<PAGE>
As filed with the Securities and Exchange Commission on October 3, 1996
Registration No. 333-4499
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Pre-Effective Amendment
No. Two to
FORM S-4
Registration Statement Under the Securities Act of 1933
ROOSEVELT FINANCIAL GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 6120 43-1498200
(State of other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation) Classification Number)
GARY W. DOUGLASS
Roosevelt Financial
Group, Inc.
900 Roosevelt Parkway 900 Roosevelt Parkway
Chesterfield, Missouri 63017 Chesterfield, Missouri 63017
(314) 532-6200 (314) 532-6200
(Address, including ZIP code, and telephone (Name, address, including
number, including area code, of registrant's ZIP code, and telephone number,
principal executive offices) including area code,
of agent for service)
COPIES TO:
CHRISTOPHER R. KELLY, P.C. JOHN F. BREYER, JR., ESQ.
CRAIG M. SCHEER, ESQ. Breyer & Aguggia
Silver, Freedman & Taff, L.L.P. 1300 I Street, N.W.
1100 New York Avenue, N.W. Suite 470 East
Washington, D.C. 20005 Washington, D.C. 20005
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this Form are being offered in
connection with formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
------------------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
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<CAPTION>
Calculation of Registration Fee
===================================================================================================================
Proposed maximum Proposed maximum Amount
Title of each class of Amount to offering price aggregate offering of
securities to be registered be registered per share price registration fee
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value 850,000 shares(1) N/A $11,521,454(2) $3,973(2)(3)
===================================================================================================================
</TABLE>
(1) Represents the estimated maximum number of shares of common stock, par
value $.01 per share, of Roosevelt Financial Group, Inc. ("Roosevelt"),
expected to be issued in exchange for up to 561,876 shares of common stock,
par value $.01 per share, of Sentinel Financial Corporation ("Sentinel"),
upon consummation of the merger of Sentinel with and into Roosevelt,
described herein.
(2) Estimated solely for the purpose of calculating the registration fee. The
registration fee has been computed pursuant to Rule 457(f)(1) under the
Securities Act of 1933, as amended, based on the book value of Sentinel
common stock on March 31, 1996.
(3) The registration fee was paid with the initial filing of the Registration
Statement.
================================================================================
<PAGE>
ROOSEVELT FINANCIAL GROUP, INC.
Cross Reference Sheet Pursuant to
Item 501(b) of Regulation S-K
(Showing the location in the Proxy Statement/Prospectus of responses
to the Items of Part I of Form S-4)
<TABLE>
<CAPTION>
Item Caption Location or Heading in Proxy
- ---- ------- ----------------------------
Statement/Prospectus
--------------------
<C> <S> <C>
1. Forepart of Registration Outside Front Cover Page
Statement and Outside
Front Cover Page of
Prospectus
2. Inside Front and Outside Inside Front Cover Page; Available
Back Cover Pages of Information; Incorporation of Certain
Prospectus Documents by Reference; Table of Contents
3. Risk Factors, Ratio of Summary; Comparative Stock Prices and
Earnings to Fixed Charges Dividend Information; Selected Consolidated
and Other Information Financial and Other Data of Roosevelt
Financial Group, Inc.; Selected Consolidated
Financial and Other Data of Sentinel
Financial Corporation; Comparative Unaudited
Per Share Data; Roosevelt Financial
Group, Inc. and Roosevelt Bank; Sentinel
Financial Corporation and Sentinel Federal
Savings and Loan Association of Kansas City;
The Special Meeting; The Merger
4. Terms of the Transaction Summary; The Merger; Comparison of Rights of
Stockholders of Roosevelt Financial Group,
Inc. and Sentinel Financial Corporation
5. Pro Forma Financial Not Applicable
Information
6. Material Contracts with Summary; The Merger
the Company Being Acquired
7. Additional Information Not Applicable
Required for Reoffering by
Persons and Parties Deemed
to be Underwriters
8. Interests of Named Experts Not Applicable
and Counsel
9. Disclosure of Commission Not Applicable
Position on
Indemnification for
Securities Act Liabilities
10. Information with Respect Incorporation of Certain Documents by
to S-3 Registrants Reference; Summary; Comparative Stock Prices
and Dividend Information; Roosevelt
Financial Group, Inc. and Roosevelt Bank
11. Incorporation of Certain Incorporation of Certain Documents by
Information by Reference Reference
12. Information with Respect Not Applicable
to S-2 or S-3 Registrants
13. Incorporation of Certain Not Applicable
Information by Reference
14. Information with Respect Not Applicable
to Registrants Other Than
S-3 or S-2 Registrants
15. Information with Respect Not Applicable
to S-3 Companies
16. Information with Respect Not Applicable
to S-2 or S-3 Companies
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Item Caption Location or Heading in Proxy
- ---- ------- ----------------------------
Statement/Prospectus
--------------------
<C> <S> <C>
17. Information with Respect Introduction; Summary; Comparative Stock
to Companies Other Than Prices and Dividend Information; The Merger;
S-3 or S-2 Companies Selected Consolidated and Other Financial
Data of Sentinel Financial Corporation;
Business of Sentinel Financial Corporation;
Properties of Sentinel Financial
Corporation; Legal Proceedings Involving
Sentinel Financial Corporation and Sentinel
Federal Savings and Loan Association of
Kansas City; Management's Discussion and
Analysis of Financial Condition and Results
of Operations of Sentinel Financial
Corporation; Regulation of Sentinel Federal
Savings and Loan Association of Kansas City;
Regulation of Sentinel Financial Corporation;
Financial Statements of Sentinel Financial
Corporation
18. Information if Proxies, Introduction; Incorporation of Certain
Consents or Authorizations Documents by Reference; Summary; The Special
are to be Solicited Meeting; The Merger; Stockholder Proposals
19. Information if Proxies, Not Applicable
Consents or Authorizations
are not to be Solicited or
in an Exchange Offer
</TABLE>
<PAGE>
[SENTINEL FINANCIAL LOGO]
1001 Walnut Street
Kansas City, Missouri 64106
(816) 474-9800
October __, 1996
Dear Fellow Stockholder:
You are cordially invited to attend a special meeting of stockholders of
Sentinel Financial Corporation ("Sentinel"). The special meeting is scheduled to
be held at the downtown Kansas City office of Sentinel located at 1001 Walnut
Street, Kansas City, Missouri, on ______, November __, 1996 at __:__ __.m.,
local time. Notice of the special meeting, a Proxy Statement/Prospectus and a
form of proxy are enclosed.
The special meeting has been called in connection with the proposed merger
of Sentinel and its principal subsidiary, Sentinel Federal Savings and Loan
Association of Kansas City, with Roosevelt Financial Group, Inc. ("Roosevelt")
and its principal subsidiary, Roosevelt Bank. In the merger, each share of
Sentinel common stock outstanding at the time of the merger (other than shares
held by holders who perfect dissenters' rights and other excluded shares) would
be converted into 1.4231 shares of Roosevelt common stock, subject to adjustment
as provided in the merger agreement. Following the merger, Roosevelt would be
the resulting holding company. Consummation of the merger is subject to certain
conditions, including the approval of the stockholders of Sentinel.
The terms of the merger agreement were negotiated by the Board of Directors
in light of various factors, including Sentinel's and Roosevelt's recent
operating results, current financial condition and future prospects. Sentinel's
financial advisor, Trident Financial Corporation, an investment banking firm
experienced in the valuation of financial institutions, has advised your Board
of Directors that in its opinion the exchange ratio is fair from a financial
point of view to Sentinel stockholders as of October __, 1996.
At the special meeting, Sentinel stockholders will consider and vote upon
approval of the merger. The Board of Directors has approved the merger and
believes that the merger is in the best interests of Sentinel and its
stockholders. Accordingly, the Board of Directors unanimously recommends that
you vote FOR approval of the merger.
If any other matters are properly brought before the special meeting, the
persons named in the accompanying form of proxy will vote the shares represented
by such proxy in the manner determined by a majority of the Board of Directors.
You are urged to read the accompanying Proxy Statement/Prospectus, which
provides information regarding the merger and related matters.
Your vote is important, regardless of the number of shares you own. ON
BEHALF OF THE BOARD OF DIRECTORS, I URGE YOU TO SIGN, DATE AND RETURN THE
ENCLOSED PROXY AS SOON AS POSSIBLE EVEN IF YOU CURRENTLY PLAN TO ATTEND THE
SPECIAL MEETING. This will not prevent you from voting in person but will assure
that your vote is counted if you do not attend the special meeting.
Sincerely,
Craig D. Laemmli
President and Chief Executive Officer
PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME.
<PAGE>
SENTINEL FINANCIAL CORPORATION
1001 Walnut Street
Kansas City, Missouri 64106
(816) 474-9800
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held November __, 1996
Notice is hereby given that a Special Meeting of Stockholders (the "Special
Meeting") of Sentinel Financial Corporation ("Sentinel") is scheduled to be held
at the downtown Kansas City office of Sentinel located at 1001 Walnut Street,
Kansas City, Missouri, on ________, November __, 1996 at __:__ __.m., local
time.
A Proxy Card and a Proxy Statement/Prospectus for the Special Meeting are
enclosed.
The Special Meeting is for the purpose of considering and acting upon:
1. The approval of the Agreement and Plan of Merger and Reorganization,
dated as of March 22, 1996, by and among Roosevelt Financial Group,
Inc. ("Roosevelt"), Roosevelt Bank, Sentinel and Sentinel Federal
Savings and Loan Association of Kansas City ("Sentinel Federal"), a
copy of which is included in the accompanying Proxy
Statement/Prospectus as Appendix I, and the transactions contemplated
thereby, including the merger of Sentinel into Roosevelt, pursuant to
which each outstanding share of Sentinel common stock (other than
shares held by holders who perfect dissenters' rights and other
excluded shares) would be converted into 1.4231 shares of Roosevelt
common stock (with cash paid in lieu of fractional share interests),
subject to adjustment as provided in the merger agreement and the
merger of Sentinel Federal with Roosevelt Bank.
2. Such other matters as may properly come before the Special Meeting.
The Board of Directors is not aware of any other business to come before
the Special Meeting.
Any action may be taken on any of the foregoing proposals at the Special
Meeting on the date specified. Stockholders of record at the close of business
on September 27, 1996 are the stockholders entitled to vote at the Special
------------
Meeting.
A complete list of stockholders entitled to vote at the Special Meeting is
available for the examination by any stockholder, for any purpose germane to the
meeting, between 8:30 a.m. and 5:00 p.m. at the main office of Sentinel located
at the address set forth above, for a period of ten days prior to the Special
Meeting, as well as at the meeting.
You are requested to fill in, sign and date the enclosed form of proxy
which is solicited on behalf of the Board of Directors, and to mail it promptly
in the enclosed envelope. The proxy will not be used if you attend and vote at
the Special Meeting in person.
By Order of the Board of Directors
John C. Spencer
Secretary
Kansas City, Missouri
October __ , 1996
- ----------------------------------------------------------------------------
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE SENTINEL THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES IN ORDER TO ENSURE A QUORUM AT THE SPECIAL
MEETING. A SELF-ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO
POSTAGE IS REQUIRED IF MAILED WITHIN THE UNITED STATES.
- ----------------------------------------------------------------------------
PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME.
<PAGE>
PROXY STATEMENT
OF
SENTINEL FINANCIAL CORPORATION
FOR THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER __, 1996
------------------------
PROSPECTUS
OF
ROOSEVELT FINANCIAL GROUP, INC.
Up to 850,000 Shares of Common Stock,
par value $.01 per share
to be issued in connection with the
proposed merger of
Sentinel Financial Corporation
with and into
Roosevelt Financial Group, Inc.
------------------------
This Proxy Statement/Prospectus relates to the proposed merger of Sentinel
Financial Corporation, a Delaware corporation ("Sentinel"), with and into
Roosevelt Financial Group, Inc., a Delaware corporation ("Roosevelt"), and the
merger of Sentinel's principal subsidiary, Sentinel Federal Savings and Loan
Association of Kansas City ("Sentinel Federal"), with Roosevelt's principal
subsidiary, Roosevelt Bank (collectively, the "Merger"), as contemplated by the
Agreement and Plan of Merger and Reorganization, dated as of March 22, 1996 (the
"Merger Agreement"), by and among Roosevelt, Roosevelt Bank, Sentinel and
Sentinel Federal. The Merger Agreement is included as Appendix I hereto and
incorporated by reference herein.
This Proxy Statement/Prospectus is being furnished to the holders of shares
of common stock, par value $.01 per share, of Sentinel ("Sentinel Common Stock")
in connection with the solicitation of proxies by the Board of Directors of
Sentinel (the "Sentinel Board") for use at a Special Meeting of Stockholders
(the "Special Meeting"), scheduled to be held at the downtown Kansas City office
of Sentinel located at 1001 Walnut Street, Kansas City, Missouri, on November
__, 1996, at __:___ __.m., local time.
At the Special Meeting, the holders of Sentinel Common Stock will consider
and vote upon a proposal to approve the Merger Agreement and the transactions
contemplated thereby.
Subject to the terms, conditions and procedures set forth in the Merger
Agreement, each share of Sentinel Common Stock issued and outstanding
immediately prior to the Effective Time (as defined below) of the Merger (other
than shares held by holders who perfect dissenters' rights and other excluded
shares) will be converted into the right to receive 1.4231 shares (the "Exchange
Ratio") of the common stock, par value $.01 per share, of Roosevelt ("Roosevelt
Common Stock"), with cash paid in lieu of fractional share interests. The
Exchange Ratio is subject to adjustment, such that if the weighted average sale
price of all Roosevelt Common Stock traded on the Nasdaq National Market during
the ten trading day period ending on the date that is three trading days prior
to the Closing Date of the Merger (the "Average Pre-Closing Trading Price") is
less than $15.83 per share, the Exchange Ratio shall be equal to $22.525 divided
by the Average Pre-Closing Trading Price (in which case a greater number of
shares of Roosevelt Common Stock would be issued than if there were no
adjustment to the Exchange Ratio), and if the Average Pre-Closing Trading Price
is greater than $21.42 per share, the Exchange Ratio shall be equal to $30.475
divided by the Average Pre-Closing Trading Price (in which case fewer shares of
Roosevelt Common Stock would be issued than if there were no adjustment to the
Exchange Ratio). Based on the last reported sale price for Roosevelt Common
Stock on the Nasdaq National Market on October __, 1996 ($__.__ per share),
the value of 1.4231 shares of Roosevelt Common Stock as of that date would have
been approximately $__.__. At the present time, there is no established market
in which shares of Sentinel Common Stock are regularly traded, nor are there any
uniformly quoted prices for such shares. The last trade of shares of Sentinel
Common Stock known by management of Sentinel occurred during April 1996. The
closing bid price for Sentinel Common Stock on October __, 1996 was $__.__ per
share, as reported by the National Quotation Bureau, Inc. As of March 21, 1996,
the last trading day preceding public announcement of the
<PAGE>
proposed Merger, the last reported sale price for Roosevelt Common Stock was
$18.50 per share. Sentinel's financial advisor has rendered an opinion to the
effect that as of March 22, 1996, as confirmed on October, 1996, the
--------
Exchange Ratio is fair from a financial point of view to the stockholders of
Sentinel. The Merger is subject to certain conditions, including approval by the
stockholders of Sentinel. For additional information regarding the Merger
Agreement and the terms of the Merger, see "The Merger."
This Proxy Statement/Prospectus also constitutes a prospectus of Roosevelt,
filed as part of the Registration Statement (defined below) with respect to up
to 850,000 shares of Roosevelt Common Stock to be issued upon consummation of
the Merger pursuant to the terms of the Merger Agreement.
This Proxy Statement/Prospectus, and the accompanying notice and form of
proxy, are first being mailed to stockholders of Sentinel on or about
October __, 1996.
------------------------
THE SHARES OF ROOSEVELT COMMON STOCK OFFERED HEREBY HAVE NOT BEEN APPROVED
OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, THE OFFICE OF THRIFT
SUPERVISION, ANY STATE SECURITIES COMMISSION OR ANY OTHER GOVERNMENTAL AGENCY,
AND NEITHER THE SECURITIES AND EXCHANGE COMMISSION, THE OFFICE OF THRIFT
SUPERVISION, ANY STATE SECURITIES COMMISSION NOR ANY OTHER AGENCY HAS PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF ROOSEVELT COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS
ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK OR SAVINGS ASSOCIATION AND
ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE
FUND, THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY.
------------------------
The date of this Proxy Statement/Prospectus is October __, 1996
ii
<PAGE>
AVAILABLE INFORMATION
Roosevelt and Sentinel are subject to the informational reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and, in accordance therewith, file reports, proxy statements and other
information with the Securities and Exchange Commission (the "SEC"). Such
reports, proxy statements and other information filed by Roosevelt and Sentinel
can be obtained, upon payment of prescribed fees, from the Public Reference
Section of the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington D.C.
20549. Such information can be inspected and copied at the public
reference facilities of the SEC located at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549 and at the SEC's Regional Offices located at Citicorp
Center, Suite 1400, 500 West Madison Street, Chicago, Illinois 60661 and 7 World
Trade Center, 13th Floor, New York, New York 10048.In addition, the SEC
maintains a Web site that contains reports, proxy and information statements and
other information regarding Roosevelt's and Sentinel's electronic filing with
the SEC. The address of the SEC's Web site is "http://www.sec.gov."
Roosevelt has filed with the SEC a registration statement on Form S-4
(together with all amendments, schedules, and exhibits thereto, the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the shares of Roosevelt Common Stock to be
issued pursuant to and as contemplated by the Merger Agreement. This Proxy
Statement/Prospectus does not contain all the information set forth in the
Registration Statement, certain parts of which have been omitted in accordance
with the rules and regulations of the SEC. The Registration Statement is
available for inspection and copying as set forth above. Statements contained in
this Proxy Statement/Prospectus or in any document incorporated by reference in
this Proxy Statement/Prospectus as to the contents of any contract or other
document are not necessarily complete, and in each instance reference is made to
the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Proxy Statement/Prospectus incorporates documents by reference which
are not presented herein or delivered herewith. Such documents (excluding
exhibits not specifically incorporated by reference) are available, without
charge, to any person, including any beneficial owner, to whom this Proxy
Statement/Prospectus is delivered by or on behalf of Roosevelt or Sentinel, upon
the written or oral request of such person to Gary W. Douglass, Roosevelt
Financial Group, Inc., 900 Roosevelt Parkway, Chesterfield, Missouri 63017,
telephone (314) 532-6200. In order to ensure timely delivery of the documents
prior to the Special Meeting, any request should be made by _____________, 1996.
Persons requesting copies of exhibits to documents which are not specifically
incorporated by reference in such documents may be charged the cost of
reproduction and mailing.
The following documents previously filed with the SEC by Roosevelt (File
No. 0-17403) are hereby incorporated by reference in this Proxy
Statement/Prospectus:
1. The Annual Report on Form 10-K , as amended on July 30 on Form 10-K/A
and September 13, 1996 on Form 10-K/A-2 of Roosevelt for the fiscal
year ended December 31, 1995 (the "Roosevelt 1995 10-K").
2. The Quarterly Report on Form 10-Q of Roosevelt for the quarterly period
ended March 31, 1996, as amended on September 13, 1996 on Form 10-
Q/A.
3. The Quarterly Report on Form 10-Q of Roosevelt for the quarterly period
ended June 30, 1996, as amended on September 13, 1996 on Form 10-Q/A .
4. The description of the Roosevelt Common Stock contained in Roosevelt's
Registration Statement on Form S-4 dated March 30, 1994, as
amended.
All documents filed by Roosevelt with the SEC pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act prior to the date of the Special Meeting
shall be deemed to be incorporated by reference herein and to be a part hereof
from the date of filing such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement/Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Proxy
Statement/Prospectus.
------------------------
iii
<PAGE>
All information contained in this Proxy Statement/Prospectus with respect
to Roosevelt and its subsidiaries has been supplied by Roosevelt, and all
information with respect to Sentinel and its subsidiaries has been supplied by
Sentinel.
No person is authorized to give any information or to make any
representation other than those contained or incorporated by reference in this
Proxy Statement/Prospectus, and, if given or made, such information or
representation should not be relied upon as having been authorized. This Proxy
Statement/Prospectus does not constitute an offer to sell, or a solicitation of
an offer to purchase, the securities offered by this Proxy Statement/Prospectus,
or the solicitation of a proxy, in any jurisdiction, to or from any person to
whom or from whom it is unlawful to make such offer, solicitation of an offer or
proxy solicitation in such jurisdiction.
------------------------
iv
<PAGE>
TABLE OF CONTENTS
Page
----
INTRODUCTION............................................................. i
AVAILABLE INFORMATION.................................................... iii
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.......................... iii
TABLE OF CONTENTS........................................................ v
SUMMARY 1
The Parties to the Merger............................................ 1
Roosevelt Financial Group, Inc. and Roosevelt Bank................ 1
Sentinel Financial Corporation and Sentinel Federal Savings and
Loan Association of Kansas City................................... 1
The Special Meeting.................................................. 2
Meeting Date; Record Date......................................... 2
Matters to Be Considered.......................................... 2
Vote Required..................................................... 2
Security Ownership................................................ 2
The Merger........................................................... 3
General........................................................... 3
Reasons for the Merger; Recommendation of the Board of Directors.. 3
Merger Consideration.............................................. 3
Treatment of Sentinel Stock Options............................... 4
Opinion of Financial Advisor...................................... 4
Effective Time and Closing Date................................... 4
Appraisal Rights.................................................. 4
Interests of Certain Persons in the Merger........................ 4
Conditions to the Merger.......................................... 5
Regulatory Approvals.............................................. 5
Waiver and Amendment; Termination................................. 5
Conduct of Business Pending the Merger............................ 6
Expenses; Termination Fee......................................... 6
Accounting Treatment.............................................. 6
Certain Federal Income Tax Consequences of the Merger............. 6
Effects of the Merger on Rights of Stockholders................... 6
Nasdaq Listing.................................................... 7
Management After the Merger.......................................... 7
COMPARATIVE STOCK PRICES AND DIVIDEND INFORMATION........................ 8
RECENT DEVELOPMENTS...................................................... 10
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF ROOSEVELT
FINANCIAL GROUP, INC.................................................... 11
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF SENTINEL
FINANCIAL CORPORATION................................................... 13
COMPARATIVE UNAUDITED PER SHARE DATA..................................... 15
ROOSEVELT FINANCIAL GROUP, INC. AND ROOSEVELT BANK....................... 16
Roosevelt Financial Group, Inc....................................... 16
Bank Holding Company Regulation...................................... 17
Roosevelt Bank....................................................... 19
SENTINEL FINANCIAL CORPORATION AND SENTINEL FEDERAL SAVINGS
AND LOAN ASSOCIATION OF KANSAS CITY..................................... 19
Sentinel Financial Corporation....................................... 19
Sentinel Federal Savings and Loan Association of Kansas City......... 20
THE SPECIAL MEETING...................................................... 20
Place, Time and Date................................................. 20
Matters to Be Considered............................................. 20
Record Date; Vote Required........................................... 20
Voting Securities and Principal Holders Thereof...................... 21
Proxies.............................................................. 23
v
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<TABLE>
<CAPTION>
<S> <C>
THE MERGER............................................................... 24
General.............................................................. 24
Background of the Merger............................................. 24
Reasons for the Merger; Recommendation of the Board of Directors..... 26
Merger Consideration................................................. 27
Treatment of Sentinel Stock Options.................................. 28
Opinion of Financial Advisor......................................... 28
Effective Time and Closing Date...................................... 32
Appraisal Rights..................................................... 32
Fractional Shares.................................................... 34
Exchange of Certificates............................................. 34
Interests of Certain Persons in the Merger........................... 35
Effect on Employees and Employee Benefit Plans of Sentinel........... 36
Representations and Warranties....................................... 37
Conditions to the Merger............................................. 37
Regulatory Approvals................................................. 39
Waiver and Amendment; Termination.................................... 39
Conduct of Business Pending the Merger............................... 40
Expenses; Termination Fee............................................ 41
Accounting Treatment................................................. 41
The Bank Merger Agreement............................................ 41
Resales of Roosevelt Common Stock by Affiliates...................... 42
Certain Federal Income Tax Consequences of the Merger................ 42
Nasdaq Listing....................................................... 43
MANAGEMENT AFTER THE MERGER.............................................. 43
BUSINESS OF SENTINEL FINANCIAL CORPORATION............................... 44
General.............................................................. 44
Lending Activities................................................... 45
Investment Activities................................................ 53
Deposit Activities and Other Sources of Funds........................ 54
Subsidiaries......................................................... 58
Competition.......................................................... 58
Personnel............................................................ 59
PROPERTIES OF SENTINEL FINANCIAL CORPORATION............................. 60
LEGAL PROCEEDINGS INVOLVING SENTINEL FINANCIAL CORPORATION AND
SENTINEL FEDERAL SAVINGS AND LOAN ASSOCIATION OF KANSAS CITY............ 60
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF SENTINEL FINANCIAL CORPORATION................. 61
General.............................................................. 61
Operating Strategy................................................... 61
Comparison of Financial Condition at June 30, 1995 and 1996..........
Comparison of Operating Results for the Fiscal Years
Ended June 30, 1995 and 1996........................................ 62
Comparison of Operating Results for the Fiscal Years
Ended June 30, 1995 and 1994........................................ 63
Average Balance, Interest and Average Yield/Cost..................... 66
Yields Earned and Rates Paid......................................... 68
Rate/Volume Table.................................................... 69
Asset and Liability Management....................................... 71
Liquidity and Capital Resources...................................... 73
New Accounting Standards............................................. 74
REGULATION OF SENTINEL FINANCIAL CORPORATION AND SENTIINEL FEDERAL SAVINGS
AND LOAN ASSOCIATION OF KANSAS CITY..................................... 75
General.............................................................. 75
Federal Regulation of Savings Associations........................... 75
</TABLE>
vi
<PAGE>
Savings and Loan Holding Company Regulation.......................... 81
Federal Taxation..................................................... 81
Missouri Taxation.................................................... 83
COMPARISON OF RIGHTS OF STOCKHOLDERS OF ROOSEVELT
FINANCIAL GROUP, INC. AND SENTINEL FINANCIAL CORPORATION................ 84
Introduction......................................................... 84
Capital Stock........................................................ 84
Special Meetings of Stockholders..................................... 85
Advance Notice Requirements for Nominations of Directors and
Presentation of New Business at Annual Meetings of Stockholders...... 85
Number and Term of Directors......................................... 85
Removal of Directors................................................. 86
Business Combinations with Certain Persons........................... 86
Amendment of Certificate of Incorporation and Bylaws................. 87
Control Share Acquisitions........................................... 87
LEGAL MATTERS............................................................ 88
EXPERTS.................................................................. 88
STOCKHOLDER PROPOSALS.................................................... 88
INDEPENDENT ACCOUNTANTS.................................................. 89
OTHER MATTERS............................................................ 89
FINANCIAL STATEMENTS OF SENTINEL FINANCIAL CORPORATION................... F-1
APPENDICES
I. Agreement and Plan of Merger (omitting schedules and exhibits)
II. Fairness Opinion of Trident Financial Corporation
III. Text of Section 262 of the Delaware General Corporation Law
vii
<PAGE>
SUMMARY
The following is a brief summary of certain information contained elsewhere
or incorporated by reference in this Proxy Statement/Prospectus. Certain
capitalized terms used in this summary are defined elsewhere in this Proxy
Statement/Prospectus. This summary is not intended to be a complete description
of all material facts regarding Roosevelt, Sentinel and the matters to be
considered at the Special Meeting and is qualified in its entirety by, and
reference is made to, the more detailed information contained elsewhere in this
Proxy Statement/Prospectus, the accompanying Appendices and the documents
referred to and incorporated by reference herein.
The Parties to the Merger
Roosevelt Financial Group, Inc. and Roosevelt Bank
Roosevelt, a Delaware corporation, is the holding company for Roosevelt
Bank, a federally chartered savings bank headquartered in Chesterfield,
Missouri. As of June 30, 1996, Roosevelt had total consolidated assets of $9.3
billion, deposits of $5.0 billion and stockholders' equity of $516 million.
Roosevelt's business has consisted primarily of the business of Roosevelt Bank
and its subsidiaries. The executive offices of Roosevelt and Roosevelt Bank are
located at 900 Roosevelt Parkway, Chesterfield, Missouri 63017, and the
telephone number at that address is (314) 532-6200.
Roosevelt Bank is a federally chartered savings bank with $9.3 billion in
consolidated total assets at June 30, 1996, making it the largest Missouri-
based thrift institution. Roosevelt Bank has 79 full-service offices including
38 offices serving the St. Louis metropolitan area and nine offices serving the
Kansas City metropolitan area.
Roosevelt's business consists primarily of attracting deposits from the
general public and using those deposits, together with borrowings and other
funds, to originate and acquire real estate and consumer loans to acquire
mortgage-backed securities, to perform loan servicing functions for others, and
to provide other retail banking and financial services to consumers. The
principal elements of Roosevelt's business plan are (i) the origination of a
higher percentage of its assets; (ii) the diversification of its balance sheet
away from only mortgage and real estate related assets; (iii) the expansion of
its retail deposit base with a simultaneous shift within that deposit base
toward checking and transaction accounts; and (iv) growth in fee income by
providing other services such as insurance, brokerage and mortgage loan
servicing for other investors.
Since 1990, Roosevelt has pursued a program of acquiring other in-market
and adjacent market thrift institutions, and in April 1996 entered into
agreements to acquire two additional Missouri-based financial institution
holding companies and their subsidiary institutions. Following the acquisition
of one such institution, Missouri State Bank and Trust Company ("Missouri State
Bank"). Roosevelt, which is currently regulated as a savings and loan holding
company under the Home Owners' Loan Act of 1933 (the "HOLA"), will also be
regulated as a bank holding company under the Bank Holding Company Act of 1956
(the "BHCA"). The permissible activities of a bank holding company are more
restrictive than those afforded to a savings and loan holding company. See
"Roosevelt Financial Group, Inc. and Roosevelt Bank -- Bank Holding Company
Regulation."
For additional information concerning Roosevelt and Roosevelt Bank, see
"Roosevelt Financial Group, Inc. and Roosevelt Bank" and "Incorporation of
Certain Documents by Reference."
Sentinel Financial Corporation and Sentinel Federal Savings and Loan Association
of Kansas City
Sentinel is a Delaware corporation formed in September 1993 to act as the
holding company for Sentinel Federal upon the completion of Sentinel Federal's
conversion from mutual to stock form of ownership(the "Conversion"). The
Conversion was completed on January 7, 1994. At June 30, 1996, Sentinel had
total consolidated assets of $143.8 million, deposits of $123.3 million and
stockholders' equity of $11.7 million. The executive offices of Sentinel and
Sentinel Federal are located at 1001 Walnut Street, Kansas City, Missouri 64106,
and the telephone number at that address is (816) 474-9800
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<PAGE>
Sentinel Federal is a federally chartered savings and loan association
headquartered in Kansas City, Missouri. Sentinel Federal's principal business
consists of attracting deposits from the general public, originating loans
secured primarily by owner-occupied residential properties and purchasing
mortgage-related securities through the secondary market. To a significantly
lesser extent, Sentinel Federal also originates consumer, commercial real estate
and commercial business loans.
On December 20, 1989, Sentinel Federal entered into a Supervisory Agreement
with the OTS as a result of OTS criticisms of Sentinel Federal's policies and
operations and its reduced capital position. In May 1990, Sentinel Federal also
signed a Capital Plan agreement as a result of its low level of core capital.
The Capital Plan was terminated on June 1, 1994 due to increases in capital
levels primarily as a result of the initial public offering completed as part of
the Conversion. However, the Supervisory Agreement remains in effect until
terminated by the OTS. The Supervisory Agreement requires Sentinel Federal to
follow certain limitations primarily relating to Sentinel Federal's internal
operations, lending activities and investments. For additional information
concerning Sentinel and Sentinel Federal, see "Selected Consolidated Financial
and Other Data of Sentinel Financial Corporation and "Business of Sentinel
Financial Corporation."
The Special Meeting
Meeting Date; Record Date
The Special Meeting is scheduled to be held at the downtown Kansas City
office of Sentinel, located at 1001 Walnut Street, Kansas City, Missouri, on
______, November __, 1996 at __:___ __.m., local time, and any and all
adjournments or postponements thereof. Only holders of record of Sentinel Common
Stock at the close of business on September 27, 1996 (the "Record Date") are
entitled to notice of and to vote at the Special Meeting.
Matters to be Considered
At the Special Meeting, holders of shares of Sentinel Common Stock will
vote on a proposal to approve the Merger Agreement and the transactions
contemplated thereby. Sentinel stockholders also may consider and vote upon such
other matters as are properly brought before the Special Meeting.
Vote Required
The affirmative vote of the holders of a majority of the outstanding shares
of Sentinel Common Stock entitled to vote at the Special Meeting is required for
approval of the Merger Agreement. As of the Record Date, there were 513,423
shares of Sentinel Common Stock entitled to be voted at the Special
Meeting.
Approval of the Merger Agreement by the stockholders of Sentinel is a
condition to, and is required for, consummation of the Merger. See "The Merger--
Conditions to the Merger."
Security Ownership
As of the Record Date, the directors and executive officers of Sentinel and
their affiliates beneficially owned in the aggregate 64,305 shares (excluding
44,620 underlying stock options, which shares may not be voted at the Special
Meeting), or 12.5% of the then outstanding shares of Sentinel Common Stock
entitled to vote at the Special Meeting. The directors of Sentinel have entered
into voting agreements with Roosevelt (the "Voting Agreements") whereby such
directors have agreed to vote all shares of Sentinel Common Stock owned by them
(57,241 shares in the aggregate) for approval of the Merger Agreement. As of the
Record Date, directors and executive officers of Roosevelt and their affiliates
beneficially owned in the aggregate 1,000 shares of Sentinel Common Stock.
For additional information, see "The Special Meeting."
2
<PAGE>
The Merger
The following full text of the Merger Agreement, which is attached hereto
as Appendix I and is incorporated by reference herein.
General
The stockholders of Sentinel are being asked to consider and vote upon a
proposal to approve the Merger Agreement, pursuant to which Sentinel will be
merged with and into Roosevelt, with Roosevelt as the surviving entity, and
Sentinel Federal will be merged with Roosevelt Bank. The name of the surviving
entities following consummation of the Merger will be "Roosevelt Financial
Group, Inc." and "Roosevelt Bank," respectively. See "The Merger--General."
Reasons for the Merger; Recommendation of the Board of Directors
At a meeting held on March 21, 1996, the Sentinel Board unanimously adopted
the Merger Agreement and approved the transactions contemplated thereby and
determined that the Merger would be in the best interests of Sentinel and its
stockholders. The Sentinel Board therefore recommends that stockholders vote FOR
approval of the Merger Agreement at the Special Meeting.
For a discussion of the factors considered by the Sentinel Board in
reaching its decision to adopt the Merger Agreement and approve the transactions
contemplated thereby, see "The Merger--Background of the Merger" and "--Reasons
for the Merger; Recommendation of the Board of Directors."
Merger Consideration
Subject to the terms, conditions and procedures set forth in the Merger
Agreement, each share of Sentinel Common Stock issued and outstanding
immediately prior to the Effective Time of the Merger (other than shares held by
holders who perfect dissenters' rights and other excluded shares) will be
converted into the right to receive 1.4231 shares of Roosevelt Common Stock (the
"Exchange Ratio" and the "Merger Consideration," respectively). See "The
Merger--Merger Consideration." Each share of Roosevelt Common Stock issued and
outstanding at the Effective Time will remain outstanding and unchanged as a
result of the Merger.
The Exchange Ratio is subject to adjustment, such that if the weighted
average sale price of all Roosevelt Common Stock traded on the Nasdaq National
Market during the ten trading day period ending on the date that is three
trading days prior to the Closing Date of the Merger (the "Average Pre-Closing
Trading Price") is less than $15.83 per share the Exchange Ratio shall be equal
to $22.525 divided by the Average Pre-Closing Trading Price (in which case a
greater number of shares of Roosevelt Common Stock would be issued than if there
were no adjustment to the Exchange Ratio), and if the Average Pre-Closing
Trading Price is greater than $21.42 per share the Exchange Ratio shall be equal
to $30.475 divided by the Average Pre-Closing Trading Price (in which case fewer
shares of Roosevelt Common Stock would be issued than if there were no
adjustment to the Exchange Ratio). Based on the last reported sale price for
Roosevelt Common Stock on the Nasdaq National Market on October __, 1996
($__ per share), the value of 1.4231 shares of Roosevelt Common Stock as of
that date would have been approximately $_____. At the present time, there is no
established market in which shares of Sentinel Common Stock are regularly
traded, nor are there any uniformly quoted prices for such shares. The last
trade of shares of Sentinel Common Stock known by management of Sentinel
occurred during April 1996. The closing bid price for Sentinel Common Stock on
October __, 1996 was $21.00 per share, as reported by the National Quotation
Bureau, Inc. The market value of Roosevelt Common Stock to be received in the
Merger, however, is subject to fluctuation. Fluctuations in the market price of
Roosevelt Common Stock would generally result in an increase or decrease in the
value of the Merger Consideration to be received by Sentinel stockholders in the
Merger. An increase in the market value of Roosevelt Common Stock would
generally increase the market value of the Merger Consideration to be received
by Sentinel stockholders in the Merger. A decrease in the market value of
Roosevelt Common Stock would generally have the opposite effect. See "The
Merger--Merger Consideration." Sentinel Stockholders are urged to obtain current
market quotations for Roosevelt Common Stock.
3
<PAGE>
Treatment of Sentinel Stock Options
At the Effective Time, Sentinel's 1994 Stock Option Plan (the "Sentinel
Option Plan") and each outstanding option thereunder (including options granted
to non-employee directors of Sentinel pursuant to any amendment of the Sentinel
Option Plan) to purchase Sentinel Common Stock (the "Sentinel Stock Options")
will be assumed by Roosevelt. Upon such assumption, each Sentinel Stock Option
shall become an option to purchase the number of shares of Roosevelt Common
Stock equal to the product of the number of shares of Sentinel Common Stock
subject to the original option and the Exchange Ratio, with an appropriate
adjustment to the exercise price under each substituted option and otherwise
subject to the terms of the Sentinel Option Plan. See "The Merger--Treatment of
Sentinel Stock Options."
Opinion of Financial Advisor
Sentinel has retained Trident Financial Corporation ("Trident") as its
financial advisor in connection with the transactions contemplated by the Merger
Agreement to evaluate the financial terms of the Merger. See "The Merger--
Background of the Merger" and "--Reasons for the Merger; Recommendation of the
Board of Directors."
Trident has delivered an opinion that as of March 22, 1996, as confirmed on
October __, 1996, the Exchange Ratio is fair, from a financial point of view, to
the holders of Sentinel Common Stock. A copy of Trident's opinion dated October
__, 1996 is attached to this Proxy Statement/Prospectus as Appendix II and is
incorporated by reference herein. See "The Merger--Opinion of Financial
Advisor."
Effective Time and Closing Date
The Merger shall become effective at the time and on the date of the filing
of a certificate of merger with the Secretary of State of Delaware for the
Company Merger and articles of combination with the Office of Thrift Supervision
(the "OTS") for the Bank Merger (the "Effective Time"). Such filings will occur
as soon as practicable after the satisfaction or waiver of all of the conditions
to the Merger. The closing of the Merger shall occur no later than 10:00 a.m. on
the last business day of the first calendar month following the satisfaction or
waiver of all conditions and obligations precedent of Roosevelt and Sentinel to
consummate the Merger, or at another time agreed to by Roosevelt and Sentinel
(the "Closing Date").
Appraisal Rights
Under Delaware law, each holder of Sentinel Common Stock may dissent from
the Merger, and receive payment of the appraised value of his or her shares of
stock, provided the stockholder does not vote in favor of the Merger and
complies with certain statutory procedures set forth in Section 262 of the
Delaware General Corporation Law (the "DGCL"), the text of which is attached
hereto as Appendix III. The value determined in such appraisal could be more
than, the same as, or less than the value of the consideration to be received
under the Merger Agreement by holders of Sentinel Common Stock who do not
dissent from the Merger. A holder of Sentinel Common Stock who returns an
executed proxy which does not indicate either a vote against the Merger or an
abstention will be deemed to have voted in favor of the Merger and therefore
will have waived his or her appraisal rights. See "The Merger--Appraisal Rights"
and Appendix III to this Proxy Statement/Prospectus.
Interests of Certain Persons in the Merger
At the Closing, Roosevelt Bank will enter into an employment agreement (the
"Employment Agreement") with Craig D. Laemmli, President and Chief Executive
Officer of Sentinel and Sentinel Federal, who will assume the position of Vice
President of Roosevelt Bank (for a six month term at an annual salary of
$61,559). If Mr. Laemmli's employment is terminated during the term of such
agreement for any reason, whether voluntarily by Mr. Laemmli or by Roosevelt
Bank (other than for cause, as defined in the Employment Agreement), he will be
entitled to receive payment of his salary for the remaining term of the
Employment Agreement, plus an amount of cash equal to 299 percent of his "base
amount" of compensation, in two installments, the first such installment payable
within 15 days after the date of termination and the second payable on the first
anniversary date of termination (the "Termination Payment"). It is estimated
that if paid, the amount of the Termination Payment would be $162,644. The
Sentinel Board was aware of this interest and others and considered them, among
other matters,
4
<PAGE>
in approving the Merger Agreement and the transactions contemplated thereby.
See "The Merger--Interests of Certain Persons in the Merger."
Conditions to the Merger
The respective obligations of the parties to consummate the Merger are
subject to the satisfaction or waiver of certain conditions specified in the
Merger Agreement, including, among other things, the receipt of the requisite
regulatory and stockholder approvals, the accuracy of the representations and
warranties contained therein, the performance of all obligations imposed
thereby, the receipt by Roosevelt and Sentinel of an opinion with respect to
certain federal income tax consequences of the Merger and certain other
conditions. See "The Merger--Conditions to the Merger."
Regulatory Approvals
The Merger is subject to the approval of the OTS. Roosevelt filed an
application for approval of the Merger with the OTS on May 13, 1996, and
received such approval on July 25, 1996.
It is a condition to the consummation of the Merger that all requisite
regulatory approvals be obtained without the imposition of any condition which
differs from conditions customarily imposed by the OTS in orders approving
acquisitions of the type contemplated by the Merger Agreement. The OTS approval
did not contain any such condition.
Under federal law a period of 15 days must expire following approval by the
OTS within which period the United States Department of Justice (the "Department
of Justice") may file objections to the Merger under the federal antitrust laws.
The Department of Justice did not file any objection during this period. See
"The Merger--Regulatory Approvals."
Waiver and Amendment; Termination
Prior to the Effective Time, the Boards of Directors of Roosevelt and
Sentinel may extend the time for performance of any obligations under the Merger
Agreement, waive any inaccuracies in the representations and warranties
contained in the Merger Agreement and waive compliance with any term, condition
or provision of the Merger Agreement.
Subject to applicable law, the Merger Agreement may be amended by action of
the Roosevelt and Sentinel Boards at any time before or after approval of the
Merger Agreement by the stockholders of Sentinel, provided that, among other
things, after approval of the Merger Agreement by the stockholders of Sentinel,
no amendment may change the amount or form of the Merger Consideration to be
received by Sentinel stockholders in the Merger without their approval or
adversely affect the tax treatment to Sentinel stockholders of the Merger
Consideration. In addition, Roosevelt may cause an amendment to the Merger
Agreement to change the method of effecting the Merger, subject to certain
limitations set forth in the Merger Agreement.
