumping or release of any kind whatsoever of any Hazardous Materials or from any
generation, transportation, treatment, storage, disposal, use or handling of any
Hazardous Materials, that may reasonably be expected to result in a Material
Adverse Effect on the Seller's consolidated business, financial condition or
prospects.
(iii) The Seller and the Subsidiaries are in substantial compliance
with all applicable Environmental Laws. Neither the Seller nor the Subsidiaries
have received notice of, nor to the best of their knowledge are there
outstanding or pending, any public or private claims, lawsuits, citations,
penalties, unsatisfied abatement obligations or notices or orders of
non-compliance relating to the environmental condition of the Properties, which
have or may have a Material Adverse Effect on the Seller's consolidated
business, financial condition or prospects.
(iv) No Properties are currently undergoing remediation or clean-up
of Hazardous Materials or other environmental conditions, the actual or
estimated cost of which may have a Material Adverse Effect on the Seller's
consolidated business, financial condition or prospects.
(v) To the best knowledge of the Seller after due inquiry, the
Seller and the Subsidiaries have all governmental permits, licenses,
certificates of inspection and other authorizations governing or protecting the
environment necessary to conduct its present business.
(s) Loans and Investments.
---------------------
(i) Except as set forth in Disclosure Schedule 2.01(s), each
outstanding loan of Seller Bank as of the date hereof is evidenced by
appropriate and sufficient documentation and constitutes the legal, valid and
binding obligation of the obligor named therein, enforceable in accordance with
its terms except to the extent that the enforceability thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable
principles affecting the rights of creditors generally except where the failure
to be so documented or to constitute a legal, valid and binding obligation will
not have a Material Adverse Effect upon the business, operations or financial
condition of Seller Bank. To the best knowledge of Seller and Seller Bank, no
obligor named therein is seeking to avoid the enforceability of the terms of any
loan under any such laws or equitable principles and no loan is subject to any
defense, offset or counterclaim except where the actions of such obligor will
not have a Material Adverse Effect upon the business, operations or financial
condition of Seller or Seller Bank.
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<PAGE> 25
(ii) To the best knowledge of Seller and Seller Bank, all guarantees
of indebtedness owed to Seller or Seller Bank, including but not limited to
those of state or federal agencies, are, valid and enforceable, except to the
extent enforceability thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws or equitable principles
affecting the rights of creditors generally and except as would not have a
Material Adverse Effect on Seller and Seller Bank on a consolidated basis.
(iii) To the best knowledge of Seller and Seller Bank, in
originating, underwriting, servicing, and discharging loans, mortgages, land
contracts, and other contractual obligations, either for their own account or
for the account of others, Seller and Seller Bank have complied with all
applicable terms and conditions of such obligations and with all applicable
laws, regulations, rules, contractual requirements, and procedures with respect
to such servicing, except where the failure to comply would not have a
Materially Adverse Effect on Seller and Seller Bank on a consolidated basis.
(t) Allowance for Loan Losses. In the Seller's reasonable judgment, the
-------------------------
allowance for loan losses reflected in the Seller's audited statement of
condition at December 31, 1995 was, and the allowance for loan losses shown on
the balance sheets in Seller's Reports for periods ending after December 31,
1995 have been and will be, adequate in all material respects, as of the dates
thereof, under generally accepted accounting principles applicable to federal
savings and loan associations. The Seller has disclosed to the Purchaser in
writing prior to the date hereof the amounts of all loans, leases, advances,
credit enhancements, other extensions of credit, commitments and
interest-bearing assets of the Seller and its Subsidiaries that have been
classified as of December 31, 1995 as "Other Loans Specially Mentioned,"
"Special Mention," "Substandard," "Doubtful," "Loss," "Classified,"
"Criticized," "Credit Risk Assets," "Concerned Loans" (in the latter two cases,
to the extent available) or words of similar import. From and after the date
hereof, the Seller promptly will provide the Purchaser with a copy of each
monthly classified asset report it provides to its Board of Directors. The REO
included in any non-performing assets of the Seller or any of its Subsidiaries
is carried net of reserves at the lower of cost or fair value.
(u) Material Interests of Certain Persons. Except as set forth in
-----------------------------------------
Disclosure Schedule 2.01(u), to Seller's knowledge, no officer or director of
the Seller has any material interest in any material contract or property (real
or personal), tangible or intangible, used in or pertaining to the business of
the Seller or any of its Subsidiaries that would be required to be disclosed
under the SEC's Regulation S-K.
(v) Insurance. The Seller and its Subsidiaries are presently insured, and
---------
since December 31, 1995 have been insured, for reasonable amounts with
financially sound and reputable insurance companies, against such risks as
companies engaged in a similar business located in the State of Illinois would,
in accordance with good business practice, customarily be insured. All material
claims thereunder have been filed in due and timely fashion. Neither Seller nor
Seller Bank has any knowledge of any inaccuracy in any application for such
policies or binders, any failure to pay premiums when due or any similar state
of facts that might form the
21
<PAGE> 26
basis for termination of such insurance except where such failure would not have
a Material Adverse Effect on Seller and its Subsidiaries on a consolidated
basis.
(w) Investment Securities. Except for investments in Federal Home Loan
----------------------
Bank stock and Federal National Mortgage Association ("FNMA") stock, ownership
of Subsidiary shares and except as set forth in Disclosure Schedule 2.01(b),
none of the investments reflected in the consolidated balance sheet of the
Seller as of December 31, 1995, and none of such investments with face value in
excess of $100,000 made by it or any of its Subsidiaries since December 31, 1995
is subject to any restriction (contractual or statutory), other than applicable
securities laws, that would materially impair the ability of the entity holding
such investment freely to dispose of such investment at any time, except to the
extent any such investments are pledged in the ordinary course of business
(including in connection with hedging arrangements or programs or reverse
repurchase arrangements) consistent with prudent banking practice to secure
obligations of the Seller or any of its Subsidiaries. Seller and its
Subsidiaries have no outstanding repurchase agreements to which Seller or Seller
Bank is a party.
(x) Registration Obligations. Neither the Seller nor any of its
--------------------------
Subsidiaries is under any obligation, contingent or otherwise, to register any
of its securities under the Securities Act or the OTS Regulations.
(y) Books and Records. The books and records of the Seller and its
-------------------
Subsidiaries have been, and are being, maintained in accordance with applicable
legal and accounting requirements and reflect in all material respects the
substance of material events and transactions that should be included therein.
(z) Corporate Documents. The Seller has delivered to the Purchaser true
--------------------
and complete copies of its Certificate of Incorporation and Bylaws and the
Charter and Bylaws of Seller Bank, as amended to date, which are currently in
full force and effect.
(aa) Absence of Knowledge. As of the date hereof, the Seller is not aware
--------------------
of any reason why it would be unable to obtain all the necessary approvals
required in order to consummate the transactions contemplated by this Agreement.
(bb) SEC and Regulatory Filings. None of the information regarding Seller
--------------------------
supplied or to be supplied by Seller for inclusion or included in (a) the
registration statement on Form S-4 to be filed with the SEC by Purchaser for the
purpose of registering the shares of Purchaser Common Stock to be exchanged for
shares of Seller Common Stock pursuant to the provisions of this Agreement (the
"Registration Statement"), (b) the joint proxy statement/prospectus to be mailed
to shareholders of Seller and Purchaser (the "Proxy Statement") and (c) any
other documents to be filed with the SEC or any Regulatory Agencies in
connection with the transactions contemplated hereby will, at the respective
times such documents are filed with the SEC or any Regulatory Agencies and, in
the case of the Registration Statement, when it becomes effective and, with
respect to the Proxy Statement, when mailed, be false or misleading with respect
to any material fact, or omit to state any material fact necessary in order to
make the
22
<PAGE> 27
statements therein not misleading or, in the case of the Seller Proxy Statement
or any amendment thereof or supplement thereto, at the time of the meeting of
Seller stockholders referred to in Section 4.11, be false or misleading with
respect to any material fact, or omit to state any material fact necessary to
correct any statement in any earlier communication with respect to the
solicitation of any proxy for such meeting. All documents which Seller is
responsible for filing with the SEC or any other Regulatory Agencies in
connection with the Merger will comply as to form in all respects with the
provisions of applicable law.
(cc) Tax Treatment. To the best knowledge of the Seller, neither Seller
-------------
nor any Seller Subsidiary has engaged in any act that would preclude or
adversely affect the Merger from qualifying as a tax-free reorganization under
Section 368(a) of the Code.
(dd) Indemnification. To the best knowledge of Seller, no action or
---------------
failure to take action by any director, officer, employee or agent of Seller or
Seller Bank has occurred which would give rise to a Claim by any such person for
indemnification from Seller or Seller Bank under the corporate indemnification
provisions of Seller or Seller Bank in effect on the date of this Agreement,
which are reasonably likely, individually or in the aggregate, to have a
Material Adverse Effect on the Seller or its Subsidiaries.
SECTION 2.02 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The
Purchaser represents and warrants to the Seller that except as disclosed in
schedules of the Purchaser delivered to the Seller prior to execution hereof
(and making specific reference to the Section or Sections of this Agreement for
which an exception is taken) (such schedules as amended from time to time in the
manner provided for in Section 4.09 hereof, the "Disclosure Schedules"):
(a) Corporate Organization and Qualification.
----------------------------------------
The Purchaser is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Illinois and is a bank
holding company duly registered under the Bank Holding Company Act of 1956, as
amended and a savings and loan holding company under Section 10 of the HOLA.
Each subsidiary of the Purchaser is a corporation or partnership duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation or organization. Each of the Purchaser and its subsidiaries is in
good standing as a foreign corporation in each jurisdiction where the properties
owned, leased or operated, or the business conducted, by it requires such
qualification, except where the absence thereof, would not, individually or in
the aggregate, have a Material Adverse Effect on Purchaser. The Purchaser and
its subsidiaries each has the requisite corporate and other power and authority
(including all federal, state, local and foreign government authority) to carry
on its respective business as they are now being conducted and to own, lease and
operate their respective properties and assets. The deposits of the subsidiaries
of the Purchaser are insured by the Bank Insurance Fund ("BIF") or the SAIF of
the FDIC to the maximum extent permitted by law.
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<PAGE> 28
(b) Capital Structure.
-----------------
(i) The authorized capital stock of the Purchaser consists of
20,000,000 shares of common stock, par value $4.69 per share ("Purchaser Common
Stock"), and 1,000 shares of preferred stock, no par value per share (the
"Purchaser Preferred Stock"). As of the date hereof, 4,354,138 shares of
Purchaser Common Stock and no shares of Purchaser Preferred Stock were
outstanding. All outstanding shares of capital stock of the Purchaser are, and
at the Effective Time will be, validly issued, fully paid and nonassessable and
not subject to any preemptive rights.
(ii) Except as set forth in Disclosure Schedule 2.02(b) as of the
date of this Agreement, except for this Agreement, neither the Purchaser nor any
of its subsidiaries is a party to or is bound by any outstanding subscriptions,
options, warrants, calls, rights, convertible securities, commitments or
agreements of any character obligating the Purchaser or any of its subsidiaries
to issue, deliver or sell, or cause to be issued, delivered or sold, any
additional shares of capital stock of the Purchaser or any of its subsidiaries
or obligating the Purchaser or any of its subsidiaries to grant, extend or enter
into any such option, warrant, call, right, convertible security, commitment or
agreement. As of the date hereof, there are no outstanding contractual
obligations of the Purchaser or any of its subsidiaries to repurchase, redeem or
otherwise acquire any shares of capital stock of the Purchaser or any of its
subsidiaries.
(c) Authority. The Purchaser has all requisite corporate power and
---------
authority to enter into this Agreement, and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement, and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of the Purchaser. This Agreement
has been duly executed and delivered by the Purchaser, and assuming due
execution and delivery by the Seller, constitutes a valid and binding obligation
of the Purchaser, enforceable in accordance with its terms subject to applicable
conservatorship, receivership, bankruptcy, insolvency and similar laws affecting
creditors' rights and remedies generally, and subject, as to enforceability, to
general principles of equity (including without limitation specific
performance), whether applied in a court of law or a court of equity.
(d) Shareholder Approvals. The Board of Directors of the Purchaser has
----------------------
directed that this Agreement and the transactions contemplated hereby be
submitted to the Purchaser's shareholders for approval at a meeting of such
shareholders and, except for adoption of this Agreement by the requisite vote of
the Purchaser's shareholders, no other shareholder action is necessary to
approve this Agreement and to consummate the transactions contemplated hereby.
The Board of Directors will recommend that the shareholders approve the
transaction subject to their fiduciary duties and will exempt the transaction
from any applicable state takeover statutes. The approval of the majority of the
outstanding shares of Purchaser Common Stock entitled to vote is required for
approval of this Agreement and to consummate the transactions contemplated
hereby.
(e) No Violations. Subject to approval by the appropriate Regulatory
-------------
Agencies, the execution, delivery and performance of this Agreement by the
Purchaser do not, and the
24
<PAGE> 29
consummation of the transactions contemplated hereby will not, constitute (i) a
breach or violation of, or a default under, any law, rule or regulation or any
judgment, decree, order, governmental permit or license, or agreement, indenture
or instrument of the Purchaser or any subsidiary or to which the Purchaser or
any subsidiary (or any of their respective properties) is subject, which breach,
violation or default would individually or in the aggregate, have a Material
Adverse Effect on Purchaser or on Purchaser's ability to consummate the
transaction's contemplated hereby (ii) a breach or violation of, or a default
under, the certificate of incorporation, charter or bylaws of the Purchaser or
any subsidiary of the Purchaser or (iii) a breach or violation of, or a default
under (or an event which with due notice or lapse of time or both would
constitute a default under), or result in the termination of, accelerate the
performance required by, or result in the creation of any lien, pledge, security
interest, charge or other encumbrance upon any of the properties or assets of
the Purchaser under any of the terms, conditions or provisions of any note,
bond, indenture, deed of trust, loan agreement or other agreement, instrument or
obligation to which the Purchaser is a party, or to which any of its respective
properties or assets may be bound or affected, except for any of the foregoing
that, individually or in the aggregate, would not have a Material Adverse Effect
on the Purchaser.