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether prior to or after approval of the matters presented herein by
Sentinel's stockholders, either by mutual consent of the parties in writing or
by either party if (i) the Merger is not consummated by January 31, 1997
(provided that the terminating party is not then in material breach of the
Merger Agreement); (ii) the required regulatory approvals are not obtained;
(iii) the required approval of Sentinel's stockholders is not obtained; or (iv)
the other party has materially breached any representation, warranty, covenant
or agreement set forth in the Merger Agreement and has failed to, or cannot,
5
<PAGE>
cure in a timely manner such breach after receiving written notice of such
breach. In addition, the Sentinel Board may, in the exercise of its good faith
judgment in consultation with counsel, terminate the Agreement if it determines
that such termination is required by the occurrence of certain events; provided,
however, that such termination is permissible only upon the prior payment to
Roosevelt of a fee of $680,000 in cash. See "The Merger--Waiver and Amendment;
Termination." Sentinel has also agreed to pay Roosevelt this amount in the event
the Merger is not consummated and certain events occur by September 22, 1997.
See "The Merger--Expenses; Termination Fee."
Conduct of Business Pending the Merger
Each of Roosevelt and Sentinel has agreed to conduct its business prior to
the Effective Time only in the ordinary and usual course consistent with past
practices and use its best efforts to maintain and preserve its business
organization, employees and advantageous business relationships, and retain the
services of its officers and key employees. Sentinel also has agreed to certain
forbearances with respect to the conduct of its business prior to the Effective
Time. See "The Merger--Conduct of Business Pending the Merger."
Expenses; Termination Fee
All expenses incurred in connection with the Merger Agreement and the
consummation of the Merger are to be paid by the party incurring such expenses,
except that Roosevelt will pay all printing and mailing expenses and filing fees
associated with the Registration Statement and this Proxy Statement/Prospectus
and all filings with the OTS for approval of the Merger Agreement. In addition,
Sentinel has agreed to pay Roosevelt a fee of $680,000 in the event the Merger
is not consummated and certain events occur by September 22, 1997. See "The
Merger--Expenses; Termination Fee."
Accounting Treatment
Roosevelt has not yet decided whether to account for the Merger under the
purchase method or the pooling of interests method. The decision will be based
on whether Roosevelt decides to issue shares in connection with the Merger from
authorized, but unissued shares, or to acquire shares in the open market for
issuance in connection with the Merger. If shares are acquired in the open
market, the pooling method will not be available. In addition, in order to
utilize the pooling method, Roosevelt would be required to, prior to
consummation of the Merger, rescind its existing stock repurchase plan, which is
described in Note 18 to the Consolidated Financial Statements of Roosevelt
contained in the Roosevelt 1995 10-K, incorporated by reference herein. See
"Incorporation of Certain Documents by Reference." Under the purchase method,
which accounts for a business combination as the acquisition of one enterprise
by another, the value of the company's shares issued in the transaction is
included in stockholders' equity and any of such amount in excess of net fair
values of tangible and identifiable intangible assets of the acquired company is
treated as an intangible asset on the acquiring company's financial statements.
Under the pooling method, the financial statements of the combining enterprises
are combined as if the two were and had been a single entity and no intangible
asset is created. See "The Merger--Accounting Treatment."
Certain Federal Income Tax Consequences of the Merger
Roosevelt has received an opinion of Silver, Freedman & Taff, L.L.P.,
counsel to Roosevelt, in connection with the Registration statement to the
effect that if the Merger were consumated on the date hereof, the Merger would
qualify as a reorganization under the Internal Revenue Code of 1986, as amended
(the "Code")with the following consequences:
(i) the Company Merger and the Bank Merger would each qualify as a
reorganization under Section 368(a) of the Code;
(ii) no gain or loss would be recognized by Roosevelt, Roosevelt
Bank, Sentinel or Sentinel Federal by reason of the Company Merger or the
Bank Merger;
(iii) no gain or loss would be recognized by any Sentinel stockholder
upon the exchange of Sentinel Common Stock solely for Roosevelt Common
Stock in the Merger (except in connection with the receipt of cash in lieu
of a fractional share of Roosevelt Common Stock or in connection with the
exercise of dissenter's rights, as discussed below);
(iv) the aggregate tax basis of the Roosevelt Common Stock received
by each stockholder of Sentinel who exchanged Sentinel Common Stock for
Roosevelt Common Stock in the Merger would be the same as the aggregate tax
basis of the Sentinel Common Stock surrendered in exchange therefor
(subject to any adjustments required as the result of receipt of cash in
lieu of a fractional share of Roosevelt Common Stock);
(v) the holding period of the shares of Roosevelt Common Stock
received by a Sentinel stockholder in the Merger would include the holding
period of the Sentinel Common Stock surrendered in exchange therefor
(provided that such shares of Sentinel Common Stock were held as a capital
asset by such stockholder at the Effective Time);
(vi) cash received in the Merger by a Sentinel stockholder in lieu
of a fractional share interest of Roosevelt Common Stock or by a Sentinel
would be treated as having been received as a distribution in full payment
in exchange for the fractional share interest of Roosevelt Common Stock
which such stockholder would otherwise be entitled to receive, and would
qualify as capital gain or loss (assuming the Sentinel Common Stock
surrendered in exchange therefor were held as a capital asset by such
stockholder at the Effective Time); and
(vii) a Sentinel stockholder who received only cash as a result of
the exercise of appraisal rights would realize gain or loss for federal
income tax purposes (determined separately as to each block of Sentinel
Common stock exchanged) in an amount equal to the difference between (x)
the amount of cash received by such stockholder, and (y) such stockholder's
tax basis for the shares of Sentinel Common Stock surrendered in exchange
therefor, provided that the cash payment did not have the effect of
distribution of a dividend. Any such gain or loss would be recognized for
federal income tax purposes and would be treated as capital gain or loss.
However, if the cash payment did have the effect of the distribution of a
dividend, the amount of taxable income recognized generally would equal the
amount of cash received; such income generally would be taxable as a
dividend; and no loss (or the recovery of such stockholder's tax basis for
the shares of Sentinel Common Stock surrendered in the exchange) generally
would be recognized by such stockholder. The determination of whether a
cash payment has the effect of the distribution of a dividend would be made
pursuant to the provisions and limitations of Section 302 of the Code,
taking into account the constructive stock ownership rules of Section 318
of the Code.
The opinion is subject to various assumptions and qualifications, including
that the Company Merger and the Bank Merger will be consummated in the manner
and in accordance with the terms of the Merger Agreement. However, the financial
accounting treatment of the transaction as a pooling or a purchase will not
impact the tax consequences described above. The opinion is based entirely upon
the Code, currently in effect or proposed thereunder, current administrative
rulings and practice and judicial authority, all of which are subject to change,
possibly with retroactive effect. Consummation of the Merger is conditioned upon
the receipt by Roosevelt and Sentinel of a closing tax opinion setting forth the
same tax consequences in the foregoing tax opinion. See "-- Conditions to the
Merger." Sentinel stockholders are urged to consult their tax advisors
concerning the specific tax consequences to them of the Merger, including the
applicability and effect of various state, local and foreign tax laws. For
further discussion of the opinion of Silver, Freedman & Taff, L.L.P. as to the
material federal income tax consequences of the Merger, as issued and delivered
to the Board of Directors of Roosevelt (the "Roosevelt Board"), see "The
Merger -- Certain Federal Income Tax Consequences of the Merger."
Effects of the Merger on Rights of Stockholders
As a result of the Merger, holders of Sentinel Common Stock who receive
shares of Roosevelt Common Stock in the Merger will become stockholders of
Roosevelt. For a comparison of the corporate charters and bylaws of Roosevelt
and Sentinel governing the rights of Roosevelt and Sentinel stockholders, see
"Comparison of Rights of Stockholders of Roosevelt Financial Group, Inc. and
Sentinel Financial Corporation."
6
<PAGE>
Nasdaq Listing
Roosevelt Common Stock (symbol: RFED) currently is quoted on the Nasdaq
National Market. It is a condition to consummation of the Merger that the
Roosevelt Common Stock to be issued to the stockholders of Sentinel in the
Merger and to be reserved for issuance under the Sentinel Stock Options assumed
by Roosevelt in the Merger also will be approved for listing on the Nasdaq
National Market. See "The Merger--Conditions to the Merger."
Management After the Merger
As of the Effective Time, the Boards of Directors of Roosevelt and
Roosevelt Bank will consist of the current members of such Boards, and the
executive officers of Roosevelt and Roosevelt Bank will include the current
executive officers of Roosevelt and Roosevelt Bank. Craig D. Laemmli, President
and Chief Executive Officer of Sentinel and Sentinel Federal, will assume the
position of Vice President of Roosevelt Bank pursuant to an employment agreement
for a term of six months as described elsewhere in this Proxy
Statement/Prospectus. In addition, for at least one year after the Effective
Time, and for so long thereafter as agreed to by Roosevelt Bank and the
participating directors of Sentinel, the directors of Sentinel who wish to do so
may serve as regional advisory directors of Roosevelt Bank, with a retainer fee
for each such advisory director of $500 per month. See also "The
Merger -- Interests of Certain Persons in the Merger."
7
<PAGE>
COMPARATIVE STOCK PRICES AND DIVIDEND INFORMATION
The Roosevelt Common Stock is quoted on the Nasdaq National Market under
the symbol "RFED." At the present time, there is no established market in which
shares of Sentinel Common Stock are regularly traded, nor are there any
uniformly quoted prices for such shares. The last trade of shares of Sentinel
Common Stock known by management of Sentinel occurred during April 1996. The
closing bid price for Sentinel Common Stock on October __, 1996 was $21.00 per
share, as reported by the National Quotation Bureau, Inc. The following table
sets forth the market prices for Roosevelt Common Stock and the quarterly cash
dividends per share declared for Roosevelt Common Stock, for the periods
indicated. Sentinel has never paid dividends on its Common Stock. The market
prices of the Roosevelt Common Stock for the periods indicated represent closing
prices of such stock as quoted on the Nasdaq National Market. Roosevelt Common
Stock prices and dividend amounts have been restated to give effect to stock
splits and stock dividends. The stock prices do not include retail mark-ups,
mark-downs or commissions.
<TABLE>
<CAPTION>
Roosevelt Common Stock
-------------------------
High Low Dividends
------ ------ ---------
<S> <C> <C> <C>
1994 Calendar Year
First Quarter....... 15.833 13.917 0.10
Second Quarter...... 18.250 14.328 0.11
Third Quarter....... 17.375 16.000 0.11
Fourth Quarter...... 16.875 12.750 0.11
1995 Calendar Year
First Quarter....... 17.250 14.750 0.14
Second Quarter...... 18.625 15.750 0.14
Third Quarter....... 18.875 15.250 0.14
Fourth Quarter...... 19.375 15.875 0.14
1996 Calendar Year
First Quarter....... 19.250 17.000 0.155
Second Quarter...... 20.000 17.750 0.155
Third Quarter....... 18.875 15.625 0.155
Fourth Quarter
(through October __) ------ ------ -----
</TABLE>
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<PAGE>
The following table sets forth the last reported sale prices per share of
Roosevelt Common Stock and Sentinel Common Stock and the equivalent per share
price for Sentinel Common Stock giving effect to the Merger on (i) March 21,
1996, the last trading day preceding public announcement of the signing of the
Merger Agreement; and (ii) October __, 1996, the last practicable date prior to
the mailing of this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
Roosevelt Sentinel Equivalent Price per
Common Stock Common Stock Sentinel Share (1)
------------ ------------ ---------------------
<S> <C> <C> <C>
March 21, 1996...... $18.500 n/a /(2)/ $26.327
October __, 1996..... ______ n/a /(2)/ ______
</TABLE>
- ---------------------------
(1) The equivalent price per share of Sentinel Common Stock at each specified
date was determined by multiplying (i) the last reported sale price of
Roosevelt Common Stock on such date and (ii) the Exchange Ratio of 1.4231.
(2) The last trade of shares of Sentinel Common Stock known by management of
Sentinel occurred during April 1996. The closing bid price for Sentinel
Common Stock on October __, 1996 was $_____ per share as reported by the
National Quotation Bureau, Inc.
As of October __, 1996, the 42,152,474 outstanding shares of Roosevelt
Common Stock were held by approximately 5,189 record owners and the 513,423
outstanding shares of Sentinel Common Stock by approximately 253 record owners.
The number of shares of Roosevelt Common Stock to be received for each
share of Sentinel Common Stock has been fixed at 1.4231. The Exchange Ratio is
subject to adjustment, such that if the weighted average sale price of all
Roosevelt Common Stock traded on the Nasdaq National Market during the ten
trading day period ending on the date that is three trading days prior to the
Closing Date of the Merger (the "Average Pre-Closing Trading Price") is less
than $15.83 per share, the Exchange Ratio shall be equal to $22.525 divided by
the Average Pre-Closing Trading Price (in which case a greater number of shares
of Roosevelt Common Stock would be issued than if there were no adjustment to
the Exchange Ratio), and if the Average Pre-Closing Trading Price is greater
than $21.42 per share, the Exchange Ratio shall be equal to $30.475 divided by
the Average Pre-Closing Trading Price (in which case fewer shares of Roosevelt
Common Stock would be issued than if there were no adjustment to the Exchange
Ratio). The market price of Roosevelt Common Stock may fluctuate between the
date of this Proxy Statement/Prospectus and the Effective Time. Fluctuations in
the market price of Roosevelt Common Stock would generally result in an increase
or decrease in the value of the Merger Consideration to be received by holders
of Sentinel Common Stock in the Merger. An increase in the market value of
Roosevelt Common Stock would generally increase the market value of the Merger
Consideration to be received in the Merger. A decrease in the market value of
Roosevelt Common Stock would generally have the opposite effect. The market
value of the Merger Consideration at the time of the Merger will depend upon the
market value of a share of Roosevelt Common Stock at such time. See "The
Merger--Merger Consideration." Sentinel stockholders are urged to obtain current
market quotations for Roosevelt Common Stock.
The timing and amount of the future dividends of Roosevelt will depend upon
earnings, cash requirements, Roosevelt's financial condition and other factors
deemed relevant by the Roosevelt Board. Dividends may also be limited by certain
regulatory restrictions.
9
<PAGE>
RECENT DEVELOPMENTS
The deposits of Roosevelt Bank are presently insured by the Savings
Association Insurance Fund (the "SAIF") which together with the Bank Insurance
Fund (the "BIF") are the two insurance funds administered by the Federal Deposit
Insurance Corporation (the "FDIC"). As a result of the BIF reaching its
statutory reserve ratio, the FDIC revised the premium schedule for BIF insured
institutions to provide a range of .04% to .31% of deposits. The revisions
became effective in the third quarter of 1995. The BIF premium schedule was
further revised, effective January 1996, to provide a range of 0% to .27% with
an annual minimum assessment of $2,000, essentially eliminating deposit
insurance premiums for many BIF-insured institutions. As a result of these
adjustments, BIF insured institutions now generally pay lower premiums than SAIF
insured institutions. At the time the FDIC revised the BIF premium schedule, it
noted that, absent legislative action (as discussed below), the SAIF would not
attain its designated reserve ratio until the year 2002. As a result, SAIF
insured members would continue to be generally subject to higher deposit
insurance premiums than BIF insured institutions until, all things being equal,
the SAIF attains its required reserve ratio.
In order to help eliminate this disparity and any competitive disadvantage
between BIF and SAIF member institutions with respect to deposit insurance
premiums, legislation to recapitalize the SAIF was enacted in September 1996.
The legislation provides for a one-time assessment to be imposed on all deposits
assessed at the SAIF rates, as of March 31, 1995, in order to recapitalize the
SAIF. It also provides for the merger of the BIF and the SAIF on January 1, 1999
if no savings associations then exist. The special assessment rate is currently
anticipated to range between .65% and .70% and will be payable by November 29,
1996. Based on Roosevelt Bank's level of SAIF deposits at March 31, 1995
(including the effect of the acquisitions of Kirksville Federal Savings Bank
("Kirksville Bank"), Washington Savings Bank, FSB, ("Washington Savings"),
Sentinel Federal and Mutual Savings Bank, f.s.b. ("Mutual Bank"), and assuming a
special assessment of .70%, Roosevelt Bank's assessment would be approximately
$30.2 million on a pre-tax basis. If such special assessment had been recorded
as of June 30, 1996, on a pro forma basis (including the effect of Sentinel
Federal and Mutual Bank), the tangible, core and risk-based capital ratios would
have been 5.38%, 5.40% and 14.18%, respectively. Accordingly, this special
assessment will significantly increase noninterest expense and adversely affect
Roosevelt Bank's results of operations. Prior to the enactment of the
legislation, a portion of the SAIF assessment imposed on savings associations
was used to repay obligations issued by a federally chartered corporation to
provide financing for resolving the thrift crisis in the 1980s. Although the
SAIF rates are expected to be reduced significantly, in the near future the
minimum assessment paid by SAIF-insured institutions is not anticipated to be
equalized with the minimum BIF rate as a result of this continuing obligation.
Although the legislation also now requires assessments to be made on BIF-
assessable deposits for this purpose, that assessment will be limited to 20% of
the rate imposed on SAIF assessable deposits until the earlier of December 31,
1999 or when no savings association continues to exist, thereby imposing a
greater burden on SAIF member institutions such as Roosevelt Bank. Thereafter,
however, assessments on BIF-member institutions will be made on the same basis
as SAIF-member institutions. The rates to be established by the FDIC to
implement this requirement for all FDIC-insured institutions is uncertain at
this time.
The United States Congress has also considered legislation that would
require all Federal thrift institutions, such as Roosevelt Bank, to either
convert to a national bank or a state chartered financial institution. If such
legislation were enacted, Roosevelt would no longer be regulated as a thrift
holding company, but rather as a bank holding company. The OTS would be
abolished and its functions transferred among the other federal banking
regulators. No assurance can be given as to whether or in what form the
legislation will be enacted or its effect on Roosevelt and Roosevelt Bank.
In August 1996, legislation was enacted that repeals the reserve method of
accounting (including the percentage of taxable income method) used by many
thrifts to calculate their bad debt reserve for federal income tax purposes. As
a result, large thrifts such as Roosevelt Bank must recapture that portion of
the reserve that exceeds the amount that could have been taken under the
specific charge-off method for post-1987 tax years. The legislation also
requires thrifts to account for bad debts for federal income tax purposes on the
same basis as commercial banks for tax years beginning after December 31, 1995.
The recapture will occur over a six-year period, the commencement of which will
be delayed until the first taxable year beginning after December 31, 1997,
provided the institution meets certain residential lending requirements. The
management of Roosevelt does not believe that the legislation will have a
material impact on Roosevelt or Roosevelt Bank.
10
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
OF ROOSEVELT FINANCIAL GROUP, INC.
The following table shows, for the periods indicated, certain summary
historical data for Roosevelt. Information at and for the years ended December
31, 1991 through 1993 have been restated to reflect an acquisition accounted for
as a pooling of interests. This information is derived in part from, and should
be read in conjunction with, the separate consolidated financial statements and
related notes included in the Roosevelt 1995 10-K, which is incorporated by
reference herein.
<TABLE>
<CAPTION>
At or for the Six Months
Ended June 30,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
Summary of Financial Condition:
Total assets...................................................... $9,327,772 $8,961,061
Securities available for sale..................................... 1,353,760 1,726,044
Securities held to maturity....................................... 3,534,341 3,641,954
Loans............................................................. 4,016,699 3,264,735
Deposits.......................................................... 4,995,371 4,785,619
Other borrowings.................................................. 3,653,183 3,565,862
Stockholders' equity.............................................. 516,317 452,350
Summary of Operations:
Total interest income............................................. $ 328,423 $ 319,218
Total interest expense............................................ 238,753 225,016
Provision for losses on loans..................................... 600 600
----------- ----------
Net interest income after provision for
losses on loans................................................. 89,070 93,602
----------- ----------
Retail banking fees............................................... 6,587 5,228
Insurance and brokerage sales
commissions..................................................... 3,718 4,116
Loan servicing fees (expenses), net............................... 4,733 4,144
Net gain (loss) from financial instruments........................ 862 (55,739)
Unrealized losses on impairment of
mortgage-backed securities held to
maturity........................................................ -- (27,063)
Other............................................................. 2,894 1,538
----------- ----------
Total noninterest income (loss)............................... 18,794 (67,776)
----------- ----------
Total noninterest expense..................................... 45,146 43,233
----------- ----------
Income before income tax expense,
extraordinary item, and cumulative
effect of change in accounting
principle....................................................... 62,718 (17,613)
Income tax expense (benefit)...................................... 21,425 (7,298)
Extraordinary item, net........................................... -- --
Cumulative effect of change in accounting
principle....................................................... -- --
----------- -----------
Net income (loss)................................................. $ 41,293 $ (10,315)
=========== ===========
Net income (loss) attributable to common stock.................... $ 39,174 $ (12,444)
=========== ===========
Per Share Data:
Primary earnings per share:
Income (loss) before extraordinary item and
cumulative effect of change in
accounting principle....................................... $ 0.92 $ (0.31)
Extraordinary item............................................ -- --
Cumulative effect of change in
accounting principles...................................... -- --
----------- -----------
Net income (loss).......................................... $ 0.92 $ (0.31)
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
At or for the
Years Ended December 31,
-----------------------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
(dollars in thousands, except per share data)
Summary of Financial Condition:
Total assets..................................... $9,013,061 $8,431,866 $7,595,161 $6,038,732 $ 5,756,199
Securities available for sale.................... 1,606,461 1,765,699 1,665,879 52,399 46,997
Securities held to maturity...................... 3,550,140 3,276,062 2,642,916 2,219,147 2,487,141
Loans............................................ 3,577,892 3,072,151 2,671,810 2,349,771 2,259,867
Deposits......................................... 4,907,497 4,899,389 5,081,496 4,300,981 4,184,323
Other borrowings................................. 3,507,475 2,963,449 1,975,661 1,319,154 1,222,457
Stockholders' equity............................. 496,906 441,626 378,462 288,545 254,396
Summary of Operations:
Total interest income............................ $ 647,316 $ 533,368 $ 486,940 $ 439,173 $ 503,801
Total interest expense........................... 466,433 347,574 321,490 314,728 394,315
Provision for losses on loans.................... 1,200 12,432 706 2,648 2,695
---------- ---------- ---------- ---------- -----------
Net interest income after provision for
losses on loans................................ 180,162 173,280 164,744 121,797 106,791
---------- ---------- ---------- ---------- -----------
Retail banking fees.............................. 10,706 8,682 6,260 4,870 3,150
Insurance and brokerage sales
commissions.................................... 7,506 6,538 5,737 4,347 3,159
Loan servicing fees (expenses), net.............. 8,911 7,359 (11,145) 8,392 11,191
Net gain (loss) from financial instruments....... (58,216) (10,660) 10,646 11,394 374
Unrealized losses on impairment of
mortgage-backed securities held to
maturity....................................... (27,063) -- -- -- --
Other............................................ 3,016 5,337 2,759 1,790 5,337
---------- ---------- ---------- ---------- -----------
Total noninterest income (loss).............. (55,140) (17,256) 14,257 30,793 23,211
---------- ---------- ---------- ---------- -----------
Total noninterest expense.................... 87,666 115,576 98,598 100,452 87,994
---------- ---------- ---------- ---------- -----------
Income before income tax expense,
extraordinary item, and cumulative
effect of change in accounting
principle...................................... 37,356 74,960 80,403 52,138 42,008
Income tax expense(benefit)...................... 10,258 25,384 27,134 17,887 14,612
Extraordinary item, net.......................... -- (7,849) (1,908) (3,796) (1,662)
Cumulative effect of change in accounting
principle...................................... -- -- (6,489)/(1)/ -- (16,321)/(2)/
---------- ---------- ---------- ---------- -----------
Net income (loss)................................ $ 27,098 $ 41,727 $ 44,872 $ 30,455 $ 9,413
========== ========== ========== ========== ===========
Net income (loss) to common stock................ $ 22,855 $ 36,543 $ 41,057 $ 28,866 $ 5,029
========== ========== ========== ========== ===========
Per Share Data:
Primary earnings per share
Income (loss) before extraordinary item and
cumulative effect of change in
accounting principle...................... $ .56 $ 1.17 $ 1.54 $ 1.09 $ 1.09
Extraordinary item........................... -- (0.21) (0.06) (0.13) (0.06)
Cumulative effect of change in
accounting principles..................... -- -- (0.20) -- (0.65)
---------- ---------- ---------- ---------- -----------
Net income (loss)......................... $ .56 $ 0.96 $ 1.28 $ 0.96 $ 0.38
========== ========== ========== ========== ===========
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
At or for the Six Months At or for the
Ended June 30, Years Ended December 31,
-------------------------- -----------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
----- ------- ------ ------ ------ ------ -------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Fully-diluted earnings per share:
Income (loss) before extraordinary item and
cumulative effect of change in
accounting principles................$ 0.88 $ (0.31) $ 0.56 $ 1.17 $ 1.32 $ 0.99 $ 1.09
Extraordinary item..................... -- -- -- (0.21) (0.05) (0.11) (0.06)
Cumulative effect of change in
accounting principles................ -- -- -- -- (0.16) -- (0.65)
----- ------- ------ ------ ------ ------ -------
Net income (loss)....................$ 0.88 $ (0.31) $ 0.56 $ 0.96 $ 1.11 $ 0.88 $ 0.38
====== ======= ====== ====== ====== ====== =======
Pro Forma amount assuming the change
in accounting principle is applied
retroactively:/(2)/
Net income........................... N/A N/A N/A N/A N/A N/A $25,734
====== ======= ====== ====== ====== ====== =======
Earnings per share................... N/A N/A N/A N/A N/A N/A $ 1.03
====== ======= ====== ====== ====== ====== =======
Other Data:
Ratio of net interest income to general
and administrative expense............... 1.99x 2.17x 2.07x/(4)/ 1.67x/(3)/ 1.82x 1.55x 1.44x
Effective net spread during the period..... 2.00% 2.14% 2.06% 2.29% 2.40% 2.32% 2.01%
Nonperforming assets to total assets, end
of period................................ 0.85% 0.75% 0.90 0.41 0.46 0.78 0.89
Return on assets (ratio of net income to
average total assets).................... 0.88% (0.23)/(5)/ 0.30/(4)/ 0.49/(3)/ 0.61 0.54 0.16
Return on equity (ratio of net income to
average stockholders' equity)............ 16.27% (4.61)/(5)/ 5.97/(4)/ 10.30/(3)/ 12.86 11.11 3.55
Equity-to-assets ratio (ratio of average
stockholders' equity to average total
assets).................................. 5.42% 4.91% 4.97 4.80 4.75 4.84 4.64
Cash dividends per share of common
stock....................................$ 0.31 $ 0.28 $ 0.56 $ 0.43 $ 0.31 $ 0.21 $ 0.20
Dividends on common stock payout ratio
(dividends paid per share of common
stock divided by primary net income
per share).............................. 33.70% N/M(5)/ 100.00%/(4)/ 44.79%/(3)/ 18.72% 18.63% 90.41%
Book value per share, end of period........$10.98 $ 10.01 $10.60 $ 9.79 $ 9.18 $ 9.29 $ 8.67
- -------------------------
</TABLE>
(1) During December 1993, Roosevelt adopted the provisions of Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities," on a prospective basis. As a result,
Roosevelt recorded a $6.5 million charge, net of applicable income taxes, as
a cumulative effect of a change in accounting principle to reflect an other
than temporary impairment of certain interest-only stripped coupon mortgage-
backed pass-through certificates and collateralized mortgage obligation
residual interests. See Note 2 of the Notes to Consolidated Financial
Statements included in the Roosevelt 1995 10-K incorporated herein by
reference. See "Incorporation of Certain Documents by Reference."
(2) During 1991, Roosevelt changed its method of amortizing cost in excess of
fair value of net assets acquired. Prior to 1991, Roosevelt amortized the
cost in excess of fair value of net assets acquired (goodwill) on a straight
line basis over a 15 year life. On January 1, 1991, Roosevelt adopted the
provisions of Statement of Financial Accounting Standards No. 72,
"Accounting for Certain Acquisitions of Banking and Thrift Institutions"
(SFAS 72) and amortizes goodwill over the life of the long-term interest-
bearing assets acquired. Such adoption was allowed as a result of the
Financial Accounting Standards Board Emerging Issues Task Force Consensus
No. 89-19 which permitted retroactive application for purchase business
combinations that occurred prior to the issuance of SFAS 72. Roosevelt
recorded a $16.3 million cumulative effect of a change in accounting
principle in 1991.
(3) Includes a $57.3 million net expense (net of income tax benefit) of merger-
related expenses as a result of the acquisition of Farm & Home. Such merger-
related expenses included $11.4 million in provision for losses on loans,
$38.4 million of net loss from financial instruments, $3.7 million in
provision for real estate losses, $6.3 million in compensation and employee
benefits, occupancy expense of $5.9 million, transaction related fees of
$7.0 million, and $1.8 million of other expenses. This amount was reduced by
the income tax effect of $25.0 million. An extraordinary item totalling $7.8
million was recorded related to the early extinguishment of debt. Also
included are gains resulting from the mark to market of Roosevelt's
financial futures positions used to reduce the interest rate risk of certain
mortgage backed securities in the available for sale portfolio totaling
$39.5 million ($25.1 million, net of income taxes). Not including the
aforementioned charges and gains for 1994, the ratio of net interest income
to general and administrative expense would have been 2.08x, return on
assets would have been 0.96%, return on equity would have been 20.01%, and
the dividend on common stock payout ratio would have been 18.40%.
(4) Excluding the impact of the impairment charge related to certain mortgage-
backed securities of $27.1 million, losses resulting, from the mark to
market of Roosevelt's financial futures position used to reduce the interest
rate risk of certain mortgage-backed securities in the available for sale
portfolio totaling $71.0 million and merger-related expenses of $1.6
million, the ratio of net interest income to general and administrative
expense would have been 2.11x, return on assets would have been 0.95%,
return on equity would have been 18.96% and the dividend on common stock
payout ratio would have been 27.59%.
(5) Excluding the impact of the impairment charges related to certain mortgage-
backed securities of $27.1 million, and losses resulting from the mark to
market of Roosevelt's financial futures positions used to reduce the
interest rate risk of certain mortgage-backed securities in the available
for sale portfolio totaling $61.7 million, return on assets would have been
0.98%, return on equity would have been 19.94% and the dividend on common
stock payout ratio would have been 26.92%.
12
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
OF SENTINEL FINANCIAL CORPORATION
The following table shows, for the periods indicated, certain summary
historical data for Sentinel. This information is derived in part from, and
should be read in conjunction with, the separate consolidated financial
statements and related notes included elsewhere in this Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
June 30,
----------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ----------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
(dollars in thousands, except per share data)
Selected Financial Condition Data:
Total assets.............................. $143,842 $161,914 $154,560 $156,600 $161,054
Loans receivable, net..................... 82,693 80,956 72,278 80,043 95,529
Mortgage-backed securities, net........... 51,520 68,941 73,096 60,725 31,982
Investment securities..................... 4,619 6,246 4,322 10,924 15,574
Securities and loans available for sale... 1,577 1,856 1,058 1,090 13,319
Savings deposits.......................... 123,253 126,440 131,504 138,585 144,685
Advances from Federal Home Loan Bank...... 7,000 21,850 10,450 10,000 9,500
Stockholders' equity/retained earnings -
substantially restricted................. 11,668 10,615 9,904 5,106 4,254
Selected Operations Data:
Total interest and dividend income........ $ 11,004 $ 10,422 $ 9,418 $ 10,793 $ 12,953
Total interest expense.................... 7,527 7,344 6,948 7,740 9,733
-------- -------- -------- -------- --------
Net interest income.................. 3,477 3,078 2,638 3,053 3,220
Provision for losses on loans............. -- -- 42 154 27
-------- -------- -------- -------- --------
Net interest income after
provision for losses on loans....... 3,477 3,078 2,596 2,899 3,193
-------- -------- -------- -------- --------
Service fee income........................ 126 124 147 156 157
Gain on sale of securities and
loans, net............................... 129 30 35 275 124
Other noninterest income.................. 232 256 267 433 173
-------- -------- -------- -------- --------
Total noninterest income................ 487 410 449 864 454
-------- -------- -------- -------- --------
General and administrative expenses....... 3,351 2,602 2,549 2,418 2,511
Provision for losses on real estate
acquired through foreclosure............. -- -- (43) 24 37
-------- -------- -------- -------- --------
Income before income taxes and
cumulative effect of change in
accounting principle................ 613 886 418 1,345 1,135
Income taxes.............................. (315) 283 45 548 426
-------- -------- -------- -------- --------
Income before cumulative effect
of change in accounting principle... 928 603 373 797 709
Cumulative effect of change in
accounting principle..................... -- 27 191 55 49
-------- -------- -------- -------- --------
Net income........................... $ 928 $ 630 $ 564 852 $ 758
======== ======== ======== ======== ========
Earnings per share:
Income before extraordinary item and
cumulative effect of change in
accounting principle.................... $ 1.81 $ 1.25 $ 0.52/(1) N/A N/A
Cumulative effect of change in
accounting principle.................... -- 0.06 -- -- --
-------- -------- -------- -------- --------
Net income........................... $ 1.81 $ 1.31 $ 0.52/(1) N/A N/A
======== ======== ======== ======== ========
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
June 30,
-------------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Other Data:
Average total assets....................... $153,342 157,875 $155,206 $157,595 $159,404
Average total liabilities.................. 142,200 147,616 147,701 152,804 155,482
Interest rate spread information:
Average during year...................... 1.81% 1.61% 1.33% 1.75% 1.89%
End of year.............................. 2.07 1.59 1.49 1.70 2.20
Net interest margin........................ 2.28 1.98 1.61 1.97 2.06
Average interest-earning assets to
average interest-bearing liabilities..... 109.66 107.67 106.21 104.33 102.69
Nonperforming assets to total assets
at end of year........................... 0.12 0.08 0.18 0.39 0.92
Equity to total assets at end of year...... 7.73 6.56 6.41 3.26 2.64
Return on assets (ratio of net income
to average total assets)................. 0.61 0.40 0.36 0.54 0.48
Return on equity (ratio of net income
to average equity)....................... 8.33 6.14 7.51 17.78 19.33
Equity-to-assets ratio (ratio of
average equity to average total
assets).................................. 7.27 6.50 4.84 3.04 2.46
General and administrative expenses as
a percent of average total assets........ 2.19 1.65 1.72 1.53 1.58
Ratio of net interest income to
general and administrative expenses...... 1.04 0.85 1.01 0.79 0.78
</TABLE>
- ----------------------------------
(1) From January 7, 1994, the date of completion of the conversion of Sentinel
Federal from mutual to stock form of ownership.
14
<PAGE>
COMPARATIVE UNAUDITED PER SHARE DATA
The following table shows unaudited comparative per share data for
Roosevelt and Sentinel Common Stock on a historical basis, and on a pro forma
combined basis and a pro forma equivalent basis for Roosevelt and Sentinel
giving effect to the Merger accounted for under the pooling of interests method
of accounting. Roosevelt has not yet decided whether to account for the Merger
under the pooling of interests method or the purchase method of accounting. The
pro forma data under the pooling and purchase methods of accounting would not
be materially different. See "The Merger--Accounting Treatment."
<TABLE>
<CAPTION>
Historical Pro Forma
------------------------------- --------------------------
Equivalent
Roosevelt Sentinel/(1)/ Combined Shares
------------- --------------- ------------ -----------
<S> <C> <C> <C> <C>
Book value per share at:
December 31, 1995 .......................... $ 10.60 $20.68/(2)/ $ 10.66/3/ $15.17/(4)/
June 30, 1996 .............................. 10.98 22.73 11.06/3/ 15.74/(4)/
Cash dividends declared per
share:
Year Ended December 31, 1993 ............... 0.310 -- 0.310 0.440
Year Ended December 31, 1994 ............... 0.430 -- 0.430 0.610
Year Ended December 31, 1995 ............... 0.560 -- 0.560 0.800
Six Months Ended June 30, 1996 ............. 0.310 -- 0.310 0.440
Income per share before extraordinary
item and cumulative effect of change
in accounting principles:
Year Ended December 31, 1993 ............... 1.32 N/A 1.32 1.88/(5)/
Year Ended December 31, 1994 ............... 0.96 0.52/2/ 0.96 1.37/(5)/
Year Ended December 31, 1995 ............... 0.56 1.31/2/ 0.57 0.81/(5)/
Six Months Ended June 30, 1996 ............. 0.88 1.16 0.87 1.24/(5)/
</TABLE>
- -------------------------
/(1)/ Sentinel completed its initial public offering on January 7, 1994. As a
result, income per share before extraordinary items and cumulative effect
of change in accounting principles prior to such date is not
applicable.
/(2)/ In the case of Sentinel, the information presented at or for the year
ended December 31, 1995 and 1994 is at or for its fiscal year ended June
30, 1995 and 1994.
/(3)/ Based on the combined stockholders' equity of Roosevelt and Sentinel,
including the effect of pro forma adjustments. The adjusted stockholders'
equity amounts are divided by the number of shares of Roosevelt Common
Stock outstanding at December 31, 1995 and June 30, 1996, respectively,
plus the product of the number of shares of Sentinel Common Stock
outstanding at June 30, 1995 and June 30, 1996, respectively, and the
Exchange Ratio. The number of shares of Roosevelt Common Stock
outstanding at December 31, 1995 and June 30, 1996 includes 4,878,750
common stock equivalents attributable to 1,301,000 shares of Roosevelt's
6 1/2% non-cumulative convertible preferred stock outstanding as of such
dates.
/(4)/ Based on the pro forma combined book value per share amounts of Roosevelt
and Sentinel, respectively, multiplied by the Exchange Ratio.
/(5)/ Based on the pro forma combined net income per share amounts before
extraordinary item and cumulative effect of change in accounting
principles of Roosevelt and Sentinel, respectively, multiplied by the
Exchange Ratio.
15
<PAGE>
ROOSEVELT FINANCIAL GROUP, INC. AND ROOSEVELT BANK
Roosevelt Financial Group, Inc.
General. Roosevelt is a Delaware corporation organized in 1988 to be the
thrift holding company for Roosevelt Bank. The principal asset of Roosevelt is
the outstanding stock of Roosevelt Bank. As of June 30, 1996, Roosevelt had
total consolidated assets of $9.3 billion, deposits of $5.0 billion and
stockholders' equity of $516 million. The executive offices of Roosevelt are
located at 900 Roosevelt Parkway, Chesterfield, Missouri 63017 and the telephone
number at that address is (314) 532-6200.
Roosevelt's business consists primarily of attracting deposits from the
general public and using those deposits, together with borrowings and other
funds, to originate and acquire real estate and consumer loans to acquire
mortgage-backed securities, to perform loan servicing functions for others and
to provide other retail banking and financial services to consumers. The
principal elements of Roosevelt's business plan are (i) the origination of a
higher percentage of its assets; (ii) the diversification of its balance sheet
away from only mortgage and real estate related assets; (iii) the expansion of
its retail deposit base with a simultaneous shift within that deposit base
toward checking and transaction accounts; and (iv) growth in fee income by
providing other services such as insurance, brokerage and mortgage loan
servicing for other investors.
Acquisitions. Since the beginning of 1990, Roosevelt has pursued a program
of acquiring other in-market and adjacent-market thrift institutions. Roosevelt
expects to continue informal discussions with various financial institutions
regarding their acquisition by Roosevelt.
In 1990, Roosevelt expanded its franchise to the Illinois portion of the
St. Louis metropolitan area by acquiring Home Federal Savings, Alton, Illinois,
through the merger conversion acquisition of Home Federal Savings, which had
$110 million in assets and $104 million in savings deposits. In October 1991,
Roosevelt completed the merger conversion acquisition of Hannibal Mutual Loan
and Building Association, Hannibal, Missouri, which had $18 million in assets
and savings deposits. In November 1992, Roosevelt completed the merger
conversion acquisitions of Conservative Bank, FSB, St. Louis, Missouri, which
had $65 million in assets and $61 million in savings deposits, and First Granite
City Savings and Loan, Granite City, Illinois, which had $49 million in assets
and $42 million in savings deposits. In December 1992, Roosevelt entered the
Kansas City, Missouri market by completing the purchase of Brookside Savings
Bank, FSB, which had $219 million in assets and $146 million in savings
deposits.
In June 1993, Roosevelt completed the acquisition of the Missouri retail
banking network of First Nationwide Bank of San Francisco, California. Roosevelt
received net cash totaling $588 million. Gross proceeds totaled $595 million,
which represented the amount of deposit accounts acquired by Roosevelt Bank and
accrued but unpaid interest on such accounts. This amount was reduced by $7
million, which was paid by Roosevelt Bank for the acquisition of certain loans
and a tax deductible intangible asset related to the deposit accounts.
In November 1993, Roosevelt completed the acquisition of the 17 eastern
Missouri retail banking branches of Home Savings of America, Los Angeles,
California. The transaction was structured as a purchase of deposits and related
branch locations and equipment. Roosevelt received net cash of $709 million.
Gross proceeds totaled $733 million, which represented the amount of deposit
accounts acquired by Roosevelt and accrued but unpaid interest on such accounts.
This amount was reduced by $24 million, which was paid by Roosevelt for the
acquisition of certain loans and a tax deductible intangible asset related to
the deposit accounts.
On April 22, 1994, Roosevelt completed the acquisition of Home Federal
Bancorp of Missouri, Inc., St. Louis, Missouri, which had total consolidated
assets of $533 million and savings deposits of $467 million.
On June 30, 1994, Farm & Home Financial Corporation ("Farm & Home"),
Nevada, Missouri, with total consolidated assets of $3.1 billion and savings
deposits of $2.1 billion, merged with and into Roosevelt and Farm & Home Savings
Association, a Missouri chartered stock savings and loan association and wholly
owned subsidiary of Farm & Home, merged with and into Roosevelt Bank. The
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transaction was accounted for as a pooling of interests and, accordingly, the
consolidated financial statements of Roosevelt have been restated to include the
results of Farm & Home for the periods presented. On July 1, 1994, Roosevelt
completed the sale of Farm & Home's construction lending business for $75
million in cash.
On October 20, 1995, Roosevelt completed the acquisition of WSB Bancorp,
Inc. ("WSB"), Washington, Missouri, the holding company for Washington Savings.
Upon consummation of the merger, each WSB stockholder became entitled to receive
$22.75 in cash for each share of WSB common stock held. As of the date of the
acquisition, WSB had $97 million in total consolidated assets, $81 million in
deposits and stockholders' equity of $19 million.
On December 29, 1995, Roosevelt completed the acquisition of Kirksville
Bancshares, Inc. ("Kirksville"), Kirksville, Missouri, the holding company for
Kirksville Bank. Upon consummation of the merger, each Kirksville stockholder
became entitled to receive 2.4437 shares of Roosevelt Common Stock. As of the
date of the acquisition, Kirksville had total consolidated assets of $131
million, deposits of $102 million and stockholders' equity of $21 million.
On April 9, 1996, Roosevelt entered into a definitive agreement pursuant to
which Mutual Bancompany, Inc. ("Mutual"), Jefferson City, Missouri, the holding
company for Mutual Bank, will merge with and into Roosevelt, and Mutual Bank
will merge with Roosevelt Bank. Upon the consummation of the transactions, each
Mutual stockholder will become entitled to receive a number of shares of
Roosevelt Common Stock equal to the quotient of (A) $23.00 divided by (B) the
weighted average sale price of all Roosevelt Common Stock traded on the Nasdaq
National Market during the ten trading days ending on the date that is three
trading days prior to the closing date of the transaction. As of March 31, 1996,
Mutual had total consolidated assets of $53 million, deposits of $46 million and
stockholders' equity of $6 million. Roosevelt filed an application with the OTS
for approval of the Mutual acquisition in May 1996, and recieved such approval
in July 1996. Mutual commenced its solicitation of Mutual shareholders for
approval of the acquisition on September 24, 1996. Roosevelt anticipates that
the acquisition will close in the middle of the forth quarter of 1996.
On April 16, 1996, Roosevelt entered into a definitive agreement pursuant
to which Community Charter Corporation ("CCC"), St. Louis, Missouri, the holding
company for Missouri State Bank, will be merged with Roosevelt, resulting in
Missouri State Bank becoming a stand-alone first tier subsidiary of Roosevelt.
Upon the consummation of the merger, each CCC stockholder will become entitled
to receive 1.6 shares of Roosevelt Common Stock. As of June 30, 1996, CCC had
total consolidated assets of $64.7 million, deposits of $56.8 million and
stockholders' equity of $5.8 million. Roosevelt filed an application with the
Missouri Division of Finance (the "MDF") in June 1996 and the Board of
Governors of the Federal Reserve System (the "FRB") in July 1996 for approval
of the acquisition of Missouri State Bank and received the approval of the MDF
in July 1996 and the FRB in August 1996. CCC commenced its solicitation of CCC
shareholders for approval of the acquisition on September 20, 1996. Roosevelt
anticipates that the CCC acquisition will close in the middle of the forth
quarter of 1996.
Bank Holding Company Regulation
General. Upon consummation of the acquisition of Missouri State Bank,
Roosevelt will become a bank holding company in addition to its current status
as a savings and loan holding company, and will register as such with the FRB.
Bank holding companies are subject to comprehensive regulation by the FRB under
the BHCA and the regulations of the FRB. As a bank holding company, Roosevelt
will be required to file reports with the FRB and such additional information as
the FRB may require, and will be subject to regular examinations by the FRB. The
FRB also has extensive enforcement authority over bank holding companies,
including, among other things, the ability to assess civil money penalties, to
issue cease and desist or removal orders and to require that a holding company
divest subsidiaries (including its bank subsidiaries). In general, enforcement
actions may be initiated for violations of law and regulations and unsafe or
unsound practices.
Under FRB policy, a bank holding company must serve as a source of strength
for its subsidiary banks. Under this policy the FRB may require, and has
required in the past, a holding company to contribute additional capital to an
undercapitalized subsidiary bank.
Under the BHCA, a bank holding company must obtain FRB approval before: (i)
acquiring, directly or indirectly, ownership or control of any voting shares of
another bank or bank holding company if, after such acquisition, it would own or
control more than 5% of such shares (unless it already owns or controls the
majority of such shares); (ii) acquiring all or substantially all of the assets
of another bank or bank holding company; or (iii) merging or consolidating with
another bank holding company.
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As a savings and loan holding company, Roosevelt is generally not subject
to any activity restrictions, but as a bank holding company will be subject to
more restrictive activity limitations imposed on bank holding companies. The
BHCA prohibits a bank holding company, with certain exceptions, from acquiring
direct or indirect ownership or control of more than 5% of the voting shares of
any company which is not a bank or bank holding company, or from engaging
directly or indirectly in activities other than those of banking, managing or
controlling banks, or providing services for its subsidiaries. The principal
exceptions to these prohibitions involve certain non-bank activities which, by
statute or by FRB regulation or order, have been identified as activities
closely related to the business of banking or managing or controlling banks. The
list of activities permitted by the FRB includes, among other things, operating
a savings institution (such as Roosevelt Bank), mortgage company, finance
company, credit card company or factoring company; performing certain data
processing operations; providing certain investment and financial advice;
underwriting and acting as an insurance agent for certain types of credit-
related insurance; leasing property on a full-payout, non-operating basis;
selling money orders, travelers' checks and United States Savings Bonds; real
estate and personal property appraising; providing tax planning and preparation
services; and, subject to certain limitations, providing securities brokerage
services for customers. The scope of permissible activities may be expanded from
time to time by the FRB. Such activities may also be affected by federal
legislation.
Interstate Banking and Branching. In 1994, the Riegle-Neal Interstate
Banking and Branching Act of 1994 (the "Act") was enacted to ease restrictions
on interstate banking. Effective September 29, 1995, the Act allows the FRB to
approve an application of an adequately capitalized and adequately managed bank
holding company to acquire control of, or acquire all or substantially all of
the assets of, a bank located in a state other than such holding company's home
state, without regard to whether the transaction is prohibited by the laws of
any state. The FRB may not approve the acquisition of a bank that has not been
in existence for the minimum time period (not exceeding five years) specified by
the statutory law of the host state. The Act also prohibits the FRB from
approving an application if the applicant (and its depository institution
affiliates) controls or would control more than 10% of the insured deposits in
the United States or 30% or more of the deposits in the target bank's home state
or in any state in which the target bank maintains a branch. The Act does not
affect the authority of states to limit the percentage of total insured deposits
in the state which may be held or controlled by a bank or bank holding company
to the extent such limitation does not discriminate against out-of-state banks
or bank holding companies. Individual states may also waive the 30% state-wide
concentration limit contained in the Act.
Additionally, beginning on June 1, 1997, the federal banking agencies will
be authorized to approve interstate merger transactions without regard to
whether such transaction is prohibited by the law of any state, unless the home
state of one of the banks opts out of the Act by enacting a law after the date
of enactment of the Act and prior to June 1, 1997 which applies equally to all
out-of-state banks and expressly prohibits merger transactions involving out-of-
state banks. A state may also permit such transaction before such time by
enacting authorizing legislation. Interstate acquisitions of branches will be
permitted only if the law of the state in which the branch is located permits
such acquisitions. Interstate mergers and branch acquisitions will also be
subject to the nationwide and statewide insured deposit concentration amounts
described above.
The Act authorizes the Office of the Comptroller of the Currency (the
"OCC") and FDIC to approve interstate branching de novo by national and state
banks, respectively, only in states which specifically allow for such branching.
The Act also requires the appropriate federal banking agencies to prescribe
regulations by June 1, 1997 which prohibit any out-of-state bank from using the
interstate branching authority primarily for the purpose of deposit production.
These regulations must include guidelines to ensure that interstate branches
operated by an out-of-state bank in a host state are reasonably helping to meet
the credit needs of the communities which they serve. The State of Missouri has
not yet authorized interstate merger transactions or de novo interstate
branching.
Any future acquisitions of thrift institutions of Roosevelt will continue
to be subject to the HOLA. As a federal thrift institution, Roosevelt Bank,
subject to certain conditions, has nationwide branching authority.
Dividends. The FRB has issued a policy statement on the payment of cash
dividends by bank holding companies, which expresses the FRB's view that a bank
holding company should pay cash dividends only to the extent that its net income
for the past year is sufficient to cover both the cash dividends and a rate of
earning retention that is consistent with the holding company's capital needs,
asset quality and overall financial condition. The FRB also indicated that it
would be inappropriate for a company experiencing serious financial problems to
borrow funds to pay dividends. Furthermore, under the prompt corrective action
regulations adopted by the FRB,
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the FRB may prohibit a bank holding company from paying any dividends if the
holding company's bank subsidiary is classified as "undercapitalized. "
Bank holding companies are required to give the FRB prior written notice of
any purchase or redemption of its outstanding equity securities if the gross
consideration for the purchase or redemption, when combined with the net
consideration paid for all such purchases or redemptions during the preceding 12
months, is equal to 10% or more of their consolidated net worth. The FRB may
disapprove such a purchase or redemption if it determines that the proposal
would constitute an unsafe or unsound practice or would violate any law,
regulation, FRB order, or any condition imposed by, or written agreement with,
the FRB. This notification requirement does not apply to any company that meets
the well-capitalized standard for commercial banks, has a safety and soundness
examination rating of at least a "2" and is not subject to any unresolved
supervisory issues.
Capital Requirements. The FRB has established capital requirements for bank
holding companies that generally parallel the capital requirements for national
banks and federal thrift institutions such as Roosevelt Bank. As a thrift
holding company, Roosevelt is not subject to any minimum capital requirements.
Roosevelt Bank
Roosevelt Bank is a federally chartered savings bank with $9.3 billion in
consolidated assets at June 30, 1996, making it the largest Missouri-based
thrift institution. Roosevelt Bank has 79 full-service offices with 38 offices
serving the St. Louis metropolitan area (including Alton and Granite City,
Illinois) and nine offices serving the Kansas City metropolitan area. The
remaining 32 offices are located in Staunton, Illinois and Pittsburg, Kansas and
the Missouri cities of Hannibal (2), Springfield (3), Columbia, Union,
Warrenton, St. James, Washington, Sikeston, Dexter, Malden, Poplar Bluff, Hayti,
Portageville, Cape Girardeau, Mexico, Jefferson City, Trenton, Marshall,
Sedalia, Clinton, Maryville, St. Joseph, Nevada, Lamar, Joplin (2) and
Kirksville. Incorporated as a Missouri chartered mutual savings and loan in
1934, Roosevelt Bank converted to a federally chartered savings and loan in
1935. In 1987, Roosevelt Bank became a stock savings and loan and, one year
later, converted to a stock savings bank.
Roosevelt Bank is subject to examination and comprehensive regulation and
oversight by the OTS and the FDIC. Roosevelt Bank is further subject to
regulations of the FRB with respect to reserves required to be maintained
against transaction accounts. Roosevelt Bank is a member of the Federal Home
Loan Bank ("FHLB") of Des Moines, which is one of the 12 regional banks
constituting the FHLB system and its savings deposits are insured by the SAIF to
the maximum extent permitted by the FDIC.
For additional information, see "Selected Consolidated Financial and Other
Data of Roosevelt Financial Group, Inc." Information concerning Roosevelt and
Roosevelt Bank also is included in the Roosevelt documents incorporated by
reference herein. See "Incorporation of Certain Documents by Reference."
SENTINEL FINANCIAL CORPORATION AND SENTINEL FEDERAL SAVINGS AND LOAN
ASSOCIATION OF KANSAS CITY
Sentinel Financial Corporation
Sentinel is a Delaware corporation formed in September 1993 to act as the
holding company for Sentinel Federal upon the completion of the conversion in
January 1994. At June 30, 1996, Sentinel had total consolidated assets of
$143.8 million, deposits of $123.3 million and stockholders' equity of $11.7
million. The executive offices of Sentinel and Sentinel Federal are located at
1001 Walnut Street, Kansas City, Missouri 64106, and the telephone number at
that address is (816) 474-9800.
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Sentinel Federal Savings and Loan Association of Kansas City
Sentinel Federal is a federally chartered savings and loan association
headquartered in Kansas City, Missouri. Sentinel Federal was organized in 1919
as a Missouri mutual savings and loan association under the name "Baptist
Savings and Loan Association of Kansas City." In 1935, Sentinel Federal
converted to a federally chartered savings and loan association and changed its
name to "Sentinel Federal Savings and Loan Association of Kansas City." Sentinel
Federal is regulated by the OTS and its deposits are insured up to applicable
limits under the SAIF. Sentinel Federal also is a member of the FHLB System.
Sentinel Federal's principal business consists of attracting deposits from
the general public, originating loans secured primarily by owner-occupied
residential properties and purchasing mortgage-related securities through the
secondary market. To a significantly lesser extent, Sentinel Federal also
originates consumer, commercial real estate, and commercial business loans.
On December 20, 1989, Sentinel Federal entered into a Supervisory Agreement
with the OTS as a result of OTS criticisms of Sentinel Federal's policies and
operations and its reduced capital position. In May 1990, Sentinel Federal also
signed a Capital Plan agreement as a result of its low level of core capital.
The Capital Plan was terminated on June 1, 1994 due to increases in capital
levels primarily as a result of the initial public offering completed as part of
the Conversion. However, the Supervisory Agreement remains in effect until
terminated by the OTS. The Supervisory Agreement requires Sentinel Federal to
follow certain limitations primarily relating to Sentinel Federal's internal
operations, lending activities and investments.
For additional information, see "Selected Consolidated Financial and Other
Data of Sentinel Financial Corporation" and "Business of Sentinel Financial
Corporation."
THE SPECIAL MEETING
Place, Time and Date
The Special Meeting is scheduled to be held at the downtown Kansas City
Office of Sentinel located at 1001 Walnut Street Kansas City, Missouri, on
_______, November ___, 1996 at __:__ __.m., local time. This Proxy
Statement/Prospectus is being sent to holders of record, and certain beneficial
owners, of Sentinel Common Stock as of the Record Date (as defined below), and
is accompanied by a form of proxy which the Sentinel Board requests that
stockholders execute and return to Sentinel for use at the Special Meeting.
Matters to Be Considered
At the Special Meeting, holders of Sentinel Common Stock as of the Record
Date will vote upon a proposal to approve the Merger Agreement and the
transactions contemplated thereby. Holders of Sentinel Common Stock also may
consider and vote upon such other matters as are properly brought before the
Special Meeting. As of the date hereof, the Sentinel Board knows of no business
that will be presented for consideration at the Special Meeting, other than the
matters described in this Proxy Statement/Prospectus.
Record Date; Vote Required
The Sentinel Board has fixed the close of business on September 27, 1996
------------
(the "Record Date") as the time for determining holders of Sentinel Common Stock
who are entitled to notice of and to vote at the Special Meeting. Only holders
of record of Sentinel Common Stock on the Record Date will be entitled to notice
of and to vote at the Special Meeting. As of the Record Date, there were 513,423
shares of Sentinel Common Stock outstanding and entitled to vote at the Special
Meeting.
Each holder of record of shares of Sentinel Common Stock on the Record Date
will be entitled to cast one vote per share on each proposal at the Special
Meeting. Such vote may be exercised in person or by properly executed proxy. The
presence, in person or by properly executed proxy, of the holders of a majority
of the outstanding shares of Sentinel Common Stock entitled to vote at the
Special Meeting is necessary to constitute a
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quorum. Abstentions and broker non-votes will be treated as shares present at
the Special Meeting for purposes of determining the presence of a quorum.
Approval of the Merger Agreement at the Special Meeting will require the
affirmative vote of the holders of a majority of the outstanding shares of
Sentinel Common Stock entitled to vote at the Special Meeting. As a result,
abstentions and broker non-votes will have the same effect as votes against the
Merger Agreement.
As of September 27, 1996, the directors and executive officers of Sentinel
------------
and their affiliates beneficially owned in the aggregate 44,620 shares
(excluding 64,305 shares underlying stock options, which shares may not be voted
at the Special Meeting), or 12.5% of the then outstanding shares of Sentinel
Common Stock entitled to vote at the Special Meeting. Each director of Sentinel
has entered into a Voting Agreement whereby each such director has agreed to
vote all his shares of Sentinel Common Stock owned by him (57,241 shares in the
aggregate for all directors) for approval of the Merger Agreement. As of
August 1, 1996, the directors and executive officers of Roosevelt and their
affiliates beneficially owned in the aggregate 1,000 shares of Sentinel Common
Stock.
Voting Securities and Principal Holders Thereof
The following table sets forth, as of September 27, 1996, certain
------------
information with respect to the beneficial ownership of Sentinel Common Stock
by: (i) those persons who were known by the management of Sentinel to be
beneficial owners of more than 5% of the outstanding shares of Sentinel Common
Stock; (ii) each director of Sentinel; and (iii) all directors and executive
officers of Sentinel as a group.
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<TABLE>
<CAPTION>
Name and Amount and Nature Percent of
Address of of Beneficial Common Stock
Beneficial Owner Ownership/(1)/ Outstanding
- ---------------- ----------------- -------------
<S> <C> <C>
James F. Dierberg 51,105/(2)/ 9.95%
Individual Retirement Account
39 Glen Eagles Drive
St. Louis, Missouri 63124
Jeffrey S. Halis 31,999/(3)/ 6.23
500 Park Avenue
Fifth Floor
New York, New York 10022
Sentinel Federal Savings 25,500/(4)/ 5.00
and Loan Association
Employee Stock
Ownership Plan Trust
Craig D. Laemmli 32,739/(5)/ 6.16
1001 Walnut Street
Kansas City, Missouri 64106
John H. Grow 7,990 1.54
Glennon E. McFarland 9,490 1.83
Willard S. Norton 11,740 2.27
Donald E. Kuenzi, M.D. 17,890 3.46
Robert C. Taul 11,490 2.22
Ron C. Castle 1,000 .19
All Officers and
Directors as a
Group (13 persons) 108,925 19.52
</TABLE>
___________________
(1) Includes all shares held directly as well as by spouses, other immediate
family members, in trust and other forms of indirect ownership, over which
shares the named persons possess voting and investment power. This table
also includes shares of Sentinel Common Stock subject to outstanding
options exercisable within 60 days pursuant to the Sentinel Stock Option
Plan and shares allocated to participants' accounts under Sentinel
Federal's Management Recognition and Development Plan and the Sentinel
Federal Employee Stock Ownership Plan (the "ESOP").
(2) This information is based on records maintained by Sentinel and information
from a Schedule 13D filed with the Securities and Exchange Commission
("SEC") in June 1994.
(3) This information is based on records maintained by Sentinel and information
from a Schedule 13D filed with the SEC in February 1994.
(4) The ESOP purchased 25,500 shares of the Sentinel Common Stock for the
exclusive benefit of participating employees with funds borrowed from
Sentinel in connection with the Conversion, ESOP shares are held in a
suspense account for allocation among participants on the basis
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<PAGE>
of compensation as the loan is repaid. A committee appointed by the
Sentinel Board (the "ESOP Committee") administers the ESOP. The Sentinel
Board has appointed Directors Laemmli, Grow and Norton, as trustees for the
ESOP (the "ESOP Trustee"). The Sentinel Board may instruct the ESOP Trustee
regarding investments of funds contributed to the ESOP. The ESOP Trustee
must vote all allocated shares held in the ESOP in accordance with the
instructions of the participating employees. Unallocated shares will be
voted by the ESOP Trustee as directed by the ESOP Committee. The ESOP
Committee is composed of Directors Laemmli, Grow and Norton.
(5) This information is based on records maintained by Sentinel and
information from a Schedule 13D filed with the SEC in September 1995.
Proxies
Shares of Sentinel Common Stock represented by properly executed proxies
received prior to or at the Special Meeting will, unless such proxies have been
revoked, be voted at the Special Meeting in accordance with the instructions
indicated in the proxies. If no instructions are indicated on a properly
executed proxy, the shares will be voted FOR the Merger Agreement.
Any proxy given pursuant to this solicitation or otherwise may be revoked
by the person giving it at any time before it is voted by delivering to John C.
Spencer, Secretary of Sentinel, at 1001 Walnut Street, Kansas City, Missouri
64106 on or before the taking of the vote at the Special Meeting, a written
notice of revocation bearing a later date than the proxy or a later dated proxy
relating to the same shares of Sentinel Common Stock or by attending the Special
Meeting and voting in person. Attendance at the Special Meeting will not in
itself constitute the revocation of a proxy.
If any other matters are properly presented at the Special Meeting for
consideration, the persons named in the proxy or acting thereunder will have
discretion to vote on such matters in accordance with their best judgment. As of
the date hereof, the Sentinel Board knows of no such other matters.
In addition to solicitation by mail, directors, officers, and employees of
Sentinel, who will not be specifically compensated for such services, may
solicit proxies from the stockholders of Sentinel, personally or by telephone,
telegram or other forms of communication. Brokerage houses, nominees,
fiduciaries and other custodians will be requested to forward soliciting
materials to beneficial owners and will be reimbursed for their reasonable
expenses incurred in sending proxy material to beneficial owners. Sentinel will
bear its own expenses in connection with the solicitation of proxies for the
Special Meeting, except that Roosevelt will pay all printing and mailing
expenses associated with the Proxy Statement/Prospectus.
HOLDERS OF SENTINEL COMMON STOCK ARE REQUESTED TO COMPLETE, DATE AND SIGN
THE ACCOMPANYING FORM OF PROXY AND TO RETURN IT PROMPTLY TO SENTINEL IN THE
ENCLOSED POSTAGE-PAID ENVELOPE.
HOLDERS OF SENTINEL COMMON STOCK SHOULD NOT FORWARD STOCK CERTIFICATES WITH
THEIR PROXY CARDS.
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THE MERGER
The information in this Proxy Statement/Prospectus concerning the terms of
the Merger is qualified in its entirety by reference to the full text of the
Merger Agreement, which is attached hereto as Appendix I and incorporated by
reference herein. All stockholders are urged to read the Merger Agreement in its
entirety.
General
Pursuant to the Merger Agreement, Sentinel will be merged with and into
Roosevelt, with Roosevelt being the surviving entity (the "Company Merger") and,
immediately thereafter, Sentinel Federal will be merged with Roosevelt Bank (the
"Bank Merger" and, together with the Company Merger, the "Merger"). As soon as
possible after the conditions to consummation of the Merger described below have
been satisfied or waived, and unless the Merger Agreement has been terminated as
provided below, Roosevelt and Sentinel will file a certificate of merger with
the Secretary of State of Delaware for the Company Merger, and articles of
combination with the OTS for the Bank Merger. The Company Merger will become
effective upon the filing of the certificate of merger with the Secretary of
State of Delaware. The Bank Merger will become effective at the time the
articles of combination are endorsed by the OTS. The time at which the Company
Merger becomes effective is referred to herein as the "Effective Time."
Upon consummation of the Merger, each outstanding share of Sentinel Common
Stock (other than any share held by a holder who perfects dissenters' rights or
any other excluded share) shall be converted into 1.4231 shares of Roosevelt
Common Stock, subject to adjustment such that if the weighted average sale price
of all Roosevelt Common Stock traded on the Nasdaq National Market during the
ten trading day period ending on the date that is three trading days prior to
the Closing Date of the Merger (the "Average Pre-Closing Trading Price") is less
than $15.83 per share, the Exchange Ratio shall be equal to $22.525 divided by
the Average Pre-Closing Trading Price (in which event a greater number of shares
of Roosevelt Common Stock would be issued than if there were no adjustment to
the Exchange Ratio), and if the Average Pre-Closing Trading Price is greater
than $21.42 per share, the Exchange Ratio shall be equal to $30.475 divided by
the Average Pre-Closing Trading Price (in which event fewer shares of Roosevelt
Common Stock would be issued than if there were no adjustment to the Exchange
Ratio). Each stockholder of Sentinel shall be entitled to exchange Sentinel
Common Stock certificates for Roosevelt Common Stock certificates and thereupon
shall cease to be a stockholder of Sentinel, and the separate existence and
corporate organization of Sentinel shall cease.
Background of the Merger
Effective January 4, 1994, Sentinel Federal converted from a federal mutual
savings and loan association to a federal stock savings and loan association. At
the same time, Sentinel Federal became a wholly owned subsidiary of Sentinel, a
newly formed savings and loan holding company. In connection with the
Conversion, Sentinel completed an initial public offering, selling 513,523
shares of Sentinel Common Stock at $10.00 per share.
Following the Conversion and consistent with Sentinel's business plan,
management of Sentinel and Sentinel Federal concentrated their efforts primarily
on the improvement of Sentinel Federal's core business of obtaining deposits
from the public and originating one- to four-family mortgage loans. In addition,
Sentinel Federal also pursued the objective of controlling operating expenses as
a means of improving overall profitability.
Throughout the period following the Conversion, Sentinel also considered
its strategic alternatives, taking into account its market area and size, in
light of the increased rate of consolidation in the financial services industry.
These alternatives included expansion into related businesses, expansion of loan
and deposit products offered to the public and raising Sentinel Federal's
profile in the local community through increased advertising and community
involvement. In addition, consistent with the overall objective of maximizing
the long-term value of shareholders' interests, in response to suggestions from
various parties, including shareholders, management and the Sentinel Board
considered engaging in a business combination.
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<PAGE>
Since the Conversion, Sentinel management and the Sentinel Board have been
aware of the significant and rapid consolidation that has been occurring among
the providers of banking and financial services in Sentinel Federal's market.
Management and the Sentinel Board have also been aware that the larger financial
institutions that emerge from such consolidations may acquire substantial
competitive advantages, including greater diversity in their loan portfolios,
cost savings through the integration of redundant operations and support
functions, improved access to capital and funding and the ability to spread the
costs of developing new products and services over a wider customer base.
Management and the Sentinel Board have also monitored other developments,
such as the uncertainty surrounding the thrift industry due to the deposit
insurance premium differential between institutions insured by the SAIF and
those insured by the BIF, the anticipated effects on the thrift industry of
regulatory agency consolidation and the attractiveness of thrift acquisition
premiums.
During the early part of 1996, management was approached by Roosevelt
regarding a possible business combination and preliminary discussions were
initiated regarding the terms and conditions of Roosevelt's proposal. Based upon
these preliminary discussions, the Sentinel Board authorized management to
pursue additional discussions with Roosevelt and to provide Roosevelt with
information to facilitate Roosevelt's review of the business, assets and
operations of Sentinel and Sentinel Federal.
Additional discussions occurred in February and early March 1996, during
which period Roosevelt also conducted a due diligence review of Sentinel and
Sentinel Federal. During the same period, management and the Sentinel Board
reviewed with special legal counsel, Breyer & Aguggia, the legal ramifications
of a business combination generally and initiated a survey of market data
regarding other business combinations involving community financial
institutions. Subsequently, on March 1, 1996, the Sentinel Board retained
Trident to render an opinion that the consideration to be received in the Merger
is fair, from a financial point of view, to Sentinel's shareholders. The
Sentinel Board also evaluated whether the interests of the shareholders of
Sentinel Common Stock would be best served by remaining independent or by
pursuing a business combination with Roosevelt on the basis of the discussions
held to date. Specifically, the Sentinel Board considered whether the proposed
business combination would result in a return of value to Sentinel shareholders
that could not be achieved through Sentinel's continued operation as an
independent entity with continued emphasis on building shareholder value through
expansion of operations, increasing earnings and enhancing operating
efficiencies. The Sentinel Board concluded that the proposed business
combination with Roosevelt would result in a greater return to Sentinel
shareholders than could be achieved through Sentinal's continued independent
operation.
A draft definitive agreement was submitted by Roosevelt in March 1996 and
further negotiations were conducted with Roosevelt during March, with the
involvement of Breyer & Aguggia regarding the terms and conditions of the
definitive agreement, and Trident regarding the structure of the Merger
Consideration (as defined herein). These negotiations resulted in the
presentation of the Merger Agreement to the Sentinel Board on March 20, 1996. At
this meeting, the Board received a comprehensive report on the course of the
negotiations with Roosevelt and the terms and conditions of the Merger Agreement
were reviewed extensively with the Sentinel Board by Breyer & Aguggia.
The meeting was adjourned and reconvened on March 22, 1996 whereupon
Trident reviewed with the Sentinel Board the proposed Merger Consideration,
which was derived through arms' length negotiations, and the adjustments to the
Merger Consideration in the event of potential movements in the price of
Roosevelt Common Stock, which have been established as described elsewhere in
this Proxy Statement/Prospectus. See "--General" and the second paragraph of
such section. The Sentinel Board also extensively reviewed with legal counsel
and Trident (i) the proposed terms of the transaction compared to other
comparable transactions, (ii) financial information regarding Roosevelt,
(iii) the results of a due diligence analysis of Roosevelt, (iv) the proposed
treatment of Sentinel Federal employees and (v) alternative valuations of
Sentinel. The Sentinel Board also reviewed the prospects for realizing
comparable shareholder returns by remaining an independent entity. Finally, the
Sentinel Board reviewed and discussed the text of Trident's proposed opinion to
the effect that the Merger Consideration, as of such date, was fair, from a
financial point of view, to the holders of Sentinel Common Stock. The Sentinel
Board also reviewed the anticipated tax consequences of the transaction.
Thereafter, the Sentinel Board unanimously approved the Merger Agreement and
authorized management, in consultation with legal counsel, to enter into and
carry out the Merger Agreement.
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Reasons for the Merger; Recommendation of the Board of Directors
The Sentinel Board believes that the terms of the Merger Agreement, which
are the product of arm's length negotiations between representatives of
Roosevelt and Sentinel, are fair and in the best interests of Sentinel and its
stockholders. Moreover, there is no affiliation between any of the directors and
officers of the respective companies. In the course of reaching its
determination, the Sentinel Board consulted with legal counsel with respect to
its legal duties, the terms of the Merger Agreement and the issues related
thereto, and with Trident with respect to the financial aspects and fairness of
the transaction and with senior management regarding, among other things,
operational matters.
In reaching its determination to approve the Merger Agreement, the Sentinel
Board considered all factors it deemed material, which include the following:
(a) The Sentinel Board analyzed information with respect to the financial
condition, results of operations, cash flow, businesses and prospects of
Sentinel. In this regard, the Sentinel Board analyzed the options of selling
Sentinel or continuing on a stand-alone basis. The range of values on a sale of
control basis were determined to generally exceed the present value of Sentinel
shares on a stand-alone basis under business strategies which could be
reasonably implemented by Sentinel.
(b) The Sentinel Board considered the written opinion of Trident that, as
of March 22, 1996, the Merger Consideration to be received by holders of
Sentinel Common Stock pursuant to the Merger Agreement was fair to Sentinel
stockholders from a financial point of view. See "--Opinion of Financial
Advisor."
(c) The Sentinel Board considered the current operating environment,
including, but not limited to, the continued consolidation and increasing
competition in the banking and financial services industries, the prospect for
further changes in these industries, the controversy pertaining to the BIF/SAIF
deposit insurance premium differential and federal regulatory agency
consolidation and the importance of being able to capitalize on developing
opportunities in these industries. This information had been periodically
reviewed by the Sentinel Board at its regular meetings in the months following
the Conversion to stock form and was also discussed between the Sentinel Board
and Sentinel's various advisors.
(d) The Sentinel Board considered the other terms of the Merger Agreement
and exhibits thereto, including that the Merger would generally be income tax
free to Sentinel shareholders.
(e) The Sentinel Board considered detailed financial analyses, pro forma
and other information with respect to Sentinel and Roosevelt discussed by
Trident, as well as the Sentinel Board's own knowledge of Sentinel, Roosevelt
and their respective businesses. In this regard, the latest publicly-available
financial and other information for Sentinel and Roosevelt were analyzed,
including a comparison to publicly-available financial and other information for
other similar savings institutions. The Sentinel Board also considered the
relative liquidity of Sentinel Common Stock and Roosevelt Common Stock.
(f) The Sentinel Board considered the value of Sentinel continuing as a
stand-alone entity compared to the effect of Sentinel combining with Roosevelt
in light of the factors summarized above and the current economic and financial
environment, including, but not limited to, other possible strategic
alternatives.
(g) The Sentinel Board considered the likelihood of the Merger being
approved by the appropriate regulatory authorities, including factors such as
market share analyses, Roosevelt's Community Reinvestment Act rating at that
time and the estimated pro forma financial impact of the Merger on Roosevelt.
(h) The Sentinel Board considered the fact that the Merger Agreement
prohibits Sentinel from initiating, soliciting, or encouraging discussions with
third parties relating to alternative transactions and requires the payment of a
termination fee of $680,000 to Roosevelt in certain events, and the fact that
Roosevelt required such provisions as a condition to entering into the Merger
Agreement.
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The foregoing discussion of the information and factors considered by the
Sentinel Board is not intended to be exhaustive, but constitutes the material
factors considered by the Sentinel Board. In reaching its determination to
approve and recommend the Merger Agreement, the Sentinel Board did not assign
any relative or specific weights to the foregoing factors, and individual
directors may have weighed factors differently. After deliberating with respect
to the Merger and the other transactions contemplated by the Merger Agreement
and considering, among other things, the matters discussed above and the opinion
of Trident referred to above, the Sentinel Board unanimously approved and
adopted the Merger Agreement and the transactions contemplated thereby as being
in the best interests of Sentinel and its stockholders.
FOR THE REASONS SET FORTH ABOVE, THE SENTINEL BOARD HAS UNANIMOUSLY
APPROVED THE MERGER AGREEMENT AS ADVISABLE AND IN THE BEST INTERESTS OF SENTINEL
AND SENTINEL STOCKHOLDERS AND RECOMMENDS THAT THE STOCKHOLDERS OF SENTINEL VOTE
FOR THE APPROVAL OF THE MERGER AGREEMENT.
- ---
Merger Consideration
Subject to the terms, conditions and procedures set forth in the Merger
Agreement, each share of Sentinel Common Stock issued and outstanding
immediately prior to the Merger (other than shares held by holders who perfect
dissenters' rights,of Sentinel Common Stock held by Roosevelt or Sentinel and
other excluded shares) will be converted into 1.4231 shares (the "Exchange
Ratio") of Roosevelt Common Stock (the "Merger Consideration"). The Exchange
Ratio is subject to adjustment, such that if the weighted average sale price of
all Roosevelt Common Stock traded on the Nasdaq National Market during the ten
trading day period ending on the date that is three trading days prior to the
Closing Date of the Merger (the "Average Pre-Closing Trading Price") is less
than $15.83 per share, the Exchange Ratio shall be equal to $22.525 divided by
the Average Pre-Closing Trading Price (in which case a greater number of shares
of Roosevelt Common Stock would be issued than if there were no adjustment to
the Exchange Ratio), and if the Average Pre-Closing Trading Price is greater
than $21.42 per share the Exchange Ratio shall be equal to $30.475 divided by
the Average Pre-Closing Trading Price (in which case fewer shares of Roosevelt
Common Stock would be issued than if there were no adjustment to the Exchange
Ratio). The Exchange Ratio was determined through arm's length negotiations
between Roosevelt and Sentinel, which was advised during such negotiations by
Trident.
Each share of Roosevelt Common Stock issued and outstanding at the
Effective Time will remain outstanding and unchanged as a result of the Merger.
No fractional shares of Roosevelt Common Stock will be issued in the Merger, and
Sentinel stockholders who otherwise would be entitled to receive a fractional
share of Roosevelt Common Stock will receive a cash payment in lieu thereof. See
"--Fractional Shares."
The number of shares of Roosevelt Common Stock to be received for each
share of Sentinel Common Stock is 1.4231, subject to adjustment as described
above. Based on the last reported sale price for Roosevelt Common Stock on the
Nasdaq National Market on October __, 1996 ($____ per share), the value of
1.4231 shares of Roosevelt Common Stock as of that date would have been
approximately $____ At the present time, there is no established market in
which shares of Sentinel Common Stock are regularly traded, nor are there any
uniformly quoted prices for such shares. The last trade of shares of Sentinel
Common Stock known by management of Sentinel occurred during April 1996. The
closing bid price for Sentinel Common Stock on October __, 1996 was $____ per
share, as reported by the National Quotation Bureau, Inc. The market value of
Roosevelt Common Stock to be received in the Merger, however, is subject to
fluctuation. Fluctuations in the market price of Roosevelt Common Stock would
generally result in an increase or decrease in the value of the Merger
Consideration to be received by Sentinel stockholders in the Merger. An increase
in the market value of Roosevelt Common Stock would generally increase the
market value of the Merger Consideration to be received by Sentinel stockholders
in the Merger. A decrease in the market value of Roosevelt Common Stock would
generally have the opposite effect. The market value of the Merger Consideration
at the time of the Merger will depend upon various factors, including the market
value of a share of Roosevelt Common Stock at such time and any effect of the
Merger itself. Sentinel stockholders are urged to obtain a current price
quotation of Roosevelt Common Stock. See "--Waiver and Amendment; Termination."
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Treatment of Sentinel Stock Options
At the Effective Time, the Sentinel Option Plan and each outstanding
Sentinel Stock Option thereunder (including options granted to non-employee
directors of Sentinel pursuant to any amendment of the Sentinel Option Plan) to
purchase Sentinel Common Stock will be assumed by Roosevelt. Upon such
assumption, each Sentinel Stock Option will become an option to purchase the
number of shares of Roosevelt Common Stock equal to the product of the number of
shares of Sentinel Common Stock subject to the original option and the Exchange
Ratio, with the exercise price under each substituted option equal to the
original exercise price of the corresponding Sentinel Stock Option divided by
the Exchange Ratio, and otherwise subject to the terms of the Sentinel Option
Plan.
Opinion of Financial Advisor
Sentinel retained Trident to act as its financial advisor and to render a
fairness opinion in connection with the Merger. As part of its engagement,
Trident performed a valuation analysis of Sentinel in an acquisition context. On
March 22, 1996, the day Sentinel executed the Merger Agreement, Trident
presented its valuation report (the "Valuation Report") to the Sentinel Board.
At that time, Trident reviewed the proposed terms of the Merger Agreement and
presented a report (the "Merger Analysis and Due Diligence Report") summarizing
the financial terms of the Merger and providing market information with respect
to thrift mergers and acquisitions. Trident also compared Roosevelt's offer to
the valuation of Sentinel set forth in the Valuation Report. Trident further
reported on its financial analysis and on-site due diligence examination of
Roosevelt. In addition, Trident rendered its written opinion to the Sentinel
Board to the effect that, as of that date, the consideration to be received by
Sentinel's stockholders pursuant to the Merger Agreement was fair from a
financial point of view.
Trident delivered its updated written opinion to the Sentinel Board as of
the date of this Proxy Statement/Prospectus stating that, as of such date, the
consideration to be received by the stockholders of Sentinel in the Merger is
fair from a financial point of view. Trident has consented to the inclusion of
such opinion and the related disclosure in this Proxy Statement/Prospectus,
which will be circulated to Sentinel's stockholders.
TRIDENT'S OPINION IS DIRECTED TO THE SENTINEL BOARD AND IS DIRECTED ONLY TO
THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, OF THE CONSIDERATION TO BE
RECEIVED BY SENTINEL'S STOCKHOLDERS BASED ON CONDITIONS AS THEY EXISTED AND
COULD BE EVALUATED AS OF THE DATE OF THE OPINION. TRIDENT'S OPINION DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY SENTINEL STOCKHOLDER AS TO HOW SUCH
STOCKHOLDER SHOULD VOTE AT THE SPECIAL MEETING, NOR DOES TRIDENT'S OPINION
ADDRESS THE UNDERLYING BUSINESS DECISION TO EFFECT THE MERGER. THIS SUMMARY OF
TRIDENT'S OPINION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF
SUCH OPINION, WHICH IS ATTACHED TO THIS PROXY STATEMENT/PROSPECTUS AS APPENDIX
II. STOCKHOLDERS ARE URGED TO READ TRIDENT'S OPINION IN ITS ENTIRETY FOR A
DESCRIPTION OF THE ASSUMPTIONS MADE AND MATTERS CONSIDERED AND THE LIMITS ON THE
REVIEW UNDERTAKEN IN RENDERING SUCH OPINION.
In connection with rendering its opinion, Trident reviewed and analyzed,
among other things, the following: (i) the Merger Agreement; (ii) this Proxy
Statement/Prospectus; (iii) certain publicly available information concerning
Sentinel, including the audited financial statements of Sentinel for each of the
years in the three-year period ended June 30, 1995, and unaudited financial
statements for the six months ended December 31, 1994 and 1995; (iv) certain
publicly available information concerning Roosevelt, including the audited
financial statements of Roosevelt for each of the years in the three-year period
ended December 31, 1995; (v) certain other internal information, primarily
financial in nature, concerning the business and operations of Sentinel and
Roosevelt furnished to Trident by Sentinel and Roosevelt for purposes of
Trident's analysis; (vi) certain information with respect to the pricing and
trading of Sentinel Common Stock; (vii) certain information with respect to the
pricing and trading of Roosevelt Common Stock; (viii) certain publicly available
information with respect to other companies that Trident believed to be
comparable to Sentinel and Roosevelt and the trading markets for such other
companies' securities; and (ix) certain publicly available information
concerning the nature and terms of other
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transactions that Trident considered relevant to its inquiry. Trident also met
with certain officers and employees of Sentinel and Roosevelt to discuss the
foregoing, as well as other matters which it believed relevant to its inquiry.
In its review and analysis, and in arriving at its opinion, Trident assumed
and relied upon the accuracy and completeness of all of the financial and other
information provided to it or that was publicly available and did not attempt
independently to verify any such information. Trident did not conduct a physical
inspection of the properties or facilities of Sentinel or Roosevelt, nor did it
make or obtain any independent evaluations or appraisals of any of such
properties or facilities.
In conducting its analysis and arriving at its opinion, Trident considered
such financial and other factors as it deemed appropriate under the
circumstances, including, among others, the following: (i) the historical and
current financial condition and results of operations of Sentinel and Roosevelt,
including interest income, interest expense, net interest income, net interest
margin, interest sensitivity, non-interest expense, earnings, dividends, book
value, return on assets, return on equity, capitalization, the amount and type
of non-performing assets and the reserve for loan losses; (ii) the business
prospects of Sentinel and Roosevelt; (iii) the economies in Sentinel's and
Roosevelt's market areas; (iv) the historical and current market for Sentinel
Common Stock and Roosevelt Common Stock and for the equity securities of certain
other companies that Trident believed to be comparable to Sentinel and
Roosevelt; and (v) the nature and terms of certain other acquisition
transactions that Trident believed to be relevant. Trident also took into
account its assessment of general economic, market, financial and regulatory
conditions and trends, as well as its knowledge of the financial institutions
industry, its experience in connection with similar transactions, and its
knowledge of securities valuation generally. Trident's opinion necessarily was
based upon conditions in existence and subject to evaluation on the respective
dates of its opinion. Trident's opinion is, in any event, limited to the
fairness, from a financial point of view, of the consideration to be received by
the holders of Sentinel Common Stock in the Merger and does not address
Sentinel's underlying business decision to effect the Merger.
Trident met with the Sentinel Board on March 22, 1996 to present its
analyses, which serve as the basis for Trident's opinion. At this time, Trident
presented the Valuation Report and the Merger Analysis and Due Diligence Report.
The following is a brief summary of the Valuation Report presented by Trident to
the Sentinel Board on March 22, 1996.
Financial Analysis of Sentinel. Trident examined Sentinel's financial
performance for the period June 30, 1992 through December 31, 1995 by analyzing
the composition of its balance sheet, adjusting and normalizing its earnings,
and calculating a variety of operating and financial ratios for Sentinel.
This analysis showed, among other things, that during the three and one
half year period ended December 31, 1995: (i) Sentinel's deposits decreased from
89.8% to 82.6% of assets; (ii) borrowed funds increased from 5.9% to 8.9% of
total assets; (iii) investment and mortgage-backed securities increased from
29.5% to 43.3%; and (iv) equity capital increased from 2.6% to 7.3% of assets
(primarily as a result of the Conversion). For the fiscal years ended June 30,
1993, 1994 and 1995 and the six months ended December 31, 1995 and 1996; (i)
the interest rate spread varied between 1.45% and 1.77%; (ii) operating expenses
varied between 1.52% to 1.67% of average assets; (iii) return on average assets
varied from 0.36% to 0.54% of average assets; and (iv) return on average equity
varied between 5.9% to 17.8%.
Peer Group Analysis. Trident evaluated Sentinel's strengths and weaknesses
by comparing the financial performance of Sentinel to that of the following
groups of OTS-regulated thrift institutions insured by the SAIF the "OTS peer
groups" : (i) all United States institutions; (ii) all institutions in the
Midwest; (iii) all Missouri institutions; (iv) all United States institutions
with total assets between $0 million and $250 million; and (v) Midwest
institutions with total assets between $0 million and $250 million (the
"Aggregates"). This analysis compared a number of Sentinel's historical
financial ratios to those of the Aggregates, including but not limited to:
(i) the balance sheet composition as a percentage of total assets at September
30, 1995; (ii) the loan portfolio as a percentage of total assets at September
30, 1995; (iii) the investment portfolio as a percentage of total assets at
September 30, 1995; and (iv) asset quality at September 30, 1995. Trident also
compared Sentinel's growth rates between December 31, 1992 and September 30,
1995, its yields on assets and costs of liabilities and its income and expense
data for 1994 and the nine months ended September 30, 1995 to those of the
Aggregates.