(f) Consents. Except as referred to herein or in connection, or in
--------
compliance, with the Securities Act, the Exchange Act, the HOLA, the BMA, the
rules and regulations of the Federal Reserve Board, and the environmental,
corporation, securities or blue sky laws or regulations of the various states,
no filing or registration with, or authorization, consent or approval of, any
public body or authority is necessary for the consummation by the Purchaser of
the Merger or the other transactions contemplated by this Agreement, other than
filings, registrations, authorizations, consents or approvals, the failure to
make or obtain would not have a Material Adverse Effect on the Purchaser.
(g) Reports.
-------
(i) As of their respective dates, neither the Purchaser's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995, nor any other
document filed subsequent to December 31, 1995 under Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act, each in the form (including any documents
specifically incorporated by reference therein) filed with the SEC,
(collectively, the "Purchaser's Reports"), contained or will contain any untrue
statement of a material fact or omitted or will omit to state a material fact
required to be stated therein or necessary to make the statements made therein,
in light of the circumstances under which they were made, not misleading,
provided, however, that no representation is made herein with respect to any
Exhibits to the Purchaser Reports that are not specifically incorporated by
reference therein and that Purchaser's amendment of any Purchaser's Report, in
and of itself, in response to SEC comments will not be violative of this
section. Each of the balance sheets of the Purchaser or its subsidiaries
contained or specifically incorporated by reference in the Purchaser's Reports
(including in each case any related notes and schedules) fairly presented the
financial position of the entity or entities to which it relates as of its date
and each of the statements of income and of changes in stockholders' equity and
cash flows of the Purchaser or its subsidiaries contained or specifically
incorporated by reference in the Purchaser's Reports (including in each case any
related notes and schedules), fairly presented the results of operations,
shareholders' equity and
25
<PAGE> 30
cash flows, as the case may be, of the entity or entities to which it relates
for the periods set forth therein (subject, in the case of unaudited interim
statement, to normal year-end audit adjustments), in each case in accordance
with GAAP consistently applied during the periods involved, except as may be
noted therein.
(ii) The Purchaser and its subsidiaries have filed all material
reports, registrations and statements, together with any amendments required to
be made with respect thereto, that they were required to file since December 31,
1995, with the Regulatory Agencies, the National Association of Securities
Dealers, Inc. and any other SRO, and have paid all fees and assessments due and
payable in connection therewith, except for those fees and assessments that
would not be material.
(h) Absence of Certain Changes or Events. Except as disclosed in
-----------------------------------------
Purchaser's Reports from December 31, 1995 to the date hereof: (i) Purchaser and
its subsidiaries have not, except as set forth in Disclosure Schedule 2.02(h),
incurred any material liability, other than in the ordinary course of their
business consistent with past practice, and (ii) there has not been any
condition, event, change or occurrence that, individually or in the aggregate,
has had, or is reasonably likely to have, a Material Adverse Effect on the
Purchaser or its subsidiaries.
(i) Taxes. All federal, state, and local tax returns required to be filed
-----
by or on behalf of the Purchaser or any of its subsidiaries have been timely
filed or requests for extensions have been timely filed (and any such extension
shall have been granted and not have expired). All taxes, owed by Purchaser or
any of its subsidiaries (whether or not shown on the returns) and all taxes
required to be shown on returns for which extensions have been granted, have
been paid in full or adequate provision has been made for any such taxes on the
Purchaser's balance sheet as of December 31, 1995 (in accordance with GAAP).
Since December 31, 1992, there has been no audit examination of the Purchaser by
the IRS and the latest audit examination of the Purchaser by the applicable
taxing authority of the State of Illinois was for the fiscal year ended December
31, 1992. Except as set forth in Disclosure Schedule 2.02(i), as of the date of
this Agreement, there is no audit examination, deficiency, claim, or refund
litigation with respect to any taxes of the Purchaser or any of its
subsidiaries, and no claim or assessment has been made by any authority in a
jurisdiction where the Purchaser or any of its subsidiaries do not file tax
returns and the Purchaser or any such subsidiary is subject to taxation. All
taxes, interest, additions, and penalties due with respect to completed and
settled examinations or concluded litigation relating to the Purchaser or any of
its subsidiaries have been paid in full or adequate provision has been made for
any such taxes on the Purchaser's balance sheet as of December 31, 1995 (in
accordance with GAAP). Except as set forth in Disclosure Schedule 2.02(i), the
Purchaser and its subsidiaries have not executed an extension or waiver of any
statute of limitations on the assessment or collection of any material tax due
that is currently in effect. Except as set forth in Disclosure Schedule 2.02(i),
the Purchaser and each of its subsidiaries have withheld and paid all taxes
required to have been withheld and paid in connection with amounts paid or owing
to any employee, independent contractor, creditor, shareholder or other third
party, and the Purchaser and each of its subsidiaries have timely complied with
all applicable information reporting requirements under Part III, Subchapter A
of Chapter 61 of the Code and similar applicable state and local information
reporting requirements, except in each case for such failure to withhold, pay or
comply that would not, individually or in the aggregate, result in a Material
Adverse Effect on the Purchaser.
26
<PAGE> 31
(j) Absence of Claims. Except as set forth in Disclosure Schedule 2.02(j),
-----------------
neither Purchaser, nor any of its subsidiaries, nor any of their respective
directors or officers is a party to any Claim, and Purchaser is not aware of any
threatened Claim against Purchaser or any of its subsidiaries which are
reasonably likely, individually or in the aggregate, to have a Material Adverse
Effect on the Purchaser or its subsidiaries or to materially hinder or delay
consummation of the transactions contemplated hereby, and to the Purchaser's
knowledge, no such Claim has been threatened. Except as set forth in Disclosure
Schedule 2.02(j), there are no orders of any regulatory or governmental
authorities or any judgments against the Purchaser or any of its subsidiaries,
directors or officers which are reasonably likely, individually or in the
aggregate, to have a Material Adverse Effect on Purchaser or its subsidiaries or
to materially hinder or delay consummation of the transaction contemplated
hereby.
(k) Absence of Regulatory Actions. Excluding reports of examination by
------------------------------
Regulatory Agencies, neither the Purchaser nor any of its subsidiaries is a
party to any cease and desist order, written agreement or memorandum of
understanding with, or a party to any commitment letter or similar written
undertaking to, or is subject to any order or directive by, or is a recipient of
any extraordinary supervisory letter from any Regulatory Agency, nor has it been
advised by any Regulatory Agency that it is contemplating issuing or requesting
(or is considering the appropriateness of issuing or requesting) any such order,
directive, written agreement, memorandum of understanding, extraordinary
supervisory letter, commitment letter or similar written undertaking.
(l) Agreements. Neither the Purchaser nor any of its subsidiaries is in
----------
default under or in violation of any provision, and is not aware of any fact or
circumstance that has been or could be alleged to constitute a default or
violation of its Certificate of Incorporation or Bylaws or, of any note, bond,
indenture, mortgage, deed of trust, loan agreement or other agreement to which
it is a party or by which it is bound or to which any of its respective
properties or assets is subject, other than such defaults or violations as could
not reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect on Purchaser or its subsidiaries and has not waived and will not
waive, prior to the Effective Time, any material right under any material
contract or commitment.
(m) Employee Benefit Plans.
----------------------
(i) The Purchaser and its subsidiaries maintain various plans for
the benefit of employees, except for any such plans, contracts, agreements or
arrangements involving liabilities or expenses not exceeding $10,000
individually or in the aggregate which are herein after referred to collectively
as "Purchaser Employee Plans." All of the Purchaser Employee Plans comply in all
material respects with all applicable requirements of ERISA, the Code and other
applicable laws, orders, rules and regulations; neither the Purchaser nor any of
its subsidiaries has engaged in a "prohibited transaction" (as defined in
Section 406 of ERISA or Section 4975 of the Code) with respect to any Purchaser
Employee Plan. Purchaser and its subsidiaries have complied with the health care
continuation coverage requirements of Section 4980B of the Code and Sections 601
through 608 of ERISA. No liability to the Pension Benefit Guaranty Corporation
has been incurred and, except as described on Disclosure Schedule 2.02(m), there
exists no fact or circumstance which would cause the Purchaser to incur any such
liability with respect to any Purchaser Employee Plan which is subject to Title
IV of ERISA ("Pension Plan"), or with respect
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to any "single-employer plan" (as defined in Section 4001(a)(15) of ERISA)
currently or formerly maintained by the Purchaser or any entity which is
considered one employer with the Purchaser under Section 4001 of ERISA or
Section 414 of the Code (an "ERISA Affiliate"). Except as described on
Disclosure Schedule 2.02(m), no Pension Plan had an "accumulated funding
deficiency" (as defined in Section 302 of ERISA (whether or not waived)) as of
the last day of the end of the most recent plan year ending prior to the date
hereof; the present value of the "benefit liabilities" (as defined in Section
4001(a)(16) of ERISA) under each Pension Plan as of the date hereof, calculated
on the basis of the actuarial assumptions used in the most recent actuarial
valuation for such Pension Plan as of the date hereof does not exceed the fair
market value of the assets of such Pension Plan, and no notice of a "reportable
event" (as defined in Section 4043 of ERISA) for which the 30-day reporting
requirement has not been waived has been required to be filed for any Pension
Plan within the 12-month period ending on the date hereof. Neither the Purchaser
nor any Subsidiary of the Purchaser has provided, or is required to provide,
security to any Pension Plan or to any single-employer plan of an ERISA
Affiliate pursuant to Section 401(a)(29) of the Code. Neither the Purchaser, its
subsidiaries, nor any ERISA Affiliate currently contributes or, since December
31, 1988, has contributed to any multiemployer plan, as defined in Section 3(37)
of ERISA. Each Purchaser Employee Plan of the Purchaser or of any of its
subsidiaries which is an employee "pension benefit plan" (as defined in Section
3(2) of ERISA) and which is intended to be qualified under Section 401(a) of the
Code (a "Qualified Plan") has received a favorable determination letter from the
IRS that the pension benefit plan meets the Tax Reform Act of 1986 and all
applicable legislative and regulatory requirements for tax qualification that
became effective at the time that the determination letter was issued and the
Purchaser and its subsidiaries are not aware of any circumstances which would
result in revocation of any such favorable determination letter. Each Qualified
Plan which is an "employee stock ownership plan" (as defined in Section
4975(e)(7) of the Code) has satisfied all of the applicable requirements of
Sections 409 and 4975(e)(7) of the Code and the regulations thereunder in all
material respects and any assets of any such Qualified Plan that are not
allocated to participants' individual accounts are pledged as security for, and
may be applied to satisfy, any securities acquisition indebtedness.
(ii) There is no pending or, to the Purchaser's knowledge,
threatened litigation, administrative action or proceeding relating to any
Purchaser Employee Plan and the Purchaser has not received any notification from
any federal, state or local agency or department asserting that any Purchaser
Employee Plan is not in compliance with any of the statutes, regulations or
ordinances that such governmental authority enforces. There has been no
announcement or commitment by the Purchaser or any Subsidiary of the Purchaser
to create an additional Purchaser Employee Plan, or to amend an Purchaser
Employee Plan except for amendments required by applicable law which do not
materially increase the cost of such Purchaser Employee Plan and except for any
plans or amendments expressly described herein or on Disclosure Schedule
2.02(m); and, except as set forth in Disclosure Schedule 2.02(m), the Purchaser
and its subsidiaries do not have any obligations for post-retirement or
post-employment benefits under any Employee Plan (exclusive of any coverage
mandated by the COBRA.
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(iii) With respect to each Purchaser Employee Plan to the extent
applicable, the Purchaser has supplied to the Purchaser a true and complete copy
of (A) such Purchaser Employee Plan, including amendments thereto, (B) each
trust agreement and insurance contract relating to such Purchaser Employee Plan,
including amendments thereto, (C) the most recent summary plan description for
such Purchaser Employee Plan, including amendments thereto, if the Employee Plan
is subject to Title I of ERISA, and (D) the most recent determination letter
issued by the IRS if such Purchaser Employee Plan is a Pension Plan and
Qualified Plan.
(n) Title to Assets. Except as set forth in Disclosure Schedule 2.02(n),
---------------
the Purchaser and each of its subsidiaries has insurable title (subject only to
standard title insurance policy exceptions as determined by customary practices
in the area in which such properties are located) to its owned real properties
(other than real estate owned as a result of foreclosure, transfer in lieu of
foreclosure or other transfer in satisfaction of a debtor's obligation
previously contracted), except for Liens or such other defects arising by
operation of law or which would not, individually or in the aggregate, have a
Material Adverse Effect on the Purchaser. Each of the Purchaser and its
subsidiaries has good and valid title to its owned personal property free and
clear of all Liens, except for Liens, or other defects arising by operation of
law or which would not, individually or in the aggregate, have a Material
Adverse Effect on the Purchaser.
(o) Fees. Neither the Purchaser nor any of its subsidiaries, nor to
----
Purchaser's knowledge any of their respective officers, directors, employees or
agents, has employed any broker or finder or incurred any liability for any
financial advisory fees, brokerage fees, commissions, or finder's fees, and no
broker or finder has acted directly or indirectly for the Purchaser or any
subsidiary of the Purchaser, in connection with this Agreement or the
transactions contemplated hereby.
(p) Compliance With Laws. The Purchaser and its subsidiaries hold all
---------------------
licenses, certificates, permits, franchises and rights from all appropriate
federal, state or other public authorities necessary for the conduct of its and
their business as it is presently conducted except where the absence thereof
would not, individually or in the aggregate, have a Material Adverse Effect on
the Purchaser or materially delay the Merger. Each of the Purchaser and its
subsidiaries has conducted its business so as to comply in all respects with all
applicable federal, state and local statutes, ordinances, regulations or rules,
except for possible violations which would not, individually or in the
aggregate, have a Material Adverse Effect on the Purchaser; and neither the
Purchaser nor any of its subsidiaries is presently charged with, or, to the
Purchaser's knowledge, under governmental investigation with respect to, any
actual or alleged material violations of any statute, ordinance, regulation or
rule, and neither the Purchaser nor its subsidiaries is the subject of any
pending or, to the Purchaser's knowledge, threatened material proceeding by any
regulatory authority having jurisdiction over its business, properties or
operations. Except as set forth in Disclosure Schedule 2.01(p), to the best of
Purchaser's knowledge, no federal state or local government agency, commission
or entity has initiated any formal proceeding or inquiry into the business
operations of Purchaser or its subsidiaries within the past five years.