This comparison showed, among other things, for the eleven months ended
September 30, 1995: (i) the compound annual growth rate of deposits for Sentinel
was -3.8% whereas the same rate for the OTS peer groups ranged form 1.5% to
5.2%; and (ii) the compound annual growth rate in assets for Sentinel was 1.4%
whereas the same rate for OTS peer groups ranged from 3.3% to 13.0%. At
September 30, 1995: (i) Sentinel's loan portfolio represented 51.5% of assets
whereas the OTS peer groups ranged from 53.1% to 67.7% of assets; (ii) the
equity capital to total assets ratio was 6.4% for Sentinel and between 7.2% and
10.8% for the OTS peer groups; (iii) assets per employee were $4.4 million for
Sentinel and ranged between $3.0 million and $4.9 million for the OTS peer
groups; and (iv) the non-performing assets to total assets ratio was 0.01% for
Sentinel and ranged between 0.50% and 1.18% for the OTS peer groups. For the
calendar year 1994 and the nine months ended September 30, 1995: (i) the
interest rate spread was 1.68% and 1.68%, respectively, for Sentinel and from
2.28% to 3.31%, respectively for the OTS peer groups (ii) the operating expense
to average asset ratio was 1.68% and 1.56%, respectively, for Sentinel, and
1.52% to 2.52%, respectively for the OTS peer groups; and (iii) the non-interest
income to average assets ratio was 0.29% and 0.21%, respectively, for Sentinel
0.39% to 0.64%, respectively for the OTS peer groups. For the three calendar
years ending with December 31, 1995 and the nine months ended September 30,
1995: (i) the return on average assets ratio ranged between 0.37% and 0.66% for
Sentinel and between 0.53% and 1.09% for the OTS peer groups. Based on an
analysis of the above factors among other things, Sentinel generally exhibited
slower growth, higher liquidity and lower profitability than the OTS peer
groups.
Valuation of Sentinel. Trident estimated the fair market value of Sentinel
in an acquisition context. In valuing Sentinel, Trident considered three
different approaches to value: the asset approach, the income approach and the
market approach.
The asset approach considers the market value of a company's assets and
liabilities, as well as any intangible value the company may have. Trident
estimated Sentinel's net asset value by adjusting the carrying value of its
assets and liabilities to reflect current market values (rather than liquidation
values). In addition, the net asset
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value of Sentinel was adjusted downward based on an estimate of the impact of
the expected assessment to recapitalize the SAIF and estimated transaction and
other costs. Finally, Trident increased Sentinel's net asset value for the
expected reversal of previously accrued taxes and for the assumed exercise of
outstanding options to purchase Sentinel Common Stock. Based on the adjustments
discussed above, Trident estimated Sentinel's fully-diluted net asset value to
be approximately $10.7 million or $18.97 per share. After determining Sentinel's
net asset value, Trident added an intangible premium to reflect the estimated
value of its customer relationships. According to the asset approach, the total
value of Sentinel is the sum of its net asset value and its intangible value.
Based on a branch purchase methodology and intangible ("core deposit") premiums
observed in the market for thrift acquisitions, as well as Trident's knowledge
of Sentinel, Trident applied premiums equal to 3% and 5% of core deposits to
Sentinel's estimated fully-diluted net asset value. Using the asset approach,
Trident established a reference range of $25.50 to $29.75 per share of Sentinel
Common Stock.
Trident also used an income approach in its valuation of Sentinel by
capitalizing Sentinel's previous 12 months, earnings (adjusted to exclude non-
recurring income) plus merger cost saving of 35% to 50% as a result of an
assumed acquisition of Sentinel (the "normalized earnings"). The normalized
earnings were capitalized at rates of 10%, 11% and 12%. The capitalization rates
chosen were estimates of the required rates of return for holders or prospective
holders of shares of financial institutions similar to Sentinel, based on a
number of factors, including prevailing interest rates, the pricing ratios of
publicly traded financial institutions, the financial condition and operating
results of Sentinel, as well as Trident's general knowledge of valuation, the
securities markets, and acquisition values in other mergers of financial
institutions. Trident adjusted the resulting values to reflect the expected
assessment to recapitalize the SAIF, the recovery of previously accrued taxes,
and certain merger-related expenses. Using the income approach, Trident
established a reference range of $16.00 to $23.25 per share of Sentinel Common
Stock.
In using the market approach, Trident analyzed certain median pricing
ratios (e.g., price to book value, price to tangible book value, price to
reported earnings, price to assets, and the premium paid over tangible book
value as a percentage of core deposits) resulting from selected completed thrift
merger transactions, as well as recently announced pending transactions. In
applying the market approach, Trident considered the pricing ratios for the
following groups of thrift merger transactions: (i) all pending thrift merger
transactions (50 transactions); (ii) all pending thrift mergers announced during
the 90 days prior to March 15, 1996 (the date of the market data) (15
transactions); (iii) all pending thrift mergers involving thrifts located in the
Midwest (19 transactions); (iv) all pending thrift mergers involving thrifts
located in Missouri (two transactions); (v) all pending thrift mergers in which
the aggregate consideration was between $12 million and $18 million (eight
transactions); (vi) all pending thrift mergers in which the target thrift had
assets between $100 million and $250 million (nine transactions); (vii) all
pending thrift mergers in which the target thrift had a return on assets of
between 0.25% and 0.50% (eight transactions); (viii) all pending thrift mergers
in which the target thrift had a return on equity of between 5% and 7% (nine
transactions); (ix) all pending thrift mergers in which the target thrift had a
tangible equity ratio of between 6% and 8% of assets (nine transactions); and
(x) all pending thrift mergers in which the target thrift had a nonperforming
assets to assets ratio of between 0.00% and 0.50% (26 transactions). Trident
also considered the pricing ratios for 14 pending or completed thrift merger
transactions in which the target thrift was of similar size and capital
structure as Sentinel, and in which the target thrift had similar profitability
and asset quality. Trident then performed a comparison of a number of financial
ratios for Sentinel to those of the target thrift institutions. Based on
Sentinel's financial condition and results of operations, as well as other
factors, relative to the groups of thrift mergers noted above, Trident chose
ranges of pricing ratios to apply to Sentinel. Trident chose price to book value
ratios of 120% to 130%, resulting in per share values of $25.75 to $27.75; price
to tangible book value ratios of 120% to 130%, resulting in per share values of
$25.75 to $27.75; price to earnings multiples of 16.0 to 20.0 times earnings,
resulting in per share values of $21.50 to $27.00; price to assets ratios of 8%
to 10%, resulting in per share values of $23.50 to $29.50; and premiums over
tangible book value as a percentage of core deposits of 2% to 4%, resulting in
per share values of $26.00 to $30.75. Based on these derived ranges of value,
Trident established a reference range of $24.00 to $28.00 per share using the
market approach.
Trident then reviewed the results from the three approaches, and after
consideration of all relevant facts, reconciled the acquisition values generated
by each approach and determined a final range of $23.00 to $27.00 per share for
the acquisition value of Sentinel. Trident did not apply specific weights to the
three individual approaches, but rather applied its judgment and experience in
determining the final range of value for Sentinel. Trident gave less
consideration to the income approach given the large disparity between this
approach and the values derived under the asset and market approaches. Trident's
analysis suggested that, in addition to cost savings, an acquiror would have to
make significant changes to the composition of Sentinel's assets and liabilities
to improve Sentinel's level of earnings. Although such changes could have been
assumed in the income approach, they would have been very subjective. Therefore,
Trident chose not to make such assumptions and instead decided to rely less on
the income approach. However, the low values derived under the income approach
placed downward pressure in estimating the final range of value for Sentinel
because ultimately, the value of a company is tied to its level of future
earnings contribution. On March 22, 1996, the value of the Merger Consideration
was $26.33 based on the previous day's closing price of Roosevelt Common Stock
($18.19 per share), which was near the high end of the final range of
value.
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The following is a brief summary of the Merger Analysis and Due Diligence
Report presented to the Sentinel Board on March 22, 1996:
Summary of Proposed Transaction. Trident presented a summary of the
financial terms of the Merger. Trident also compared the pricing ratios for the
Merger with the median pricing ratios for the selected groups of pending thrift
mergers and acquisitions used in the market approach. On March 22, 1996 the
value of the merger consideration of $26.33 represented: (i) a price to book
value ratio of 128.7%; (ii) a price to tangible book value ratio of 128.7%;
(iii) a price to last twelve months earnings ratio of 22.7x; (iv) a price to
assets ratio of 9.7%; and (v) a premium over tangible book value ratio of 2.7%.
The selected groups of pending thrift mergers and acquisitions exhibited median
pricing ratios equal to; (i) 131.9% of book value; (ii) 141.8% of tangible book
value; (iii) 20.2x earnings; (iv) 14.1% of assets; and (v) a 5.8% premium over
tangible book value. In comparison to mergers of other thrift institutions,
Trident concluded that the financial terms of the Merger were below average
based on book value measures, above average based on earnings, below average
based on assets and below average in terms of premiums over tangible book
value.
Review of Due Diligence Examination of Roosevelt. Trident presented a
summary of its on-site due diligence examination of Roosevelt. Roosevelt's
historical balance sheets and income statements were presented, along with a
variety of financial ratios that analyzed Roosevelt's financial condition and
operating results through December 31, 1995. Trident discussed Roosevelt's
current operating strategy, strengths and weaknesses, peer group comparisons,
profitability, dividends, financial condition, loan portfolio composition, asset
quality, loan loss reserve coverage, stock price, growth, Roosevelt's previous
mergers and acquisitions, recent regulatory examinations of Roosevelt, recent
analysts' reports on Roosevelt, and other issues. Trident did not establish any
valuation or reference range for Roosevelt. Trident reported that during
its investigation Trident did not discover any conditions that would prevent it
from rendering its fairness opinion to the Sentinel Board. As discussed above,
Trident relied, without independent verification, upon the accuracy and
completeness of all of the financial and other information provided by
Roosevelt.
Roosevelt's Stock Pricing. Trident examined the trading of activity of
Roosevelt Common Stock between March 20, 1995 and March 19, 1996, and compared
the performance of Roosevelt's Common Stock to the S&P 500 index and to an index
of all actively-traded thrifts published by SNL Securities, LP. Trident also
compared Roosevelt and the pricing of its common stock to median pricing ratios
for twelve actively-traded thrifts with financial characteristics similar to
Roosevelt, other actively-traded Midwest thrifts, actively-traded thrifts with
assets between $5.0 billion and $15.0 billion and all actively-traded thrifts as
of March 19, 1996. On March 19, 1996, Roosevelt Common Stock closed at $18.19
per share, which represented 171.6% of book value, 182.3% of tangible book value
and 18.0 times the last twelve months' reported earnings. At that date,
Roosevelt Common Stock was generally trading above industry averages on book
value measures and reported earnings. These pricing levels reflected Roosevelt's
below-average capital levels and reduced profitability during the last twelve
months due to several large non-recurring charges. However, after adjusting
earnings to exclude the non-recurring charges, Roosevelt Common Stock was
trading at comparable levels to industry averages.
The summaries of Trident's Valuation Report, Merger Analysis and Due
Diligence Report, and opinion set forth above reflect all the material analyses,
factors and assumptions considered by Trident and the material valuation
methodologies used by Trident in arriving at its opinion as to fairness
described above. The preparation of a fairness opinion is a complex process and
is not necessarily susceptible to partial or summary description. Trident
believes that its analyses and the summary set forth above must be considered as
a whole and that selecting portions of its analyses, without considering all of
the analyses, or all of the above summary, without considering all factors and
analyses, would create an incomplete view of the processes underlying the
analyses set forth in Trident's reports and its opinion. Therefore, the ranges
of valuations resulting from any single analysis described above should not be
taken to be Trident's view of the actual value of Sentinel or the combined
company. In performing its analyses, Trident made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Sentinel and Roosevelt.
The results of the specific analyses performed by Trident may differ from
Sentinel's actual values or actual future results as a result of changing
economic conditions, changes in company strategy and policies, as well as a
number of other factors. Such analyses were prepared to provide valuation
guidance solely as part of Trident's overall valuation analysis and the
determination of the fairness of the consideration to be received by Sentinel's
stockholders, and were provided to the Sentinel Board in connection with the
delivery of Trident's opinion. The analyses do not purport to be appraisals or
to reflect the prices at which a company might actually be sold or the prices at
which any securities may trade at the present time or at any time in the future.
In addition, as described above, Trident's opinion and presentations to the
Sentinel Board were among the many factors taken into consideration by the
Sentinel Board in making its determination to approve the Merger Agreement.
Trident, as part of its investment banking business, is continually engaged
in the valuation of businesses and their securities in connection with mergers
and acquisitions, negotiated underwriting, and valuations for corporate and
other purposes. Trident has extensive experience with the valuation of financial
institutions. The Sentinel Board selected Trident as its financial advisor
because of its previous experience with Trident, because Trident is a nationally
recognized investment banking firm specializing in financial institutions and
because of its substantial experience in transactions similar to the Merger.
Trident is not affiliated with either Sentinel or Roosevelt.
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For its services as financial advisor, Sentinel paid Trident a retainer of
$7,500 and a fee of $10,000 upon the execution of the Merger Agreement. An
additional fee of $17,500 will be payable to Trident upon consummation of the
Merger. Sentinel has also agreed to reimburse Trident for its reasonable out-of-
pocket expenses and to indemnify Trident against certain liabilities, including
certain liabilities under federal securities laws.
Effective Time and Closing Date
The Company Merger will become effective at the time the certificate of
merger for such merger is filed with the Secretary of State of the State of
Delaware and the Bank Merger will become effective at the time the articles of
combination of such merger are endorsed by the Secretary of the OTS. Such filing
and endorsement will occur only after the receipt of all requisite regulatory
approvals, the approval of the Merger Agreement by the requisite vote of
Sentinel's stockholders and the satisfaction or waiver of all other conditions
to the Merger. The closing of the Merger shall occur no later than 10:00 a.m. on
the last business day of the first calendar month following the satisfaction or
waiver of all conditions and obligations precedent of Roosevelt and Sentinel to
consummate the Merger, or at another time agreed to by Roosevelt and Sentinel
(the "Closing Date").
Appraisal Rights
Pursuant to Section 262 of the DGCL, any holder of Sentinel Common Stock
who does not wish to accept the Merger Consideration may dissent from the Merger
and elect to have the fair value of his or her shares (exclusive of any element
of value arising from the accomplishment or expectation of the Merger)
judicially determined and paid in cash, provided that such stockholder complies
with the provisions of Section 262.
The following is a brief summary of the statutory procedures to be followed
by a holder of Sentinel Common Stock in order to dissent from the Merger and
perfect appraisal rights under the DGCL. This summary is not intended to be
complete and is qualified in its entirety by reference to Section 262, the text
of which is attached as Appendix III to this Proxy Statement/Prospectus and
incorporated by reference herein.
If any holder of Sentinel Common Stock elects to exercise his or her right
to dissent from the Merger and demand appraisal, such stockholder must satisfy
each of the following conditions:
(i) such stockholder must deliver a written demand for appraisal of
his or her shares to Sentinel before the stockholder vote with respect to
the Merger Agreement (the written demand for appraisal must be in addition
to and separate from any proxy or vote against the Merger Agreement;
neither voting against, abstaining from voting nor failing to vote on the
Merger Agreement will constitute a demand for appraisal within the meaning
of Section 262);
(ii) such stockholder must not vote in favor of the Merger Agreement
(a failure to vote will satisfy this requirement, but a vote in favor of
the Merger Agreement, by proxy or in person, or the return of a signed
proxy which does not specify a vote against approval and adoption of the
Merger Agreement or a direction to abstain, will constitute a waiver of
such stockholder's right of appraisal and will nullify any previously filed
written demand for appraisal); and
(iii) such stockholder must continuously hold such shares from the
date of the making of the demand through the Effective Time.
If any holder of Sentinel Common Stock fails to comply with any of these
conditions and the Merger occurs, he or she will be entitled to receive the
consideration provided in the Merger Agreement, and will have no appraisal
rights with respect to his or her shares of Sentinel Common Stock.
All written demands for appraisal should be addressed to Sentinel Financial
Corporation, 1001 Walnut Street, Kansas City, Missouri 64106, Attention: Craig
D. Laemmli, President, before the taking of the vote concerning the Merger
Agreement at the Special Meeting, and should be executed by, or on behalf of,
the holder of record. Such demand must reasonably inform Sentinel of the
identity of the stockholder and that such stockholder is thereby demanding
appraisal of his or her shares.
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To be effective, a demand for appraisal must be executed by or for the
stockholder of record who held such shares on the date of making such demand,
and who continuously holds such shares through the Effective Time, fully and
correctly, as such stockholder's name appears on his stock certificate(s) and
cannot be made by the beneficial holder if he or she does not also hold the
shares of record. The beneficial holder, in such case, must have the registered
owner submit the required demand in respect of such shares.
If Sentinel Common Stock is owned of record in a fiduciary capacity, as by
a trustee, guardian or custodian, execution of a demand for appraisal should be
made in such capacity. If Sentinel Common Stock is owned of record by more than
one person, as in a joint tenancy or tenancy in common, such demand must be
executed by or for all joint owners. An authorized agent, including one of two
or more joint owners, may execute the demand for appraisal for a stockholder of
record; however, the agent must identify the record owner or owners and
expressly disclose the fact that, in executing the demand, he or she is acting
as agent for the record owner. A record owner, such as a broker, who holds
Sentinel Common Stock as a nominee for others may exercise his or her right of
appraisal with respect to the shares held for one or more beneficial owners,
while not exercising such right for other beneficial owners. In such case, the
written demand should set forth the number of shares as to which the record
owner dissents. Where no number of shares is expressly mentioned, the demand
will be presumed to cover all shares of Sentinel Common Stock in the name of
such record owner.
Within ten days after the Effective Time, Roosevelt (as the surviving
corporation in the Merger) must give written notice that the Merger has become
effective to each former Sentinel stockholder who so filed a written demand for
appraisal and who did not vote in favor of the Merger Agreement. Any such
stockholder entitled to appraisal rights may, within 20 days after the date of
mailing of the notice, demand in writing from Roosevelt the appraisal of his or
her shares of Sentinel Common Stock. Within 120 days after the Effective Time,
but not thereafter, either Roosevelt or any holder of shares of Sentinel Common
Stock who has complied with the requirements of Section 262, may file a petition
in the Delaware Court of Chancery (the "Court of Chancery") demanding a
determination of the value of the shares of Sentinel Common Stock held by all
stockholders entitled to appraisal. Roosevelt does not presently intend to file
such a petition. Inasmuch as Roosevelt has no obligation to file such a
petition, the failure of a stockholder to do so within the period specified
could nullify such stockholder's previous written demand for appraisal. In any
event, at any time within 60 days after the Effective Time (or at any time
thereafter with the written consent of Roosevelt), any stockholder who has
demanded appraisal has the right to withdraw the demand and to accept payment of
the consideration provided in the Merger Agreement.
Within 120 days after the Effective Time, any stockholder who has complied
with the provisions of Section 262 to that point in time will be entitled to
receive from Roosevelt, upon written request, a statement setting forth the
aggregate number of shares of Sentinel Common Stock not voted in favor of the
Merger Agreement and with respect to which demands for appraisal have been
received along with the aggregate number of holders of such shares. Roosevelt
must mail such statement to the stockholder within ten days of receipt of such
request.
If a petition for appraisal is duly filed by a stockholder and a copy
thereof is delivered to Roosevelt, Roosevelt will then be obligated within 20
days to provide the Court of Chancery with a duly verified list containing the
names and addresses of all stockholders who have demanded an appraisal of their
shares and with whom agreement as to the value of such shares has not been
reached. After notice to such stockholders, the Court of Chancery is empowered
to conduct a hearing upon the petition to determine those stockholders who have
complied with Section 262 and who have become entitled to appraisal rights
thereunder. The Court of Chancery may require the stockholders who demanded
payment for their shares to submit their stock certificates to the Register in
Chancery for notation thereon of the pendency of the appraisal proceedings, and
if any stockholder fails to comply with such direction, the Court of Chancery
may dismiss the proceedings as to such stockholder.
After determination of the stockholders entitled to an appraisal, the Court
of Chancery will appraise the shares of Sentinel Common Stock, determining their
fair value exclusive of any element of value arising from the accomplishment or
expectation of the Merger. When the value is so determined, the Court will
direct the payment by Roosevelt of such value, with interest thereon, simple or
compound, if the Court so determines, to the stockholders entitled to receive
the same, upon surrender to Roosevelt by such stockholders of the certificates
representing such Sentinel Common Stock.
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In determining fair value, the Court of Chancery will take into account all
relevant factors, and may consider proof of value by any techniques or methods
which are generally considered acceptable in the financial community and
otherwise admissible in court. Under Delaware law, the Court of Chancery must
consider market value, asset value, dividends, earnings prospects, the nature of
the enterprise and any other facts which could be ascertained as of the date of
the Merger that shed any light on future prospects of the merged corporation.
Section 262 provides that fair value is to be "exclusive of any element of
value arising from the accomplishment or expectation of the merger." The
Delaware Supreme Court has construed Section 262 to mean that "elements of
future value, including the nature of the enterprise, which are known or
susceptible of proof as of the date of the merger and are not the product of
speculation, may be considered." Stockholders who are considering seeking an
appraisal should bear in mind that the fair value of their shares of Sentinel
Common Stock determined under Section 262 could be more than, the same as or
less than the Merger Consideration, and that an opinion of an investment banking
firm as to fairness is not an opinion as to fair value under Section 262.
Costs of the appraisal proceeding may be assessed against the parties
thereto (i.e., Roosevelt and the stockholders participating in the appraisal
proceeding) by the Court of Chancery as the court deems equitable in the
circumstances. Upon the application of any stockholder, the Court of Chancery
may determine the amount of interest, if any, to be paid upon the value of the
stock of stockholders entitled thereto. Upon application of a stockholder, the
court may order all or a portion of the expenses incurred by any stockholder in
connection with the appraisal proceeding, including, without limitation,
reasonable attorneys' fees and the fees and expenses of experts, to be charged
pro rata against the value of all shares entitled to appraisal. Any stockholder
who has demanded appraisal rights will not be entitled, after the Effective
Time, to vote the stock subject to such demand for any purpose or to receive
payment of dividends or any other distribution with respect to such shares
(other than dividends or distributions, if any, payable to holders of record as
of a record date prior to the Effective Time) or to receive the payment of the
Merger Consideration. However, if no petition for an appraisal is filed within
120 days after the Effective Time or if such stockholder delivers to Roosevelt a
written withdrawal of his demand for an appraisal and an acceptance of the
Merger, either within 60 days after the Effective Time or thereafter with the
written approval of Roosevelt, then the right of such stockholder to an
appraisal will cease. Notwithstanding the foregoing, no appraisal proceeding in
the Court of Chancery will be dismissed as to any stockholder without the
approval of the court, and such approval may be conditioned upon such terms as
the court deems just.
Failure to comply strictly with these procedures may cause the stockholder
to lose his or her appraisal rights. Consequently, any stockholder who desires
to exercise his or her appraisal rights is urged to consult a legal advisor
before attempting to exercise such rights.
Fractional Shares
No certificates or scrip representing fractional shares of Roosevelt Common
Stock will be issued upon the surrender for exchange of certificates
representing Sentinel Common Stock, no dividend or distribution of Roosevelt
will relate to any fractional shares, and such fractional share interests will
not entitle the owner thereof to vote or to any rights of a stockholder of
Roosevelt. Each stockholder of Sentinel who otherwise would be entitled to a
fractional share of Roosevelt Common Stock in the Merger will receive a cash
payment in lieu thereof (without interest) in an amount determined by
multiplying (i) the closing sale price of one share of Roosevelt Common Stock as
reported on the Nasdaq National Market on the business day immediately preceding
the Effective Time by (ii) the fractional share interest to which the holder
would otherwise be entitled pursuant to the terms of the Merger Agreement.
Exchange of Certificates
As soon as practicable after the Effective Time, an independent exchange
agent designated by Roosevelt (the "Exchange Agent") will deliver to each
Sentinel holder of record of a certificate or certificates, which immediately
prior to the Effective Time represented outstanding shares of Sentinel Common
Stock (the "Certificates"), a transmittal letter and instructions to be used in
surrendering Certificates in exchange for (i) certificates representing the
number of shares of Roosevelt Common Stock into which their shares of Sentinel
Common Stock were converted pursuant to the Merger Agreement and (ii) a check
representing the amount of cash
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in lieu of fractional shares, if any, and unpaid dividends and distributions, if
any, which such stockholder has the right to receive in respect of the
Certificates surrendered in connection with the Merger. No interest will be paid
or accrued on the cash in lieu of fractional shares or on the unpaid dividends
and distributions, if any, payable to holders of Sentinel Common Stock.
SENTINEL STOCKHOLDERS SHOULD NOT FORWARD THEIR SENTINEL STOCK CERTIFICATES
UNTIL THEY RECEIVE THE TRANSMITTAL LETTER AND INSTRUCTIONS.
Until such surrender and subject to the effect, if any, of applicable law,
the Certificates will as of the Effective Time represent ownership of the number
of shares of Roosevelt Common Stock into which such shares were converted in the
Merger, and the holders will be entitled to all rights and privileges of holders
of Roosevelt Common Stock, except that holders of Certificates will not be
entitled to receive dividends or any other distributions declared by Roosevelt
until the Certificates are so surrendered. Following surrender of the
Certificates in accordance with the terms of the Merger Agreement, the holders
of newly issued Roosevelt certificates will be paid, without interest, any
dividends or other distributions with respect to the shares of Roosevelt Common
Stock the record date for which is after the Effective Time (less any taxes that
may have been imposed thereon).
Any Certificate representing shares of Roosevelt Common Stock to be issued
in a name other than that in which the Certificate is registered must be
properly endorsed and otherwise in proper form for transfer, and the holder
requesting such exchange must pay to the Exchange Agent in advance any transfer
or other taxes in connection therewith.
In the event any Certificate has been lost, stolen or destroyed, upon the
mailing of an affidavit of that fact by the holder of such Certificate and the
posting of any bond required by Roosevelt or the Exchange Agent, Roosevelt or
the Exchange Agent will issue for such lost, stolen or destroyed Certificate,
the shares of Roosevelt Common Stock and deliver cash due to the holder of such
Certificate under the terms of the Merger Agreement.
After the Effective Time, there will be no further transfers on the records
of Sentinel of the Certificates, and, if such Certificates are presented to
Roosevelt for transfer, they will be cancelled against delivery of certificates
for Roosevelt Common Stock.
After the Effective Time, holders of unsurrendered Certificates shall be
entitled to vote at any meeting of Roosevelt stockholders at which holders of
Roosevelt Common Stock are eligible to vote, regardless of whether such holders
have exchanged their Certificates.
Interests of Certain Persons in the Merger
Set forth below are descriptions of interests of directors and executive
officers of Sentinel in the Merger in addition to their interests generally as
stockholders of Sentinel. The Sentinel Board was aware of these interests and
considered them in approving the Merger Agreement and the transactions
contemplated thereby.
Employment Agreements. At Closing, Roosevelt Bank will enter into an
employment agreement (the "Employment Agreement") with Craig D. Laemmli,
President and Chief Executive Officer of Sentinel and Sentinel Federal, who will
assume the position of Vice President of Roosevelt Bank working at the current
or currently planned offices of Sentinel Federal in the Kansas City, Missouri
metropolitan area (for a six-month term at an annual salary of $61,559, the same
as his current salary). Pursuant to the Employment Agreement, if Mr. Laemmli's
employment is terminated during the term of such agreement, whether voluntarily
by Mr. Laemmli or by Roosevelt Bank for any reason (other than for cause, as
defined in the Employment Agreement), he will be entitled to receive (i) payment
of his salary for the remaining term of the Employment Agreement plus (ii) an
amount of cash equal to 299 percent of his "base amount" of compensation (as
defined in Section 280G(b)(3) of the Code) in two installments, the first
such installment payable within 15 days after the date of termination and the
second payable on the first anniversary of the date of termination (the
"Termination Payment"). The amounts described in the preceding sentence will be
reduced to the extent necessary to prevent any amount paid or benefit provided
to Mr. Laemmli (including the amounts described
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in the preceding sentence and any other payments or benefits received by Mr.
Laemmli in connection with a "change in control") from being nondeductible by
Roosevelt and Roosevelt Bank for federal income tax purposes pursuant to Section
280G of the Code. It is estimated that if paid, the amount of the Termination
Payment would be $162,644.
Upon execution and delivery of the Employment Agreement by Roosevelt Bank
and Mr. Laemmli, the Employment Agreement will replace and supersede in its
entirety the existing employment agreement, dated as of January 7, 1994, between
Mr. Laemmli and Sentinel and Sentinel Federal (the "1994 Agreement") and any
other agreement or similar arrangement to which Mr. Laemmli is a party. Pursuant
to the Merger Agreement, however, if the substantive terms of the form of the
Employment Agreement agreed to by the parties to the Merger Agreement at the
time of execution of the Merger Agreement are modified in any manner that would
materially diminish the anticipated benefits of the Employment Agreement to Mr.
Laemmli, he and Roosevelt Bank will be under no obligation to execute the
Employment Agreement, and the 1994 Agreement will remain in effect. In such
event, under the 1994 Agreement, the consummation of the Company Merger will
constitute a "change in control," thereby entitling Mr. Laemmli to receive, in
cash, 299 percent of his "base amount" of compensation (the same amount as the
estimated amount of the Termination Payment, as provided in the last sentence of
the preceding paragraph), provided that under the Merger Agreement, neither
Roosevelt nor Roosevelt Bank will be obligated to make any payment or provide
any benefit under the 1994 Agreement or otherwise that would not be deductible
for federal income tax purposes pursuant to Section 280G of the Code.
Directors. For at least one year after the Effective Time, and for so long
thereafter as agreed to by Roosevelt Bank and the participating directors of
Sentinel, the directors of Sentinel who wish to do so may serve as regional
advisory directors of Roosevelt Bank with a retainer fee of $500 per month.
Indemnification; Insurance. Roosevelt has agreed that from and after the
Effective Time, it will indemnify, defend and hold harmless, to the fullest
extent permitted under Sentinel's certificate of incorporation and bylaws
(including provisions relating to the advancement of expenses incurred in the
defense of any litigation) and the DGCL, the present and former officers,
directors and employees of Sentinel and its subsidiaries against all
liabilities, claims, losses, damages or judgments or amounts paid in settlement
with the approval of Roosevelt in connection with any claim, action or suit
arising out of actions or omissions occurring at or prior to the Effective Time
(including without limitation the transactions contemplated by the Merger
Agreement) regardless of whether such matter is asserted or claimed before or
after the Effective Time. Roosevelt has further agreed to use its reasonable
best efforts, for a period of three years after the Effective Time, to cause the
persons serving as officers and directors of Sentinel Federal immediately prior
to the Effective Time to be covered by single (one-time) premium tail coverage
by Sentinel Federal's current directors' and officers' liability insurance
policy (provided that Roosevelt may substitute therefor policies of at least the
same coverage and amounts containing terms and conditions which are not
materially less advantageous than such policy) with respect to acts or omissions
occurring prior to the Effective Time which were committed by such officers and
directors in their capacities as such; provided, however, that in no event shall
Roosevelt be required to expend more than 150% of the annual amount currently
extended by Sentinel Federal (the "Insurance Amount") to maintain or procure
such insurance coverage and further provided that if Roosevelt is unable to
maintain or obtain such insurance coverage, Roosevelt will use its reasonable
best efforts to obtain as much comparable insurance as is available for the
Insurance Amount.
Effect on Employees and Employee Benefit Plans of Sentinel
Employee Severance Benefits; Continuing Employees. Roosevelt Bank
anticipates retaining the employees of Sentinel Federal as employees of
Roosevelt Bank after the Effective Time, subject to the needs of Roosevelt Bank
and the qualifications of such employees. Those employees (other than Craig D.
Laemmli and possibly John C. Spencer, for the reasons discussed below) who are
not retained for at least six months after the Effective Time will be offered a
severance arrangement of (i) four weeks' pay plus (ii) an additional week's pay
for each year of service to Sentinel or any of its subsidiaries. Pursuant to a
letter agreement entered into between the parties to the Merger Agreement
subsequent to the date thereof, Roosevelt and Roosevelt Bank have agreed that in
the event that the employment of John C. Spencer, Executive Vice President and
Controller of Sentinel Federal, is terminated more than six months after the
Effective Time, Mr. Spencer will be entitled to receive the severance
arrangement
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described in the preceding sentence reduced by any regular salary payments
received by Mr. Spencer during any period of employment with Roosevelt or
Roosevelt Bank after the Effective Time. If Mr. Spencer's employment is
terminated less than six months after the Effective Time, he will become
entitled to receive the severance payments described above without reduction for
any salary received during any period of employment with Roosevelt or Roosevelt
Bank after the Effective Time. Employees of Sentinel and its subsidiaries who
continue in employment with Roosevelt or any of its subsidiaries following the
Effective Time shall be credited for prior years of service with Sentinel and
its subsidiaries for purposes of eligibility and vesting (but not for the
accrual of benefits) under the benefit plans and policies of Roosevelt and its
subsidiaries (including, without limitation, vacation and sick leave policies),
there shall be no exclusion from medical coverage as the result of pre-existing
conditions that were covered under the medical plan of Sentinel or any
applicable subsidiary thereof and such employees shall be entitled to
participate on an equitable basis in the same benefit plans and policies as are
generally available to Roosevelt and Roosevelt Bank employees of similar rank
and status not later than January 1, 1998.
Employee Stock Ownership Plan. At the Effective Time, all shares of
Sentinel Common Stock under the control of the Sentinel Federal Employee Stock
Ownership Plan (the "ESOP") will be converted into the right to receive the
Merger Consideration. Each ESOP participant will receive a number of shares of
Roosevelt Common Stock equal to the number of shares of Sentinel Common Stock
allocated to his or her account multiplied by the Exchange Ratio. In addition,
with respect to shares of Roosevelt Common Stock received by the ESOP in
exchange for shares of Sentinel Common Stock not allocated to accounts of
participants, the trustees of the ESOP as soon as practicable after the
Effective Time (but not prior to the publication of financial results covering
at least 30 days of combined operations after the Merger) will liquidate the
number of shares of such Roosevelt Common Stock necessary to retire the
outstanding ESOP debt and distribute the remaining shares to participants in the
ESOP in proportion to the account balances of such participants as they existed
as of the Effective Time.
Representations and Warranties
In the Merger Agreement, each of Sentinel and Roosevelt has made certain
representations and warranties relating to, among other things, the parties'
respective organization, capitalization, qualification to do business and
compliance with applicable law, authority relative to the Merger Agreement, the
timely filing of all regulatory reports, reliability of financial statements,
taxes, employee arrangements and benefits, Community Reinvestment Act
compliance, the truth and accuracy of information prepared and provided by them
in connection with the Merger and the absence of certain legal proceedings and
other events, including material adverse changes in the parties' business,
financial condition, operations or assets. For detailed information on such
representations and warranties, see Articles II and III of the Merger Agreement
attached hereto as Appendix I.
Conditions to the Merger
The respective Obligations of Roosevelt, Roosevelt Bank, Sentinel and
Sentinel Federal to consummate the Merger are subject to the satisfaction or
waiver at or prior to the Effective Time of the following conditions: (i) the
Merger Agreement shall have been approved by the stockholders of Sentinel; (ii)
all requisite approvals of the Merger Agreement shall have been received from
the OTS and all other applicable regulatory authorities, if any, without the
imposition of any condition which differs from conditions customarily imposed by
such regulatory authorities in orders approving acquisitions of the type
contemplated by the Merger Agreement and compliance with which would materially
diminish the reasonably anticipated benefits of the merger to Roosevelt
Financial and Roosevelt Bank, and all applicable waiting periods shall have
expired; (iii) the Registration Statement shall have been declared effective and
shall not be subject to a stop order or any threatened stop order; (iv) neither
Roosevelt, Roosevelt Bank, Sentinel nor Sentinel Federal 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; (v) Roosevelt and Sentinel
shall have received, from counsel or independent certified accountants mutually
acceptable to them, an opinion to the effect that, among other things, the
Merger will constitute a reorganization within the meaning of
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Section 368 of the Code and that no gain or loss will be recognized by
Roosevelt, Roosevelt Bank, Sentinel or Sentinel Federal, or by the stockholders
of Sentinel (except in connection with the receipt of cash in lieu of a
fractional share of Roosevelt Common Stock); and (vi) the shares of Roosevelt
Common Stock to be issued in the Merger and to be reserved for issuance upon the
exercise of Sentinel Stock Options after the Merger shall have been approved for
listing on the Nasdaq National Market, subject to official notice of issuance.
For additional information, see Section 6.1 of the Merger Agreement attached
hereto as Appendix I.
In addition, the obligations of Sentinel and Sentinel Federal to consummate
the Merger are subject to the satisfaction by Roosevelt or waiver by Sentinel of
the following conditions: (i) the representations and warranties of Roosevelt
and Roosevelt Bank contained in the Merger Agreement shall be true and correct
as of the date of the Merger Agreement and as of the Effective Time (as though
made and as of the Effective Time except (A) to the extent such representations
and warranties are by their express provisions made as of a specific date, (B)
for the effect of the transactions contemplated by the Merger Agreement and (C)
where the failure to be true and correct would not have a material adverse
effect on the financial condition, assets, deposit liabilities, results of
operations, or business (collectively the "Condition") of Roosevelt and its
subsidiaries, taken as a whole) and Sentinel and Sentinel Federal shall have
received a certificate of the president and chief executive officer of Roosevelt
and Roosevelt Bank to that effect; (ii) Roosevelt and Roosevelt Bank shall have
performed in all material respects all obligations required to be performed by
them under the Merger Agreement prior to the Effective Time and Sentinel and
Sentinel Federal shall have received a certificate of the president and chief
executive officer of Roosevelt and Roosevelt Bank to that effect; (iii) Sentinel
and Sentinel Federal shall have received an opinion from counsel to Roosevelt
and Roosevelt Bank dated the Closing Date regarding certain legal matters; and
(iv) certificates for the number of shares of Roosevelt Common Stock and cash
for fractional share interests necessary to effectuate the exchange of Sentinel
Common Stock for the Merger Consideration shall have been delivered to the
Exchange Agent. For additional information, see Section 6.2 of the Merger
Agreement attached hereto as Appendix I.
In addition, the obligations of Roosevelt and Roosevelt Bank to consummate
the Merger are subject to the satisfaction by Sentinel or waiver by Roosevelt of
the following conditions: (i) the representations and warranties of Sentinel and
Sentinel Federal contained in the Merger Agreement shall be true and correct as
of the date of the Merger Agreement and as of the Effective Time (as though made
on and as of the Effective Time except (A) to the extent such representations
and warranties are by their express provisions made as of a specific date, (B)
for the effect of the transactions contemplated by the Merger Agreement and (C)
where the failure to be true and correct would not have a material adverse
effect on the Condition of Sentinel and its subsidiaries, taken as a whole) and
Roosevelt and Roosevelt Bank shall have received a certificate of the president
and chief executive officer of Sentinel and Sentinel Federal to that effect;
(ii) Sentinel and Sentinel Federal shall have performed in all material respects
all obligations required to be performed by them under the Merger Agreement
prior to the Effective Time and Roosevelt and Roosevelt Bank shall have received
a certificate of the president and chief executive officer of Sentinel and
Sentinel Federal to that effect; (iii) Roosevelt and Roosevelt Bank shall have
received an opinion from counsel to Sentinel and Sentinel Federal dated the
Closing Date regarding certain legal matters; (iv) simultaneous with the
execution and delivery of the Merger Agreement (and in the case of any person
who becomes a director of Sentinel after the execution and delivery of the
Merger Agreement, promptly upon becoming such a director) each of the directors
of Sentinel shall have executed and delivered to Roosevelt a Voting Agreement in
the form attached to the Merger Agreement as Exhibit A; (v) Sentinel and
Sentinel Federal shall have obtained all consents and approvals (other than
regulatory approvals) required to be obtained in connection with the Merger
other than those which, individually or in the aggregate, would not have a
material adverse effect on the Condition of Roosevelt as the surviving
corporation; (vi) Roosevelt shall have received a letter from its independent
accountants to the effect that the Merger will qualify for pooling of interests
accounting treatment; (vii) Roosevelt shall have received from the "affiliates"
of Sentinel certain letters with respect to the resale of shares of Roosevelt
Common Stock received by them in the Merger; and (viii) the Supervisory
Agreement, dated December 20, 1989, between Sentinel Federal and the OTS shall
have been terminated. For additional information, see Section 6.3 of the Merger
Agreement attached hereto as Appendix I. See also "--Accounting Treatment."
There can be no assurance that the conditions to consummation of the Merger
will be satisfied or waived. In the event the conditions to either party's
obligations become impossible of satisfaction in any material respect, the other
party may elect to terminate the Merger Agreement. See "Waiver and Amendment;
Termination."
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<PAGE>
Regulatory Approvals
The Merger is subject to the approval of the OTS. Roosevelt filed an
application for approval of the Merger with the OTS on May 13, 1996, and
received such approval on July 25, 1996.
It is a condition to the consummation of the Merger that all requisite
regulatory approvals be obtained without the imposition of any condition which
differs from conditions customarily imposed by the OTS in orders approving
acquisitions of the type contemplated by the Merger Agreement. The OTS approval
did not contain any such condition.
Under federal law a period of 15 days must expire following approval by the
OTS within which period the Department of Justice may file objections to the
Merger under the federal antitrust laws. The Department of Justice did not file
any objection during this period.
Waiver and Amendment; Termination
The Boards of Directors of Roosevelt and Sentinel may waive compliance with
any term, condition or provision of the Merger Agreement at any time.
Subject to applicable law, the Merger Agreement may be amended by action of
the Roosevelt and Sentinel Boards at any time before or after approval of the
Merger Agreement by the stockholders of Sentinel; provided, however, that after
approval by the stockholders of Sentinel, no amendment may (i) alter or change
the amount or kind of consideration to be received by holders of Sentinel Common
Stock as provided in the Merger Agreement or (ii) adversely affect the tax
treatment to Sentinel stockholders of the stock portion of the Merger
Consideration. In addition, Roosevelt may cause the Merger Agreement to be
amended to change the method of effecting the Merger, to the extent permitted by
applicable law. No such amendment, however, may (i) alter or change the amount
or kind of the Merger Consideration or the treatment of Sentinel Stock Options
and Restricted Sentinel Common Stock as set forth in the Merger Agreement, (ii)
diminish the benefits to be received by the directors, officers or employees of
Sentinel and Sentinel Federal as set forth in the Merger Agreement or in any
other agreements between the parties made in connection with the Merger
Agreement, (iii) materially impede or delay the consummation of the Merger or
(iv) adversely affect the tax treatment of Sentinel stockholders as a result of
receiving the Merger Consideration.
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether prior to or after approval of the matters presented herein by
Sentinel's stockholders, (i) by mutual consent of the parties, (ii) by either
party if the Merger is not consummated by January 31, 1997 (provided that the
terminating party is not then in material breach of the Merger Agreement); (iii)
by either party if the required regulatory approvals are not obtained; (iv) by
either party if the required approval of Sentinel's stockholders is not obtained
(provided that the terminating party is not then in material breach of the
Merger Agreement); or (v) by either party if the other party has materially
breached any representation, warranty, covenant or agreement set forth in the
Merger Agreement and has failed to, or cannot, cure in a timely manner such
breach after receiving written notice of such breach. In addition, the Sentinel
Board may terminate the Merger Agreement if in the exercise of its good faith
judgment in consultation with counsel it determines that termination is
warranted upon the occurrence of certain events, provided a prior payment of
$680,000 in cash has been made to Roosevelt. See "The Merger--Waiver and
Amendment; Termination." Sentinel has also agreed to pay Roosevelt this amount
in the event the Merger is not consummated and certain events occur by September
22, 1997. See "The Merger--Expenses; Termination Fee" and Section 7.2 of the
Merger Agreement attached hereto as Appendix I.
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<PAGE>
Subject to certain exceptions, the representations, warranties and
agreements of the parties set forth in the Merger Agreement shall not survive
the Effective Time, and shall be terminated and extinguished at such time. From
and after the Effective Time, neither of the parties shall have any liability to
the other on account of any breach or failure of any of the representations,
warranties and agreements in the Merger Agreement, subject to certain
exceptions.
Conduct of Business Pending the Merger
Each of Roosevelt and Sentinel has agreed, with respect to it and its
subsidiaries, that, prior to the Effective Time, it will (i) conduct its
business only in the ordinary and usual course consistent with past practices,
and (ii) use its best efforts to maintain and preserve its business
organization, employees and advantageous business relationships and retain the
services of its officers and key employees.
In addition, Sentinel has agreed that, prior to the Effective Time, it and
its subsidiaries will not, without the prior written consent of Roosevelt: (i)
declare or pay any dividends or other distributions on its capital stock (other
than certain inter-company dividends), (ii) enter into or amend any employment
or similar agreement or arrangement, materially modify any employee benefit plan
or security acquisition loans relating thereto or grant any salary or wage
increase, other than increases (A) consistent with past practice or required by
applicable law or contract, (B) as provided for in Section 5.8 of the Merger
Agreement and (C) as to which Roosevelt does not disapprove after written
notification by Sentinel; (iii) except as required in fulfillment of the
fiduciary duties of the Sentinel Board (as determined in consultation with
counsel), authorize, recommend, propose or announce an intention to authorize,
so recommend or propose, or enter into an agreement in principle with respect
to, any merger, consolidation or business combination (other than the Merger),
any acquisition of a material amount of assets or securities, any disposition of
a material amount of assets or securities or any release or relinquishment of
any material contractual rights; (iv) propose or adopt any amendments to its
certificate of incorporation or other charter document or bylaws, other than as
required by law or regulation; (v) issue or sell any shares of its capital stock
other than pursuant to options outstanding on the date of the Merger Agreement,
or effect any stock split or otherwise change its capitalization as it existed
on the date of the Merger Agreement; (vi) purchase, exchange or otherwise
acquire or dispose of any shares of its capital stock; (vii) except as provided
for in the Merger Agreement or in honor of existing contractual obligations,
enter into, increase or modify certain loan or credit commitments, without first
consulting with Roosevelt or unless Roosevelt does not object after notification
by Sentinel, as applicable, or enter into any agreement or engage in any
transaction which reasonably could be construed as materially affecting the
asset/liability management or interest rate risk management position of Sentinel
or Sentinel Federal; (viii) directly or indirectly (A) initiate, solicit or
encourage any discussions or proposals relating to the disposition of any
significant portion of the business or assets of Sentinel or any subsidiary
thereof or the acquisition of 10% or more of the shares of any class of capital
stock of Sentinel or any subsidiary thereof or the merger of Sentinel or any
subsidiary thereof with any person (other than Roosevelt) or any similar
transaction or (B) except as required in fulfillment of the fiduciary duties of
the Sentinel Board, and in consultation with outside counsel, provide any such
person with information or assistance or negotiate with any such person with
respect to any such transaction; (ix) take any action that would (A) materially
impede or delay the consummation of the transactions contemplated by the Merger
Agreement or the ability of Roosevelt or Sentinel to obtain any required
approval of any regulatory authority or to perform its covenants and agreements
under the Merger Agreement, (B) prevent the Merger from qualifying as a pooling
of interests for accounting purposes or (C) prevent the Company Merger from
qualifying as a reorganization within the meaning of Section 368(a)(1)(A) of the
Code or the Bank Merger from qualifying as a reorganization within the meaning
of Section 368(a)(1)(A) or (D) of the Code; (x) other than in the ordinary
course of business consistent with past practice, incur any indebtedness for
borrowed money, assume, guarantee, endorse or otherwise as an accommodation
become responsible or liable for the obligations of any other individual,
corporation or other entity; or (xi) agree in writing or otherwise take any of
the foregoing actions or engage in any activity, enter into any transaction or
take or omit to take any other act which would make any of the representations
and warranties of Sentinel and Sentinel Federal in the Merger Agreement untrue
or incorrect in any material respect if made anew after engaging in such
activity, entering into such transaction or taking or omitting such other act.
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<PAGE>
Expenses; Termination Fee
All expenses incurred in connection with the Merger Agreement and the
consummation of the Merger are to be paid by the party incurring such expenses,
except that Roosevelt will pay all printing and mailing expenses and filing fees
associated with this Proxy Statement/Prospectus and all filings with the
Regulatory Authorities for approval of the Merger Agreement.
If the Merger is not consummated by September 22, 1997 and a Fee Event (as
defined below) occurs prior thereto, Sentinel has agreed to pay Roosevelt on
demand a fee of $680,000 in recognition of the expenses of, and other
opportunities foregone by, Roosevelt in connection with the Merger Agreement. A
Fee Event shall occur if: (i) any person other than Roosevelt or an affiliate of
Roosevelt acquires beneficial ownership of 25% or more of the then-outstanding
shares of Sentinel Common Stock; (ii) without having received Roosevelt's prior
written consent, Sentinel or any of its affiliates enters into an agreement to
engage in, or the Sentinel Board recommends that Sentinel's stockholders approve
or accept, an Acquisition Transaction (as defined below) with any person other
than Roosevelt or any of its subsidiaries; or (iii) Sentinel or any of its
subsidiaries or stockholders receives a proposal from a third party to engage in
an Acquisition Transaction and after such proposal (A) Sentinel willfully
breaches the Merger Agreement entitling Roosevelt to terminate the Merger
Agreement, (B) Sentinel stockholders do not approve the Merger Agreement at the
Special Meeting, (C) the Special Meeting is not held or is canceled prior to
termination of the Merger Agreement for reasons other than the fault of
Roosevelt or (D) the Sentinel Board withdraws or modifies its recommendation
with respect to the Merger Agreement in a manner adverse to Roosevelt.
Notwithstanding the foregoing, Sentinel will not be obligated to pay such
termination fee if, prior to a Fee Event, the Merger Agreement is terminated by
mutual consent of the parties, or by Sentinel because a required regulatory
approval is denied, or Roosevelt commits a material breach of a representation,
warranty, covenant or agreement set forth in the Merger Agreement which
Roosevelt fails to cure in a timely manner after receiving written notice of
such breach.
Under the Merger Agreement, each of the following will be deemed an
Acquisition Transaction: (i) a merger or consolidation or similar transaction
involving Sentinel or Sentinel Federal; (ii) the purchase, lease or other
acquisition of all or substantially all of the assets of Sentinel or any if its
subsidiaries; or (iii) the purchase or other acquisition (including by way of
merger, consolidation, share exchange or otherwise) of securities representing
10% or more of the voting power of Sentinel or Sentinel Federal. The term
"Acquisition Transaction" does not include any internal merger involving only
Sentinel Financial and or its subsidiaries.
Accounting Treatment
Roosevelt has not yet decided whether to account for the Merger under the
purchase method or the pooling of interests method. The decision will be based
on whether Roosevelt decides to issue shares in connection with the Merger from
authorized but unissued shares, or to acquire shares in the open market for
issuance in connection with the Merger. If shares are acquired in the open
market, the pooling method will not be available. In addition, in order to
utilize the pooling method, Roosevelt would be required prior to the
consummation of the Merger, to rescind its existing stock repurchase plan, which
is described in Note 18 to the Consolidated Financial Statements of Roosevelt
contained in the Roosevelt 1995 10-K, incorporated by reference herein. See
"Incorporation of Certain Documents by Reference." Under the purchase method,
which accounts for a business combination as the acquisition of one enterprise
by another, the value of the company's shares issued in the transaction is
included in stockholders' equity and any of such amount in excess of net fair
values of tangible and identifiable intangible assets of the acquired company is
treated as an intangible asset on the acquiring company's financial statements.
Under the pooling method, the financial statements of the combining enterprises
are combined as if the two were and had been a single entity and no intangible
asset is created.
The Bank Merger Agreement
In connection with the Merger, Roosevelt Bank and Sentinel Federal will
execute an agreement pursuant to which Sentinel Federal will merge with
Roosevelt Bank (the "Bank Merger Agreement"). Under the Bank Merger Agreement,
the Bank Merger will occur at the date and time specified on the endorsement of
the articles of combination that will be filed with the OTS by the parties to
the Merger Agreement as soon as practicable after the satisfaction or waiver of
the conditions of each party to effect the Merger. The name of the surviving
institution will be "Roosevelt Bank."
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<PAGE>
Resales of Roosevelt Common Stock by Affiliates
The shares of Roosevelt Common Stock to be issued in the Merger will be
registered under the Securities Act and will be freely transferable under the
Securities Act, except for shares issued to any stockholder who may be deemed to
be an "affiliate" of Roosevelt or Sentinel for purposes of Rule 145 under the
Securities Act as of the date of the Special Meeting. Affiliates of Roosevelt or
Sentinel may not sell their shares of Roosevelt Common Stock acquired in
connection with the Merger except pursuant to an effective registration
statement under the Securities Act covering such shares or in compliance with
Rule 145 or another applicable exemption from the registration requirements of
the Securities Act. Persons who may be deemed to be affiliates of Roosevelt or
Sentinel generally include individuals or entities that control, are controlled
by or are under common control with Roosevelt or Sentinel, and may include
certain officers and directors of Roosevelt and Sentinel as well as certain
principal stockholders of Roosevelt and Sentinel.
SEC guidelines regarding qualifying for the pooling of interests method of
accounting also limit sales by affiliates of Roosevelt or Sentinel in the
Merger. SEC guidelines indicate that the pooling of interests method of
accounting generally will not be challenged on the basis of sales by affiliates
if they do not dispose of any of the shares of either combining company they
owned prior to the consummation of a merger or shares of the surviving company
received in connection with a merger during the period beginning 30 days before
the merger and ending when financial results covering at least 30 days of post-
merger operations of the surviving company have been published.
It is a condition to Roosevelt's obligation to consummate the Merger that
each person who may be deemed an affiliate (for purposes of Rule 145 and for
purposes of qualifying the Merger for pooling of interests accounting treatment)
of Sentinel execute and deliver to Roosevelt a written agreement intended to
ensure compliance with the Securities Act and to ensure that the Merger will
qualify as a pooling of interests. See also "--Accounting Treatment."
Certain Federal Income Tax Consequences of the Merger
Set forth below is a discussion of federal income tax consequences of the
Merger to Roosevelt, Sentinel and Sentinel stockholders who are citizens or
residents of the United States. The following discussion constitutes the opinion
of Silver, Freedmont & Taff, L.L.P., counsel to Roosevelt, as to the material
federal income tax consequences of the Merger, as issued and delivered to the
Roosevelt Board. The discussion does not purport to be a complete analysis or
listing of all potential tax effects relevant to a decision whether to vote in
favor of approval of the Merger Agreement and the transactions contemplated
thereby. Further, the discussion does not address the tax consequences that may
be relevant to a particular Sentinel stockholder subject to special treatment
under certain federal income tax laws, such as dealers in securities, banks,
insurance companies, tax-exempt organizations, non-United States stockholders,
and persons who acquired their shares as compensation, nor any consequences
arising under the laws of any state, locality or foreign jurisdiction. The
discussion is based upon the Code, Treasury regulations thereunder and
administrative rulings and court decisions as of the date hereof. All of the
foregoing are subject to change and any such change could affect the continuing
validity of this discussion.
HOLDERS OF SENTINEL COMMON STOCK ARE URGED TO CONSULT THEIR TAX ADVISERS AS
TO THE PARTICULAR EFFECT OF THEIR OWN PARTICULAR FACTS AND CIRCUMSTANCES ON THE
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO THEM, AND ALSO TO THE EFFECT OF
ANY STATE, LOCAL, FOREIGN AND OTHER FEDERAL TAX LAWS.
Under current federal income tax law, and based upon assumptions and
representations of Roosevelt and Sentinel to be made as of the Effective Time,
and assuming that the Company Merger and the Bank Merger are each consummated in
the manner set forth in the Merger Agreement, the following material federal
income tax consequences would result:
(i) the Company Merger and the Bank Merger would each qualify as a
reorganization under Section 368(a) of the Code;
(ii) no gain or loss would be recognized by Roosevelt, Roosevelt Bank,
Sentinel or Sentinel Federal by reason of the Company Merger or the Bank
Merger;
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(iii) no gain or loss would be recognized by any Sentinel stockholder
upon the exchange of Sentinel Common Stock solely for Roosevelt Common
Stock in the Merger (except in connection with the receipt of cash in lieu
of a fractional share of Roosevelt Common Stock or in connection with the
exercise of dissenter's rights, as discussed below);
(iv) the aggregate tax basis of the Roosevelt Common Stock received by
each stockholder of Sentinel who exchanged Sentinel Common Stock for
Roosevelt Common Stock in the Merger would be the same as the aggregate tax
basis of the Sentinel Common Stock surrendered in exchange therefor
(subject to any adjustments required as the result of receipt of cash in
lieu of a fractional share of Roosevelt Common Stock);
(v) the holding period of the shares of Roosevelt Common Stock
received by a Sentinel stockholder in the Merger would include the holding
period of the Sentinel Common Stock surrendered in exchange therefor
(provided that such shares of Sentinel Common Stock were held as a capital
asset by such stockholder at the Effective Time);
(vi) cash received in the Merger by a Sentinel stockholder in lieu of
a fractional share interest of Roosevelt Common Stock or by a Sentinel
would be treated as having been received as a distribution in full payment
in exchange for the fractional share interest of Roosevelt Common Stock
which such stockholder would otherwise be entitled to receive, and would
qualify as capital gain or loss (assuming the Sentinel Common Stock
surrendered in exchange therefor were held as a capital asset by such
stockholder at the Effective Time); and
(vii) a Sentinel stockholder who received only cash as a result of the
exercise of appraisal rights would realize gain or loss for federal income
tax purposes (determined separately as to each block of Sentinel Common
Stock exchanged) in an amount equal to the difference between (x) the
amount of cash received by such stockholder, and (y) such stockholder's tax
basis for the shares of Sentinel Common Stock surrendered in exchange
therefor, provided that the cash payment did not have the effect of the
distribution of a dividend. Any such gain or loss would be recognized for
federal income tax purposes and would be treated as capital gain or loss.
However, if the cash payment did have the effect of the distribution of a
dividend, the amount of taxable income recognized generally would equal the
amount of cash received; such income generally would be taxable as a
dividend; and no loss (or the recovery of such stockholder's tax basis for
the shares of Sentinel Common Stock surrendered in the exchange) generally
would be recognized by such stockholder. The determination of whether a
cash payment has the effect of the distribution of a dividend would be made
pursuant to the provisions and limitations of Section 302 of the Code,
taking into account the constructive stock ownership rules of Section 318
of the Code.
Roosevelt has received an opinion of Silver, Freedman & Taff, L.L.P.,
counsel to Roosevelt, in connection with the Registration Statement to the
effect that if the Merger were consummated on the date hereof, the Merger would
qualify as a reorganization under the Code with the consequences set forth
above. The opinion is subject to various assumptions and qualifications,
including that the Company Merger and the Bank Merger will be consummated in the
manner and in accordance with the terms of the Merger Agreement. However, the
financial accounting treatment of the transaction as a pooling of interests or a
purchase will not impact the tax consequences described above. The opinion is
based entirely upon the Code, regulations in effect or proposed thereunder,
current administrative rulings and practice and judicial authority, all of which
are subject to change, possibly with retroactive effect. Consummation of the
Merger is conditioned upon the receipt by Roosevelt and Sentinel of a closing
tax opinion setting forth the same tax consequences in the foregoing tax opinion
See "-- Conditions to the Merger."
No ruling has been or will be requested from the Internal Revenue Service
("IRS"), including any ruling as to federal income tax consequences of the
Merger to Roosevelt, Sentinel or Sentinel stockholders. Unlike a ruling from the
IRS, an opinion of counsel or independent certified accountants is not binding
on the IRS. There can be no assurance that the IRS will not take a position
contrary to the positions reflected in such opinion or that such opinion would
be upheld by the courts if challenged.
Nasdaq Listing
Roosevelt Common Stock currently is quoted on the Nasdaq National Market.
It is a condition to consummation of the Merger that the Roosevelt Common Stock
to be issued to stockholders of Sentinel in the Merger and to be reserved for
issuance under the Sentinel Stock Options assumed by Roosevelt in the Merger
also will be approved for listing on the Nasdaq National Market.
See "--Conditions to the Merger."
MANAGEMENT AFTER THE MERGER
As of the Effective Time, the Boards of Directors of Roosevelt and
Roosevelt Bank will consist of the current members of such Boards, and the
executive officers of Roosevelt and Roosevelt Bank will include the current
executive officers of Roosevelt and Roosevelt Bank. Craig D. Laemmli, President
and Chief Executive Officer of Sentinel and Sentinel Federal will assume the
position of Vice President of Roosevelt Bank pursuant to an employment agreement
for a term of six months as described elsewhere in this Proxy
Statement/Prospectus. Statement. See "The Merger--Interest of Certain Persons."
In addition, for at least one year after the Effective Time, and for so long
thereafter as agreed to by Roosevelt Bank and the participating directors of
Sentinel, the directors of Sentinel
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who wish to do so may serve as regional advisory directors of Roosevelt Bank for
a retainer fee of $500 per month. See also "The Merger--Interests of Certain
Persons in the Merger."
BUSINESS OF SENTINEL FINANCIAL CORPORATION
General
Sentinel was incorporated on September 23, 1993 for the purpose of becoming
the holding company for Sentinel Federal upon completion of the Conversion.The
Conversion was completed on January 7, 1994. Sentinel has not engaged in any
significant activity other than holding the stock of Sentinel Federal.
Accordingly, the information set forth in this Proxy Statement/Prospectus,
including financial statements and related data, relates primarily to Sentinel
Federal and its subsidiaries.
Sentinel Federal was organized in 1919 as a Missouri mutual savings and
loan association under the name "Baptist Savings and Loan Association of Kansas
City." In 1935, Sentinel Federal converted to a federally chartered savings and
loan association and changed its name to "Sentinel Federal Savings and Loan
Association of Kansas City." Sentinel Federal is regulated by the OTS and its
deposits are insured up to applicable limits under the SAIF of the FDIC.
Sentinel Federal also is a member of the FHLB system.
At June 30, 1996, Sentinel had total assets of $143.8 million, deposits of
$123.3 million and stockholders' equity of $11.5 million.
Sentinel Federal's principal business consists of attracting deposits from
the general public, originating loans secured primarily by owner-occupied
residential properties and purchasing mortgage-related securities through the
secondary market. Approximately 96.2% of Sentinel Federal's first mortgage loans
are secured by properties located within Missouri. Sentinel Federal's
residential real estate mortgage loans amounted to $78.5 million or 95.0% of
Sentinel Federal's net loan portfolio at June 30, 1996. To a significantly
lesser extent, Sentinel Federal also originates consumer, commercial real
estate, and commercial business loans.
On December 20, 1989, Sentinel Federal entered into a Supervisory Agreement
with the OTS as a result of OTS criticisms of Sentinel Federal's policies and
operations and its reduced capital position. In May 1990, Sentinel Federal also
signed a Capital Plan agreement as a result of its low level of core capital.
The Capital Plan was terminated on June 1, 1994 due to increases in capital
levels primarily as a result of the initial public offering in connection with
the Conversion. However, the Supervisory Agreement remains in effect until
terminated by the OTS. The Supervisory Agreement requires Sentinel Federal to
follow certain limitations primarily relating to Sentinel Federal's internal
operations, lending activities and investments.
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LENDING ACTIVITIES
General. The primary lending activity of Sentinel Federal is originating
one- to four-family adjustable and fixed-rate residential loans, based on
Sentinel Federal's and Federal Home Loan Mortgage Corporation ("FHLMC")/Federal
National Mortgage Association ("FNMA") underwriting standards.
The types of loans historically originated by Sentinel Federal include
single-family and multi-family residential loans, residential lot and
construction loans, home equity loans, commercial real estate loans and savings
account loans. Sentinel Federal attracts retail deposits from the general
public and invests those deposits, together with funds generated from operating
income, primarily in one- to four-family mortgage loans and mortgage-related
securities. Sentinel Federal's revenues are derived principally from interest
on its mortgage loan and mortgage-related securities portfolios. Sentinel
Federal's primary sources of funds are proceeds from deposits, FHLB advances and
from principal and interest payments on loans and mortgage-related
securities.
Sentinel Federal requires that mortgage loans be secured by first or second
liens on one - to - four family residential dwellings. The primary purpose of
the loans is for the purchase or refinancing or construction of these
properties. As of June 30, 1996, $75.9 million, or 91.8% of Sentinel Federal's
loan portfolio, consisted of loans secured by one- to four-family residential
properties, $3.1 million, or 3.7% of loans, consisted of commercial real estate
and $2.7 million, or 3.2%, consisted of multi-family permanent loans.
Loan Portfolio Analysis. The following table sets forth the composition of
Sentinel Federal's loan portfolio by type of loan at the dates indicated.
<TABLE>
<CAPTION>
AT JUNE 30,
--------------------------------------------------------------------------
1994 1995 1996
--------------------- ------------------------ ------------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
--------- -------- --------- --------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Conventional mortgage................... $64,162 88% $70,680 85% $71,025 84%
Federal Housing Administration 7,098 10 6,377 8 6,333 8
and Veterans' Administration...........
Commercial.............................. 604 1 2,195 3 2,576 3
Construction............................ 267 --- 1,235 2 1,627 2
------- ---- ------- ---- ------- ---
Total mortgage loans................. 72,131 99 80,487 98 81,561 97
------- ---- ------- ---- ------- ---
Other Loans:
Home equity and second
mortgage loans........................ 286 --- 864 1 1, 951 3
Automobile loans....................... 47 ---- 47 --- 138 ---
Other.................................. 386 1 477 1 396 ---
------- ---- ------- ---- ------- ----
Total other loans.................... 719 1 1,388 2 2,485 3
------- ---- ------- ---- ------- ----
Total loans.......................... 72,850 100% 81,875 100% 84,046 100%
------- ==== ------- ==== ------- ====
Less:
Undisbursed loan funds................. 121 452 943
Unearned loan fees, net................ 132 148 91
Allowance for loan losses.............. 319 319 319
------- ------- -------
Total loans receivable, net.......... $72,278 $80,956 $82,693
======= ======= =======
</TABLE>
One- to Four-Family Residential Loans. The primary lending activity of
Sentinel Federal is the origination of mortgage loans to enable borrowers to
purchase, refinance or construct single family homes. Management believes that
thE policy of focusing on one- to four-family residential mortgage loans has
been successful in contributing to interest income while keeping delinquencies
and losses to a minimum. At June 30, 1996,
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approximately $75.9 million, or 91.8%, of Sentinel Federal's total loan
portfolio consisted of loans secured by one-to four-family residential real
estate.
Sentinel Federal presently originates both fixed and adjustable rate
mortgage loans secured by one - to -four family properties with loan terms of 15
to 30 years. In 1985, Sentinel Federal began originating adjustable rate
mortgage ("ARM") loans indexed to various indices. Until 1989 Sentinel Federal
used primarily the monthly media cost of funds index. Since 1989, all ARMs have
been indexed to the U.S. Treasury Index, with margins ranging from 250% to 300%
over the index, repricing annually with no negative amortization. Sentinel
Federal also originates adjustable rate loans that adjust after either the third
or fifth year and thereafter adjust annually. Minimum and maximum lifetime rates
are established based on competitive factors at the time of origination and
collateral type. Borrower demand for ARMs versus fixed rate mortgage loans is a
function of the level of interest rates, the expectations of changes in the
level of interest rates and the difference between the interest rates and loan
fees offered for fixed rate mortgage loans and the first year interest rates and
loan fees for ARMs. The relative amount of fixed rate mortgage loans and ARMs
that can be originated at any time is largely determined by the demand for each
in a competitive environment.
Additionally, all of Sentinel Federal's adjustable rate loans using the
U.S. Treasury one year constant maturity index contain provisions allowing
conversion of the loan to a fixed rate loan, subject to certain qualifying
conditions. While this particular feature permits the borrower to convert to a
fixed rate loan, Sentinel Federal has not experienced significant prepayment as
a result of this option. Converted loans that do not meet Sentinel Federal's
yield requirements are sold to the FHLMC to limit interest rate risk.
During the year ended June 30, 1996, Sentinel Federal's total mortgage loan
originations were $29.3 million, of which 18.2% were subject to periodic
interest rate adjustments and 81.8% were long-term, fixed rate loans. See "--
Loan Originations, Sales and Purchases."
Sentinel Federal's long-term, fixed-rate loans are originated with terms of
15 to 30 years, amortized on a monthly basis with principal and interest due
each month. At June 30, 1996, Sentinel Federal had $38.4 million of long-term,
fixed-rate mortgage loans in its portfolio, or 46.4% of its total loan
portfolio.
Sentinel Federal also engages in mortgage banking activities. These
activities include the origination and sale of whole loans to investors and the
FHLMC. Loans are sold to generate fee income and maintain market share. During
the fiscal years ended June 30, 1994, 1995 and 1996, Sentinel Federal sold $6.6
million, $3.6 million and $11.5 million of originated loans, respectively.
Sentinel Federal offers ARMs at market rates that may be below the fully
indexed rate. At June 30, 1996, the initial interest rate being offered on
Sentinel Federal's ARMs ranged from 5.25% to 5.75% per annum. The periodic
interest rate cap (the maximum amount by which the interest rate may be
increased or decreased in a given period) on Sentinel Federal's ARMs is
generally 200 basis points annually and the lifetime interest rate cap is
generally 600 basis points over the initial interest rate of the loan. Sentinel
Federal underwrites ARMs based on the borrower's ability to repay the loan using
the first year adjusted rate to qualify the borrower or second year adjusted
rate to qualify the borrower at fully indexed rates based on various
underwriting criteria. As a result, the potential for delinquencies and
defaults on ARMs is lessened.
Sentinel Federal's fixed rate loan portfolio contains due-on-sale clauses
providing that Sentinel Federal may declare the unpaid amount due and payable
upon the sale of the property securing the loan. Sentinel Federal enforces
these due-on-sale clauses to the extent permitted by law. Thus, average loan
maturity (which Sentinel Federal estimates is between eight to ten years) is a
function of, among other factors, the level of purchase and sale activity in the
real estate market, prevailing interest rates and the interest rates payable on
outstanding loans.
Sentinel Federal requires title insurance insuring the status of its lien
on all of the real estate secured loans, and also requires that fire and
extended coverage casualty insurance (and, if appropriate, flood insurance) be
maintained in an amount at least equal to the lesser of the loan balance or the
replacement cost of the improvements. Where the value of the land, exclusive of
the improvements, exceeds the amount of the loan on the real estate, Sentinel
Federal may make exceptions to its property insurance requirements.
46
<PAGE>
Multi-Family Loans. In addition to originating single-family residential
real estate loans, Sentinel Federal also originates loans secured by multi-
family dwelling units (five or more units). At June 30, 1996, Sentinel
Federal's total multi-family loans were $2.7 million, or 3.2% of Sentinel
Federal's total loan portfolio, secured by multi-family dwelling units located
in Sentinel Federal's primary market area. The loan-to-value and equity
standards imposed by Sentinel Federal are determined on a case-by-case basis.
Loans secured by multi-family residential real estate are generally larger and
involve a greater degree of risk than single-family residential mortgage
loans.
Certain types of lending are considered to be more risk adverse than others
and, in determination of an institution's capital ratios, are accorded a lower
risk weight. The effect of applying this lower rate of risk is to reduce the
capital requirements for the amount of the particular loan. For instance, a
loan with a 100% risk weight requires that the institution satisfy the full
capital requirement for such lending; whereas a loan with a 50% risk weight
needs only one-half the capital of the 100% weighted loan. Since the lower risk
weights are accorded to more secure lending, this weighting encourages safe,
non-speculative lending.
Multi-family housing loans are normally assigned a 100% risk weight by
federal regulations. However, OTS regulations assign a 50% risk weight to
"qualifying multi-family mortgage loans," i.e., loans with an existing property
having five to 36 dwelling units with an initial loan-to-value ratio of not more
than 80% where an average annual occupancy rate of 80% or more has existed for
at least one year. See "Regulation -- Federal Regulation of Savings
Associations -- Capital Requirements."
Multi-family lending is generally considered to involve a higher degree of
risk than permanent residential one - to - four family lending. Such lending
typically involves large loan balances concentrated in a single borrower or
groups of related borrowers. In addition, the payment experience on loans
secured by income-producing properties is typically dependent on the successful
operation of the related real estate project and thus may be subject to a
greater extent to adverse conditions in the real estate market or in the economy
generally. Sentinel Federal generally attempts to mitigate the risks associated
with multi-family lending by, among other things, lending on collateral located
in its market area and generally to individuals who reside in its market.
Construction Loans. Sentinel Federal originates residential construction
mortgage loans to residential owner-occupants (custom construction loans) and to
local contractors building residential properties for resale (speculative
construction loans). At June 30, 1996, Sentinel Federal had construction loans
of $1.6 million outstanding.
Construction lending is generally considered to involve a higher degree of
credit risk than long-term financing of residential properties. An
institution's risk of loss on a construction loan is dependent largely upon the
accuracy of the initial estimate of the property's value at completion of
construction or the borrower's ability to absorb additional expenses in the
event that costs to complete construction are in excess of the initial cost
estimate. If the estimate of construction cost and the marketability of the
property upon completion of the project prove to be inaccurate, the institution
may be compelled to advance additional funds to complete the structure. If
estimated costs or value proves to be inaccurate, the institution may be
confronted with a property as collateral which is insufficient to assure full
repayment.
Commercial Real Estate Loans. Sentinel Federal had $2.6 million in
commercial real estate loans at June 30, 1996. Sentinel Federal's commercial
loan activity is limited in scope and activity at this time.
47
<PAGE>
Loan Maturity and Repricing. The following table sets forth certain information
at June 30, 1996 regarding the dollar amount of loans maturing or repricing in
Sentinel Federal's portfolio based on their contractual terms to maturity, but
does not include scheduled payments or potential prepayments. Demand loans,
loans having no stated schedule of repayments and no stated maturity, and
overdrafts are reported as due in one year or less. Loan balances do not include
undisbursed loan proceeds, unearned discounts, unearned income and allowance for
loan losses.
<TABLE>
<CAPTION>
WITHIN AFTER ONE YEAR AFTER 3 YEARS AFTER 5 YEARS
ONE YEAR THROUGH 3 YEARS THROUGH 5 YEARS THROUGH 10 YEARS BEYOND 10 YEARS TOTAL
------------- ------------------ ----------------- ------------------ ----------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Real estate mortgage..... $ 2 $1,622 $ 701 $5,343 $69,751 $77,419
Commercial real estate... --- 500 --- 1,312 764 2,576
Construction............. 893 --- --- --- 734 1,627
Automobile............... 3 35 100 --- --- 138
Savings account loans.... 220 91 24 --- --- 335
Other.................... 6 126 390 1,115 314 1,951
------ ------ ------ ------ ------- -------
Total loans......... $1,124 $2,374 $1,215 $7,770 $71,563 $84,046
====== ====== ====== ====== ======= =======
</TABLE>
The following table sets forth the dollar amount of all loans due after
June 30, 1997 which have fixed interest rates and have floating or adjustable
interest rates.
<TABLE>
<CAPTION>
FIXED- FLOATING - OR
RATES ADJUSTABLE-RATES
------------- ---------------------
(IN THOUSANDS)
<S> <C> <C>
Real estate mortgage....... $33,986 $43,431
Commercial real estate..... 1,939 637
Construction............... 140 594
Automobile................. 135 ---
Savings account loans...... 115 ---
Other...................... 1,945 ---
------- -------
Total................. $38,260 $44,662
======= =======
</TABLE>
48
<PAGE>
Loan Solicitation and Processing. Sentinel Federal's primary sources of
loans include referrals, brokers, contractors, repeat business from existing and
former borrowers.
Once an application for a mortgage loan is received by Sentinel
Federal, a credit and property analysis is completed, including obtaining a
credit report from reporting agencies, verification of income and deposits, and
asset and liabilities. An appraisal of the property offered as collateral is
undertaken by a fee appraiser approved by Sentinel Federal and licensed or
certified by the State of Missouri.
The completed loan file is then submitted for underwriting. Once
underwritten, the loan is submitted to the appropriate committee for review and
approval. Single-family residential loans up to $250,000 may be approved by the
Loan Committee. Approval of the Board of Directors is required for Sentinel
Federal to make a loan in excess of $250,000.
Loan Originations, Sales and Purchases. Sentinel Federal originates fixed-
and adjustable-rate residential mortgage loans that meet or exceed the
applicable underwriting requirements of Sentinel Federal or FNMA and FHLMC. In
addition, as a portfolio lender, Sentinel Federal also originates fixed and
adjustable-rate loans that are underwritten to Sentinel Federal's standards, but
may not immediately qualify for sale in the secondary market.
The following table shows total loans originated, purchased, sold and
repaid during the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------
1994 1995 1996
---------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Total loans at beginning of period........ $ 80,563 $72,850 $ 81,875
Loans originated:
Single-family residential................ 18,364 19,121 28,120
Multi-family residential and --- 1,491 500
commercial real estate..................
Other loans.............................. 129 578 676
-------- ------- --------
Total loans originated................. 18,493 21,190 29,296
Loans sold................................ (6,518) (3,636) (11,482)
Loan principal repayments................. (19,688) (8,529) (15,643)
-------- ------- --------
Net loan activity (7,713) 9,025 2,171
-------- ------- --------
Total loans at end of period $ 72,850 $81,875 $ 84,046
======== ======= ========
</TABLE>
Loan Commitments. Sentinel Federal issues commitments for fixed- and
adjustable-rate single-family residential mortgage loans conditioned upon the
occurrence of certain events. Such commitments are made on specified terms and
conditions and are honored for up to 180 days from approval. Sentinel Federal
had outstanding net loan commitments of approximately $1.2 million at June 30,
1996.
Loan Origination and Other Fees. Sentinel Federal, in most instances,
receives loan origination fees which are a percentage of the principal amount of
the mortgage loan charged to the borrower for funding the loan. The amount of
points charged by Sentinel Federal varies, though the range generally is between
one and two and one half points. Current accounting standards require fees
received (net of certain loan origination costs) for originating loans to be
deferred and amortized into interest income over the contractual life of the
loan. Net deferred fees associated with loans that are sold are recognized as
an adjustment to gain or loss at the time of sale. On loans not sold, Sentinel
Federal had $91,400 of net deferred loan fees at June 30, 1996.
Delinquencies. A report containing delinquencies of all loans is reviewed
monthly by the Board of Directors of Sentinel Federal. Procedures taken with
respect to delinquent loans differ depending on the particular circumstances of
the loan. Sentinel Federal's procedures provide that when a loan becomes
delinquent, the borrower is contacted, usually by phone, within 15 to 30 days.
When the loan is over 30 days delinquent, the borrower is
49
<PAGE>
contacted in writing. Typically, Sentinel Federal will initiate foreclosure
action against the borrower when principal and interest become 90 days or more
delinquent. In any event, interest income is reduced by the full amount of
accrued and uncollected interest on most loans once they become 90 days
delinquent, go into foreclosure or are otherwise determined to be uncollectible.
An allowance for loss is established when, in the opinion of management, the net
fair value of the property collateralizing the loan is less than the outstanding
principal and the collectibility of the loan's principal becomes uncertain. In
some instances, the collateral underlying residential and commercial real estate
loans in Sentinel Federal's portfolio has been insufficient to cover the book
value and cost of selling the property. As of June 30, 1996, Sentinel Federal
had $168,000 of loans accounted for on a nonaccrual basis (i.e., loans upon
which management believes the future collectibility of interest is
uncertain).
The following table sets forth information with respect to Sentinel
Federal's nonperforming assets at the dates indicated. At the dates shown,
Sentinel Federal had no restructured loans within the meaning of Statement of
Financial Accounting Standards No. 15, Accounting by Debtors and Creditors of
Troubled Debt Restructurings.
<TABLE>
<CAPTION>
AT JUNE 30,
---------------------------------------
1992 1993 1994 1995 1996
------- ------ ------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Loans accounted for on a
nonaccrual basis:
Real estate - Residential.......... $ 657 $ 508 $ 243 $ 14 $ 168
------ ----- ----- ----- -----
Total........................... 657 508 243 14 168
Accruing loans which are
contractually past due 90 days
or more:
Real estate - Residential.......... 82 --- 28 121 47
------ ----- ----- ----- -----
Total.......................... 82 --- 28 121 47
------ ----- ----- ----- -----
Total of nonaccrual and 90 days
past due loans....................... 739 508 271 135 215
Real estate owned (net) 741 104 --- --- ---
------ ----- ----- ----- -----
Total nonperforming assets......... $1,480 $ 612 $ 271 $ 135 $ 215
====== ===== ===== ===== =====
Total loans delinquent 90 days
or more to net loans................ 0.77% 0.64% 0.14% 0.17% 0.26%
Total loans delinquent 90 days
or more to total assets.............. 0.46% 0.32% 0.07% 0.08% 0.15%
Total nonperforming assets
to total assets...................... 0.92% 0.39% 0.18% 0.08% 0.12%
</TABLE>
Interest income that would have been recorded for the year ended June 30,
1996 had nonaccruing loans been current in accordance with their original terms
amounted to approximately $168,100. The amount of interest included in the
results of operations on such loans for the year ended June 30, 1996 amounted to
approximately $6,300.
Asset Classifications. The OTS has adopted regulations that require each
insured savings association to review and classify its assets on a regular
basis. In addition, in connection with examinations of insured institutions,
OTS examiners have authority to identify problem assets and, if appropriate,
require them to be classified. There are three classifications for problem
assets: substandard, doubtful and loss. Substandard assets must have one or
50
<PAGE>
more defined weaknesses and are characterized by the distinct possibility that
the insured institution will sustain some loss if the deficiencies are not
corrected. Doubtful assets have the weaknesses of substandard assets with the
additional characteristic that the weaknesses make collection or liquidation in
full on the basis of currently existing facts, conditions and values
questionable, and there is a high possibility of loss. An asset classified loss
is considered uncollectible and of such little value that its continuance as an
asset of the institution is not warranted. Assets classified as substandard or
doubtful require the institution to establish general allowances for these asset
losses. If an asset or portion thereof is classified loss, the insured
institution must either establish specific allowances for the portion of the
asset classified as loss in the amount of 100% of the portion of the asset
classified loss or charge off such amount. A portion of general loss allowances
established to cover possible losses related to assets classified substandard or
doubtful may be included in determining an institution's regulatory capital,
while specific valuation allowances for loan losses generally do not qualify as
regulatory capital.
At June 30, 1995 and 1996 the aggregate amounts of Sentinel Federal's
classified assets, and of Sentinel Federal's general and specific loss
allowances and charge-offs for the period then ended, were as follows:
<TABLE>
<CAPTION>
AT JUNE 30,
--------------------------
1995 1996
------------ -----------
(IN THOUSANDS)
<S> <C> <C>
Doubtful....................... $ --- $ ---
Substandard assets............. --- ---
Special mention................ 58 ---
General loss allowances........ 318 319
Specific loss allowances....... --- ---
</TABLE>
Real Estate Owned. Real estate acquired by Sentinel Federal as a
result of foreclosure or by deed in lieu of foreclosure is classified as real
estate owned until it is sold. When property is acquired it is recorded at the
lower of the cost or fair value. At June 30, 1996, Sentinel Federal had no
properties classified as real estate owned.
Allowance for Loan Losses. It is management's policy to maintain adequate
allowances for estimated losses on known and inherent risks in the loan
portfolio. Generally, the allowances are based on, among other things, the size
and composition of the loan portfolio, historical loan loss experience,
evaluation of economic conditions in general and in various sectors of Sentinel
Federal's customer base, detailed analysis of individual loans for which
collectibility may not be assured and determination of the existence and
realizable value of the collateral and guarantees securing the loan.
Sentinel Federal's management evaluates the need to establish an allowance
for loan losses based on a review of all loans for which full collectibility may
not be reasonably assured and considers, among other matters, the estimated
market value of the underlying collateral of problem loans, prior loss
experience, economic conditions and overall portfolio quality. These provisions
for losses are charged against income in the year they are established.
Sentinel Federal believes it has established its existing allowance for
loan losses in accordance with generally accepted accounting principles ("GAAP")
as of June 30, 1996. However, there can be no assurance that the loan portfolio
in the future will not require Sentinel Federal to increase its allowance for
loan losses, thereby adversely affecting the financial condition and
earnings.
51
<PAGE>
The following table sets forth the breakdown of the allowance for loan
losses by loan category at the dates indicated.
<TABLE>
<CAPTION>
AT JUNE 30,
----------------------------------------------------------------------
1994 1995 1996
------------------------- -------------------- ---------------------
% OF % OF % OF
LOANS IN LOANS IN LOANS IN
EACH EACH EACH
CATEGORY CATEGORY CATEGORY
TO TOTAL TO TOTAL TO TOTAL
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
--------- ---------- -------- --------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Real estate -- mortgage:
Residential...................... $ 51 98% $ 38 94% $ 37 92%
Commercial....................... 17 1 49 3 52 3
Construction..................... 1 --- 12 1 16 2
Consumer.......................... 2 1 5 2 10 3
Unallocated....................... 247 N/A 214 N/A 204 N/A
----- ----- ----- ------ ----- ------
Total allowance for $318 100% $318 100% $319 100%
loan losses................... ===== ===== ===== =====
</TABLE>
The following table sets forth an analysis of Sentinel Federal's gross
allowance for possible loan losses for the periods indicated. Where specific
loan loss reserves have been established, any difference between the loss
reserve and the amount of loss realized has been charged or credited to current
income.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Allowance at beginning of period.. $ 155 $ 147 $ 278 $ 318 $ 318
----- ----- ----- ----- -----
Provision for loan losses......... 27 154 42 --- ---
----- ----- ----- ----- -----
Recoveries:
Residential real estate.......... --- --- --- --- 1
Commercial real estate........... --- --- --- --- ---
Consumer......................... --- --- --- --- ---
----- ----- ----- ----- -----
Total recoveries............... --- --- --- --- 1
----- ----- ----- ----- -----
Charge-offs:
Residential real estate.......... 27 23 2 --- ---
Commercial real estate........... --- --- --- --- ---
Construction..................... --- --- --- --- ---
Consumer......................... 8 --- --- --- ---
----- ----- ----- ----- -----
Total charge-offs.............. 35 23 2 --- ---
----- ----- ----- ----- -----
Net charge-offs................ 35 23 2 --- (1)
----- ----- ----- ----- -----
Balance at end of period...... $ 147 $ 278 $ 318 $ 318 $ 319
===== ===== ===== ===== =====
Ratio of allowance to total
loans outstanding at the
end of the period................ 0.15% 0.15% 0.44% 0.39% 0.39%
Ratio of net charge-offs to
average loans outstanding
during the period................ 0.08 0.04 --- --- ---
</TABLE>
52
<PAGE>
INVESTMENT ACTIVITIES
Federally chartered savings institutions have authority to invest in
various types of liquid assets, including U.S. Treasury obligations, securities
of various federal agencies and of state and municipal governments, deposits at
the FHLB, certificates of deposit of federally insured institutions, certain
bankers' acceptances and federal funds. Subject to various restrictions, such
savings institutions may also invest a portion of their assets in commercial
paper, corporate debt securities and mutual funds, the assets of which conform
to the investments that federally chartered savings institutions are otherwise
authorized to make directly. Savings institutions are also required to maintain
minimum levels of liquid assets which vary from time to time. See "Regulation -
- - Federal Regulation of Savings Associations -- Federal Home Loan Bank System."
Sentinel Federal may decide to increase its liquidity above the required levels
depending upon the availability of funds and comparative yields on investments
in relation to return on loans.
The Board of Directors of Sentinel Federal sets the investment policy of
Sentinel Federal. This policy dictates that investments will be made with the
intent of holding them to maturity and will be made based on the safety of the
principal amount, liquidity requirements of Sentinel Federal and the return on
the investments. Sentinel Federal's policy does not permit investment in non-
investment grade bonds. It permits investment in various types of liquid assets
permissible under OTS regulation, which include U.S. Treasury obligations,
securities of various federal agencies, certain certificates of deposits of
insured banks, repurchase agreements and federal funds.
To supplement lending activities in periods of deposit growth, declining
loan demand or significant prepayments, Sentinel Federal has invested in
residential mortgage-related securities. Although such securities are held for
investment, they can serve as collateral for borrowings and, through repayments,
as a source of liquidity. For information regarding the carrying and market
values of Sentinel Federal's mortgage-related securities portfolio, see Note 4
of the Notes to Consolidated Financial Statements of Sentinel contained in this
Proxy Statement/Prospectus. Sentinel Federal generally invests in mortgaged-
backed securities guaranteed by the FHLMC and the FNMA.