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<PAGE> 34
(q) Environmental Matters.
---------------------
(i) Except as disclosed in Schedule 2.02(q), to the best knowledge
of the Purchaser after due inquiry, there are no present conditions on the
Properties or to the best of Purchaser's knowledge properties with respect to
which Purchaser or its subsidiaries has a mortgage interest, involving or
resulting from a past or present storage, spill, discharge, leak, emission,
injection, escape, dumping or release of any kind whatsoever of any Hazardous
Materials or from any generation, transportation, treatment, storage, disposal,
use or handling of any Hazardous Materials, that may reasonably be expected to
result in a Material Adverse Effect on the Purchaser's consolidated business,
financial condition or prospects.
(ii) The Purchaser and its subsidiaries are in substantial
compliance with all applicable Environmental Laws. Neither the Purchaser nor its
subsidiaries have received notice of, nor to the best of their knowledge are
there outstanding or pending, any public or private claims, lawsuits, citations,
penalties, unsatisfied abatement obligations or notices or orders of
non-compliance relating to the environmental condition of the Properties, which
have or may have a Material Adverse Effect on the Purchaser's consolidated
business, financial condition or prospects.
(iii) No Properties are currently undergoing remediation or clean-up
of Hazardous Materials or other environmental conditions, the actual or
estimated cost of which may have a Material Adverse Effect on the Purchaser's
consolidated business, financial condition or prospects.
(iv) To the best knowledge of the Purchaser after due inquiry, the
Purchaser and its subsidiaries have all governmental permits, licenses,
certificates of inspection and other authorizations governing or protecting the
environment necessary to conduct the subsidiaries' present business.
(r) Loans and Investments.
---------------------
(i) Except as set forth in Disclosure Schedule 2.02(r), each
outstanding loan of Purchaser or any of its subsidiaries as of the date hereof
is evidenced by appropriate and sufficient documentation and constitutes the
legal, valid and binding obligation of the obligor named therein, enforceable in
accordance with its terms except to the extent that the enforceability thereof
may be limited by bankruptcy, insolvency, reorganization, moratorium or similar
laws or equitable principles affecting the rights of creditors generally except
where the failure to be so documented or to constitute a legal, valid and
binding obligation will not have a Material Adverse Effect upon the business,
operations or financial condition of Purchaser or its subsidiaries. To the best
knowledge of Purchaser and its subsidiaries, no obligor named therein is seeking
to avoid the enforceability of the terms of any loan under any such laws or
equitable principles and no loan is subject to any defense, offset or
counterclaim except where the actions of such obligor will not have a Material
Adverse Effect upon the business, operations or financial condition of Purchaser
or its subsidiaries.
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(ii) To the best knowledge of Purchaser and its subsidiaries, all
guarantees of indebtedness owed to Purchaser or its subsidiaries, including but
not limited to those of state or federal agencies, are, valid and enforceable,
except to the extent enforceability thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable
principles affecting the rights of creditors generally and except as would not
have a Material Adverse Effect on Purchaser and its subsidiaries on a
consolidated basis.
(iii) To the best knowledge of Purchaser and its subsidiaries, in
originating, underwriting, servicing, and discharging loans, mortgages, land
contracts, and other contractual obligations, either for their own account or
for the account of others, Purchaser and its subsidiaries have complied with all
applicable terms and conditions of such obligations and with all applicable
laws, regulations, rules, contractual requirements, and procedures with respect
to such servicing, except where the failure to comply would not have a
Materially Adverse Effect on Purchaser and its subsidiaries on a consolidated
basis.
(s) Allowance for Loan Losses. In the Purchaser's reasonable judgment, the
-------------------------
allowance for loan losses reflected in the Purchaser's audited statement of
condition at December 31, 1995 was, and the allowance for loan losses shown on
the balance sheets in the Purchaser's Reports for periods ending after December
31, 1995 have been and will be, adequate in all material respects, as of the
dates thereof, under generally accepted accounting principles applicable to
state banks and federal savings banks as the case may be. The Purchaser has
disclosed to the Seller the amounts of all loans, leases, advances, credit
enhancements, other extensions of credit, commitments and interest-bearing
assets of the Purchaser and its subsidiaries that have been classified as of
December 31, 1995 as "Other Loans Specially Mentioned," "Special Mention,"
"Substandard," "Doubtful," "Loss," "Classified, "Criticized," "Credit Risk
Assets," "Concerned Loans" (in the latter two cases, to the extent available) or
words of similar import. The REO included in any non-performing assets of the
Purchaser or any of its subsidiaries is carried net of reserves at the lower of
cost or fair value.
(t) Material Interests of Certain Persons. Except as set forth in
-----------------------------------------
Disclosure Schedule 2.02(t), to Purchaser's knowledge, no officer or director of
the Purchaser has any material interest in any material contract or property
(real or personal), tangible or intangible, used in or pertaining to the
business of the Purchaser or any of its subsidiaries that would be required to
be disclosed under the SEC's Regulation S-K.
(u) Insurance. The Purchaser and its subsidiaries are presently insured,
---------
and since December 31, 1995 have been insured, for reasonable amounts with
financially sound and reputable insurance companies, against such risks as
companies engaged in a similar business located in the State of Illinois would,
in accordance with good business practice, customarily be insured. All material
claims thereunder have been filed in due and timely fashion. Neither Purchaser
nor its subsidiaries has any knowledge of any inaccuracy in any application for
such policies or binders, any failure to pay premiums when due or any similar
state of facts that might form the basis for termination of such insurance
except where such failure would not have a Material Adverse Effect on Purchaser
and its subsidiaries on a consolidated basis.
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<PAGE> 36
(v) Registration Obligations. Neither the Purchaser nor any of its
-------------------------
subsidiaries is under any obligation, contingent or otherwise, to register any
of its securities under the Securities Act or the OTS Regulations.
(w) Books and Records. The books and records of the Purchaser and its
------------------
subsidiaries have been, and are being, maintained in accordance with applicable
legal and accounting requirements and reflect in all material respects the
substance of material events and transactions that should be included therein.
(x) Corporate Documents. The Purchaser has delivered to the Seller true
--------------------
and complete copies of the Purchaser's and each of its subsidiaries' certificate
of incorporation, charter and bylaws as amended to date and currently in full
force and effect.
(y) Absence of Knowledge. As of the date hereof, the Purchaser is not
--------------------
aware of any reason why it would be unable to obtain all of the necessary
regulatory approvals required in order to consummate the transactions
contemplated by this Agreement. As of the date of this Agreement, the Purchaser
believes that, in light of its financial condition, it shall be able to obtain
all such approvals, without the imposition of any burdensome term or condition.
(z) Beneficial Ownership of Seller Common Stock. As of the date hereof,
--------------------------------------------
neither the Purchaser nor any subsidiary or affiliate thereof beneficially owns
any shares of Seller Common Stock or, other than contemplated by this Agreement,
have any option, warrant or right of any kind to acquire the beneficial
ownership of any shares of Seller Common Stock other than as set forth in
Disclosure Schedule 2.02(z).
(aa) SEC & Regulatory Filings. None of the information regarding Purchaser
------------------------
and its subsidiaries supplied or to be supplied by Purchaser for inclusion or
included in (i) the Registration Statement, (ii) the Proxy Statement, or (iii)
any other documents to be filed with the SEC or any Regulatory Agencies in
connection with the transactions contemplated hereby will, at the respective
times such documents are filed with the SEC or any Regulatory Agencies and, in
the case of the Registration Statement, when it becomes effective and, with
respect to the Proxy Statement, when mailed, be false or misleading with respect
to any material fact, or omit to state any material fact necessary in order to
make the statements therein not misleading or, in the case of the Proxy
Statements or any amendment thereof or supplement thereto, at the time of the
meeting of the stockholders referred to in Section 4.11, be false or misleading
with respect to any material fact, or omit to state any material fact necessary
to correct any statement in any earlier communication with respect to the
solicitation of any proxy for such meeting. All documents which Purchaser and
its subsidiaries are responsible for filing with the SEC and any Regulatory
Agencies in connection with the Merger will comply as to form in all material
respects with the provisions of applicable law.
(bb) Tax Treatment. To the best of the knowledge of Purchaser, neither
--------------
Purchaser nor any Subsidiary has engaged in any act that would preclude or
adversely affect the Merger from qualifying as a tax-free reorganization under
Section 368(a) of the Code.
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<PAGE> 37
(cc) Affiliate Purchases. Affiliates of the Purchaser or its subsidiaries
-------------------
including, but not limited to, officers, employees, directors, and greater than
10% beneficial owners have not purchased any Purchaser Common Stock during the
ten (10) trading days on which one or more trades actually occurred immediately
prior to the execution of this Agreement.
(dd) Indemnification. To the best knowledge of Purchaser, no action or
---------------
failure to take action by any director, officer, employee or agent of Purchaser
or its subsidiaries has occurred which would give rise to a Claim by any such
person for indemnification from Purchaser or its subsidiaries under the
corporate indemnification provisions of Purchaser or its subsidiaries in effect
on the date of this Agreement, which are reasonably likely, individually or in
the aggregate, to have a Material Adverse Effect on the Purchaser or its
subsidiaries.
ARTICLE III
CONDUCT PENDING THE MERGER
SECTION 3.01 CONDUCT OF THE SELLER'S BUSINESS PRIOR TO THE EFFECTIVE TIME.
Except as expressly provided in this Agreement and except to the extent required
by law or regulation, or by regulatory authorities, during the period from the
date of this Agreement to the Effective Time the Seller shall, and shall cause
its Subsidiaries to, (i) conduct its business in the usual, regular and ordinary
course consistent with past practice and prudent banking practice, (ii) use its
reasonable efforts to maintain and preserve intact its business organization,
properties, leases, employees and advantageous business relationships and retain
the appropriate services of its officers and key employees, (iii) take any
action that would cause the representations in Section 2.01 to fail to be true
and accurate or that would materially affect the ability of the Seller or any of
its Subsidiaries to perform its covenants and agreements under this Agreement or
to consummate the transaction contemplated hereby, and (iv) not knowingly take
any action (other than action consistent with clause (i) above or taken pursuant
to clause (ii) above) which would materially adversely affect or delay the
ability of the Seller, or the Purchaser to obtain any necessary approvals,
consents or waivers of any governmental authority required for the transactions
contemplated hereby.
SECTION 3.02 FORBEARANCE BY THE SELLER. Without limiting the covenants set
forth in Section 3.01 hereof, except as otherwise specifically provided in this
Agreement and except to the extent required by law or regulation or by
regulatory authorities, and except in each case as specifically permitted by
other subsections of this Section 3.02 or any Schedules attached hereto, from
and after the execution and delivery of this Agreement and until the Effective
Time, the Seller and its Subsidiaries will not, without the prior written
consent of the Purchaser which written consent will not be unreasonably
withheld:
(a) amend its or their Certificate of Incorporation, Charter, or Bylaws
or other corporate governance documents;
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<PAGE> 38
(b) except for the issuance of shares of Seller Common Stock upon exercise
of options under the Seller's Employee Plans or pursuant to this Agreement,
issue any shares of its or their capital stock, issue or grant any stock
options, warrants, rights, calls or commitments of any character calling for or
permitting the issuance of its or their capital stock (or securities convertible
into or exchangeable, with or without additional consideration, for shares of
such capital stock or amend any of the terms of the outstanding stock options);
(c) increase or reduce the number of shares of its or their capital stock
by split-up, reverse split, reclassification, distribution of stock dividends,
change of par or stated value or otherwise modify, change or amend the voting
rights or preferences attributable to any such capital stock;
(d) (i) except to the extent required by law, as required by business
necessity or as set forth in Disclosure Schedule 3.02(d), adopt, amend or
otherwise modify any of Seller's or its Subsidiaries Employee Plans, any bonus,
pension, profit sharing, retirement or other compensation plan qualified or
non-qualified; (ii) except as set forth in Disclosure Schedule 3.02(d), enter
into or amend any contract of employment with any officer which is not
terminable at will without cost or other liability; (iii) except as set forth in
Disclosure Schedule 3.02(d), make or grant any general or individual wage or
salary increase or increase in any manner the compensation or fringe benefits of
any of its employees, officers or directors, other than general increases in
compensation for employees in the ordinary course of business consistent with
past practices; or (iv) become a party to or commit itself to fund or otherwise
establish any trust or account related to any Employee Plan with or for the
benefit of any employee, officer or director;
(e) sell, transfer or lease any of its or their assets or property (other
than the Seller's portfolio of securities, classified assets or REO having a
book value of less than $1,000,000) having a book value in excess of $200,000 to
any individual, corporation, or other entity other than a direct or indirect
wholly owned subsidiary of the Seller, except in the ordinary course of
business; make any acquisition of all or any substantial portion of the business
or assets of any other person, firm, association, corporation or business
organization in each case which are material, individually or in the aggregate,
to the Seller or any of its Subsidiaries, other than in connection with the
collection of any loan or credit arrangement between Seller or any of its
Subsidiaries and any other person; permit the revocation or surrender by Seller
or any of its Subsidiaries of its certificate of authority to do business or its
certificate of authority to maintain, or file an application for the relocation
of any existing branch office, or file an application for a certificate of
authority to establish a new branch office;
(f) waive, release, transfer or grant any rights, or modify or change in
any material respect, any material leases, licenses or agreements, other than in
the ordinary course of business;
(g) subject any asset or property of Seller or any of its Subsidiaries to
a lien, mortgage, pledge, security interest or other encumbrance (other than in
connection with deposits, Federal Home Loan Bank ("FHLB") advances, repurchase
agreements, bankers acceptances, and accounts established in the ordinary course
of business, transactions in "federal funds" and any lien, mortgage, pledge,
security interest or other encumbrance incurred in the ordinary course of
34
<PAGE> 39
business consistent with past practice which does not have or could not
reasonably be expected to have a Material Adverse Effect on Seller or any of its
Subsidiaries);
(h) enter into any leases, licenses or agreements pursuant to which
Seller or any of its Subsidiaries is obligated to pay an unaffiliated party in
excess of $25,000 per annum;
(i) declare, set aside, pay or make any dividend or other distribution or
payment (whether in cash, stock or property) with respect to or purchase or
redeem any shares of the Seller's Common Stock, except for the payment of a
quarterly cash dividends not to exceed after tax earnings for the quarter prior
to such dividend as the Board of Directors may declare beginning six months
after the date hereof;
(j) incur any indebtedness for borrowed money (or guarantee any
indebtedness for borrowed money), except for deposit liabilities and except for
indebtedness incurred in the ordinary course of business or consistent with past
practices including short term FHLB advances;
(k) cancel or compromise any debt or claim which has not previously been
charged off, other than in the ordinary course of business and in an aggregate
amount which would not have a Material Adverse Effect on the Seller or any of
its Subsidiaries;
(l) change its method of accounting as in effect as of December 31, 1995,
except as required by changes in GAAP or by Regulatory Agencies;
(m) settle any claim, action or proceeding involving any liability of the
Seller or Seller Bank for money, damages or other payment in excess of $50,000
or which would place material restrictions upon the operations of the Seller or
the Seller Bank;
(n) fail to notify Purchaser promptly of its receipt of any letter,
notice or other communication, whether written or oral, from any Regulatory
Authority advising that it is contemplating issuing, requiring, or requesting
any agreement, memoranda of understanding, understanding or similar undertaking,
or order, directive, or extraordinary supervisory letter;
(o) fail to remain in compliance with any capital requirement of any
Regulatory Authority to which it is subject;
(p) fail to maintain and keep its properties in as good repair and
condition as at present, except for ordinary wear and tear;
(q) except in the ordinary course of business and consistent with
applicable laws and regulations, make any loan or loan commitment to any of its
officers, directors or 5% or more stockholders (or any person or entity
controlled by or affiliated with such officer, director or 5% or more
stockholder);
35
<PAGE> 40
(r) make, commit to make, acquire or commit to acquire, renew, or commit
to renew any loan or purchase or commit to purchase any securities (other than
overnight money market funds) for an amount in excess of $1 million; and
(s) agree or make any commitment to take any action to do any of the
foregoing.