As of June 30, 1996, Sentinel Federal's portfolio included $51.5 million of
mortgage-related securities purchased as investments to supplement Sentinel
Federal's mortgage lending activities. All mortgage-related securities are
comprised of adjustable-rates. As of June 30, 1996, Sentinel Federal owned no
collateralized mortgage obligations.
Sentinel Federal also invests in government bonds and agency securities
insured by a government-sponsored agency. Since 1989, Sentinel Federal has
focused its investment activity on the purchase of short-term or adjustable-rate
instruments. Management intends to continue to concentrate investments in
adjustable rate products subject to adequate liquidity and investment margins.
As a result of this activity, as of June 30, 1996, over 97.5% of Sentinel
Federal's mortgage-related investments, including portfolio single-family loans,
were adjustable in nature.
Sentinel Federal's investment portfolio is an important component of
Sentinel Federal's overall operations. The portfolio is segregated by the
intended holding period of a particular investment in accordance with Sentinel
Federal's policy, GAAP and applicable federal regulations. As of June 30, 1996,
all of Sentinel Federal's mortgage-related portfolio were classified as held to
maturity. Sentinel Federal has also invested from time to time in assets
classified as available for sale. Such securities are generally adjustable rate
in nature or have relatively short maturities. All investments are extensively
monitored on a regular basis with current market valuation reviewed at least
quarterly. By internal policy, Sentinel Federal limits assets available for
sale to 15% of total assets and a stop loss limit of $250,000 applies to all
assets in this category.
Investment decisions are approved by the Asset Liability Committee of the
Board of Directors of Sentinel Federal which meets on a regular basis. The
Asset Liability Committee acts within policies established by the Board of
Directors of Sentinel Federal.
53
<PAGE>
The following table sets forth Sentinel Federal's investment securities
portfolio at carrying value at the dates indicated.
<TABLE>
<CAPTION>
AT JUNE 30,
----------------------------------------------------------------------------------------
1994 1995 1996
-------------------------------- ------------------------------ ------------------------
CARRYING PERCENT OF CARRYING PERCENT OF CARRYING PERCENT OF
VALUE(1) PORTFOLIO VALUE(1) PORTFOLIO VALUE(1) PORTFOLIO
----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Held to maturity:
FNMA...................................... $45,648 59.55% $44,159 60.89% $32,838 60.13%
FHLMC..................................... 27,331 35.66 24,714 34.08 18,629 34.11
U.S. Government treasury and
obligations of U.S. Government
agencies................................ 2,494 3.25 2,498 3.44 2,000 3.66
Other..................................... 117 0.15 67 0.09 53 0.10
------- ------ ------- ------ ------- ------
Total held to maturity.................. 75,590 98.62 71,439 98.51 53,520 98.00
Available for sale:
U.S. Government treasury
and obligations of U.S.
Government agencies...................... 1,058 1.38 1,083 1.49 1,093 2.00
Other..................................... 3 --- --- --- --- ---
------- ------ ------- ------ ------- ------
Total available for sale................ 1,061 1.38 1,083 1.49 1,093 2.00
------- ------ ------- ------ ------- ------
Total................................. $76,651 100.00% $72,522 100.00% $54,613 100.00%
======= ====== ======= ====== ======= ======
</TABLE>
The table below sets forth certain information regarding the carrying
value, weighted average yields and maturities or periods to repricing of
Sentinel Federal's investment and mortgage-backed securities at June 30,
1996.
<TABLE>
<CAPTION>
AMOUNT DUE OR REPRICING WITHIN:
OVER ONE TO
ONE YEAR OR LESS FIVE YEARS
-------------------------- ----------------------------
WEIGHTED WEIGHTED
CARRYING AVERAGE CARRYING AVERAGE
VALUE YIELD VALUE YIELD
-------------- ------------- ------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Held to maturity:
FNMA................................ $32,838 6.95% $ --- ---%
FHLMC............................... 17,352 6.86 1,277 5.23
U.S. Government treasury and
obligations of U.S. Government
agencies.......................... 2,000 4.78 --- ---
Other............................... 53 3.17 --- ---
------- ----- -------- --------
Total held to maturity............ 52,243 6.84 1,277 5.23
Available for sale:
U.S. Government treasury
and obligations of U.S.
Government agencies................ 1,093 4.58 --- ---
------- ------ ------- --------
Total available for sale.......... 1,093 4.58 --- ---
------- ------ -------- --------
Total........................... $53,336 6.79% $1,277 5.23%
======= ====== ======== ========
</TABLE>
DEPOSIT ACTIVITIES AND OTHER SOURCES OF FUNDS
54
<PAGE>
General. Sentinel Federal's primary sources of funds are deposits, FHLB
advances, proceeds from principal and interest payments on loans and mortgage-
related securities and proceeds from loan sales. Deposits and loan repayments
are the major source of Sentinel Federal's funds for lending and other
investment purposes. Loan repayments are a relatively stable source of funds,
while deposit inflows and outflows and loan prepayments are significantly
influenced by general level of interest rates and money market conditions.
Borrowings may be used on a short-term basis to compensate for reductions in the
availability of funds from other sources, or on a longer term basis for interest
rate risk management.
Deposit Accounts. Sentinel Federal's goal for savings activity is to
retain its current deposit base while attempting to reduce the overall cost of
the current deposit base. Any deposit growth is limited to not more than
interest credited or the total balance sheet projection in Sentinel Federal's
original Capital Plan and the amount of interest credited as required under the
Supervisory Agreement, each of which are discussed above. See "--General."
Sentinel Federal offers a variety of deposit accounts having a range of interest
rates and terms. Sentinel Federal's deposits consist of passbook, money market,
and certificate accounts. The flow of deposits is influenced significantly by
general economic conditions, changes in the money market and prevailing interest
rates, and competition. The interest rates Sentinel Federal pays on its
deposits is determined at least weekly and is based on market conditions.
Sentinel Federal relies primarily on customer service and long-standing
relationships with customers to attract and retain these deposits. Individual
certificate accounts in excess of $100,000 are not actively solicited by
Sentinel Federal or by any agent or broker acting on behalf of Sentinel Federal
nor does Sentinel Federal pay substantially higher interest rates on such
accounts.
In the unlikely event Sentinel Federal is liquidated, depositors will be
entitled to full payment of their deposit accounts prior to any payment being
made to the shareholders. The majority of Sentinel Federal's depositors are
residents of the State of Missouri.
The following table sets forth information concerning Sentinel Federal's
time deposits and other interest-bearing deposits at June 30, 1996.
<TABLE>
<CAPTION>
PERCENTAGE
INTEREST MINIMUM OF TOTAL
RATE TERM CATEGORY AMOUNT BALANCE DEPOSITS
- ---------- ------------- ---------------- --------------------- -------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
2.50% None NOW Accounts $ 100 $ 2,985 2.42%
Money Market and
4.40 None Super NOW Accounts 1,000 19,051 15.46
Statement, Christmas
2.72 None Club, Passbook 50, 20, 50 8,817 7.15
Certificates of Deposit
-----------------------
2.72 90 Days 90-day passbook 500 -- --
5.14 4 - 6 Months Fixed term, fixed rate 500 10,609 8.61
5.30 7 -12 Months Fixed term, fixed rate 500 19,443 15.77
5.30 13 - 24 Months Fixed term, fixed rate 500 10,967 8.90
5.87 25 - 48 Months Fixed term, fixed rate 500 20,121 16.33
5.63 49 - 120 Months Fixed term, fixed rate 500 31,261 25.36
-------- ------
$123,253 100.00%
======== ======
</TABLE>
As of June 30, 1996, Sentinel Federal did not have any "jumbo" certificates
of deposit (i.e., certificate of deposits with minimum balances of $100,000 and
negotiable interest rates).
55
<PAGE>
Deposit Flow. The following table sets forth the balances of savings
deposits in the various types of savings accounts offered by Sentinel Federal at
the dates indicated.
<TABLE>
<CAPTION>
AT JUNE 30,
----------------------------------------------------------------------------------
1994 1995 1996
------------------- --------------------------------- ----------------------------
PERCENT PERCENT PERCENT
OF OF INCREASE OF INCREASE
AMOUNT TOTAL AMOUNT TOTAL (DECREASE) AMOUNT TOTAL (DECREASE)
-------- -------- -------- -------- ---------- -------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Non-interest-bearing................. $ --- ---% $ --- ---% $ --- $ --- ---% $ ---
NOW checking......................... 3,178 2.42 3,236 2.56 58 2,985 2.42 (251)
Regular savings accounts............. 11,751 8.66 10,395 8.22 (1,356) 8,817 7.15 (1,578)
Money market deposit................. 20,385 15.50 18,564 14.68 (1,821) 19,051 15.46 487
Fixed-rate certificates which
mature in the year ending:
Within 1 year...................... 47,548 36.43 43,807 34.65 (3,741) 54,495 44.21 10,688
After 1 year, but within 2 years... 18,691 14.21 23,759 18.79 5,068 20,219 16.40 (3,540)
After 2 years, but within 5 years.. 29,480 22.42 22,760 18.00 (6,720) 14,653 11.89 (8,107)
Certificates maturing thereafter... 471 0.36 3,919 3.10 3,448 3,033 2.46 (886)
-------- ------ -------- ------ ------- -------- ------ -------
Total........................... $131,504 100.00% $126,440 100.00% $(5,064) $123,253 100.00% $(3,187)
======== ====== ======== ====== ======= ======== ====== =======
</TABLE>
56
<PAGE>
The following table sets forth the savings activities of Sentinel Federal
for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------
1994 1995 1996
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Beginning balance........... $138,585 $131,504 $126,440
-------- -------- --------
Net (decrease) before
interest credited.......... (13,219) (10,189) (8,275)
Interest credited........... 6,138 5,125 5,088
-------- -------- --------
Net (decrease)
in savings deposits........ (7,081) (5,064) (3,187)
-------- -------- --------
Ending balance.............. $131,504 $126,440 $123,253
======== ======== ========
</TABLE>
Time Deposits by Rates. The following table sets forth the time deposits
in Sentinel Federal classified by rates as of the dates indicated.
<TABLE>
<CAPTION>
AT JUNE 30,
--------------------------
1994 1995 1996
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
5.00% and below........... $56,679 $22,064 $ 6,256
5.01 - 6.00%.............. 10,585 25,583 49,134
6.01 - 7.00%.............. 12,032 32,519 26,750
7.01 - 11.00%............. 16,848 14,078 10,260
11.01 - 13.00%............ 46 --- ---
------ ------ ------
Total................ $96,190 $94,244 $92,400
======= ======= =======
</TABLE>
The following table sets forth the amount and maturities of time deposits
at June 30, 1996.
<TABLE>
<CAPTION>
AMOUNT DUE
--------------------------------------------------
LESS THAN 1-2 2-3 3-4 AFTER
ONE YEAR YEARS YEARS YEARS 4 YEARS TOTAL
-------- ----- ----- ----- ------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
5.00% and below................ $ 5,677 $ 362 $ 217 $ --- $ --- $ 6,256
5.01 - 6.00%................... 32,454 9,663 4,858 937 1,222 49,134
6.01 - 7.00%................... 13,835 6,426 820 2,460 3,209 26,750
7.01 - 11.00%.................. 2,529 3,768 2,537 619 807 10,260
------- ------- ------ ------ ------ -------
Total.. $54,495 $20,219 $8,432 $4,016 $5,238 $92,400
======= ======= ====== ====== ====== =======
</TABLE>
57
<PAGE>
Borrowings. Savings deposits are the primary source of funds for Sentinel
Federal's lending and investment activities and for its general business
purposes. Sentinel Federal has in the past, however, relied upon advances from
the FHLB-Des Moines to supplement its supply of lendable funds and to meet
deposit withdrawal requirements. The FHLB-Des Moines has served as one of
Sentinel Federal's primary borrowing sources. Advances from the FHLB-Des Moines
are typically secured by Sentinel Federal's mortgage-backed securities which is
held by Sentinel Federal. At June 30, 1996, Sentinel Federal had $7.0 million
in advances from the FHLB-Des Moines.
The FHLB functions as a central reserve bank providing credit for savings
and loan associations and certain other member financial institutions. As a
member, Sentinel Federal is required to own capital stock in the FHLB and is
authorized to apply for advances on the security of such stock and certain of
its mortgage loans and other assets (principally securities which are
obligations of, or guaranteed by, the United States) provided certain standards
related to creditworthiness have been met. Advances are made pursuant to several
different programs. Each credit program has its own interest rate and range of
maturities. Depending on the program, limitations on the amount of advances are
based either on a fixed percentage of an institution's net worth or on the
FHLB's assessment of the institution's creditworthiness. The FHLB-Des Moines
determines specific lines of credit for each member institution.
The following table sets forth certain information regarding borrowed funds
for the dates indicated:
<TABLE>
<CAPTION>
AT OR FOR THE YEAR
ENDED JUNE 30,
----------------------------
1994 1995 1996
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
FHLB-Des Moines advances:
Average balance outstanding............ $ 9,471 $16,150 $13,483
Maximum amount outstanding at any
month end during the period........... 11,000 21,850 21,450
Balance outstanding at end of period... 10,450 21,850 7,000
Weighted average interest rate during
the period............................ 6.77% 6.48% 5.44%
Weighted average interest rate at the
end of period......................... 5.42 6.26 6.11
</TABLE>
SUBSIDIARIES
Sentinel Insurance Agency, Inc. ("Sentinel Insurance") is a wholly-owned
subsidiary of Sentinel Federal. As of June 30, 1996, Sentinel Federal's equity
investment in the subsidiary was approximately $5,000. Currently, the only
activity of Sentinel Insurance is the sale of tax deferred annuities. Sentinel
Insurance sold its remaining book of property and casualty insurance during
fiscal 1993, which represented an insignificant portion of its insurance
operations. For the years ended June 30, 1994, 1995 and 1996 sales of annuities
resulted in additional income from insurance commissions of $163,000, $101,000
and $39,000, respectively.
Claywood Financial Services, Sentinel Federal's other wholly-owned
subsidiary, is inactive.
COMPETITION
Sentinel Federal competes for both loans and deposits. The Kansas City
area has a high density of financial institutions, some of which are larger and
have greater financial resources than Sentinel Federal, and all of which are
competitors of Sentinel Federal to varying degrees. Sentinel Federal faces
significant competition both in making mortgage loans and attracting deposits.
Sentinel Federal's competition for loans comes principally from savings and loan
associations, savings banks, mortgage banking companies, insurance companies and
commercial banks. Its most direct competition for deposits has historically
come from savings and loan associations, commercial banks, and credit unions.
Sentinel Federal faces additional competition for deposits from short-term money
market funds and other corporate and government securities.
58
<PAGE>
PERSONNEL
As of June 30, 1996, Sentinel Federal had 32 full-time employees and 1
part-time employees. Sentinel Federal believes that employees play a vital role
in the success of a service company and that Sentinel Federal's relationship
with its employees is good. The employees are not represented by a collective
bargaining unit.
59
<PAGE>
PROPERTIES OF SENTINEL FINANCIAL CORPORATION
Sentinel Federal's main office is owned by Sentinel Federal and is located at
1001 Walnut Street, Kansas City, Missouri 64106. Sentinel Federal has one
branch office in North Kansas City, Missouri, which is leased. The lease
expires on December 31, 1997. At June 30, 1996, the net book value of Sentinel
Federals property, fixtures, furniture and equipment was $363,000.
LEGAL PROCEEDINGS INVOLVING SENTINEL FINANCIAL CORPORATION AND
SENTINEL FEDERAL SAVINGS AND LOAN ASSOCIATION OF KANSAS CITY
Periodically, there have been various claims and lawsuits involving
Sentinel or Sentinel Federal as a defendant, such as claims to enforce liens,
condemnation proceedings on properties in which Sentinel or Sentinel Federal
holds security interests, claims involving the making and servicing of real
property loans and other issued incident to Sentinel Federal's business. In the
opinion of management of Sentinel and Sentinel and Sentinel Federal's legal
counsel, no significant loss is expected from any of such pending claims or
lawsuits.
60
<PAGE>
MANAGEMENT'S PROCEEDINGS INVOLVING SENTINEL FINANCIAL CORPORATION AND
SENTINEL FEDERAL SAVINGS AND LOAN ASSOCIATION OF KANSAS CITY
GENERAL
Management's discussion and analysis of financial condition and
results of operations is intended to assist in understanding the financial
condition and results of operations of Sentinel. The information contained in
this section should be read in conjunction with the Consolidated Financial
Statements of Sentinel and the accompanying notes contained in this Proxy
Statement/Prospectus.
OPERATING STRATEGY
The primary goal of management is to enhance operations through
increased profitability, while minimizing risk factors. Sentinel's results of
operations are dependent primarily on net interest income, which is the
difference between the income earned on its interest-earning assets, such as
loans and investments, and the cost of its interest-bearing liabilities,
consisting of deposits and borrowings. Sentinel's net income is also affected
by, among other items, fee income, insurance commissions, provisions for loan
losses and operating expenses. Sentinel's results of operations are also
significantly impacted by general economic and competitive conditions,
particularly changes in market interest rates, government policies and local
housing activity.
In guiding the operations of Sentinel, Sentinel's management has
implemented various strategies designed to continue its profitability while
maintaining the safety and soundness of Sentinel. These strategies include: (i)
emphasizing increased production of one- to four-family loans; (ii) controlling
operating expenses; and (iii) improving customer service. Historically,
Sentinel has been predominately a one - to - four family lender. As such, it has
developed expertise in mortgage loan underwriting and origination. Sentinel has
established methods to expand its loan origination through contacts with
realtors, and past and present customers. Sentinel also uses advertising and
community involvement to gain exposure within the communities it operates.
Sentinel emphasizes the origination of adjustable rate mortgage ("ARM") and
fixed rate loans. Loan originations are primarily concentrated in Sentinel's
local community.
At June 30, 1996, Sentinel's ratio of non-performing assets to total
assets was 0.12%. Sentinel continues to remain focused on maintaining acceptable
asset quality through sound underwriting and effective collection
procedures.
Managing the Balance Sheet. Historically, Sentinel has sought to
maintain a stable growth pattern. Since 1989, and the implementation of the
Supervisory Agreement, growth has been significantly restricted. As a result,
Sentinel incurred shrinkage of total assets between June 30, 1988 and June 30,
1996 of 15.5%. This lack of asset growth coupled with improved earnings and the
January 7, 1994 stock conversion has allowed total capital to increase from
1.51% to 7.73% of total assets as of June 30, 1996.
Controlling Operating Expenses. Sentinel monitors its operating
expenses and seeks to control them while maintaining the necessary personnel to
service its customers through its two office locations. Historically, operating
expenses have been kept at or below 1.70% of average assets. During the year
ended June 30, 1996, non-interest expenses averaged 2.19% of average
assets.
Managing Interest-Rate Risk. In order to reduce the impact of
fluctuating interest rates on Sentinel's net interest income, Sentinel's
management utilizes several techniques. These techniques include (i) emphasizing
the origination of adjustable rate loans; (ii) maintaining a short-term
investment portfolio; (iii) investing primarily in adjustable rate mortgage-
related securities; and (iv) lengthening deposit maturities when warranted.
This business strategy is consistent with an operating philosophy that
includes: (i) increasing lending department production and efficiency; (ii)
increasing market share; (iii) and improving customer services; and (iv)
improving Sentinel's retail marketing strategy.
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 1995 AND 1996
61
<PAGE>
Total assets decreased $18.1 million from $161.9 million at June 30,
1995 to $143.8 million at June 30, 1996. Sentinel's asset size primarily
reflects management's focus on mortgage loan production and managed reduction in
the mortgage-backed securities portfolio. Sentinel's net loans receivable
increased $1.7 million from $81.0 million at June 30, 1995 to $82.7 million at
June 30, 1996. During this period, mortgage-related securities decreased $17.4
million.
Total deposits declined moderately during fiscal year 1996 as compared
to June 30, 1995. At June 30, 1995, total deposits were $126.4 million, compared
to $123.3 million at June 30, 1996. This reduction was primarily the result of
management's efforts to reduce the overall cost of deposits, and capital growth
during the period. During fiscal 1996, total account withdrawals exceeded
deposits by $8.3 million. Approximately $5.1 million of interest was credited to
accounts resulting in a net decrease of $3.2 million in total deposits. Advance
balances from the Federal Home Loan Bank ("FHLB") decreased from $21.9 million
at June 30, 1995 to $7.0 million at June 30, 1996.
COMPARISON OF OPERATING RESULTS FOR THE FISCAL YEARS ENDED JUNE 30, 1995 AND
1996
General. Net income for the fiscal year ended June 30, 1996 was
$928,000, compared with $630,000 for fiscal year 1995, representing a 47.3%
increase. The increase was primarily attributable to an income tax benefit
relating to the treatment of net operating loss carry forwards recorded during
the third quarter. Non-interest expense increased $749,000, or 28.7%, during the
year ended June 30, 1996. The increase in non-interest expense was the result of
several unusual items, including merger-related expenses, litigation expenses,
and the recording of a loss reflecting the difference between the amortized cost
and the current fair market value of Sentinel's downtown office building.
Net Interest Income. Net interest income increased $399,000 to $3.5
million for the year ended June 30, 1996, compared with $3.1 million for fiscal
1995. The increase in net interest income reflects an increase in Sentinel's
net interest margin from 1.98% for the year ended June 30, 1995 to 2.28% for the
year ended June 30, 1996. The increase in net interest income is primarily the
result of two areas of operations. First, yields on adjustable-rate loans and
mortgage-related securities repriced upward during the period. Second, a
portion of Sentinel's higher costing longer-term certificates of deposits
matured while the overall deposit mix shifted away from long-term certificates
to intermediate- and shorter-term certificates of deposit, slowing the overall
rise in interest expense.
Interest Income. Interest income for the year ended June 30, 1996 was
$11.0 million, compared with $10.4 million for fiscal 1995, representing an
increase of $600,000, or 5.6%. The average yield on interest-earning assets
increased from 6.69% for the year ended June 30, 1995 to 7.23% for fiscal year
1996. Net loans receivable increased $1.7 million for the year ended June 30,
1996 as a result of higher origination levels. Portfolio loan repayments
increased from $8.5 million during fiscal year ended June 30, 1995 to $16.0
million during the year ended June 30, 1996. During these same periods, total
loan production increased significantly, while portfolio loan production rose
slightly from $17.6 million during the year ended June 30, 1995 to $17.8 million
for the year ended June 30, 1996.
Interest on mortgage-related securities decreased $271,000, or 6.5%,
as a result of a significant decline in the overall balance of the portfolio.
The balance of mortgage-related securities declined from $68.9 million as of
June 30, 1995 to $51.5 million as of June 30, 1996. During the fiscal year ended
June 30, 1996, no additional mortgage-related securities were purchased by
Sentinel.
Income from the investment portfolio decreased $177,000, or 56.9%,
from $312,000 in fiscal 1995 to $134,000 in fiscal 1996, primarily due to the
maturity of a portion of the portfolio.
Interest Expense. Interest expense increased $183,000, or 2.5%, for
the year ended June 30, 1996, from the amount of such expense as of June 30,
1995. The increase was the net effect of a decline in interest expense relating
to FHLB advances and a rise in interest expense relating to savings and
certificate accounts. Average
62
<PAGE>
interest-bearing liabilities were $138.8 million for the year ended June 30,
1996 compared with $144.7 million for fiscal 1995. The average rate paid
increased from 5.07% in the year ended June 30, 1995 to 5.42% in the year ended
June 30, 1996. The rise in interest expense was less than the increase in
interest income due to Sentinel's efforts to reduce deposit costs and the
increased use of intermediate-term certificates of deposit and shorter term FHLB
advances.
Provisions for Loan Losses. Provisions for loan losses are charged to
earnings to bring the total loss allowance to a level considered adequate by
management to provide for losses based on prior loss experience, volume and type
of lending conducted by Sentinel, industry standards and past due loans in
Sentinel's portfolio. Management also considers general economic conditions and
other factors relating to the collectability of Sentinel's loan portfolio.
During the year ended June 30, 1996, Sentinel provided no additional
allowance for loan losses. The provision for loan losses was $1,000 in fiscal
1995. As a result of recoveries of $1,000 during fiscal 1996, at June 30, 1996,
the total allowance for loan losses was $319,000, or .39% of total loans
outstanding. Provisions are made based on management's analysis of the various
factors which affect the loan portfolio and management's desire to hold the
allowance at a level considered adequate to provide for losses and fleet
industry standards. Management performs a detailed analysis of Sentinel's loan
portfolio, including reviews of Sentinel's write-off history and an analysis of
Sentinel's allowance for losses as compared with industry and peer averages. At
June 30, 1996, the allowance for possible loan losses was $319,000 and
represented 189.7% of total non-accrual loans and loans past due more than 90
days. At June 30, 1995, the allowance for loan losses was $318,000 and
represented 235.56% of total non-accrual loans and loans past due more than 90
days. While management believes the allowance for loan losses at June 30, 1996
is adequate to cover all losses inherent in the loan portfolio, there can be no
assurance that in the future Sentinel's allowance will not require further
increases.
Other Income. Other income increased $77,000 from $410,000 for the
year ended June 30, 1995 to $487,000 for the year ended June 30, 1996. This
increase was principally the result of increased income from loan sales and
increased fee income on loans originated for Sentinel's loan portfolio. During
the period, Sentinel also experienced increased rental income through increased
occupancy at its downtown office facility. Conversely, Sentinel experienced
reduced commissions earned on the sales of tax deferred annuity products by
Sentinel's second-tier subsidiary, Sentinel Insurance Agency, Inc.
Other Expense. Other expenses increased from $2.6 million as of June
30, 1995 to $3.4 million as of June 30, 1996. This $749,000 increase was the
result of several unusual items during the period.
Sentinel recorded a $242,000 loss provision to reflect the difference
between the current fair market value and the recorded book value of the 1001
Walnut Street Office Building. This activity reflected Sentinel Federal's
intent to close this facility after completion of a new North Kansas City
Office.
During the year ended June 30, 1996, a former employee of Sentinel
filed a sexual harassment suit against Sentinel. The suit was settled resulting
in an expense of $145,000 to Sentinel.
In connection with the Merger, Sentinel has incurred expenses relating
to the evaluation and negotiation of the transaction. During the fiscal year
ending June 30, 1996, total merger-related expenses were approximately $135,000.
Income Taxes. During fiscal 1996, Sentinel reversed previously
established accruals relating to a tax position taken in prior years. Sentinel's
1991 and 1992 tax returns were filed with appropriate disclosure of the use of
the positions taken. As of March 15, 1996, the three year statute of limitations
expired. As a result of the reversal of previously established tax liabilities,
Sentinel recorded an after-tax benefit of $601,000. Income taxes payable of June
30, 1996, without consideration of the benefit derived from the statue
expiration, were $112,000.
COMPARISON OF OPERATING RESULTS FOR THE FISCAL YEARS ENDED JUNE 30, 1995 AND
1994
63
<PAGE>
General. Net income for the fiscal year ended June 30, 1995 was
$630,000, compared with $564,000 for fiscal year 1994, representing a 11.70%
increase. The increase was primarily attributable to Sentinel's efforts to
reduce overall liability costs and increase loan balances during the period.
Non-interest expense increased $142,000, or 5.38%, during the fiscal year ended
June 30, 1995.
Net Interest Income. Net interest income increased $608,000 to $3.1
million for the year ended June 30, 1995, compared with $2.4 million for fiscal
year 1994. The increase in net interest income reflects an increase in
Sentinel's net interest margin from 1.61% for the fiscal year ended June 30,
1994 to 1.98% for the fiscal year ended June 30, 1995. The increase in net
interest income is primarily the result of two areas of operations. First,
portfolio loan balances have increased $8.7 million or 12.01%. Second, lower
rate, ARM mortgage-backed securities balances declined $4.2 million or 5.68%.
While interest expense increased during the period, Sentinel was less aggressive
in pricing retail deposits and utilized lower cost, FHLB advances, including an
open line of credit, to lessen the impact of a rising interest rate environment
during the fiscal year ended June 30, 1995.
Interest Income. Interest income for the year ended June 30, 1995 was
$10.4 million compared with $9.4 million for fiscal year 1994, representing a
increase of $1.0 million, or 10.64%. The average yield on interest-earning
assets increased from 6.15% for the year ended June 30, 1994 to 6.69% for fiscal
year 1995. Net loans receivable increased $8.7 million for the year ended June
30, 1995 as a result of higher origination levels and significantly lower loan
prepayments during the period. Portfolio loan prepayments declined from $19.7
million during fiscal year ended June 30, 1994 to $8.5 million during the period
ended June 30, 1995. During these same periods, total portfolio loan production
rose from $12.0 million during fiscal year ended June 30, 1994 to $ 17.6 million
for the year ended June 30, 1995.
Interest on mortgage-related securities increased $963,000 or 29.84%,
as a result of increased interest rates during the period. While the average
balance of mortgage-related securities increased approximately $3.5 million, in
the year ended June 30, 1995, the actual balance declined from $73.1 million as
of June 30, 1994 to $68.9 million as of June 30, 1995. Sentinel continued to
purchase mortgage-related securities through the first half of the fiscal year
ended June 30, 1995. Subsequent to the first six months of the fiscal year, no
additional purchases have been made and the actual balance declined during the
remainder of the period.
Income from the investment portfolio increased $58,000 or 22.75% from
$253,941 in 1994 to $311,710 in 1995 primarily as the result of the purchase of
United States Treasury securities in February and March 1994.
Interest Expense. Interest expense increased $396,000, or 5.70%, for
the year ended June 30, 1995, compared with fiscal year 1994. The increase is
primarily attributable to increased interest rates during the period. Average
interest-bearing liabilities were $144.7 million for the year ended June 30,
1995 compared with $144.3 million for fiscal year 1994. The average rate paid
increased from 4.82% in the year ended June 30, 1994 to 5.07% in the year ended
June 30, 1995. The rise in interest expense was less than the increase in
interest income due to Sentinel's efforts to reduce deposit costs and the
increased use of shorter term FHLB advances.
Provisions for Loan Losses. For June 30, 1995 and 1994, Sentinel
provided $0 and $42,000, respectively, for losses. During the fiscal year ended
June 30, 1995, Sentinel provided no additional allowance for loan losses. Thus
the total allowance for loan losses remained $318,000, or .39% of total loans
outstanding. These provisions were made based on management's analysis of the
various factors which affect the loan portfolio and management's desire to hold
the allowance at a level considered adequate to provide for losses and meet
industry standards. Management performs a detailed analysis of Sentinel's loan
portfolio, including reviews of Sentinel's write-off history and an analysis of
Sentinel's allowance for losses as compared with industry and peer averages. At
June 30, 1995, the allowance for possible loan losses was $318,000 and
represented 235.56% of total non-accrual loans and loans past due more than 90
days. At June 30, 1994, the allowance for loan losses was $318,000 and
represented 117.34% of total non-accrual loans and loans past due more than 90
days.
Other Income. Other income decreased $39,000 from $449,000 for the
fiscal year ended June 30, 1994 to $410,000 for the fiscal year ended June 30,
1995. This decrease was principally the result of reduced
64
<PAGE>
commissions earned on the sales of tax deferred annuity products by Sentinel's
second-tier subsidiary, Sentinel Insurance Agency Inc. Gains on sales of assets
held for sale and securities available for sale, net were $84,000 in the year
ended June 30, 1995 as compared to $35,000 in the year ended June 30, 1994. As
of June 30, 1995, Sentinel's available for sale portfolio included one $1.1
million adjustable rate FHLB agency debenture.
Other Expense. Other expenses increased from $2.5 million for the
year ended June 30, 1994 to $2.6 million for the year ended June 30, 1995. This
$142,000 increase was primarily attributable to a $113,000 increase in salaries
and employee benefits attributable to a full year of amortization of deferred
compensation on Sentinel's Employee Stock Ownership Plan ("ESOP") and Management
Recognition and Development Plans ("MRDP").
Income Taxes. Income tax expense increased $238,000 from $45,000 for
fiscal year ended June 30, 1994 to $283,000 for fiscal year ended June 30, 1995
as a result of increased taxable income from $418,000 for fiscal year ended June
30, 1994 to $886,000 for fiscal year ended June 30, 1995, a reduction in the
utilization of Missouri intangible tax credit carry forwards, and a reduction in
the amount of valuation allowance on deferred tax assets. Management expects to
resolve certain income tax issues during fiscal 1996 which may substantially
reduce Sentinel's income tax expense for 1996. However, there can be no
assurance that such income tax benefit will occur.
65
<PAGE>
AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS/COST
The following table sets forth, for the periods indicated, information
regarding average balances of assets and liabilities as well as the total dollar
amounts of interest income from average interest-earning assets and interest
expense on average interest-bearing liabilities, resultant yields, interest rate
spread, net interest margin, and ratio of average interest-earning assets to
average interest-bearing liabilities. Average balances for a period have been
calculated using the average of month-end balances during such period.
Management does not believe that the use of month-end balances instead of daily
balances has caused any material difference in the information presented.
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------------------------------------------------------------------------------------
1994 1995 1996
---------------------------- ---------------------------- ----------------------------
INTEREST INTEREST INTEREST
AVERAGE AND YIELD/ AVERAGE AND YIELD/ AVERAGE AND YIELD/
BALANCE DIVIDENDS COST BALANCE DIVIDENDS COST BALANCE DIVIDENDS COST
------- --------- ---- ------- --------- ---- ------- --------- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets(1):
Mortgage loans.............. $73,552 $5,682 7.73% $74,249 $5,698 7.67% $79,341 $6,281 7.92%
Consumer loans.............. 710 51 7.18 1,045 79 7.56 2,173 168 7.73
Commercial business loans... 739 57 7.71 978 78 7.98 2,623 210 8.01
-------- ------ ----- -------- ------- ---- -------- ------ ----
Total net loans........... 75,001 5,790 7.72 76,272 5,855 7.68 84,137 6,659 7.91
Mortgage-related securities. 69,289 3,227 4.66 72,510 4,190 5.78 60,230 3,919 6.51
Investment securities....... 3,585 147 4.10 3,624 168 4.64 3,281 158 4.82
Interest-bearing deposits in
other banks................ 3,519 103 2.93 1,592 66 4.15 2,681 134 5.00
Other earning assets........ 1,848 151 8.17 1,848 143 7.74 1,867 134 7.18
-------- ------ ----- -------- ------- ---- -------- ------ ----
Total interest-earning
assets.................... 153,242 $9,418 6.15% 155,846 $10,422 6.69% 152,196 11,004 7.23
====== ==== ======= ====
Non-interest-earning assets:
Premises and equipment, net. 878 $ 810 663
Real estate owned, net...... 52 0 --
Other non-interest-earning
assets..................... 1,034 1,219 483
-------- -------- --------
Total assets.............. $155,206 $157,875 $153,342
======== ======== ========
Interest-bearing liabilities:
Passbook accounts........... $ 12,298 $ 326 2.65 $ 10,831 $ 297 2.74 $ 8,798 $ 252 2.86
Negotiable order of
withdrawal
("NOW") accounts........... 3,585 81 2.26 3,061 72 2.35 3,416 69 2.02
Money market accounts....... 20,286 596 2.94 19,168 785 4.10 19,644 909 4.63
Certificates of deposit..... 98,637 5,136 5.21 95,533 5,144 5.38 93,453 5,563 5.95
-------- ------ ----- -------- ------- ---- -------- ------ ----
Total deposits............ 134,806 6,139 4.55 128,593 6,298 4.90 125,311 6,793 5.42
</TABLE>
(table continued on following page)
66
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------------------------------------------------------------------------------------
1994 1995 1996
---------------------------- ---------------------------- ----------------------------
INTEREST INTEREST INTEREST
AVERAGE AND YIELD/ AVERAGE AND YIELD/ AVERAGE AND YIELD/
BALANCE DIVIDENDS COST BALANCE DIVIDENDS COST BALANCE DIVIDENDS COST
------- --------- ---- ------- --------- ---- ------- --------- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Other interest-bearing
liabilities.................. 9,471 641 6.77 16,150 1,046 6.48 13,483 734 5.44
Termination of interest rate
swaps....................... --- 168 --- --- --- --- --- --- ---
-------- ------ ---- -------- ------ ---- -------- ------ ----
Total interest-bearing
liabilities............... 144,277 6,948 4.82 144,743 7,344 5.07 138,794 7,527 5.42
------ ------ ------
Non-interest-bearing
liabilities:
Non-interest-bearing
deposits.................... --- --- ---
Other liabilities............ 3,424 2,873 3,406
-------- -------- --------
Total liabilities.......... 147,701 147,616 142,200
Stockholders' equity.......... 7,505 10,259 11,142
-------- -------- --------
Total liabilities and
stockholders' equity........ $155,206 $157,875 $153,342
======== ======== ========
Net interest income........... $2,470 $3,078 $3,477
====== ====== ======
Interest rate spread.......... 1.33% 1.61% 1.81%
Net interest margin........... 1.61% 1.98% 2.28%
Ratio of average
interest-earning assets
to average
interest-bearing
liabilities.................. 106.21% 107.67% 109.66%
_________________________
</TABLE>
(1) Does not include interest on nonaccrual loans or loans 90 days or more past
due.
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<PAGE>
YIELDS EARNED AND RATES PAID
The following table sets forth (on a consolidated basis) for the
periods and at the date indicated, the weighted average yields earned on
Sentinel Federal's assets and the weighted average interest rates paid on
Sentinel Federal's liabilities, together with the net interest margin.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Weighted average yield on:
Loan portfolio.......................... 7.72% 7.68% 7.92%
Mortgage-related securities............. 4.67 5.78 6.51
Investment portfolio.................... 4.10 4.64 4.82
All interest-earning assets............. 6.15 6.69 7.23
Weighted average rate paid on:
Deposits................................ 4.55 4.90 5.42
Advances from FHLB...................... 6.77 6.48 5.44
All interest-bearing liabilities........ 4.82 5.07 5.42
Interest rate spread (spread between
weighted average rate on all interest-
earning assets and all interest-
bearing liabilities).................... 1.33 1.61 1.81
Net interest margin (net interest income
(expense) as a percentage of average
interest-earning assets)................ 1.61 1.98 2.28
</TABLE>
68
<PAGE>
RATE/VOLUME TABLE
The following table sets forth the effects of changing rates and
volumes on net interest income of Sentinel Federal. Information is provided with
respect to (i) effects on interest income attributable to changes in volume
(changes in volume multiplied by prior rate); (ii) effects on interest income
attributable to changes in rate (changes in rate multiplied by prior volume);
and (iii) changes in rate/volume (change in rate multiplied by change in
volume).
<TABLE>
<CAPTION>
1995 COMPARED TO 1994 1996 COMPARED TO 1995
------------------------------------ ------------------------------------
INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO DUE TO
--------------------------- ---------------------------
RATE/ RATE/
RATE VOLUME VOLUME NET RATE VOLUME VOLUME NET
---- ------- ------ --- ---- ------- ------ ---
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans(1).............. $(44) $ 54 $ 6 $ 16 $ 186 $ 391 $ 6 $ 583
Consumer loans(1)............. 3 24 1 28 2 85 2 89
Commercial business
loans(1)..................... 2 18 1 21 --- 131 1 132
---- ----- ----- ------ ----- ----- ----- -----
Total loans(1)............... (39) 96 8 65 188 607 9 804
Mortgage-related securities... 766 164 32 962 529 (710) (90) (271)
Investment and trading
securities................... 19 2 45 66 7 (16) (1) (10)
Interest-bearing deposits..... 43 (56) (68) (81) 14 45 9 68
Other earning assets.......... (8) --- --- (8) (10) 1 --- (9)
---- ----- ----- ------ ----- ----- ----- -----
Total net change in
income on interest-
earning assets................ 781 206 17 1,004 728 (73) (73) 582
---- ----- ----- ------ ----- ----- ----- -----
Interest-bearing liabilities:
Interest-bearing
deposits..................... 472 (283) (30) 159 669 (161) (13) 495
FHLB advances................. (28) 452 (19) 405 (168) (173) 29 (312)
Termination of interest
rate swaps.................... --- --- (168) (168) --- --- --- ---
---- ----- ----- ------ ----- ----- ----- -----
Total net change in
expense on interest-
bearing liabilities........... 444 169 (217) 396 501 (334) 16 183
---- ----- ----- ------ ----- ----- ----- -----
Net change in net
interest income............... $337 $ 37 $ 234 $ 608 $ 227 $ 261 ($89) $ 399
==== ===== ===== ====== ===== ===== ===== =====
</TABLE>
__________________
69
<PAGE>
(1) Does not include interest on loans 90 days or more past due.
70
<PAGE>
ASSET AND LIABILITY MANAGEMENT
The matching of assets and liabilities may be analyzed by examining
the extent to which such assets and liabilities are "interest rate sensitive"
and by monitoring an institution's interest rate sensitivity "gap." An asset or
liability is said to be interest rate sensitive within a specific time period if
it will mature or reprice within that time period. The interest rate
sensitivity gap is defined as the difference between the amount of interest-
earning assets anticipated, based upon certain assumptions, to mature or reprice
within a specific time period and the amount of interest-bearing liabilities
anticipated, based upon certain assumptions, to mature or reprice within that
time period. A gap is considered positive when the amount of interest rate
sensitive assets exceeds the amount of interest rate sensitive liabilities. A
gap is considered negative when the amount of interest rate sensitive
liabilities exceeds the amount of interest rate sensitive assets. During a
period of rising interest rates, a negative gap would tend to adversely affect
net interest income while a positive gap would tend to result in an increase in
net interest income. During a period of falling interest rates, a negative gap
would tend to result in an increase in net interest income while a positive gap
would tend to adversely affect net interest income.
Prior to June 30, 1991, Sentinel Federal had typically maintained a
negative one-year gap position. This position had generally resulted in a
positive impact during a declining rate environment and a negative impact during
a rising rate environment. Since that period the association has typically
maintained a positive gap position. The one-year gap can be described as the
difference between interest-earning assets and interest-bearing liabilities that
reprice during a one-year time frame. Sentinel Federal's one-year adjusted gap
position has moved from a negative 3.4% as of June 30, 1991, to a positive
11.03% as of June 30, 1996. The change from a negative to a positive gap
position was the result several factors including among other items,
substantially increased capital levels, significant prepayment of fixed rate
mortgage loans and investment in adjustable rate mortgage related securities.
Although the one-year gap ratio is used as a measure of interest rate risk,
Sentinel Federal also employs other asset liability techniques including
measuring the market value of Sentinel Federal's portfolio equity position and
the use of a planning model to project Association activities under a given
interest rate environment. The use of several separate techniques helps reduce
the risks associated with using one monitoring tool. There can be no assurance
that any of Sentinel Federal's monitoring techniques can or will reflect market
conditions due to the impact of external events such as market competition, the
Treasury yield curve and other market forces. The models are used, however, to
assist management in evaluating the risks relative to net income expectations.
Mortgage prepayment rates and core deposit decay rates are based on OTS tables
with some variance based on Sentinel Federal's portfolio experience.
Certain shortcomings are inherent in the method of analysis presented
in the following table. For example, although certain assets and liabilities
may have similar maturities or periods of repricing, they may react in different
degrees to changes in market interest rates. Also, the interest rates on
certain types of assets and liabilities may fluctuate in advance of changes in
market interest rates, while interest rates on other types may lag behind
changes in market rates. Additionally, certain assets, such as ARM loans, have
features that restrict changes in interest rates on a short-term basis over the
life of the asset. Further, in the event of a change in interest rates,
prepayment and early withdrawal levels would likely deviate significantly from
those assumed in calculating the table. Finally, the ability of many borrowers
to service their debt may decrease in the event of an interest rate
increase.
Sentinel Federal's analysis of its interest-rate sensitivity
incorporates certain assumptions concerning the amortization of loans and other
interest-earning assets and the withdrawal of deposits. The interest-rate
sensitivity of Sentinel Federal's assets and liabilities illustrated in the
table could vary substantially if different assumptions were used or if actual
experience differs from the assumptions used. Sentinel Federal relies upon an
internal gap report and an internal market value of portfolio equity ("MVPE")
analysis which utilize OTS and management assumptions. These assumptions
include a fixed rate mortgage loan constant prepayment rate approximating
12.50%. Adjustable-rate mortgage loans and mortgage-related securities are also
assigned constant prepayment rates, however, these instruments generally reprice
in one year or less and appear in the appropriate gap column.
71
<PAGE>
The following table sets forth Sentinel Federal's interest sensitivity gap
between interest-earning assets and interest-bearing liabilities at June 30,
1996.
<TABLE>
<CAPTION>
WITHIN OVER
SIX 6 MONTHS 1-3 3-5 6-10 10
MONTHS TO ONE YEAR YEARS YEARS YEARS YEARS TOTAL
----------- ------------- -------- ---------- ----------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Fixed-rate mortgage loans(1)............. $ 1,534 $ 1,569 $ 10,439 $ 9,850 $7,260 $ 5,240 $ 35,892
ARM loans(1)............................. 17,494 16,689 4,911 5,266 366 --- 44,726
Mortgage-related securities.............. 32,269 18,158 1,093 --- --- --- 51,520
Other loans(1)........................... 166 110 167 2,014 28 --- 2,485
Investment securities and
interest-bearing deposits............... 3,809 2,000 --- --- --- --- 5,809
------- ------- -------- ------- ------ ------- --------
Total rate sensitive assets............ 55,272 38,526 16,610 17,130 7,654 5,240 140,432
Interest-bearing liabilities:
Deposits:
Regular savings and NOW accounts........ 1,737 1,359 3,298 2,620 1,608 1,181 11,802
Money market deposit accounts........... 7,252 7,252 2,835 1,468 197 46 19,051
Certificates of deposit................. 32,021 22,124 26,186 9,519 2,551 --- 92,400
Other................................... 2,500 2,000 2,500 --- --- --- 7,000
------- ------- -------- ------- ------ ------- --------
Total rate sensitive liabilities....... 43,510 32,735 34,819 13,607 4,356 1,227 130,253
------- ------- -------- ------- ------ ------- --------
Excess (deficiency) of interest
sensitive assets over interest
sensitive liabilities.................... $11,762 $ 5,791 $(18,209) $ 3,523 $3,298 $ 4,013 $ 10,179
======= ======= ======== ======= ====== ======= ========
Cumulative excess (deficiency) of
interest sensitive assets................ $11,762 $17,554 $ (655) $ 2,868 $6,166 $10,179 $ 10,179
======= ======= ======== ======= ====== ======= ========
Cumulative ratio of interest-earning
assets to interest-bearing liabilities... 1.27% 1.23% 0.99% 1.02% 1.05% 1.08% 1.08
Interest sensitivity gap to total assets.. 8.18 4.03 -12.66 2.45 2.29 2.79 7.08
Ratio of interest-earning assets to
interest-bearing liabilities............ 1.27 1.18 0.48 1.26 1.76 4.27 1.08
Ratio of cumulative gap
to total assets......................... 8.18 12.20 -0.46 2.00 4.29 7.08 7.08
____________________
</TABLE>
(1) Excludes undisbursed loan funds, unearned loans fees, net and allowance
for loan losses.
72
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Sentinel Federal's primary sources of funds are customer deposits,
proceeds from principal and interest payments on loans, interest payments on
mortgage-related and investment securities, proceeds from sales of loans,
maturing securities and FHLB advances. While maturities and scheduled
amortization of loans are a predictable source of funds, deposit flows and
mortgage prepayments are greatly influenced by general interest rates, economic
conditions and competition.
Sentinel Federal must maintain an adequate level of liquidity to
ensure the availability of sufficient funds to support loan growth and deposit
withdrawals, to satisfy financial commitments and to take advantage of
investment opportunities. Sentinel Federal generally maintains sufficient cash
and short-term investments to meet short-term liquidity needs. At June 30,
1996, cash (including interest-bearing deposits) and securities available for
sale totalled $3.7 million, or 2.5% of total assets, and mortgage-related and
investment securities that matured in one year or less totalled $2.0 million, or
1.3% of total assets. In addition, Sentinel Federal maintains a credit facility
with the FHLB-Des Moines, which provides for immediately available advances.
Advances under this credit facility totalled $7.0 million at June 30, 1996.
The OTS requires a savings institution to maintain an average daily
balance of liquid assets (cash and eligible investments) equal to at least 5.0%
of the average daily balance of its net withdrawable deposits and short-term
borrowings. In addition, short-term liquid assets currently must constitute
1.0% of the sum of net withdrawable deposit accounts plus short-term borrowings.
Sentinel Federal's actual short- and long-term liquidity ratios at June 30, 1996
were 2.6% and 6.1%, respectively. Sentinel Federal consistently maintains
liquidity levels in excess of regulatory requirements, and believes this is an
appropriate strategy for proper asset and liability management.
The primary investing activity of Sentinel Federal is the origination
of mortgage loans and the purchase of mortgage-related securities. During the
years ended June 30, 1994, 1995 and 1996, Sentinel Federal originated loans in
the amounts of $18.5 million, $21.2 million, and $29.3 million, respectively,
and purchased mortgage-related securities in the amounts of $31.0 million, $10.0
million and $0, respectively. At June 30, 1996, Sentinel Federal had loan
commitments and undisbursed equity lines of credit totalling $1.2 million and
undisbursed loans in process totalling $943,000. Sentinel Federal anticipates
that it will have sufficient funds available to meet its current loan
origination commitments. Certificates of deposit that are scheduled to mature
in less than one year from June 30, 1996 totalled $54.5 million. Historically,
Sentinel Federal has been able to retain a significant amount of its deposits as
they mature. In addition, management of Sentinel Federal believes that it can
adjust the offering rates of savings certificates to retain deposits in changing
interest rate environments.
Recently enacted federal legislation to recapitalize the SAIF would
require savings associations like Sentinel Federal to pay a one-time assessment
to increase the SAIF's reserves to $1.25 per $100 of deposits. Such assessment
is expected to range from 65 to 70 basis points on the amount of deposits held
by a SAIF-member institution as of March 31, 1995. Based on Sentinel Federal's
level of assessable deposits, a one-time assessment of .70% basis points would
equal approximately $901,000 on a pre-tax basis. Sentinel Federal believes that
it has adequate resources to pay such assessment from cash and other liquid
investments, including short-term investment securities. For further discussion
of the recently enacted legislation, see "Recent Developments."
Sentinel Federal is required to maintain specific amounts of capital
pursuant to OTS requirements. As of June 30, 1996, Sentinel Federal was in
compliance with all regulatory capital requirements which were effective as of
such date with tangible, core and risk-based capital ratios of 7.73%, 7.73% and
20.52%, respectively. For a detailed discussion of regulatory capital
requirements, see "Regulation -- Federal Regulation of Savings Associations --
Capital Requirements" under Item 1 of this report.
73
<PAGE>
NEW ACCOUNTING STANDARDS
See Note 1 of Notes to Consolidated Financial Statements of Sentinel
contained in this Proxy Statement/Prospectus for a discussion of new accounting
standards.
74
<PAGE>
REGULATION OF SENTINEL FINANCIAL CORPORATION AND SENTINEL FEDERAL SAVINGS AND
LOAN ASSOCIATION OF KANSAS CITY.
GENERAL
Sentinel Federal is subject to extensive regulation, examination and
supervision by the OTS as its chartering agency, and the FDIC, as the insurer of
its deposits. The activities of federal savings institutions are governed by
the HOLA and, in certain respects, the Federal Deposit Insurance Act ("FDIA")
and the regulations issued by the OTS and the FDIC to implement these statutes.
These laws and regulations delineate the nature and extent of the activities in
which federal savings associations may engage. Lending activities and other
investments must comply with various statutory and regulatory capital
requirements. In addition, Sentinel Federal's relationship with its depositors
and borrowers is also regulated to a great extent, especially in such matters as
the ownership of deposit accounts and the form and content of Sentinel Federal's
mortgage documents. Sentinel Federal must file reports with the OTS and the
FDIC concerning its activities and financial condition in addition to obtaining
regulatory approvals prior to entering into certain transactions such as mergers
with, or acquisitions of, other financial institutions. There are periodic
examinations by the OTS and the FDIC to review Sentinel Federal's compliance
with various regulatory requirements. The regulatory structure also gives the
regulatory authorities extensive discretion in connection with their supervisory
and enforcement activities and examination policies, including policies with
respect to the classification of assets and the establishment of adequate loan
loss reserves for regulatory purposes. Any change in such policies, whether by
the OTS, the FDIC or the United States Congress, could have a material adverse
impact on Sentinel, Sentinel Federal and their operations. Sentinel, as a
savings and loan holding company, is also required to file certain reports with,
and otherwise comply with the rules and regulations of, the OTS.
FEDERAL REGULATION OF SAVINGS ASSOCIATIONS
Office of Thrift Supervision. The OTS is an office in the Department of
the Treasury subject to the general oversight of the Secretary of the Treasury.
The OTS generally possesses the supervisory and regulatory duties and
responsibilities formerly vested in the Federal Home Loan Bank Board. Among
other functions, the OTS issues and enforces regulations affecting federally
insured savings associations and regularly examines these institutions.
Federal Home Loan Bank System. The FHLB System, consisting of 12 FHLBs, is
under the jurisdiction of the Federal Housing Finance Board ("FHFB"). The
designated duties of the FHFB are to supervise the FHLBs, to ensure that the
FHLBs carry out their housing finance mission, to ensure that the FHLBs remain
adequately capitalized and able to raise funds in the capital markets, and to
ensure that the FHLBs operate in a safe and sound manner.
Sentinel Federal, as a member of the FHLB-Des Moines, is required to
acquire and hold shares of capital stock in the FHLB-Des Moines in an amount
equal to the greater of (i) 1.0% of the aggregate outstanding principal amount
of residential mortgage loans, home purchase contracts and similar obligations
at the beginning of each year, or (ii) 1/20 of its advances (borrowings) from
the FHLB-Des Moines. Sentinel Federal is in compliance with this requirement
with an investment in FHLB-Des Moines stock of $1.9 million at June 30,
1996.
Among other benefits, the FHLB provides a central credit facility primarily
for member institutions. It is funded primarily from proceeds derived from the
sale of consolidated obligations of the FHLB System. It makes advances to
members in accordance with policies and procedures established by the FHFB and
the Board of Directors of the FHLB-Des Moines.
Federal Deposit Insurance Corporation. The FDIC is an independent federal
agency established originally to insure the deposits, up to prescribed statutory
limits, of federally insured banks and to preserve the safety and soundness of
the banking industry. In 1989 the FDIC also became the insurer, up to the
prescribed limits, of the deposit accounts held at federally insured savings
associations and established two separate insurance funds: the BIF and the SAIF.
As insurer of deposits, the FDIC has examination, supervisory and enforcement
authority over all savings associations.
Sentinel Federal's accounts are insured by the SAIF. The FDIC insures
deposits at Sentinel Federal to the maximum extent permitted by law. Sentinel
Federal currently pays deposit insurance premiums to the FDIC based on a risk-
based assessment system established by the FDIC for all SAIF-member
institutions. Under applicable regulations, institutions are assigned to one of
three capital groups that are based solely on the level of an
75
<PAGE>
institution's capital -- "well capitalized," "adequately capitalized," and
"undercapitalized"-- which are defined in the same manner as the regulations
establishing the prompt corrective action system, as discussed below. These
three groups are then divided into three subgroups which reflect varying levels
of supervisory concern, from those which are considered to be healthy to those
which are considered to be of substantial supervisory concern. The matrix so
created results in nine assessment risk classifications, with rates currently
ranging from .23% for well capitalized, financially sound institutions with only
a few minor weaknesses to .31% for undercapitalized institutions that pose a
substantial risk of loss to the SAIF unless effective corrective action is
taken. Until the second half of 1995, the same matrix applied to BIF-member
institutions. The FDIC is authorized to raise assessment rates in certain
circumstances. Sentinel Federal's assessments expensed for the year ended June
30, 1996 totalled $367,000.
Effective January 1, 1996, the FDIC substantially reduced deposit insurance
premiums for well-capitalized, well-managed financial institutions that are
members of the BIF. Under the new assessment schedule, rates were reduced to a
range of 0 to 27 basis points, with approximately 92% of BIF members paying the
statutory minimum annual assessment rate of $2,000. With respect to SAIF member
institutions, the FDIC has retained the existing rate schedule of 23 to 31 basis
points.
The FDIC may terminate the deposit insurance of any insured depository
institution if it determines after a hearing that the institution has engaged or
is engaging in unsafe or unsound practices, is in an unsafe or unsound condition
to continue operations, or has violated any applicable law, regulation, order or
any condition imposed by an agreement with the FDIC. It also may suspend
deposit insurance temporarily during the hearing process for the permanent
termination of insurance, if the institution has no tangible capital. If
insurance of accounts is terminated, the accounts at the institution at the time
of termination, less subsequent withdrawals, shall continue to be insured for a
period of six months to two years, as determined by the FDIC. Management is
aware of no existing circumstances that could result in termination of the
deposit insurance of Sentinel Federal.
Liquidity Requirements. Under OTS regulations, each savings institution is
required to maintain an average daily balance of liquid assets (cash, certain
time deposits and savings accounts, bankers' acceptances, and specified U.S.
Government, state or federal agency obligations and certain other investments)
equal to a monthly average of not less than a specified percentage (currently
5.0%) of its net withdrawable accounts plus short-term borrowings. OTS
regulations also require each savings institution to maintain an average daily
balance of short-term liquid assets at a specified percentage (currently 1.0%)
of the total of its net withdrawable savings accounts and borrowings payable in
one year or less. Monetary penalties may be imposed for failure to meet
liquidity requirements.
Prompt Corrective Action. Under the FDIA, each federal banking agency is
required to implement a system of prompt corrective action for institutions that
it regulates. The federal banking agencies have promulgated substantially
similar regulations to implement this system of prompt corrective action. Under
the regulations, an institution shall be deemed to be (i) "well capitalized" if
it has a total risk-based capital ratio of 10.0% or more, has a Tier I risk-
based capital ratio of 6.0% or more, has a leverage ratio of 5.0% or more and is
not subject to specified requirements to meet and maintain a specific capital
level for any capital measure; (ii) "adequately capitalized" if it has a total
risk-based capital ratio of 8.0% or more, a Tier I risk-based capital ratio of
4.0% or more and a leverage ratio of 4.0% or more (3.0% under certain
circumstances) and does not meet the definition of "well capitalized;" (iii)
"undercapitalized" if it has a total risk-based capital ratio that is less than
8.0%, a Tier I risk-based capital ratio that is less than 4.0% or a leverage
ratio that is less than 4.0% (3.0% under certain circumstances); (iv)
"significantly undercapitalized" if it has a total risk-based capital ratio that
is less than 6.0%, a Tier I risk-based capital ratio that is less than 3.0% or a
leverage ratio that is less than 3.0%; and (v) "critically undercapitalized" if
it has a ratio of tangible equity to total assets that is equal to or less than
2.0%.
A federal banking agency may, after notice and an opportunity for a
hearing, reclassify a well capitalized institution as adequately capitalized and
may require an adequately capitalized institution or an undercapitalized
institution to comply with supervisory actions as if it were in the next lower
category if the institution is in an unsafe or unsound condition or has received
in its most recent examination, and has not corrected, a less than satisfactory
rating for asset quality, management, earnings or liquidity. The OTS may not,
however, reclassify a significantly undercapitalized institution as critically
undercapitalized.
76
<PAGE>
An institution generally must file a written capital restoration plan that
meets specified requirements, as well as a performance guaranty by each company
that controls the institution, with the appropriate federal banking agency
within 45 days of the date that the institution receives notice or is deemed to
have notice that it is undercapitalized, significantly undercapitalized or
critically undercapitalized. Immediately upon becoming undercapitalized, an
institution shall become subject to various mandatory and discretionary
restrictions on its operations.
At June 30, 1996, Sentinel Federal was categorized as "well capitalized"
under the prompt corrective action regulations of the OTS.
Standards for Safety and Soundness. The FDIA requires the federal banking
regulatory agencies to prescribe, by regulation, standards for all insured
depository institutions relating to: (i) internal controls, information systems
and internal audit systems; (ii) loan documentation; (iii) credit underwriting;
(iv) interest rate risk exposure; (v) asset growth; and (vi) compensation, fees
and benefits. The federal banking agencies have adopted regulations and the
Interagency Guidelines Prescribing Standards for Safety and Soundness
("Guidelines") to implement safety and soundness standards required by the FDIA.
The federal banking agencies use these standards to identify and address
problems at insured depository institutions before capital becomes impaired.
The agencies have also proposed asset quality and earnings standards which, if
adopted, would be added to the Guidelines. If the OTS determines that Sentinel
Federal fails to meet any standard prescribed by the Guidelines, the agency may
require Sentinel Federal to submit to the agency an acceptable plan to achieve
compliance with the standard, as required by the FDIA. OTS regulations
establish deadlines for the submission and review of such safety and soundness
compliance plans.
Qualified Thrift Lender Test. All savings associations are required to
meet a qualified thrift lender ("QTL") test to avoid certain restrictions on
their operations. A savings institution that fails to become or remain a QTL
shall either become a national bank or be subject to the following restrictions
on its operations: (i) the association may not make any new investment or
engage in activities that would not be permissible for national banks; (ii) the
association may not establish any new branch office where a national bank
located in the savings institution's home state would not be able to establish a
branch office; (iii) the association shall be ineligible to obtain new advances
from any FHLB; and (iv) the payment of dividends by the association shall be
subject to the rules regarding the statutory and regulatory dividend
restrictions applicable to national banks. Also, beginning three years after
the date on which the savings institution ceases to be a QTL, the savings
institution would be prohibited from retaining any investment or engaging in any
activity not permissible for a national bank and would be required to repay any
outstanding advances to any FHLB. In addition, within one year of the date on
which a savings association controlled by a company ceases to be a QTL, the
company must register as a bank holding company and become subject to the rules
applicable to such companies. A savings institution may requalify as a QTL if
it thereafter complies with the QTL test.
Currently, the QTL test requires that 65% of an institution's "portfolio
assets" consist of certain housing and consumer-related assets on a monthly
average basis in nine out of every 12 months. At June 30, 1996, the qualified
thrift investments of Sentinel Federal were approximately 96.0% of its portfolio
assets.
Capital Requirements. Under OTS regulations, a savings association must
satisfy three minimum capital requirements: core capital, tangible capital and
risk-based capital.
OTS regulations establish a 3% core capital or leverage ratio (defined as
the ratio of core capital to adjusted total assets) requirement. Core capital
is defined to include common stockholders' equity, noncumulative perpetual
preferred stock and any related surplus, and minority interests in equity
accounts of consolidated subsidiaries, less (i) any intangible assets, except
for certain qualifying intangible assets; (ii) certain mortgage servicing
rights; and (iii) equity and debt investments in subsidiaries that are not
"includable subsidiaries," defined as subsidiaries engaged solely in activities
not impermissible for a national bank, engaged in activities impermissible for a
national bank but only as an agent for its customers, or engaged solely in
mortgage-banking activities. In calculating adjusted total assets, adjustments
are made to total assets to give effect to the exclusion of certain assets from
capital and to
77
<PAGE>
account appropriately for the investments in and assets of both includable and
nonincludable subsidiaries. Institutions that fail to meet the core capital
requirement would be required to file with the OTS a capital plan that details
the steps they will take to reach compliance. In addition, the OTS's prompt
corrective action regulation provides that a savings institution that has a
leverage ratio of less than 4% (3% for institutions receiving the highest CAMEL
examination rating) will be deemed to be "undercapitalized" and may be subject
to certain restrictions. See "-- Federal Regulation of Savings Associations --
Prompt Corrective Action."
As required by federal law, the OTS has proposed a rule revising its
minimum core capital requirement to be no less stringent than that imposed on
national banks. The OTS has proposed that only those savings associations rated
a composite one (the highest rating) under the CAMEL rating system for savings
associations will be permitted to operate at or near the regulatory minimum
leverage ratio of 3%. All other savings associations will be required to
maintain a minimum leverage ratio of 4% to 5%. The OTS will assess each
individual savings association through the supervisory process on a case-by-case
basis to determine the applicable requirement. No assurance can be given as to
the final form of any such regulation, the date of its effectiveness or the
requirement applicable to Sentinel Federal.
A savings association also must maintain "tangible capital" not less than
1.5% of its adjusted total assets. "Tangible capital" is defined generally as
core capital minus any "intangible assets" other than purchased mortgage
servicing rights.
Each savings institution must maintain total risk-based capital equal to at
least 8% of risk-weighted assets. Total risk-based capital consists of the sum
of core and supplementary capital, provided that supplementary capital cannot
exceed core capital, as previously defined. Supplementary capital includes (i)
permanent capital instruments such as cumulative perpetual preferred stock,
perpetual subordinated debt and mandatory convertible subordinated debt, (ii)
maturing capital instruments such as subordinated debt, intermediate-term
preferred stock and mandatory convertible subordinated debt, subject to an
amortization schedule, and (iii) general valuation loan and lease loss
allowances up to 1.25% of risk-weighted assets.
The risk-based capital regulation assigns each balance sheet asset held by
a savings institution to one of four risk categories based on the amount of
credit risk associated with that particular class of assets. Assets not
included for purposes of calculating capital are not included in calculating
risk-weighted assets. The categories range from 0% for cash and securities that
are backed by the full faith and credit of the U.S. Government to 100% for
repossessed assets or assets more than 90 days past due. Qualifying residential
mortgage loans (including multi-family mortgage loans) are assigned a 50% risk
weight. Consumer, commercial, home equity and residential construction loans
are assigned a 100% risk weight, as are nonqualifying residential mortgage loans
and that portion of land loans and nonresidential construction loans that does
not exceed an 80% loan-to-value ratio. The book value of assets in each
category is multiplied by the weighing factor (from 0% to 100%) assigned to that
category. These products are then totalled to arrive at total risk-weighted
assets. Off-balance sheet items are included in risk-weighted assets by
converting them to an approximate balance sheet "credit equivalent amount" based
on a conversion schedule. These credit equivalent amounts are then assigned to
risk categories in the same manner as balance sheet assets and included risk-
weighted assets.
The OTS has incorporated an interest rate risk component into its
regulatory capital rule. Under the rule, savings associations with "above
normal" interest rate risk exposure are subject to a deduction from total
capital for purposes of calculating their risk-based capital requirements. A
savings association's interest rate risk is measured by the decline in the net
portfolio value of its assets (i.e., the difference between incoming and
outgoing discounted cash flows from assets, liabilities and off-balance sheet
contracts) that would result from a hypothetical 200 basis point increase or
decrease in market interest rates divided by the estimated economic value of the
association's assets, as calculated in accordance with guidelines set forth by
the OTS. A savings association whose measured interest rate risk exposure
exceeds 2% must deduct an interest rate risk component in calculating its total
capital under the risk-based capital rule. The interest rate risk component is
an amount equal to one-half of the difference between the institution's measured
interest rate risk and 2%, multiplied by the estimated economic value of the
association's assets. That dollar amount is deducted from an association's
total capital in calculating
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compliance with its risk-based capital requirement. Under the rule, there is a
two quarter lag between the reporting date of an institution's financial data
and the effective date for the new capital requirement based on that data. A
savings association with assets of less than $300 million and a risk-based
capital ratio in excess of 12% is not subject to the interest rate risk
component, unless the OTS determines otherwise. The rule also provides that the
Director of the OTS may waive or defer an association's interest rate risk
component on a case-by-case basis. Under certain circumstances, a savings
association may request an adjustment to its interest rate risk component if it
believes that the OTS-calculated interest rate risk component overstates its
interest rate risk exposure. In addition, certain "well-capitalized"
institutions may obtain authorization to use their own interest rate risk model
to calculate their interest rate risk component in lieu of the OTS-calculated
amount. The OTS has postponed the date that the component will first be deducted
from an institution's total capital until savings associations become familiar
with the process for requesting an adjustment to its interest rate risk
component.
The following table sets forth Sentinel Federal's capital levels as of June
30, 1996.
<TABLE>
<CAPTION>
AT JUNE 30, 1996
----------------------
PERCENT OF
AMOUNT ASSETS
------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Tangible capital....... $11,144 7.73%
Minimum required
tangible capital...... 2,161 1.50
------- -----
Excess................. $ 8,983 6.23%
======= =====
Core capital........... $11,144 7.73%
Minimum required core
capital............... 4,323 3.00
------- -----
Excess................. $ 6,821 4.73%
======= =====
Risk-based capital..... $11,463 20.52%
Minimum risk-based
capital requirement... 4,469 8.00
------- -----
Excess................. $ 6,994 12.52%
======= =====
</TABLE>
Limitations on Capital Distributions. OTS regulations impose uniform
limitations on the ability of all savings associations to engage in various
distributions of capital such as dividends, stock repurchases and cash-out
mergers. In addition, OTS regulations require Sentinel Federal to give the OTS
30 days' advance notice of any proposed declaration of dividends, and the OTS
has the authority under its supervisory powers to prohibit the payment of
dividends. The regulation utilizes a three-tiered approach which permits
various levels of distributions based primarily upon a savings association's
capital level.
A Tier 1 savings association has capital in excess of its fully phased-in
capital requirement (both before and after the proposed capital distribution).
Tier 1 savings association may make (without application but upon prior notice
to, and no objection made by, the OTS) capital distributions during a calendar
year up to 100% of its net income to date during the calendar year plus one-half
its surplus capital ratio (i.e., the amount of capital in excess of its fully
phased-in requirement) at the beginning of the calendar year or the amount
authorized for a Tier 2 association. Capital distributions in excess of such
amount require advance notice to the OTS. A Tier 2 savings association has
capital equal to or in excess of its minimum capital requirement but below its
fully phased-in capital requirement (both before and after the proposed capital
distribution). Such an association may make (without application) capital
distributions up to an amount equal to 75% of its net income during the previous
four quarters depending on how close the association is to meeting its fully
phased-in capital requirement. Capital distributions exceeding this amount
require prior OTS approval. Tier 3 associations are savings associations with
capital below
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the minimum capital requirement (either before or after the
proposed capital distribution). Tier 3 associations may not make any capital
distributions without prior approval from the OTS.
Sentinel Federal currently meets the criteria to be designated a Tier 1
association and, consequently, could at its option (after prior notice to, and
no objection made by, the OTS) distribute up to 100% of its net income during
the calendar year plus 50% of its surplus capital ratio at the beginning of the
calendar year less any distributions previously paid during the year.
Loans to One Borrower. Under the HOLA, savings institutions are generally
subject to the same limit on loans to one borrower as are national banks.
Generally, this limit is 15% of a savings association's unimpaired capital and
surplus, plus an additional 10% of unimpaired capital and surplus, if such loan
is secured by readily-marketable collateral, which is defined to include certain
financial instruments and bullion. The OTS by regulation has amended its loans
to one borrower rule to permit savings associations meeting certain
requirements, including capital requirements, to extend loans to one borrower in
excess of the general limitation in the case of loans to develop or complete
residential housing units. At June 30, 1996, Sentinel Federal's limit on loans
to one borrower was $1.8 million. At June 30, 1996, Sentinel Federal's highest
amount of loans to one borrower was $1.1 million.
Activities of Associations and Their Subsidiaries. When a savings
association establishes or acquires a subsidiary or elects to conduct any new
activity through a subsidiary that the association controls, the savings
association must notify the FDIC and the OTS 30 days in advance and provide
certain information required by applicable regulations. Savings associations
also must conduct the activities of subsidiaries in accordance with existing
regulations and orders.
The OTS may determine that the continuation by a savings association of its
ownership control of, or its relationship to, the subsidiary constitutes a
serious risk to the safety, soundness or stability of the association or is
inconsistent with sound banking practices or with the purposes of the FDIA.
Based upon that determination, the FDIC or the OTS has the authority to order
the savings association to divest itself of control of the subsidiary. The FDIC
also may determine by regulation or order that any specific activity poses a
serious threat to the SAIF. If so, it may require that no SAIF member engage in
that activity directly.
Transactions with Affiliates. Savings associations must comply with
Sections 23A and 23B of the Federal Reserve Act ("Sections 23A and 23B")
relative to transactions with affiliates in the same manner and to the same
extent as if the savings association were a Federal Reserve member bank. A
savings and loan holding company, its subsidiaries and any other company under
common control are considered affiliates of the subsidiary savings association
under the HOLA. Generally, Sections 23A and 23B: (i) limit the extent to which
the insured association or its subsidiaries may engage in certain covered
transactions with an affiliate to an amount equal to 10% of such institution's
capital and surplus and place an aggregate limit on all such transactions with
affiliates to an amount equal to 20% of such capital and surplus, and (ii)
require that all such transactions be on terms substantially the same, or at
least as favorable to the institution or subsidiary, as those provided to a non-
affiliate. The term "covered transaction" includes the making of loans, the
purchase of assets, the issuance of a guarantee and similar types of
transactions.
Three additional rules apply to savings associations: (i) a savings
association may not make any loan or other extension of credit to an affiliate
unless that affiliate is engaged only in activities permissible for bank holding
companies; (ii) a savings association may not purchase or invest in securities
issued by an affiliate (other than securities of a subsidiary); and (iii) the
OTS may, for reasons of safety and soundness, impose more stringent restrictions
on savings associations but may not exempt transactions from or otherwise
abridge Section 23A or 23B. Exemptions from Section 23A or 23B may be granted
only by the Federal Reserve Board, as is currently the case with respect to all
FDIC-insured banks. Sentinel Federal has not been significantly affected by the
rules regarding transactions with affiliates.
Sentinel Federal's authority to extend credit to executive officers,
directors and ten percent shareholders, as well as entities controlled by such
persons, is currently governed by Sections 22(g) and 22(h) of the Federal
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Reserve Act, and Regulation O thereunder. Among other things, these regulations
require that such loans be made on terms and conditions substantially the same
as those offered to unaffiliated individuals and not involve more than the
normal risk of repayment. Regulation O also places individual and aggregate
limits on the amount of loans Sentinel Federal may make to such persons based,
in part, on Sentinel Federal's capital position, and requires certain board
approval procedures to be followed. The OTS regulations, with certain minor
variances, apply Regulation O to savings institutions.
SAVINGS AND LOAN HOLDING COMPANY REGULATION
General. Sentinel Financial is a unitary savings and loan holding company
within the meaning of the HOLA. As such, Sentinel is registered with the OTS
and subject to OTS regulations, examinations, supervision and reporting
requirements. Sentinel is required to file certain reports with, and otherwise
comply with the regulations of, the OTS and the SEC. As a subsidiary of a
savings and loan holding company, Sentinel Federal is subject to certain
restrictions in its dealings with Sentinel and with other companies affiliated
with Sentinel and also are subject to regulatory requirements and provisions as
federal institutions.
Holding Company Acquisitions. The HOLA and OTS regulations issued
thereunder generally prohibit a savings and loan holding company, without prior
OTS approval, from acquiring more than 5% of the voting stock of any other
savings association or savings and loan holding company or controlling the
assets thereof. They also prohibit, among other things, any director or officer
of a savings and loan holding company, or any individual who owns or controls
more than 25% of the voting shares of such holding company, from acquiring
control of any savings association not a subsidiary of such savings and loan
holding company, unless the acquisition is approved by the OTS.
Holding Company Activities. As a unitary savings and loan holding company,
Sentinel generally is not subject to activity restrictions. If Sentinel
acquires control of another savings association as a separate subsidiary other
than in a supervisory acquisition, it would become a multiple savings and loan
holding company. There generally are more restrictions on the activities of a
multiple savings and loan holding company than on those of a unitary savings and
loan holding company. The HOLA provides that, among other things, no multiple
savings and loan holding company or subsidiary thereof which is not an insured
association shall commence or continue for more than two years after becoming a
multiple savings and loan association holding company or subsidiary thereof, any
business activity other than: (i) furnishing or performing management services
for a subsidiary insured institution, (ii) conducting an insurance agency or
escrow business, (iii) holding, managing, or liquidating assets owned by or
acquired from a subsidiary insured institution, (iv) holding or managing
properties used or occupied by a subsidiary insured institution, (v) acting as
trustee under deeds of trust, (vi) those activities previously directly
authorized by regulation as of March 5, 1987 to be engaged in by multiple
holding companies or (vii) those activities authorized by the Federal Reserve
Board as permissible for bank holding companies, unless the OTS by regulation,
prohibits or limits such activities for savings and loan holding companies.
Those activities described in (vii) above also must be approved by the OTS prior
to being engaged in by a multiple holding company.
Qualified Thrift Lender Test. The HOLA requires any savings and loan
holding company that controls a savings association that fails the QTL test, as
explained under "-- Federal Regulation of Savings Associations --Qualified
Thrift Lender Test," must, within one year after the date on which the
association ceases to be a QTL, register as and be deemed a bank holding company
subject to all applicable laws and regulations.
FEDERAL TAXATION
General. Sentinel and Sentinel Federal report their income on a fiscal
year basis using the accrual method of accounting and will be subject to federal
income taxation in the same manner as other corporations with some exceptions,
including particularly Sentinel Federal's reserve for bad debts discussed below.
The following discussion of tax matters is intended only as a summary and does
not purport to be a comprehensive description of the tax rules applicable to
Sentinel Federal or Sentinel.
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Tax Bad Debt Reserves. For taxable years beginning prior to January 1,
1996, savings institutions such as Sentinel Federal which met certain
definitional tests primarily relating to their assets and the nature of their
business ("qualifying thrifts") were permitted to establish a reserve for bad
debts and to make annual additions thereto, which additions may, within
specified formula limits, have been deducted in arriving at their taxable
income. Sentinel Federal's deduction with respect to "qualifying loans," which
are generally loans secured by certain interests in real property, may have been
computed using an amount based on Sentinel Federal's actual loss experience, or
a percentage equal to 8% of Sentinel Federal's taxable income, computed with
certain modifications and reduced by the amount of any permitted additions to
the nonqualifying reserve. Sentinel Federal's deduction with respect to
nonqualifying loans was computed under the experience method, which essentially
allows a deduction based on Sentinel Federal's actual loss experience over a
period of several years. Each year Sentinel Federal selected the most favorable
way to calculate the deduction attributable to an addition to the tax bad debt
reserve. Sentinel Federal used the percentage of taxable income method bad debt
deduction for the taxable years ended December 31, 1995, 1994 and 1993.
However, the use of the percentage of taxable income method for the taxable year
ended December 31, 1995 resulted in no bad debt deduction because of other
limitations in the computation.
Recently enacted legislation repealed the reserve method of accounting for
bad debt reserves for tax years beginning after December 31, 1995. As result,
savings associations will no longer be able to calculate their deduction for bad
debts using the percentage of taxable income method. Instead, savings
associations will be required to compute their deduction based on specific
charge-offs during the taxable year or, if the savings association or its
controlled group had assets of less than $500 million, based on actual loss
experience over a period of years. This legislation also requires savings
associations to recapture into income over a six-year period their post-1987
additions to their bad debt tax reserves, thereby generating additional tax
liability. At June 30, 1996, Sentinel Federal's post-1987 reserves totalled
approximately $61,000. The recapture may be suspended for up to two years if,
during those years, the institution satisfies a residential loan requirement.
Sentinel Federal anticipates that it will meet the residential loan requirement
for the taxable year ending December 31, 1996.
Under prior law, if Sentinel Federal failed to satisfy the qualifying
thrift definitional tests in any taxable year, it would be unable to make
additions to its bad debt reserve. Instead, Sentinel Federal would be required
to deduct bad debts as they occur and would additionally be required to
recapture its bad debt reserve deductions ratably over a multi-year period. At
June 30, 1996, Sentinel Federal's total bad debt reserve for tax purposes was
approximately $1.9 million. Among other things, the qualifying thrift
definitional tests required Sentinel Federal to hold at least 60% of its assets
as "qualifying assets." Qualifying assets generally include cash, obligations
of the United States or any agency or instrumentality thereof, certain
obligations of a state or political subdivision thereof, loans secured by
interests in improved residential real property or by savings accounts, student
loans and property used by Sentinel Federal in the conduct of its banking
business. Under current law, a savings association will not be required to
recapture its pre-1988 bad debt reserves if it ceases to meet the qualifying
thrift definitional tests.
Distributions. To the extent that Sentinel Federal makes "nondividend
distributions" to Sentinel that are considered as made: (i) from the reserve for
losses on qualifying real property loans, to the extent the reserve for such
losses exceeds the amount that would have been allowed under the experience
method; or (ii) from the supplemental reserve for losses on loans ("Excess
Distributions"), then an amount based on the amount distributed will be included
in Sentinel Federal's taxable income. Nondividend distributions include
distributions in excess of Sentinel Federal's current and accumulated earnings
and profits, distributions in redemption of stock, and distributions in partial
or complete liquidation. However, dividends paid out of Sentinel Federal's
current or accumulated earnings and profits, as calculated for federal income
tax purposes, will not be considered to result in a distribution from Sentinel
Federal's bad debt reserve. Thus, any dividends to Sentinel that would reduce
amounts appropriated to Sentinel Federal's bad debt reserve and deducted for
federal income tax purposes would create a tax liability for Sentinel Federal.
The amount of additional taxable income attributable to an Excess Distribution
is an amount that, when reduced by the tax attributable to the income, is equal
to the amount of the distribution. Thus, if, Sentinel Federal makes a
"nondividend distribution," then approximately one and one-half times the amount
so used would be includable in gross income for federal income tax purposes,
assuming a 35% corporate income tax rate (exclusive of state and local taxes).
See "--Limitations on Capital Distributions" for limits on the payment of
dividends by Sentinel Federal. Sentinel Federal does not intend to pay
dividends that would result in
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a recapture of any portion of its tax bad debt reserve.
Corporate Alternative Minimum Tax. The Code imposes a tax on alternative
minimum taxable income ("AMTI") at a rate of 20%. The excess of the tax bad
debt reserve deduction using the percentage of taxable income method over the
deduction that would have been allowable under the experience method is treated
as a preference item for purposes of computing the AMTI. In addition, only 90%
of AMTI can be offset by net operating loss carryovers. AMTI is increased by an
amount equal to 75% of the amount by which Sentinel Federal's adjusted current
earnings exceeds its AMTI (determined without regard to this preference and
prior to reduction for net operating losses). For taxable years beginning after
December 31, 1986, and before January 1, 1996, an environmental tax of .12% of
the excess of AMTI (with certain modification) over $2.0 million is imposed on
corporations, including Sentinel Federal, whether or not an Alternative Minimum
Tax ("AMT") is paid.
Dividends-Received Deduction and Other Matters. Sentinel may exclude from
its income 100% of dividends received from Sentinel Federal as a member of the
same affiliated group of corporations. The corporate dividends-received
deduction is generally 70% in the case of dividends received from unaffiliated
corporations with which Sentinel and Sentinel Federal will not file a
consolidated tax return, except that if Sentinel or Sentinel Federal owns more
than 20% of the stock of a corporation distributing a dividend, then 80% of any
dividends received may be deducted.
Other Federal Tax Matters. Other recent changes in the federal tax system
could also affect the business of Sentinel Federal. These changes include
limitations on the deduction of personal interest paid or accrued by individual
taxpayers, limitations on the deductibility of losses attributable to investment
in certain passive activities and limitations on the deductibility of
contributions to individual retirement accounts. Sentinel Federal does not
believe these changes will have a material effect on its operations.
There have not been any Internal Revenue Service audits of Sentinel
Federal's Federal income tax returns or audits of Sentinel Federal's state
income tax returns during the past five years.
MISSOURI TAXATION
Missouri-based thrift institutions, such as Sentinel Federal, are subject
to a special financial institutions tax, based on net income without regard to
net operating loss carryforwards, at the rate of 7% of net income. This tax is
in lieu of certain other state taxes on thrift institutions, on their property,
capital or income, except taxes on tangible personal property owned by Sentinel
Federal and held for lease or rental to others and on real estate, contributions
paid pursuant to the Unemployment Compensation Law of Missouri, social security
taxes, sales taxes and use taxes. In addition, Sentinel Federal is entitled to
credit against this tax all taxes paid to the State of Missouri or any political
subdivision except taxes on tangible personal property owned by Sentinel Federal
and held for lease or rental to others and on real estate, contributions paid
pursuant to the Unemployment Compensation Law of Missouri, social security
taxes, sales and use taxes, and taxes imposed by the Missouri Financial
Institutions Tax Law. Missouri thrift institutions are not subject to the
regular state corporate income tax.
Sentinel Federal, along with several other savings and loans located in the
State of Missouri, challenged the constitutionality of the state intangible tax
as applied to savings and loans. In 1981, the Missouri Supreme Court upheld
Sentinel Federal's prior claim to refund the state intangible taxes paid to the
state. The Supreme Court's decision paved the way for Sentinel Federal to
pursue reimbursement of the taxes previously paid totalling approximately
$523,500 including accrued interest on the remaining balance due from the state.
Beginning in the 1987 tax year, Sentinel Federal utilized an offset against
state taxes due to reduce Sentinel Federal's total claim. According to
management, substantially all the offset amount has been utilized and an
estimated total offset of approximately $8,000 remains for future use.
For additional information regarding taxation, see Note 11 of Notes to
Consolidated Financial Statements of Sentinel contained in this Proxy
Statement/Prospectus.
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COMPARISON OF RIGHTS OF STOCKHOLDERS OF ROOSEVELT FINANCIAL GROUP, INC.
AND SENTINEL FINANCIAL CORPORATION
Introduction
Upon the consummation of the Merger, holders of Sentinel Common Stock,
whose rights are presently governed by Delaware law and Sentinel's certificate
of incorporation and bylaws (the "Sentinel Certificate" and "Sentinel Bylaws,"
respectively) and, indirectly, Sentinel Federal's charter and bylaws, will
become stockholders of Roosevelt, also a Delaware corporation. Accordingly,
their rights will be governed by the DGCL and the certificate of incorporation
and bylaws of Roosevelt (the "Roosevelt Certificate" and "Roosevelt Bylaws,"
respectively) and, indirectly, Roosevelt Bank's charter and bylaws. Certain
differences arise from the differences between the Sentinel Certificate and
Bylaws and the Roosevelt Certificate and Bylaws and between the charter and
bylaws of Sentinel Federal and Roosevelt Bank. The following discussion
summarizes material differences affecting the rights of stockholders but is not
intended to be a complete statement of all differences and is qualified in its
entirety by reference to the DGCL, the Roosevelt Certificate and Bylaws, the
Sentinel Certificate and Bylaws and the respective charters and bylaws of
Sentinel Federal and Roosevelt Bank.
Each Sentinel stockholder should carefully consider these differences in
connection with the decision to vote for or against the adoption and approval of
the Merger Agreement.
Capital Stock
The Sentinel Certificate authorizes the issuance of 2,000,000 shares of
common stock, $.01 par value per share, and 500,000 shares of serial preferred
stock, $.01 par value per share, and provides that the Sentinel Board may issue
such preferred stock in one or more series, may fix the designations, powers,
preferences, rights, qualifications, limitations and restrictions with respect
to such shares and may specify the number of shares of any such series, all
without stockholder action. As of October __, 1996 there were a total of
513,423 shares of Sentinel Common Stock and no shares of Sentinel preferred
stock issued and outstanding.
The Roosevelt Certificate authorizes the issuance of 90,000,000 shares of
common stock, $.01 par value per share, 1,000,000 shares of Class I serial
preferred stock, $.01 par value per share, and 2,000,000 shares of Class II
serial preferred stock, no par value, and provides that the Roosevelt Board may
issue any authorized shares from time to time and may fix the rights and
preferences of the serial
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preferred stock, all without stockholder action. At October __, 1996, there were
42,152,474 shares of Roosevelt Common Stock, 999,100 shares of 6 1/2% Non-
Cumulative Convertible Preferred Stock, Series A (Class I) and 301,000 shares of
6 1/2% Non-Cumulative Convertible Preferred Stock, Series F (Class II) issued
and outstanding.