SECTION 3.03 CONDUCT OF THE PURCHASER'S BUSINESS PRIOR TO THE EFFECTIVE
TIME. Except as expressly provided for or contemplated by this Agreement, during
the period from the date of this Agreement to the Effective Time, the Purchaser
and its subsidiaries shall carry on their respective business in the, usual,
regular, ordinary course consistent with past practice and prudent banking
practices. Without limiting the generality of the foregoing and except as
consented to in writing by Seller, the Purchaser or any of its subsidiaries
shall not, (i) take any action that would cause the representations in Section
2.02 to fail to be true and accurate or that would materially affect the ability
of the Purchaser or any of its subsidiaries to perform its covenants and
agreements under this Agreement or to consummate the transactions contemplated
hereby, (ii) take any action which would materially affect or delay the ability
of the Seller or the Purchaser to obtain any necessary approvals, consents or
waivers of any governmental authority required for the transactions contemplated
hereby, (iii) consolidate with or merge into any other person or convey,
transfer or lease its properties and assets substantially as an entirety to any
person unless such person shall expressly assume the obligations of Purchaser
hereunder, (iv) declare or pay any dividend on, or make any other distributions
in respect of, the Purchaser Common Stock except for regular dividends and
dividends or distributions in Purchaser Common Stock, (iv) amend its Certificate
of Incorporation or Bylaws or other corporate governance documents, or (v)
authorize or enter into any agreement or commitment to do any of the foregoing.
Except as expressly provided in the preceding sentence, nothing contained herein
shall limit Purchaser nor any of its subsidiaries from entering into agreements
to acquire (i) the stock or assets of any other entity except that the Purchaser
shall not enter into an agreement which would materially affect or delay the
ability of Purchaser to obtain any necessary regulatory approvals or consummate
the transactions contemplated hereby or (ii) outstanding shares of Purchaser
Common Stock consistent with past practices, so long as such purchases of
Purchaser Common Stock are consummated prior to the time period contemplated by
Section 1.02(d).
ARTICLE IV
COVENANTS
SECTION 4.01 NO SOLICITATION. From and after the date hereof until the
termination of this Agreement, neither the Seller or Seller Bank, nor any of
their respective officers, directors, employees, representatives, agents or
affiliates (including, without limitation, any investment banker, attorney or
accountant retained by the Seller or any of its Subsidiaries) will, directly or
indirectly, initiate, solicit or knowingly encourage any inquiries or the making
of any proposal or offer (including, without limitation, any proposal or offer
to shareholders of the Seller) with respect to a merger, consolidation or
similar transaction involving, or any purchase of all or any significant portion
of assets or any equity securities of, the Seller or any of its Subsidiaries
(any
36
<PAGE> 41
such proposal or other being herein referred to as an "Acquisition Proposal").
The Seller shall notify Purchaser promptly of the relevant details relating to
all inquiries and proposals which it may receive relating to any of such
matters; provided, however, that, notwithstanding the foregoing, the Seller (or
-------- -------
such persons) may engage in any negotiations concerning, or provide any
confidential information or data to, or have any discussions with, any person
related to an Acquisition Proposal, or otherwise facilitate any effort to
attempt to make or implement an Acquisition Proposal, if the Board of Directors
of the Seller, after consultation with its outside counsel, determines in the
exercise of its fiduciary responsibilities that such discussions or negotiations
should be commenced or such information should be furnished or such facilitation
undertaken. Subject to the foregoing, (i) the Seller will immediately cease and
cause to be terminated any existing activities, discussions or negotiations with
any parties conducted heretofore with respect to any of the foregoing or which
are otherwise in contemplation of an acquisition transaction and (ii) the Seller
will take the necessary steps to inform the appropriate individuals or entities
referred to in the first sentence hereof of the obligations undertaken in this
Section 4.01. The Seller will notify the Purchaser promptly if any such
inquiries or proposals are received by, any such information is requested from,
or any such negotiations or discussions are sought to be initiated or continued
with the Seller after the date hereof in respect of any such Acquisition
Proposal, together with details as to the identity of the persons making such
inquiry or proposal, requesting information or seeking such negotiations or
discussions and the terms and conditions thereof.
SECTION 4.02 EMPLOYEES, EMPLOYEE BENEFIT PLANS AND DIRECTORS.
(a) (i) All persons who are employees of the Seller or the Seller Bank
immediately prior to the Effective Time (the "Seller's Employees") shall, at the
Effective Time, become employees of Purchaser or any of its subsidiaries,
respectively; provided, however, that in no event shall any of the Seller's
-------- -------
Employees be officers of the Purchaser, or have or exercise any power or duty
conferred upon such an officer, unless and until duly elected or appointed to
such position in accordance with the bylaws of the Purchaser. The Purchaser
agrees to use its best efforts to reasonably identify, within 30 days after the
Effective Date, the Seller's Employees who Purchaser intends to offer
employment; provided, however, that subject to the provisions of Section 4.02(c)
-------- -------
herein, the Purchaser shall not have any duty or obligation to continue to
employ any of Seller's or Seller Bank's Employees beyond the Effective Date. All
of Seller's Employees who remain following the Effective Date shall be employed
at the will of the Purchaser. No employee of Seller will become a contractual
employee of Purchaser unless such contract is in writing and executed by the
President or Chief Executive Officer of the Purchaser.
(ii) With the exception of employees listed in Section 4.02(c)(iv)
and (v), employees of Seller or its Subsidiaries who are terminated for other
than cause within the meaning of 12 C.F.R. ss.563.39(b)(1) within one year
following the Effective Time will be eligible for the following benefits: a
Seller Employee shall receive any benefits provided to similarly situated
employees of Pinnacle upon termination including four (4) weeks of salary plus
one (1) additional week for every year of credited service; provided however,
the maximum severance payment shall be no greater than sixteen weeks. For
purposes of the foregoing and purposes of calculating benefits available, Seller
Employees will receive credit for service with Seller or its
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subsidiaries to the same extent and in the manner as if such employees had been
employed by Purchaser.
(iii) Employees of Seller or its Subsidiaries shall be eligible to
participate in the pension and welfare plans maintained by Purchaser after the
Effective Time. For purpose of determining eligibility and vesting of
participants in such plans, employees of Seller and its Subsidiaries shall be
credited with years of service with Seller to the extent credited under the
respective predecessor plans. Service of employees of Seller and its
Subsidiaries will be recognized for vacation and disability benefits. Purchaser
shall provide generally to officers and employees of Seller and its Subsidiaries
who become employees of Purchaser employee benefits under employee benefit plans
on terms and conditions which when taken as a whole are substantially the same
as those provided by Purchaser or its subsidiaries to their similarly situated
officers and employees.
(b) (i) At the Effective Time, no Employee Plans shall have any unfunded
liabilities on any basis including a termination basis or any Pension Benefit
Guaranty Corporation ("PBGC") liability except as described on Disclosure
Schedule 2.01(n) or 4.02(b).
(ii) Seller shall make a sufficient contribution to the Security
Federal Savings and Loan Association Retirement Plan ("Pension Plan") to fully
fund the Pension Plan on a termination basis as calculated at the Effective
Time.
(iii) On or prior to the Effective Time, Pension Plan shall be
terminated in the manner of a standard termination under the rules of the PBGC.
Seller shall take all legal and administrative steps necessary to terminate the
Pension Plan and in the event the Pension Plan is not terminated as of the
Effective Time, Purchaser shall use their best efforts to obtain a standard
termination. As soon as practicable after receipt of a letter from the IRS as to
the tax qualified status of the Pension Plan upon its termination ("Final
Determination Letter") distributions of the assets of the Pension Plan shall be
made to Pension Plan participants and beneficiaries. From and after the
Effective Date of this Agreement, Purchaser shall use their best efforts to
secure a Final Determination Letter for the Pension Plan.
(c) (i) Purchaser will assume and honor in accordance with their terms
all existing written employment, severance, change in control, and other
compensation agreements, including the Supplemental Employee Stock Retirement
Plan ("SERP") and Supplemental Retirement Agreement ("SRA"), between the Seller
and any of its Subsidiaries and any officer, director or employee of the Seller
or any of its Subsidiaries listed on Disclosure Schedule 4.02(c) and all
provisions for vested benefits or other vested amounts earned or accrued through
the Effective Time under any other plan referred to in Section 2.01(n);
(ii) Purchaser acknowledges that for purposes of any agreement
listed on Schedule 4.02(c) conferring rights on an employee as a result of a
"change in control", the Merger shall constitute a change in control;
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(iii) In addition, Purchaser acknowledges that there will be full
vesting at the Effective Time for participants under the Security Federal
Savings and Loan Association 1992 Recognition and Retention Plans ("ARP"), the
Financial Security Corp. 1995 Long Term Incentive Plan, the Financial Security
Corp. 1992 Incentive Stock Option Plan, the Financial Security Corp. 1992 Stock
Option Plan for Outside Directors (the "Option Plans"). With respect to the ARP
and the Long Term Incentive Plan, share awards will be exchanged for the Merger
Consideration set forth in Section 1.02;
(iv) At the Effective Time, single cash payments will be made to
Ivan F. Kovac, Daniel K. Augustine, Patrick Hunt and Frank Swiderski by the
Seller in accordance with the change in control provisions of their employment
agreements, unless otherwise mutually agreed to by the Purchaser and the
individual officer. The method of calculating the cash payments owed under the
employment agreements is set forth on Disclosure Schedule 4.02(c), provided,
however, that benefits which are dependent on 1996 performance will be
recalculated according to the identical formula immediately prior to the
Effective Time and disclosed on Schedule 4.02(c). Medical, dental and disability
benefits, etc., will be continued pursuant to the terms of the employment
agreements.
(v) At the Effective Time, a cash payment will be made to Daniel R.
Yamtich, William C. Preissner and Edward L. Sylvestrak in accordance with such
agreement, unless otherwise mutually agreed to by the Purchaser and individual
officer. The method of calculating the cash payment owed under the change in
control agreements will be set forth on Disclosure Schedule 4.02(c) under the
same terms discussed above in Section 4.02(c)(v). Medical, dental and disability
benefits, etc. will be continued pursuant to the terms of change in control
agreements.
(vi) Purchaser and Seller agree that single sum cash payments will
be made at the Effective Time by the Seller for benefits payable under the SRA.
(d) On or prior to the Effective Time, the Security Federal Savings and
Loan Association Employee Stock Ownership Plan ("ESOP") shall be terminated and
the ESOP loan shall be repaid. As soon as practicable after the receipt of a
letter from the IRS as to the tax qualified status of the ESOP upon its
termination under Sections 401(a) and 4975(e) of the Code (the "Final
Determination Letter") distributions of the benefits under the ESOP shall be
made to ESOP Participants and Beneficiaries. From and after the Effective Date
of this Agreement to the Effective Time, in anticipation of such termination and
distribution, Purchaser, Seller and their respective representatives, after the
Effective Time, shall use their best efforts to apply for an obtain a favorable
Final Determination Letter from the IRS.
(e) At least 60 days prior to the Effective Time Purchaser will provide to
Seller descriptions of all of its Qualified Plans and those non-qualified plans
available to non-executive employees of Purchaser which includes information
regarding eligibility, vesting and benefits. Materials generally provided to
newly hired Purchaser Employees will be acceptable.
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SECTION 4.03 EMPLOYEE STOCK OPTIONS.
(a) Consideration for Seller Stock Option. Disclosure Schedule 4.03 sets
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forth a list of each option outstanding on the date of this Agreement, whether
or not fully exercisable, under the Option Plans, (collectively, the "Seller
Stock Options") to purchase Seller Common Stock heretofore granted by the
Seller. Disclosure Schedule 4.03 also sets forth with respect to each Seller
Stock Option the option exercise price, the number of shares subject to the
option, the date of grant, vesting, exercisability and expiration of the option
and whether the option is an incentive stock option or a non-qualified stock
option. All rights under the Seller Stock Options shall be treated as provided
in Section 4.03(b).
(b) Conversion of Seller Stock Options into Purchaser Common Stock. Each
---------------------------------------------------------------
Seller Stock Option shall be converted at the Effective Time into such number of
shares of Purchaser Common Stock as are equal in value (determined by valuing
each share of Purchaser Common Stock at the Purchaser Average Share Price) to
(i) the product of the number of shares of Seller Common Stock subject to Seller
Stock Options, the Exchange Ratio and the Purchaser Average Stock Price less
(ii) the aggregate exercise price for the number of shares of Seller Common
Stock subject to Seller Stock Options. No fractional shares shall be issued and
the number of shares of Purchaser Common Stock to which the holder of Seller
Stock Options would be entitled pursuant to this Section 4.03(b) shall be as
determined pursuant to the provision of this Section 4.03(b) rounded to the
nearest whole share.
SECTION 4.04 ACCESS AND INFORMATION.
(a) From the date of this Agreement through the Effective Time, Seller and
its Subsidiaries shall afford to each of Purchaser and its authorized agents and
representatives, reasonable access to their respective properties, assets, books
and records and personnel, except for materials that are legally privileged or
which the Seller and its Subsidiaries are prohibited by law from disclosing,
during normal business hours and after reasonable notice; and Purchaser shall be
provided with such financial and operating data and other information with
respect to the businesses, properties, assets, books and records and personnel
of Seller and its Subsidiaries as it shall from time to time reasonably request,
except for materials that are legally privileged or which the Seller and its
Subsidiaries are prohibited by law from disclosing. Purchaser agrees to conduct
any such requests and discussions hereunder in a manner so as not to interfere
with normal operations and consumer and employee relationships of Seller and its
Subsidiaries. In the event the Purchaser learns of any information or matters
during such investigation that the Purchaser believes may constitute or reveal a
material breach of the Seller's or its Subsidiaries representations, warranties,
covenants or agreements contained herein, the Purchaser shall provide the Seller
with a written notice within 15 business days, specifying the information or
matters learned and the basis upon which they may constitute or reveal a
material breach of the Seller's representations, warranties, covenants or
agreements and the Seller shall have the right to cure such material breach
within 30 calendar days from the date of such notice or such longer period as
extended by the parties in writing. No breach of a representation, warranty,
covenant or agreement that is learned pursuant to Purchaser's investigation
contemplated by this Section 4.04 shall constitute a material breach of a
representation, warranty, covenant or agreement by Seller
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or its Subsidiaries under any provision of or for any purpose under this
Agreement and the information or matters underlying such breach shall be deemed
to have been fully disclosed in Seller's disclosure pursuant to this Agreement,
unless Purchaser provides Seller with a written notice relating thereto
delivered and the Seller has not cured such breach within the time period
provided in the immediately preceding sentence and Purchaser exercises its right
to terminate this Agreement on the basis thereof in accordance with Section
6.01(e).
(b) Each party hereto shall treat as strictly confidential all information
received from the other party and shall not divulge to any other person, natural
or corporate (other than essential employees and agents of each party) any
financial statements, schedules, contracts, agreements, instruments, papers,
documents and other information relating to the other party which it may come to
know or which may come into its possession and, if the transactions contemplated
hereby are not consummated for any reason, shall promptly return to the other
party all material furnished by the other party.
(c) Each party hereto shall will not, and will cause its respective
representatives not to, use any information obtained from any other such party
as a result of this Agreement (including this Section 4.04) or in connection
with the transactions contemplated hereby (whether so obtained before or after
the execution hereof, including work papers and other materials derived
therefrom (collectively, the "Confidential Information")) for any purpose
unrelated to the consummation of the transactions contemplated by this
Agreement. Subject to the requirements of law, regulation and applicable
Regulatory Agencies, each party hereto will keep confidential, and will cause
its respective representatives to keep confidential, all Confidential
Information relating to or furnished by any other such party unless such
information (i) was already or becomes known to the general public, other than
from a prohibited disclosure by a party to this Agreement or its
representatives, (ii) becomes available to such party or an affiliate of such
party from sources (other than another party to this Agreement or its
representatives) not bound by a confidentiality obligation or agreement, (iii)
is disclosed with the prior written approval of the party which furnished such
Confidential Information or (iv) is or becomes readily ascertainable from
published information. In the event that this Agreement is terminated or the
transactions contemplated by this Agreement shall otherwise fail to be
consummated, each party hereto and its respective representatives shall promptly
cause all Confidential Information in the possession of itself and its
representatives, including all copies or extracts thereof, to be returned to the
party which furnished the same.
SECTION 4.05 CERTAIN FILINGS, CONSENTS AND ARRANGEMENTS. The Purchaser and
the Seller shall, (a) make as soon as practicable (or cause to be made) from the
date of the Agreement, (or cause to be made) any filings and applications
required to be filed in order to obtain all approvals, consents and waivers of
governmental authorities necessary or appropriate for the consummation of the
transactions contemplated hereby, (b) cooperate with one another (i) in promptly
determining what filings are required to be made or approvals, consents or
waivers are required to be obtained under any relevant federal, state or foreign
law or regulation and (ii) in promptly making any such filings, furnishing
information required in connection therewith and seeking timely to obtain any
such approvals, consents or waivers, (c) use reasonable efforts to obtain all
such approvals, consents or waivers, to respond to all inquiries and requests
for
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information from regulatory authorities, (d) apprise each other of the content
of all communications with regulatory authorities with respect to all filings
and applications, and (e) deliver to the other copies of all such filings and
applications (except for materials that are legally privileged or which it is
prohibited by law from disclosing) promptly after they are filed.
SECTION 4.06 ANTITAKEOVER PROVISIONS. Subject to the continued accuracy of
the Purchaser's representation in Section 2.02(p) and to the exercise of the
fiduciary duties of the Seller's Board of Directors as contemplated by Section
4.01, the Seller and its Subsidiaries shall use reasonable best efforts (i) to
continue to exempt the Purchaser, the Agreement and the Merger from any
provisions of an antitakeover nature in the Seller's or its Subsidiaries'
charters and bylaws and the provisions of any federal or state antitakeover
laws, and (ii) upon the reasonable request of the Purchaser, to assist in any
challenge by the Purchaser to the applicability to the Agreement or the Merger
of any state antitakeover law.
SECTION 4.07 ADDITIONAL AGREEMENTS. Subject to the terms and conditions of
this Agreement, each of the parties hereto agrees to use all reasonable efforts
to take promptly, or cause to be taken promptly, all actions and to do promptly,
or cause to be done promptly, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement as promptly as practicable,
including using reasonable efforts to obtain all necessary actions or
non-actions, extensions, waivers, consents and approvals from all applicable
governmental entities, effecting all necessary registrations, applications and
filings (including, without limitation, filings under any applicable state
securities laws) and obtaining any required contractual consents and regulatory
approvals.
SECTION 4.08 PUBLICITY. The initial press release announcing this
Agreement shall be a joint press release and thereafter the Seller and the
Purchaser shall consult with each other in issuing any press releases or similar
public disclosure with respect to the other or the transactions contemplated
hereby and in making any filings with any governmental entity or with any
national securities exchange with respect thereto; provided, however, that
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nothing contained in this Section 4.08 shall prohibit any party from responding
to questions from the business press or, following notification to the other
parties to this Agreement, from making any disclosure which, after consultation
with its counsel, it deems necessary to comply with the requirements of
applicable law or regulation.
SECTION 4.09 NOTIFICATION OF CERTAIN MATTERS. The Purchaser, on the one
hand, and the Seller and the Seller Bank, on the other hand, shall give prompt
notice to the other of (a) the occurrence or its knowledge of any event or
condition that would cause any of its representations or warranties set forth in
this Agreement not to be true and correct in all material respects as of the
date of this Agreement or as of the Effective Time (except as to any
representation or warranty which specifically relates to an earlier date), or
any of its obligations set forth in this Agreement required to be performed at
or prior to the Effective Time not to be performed in all material respects at
or prior to the Effective Time (any such notice, a "Supplemental Disclosure
Schedule"), including without limitation, any event, condition, change or
occurrence which individually or in the aggregate has, or which, so far as
reasonably can be foreseen at the time of its occurrence, is reasonably likely
to result in a Material Adverse Effect on it; and (b) any
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action of a third party of which it receives notice that might reasonably be
expected to prevent or materially delay the consummation of the transactions
contemplated hereby, including, without limitation, any notice or other
communication from any third party alleging that the consent of such third party
is or may be required in connection with the transactions contemplated by this
Agreement. Any Supplemental Disclosure Schedule given by one party to the other
party shall be deemed to amend the Disclosure Schedule and, unless the party
receiving such amended Disclosure Schedule, by written notice to the other party
given within fifteen (15) business days of its receipt of such Supplemental
Disclosure Schedule, exercises any right of termination it may then have under
Section 6.01(b), and subject to the cure period set forth in 6.01(b), that party
shall thereafter be deemed to have permanently and irrevocably waived (on behalf
of itself and its subsidiaries) (i) any right of termination (or any other
rights or remedies) arising out of or with respect to the events or conditions
described in such Supplemental Disclosure Schedule; and (ii) any contribution of
such events or conditions towards the occurrence of a Material Adverse Effect.
SECTION 4.10 INDEMNIFICATION.
(a) From and after the Effective Time through the sixth anniversary of the
Effective Date, the Purchaser agrees to indemnify and hold harmless each present
and former director and officer of the Seller or its Subsidiaries (each, an
"Indemnified Party"), against any costs or expenses (including reasonable
attorneys' fees), judgments, fines, losses, claims, damages or liabilities
(collectively, the "Costs") incurred in connection with any claim, action, suit,
proceeding or investigation, whether civil, criminal, administrative or
investigative, and whether or not the Indemnified Party is a party thereto,
arising out of matters existing or occurring at or prior to the Effective Time
(including the transactions contemplated by this Agreement), whether asserted or
claimed prior to, at or after the Effective Time, to the fullest extent then
permitted under Delaware law or, if greater, that the Seller would have been
permitted under its certificate of incorporation, charter or bylaws in effect on
the date hereof, and to advance any such costs to each Indemnified Party as they
are from time to time incurred (subject to receipt of an undertaking to repay
such advances if it is ultimately judicially determined that such Indemnified
Party is not entitled to indemnification); provided that if a court of competent
jurisdiction finds that the Indemnified Party is not permitted indemnification,
then the Purchaser will not be liable for the expenses of such Indemnified
Party.
(b) Any Indemnified Party wishing to claim indemnification under Section
4.10(a), upon learning of any such claim, action, suit, proceeding or
investigation, shall promptly notify the Purchaser thereof, but the failure to
so notify shall not relieve the Purchaser of any liability it may have hereunder
to such Indemnified Party if such failure does not materially and substantially
prejudice the indemnifying party. In the event of any such claim, action, suit,
proceeding or investigation, (i) the Purchaser shall have the right to assume
the defense thereof with counsel reasonably acceptable to the Indemnified Party
and the Purchaser shall not be liable to such Indemnified Party for any legal
expenses of other counsel subsequently incurred by such Indemnified Party in
connection with the defense thereof, except that if the Purchaser elects to
assume such defense within a reasonable time or counsel for the Indemnified
Party at any time advises that there are issues which raise conflicts of
interest between the Purchaser and the
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Indemnified Party, the Indemnified Party may retain counsel satisfactory to such
Indemnified Party, and the Purchaser shall remain responsible for the reasonable
fees and expenses of such counsel as set forth above, promptly as statements
therefor are received; provided, however, that the Purchaser shall be obligated
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pursuant to this paragraph (b) to pay for only one firm of counsel for all
Indemnified Parties in any one jurisdiction with respect to any given claim,
action, suit, proceeding or investigation unless the use of one counsel for such
Indemnified Parties would present such counsel with a conflict of interest; (ii)
the Indemnified Party will reasonably cooperate in the defense of any such
matter and (iii) the Purchaser shall not be liable for any settlement effected
by an Indemnified Party without its prior written consent, which consent may not
be withheld unless such settlement is unreasonable in light of such claims,
actions, suits, proceedings or investigations against, and defenses available
to, such Indemnified Party.
(c) Prior to the Closing the Seller shall obtain directors' and officers'
liability insurance, providing substantially the same coverage as the existing
directors' and officers' liability insurance of the Seller for all persons who
are directors and officers of the Seller and Seller Bank on the Date hereof for
a period to continue for six years following the Effective Date provided, the
aggregate cost of such insurance shall not exceed $50,000.
SECTION 4.11 SHAREHOLDERS' MEETINGS.
(a) The Seller shall take all action necessary, in accordance with
applicable law and its certificate of incorporation and bylaws, to convene a
meeting of the holders of Seller Common Stock (the "Shareholder Meeting") as
promptly as practicable for the purpose of considering and voting on the
approval and adoption of this Agreement. The Seller's Board of Directors,
subject to its fiduciary duties, (i) shall recommend at the Shareholder Meeting
that the holders of the Seller Common Stock vote in favor of and approve and
adopt this Agreement and (ii) shall use its reasonable best efforts to solicit
such approval.
(b) The Purchaser shall take all action necessary, in accordance with
applicable law and its certificate of incorporation and bylaws, to convene a
meeting of holders of Purchaser Common Stock ("Purchaser Shareholder Meeting")
as promptly as practicable for the purposes of considering and voting on the
approval and adoption of this Agreement. The Purchaser's Board of Directors,
subject to their fiduciary duties, (i) shall recommend at the Purchaser's
Shareholders Meeting that the holders of Purchaser Common Stock vote in favor of
and approve the above stated matters and (ii) shall use its reasonable best
efforts to solicit such approval.
SECTION 4.12 REGISTRATION STATEMENT. As soon as practicable after the date
hereof, the Purchaser shall prepare and file with the SEC a Registration
Statement on Form S-4 covering the Purchaser Common Stock to be issued to the
holders of Seller Common Stock in the Merger, which Registration Statement shall
include the Proxy Statement for use in soliciting proxies for the shareholders'
meeting to be held by the Purchaser and Seller for the purpose of considering
the Merger, and Purchaser and Seller shall use their best efforts to cause the
Registration Statement to become effective under the Securities Act. Purchaser
will take any action required to be taken under the applicable blue sky or
securities laws in connection with the issuance of the shares of Purchaser
Common Stock in the Merger. Seller shall promptly furnish all
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information concerning it and the holders of its capital stock as Purchaser may
reasonably request in connection with such action, and Purchaser shall provide
the Seller with reasonable opportunity to review and comment upon the content of
the Registration Statement. The Purchaser represents and covenants that the
Registration Statement and any amendment or supplement thereto, at the date of
mailing to shareholders of the Purchaser and the Seller and the dates of the
Shareholder Meeting and the Purchaser Shareholder Meeting, will be in material
compliance with all relevant rules and regulations of the SEC and, with respect
to the Purchaser and the transactions contemplated herein, will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
SECTION 4.13 AFFILIATE LETTERS. Seller shall disclose in the Disclosure
Schedule 4.13 each person whom it reasonably believes is an "affiliate" of the
Seller for purposes of Rule 145 under the Securities Act. Seller shall use its
reasonable efforts to cause each person to deliver to Purchaser not later than
thirty (30) calendar days prior to the Effective Time, a written agreement,
substantially in the form of Exhibit A to this Agreement, providing that such
---------
person will not sell, pledge, transfer, or otherwise dispose of the shares of
Purchaser Common Stock to be received by such person upon consummation of the
Merger except in compliance with applicable provisions of the Securities Act and
the rules and regulations thereunder.
SECTION 4.14 TAX OPINION. The Purchaser and Seller agree to use their
reasonable efforts to obtain a written opinion of Muldoon, Murphy & Faucette or
such other counsel reasonably acceptable to both parties, addressed to the
Purchaser and Seller, dated the Closing Date, subject to the customary
representations and assumptions referred to therein, and substantially to the
effect that (a) the Merger will constitute a tax-free reorganization within the
meaning of Section 368(a) of the Code; (b) the exchange in the Merger of
Purchaser Common Stock will not give rise to gain or loss to the stockholders of
the Seller with respect to the exchange (except to the extent of any cash
received), and (iii) each of Purchaser and Seller will be a party to that
reorganization within the meaning of Section 368(a) of the Code. In rendering
the tax opinion, counsel shall be entitled to rely upon representations of
officers of Purchaser and Seller. Each of the parties undertakes and agrees to
use its best efforts to cause the Merger, and to take no action which would
cause the Merger not to qualify for treatment as a "reorganization" within the
meaning of Section 368(a) of the Code.
SECTION 4.15 TAX-FREE REORGANIZATION TREATMENT. Prior to Effective Time,
neither the Purchaser nor the Seller shall intentionally take, fail to take or
cause to be taken or not take any action which would disqualify the Merger as a
"reorganization" within the meaning of Section 368(a) of the Code.
SECTION 4.16 LISTING. Purchaser shall cause Purchaser Common Stock to
become qualified for quotation on the Nasdaq National Market and file with the
Nasdaq Stock Market a notification for the listing on the Nasdaq Stock Market
relating to the proposed issuance of the shares of Purchaser Common Stock to be
issued to the holders of Seller Common Stock pursuant to the Merger.
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SECTION 4.17 AFFILIATE PURCHASES. Affiliates of the Purchaser or its
subsidiaries including officers, employees, directors or greater than 10%
beneficial owners agree not to purchase any Purchaser Common Stock during the
thirty (30) business days prior to the Closing Date of the Merger.
ARTICLE V
CONDITIONS TO CONSUMMATION
SECTION 5.01 CONDITIONS TO EACH PARTY'S OBLIGATIONS. The respective
obligations of each party to effect the Merger shall be subject to the
fulfillment at or prior to the Effective Time of the following conditions, none
of which may be waived:
(a) this Agreement shall have been approved by the requisite vote of the
holders of Seller Common Stock and Purchaser Common Stock at the Shareholder
Meeting and the Purchaser Shareholder Meeting, respectively in accordance with
applicable law;
(b) all necessary regulatory or governmental approvals, consents or
waivers required to consummate the transactions contemplated hereby shall have
been obtained and shall remain in full force and effect and all statutory
waiting periods in respect thereof shall have expired;
(c) no party hereto shall be subject to any order, decree or injunction of
a court or agency of competent jurisdiction which enjoins or prohibits the
consummation of the Merger;
(d) the Registration Statement shall have been declared effective under
the Securities Act and no stop orders shall be in effect and no proceedings for
such purpose shall be pending or threatened by the SEC;
(e) Purchaser shall have received all state securities laws and "blue sky"
permits and other authorizations necessary to consummate the transactions
contemplated hereby;
(f) the shares of Purchaser Common Stock and the shares issuable pursuant
to the Merger shall have been approved for listing on the Nasdaq National
Market; and
(g) each party shall have received the opinion of Muldoon, Murphy &
Faucette, dated the date of the Closing, to the effect that the Merger will be
treated for federal income tax purposes as a reorganization within the meaning
of Section 368(a) of the Code.
SECTION 5.02 CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER UNDER THIS
AGREEMENT. The obligations of the Purchaser to effect the Merger shall be
further subject to the satisfaction at or prior to the Effective Time of the
following conditions, any one or more of which may be waived by the Purchaser:
(a) each of the obligations, covenants and agreements of the Seller
required to be performed by it at or prior to the Effective Time pursuant to the
terms of this Agreement shall
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have been duly performed and complied with in all respects, except as to the
failure to perform an obligation, covenant or agreement that would not,
individually or in the aggregate, result in a Material Adverse Effect on Seller
or Seller Bank, individually, and the Purchaser shall have received a
certificate to the foregoing effect dated the Effective Date and signed by the
President and Chief Financial Officer of the Seller;
(b) the representations and warranties of the Seller contained in this
Agreement (subject to Section 4.09) shall be true and correct in all material
respects as of the date of this Agreement and as of the Effective Time (as
though made at and as of the Effective Time except as to any representation or
warranty which specifically relates to an earlier date) and the Purchaser shall
have received a certificate to the foregoing effect dated the Closing Date
signed by the President and the Chief Financial Officer of the Seller;
(c) the Purchaser shall have received certified copies of the resolutions
or documents of like import evidencing the authorization of this Agreement and
the consummation of the transactions contemplated hereby by the Seller's Board
of Directors and the Seller's shareholders;
(d) the Purchaser shall have received a certificate of corporate existence
for the Seller (such certificate to be dated as of a day as close as practicable
to the date of the Closing);
(e) subject to the Purchaser's compliance with Sections 4.05 and 4.06,
none of the approvals or consents referred to in Section 5.01(b) hereof shall
contain any non-standard condition (whether such condition is non-standard shall
be determined based on the practices and procedures of the applicable regulatory
or governmental body as of the date of this Agreement) which would, or would be
reasonably likely to, have a Material Adverse Effect on the Purchaser and its
subsidiaries taken as a whole giving effect to the completion of the
transactions contemplated hereby;
(f) the Purchaser shall have received an opinion or opinions, dated the
date of the Closing, from Muldoon, Murphy & Faucette, special counsel to the
Seller, to the effect that:
(i) Seller is a corporation duly authorized, validly existing and in
good standing under the laws of the State of Delaware and Seller Bank is a
Federally chartered stock savings and loan association duly organized under the
laws of the United States;
(ii) the Seller has the power and authority to carry on its business
as described in the Proxy Statement and to consummate the transactions
contemplated by the Agreement and the Subsidiaries have the corporate power and
authority to carry on their business as described in the Proxy Statement;
(iii) the Agreement has been duly authorized and approved by the
Seller and the Agreement and the transactions contemplated thereby have been
approved by the requisite vote of the Seller's shareholders and duly authorized,
executed and delivered by the Seller and the Agreement constitutes the valid and
binding obligation of the Seller subject to applicable laws affecting creditors'
right generally and equitable defenses;
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(iv) to the best knowledge of such counsel, all acts, other
proceedings required to be taken by or on the part of the Seller, including the
adoption of the Agreement by the shareholders of the Seller, and the necessary
approvals, consents, authorizations or notifications required to be taken to
consummate the transactions contemplated by the Agreement, have been properly
taken or obtained; neither the execution and delivery of the Agreement nor the
consummation of the transactions contemplated hereby and thereby, with or
without the giving of notice or the lapse of time, or both, will (i) violate any
provision of the Certificate, Charter or Bylaws of the Seller or the
Subsidiaries; or (ii) to the best knowledge of such counsel, violate, conflict
with, result in the material breach or termination of, constitute a material
default under, accelerate the performance required by, or result in the creation
of any material lien, charge or encumbrance upon any of the properties or assets
of the Seller or the Subsidiaries pursuant to any indenture, mortgage, deed of
trust, or other agreement or instrument to which the Seller or the Subsidiaries
are a party or by which they or any of their properties or assets may be bound,
or violate any statute, rule or regulation applicable to the Seller or the
Subsidiaries, which would have a Material Adverse Effect on the financial
condition, assets, liabilities, or business of the Seller or the Subsidiaries;
to the best knowledge of such counsel, no consent, approval, authorization,
order, registration or qualification of or with any court, regulatory authority
or other governmental body, other than as specifically contemplated by this
Agreement is required for the consummation by the Seller or the Subsidiaries of
the transactions contemplated by the Agreement;
(v) to the best knowledge of such counsel, there are no actions,
suits, proceedings or investigations of any nature pending or threatened that
challenge the validity or legality of the transactions contemplated by the
Agreement or which seek or threaten to restrain, enjoin or prohibit (or obtain
substantial damages in connection with) the consummation of such transactions;
(vi) to the best knowledge of such counsel, there is no litigation,
appraisal or other proceeding or governmental investigation pending or
threatened against or relating to the business or property of the Seller or the
Subsidiaries which would have a Materially Adverse Effect on the consolidated
financial condition of the Seller or the Subsidiaries;
(vii) the Proxy Statement, and any supplement or amendment thereto,
on the date of the mailing thereof and on the date of the special meeting of
stockholders of Seller, complied as to form in all material respects with the
applicable provisions of law with respect to information provided for inclusion
therein by Seller; and
(g) the Purchaser shall have received a letter, dated the date of the
Closing, from Muldoon, Murphy & Faucette, special counsel to the Seller, to the
effect that no facts have come to the attention of such counsel, with respect to
information provided by Seller for inclusion in the Proxy Statement, which would
lead such counsel to believe that the Proxy Statement, and any supplement or
amendment thereto, on the date of the mailing thereof and on the date of the
meeting of stockholders of Seller, contained any untrue statement of a material
fact or omitted to state any material fact required to be stated therein, or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading (it being
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understood that such counsel need express no opinion with respect to the
fairness opinion, financial statements and notes thereto and other financial,
statistical and accounting information included in the Proxy Statement);
provided, however, that such counsel may state that they have not independently
- - -------- -------
verified the accuracy, completeness or fairness of the statements contained in
the Proxy Statement, and the limitations inherent in their participation in the
preparation of the Proxy Statement and that the knowledge available to them is
such that they are unable to assume, and do not assume, responsibility for the
accuracy, completeness or fairness of the statements contained in the Proxy
Statement.
(h) the Seller shall have furnished the Purchaser with such certificates
of its officers or others and such other documents to evidence fulfillment of
the conditions set forth in this Section 5.02 as the Purchaser may reasonably
request.
SECTION 5.03 CONDITIONS TO THE OBLIGATIONS OF THE SELLER UNDER THIS
AGREEMENT. The obligations of the Seller to effect the Merger shall be further
subject to the satisfaction at or prior to the Effective Time of the following
conditions, any one or more of which may be waived by the Seller:
(a) each of the obligations of the Purchaser, respectively, required to
be performed by it at or prior to the Effective Date pursuant to the terms of
this Agreement shall have been duly performed and complied with in all material
respects, and the Seller shall have received a certificate to the foregoing
effect dated the Closing Date and signed by the President and Chief Financial
Officer of the Purchaser;
(b) the representations and warranties of the Purchaser and its
subsidiaries contained in this Agreement shall be true and correct in all
material respects as of the date of this Agreement and as of the Effective Time
(as though made at and as of the Effective Time except as to any representation
or warranty which specifically relates to an earlier date) and the Seller shall
have received a certificate to the foregoing effect dated the Closing Date
signed by the President and the Chief Financial Officer of the Purchaser.
(c) the Seller shall have received an opinion at the time of execution of
this Agreement and a written opinion dated not more than five (5) days prior to
the date of the Proxy Statement from Hovde Financial, Inc. or another financial
advisor selected by Seller, to the effect that in the opinion of such firm, the
consideration to be received in the Merger by the stockholders of Seller is fair
to the stockholders of Seller from a financial point of view and such opinion
shall not have been withdrawn or materially modified prior to the vote of the
stockholders.
(d) the Seller shall have received an opinion, dated as of the Effective
Date, from Burke, Warren & MacKay, P.C. counsel for the Purchaser to the effect
that:
(i) Purchaser is a corporation duly organized, validly existing and
in good standing under the laws of the State of Illinois.
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(ii) all of the issued and outstanding shares of Purchaser Common
Stock are duly authorized, validly issued, fully paid and nonassessable;
(iii) Purchaser has the power and authority to carry on its business
as described in the Proxy Statement and to consummate the transactions
contemplated by this Agreement and the subsidiaries have the corporate power and
authority to carry on their business as described in the Proxy Statement;
(iv) the Agreement has been duly authorized and approved by
Purchaser and the Agreement and transactions contemplated thereby have been
approved by the requisite vote of the Purchaser's shareholders and duly
authorized, executed and delivered by Purchaser and the Agreement constitutes
the valid and binding obligation of Purchaser subject to applicable laws
affecting creditors' rights generally and equitable defenses;
(v) all corporate acts and other proceedings required to be taken by
or on the part of Purchaser including the adoption of the Agreement by
shareholders of Purchaser and the necessary approvals, consents authorizations
or notifications required to be taken to consummate the transactions
contemplated by the Agreement have been properly taken or obtained; neither the
execution and delivery of the Agreement, nor the consummation of the
transactions contemplated hereby and thereby, with and without the giving of
notice or the lapse of time, or both, will (i) violate any provision of the
Articles of Incorporation or Bylaws of Purchaser or its subsidiaries or (ii) to
the actual knowledge of such counsel without inquiry or investigation, violate,
conflict with, result in the material breach or termination of, constitute a
material default under, accelerate the performance required by, or result in the
creation of any material lien, charge or encumbrance upon any of the properties
or assets of the Purchaser or the subsidiaries pursuant to any indenture,
mortgage, deed of trust, or other agreement or instrument to which the Purchaser
or the subsidiaries are a party or by which it or any of their properties or
assets may be bound, or violate any statute, rule or regulation applicable to
the Purchaser or the subsidiaries, which would have a Material Adverse Effect on
the financial condition, assets, liabilities, or business of the Purchaser or
the subsidiaries; to the actual knowledge of such counsel without inquiry or
investigation, no consent, approval, authorization, order, registration or
qualification of or with any court, regulatory authority or other governmental
body, other than as specifically contemplated by this Agreement is required for
the consummation by the Purchaser or the subsidiaries of the transactions
contemplated by this Agreement and Plan of Merger;
(vi) to the actual knowledge of such counsel without inquiry or
investigation there are no actions, suits, proceedings or investigations (public
or private) of any nature pending or threatened that challenge the validity or
legality of the transactions contemplated by the Agreement or which seek or
threaten to restrain, enjoin or prohibit (or to obtain substantial damages in
connection with) the consummation of such transactions;
(vii) all regulatory and governmental approvals and consents which
are necessary to be obtained by Purchaser and its subsidiaries to permit the
execution, delivery and performance of the Agreement have been obtained;
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(viii) the Registration Statement, in so far as it contains
information relating to the Purchaser and any of its subsidiaries, complies in
all material respects as to form with the requirements of the Securities Act as
in effect on the date of effectiveness of the Registration Statement. The
Prospectus included therein, including any supplements or amendments thereto, at
the time of the mailing thereof or at the time of the stockholders' meeting of
the Purchaser, complied as to form in all material respects with the applicable
provisions of law with respect to information provided for inclusion therein by
Purchaser;
(ix) the shares of the $4.69 par value common stock of Purchaser to
be issued to the stockholders of Seller as contemplated by the Agreement have
been duly and validly authorized for issuance, have been registered under the
Securities Act of 1933, as amended, and when the certificates therefor are duly
countersigned by Purchaser (or Purchaser's transfer agent) and delivered to the
stockholders of Seller pursuant to the Agreement following consummation of the
Merger will be duly and validly issued, fully paid and nonassessable, and no
holder of any presently outstanding shares of Purchaser Common Stock has any
preemptive or similar rights to subscribe for or purchase any such shares.
(e) the Purchaser shall have received a letter, dated the date of Closing,
from Burke, Warren & MacKay, P.C. counsel to Purchaser, to the effect that no
facts have come to the attention of such counsel that the information provided
by the Purchaser for inclusion in the Proxy Statement, and the information in
the Registration Statement, and any supplements or amendments thereto, on the
date of the mailing of the Proxy Statement, and on the date of the meeting of
stockholders of Seller, contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary to
made the statements contained therein, in light of the circumstances under which
they were made, not misleading provided, however, that such counsel may state
-------- -------
that they have not independently verified the accuracy, completeness or fairness
of the statements contained in the Proxy Statement and the Registration
Statement, and the limitations inherent in their participation in the
preparation of the Proxy Statement and the Registration Statement and that the
knowledge available to them is such that they are unable to assume, and do not
assume, responsibility for the accuracy, completeness or fairness of the
statements contained in the Proxy Statement and the Registration Statement.
(f) the Purchaser shall have furnished to the Seller with such
certificates of its officers and others and such other documents to evidence
fulfillment of the conditions set forth in this Section 5.03 as the Seller may
reasonably request.
ARTICLE VI
TERMINATION
SECTION 6.01 TERMINATION. Notwithstanding any other provision of this
Agreement, this Agreement may be terminated, and the Merger abandoned, prior to
the Effective Time, either before or after its approval by the shareholders of
the Seller:
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(a) by the mutual consent of the Purchaser and the Seller in a written
instrument if the board of directors of each so determines by a vote of a
majority of the members of its entire board;
(b) by the Purchaser or the Seller (provided that the party seeking
termination is not then in material breach of any representation, warranty,
covenant or other agreement contained herein), in the event of a failure to
perform or comply by the other party with any covenant or agreement of such
other party contained in this Agreement, which failure or non-compliance is
material in the context of the transactions contemplated by this Agreement, or
(ii) subject to Section 4.09, any inaccuracies, omissions or breach in the
representations, warranties, covenants or agreements of the other party
contained in this Agreement the circumstances as to which either individually or
in the aggregate have, or reasonably could be expected to have, a Material
Adverse Effect on such other party; in either case which has not been or cannot
be cured within 30 calendar days after written notice thereof is given by the
party seeking to terminate to such other party.
(c) by the Purchaser or the Seller by written notice to the other party if
either (i) any approval, consent or waiver of a governmental authority required
to permit consummation of the transactions contemplated hereby shall have been
denied or (ii) any governmental authority of competent jurisdiction shall have
issued a final, unappealable order enjoining or otherwise prohibiting
consummation of the transactions contemplated by this Agreement, or (iii) the
holders of Seller Common Stock or the Purchaser Common Stock shall fail to
approve and adopt this Agreement, provided, however, that no party shall have
-------- -------
the right to terminate this Agreement pursuant to this Section 6.01(c) if such
denial or request or recommendation for withdrawal shall be due to the failure
of the party seeking to terminate this Agreement to perform or observe the
covenants and agreements of such party set forth herein;
(d) by the Purchaser or the Seller, in the event that the Merger is not
consummated by March 31, 1997, unless the failure of such occurrence is due to
the failure to perform or comply with any covenant or agreement contained in
this Agreement by the party seeking to terminate;
(e) subject to Section 4.09, by the Purchaser by written notice to the
Seller in the event that there has occurred since the date of this Agreement an
event, condition, change or occurrence which, individually or in the aggregate,
has had or could reasonably be expected to result in a Material Adverse Effect
on the Seller or the Seller Bank; provided that the Purchaser shall have given
--------
the Seller thirty (30) calendar days prior written notice of such termination,
and the Seller shall not have remedied such event, condition, change or
occurrence by the end of such thirty-day period and provided, further that any
--------
exclusions from Material Adverse Effect under Section 2.01(h) shall not be
deemed an event that would permit Purchaser to terminate this Agreement;
(f) by Purchaser in accordance with Section 1.02(c)(i) upon notice to
Seller;
(g) by Seller in accordance with Section 1.02(c)(ii) upon notice to
Purchaser; or
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(h) by the Purchaser by written notice to the Seller five (5) days prior
to the Closing Date in the event that there has been a reduction of
the value as of that date of the Bennett Portfolio, as described in
Disclosure Schedule 6.01(h), in excess of a threshold amount equal to
$375,000 before any tax savings (the "Threshold Amount") ("Bennett
Material Adverse Change"); provided, however, that Purchaser shall
-------- -------
not have an option to terminate pursuant to this paragraph (h) if no
later than two (2) days prior to the Closing Date, the Seller agrees
to reduce the Merger Consideration by the amount of the Bennett
Material Adverse Change in excess of the Threshold Amount, reduced by
tax savings of 34%, divided by the number of outstanding shares of
Seller Common Stock.
SECTION 6.02 EFFECT OF TERMINATION. In the event of termination of this
Agreement by either the Purchaser or the Seller as provided in Section 6.01,
this Agreement shall forthwith become void and have no effect and there shall be
no liability on the part of any party hereto or to their respective officers or
directors except that (i) Sections 4.04(b), 4.04(c), 8.06 and 8.07, shall
survive any termination of this Agreement, and (ii) notwithstanding anything to
the contrary contained in this Agreement, no party shall be relieved or released
from any liabilities or damages arising out of its willful breach of any
provision of this Agreement.
SECTION 6.03 THIRD PARTY TERMINATION. In recognition of the efforts and
expenses of, and other opportunities foregone by, the Purchaser while
structuring the Merger, the parties agree that the Seller shall pay to the
Purchaser a termination fee of $600,000 in cash (the "Termination Fee") on
demand if, during a period of eighteen (18) months after the date hereof, the
Merger has not been completed and any of the foregoing occurs:
(a) Any person other than the Purchaser or an affiliate of the Purchaser
acquires beneficial ownership of 50% or more of the then outstanding Seller
Common Stock;
(b) The Seller, without having received the Purchaser's prior written
consent, enters into an agreement to engage in an Acquisition Transaction (as
defined below) with any person (the term "person" for purposes of this Agreement
having the meaning assigned thereto in Sections 3(a)(9) and 13(d)(3) of the
Exchange Act and the rules and regulations thereunder) other than the Purchaser
or any of its subsidiaries or the Seller's Board of Directors recommends that
the shareholders of the Seller approve or accept any Acquisition Transaction
with any person other than the Purchaser or any of its subsidiaries. For
purposes of this Agreement, "Acquisition Transaction" shall mean (x) a merger or
consolidation, or any similar transaction, involving the Seller, (y) a purchase,
lease or other acquisition of all or substantially all of the assets of the
Seller or (z) a purchase or other acquisition (including by way of merger,
consolidation, share exchange or otherwise) of securities representing 50% or
more of the voting power of the Seller; provided that the term "Acquisition
Transaction" does not include any internal merger or consolidation involving
only the Seller and/or its Subsidiaries; or
(c) If a bona fide proposal is made by a third party to the Seller or its
shareholders to engage in an Acquisition Transaction and after such proposal is
made any of the following events occurs: the Seller breaches any covenant or
obligation contained in the Agreement which
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would materially impair Seller's ability to consummate the Merger and such
breach entitles the Purchaser to terminate this Agreement; the Shareholder
Meeting is not held or is canceled prior to termination of this Agreement for
reasons other than the fault of the Purchaser; or the Seller's Board of
Directors withdraws or modifies in a manner adverse to the Purchaser the
recommendation of the Seller's Board of Directors with respect to this
Agreement.
Notwithstanding the foregoing, the Seller shall not be obligated to pay to
the Purchaser the Termination Fee if the Seller validly terminates this
Agreement pursuant to Section 6.01(b) or, prior to the Termination Fee becoming
payable, the Seller terminates this Agreement pursuant to Section 6.01(c), (d)
or (f).
SECTION 6.04 SPECIFIC ENFORCEABILITY. The parties recognize and hereby
acknowledge that it is impossible to measure in money the damages that would
result to a party by reason of the failure of the other party to perform any of
the obligations imposed on it by this Agreement and that in any event damages
would be an inadequate remedy in this instance. Accordingly, if a party should
institute an action or proceeding seeking specific enforcement of the provisions
hereof, the other party hereby waives the claim or defense that the party making
the claim 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.
ARTICLE VII
CLOSING, EFFECTIVE DATE AND EFFECTIVE TIME
SECTION 7.01 EFFECTIVE DATE AND EFFECTIVE TIME. Subject to the provisions
of Article V and VI, the closing of the transactions contemplated hereby shall
take place at the offices of the Purchaser on such date (the "Closing Date") or
such other place as mutually agreed to by the Purchaser and Seller and at such
time as the Purchaser and the Seller mutually agree to within thirty (30 )
business days after the expiration of all applicable waiting periods in
connection with approvals of governmental authorities and all conditions to the
consummation of this Agreement are satisfied or waived, or on such other date as
may be agreed by the parties. Subject to the provisions of this Agreement, on
the Closing Date, the Certificate of Merger shall be signed, verified and
affirmed as required by Illinois Law or any other applicable laws and duly filed
with the Secretary of State of the State of Illinois or as required by any other
applicable laws. The date of such filing is herein called the "Effective Date."
The "Effective Time" of the Merger shall be the time on the Effective Date as
set forth in such articles of merger.
SECTION 7.02 DELIVERIES AT THE CLOSING. Subject to the provisions of
Articles V and VI, on the Closing Date there shall be delivered to the Purchaser
and the Seller the documents and instruments required to be delivered under
Article V.
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ARTICLE VIII
OTHER MATTERS
SECTION 8.01 CERTAIN DEFINITIONS; INTERPRETATION. As used in this
Agreement, the following terms shall have the meanings indicated, unless the
context otherwise requires:
"material" means material to the Purchaser or the Seller (as the
case may be) and its respective subsidiaries, taken as a whole.
"person" includes an individual, corporation, partnership,
association, trust or unincorporated organization.
When a reference is made in this Agreement to Sections or Exhibits, such
reference shall be to a Section of, or Exhibit to, this Agreement unless
otherwise indicated. The headings contained in this Agreement are for ease of
reference only and shall not affect the meaning or interpretation of this
Agreement. Whenever the words "include, "includes, or "including" are used in
this Agreement, they shall be deemed followed by the words "without limitation."
Any singular term in this Agreement shall be deemed to include the plural, and
any plural term the singular. Any reference to gender in this Agreement shall be
deemed to include any other gender.
SECTION 8.02 NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS. All representations, warranties, covenants and agreements contained
in this Agreement (or in any instrument delivered pursuant to this Agreement)
shall not survive beyond the Effective Time, except for the agreements contained
in this Section 8.02 and in Article I and Sections 4.02, 4.10, 6.03, 6.04 and
8.06 hereof.
SECTION 8.03 AMENDMENT. This Agreement may be amended by the parties
hereto, by or pursuant to action taken by their respective boards of directors,
at any time before or after approval hereof by the shareholders of the Seller
but, after such approval, no amendment shall be made which reduces the amount or
changes the form of the Merger Consideration as provided in Section 1.02 or
which in any way materially adversely affects the rights of such shareholders,
without the further approval of such shareholders. This Agreement may not be
amended except by an instrument in writing specifically referring to this
Section 8.03 and signed on behalf of each of the parties hereto.
SECTION 8.04 WAIVER. At any time prior to the Effective Date, the
Purchaser, on the one hand, and the Seller, on the other hand, may (i) extend
the time for the performance of any of the obligations or other acts of the
other, (ii) waive any inaccuracies in the representations and warranties of the
other contained herein or in any documents delivered pursuant hereto and (iii)
waive compliance by the other with any of the agreements or conditions contained
herein which may legally be waived. Any agreement on the part of a party hereto
to any such extension or waiver shall be valid only if set forth in an
instrument in writing specifically referring to this Section 8.04 and signed on
behalf of such party.
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SECTION 8.05 COUNTERPARTS. This Agreement may be executed in counterparts
each of which shall be deemed to constitute an original, but all of which
together shall constitute one and the same instrument.
SECTION 8.06 GOVERNING LAW. This Agreement shall be governed by, and
interpreted in accordance with, the laws of the State of Illinois or any other
applicable laws except to the extent that the federal laws of the United States
apply.
SECTION 8.07 EXPENSES. Except as provided elsewhere herein, each party
hereto will bear all expenses incurred by it in connection with this Agreement
and the transactions contemplated hereby, including fees and expenses of its own
financial or other consultants, investment bankers, accountants, and counsel,
except that Purchaser, on the one hand, and Seller, on the other hand, shall
bear and pay one-half of the costs incurred in connection with the printing and
mailing of the Registration Statement and the Proxy Statement. In the event one
of the parties hereto files suit to enforce this Section or a suit seeking to
recover costs and expenses or damages for breach of this Agreement, the costs,
fees, charges and expenses (including attorneys' fees and expenses) of the
prevailing party in such litigation (and related litigation) shall be borne by
the losing party.
SECTION 8.08 NOTICES. All notices, requests, acknowledgements and other
communications hereunder to a party shall be in writing and shall be delivered
by hand, overnight courier or by facsimile transmission (confirmed in writing)
to such party at its address or facsimile number set forth below or such other
address or facsimile number as such party may specify by notice hereunder, and
shall be deemed to have been delivered as of the date so delivered.
If to the Seller, to: Financial Security Corp.
1209 North Milwaukee Avenue
Chicago, Illinois 60622
Facsimile: (312) 227-6689
Attention: Daniel K. Augustine
Chief Executive Officer and President
and Muldoon, Murphy & Faucette
5101 Wisconsin Avenue, N.W.
Washington, D.C. 20016
Facsimile: (202) 966-9409
Attention: Mary M. Sjoquist
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If to the Purchaser, to:
Pinnacle Banc Group, Inc.
2215 York Road, Suite 208
Oak Brook, Illinois 60521
Facsimile: (708) 571-3012
Attention: John J. Gleason, Jr.
Vice Chairman
With copies to: Burke, Warren & MacKay, P.C.
225 West Washington Street
24th Floor
Chicago, Illinois 60606
Facsimile: (312) 357-0707
Attention: Richard W. Burke
SECTION 8.09 ENTIRE AGREEMENT; ETC. This Agreement, together with the
Disclosure Schedules (including any Supplemental Disclosure Schedules), the
Exhibits and the Plan of Merger, represents the entire understanding of the
parties hereto with reference to the transactions contemplated hereby and
supersedes any and all other oral or written agreements heretofore made. All
terms and provisions of the Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors and assigns
and intended beneficiaries. Except as to Section 4.10, nothing in this Agreement
is intended to confer upon any other person any rights or remedies of any nature
whatsoever under or by reason of this Agreement.
SECTION 8.10 ASSIGNMENT. This Agreement may not be assigned by any party
hereto without the written consent of the other parties.
SECTION 8.11 SCHEDULES NOT ADMISSIONS. Inclusion in any Exhibit hereto or
in the Disclosure Schedules (including in any Supplemental Disclosure Schedule)
of any statement or information by the Seller shall not constitute an admission
that such information is required (by reason of materiality or otherwise) to be
furnished as part of such Disclosure Schedules, (including any Supplemental
Disclosure Schedule) or otherwise under this Agreement or an admission against
interest with respect to any person not a party hereto.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the day and year first above
written.
PINNACLE BANC GROUP, INC.
By: /s/ John J. Gleason, Jr.
--------------------------
John J. Gleason, Jr.
Vice Chairman
FINANCIAL SECURITY CORP.
By: /s/ Daniel K. Augustine
--------------------------
Daniel K. Augustine
Chief Executive Officer and
President
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EXHIBIT A
[Affiliate Letter]
______________, 1996
Pinnacle Banc Group, Inc.
2215 York Road
Oak Brook, Illinois 60521
Ladies and Gentlemen:
I have been advised that I may be deemed an "affiliate" of Financial
Security Corp., a Delaware corporation ("Financial Security"), as the term
"affiliate" is defined for purposes of paragraphs (c) and (d) of Rule 145 of the
rules and regulations (the "Rules and Regulations") of the Securities and
Exchange Commission ("SEC") under the Securities Act of 1933, as amended (the
"Securities Act"), and may be deemed an "affiliate' of Financial Security at the
time of the merger (the "Merger") of Financial Security with and into Pinnacle
Banc Group, Inc., an Illinois corporation ("Pinnacle"), in accordance with
Section 4.13 of the Agreement and Plan of Merger dated as of March __, 1996, by
and among Financial Security and Pinnacle (the "Merger Agreement"). Pursuant to
the terms of the Merger, I may receive shares of common stock, par value $4.69
per share, of Pinnacle ("Pinnacle Common Stock"). Capitalized terms used herein
and not otherwise defined shall have the respective meanings assigned to them by
the Merger Agreement.
I represent, warrant and covenant to Pinnacle that in the event I acquire
any Pinnacle Common Stock as a result of the Merger:
1. I agree that I will not make any sale, transfer or other disposition of
such shares of Pinnacle Common Stock in violation of the Securities Act or the
Rules and Regulations.
2. I have carefully read this agreement and the Merger Agreement and have
discussed the requirements relating to, and other applicable limitations upon,
the sale, transfer or other disposition of shares of Pinnacle Common Stock
acquired by me as a result of the Merger to the extent I felt necessary with my
counsel or counsel for Financial Security.
3. I have been advised that the offering, sale and delivery of the shares
of Pinnacle Common Stock to me pursuant to the Merger will be registered under
the Securities Act by Pinnacle through the filing of a Registration Statement on
Form S-4 with the SEC and that such registration does not apply to any
distribution by me of shares of Pinnacle Common Stock received by me in the
Merger. I also have been advised that, because at the Effective Time of the
Merger I may be deemed to have been an "affiliate" of Financial Security, any
offering or sale by me of any of the shares of Pinnacle Common Stock acquired in
the Merger will, under current law, require either (i) further registration
under the Securities Act of the shares of
<PAGE> 64
Pinnacle Banc Group
______________, 1996
Page 2
Pinnacle Common Stock to be sold; (ii) compliance with the volume and other
applicable limitations of paragraph (d) of Rule 145 (which incorporates by
reference paragraphs (c), (e), (f) and (g) of Rule 144) promulgated under the
Securities Act; or (iii) the availability of some other exemption from
registration with respect to any such proposed sale, transfer or other
disposition by me which shall include, in the case of a distribution under some
other exemption from registration, an opinion of counsel, which opinion of
counsel shall be reasonably satisfactory to counsel for Pinnacle, or a
"no-action" letter obtained by me from the staff of the SEC that such exemption
is available. With respect to a transfer under (ii) above, I understand that
unless you have a reasonable basis for believing to the contrary, such transfer
will be viewed by you as in conformity with Rule 145 upon my delivery to you or
your transfer agent of a broker's letter in customary form stating that the
requirements of Rule 145(d)(1) have been met.
4. Pinnacle agrees, for a period of three years after the Effective Date
of the Merger, to file on a timely basis all reports required to be filed by it
pursuant to Section 13 of the Securities Exchange Act of 1934, as amended, so
that the public information provisions of Rule 145(d) of the rules and
regulations promulgated by the SEC are met.
5. I understand that Pinnacle is under no obligation to register shares of
Pinnacle Common Stock that I may wish to sell, transfer or otherwise dispose of
or to take any other action necessary in order to make compliance with an
exemption from registration available.
6. I also understand that if I rely on the exemption from the registration
provisions contained in Section 4 of the Securities Act (other than as provided
in Rule 144 or 145), I will obtain and deliver to Pinnacle a copy of a letter
from any prospective transferee which will contain (a) representations
reasonably satisfactory to Pinnacle as to the nondistributive intent,
sophistication, ability to bear risk and access to information of such
transferee; (b) an acknowledgement of the restrictions on transfer of the
Pinnacle Common Stock proposed for transfer; and (c) an assumption of the
obligations of the undersigned under this paragraph 6.
7. I also understand that to enforce the foregoing commitments, stop
transfer instructions will be given to Pinnacle's transfer agent with respect to
Pinnacle Common Stock and there will be placed on the certificates for the
shares of Pinnacle Common Stock issued to me pursuant to the Merger, or any
substitution therefor, a legend stating in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, APPLIES. THE SHARES REPRESENTED BY THIS
CERTIFICATE MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF
AN AGREEMENT DATED _____________, 1996, BETWEEN THE REGISTERED
HOLDER HEREOF AND PINNACLE BANC GROUP, INC., A
<PAGE> 65
Pinnacle Banc Group
______________, 1996
Page 3
COPY OF WHICH AGREEMENT IS ON FILE AT THE
PRINCIPAL OFFICES OF PINNACLE BANC GROUP, INC."
I also understand that unless the transfer by me of shares of Pinnacle
Common Stock which I have acquired in the Merger has been registered under the
Securities Act or in a sale in conformity with the provisions of Rule 145,
Pinnacle reserves the right to put the following legend on the certificates
issued to my transferee:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ACQUIRED FROM A
PERSON WHO RECEIVED SUCH SHARES IN A TRANSACTION TO WHICH RULE 145
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), APPLIES. THE SHARES HAVE BEEN ACQUIRED BY THE HOLDER NOT
WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY DISTRIBUTION
THEREOF WITHIN THE MEANING OF THE ACT AND MAY NOT BE SOLD, PLEDGED
OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT OR IN ACCORDANCE WITH AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE ACT."
It is understood and agreed that the legend(s) set forth in this paragraph
shall be removed by delivery of substitute certificates without such legend if
such legend is not required for purposes of the Securities Act. It is understood
and agreed that such legend(s) and the stop order referred to in this Paragraph
7 will be removed if (i) two years shall have elapsed from the date the
undersigned acquired the Pinnacle Common Stock in the Merger and the provisions
of Rule 145(d)(2) are then available to the undersigned, (ii) three years shall
have elapsed from the date the undersigned acquired the Pinnacle Common Stock in
the Merger and the provisions of Rule 145(d)(3) are then available to the
undersigned, or (iii) Pinnacle has received either an opinion of counsel, which
opinion and counsel shall be reasonably satisfactory to Pinnacle, or a "no-
action" letter obtained by the undersigned from the staff of the SEC, to the
effect that the restrictions imposed by Rule 145 under the Securities Act no
longer apply to the undersigned.
<PAGE> 66
Pinnacle Banc Group
______________, 1996
Page 4
8. It is understood and agreed that this letter shall terminate and be of
no further force or effect if the Merger Agreement is terminated pursuant to the
terms thereof.
Very truly yours,
------------------------------
Signature
------------------------------
Print Name
Accepted and agreed to as of the date first above written.
PINNACLE BANC GROUP, INC.
By:_____________________________
Its:_____________________________
<PAGE> 1
EXHIBIT 2
PRESS RELEASE
<PAGE> 2
EXHIBIT 2
* * * P R E S S R E L E A S E * * *
FOR IMMEDIATE RELEASE
FOR : Pinnacle Banc Group, Inc. Financial Security Corp.
2215 York Road, Suite 208 1209 N. Milwaukee Avenue
Oak Brook, Illinois 60521 Chicago, Illinois 60622
CONTACTS : John J. Gleason, Jr. Daniel K. Augustine
Vice Chairman and President and
Chief Executive Officer Chief Executive Officer
(708) 574-3550 (312) 227-7020
PINNACLE BANC GROUP, INC.
TO ACQUIRE
FINANCIAL SECURITY CORP.
Oak Brook, Illinois, April 22, 1996 -- Pinnacle Banc Group, Inc. ("Pinnacle")
(NASDAQ: PINN) announced today that Pinnacle has entered into a definitive
agreement to acquire Financial Security Corp. ("Financial Security") (NASDAQ:
FNSC) and its wholly-owned subsidiary, Security Federal Savings and Loan
Association of Chicago ("Security Federal"). Pursuant to the agreement,
Financial Security will merge into Pinnacle with Security Federal initially
becoming a separate subsidiary of Pinnacle.
Under the terms of the agreement, holders of Financial Security common stock
will receive $28.50 per share, subject to adjustment, in cash, Pinnacle common
stock or a combination thereof. The agreement specifies that no more than 45% of
the total consideration can be paid in cash. The aggregate transaction value is
estimated to be $47 million, which approximates 1.16 times Financial Security's
fully diluted tangible book value at December 31, 1995.
<PAGE> 3
Page Two
Press Release
April 22, 1996
Mr. John J. Gleason, Jr., Vice Chairman and Chief Executive Officer of Pinnacle,
stated, "The purchase of Financial Security is part of Pinnacle's strategic plan
to effectively utilize its equity base through acquisitions. This transaction
will add two new locations and markets to the Pinnacle franchise and total
assets will cross the $1 billion threshold."
Mr. Daniel K. Augustine, President and Chief Executive Officer of Financial
Security, said, "We are pleased about Financial Security joining forces with
Pinnacle and believe that the Merger will provide significant value to our
shareholders."
Upon completion of the transaction, Pinnacle's total consolidated assets will
exceed $1 billion and Pinnacle will have 14 banking locations. As of December
31, 1995, Pinnacle had total assets of $819 million, loans of $310 million,
deposits of $712 million and stockholders' equity of $79 million. Pinnacle
banking subsidiaries have twelve locations. In the Chicago metropolitan area,
banking locations are in Cicero (two locations), Oak Park, Harvey, Berwyn, North
Riverside, LaGrange Park, Westmont, Batavia and Elburn. In the Quad-Cities
metropolitan area of Illinois and Iowa, banking locations are in Silvis and
Green Rock- Colona.
As of December 31, 1995, Financial Security had total assets of $277 million,
loans of $194 million, deposits of $194 million and stockholders' equity of $39
million. Security Federal has its main office on the near northwest side of
Chicago with a branch office in Niles.
The acquisition agreement is subject to approval by the shareholders of
Financial Security and Pinnacle, approval of the appropriate regulatory
authorities, and the satisfaction of certain other customary conditions. In
connection with the transaction, there is a provision for a termination fee
payable to Pinnacle if the transaction is not consummated under certain
conditions. It is anticipated that the transaction will be completed in the
third quarter of 1996.