Special Meetings of Stockholders
The Sentinel Certificate and Sentinel Bylaws provide that special meetings
of stockholders of Sentinel may be called only by a majority of the Sentinel
Board or by a committee of the Sentinel Board which has been duly designated by
the Sentinel Board, upon a resolution adopted by a majority of the Board. The
Roosevelt Certificate and the Roosevelt Bylaws provide that special meetings of
stockholders of Roosevelt may be called only by the chairman of the board or the
president and shall be called by either individual at the written request of a
majority of the directors of Roosevelt then in office. Such request must state
the purpose or purposes of the proposed meeting.
Advance Notice Requirements for Nominations of Directors and Presentation of New
Business at Annual Meetings of Stockholders
The Sentinel Certificate provides that if a stockholder of Sentinel desires
to make nominations for the election of directors or proposals for new business
at any annual or special meeting of stockholders, he must give notice in writing
to the secretary of Sentinel not less than thirty days nor more than sixty days
prior to any such meeting; provided however, that if less than 31 days' notice
-------- -------
of the meeting is given to stockholders, such written notice by a stockholder
must be provided to the secretary of Sentinel not later than the close of the
tenth day following the day on which notice of the meeting was given to the
stockholders. The stockholder's notice with respect to nominations for
elections of directors must include (i) the name, age, business address and, if
known, residence address of each nominee proposed in such notice, (ii) the
principal occupation or employment of each such nominee, (iii) the number of
shares of stock of Sentinel which are beneficially owned by each such nominee,
(iv) such other information required under the Exchange Act to be disclosed in
proxy solicitation materials and (v) the stockholder's name and address as they
appear on Sentinel's books and the class and a number of shares which are
beneficially owned by such stockholder. A stockholder's notice of a business
proposal must set forth (i) a brief description of the business desired to be
brought before the meeting and the reasons therefor, (ii) the name and address,
as they appear on Sentinel's books, of the stockholder proposing such business,
(iii) the class and number of shares which are beneficially owned by the
stockholder and (iv) a disclosure of any material interest of the stockholder in
such business.
The Roosevelt Bylaws provide that Roosevelt stockholders may make
nominations for the election of directors by delivering written notice of such
nominations to the secretary of Roosevelt at least 15 days prior to the date of
the annual meeting of stockholders. Furthermore, if the Roosevelt Board fails
to nominate candidates for the board at least 20 days prior to the annual
meeting, then nominations may be made at the meeting by any stockholder entitled
to vote and such nominations shall be voted upon. The Roosevelt Bylaws
generally provide that any stockholder desiring to make a proposal for new
business at the annual meeting of stockholders must submit a written statement
of the proposal which must be received by the secretary of Roosevelt at least 20
days in advance of the meeting; provided, however, if less than 30 days notice
of the date of the meeting is given to stockholders, notice by the stockholder
to be timely must be so received not later than the close of business on the
tenth day following the day on which such notice of the date of the annual
meeting was mailed. The stockholder's notice must include a brief description
of the proposal, the stockholder's name and address and the class and number of
shares owned of record by the stockholder. If a stockholder fails to comply
with these advance notice requirements, no action will be taken on the proposal
at the meeting.
Number and Term of Directors
The Sentinel Certificate provides that the number of directors shall
consist of not less than five nor more than 25 members, as set forth in the
Sentinel Bylaws. The Sentinel Bylaws presently set the number of directors at
six persons. The Roosevelt Certificate provides that the Roosevelt Board shall
consist of not less than six nor more than 18 members, as set forth in the
Roosevelt Bylaws. The Roosevelt Bylaws presently set the number of directors at
ten persons.
85
<PAGE>
The Sentinel Certificate and Sentinel Bylaws and the Roosevelt Certificate
and Roosevelt Bylaws require the Boards of Directors of Sentinel and Roosevelt,
respectively, to be divided into three classes as nearly equal in number as
possible and that the members of each class shall be elected for a term of three
years and until their successors are elected and qualified, with one class being
elected annually.
Removal of Directors
The DGCL provides that directors serving on a classified board may be
removed only for cause unless the corporation's charter provides otherwise. The
Sentinel Certificate provides that the entire Sentinel Board, or any individual
director or directors, may be removed, but only for cause, by the affirmative
vote of the holders of at least 80% of the outstanding shares entitled to vote
generally in an election of directors. Under the Roosevelt Certificate, a member
of the Roosevelt Board may be removed, but only for cause as defined under OTS
regulations, by the affirmative vote of (i) not less than a majority of the
directors then in office and (ii) the holders of not less than a majority of the
then outstanding shares of capital stock entitled to vote generally in the
election of directors, voting as a single class. If less than the entire
Roosevelt Board is to be removed, no individual director may be removed from
office if the votes cast against the removal would be sufficient to elect a
director if the shares were cumulatively voted at an election for the class of
directors of which such director is a part.
Business Combinations with Certain Persons
The Sentinel Certificate provides that the affirmative vote of 80% of the
total outstanding shares of voting stock of Sentinel is required to approve any
of the following transactions, each of which is deemed a "Business Combination"
under the Sentinel Certificate: (i) any merger or consolidation of Sentinel or
any subsidiary thereof with a Related Person (generally any person or entity
controlling more than 10% of the outstanding shares of the common stock of
Sentinel or any affiliate of such person or entity); (ii) any sale, lease,
exchange, mortgage, pledge, transfer or other disposition to a Related Person of
all or any substantial part (generally more than 25%) of the assets of Sentinel;
(iii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition
to Sentinel or any subsidiary thereof of all or any substantial part of the
assets of a Related Person; (iv) the issuance of any securities of Sentinel or
any subsidiary thereof to any Related Person; (v) the acquisition by Sentinel or
any subsidiary thereof of any securities of a Related Person; (vi) any
reclassification of or involving the common stock of Sentinel; or (vii) any
agreement, contract or other arrangement providing for any of the transactions
described above. The supermajority voting provision will become inapplicable if
the Business Combination is approved by a two-thirds vote of the Continuing
Directors (generally those directors who are unaffiliated with the Related
Person and were members of the Board prior to the time the Related Person became
a Related Person).
In connection with certain "Business Combinations" (as defined below) and
related transactions between Roosevelt and a "Related Person" (generally any
person or entity who, together with affiliates, controls 10% or more of the
outstanding shares of voting stock of Roosevelt), the Roosevelt Certificate
requires the approval of the holders of at least 75% of Roosevelt's outstanding
shares of voting stock voting as a single class unless the transaction is
approved by the affirmative vote of at least 75% of the directors who are not
affiliated with the Related Person and who were directors at the time the
Related Person became a Related Person unless certain fair price criteria are
met. The Roosevelt Certificate defines "Business Combination" as: (i) any merger
or consolidation of Roosevelt or any of its subsidiaries with or into any
Related Person; (ii) any sale, lease, exchange, mortgage, pledge, transfer, or
other disposition other than in the ordinary course of business to or with a
Related Person of any assets of Roosevelt having an aggregate fair market value
of $1,000,000 or more; (iii) the issuance or transfer by Roosevelt of any shares
of its voting stock or securities convertible into such shares (other than by
way of a pro rata distribution to all stockholders) to a Related Person; (iv)
the adoption of any plan or proposal for the liquidation or dissolution of
Roosevelt or any of its subsidiaries proposed, directly or indirectly, by or on
behalf of a Related Person; (v) any recapitalization, merger or consolidation
that would have the effect of increasing the voting power of a Related Person;
(vi) any merger or consolidation of Roosevelt with another person proposed,
directly or indirectly, by or on behalf of a Related Person unless the surviving
or resulting entity has a provision in its governing instrument which is
substantially identical to this provision of the Roosevelt Certificate; and
(vii) any agreement, contract or other arrangement or understanding providing,
directly or indirectly, for any of the transactions described in this paragraph.
86
<PAGE>
Amendment of Certificate of Incorporation and Bylaws
The DGCL provides that the certificate of incorporation of a Delaware
corporation may be amended only if first approved by the corporation's board of
directors and thereafter by a majority of the outstanding stock entitled to vote
thereon, and, if applicable, a majority of each class of shares entitled to vote
thereon as a class. The Sentinel Certificate states that Sentinel reserves the
right to amend or repeal any provision in the Sentinel Certificate as provided
by Delaware law, and that any rights given to stockholders therein are granted
subject to this reservation. Notwithstanding such reservation, the Sentinel
Certificate requires the affirmative vote of the holders of at least 80% of the
total votes eligible to be cast by Sentinel stockholders for approval of any
amendment of provisions set forth in the Sentinel Certificate governing (i)
action without a meeting of stockholders, (ii) the calling of special meetings
of stockholders, (iii) notice for nomination for elections of directors and
proposals for business, (iv) the number of members of, vacancies on and
structure of the Sentinel Board (v) removal of directors, (vi) certain
acquisitions of the capital stock of Sentinel, (vii) the approval of certain
business combinations with principal stockholders and the evaluation of business
combinations generally, (viii) indemnification of directors, officers, employees
and certain agents of Sentinel, (ix) elimination of directors' liability, (x)
amendment of the Sentinel Bylaws and (xi) amendment of the Sentinel Certificate.
The Roosevelt Certificate may be amended only if first approved by two-
thirds of the directors then in office at a duly constituted meeting called
expressly for that purpose and if thereafter approved by the affirmative vote of
a majority of the total votes eligible to be cast at a duly constituted meeting
of stockholders called expressly for that purpose, except that the affirmative
vote of the holders of at least 75% of the total votes eligible to be cast at
such meeting shall be required to amend, add to, change or repeal the provisions
of the Roosevelt Certificate governing (i) Roosevelt's internal affairs, (ii)
the calling of special meetings of stockholders, (iii) indemnification, (iv)
limitation on the personal liability of directors, (v) approval for acquisitions
of control and offers to acquire control, and (vi) amendment of the Roosevelt
Certificate, and that the provisions of the Roosevelt Certificate governing
Business Combinations may be amended, added to, changed or repealed only as set
forth therein.
The Sentinel Certificate provides that the Sentinel Bylaws may be amended
or repealed by either the affirmative vote of at least two-thirds of the
Sentinel Board or by the affirmative vote of the holders of at least 80% of the
stock entitled to vote generally in the election of directors. The Roosevelt
Certificate provides that the Roosevelt Bylaws may be amended or repealed by a
two-thirds vote of the entire Roosevelt Board then in office at a meeting called
expressly for such purpose or by the holders of at least 75% of the outstanding
capital stock of Roosevelt entitled to vote thereon at a meeting called
expressly for such purpose.
Control Share Acquisitions
The Sentinel Certificate provides that, with certain exceptions, for a
period of five years from the effective date of the mutual-to-stock conversion
of Sentinel Federal, no person may directly or indirectly offer to acquire or
acquire beneficial ownership of more than 10% of any class of stock of Sentinel,
unless such offer or acquisition has been approved in advance by a two-thirds
vote of the Continuing Directors. If such provision is violated, the securities
in excess of the 10% limit may not be voted or counted as shares entitled to
vote.
In addition, the Sentinel Certificate provides that if, any time after five
years from the effective date of the conversion of Sentinel Federal, any person
acquires the beneficial ownership of more than 10% of any class of stock of
Sentinel, without the prior approval by a two-thirds vote of the Continuing
Directors, then with respect to each vote in excess of 10% of the outstanding
voting power of such stock, the acquiring person shall be entitled to cast only
one-hundredth of a vote.
The Roosevelt Certificate provides that, for as long as Roosevelt Bank
remains a majority-owned subsidiary of Roosevelt, no person shall acquire
beneficial ownership of 10% or more of the voting stock of Roosevelt unless (i)
the acquisition received prior approval, either by the affirmative vote of the
holders of at least two-thirds of the outstanding voting stock or, if first
approved by two-thirds of the directors then in office at a meeting of the
directors called for such purpose, then by the affirmative vote of holders of at
least a majority of the outstanding voting stock (in either case at a
stockholder meeting called for such purpose); and (ii) the acquisition received
prior approval by the proper federal regulatory agencies as provided under
federal law.
87
<PAGE>
In the event that beneficial ownership of 10% or more of the voting stock
of Roosevelt is acquired by any person in violation of the aforementioned
provisions, (i) Roosevelt may institute a private right of action to enforce the
relevant statutory and regulatory provisions under federal law, and (ii) all
voting stock of Roosevelt held by such person in excess of 10% of the
outstanding voting stock of Roosevelt shall no longer, from and after the date
of its acquisition (A) be entitled to vote on any matter, (B) be entitled to
take other stockholder action, (C) be counted in determining the total
outstanding shares of Roosevelt for purposes of any stockholder action, or (D)
be transferable except with the approval of the Roosevelt Board or of an
independent trustee appointed thereby (with the proceeds of such sale to be paid
(x) first, to the trustee, for its reasonable fees and expenses, (y) second, to
the acquiring person to cover its tax liability upon such sale, and (z) third,
to Roosevelt as to any remaining balance).
LEGAL MATTERS
The validity of the shares of Roosevelt Common Stock offered hereby will be
passed upon for Roosevelt by Silver, Freedman & Taff, L.L.P. (a limited
liability partnership including professional corporations), Washington, D.C.
Certain other legal matters in connection with the Merger will be passed upon
for Roosevelt by Silver, Freedman & Taff, L.L.P., and for Sentinel by Breyer &
Aguggia, Washington, D.C.
EXPERTS
The consolidated financial statements of Roosevelt as of December 31, 1995
and 1994, and for each of the years in the three-year period ended December 31,
1995, included in Roosevelt's Annual Report on Form 10-K for the year ended
December 31, 1995, as amended, and incorporated by reference in this Proxy
Statement/Prospectus, have been incorporated by reference herein in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.
The consolidated financial statements of Sentinel as of June 30, 1996 and
1995, and for each of the three years in the period ended June 30, 1996,
included in this Proxy Statement/Prospectus have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report appearing herein
(which report expresses an unqualified opinion and includes explanatory
paragraphs referring to the operation of Sentinel Federal under a Supervisory
Agreement with the OTS and changes in methods of accounting for certain
investments in debt and equity securities during the year ended June 30, 1995
and income taxes during the year ended June 30, 1994 and to Sentinel's entering
into the Merger Agreement), and have been so included in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
STOCKHOLDER PROPOSALS
Sentinel will hold a 1996 Annual Meeting of Stockholders only if the Merger
is not consummated before the time of such meeting. In such event, as disclosed
in the proxy materials for Sentinel's 1995 Annual Meeting of Stockholders, in
order to be eligible for inclusion in Sentinel's proxy materials for the 1996
Annual Meeting of Stockholders, any stockholder proposal to take action at such
meeting must have been received at the main office of Sentinel, 1001 Walnut
Street, Kansas City, Missouri 64106, no later than May 31, 1996. However, if
such 1996 Annual Meeting is held after late-October 1996, any stockholder
proposal must be received by Sentinel a reasonable time before the solicitation
of proxies for such Annual Meeting is made. Any such proposal shall be subject
to the requirements of the proxy rules adopted under the Exchange Act.
As disclosed in the proxy materials for Roosevelt's 1996 Annual Meeting of
Stockholders, in order to be eligible for inclusion in Roosevelt's proxy
materials for the 1997 Annual Meeting of Stockholders, any stockholder proposal
to take action at such meeting must be received at the main office of Roosevelt,
900 Roosevelt Parkway, Chesterfield, Missouri 63017, no later than November 26,
1996. Any such proposal shall be subject to the requirements of the proxy rules
adopted under the Exchange Act.
88
<PAGE>
INDEPENDENT ACCOUNTANTS
Representatives of Deloitte & Touche LLP, Sentinel's independent
accountants, are expected to be present at the Special Meeting. They will be
afforded the opportunity to make a statement if they desire to do so and are
expected to be available to respond to appropriate questions.
OTHER MATTERS
The Sentinel Board is not aware of any business to come before the Special
Meeting other than those matters described above in this Proxy
Statement/Prospectus. However, if any other matter should properly come before
the Special Meeting, it is intended that holders of the proxies will act in
accordance with their best judgment.
BY ORDER OF THE BOARD OF DIRECTORS
OF SENTINEL FINANCIAL CORPORATION
John C. Spencer
Secretary
89
<PAGE>
SENTINEL FINANCIAL CORPORATION
INDEX TO FINANCIAL STATEMENTS
Page Number
-----------
CONSOLIDATED FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT FOR THE
YEARS ENDED JUNE 30, 1993, 1994, AND 1995
<TABLE>
<CAPTION>
<S> <C>
Independent Auditors' Report.............................................. F-2
Consolidated Balance Sheets for the Years Ended June 30, 1995 and 1996.... F-3
Consolidated Statements of Income for the Years Ended June 30, 1994, 1995
and 1996................................................................. F-5
Consolidated Statements of Stockholders' Equity for the Years Ended June
30, 1994, 1995 and 1996.................................................. F-7
Consolidated Statements of Cash Flows for the Years Ended June 30, 1993,
1995 and 1996............................................................ F-8
Notes to Consolidated Financial Statements for the Years Ended June 30,
1994, 1995 and 1996...................................................... F-10
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS REPORT
Board of Directors
Sentinel Financial Corporation
Kansas City, Missouri
We have audited the accompanying consolidated balance sheets of Sentinel
Financial Corporation and subsidiary (the Company ) as of June 30, 1995 and
1996, and the related consolidated statements of income, stockholders equity
and cash flows for each of the three years in the period ended June 30, 1996.
These financial statements are the responsibility of the Company s management.
Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of June 30, 1995 and
1996, and the results of its operations and cash flows for each of the three
years in the period ended June 30, 1996 in conformity with generally accepted
accounting principles.
As discussed in Note 2 to the consolidated financial statements, Sentinel
Federal Savings and Loan Association of Kansas City (the Association ), a
wholly owned subsidiary of the Company, is operating under a supervisory
agreement with the Office of Thrift Supervision ( OTS ) dated December 20, 1989
restricting the Association, without prior written consent of OTS, from entering
into certain types of transactions as described in Note 2. Any failure on the
part of the Association to comply with the provisions of the agreement may
subject the Association to further regulatory actions.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for certain investments in debt and equity
securities for the year ended June 30, 1995 and changed its method of accounting
for income taxes for the year ended June 30, 1994.
As discussed in Note 19 to the consolidated financial statements, the Company
entered into an Agreement and Plan of a Merger and Reorganization with a holding
company of another Federal savings bank that would result in a merger of the
Company subject to certain approvals.
/s/Deloitte & Touche LLP
August 15, 1996
Kansas City, Missouri
F-2
<PAGE>
SENTINEL FINANCIAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1995 AND 1996
<TABLE>
<CAPTION>
ASSETS 1995 1996
----------- -----------
<S> <C> <C>
CASH AND CASH EQUIVALENTS:
Cash and amounts due from depository institutions $ 2,775,381 $ 913,558
Interest bearing deposits in other banks 922,738 1,655,753
Federal funds sold 50,000 50,000
----------- -----------
Total cash and cash equivalents 3,748,119 2,619,311
INVESTMENTS SECURITIES (Market value of $2,468,435
and $1,987,500) 2,498,094 1,999,639
CAPITAL STOCK OF FEDERAL HOME LOAN BANK, At cost 1,848,300 1,885,500
SECURITIES AVAILABLE FOR SALE
(Cost of $1,100,000 in both years) 1,082,814 1,093,125
MORTGAGE-RELATED SECURITIES (Market value of
$68,663,736 and $51,172,581) 68,940,693 51,519,619
ASSETS HELD FOR SALE, (Cost of $773,026 and $484,350) 773,026 484,350
LOANS RECEIVABLE, (Less allowance for loan losses
of $318,114 and $319,160) 80,956,440 82,692,873
PREMISES AND EQUIPMENT, net 790,241 363,461
ACCRUED INTEREST RECEIVABLE:
Loans receivable 444,221 527,115
Mortgage-related securities 535,371 414,493
Investment securities 54,704 49,465
----------- -----------
Total accrued interest receivable 1,034,296 991,073
DEFERRED INCOME TAXES 77,000 73,494
OTHER ASSETS 165,147 119,716
----------- -----------
TOTAL ASSETS $161,914,170 $143,842,161
============ ============
</TABLE>
(Continued)
F-3
<PAGE>
SENTINEL FINANCIAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1995 AND 1996
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS EQUITY 1995 1996
------------ ------------
<S> <C> <C>
DEPOSITS $126,439,826 $123,253,063
ADVANCE PAYMENTS BY BORROWERS FOR TAXES AND
INSURANCE 1,352,340 1,141,976
INCOME TAXES PAYABLE 751,426 112,332
ACCRUED AND OTHER LIABILITIES 905,345 666,445
ADVANCES FROM FEDERAL HOME LOAN BANK 21,850,000 7,000,000
------------ ------------
Total liabilities 151,298,937 132,173,816
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS EQUITY:
Serial preferred stock, $.01 par value; 500,000
shares authorized, no shares issued or outstanding
Common stock, $.01 par value; 2,000,000 shares
authorized, 513,423 shares issued 5,134 5,134
Additional paid-in capital 4,602,678 4,627,459
Unearned compensation - Employee Stock
Ownership Plan (206,114) (163,929)
Unearned compensation - Management Recognition Plan (76,500) (25,500)
Unrealized loss on securities available for sale, net (9,433) (2,628)
Retained earnings, substantially restricted 6,299,468 7,227,809
------------ ------------
Total stockholders equity 10,615,233 11,668,345
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $161,914,170 $143,842,161
============ ============
</TABLE>
See notes to consolidated financial statements. (Concluded)
F-4
<PAGE>
SENTINEL FINANCIAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
----------- ---------- ----------
<S> <C> <C> <C>
INTEREST INCOME:
Loans receivable $5,789,923 $5,854,921 $6,659,344
Mortgage-related securities 3,227,457 4,189,699 3,918,647
Investment securities 253,941 311,710 134,216
Other interest - cash and cash equivalents 146,900 66,164 291,903
---------- ---------- ----------
Total interest income 9,418,221 10,422,494 11,004,110
---------- ---------- ----------
INTEREST EXPENSE:
Deposits 6,138,725 6,298,360 6,792,882
Advances from Federal Home Loan Bank 641,329 1,045,895 734,118
Termination of interest rate swap agreements 168,361
---------- ---------- ----------
Total interest expense 6,948,415 7,344,255 7,527,000
---------- ---------- ----------
NET INTEREST INCOME 2,469,806 3,078,239 3,477,110
PROVISION FOR LOAN LOSSES 41,778
NET INTEREST INCOME AFTER ---------- ---------- ----------
PROVISION FOR LOAN LOSSES 2,428,028 3,078,239 3,477,110
OTHER INCOME:
Loan servicing and other fees, net 146,711 123,874 125,553
Insurance commissions 163,494 101,120 39,457
Gain on sale of securities available
for sale 53,509
Gain on sale of assets held for sale, net 35,094 30,281 128,564
Other 103,757 101,481 193,344
---------- ---------- ----------
Total other income 449,056 410,265 486,918
---------- ---------- ----------
OTHER
EXPENSE:
Salaries and employee benefits 1,184,376 1,297,531 1,397,087
Federal insurance premiums 472,302 412,059 366,656
Professional and other outside services 299,249 309,541 437,329
Occupancy of premises 279,762 265,916 252,886
Office supplies and related expenses 123,867 132,236 135,967
Recovery of losses on real estate owned (42,677)
Impairment loss on building 242,000
Loss from settlement of litigation 145,000
Merger related expenses 135,000
Other 142,670 184,946 238,931
---------- ---------- ----------
Total other expenses 2,459,549 2,602,229 3,350,856
---------- ---------- ----------
</TABLE>
(Continued)
F-5
<PAGE>
SENTINEL FINANCIAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
1994 1995 1996
-------- -------- ---------
INCOME BEFORE INCOME TAX EXPENSE
(BENEFIT), AND CUMULATIVE EFFECTS
OF CHANGES IN ACCOUNTING PRINCIPLES $417,535 $886,275 $ 613,172
INCOME TAX EXPENSE (BENEFIT) 45,000 283,448 (315,169)
-------- -------- ---------
INCOME BEFORE CUMULATIVE EFFECTS OF
CHANGES IN ACCOUNTING PRINCIPLES 372,535 602,827 928,341
CUMULATIVE EFFECTS OF CHANGES IN
ACCOUNTING PRINCIPLES 191,000 27,000 0
-------- -------- ---------
NET INCOME $563,535 $629,827 $ 928,341
======== ======== =========
EARNINGS PER SHARE
(FROM JANUARY 7, 1994):
Income before cumulative effects of changes
in accounting principles $ 0.52 $ 1.25 $ 1.81
======== ======== =========
Net income $ 0.52 $ 1.31 $ 1.81
======== ======== =========
See notes to consolidated financial statements. (Concluded)
F-6
<PAGE>
SENTINEL FINANCIAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
Unearned Net
Compensation- Unearned Unrealized
Employee Compensation- Loss on Retained
Additional Stock Management Securities Earnings, Total
Common Stock Paid-In Ownership Recognition Available Substantially Stockholders
Shares Amount Capital Plan Plan for Sale Restricted Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JULY 1, 1993 $5,106,106 $5,106,106
Issuance of
common stock 472,623 $4,726 $4,189,261 4,193,987
Common stock
issued to
Employee Stock
Ownership Plan 25,500 255 254,745 ($255,000)
Common stock
issued to
Management
Recognition
Plan 15,300 153 152,847 ($153,000)
Common stock
committed to
be released
for allocation
- Employee
Stock Ownership
Plan 14,375
Amortization of
unearned
compensation -
Management
Recognition
Plan 25,500
Net income 563,535 563,535
BALANCE, JUNE 30,
------- ----- --------- -------- -------- --------- --------- ---------
1994 513,423 5,134 4,596,853 (240,625) (127,500) 5,669,641 9,903,503
Common stock
committed to be
released for
allocation -
Employee Stock
Ownership Plan 34,511 34,511
Amortization of
unearned
compensation -
Management
Recognition
Plan 51,000 51,000
Cumulative effect
of change in
accounting
principle
for securities
available for
sale, net ($27,000) (27,000)
Decrease in
unrealized loss
on securities
available for
sale, net 17,567 17,567
Increase in fair
market value of
Employee Stock
Ownership
Plan shares
committed to be
released for
allocation 5,825 5,825
Net income 629,827 629,827
BALANCE, JUNE 30,
------- ----- --------- ------- ------ ----- --------- ----------
1995 513,423 5,134 4,602,678 (206,114) (76,500) (9,433) 6,299,468 10,615,233
Common stock
committed to
be released
for allocation -
Employee Stock
Ownership Plan 42,185 42,185
Amortization of
unearned
compensation -
Management
Recognition
Plan 51,000 51,000
Decrease in
unrealized
loss on
securities
available
for sale,
net 6,805 6,805
Increase in
fair market
value of
Employee
Stock
Ownership
Plan shares
committed
to be
released
for
allocation 24,781 24,781
Net income 928,341 928,341
BALANCE, JUNE 30,
------- ------ ---------- -------- ------- ------ ---------- -----------
1996 513,423 $5,134 $4,627,459 ($163,929) ($25,500) ($2,628) $7,227,809 $11,668,345
======= ====== ========== ======== ======= ====== ========== ===========
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
SENTINEL FINANCIAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
CASH
<S> <C> <C> <C>
FLOWS FROM OPERATING ACTIVITIES:
Net income $ 563,535 $ 629,827 $ 928,341
Adjustments to reconcile net income
to net cash provided by operating
activities:
Impairment loss on building 242,000
Cumulative effects of changes in
accounting principles (191,000) (27,000)
Amortization of premiums and
discounts on mortgage-
related securities and
investment securities, net 462,845 300,107 341,954
Common stock committed to be
released for allocation - ESOP 14,375 34,511 42,185
Increase in fair market value of
ESOP shares committed to be
released for allocation 5,825 24,781
Amortization of unearned
compensation related to
Management Recognition Plan 25,500 51,000 51,000
Depreciation and amortization 135,310 114,903 103,301
Federal Home Loan Bank stock
dividends (37,200)
Provision for loan losses 41,778
Recovery of losses on real estate owned (42,677)
Net loan origination fees capitalized 166,861 48,396 132,200
Amortization of net deferred loan
origination fees (58,188) (29,334) (194,888)
Gain on sale of assets held for
sale, net (35,094) (30,281) (128,564)
Gain on sale of securities available
for sale, net (53,509)
Gain on sale of real estate owned (33,572)
Unrealized losses on assets held for
sale 32,141
Provision (benefit) for deferred
income taxes (78,000) 40,000 3,506
Origination of loans held for sale (6,518,000) (4,066,850) (10,768,992)
Proceeds from sale of loans held
for sale 6,553,094 3,293,824 11,482,668
Changes in:
Accrued interest receivable (76,457) (109,893) 43,223
Other assets 5,052 (78,483) 45,431
Income taxes payable (61,908) 12,234 (639,094)
Accrued and other liabilities 117,648 208,436 (238,900)
Other, net (7,014) (3,506)
---------- ---------- -----------
Net cash provided by
operating activities 1,023,243 336,699 1,429,446
---------- ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investment
securities 396,000 500,000
Proceeds from sale of securities
available for sale 56,940
Purchases of investment securities (2,492,266)
Principal collected on mortgage-
related securities 18,159,956 13,849,776 17,077,575
Purchases of mortgage-related
securities (30,994,557) (9,999,383)
Principal collected on loans
receivable, net of loan
originations 7,614,890 (8,777,320) (1,545,181)
Purchases of land, premises and
equipment (39,629) (74,723) (343,521)
Proceeds from sales of real
estate owned 180,265 109,882
Net cash provided by ----------- ---------- ----------
(used in) investing
activities (7,175,341) (4,834,828) 15,688,873
------------ ----------- -----------
(Continued)
</TABLE>
F-8
<PAGE>
SENTINEL FINANCIAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
1994 1995 1996
FLOWS FROM FINANCING ACTIVITIES: CASH
Payments for deposits, net ($7,081,191) ($5,063,864) ($3,186,763)
Net (decrease) increase in advance
payments by borrowers for taxes
and insurance (109,900) 85,163 (210,364)
Proceeds from advances from Federal
Home Loan Bank 19,900,000 66,935,500 24,050,000
Repayments on advances from Federal
Home Loan Bank (19,450,000) (55,535,500) (38,900,000)
Issuance of common stock 4,193,987
---------- ---------- ----------
Net cash (used in) provided
by financing activities (2,547,104) 6,421,299 (18,247,127)
---------- ---------- ----------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (8,699,202) 1,923,170 (1,128,808)
CASH AND CASH EQUIVALENTS:
Beginning of year 10,524,151 1,824,949 3,748,119
---------- ---------- ----------
End of year $ 1,824,949 $3,748,119 $2,619,311
=========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Income tax payments $55,920 $231,214 $256,887
=========== ========== ==========
Interest payments $ 6,785,874 $7,201,278 $6,814,775
=========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Common stock issued to Employee
Stock Ownership Plan $255,000
========
Issuance of common stock for
noncash consideration to
Management Recognition Plan Trust $153,000
========
Loans transferred to real estate owned $109,882
========
Transfer of land and building to assets
held for sale $425,000
========
Change in unrealized loss on
securities available for sale, net $17,567 $6,805
======= ======
See notes to consolidated financial statements. (Concluded)
F-9
<PAGE>
SENTINEL FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
1. ACCOUNTING POLICIES AND PROCEDURES
Organization - Sentinel Federal Savings and Loan Association is a community
oriented savings bank engaged primarily in the business of attracting
customer deposits and originating mortgage loans. In September 1993,
Sentinel Federal Savings and Loan Association of Kansas City ("the
Association") formed Sentinel Financial Corporation ("the Company") to
acquire 100% of the common stock of the Association upon its conversion
from the mutual-to-stock form of ownership. The Association's conversion
and an initial public offering of the Company's common stock were completed
on January 7, 1994 with the sale of 513,423 shares of the Company's common
stock (inclusive of 25,500 and 15,300 shares acquired by the Company's
employee stock ownership plan - ESOP and the Company's management
recognition plan - MRP, respectively). The Company received net proceeds of
$4,601,987 (inclusive of $408,000 associated with the shares issued to the
ESOP and MRP), of which $4,093,987 was simultaneously transferred to the
Association in exchange for all of the Association's common stock. As a
result, the Company is a holding company which owns 100% of the Association
s common stock.
On January 7, 1994, the Association segregated and restricted $5,000,179 of
retained earnings, which was the amount of its regulatory capital at March
31, 1993, in a liquidation account for the benefit of eligible savings
account holders who continue to maintain their accounts at the Association
after the conversion. In the event of a complete liquidation of the
Association (and only in such an event), each eligible account holder will
be entitled to receive a distribution from the liquidation account in an
amount proportionate to the current adjusted balances of all qualifying
deposits then held. The liquidation account will be reduced annually to the
extent that eligible account holders have reduced their qualifying
deposits.
Subsequent to the conversion, the Company or the Association may not
declare or pay cash dividends on any of its shares of common stock if the
effect would be to reduce stockholders equity below either the amount
required for the liquidation account discussed above or the applicable
regulatory capital requirements or if such declaration and payment would
otherwise violate regulatory requirements. In addition, the supervisory
agreement described in Note 2 further restricts the payment of dividends by
the Association.
Principles of Consolidation - The consolidated financial statements include
the accounts of the Company and its wholly owned subsidiary, Sentinel
Federal Savings and Loan Association of Kansas City. The Association has
two wholly owned subsidiaries, Claywood Financial Services, Inc. and
Sentinel Insurance Agency, Inc. Significant intercompany accounts and
transactions have been eliminated.
F-10
<PAGE>
Estimates - The preparation of the financial statements in conformity
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Specifically, management has made
assumptions in estimating the fair value of financial instruments,
estimates regarding loan losses, an impairment loss on building and in the
amortization/accretion of premiums/discounts on investments subject to
prepayment risk. Actual results could differ from estimates made based on
management assumptions.
Cash and Cash Equivalents - Cash and cash equivalents include cash on hand,
amounts due from depository institutions, federal funds sold and interest
bearing deposits in other banks purchased with an original maturity of
three months or less.
The Association is required by regulation to maintain liquid assets in the
form of cash and securities approved by Federal regulations, at a monthly
average of not less than 5% of customer deposits and short-term borrowings.
Securities Available for Sale - On July 1, 1994, the Company adopted
Statement of Financial Accounting Standard ("SFAS") No. 115, Accounting for
Certain Investments in Debt and Equity Securities. This Statement addresses
the accounting and reporting treatment for certain investments in debt and
equity securities by requiring such investments to be classified in
held-to-maturity, available-for-sale or trading categories. Securities
classified as available-for-sale are carried at market with unrealized
gains (losses) included as a separate component of equity, net of income
taxes. The adoption of the Statement resulted in a decrease to stockholders
equity of $27,000 (net of deferred income taxes) which is reflected as a
cumulative effect of change in accounting principle in the consolidated
statement of income for the year ended June 30, 1995.
Assets Held for Sale - Management has designated certain loans receivable
as held for sale as management does not intend to hold such assets to
maturity. Accordingly, loans receivable are carried at the lower of
amortized cost (outstanding principal, adjusted for unamortized premiums,
and unaccreted discounts) or market value. Interest on these assets
(including amortization and accretion of premiums and discounts) is
included in interest income on loans receivable.
Land and building have been designated as assets held for sale based on
management's pending sale of its Kansas City office (Note 8).
Securities Held to Maturity:
Investment Securities - Securities of the United States Government and
agencies are recorded at amortized cost based on management s intention,
and the Company s ability to hold them to maturity. Related premiums and
discounts are accreted and amortized into income over the lives of the
securities using the level-yield method.
Mortgage-Related Securities - Mortgage-related securities are recorded at
amortized cost based on management s intention, and the Company s ability
to hold them to maturity. The related premiums and discounts are accreted
and amortized over the estimated lives of the underlying securities using
the level-yield method.
F-11
<PAGE>
New Statements of Financial Accounting Standards - In June 1996, the
Financial Accounting Standards Board ( FASB ) issued Statement of Financial
Accounting Standard ( SFAS ) No. 125, Accounting for Transfer of Financial
Assets, which will become effective for the Company beginning January 1,
1997. This Statement supersedes SFAS No. 122, Accounting for Mortgage
Servicing Rights, which requires an assessment of capitalized mortgage
servicing rights for impairment based on the fair value of those rights.
This Statement requires that after transfer of financial assets, an entity
recognizes the financial and servicing assets for which it has retained
control and any liabilities it has retained or incurred, derecognizes
financial assets for which control has been surrendered and derecognizes
liabilities when extinguished. Management believes that the implementation
of this Statement will have a minimal effect on the Company.
In March 1995, the FASB issued SFAS No. 121, Accounting for Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of, which will
become effective for the Company beginning July 1, 1996. It requires a
review of long-lived assets, certain intangibles and goodwill to be held
and used by an entity for impairment when events or changes in
circumstances indicate that the carrying amount may not be recoverable. In
performing the review for recoverability, the entity should estimate the
future cash flows expected to result from the use of the asset and its
eventual disposition. Measurement of an impairment loss for long-lived
assets and identifiable intangibles that an entity expects to hold and use
should be based on the fair value of the asset. Management believes that
the implementation of this Statement will not have a significant effect on
the Company.
In October 1995, the FASB issued SFAS No. 123, Accounting for Stock Based
Compensation, which will become effective for the Company beginning July 1,
1996. This Statement requires the disclosure of the estimated fair value of
stock based compensation arrangements with employees and encourages but
does not require, the recognition of such expense. The Company does not
intend to adopt the recognition provisions of this Statement. Therefore,
the adoption of this Statement will have no effect on the Company s
financial condition or results from operations.
Interest Rate Swap Agreements - The Association utilized interest rate swap
agreements as part of its asset and liability management strategy. The
swaps were matched with a group of short-term deposits. The Association
utilized settlement accounting relative to the interest differential on the
swaps. Net settlements, on a quarterly or semi-annual basis, were accrued
over the term of the swap agreement and the net interest differential was
recorded as an adjustment to interest expense on deposits. During 1994, the
Association terminated the interest rate swap agreements due to the
liquidation of the matched liabilities. The losses incurred as a result of
the termination of these swaps were charged to interest expense.
Loans Receivable - Loans are stated at the amount of unpaid principal less
an allowance for loan losses, undisbursed loan funds and unearned loan
fees, net of certain direct loan origination costs. Interest on loans is
credited to income as earned and accrued only if deemed collectible. Loans
are placed on nonaccrual status when, in the opinion of management, the
full timely collection of principal or interest is in doubt. As a general
rule, the accrual of interest is discontinued when principal or interest
payments become 90 days past due or earlier if conditions warrant. When a
loan is placed on nonaccrual status, previously accrued but unpaid interest
is reversed against current income. Subsequent collections of cash may be
applied as reductions to the principal balance or recorded as income,
depending on management s assessment of the ultimate collectibility of the
loan. Nonaccrual loans may be restored to accrual status when principal and
interest become current and full payment of principal and interest is
expected. Nonaccrual loans are insignificant to the Company. The Company
has no impaired loans.
F-12
<PAGE>
Net loan origination and commitment fees are amortized as a yield
adjustment to interest income using the level-yield method over the
contractual lives of the related loans.
The Association is principally engaged in single family home lending in the
state of Missouri. The Association also makes consumer loans depending on
the demand and management's assessment as to the quality of such loans.
Provision for Losses on Real Estate Owned - Real estate owned represents
foreclosed assets held for sale and is recorded at fair value as of the
date of foreclosure or transfer and is subsequently carried at the lower of
the new basis (fair value at foreclosure or transfer) or fair value, less
costs of disposal. Subsequently, properties are evaluated and any
additional declines which reduce the fair value to less than carrying value
are provided for as an allowance for losses on real estate owned. Costs and
expenses related to major additions and improvements are capitalized while
maintenance and repairs which do not improve or extend the lives of the
assets are expensed currently.
Provision for Loan Losses - Provision for loan losses include charges to
reduce the recorded balances of loans receivable to their estimated net
realizable value. Such provisions are based on management s estimates of
the net realizable value of the collateral, which take into consideration
current and anticipated future operating or sales conditions. These
estimates are susceptible to changes that could result in a material
adjustment to operations. Recovery of the carrying value of such loans is
dependent to a great extent upon economic, operating and other conditions
that may be beyond the Company s control.
Effective July 1, 1995, the Company adopted SFAS No. 114 and subsequent
amendment SFAS No. 118, both entitled Accounting by Creditors for
Impairment of a Loan, which prescribes criteria for recognition of loan
impairment as well as methods to measure impairment of certain loans,
including loans whose terms were modified in troubled debt restructurings.
The adoption of these Statements did not have a material effect on the
Company s financial statements.
Premises and Equipment - Premises and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation and amortization
are computed primarily on the straight-line method over the estimated
useful lives of the related assets. The following represents a summary of
estimated useful lives:
Years
Building and improvements 7- 14
Furniture and fixtures 5- 7
Leasehold improvements 10
Computer equipment and software 3- 5
Capital Stock of Federal Home Loan Bank - Capital stock of Federal Home
Loan Bank is carried at cost. Dividends received on such stock is reflected
as interest income on investment securities in the consolidated statements
of income.
Income Taxes - The Company, the Association and its subsidiaries file a
consolidated Federal income tax return. State income tax returns are
individually filed for each of the entities. On July 1, 1993, the Company
changed its method of accounting for income taxes to conform to the
requirements of SFAS No. 109, Accounting for Income Taxes, which specifies
the asset and liability
F-13
<PAGE>
method of accounting for income taxes. Under the asset and liability
method, deferred tax assets and liabilities are established for the
temporary differences between the financial accounting basis and tax basis
of the Company s assets and liabilities at the current statutory tax rates.
A valuation allowance is established for deferred tax assets when their
realization is in doubt based on a more likely than not analysis. The
cumulative effect of the change in accounting for income taxes was to
increase net income by $191,000 for the year ended June 30, 1994. The
Company reflected this cumulative effect in operations during the year
ended June 30, 1994.
The Association is permitted under the Internal Revenue Code to deduct an
annual addition to a reserve for bad debts in determining taxable income,
subject to certain limitations. This addition differs from the bad debt
experience used for financial accounting purposes. Bad debt deductions for
income tax purposes are included in taxable income of later years only if
the bad debt reserve is used subsequently for purposes other than to absorb
bad debt losses. Under SFAS No. 109, a deferred tax liability is provided
only to the extent the tax bad debt reserve exceeds the base year reserve.
The base year reserve is the tax bad debt reserve as of June 30, 1988.
Retained earnings as of June 30, 1996 includes approximately $1,887,000
representing such bad debt reserve as of the base year for which no
deferred income taxes have been provided.
The Small Business Job Protection Act of 1996 (the "Act") was enacted into
legislation. The Act repeals the special bad debt reserve method for thrift
institutions. The Act requires thrifts to recapture only reserves
accumulated after 1987, but forgives taxes owed on reserves accumulated
prior to 1988. Thrift institutions will be given six years to account for
the recaptured excess reserves, beginning with the last taxable year
beginning after 1995, and will be permitted to delay the timing of this
recapture for one or two years subject to whether they meet certain
residential loan tests. The Act will not have a material impact on the
Association's consolidated financial statements as a deferred tax liability
has been provided on the excess reserves.
Earnings Per Share - The Company completed its initial stock offering on
January 7, 1994, and, accordingly, earnings per share for 1994 was computed
on net income and common stock outstanding from that date. Earnings per
share for 1994 was calculated by dividing net income since January 7, 1994,
aggregating $254,388 by the weighted average number of common and common
equivalent shares outstanding. The weighted average number of common and
common equivalent shares outstanding include the vested shares held in the
management recognition plan and shares issuable upon exercise of dilutive
options outstanding. The Company accounts for the 25,500 shares acquired by
its ESOP in accordance with Statement of Position 93-6; shares controlled
by the ESOP are not considered in the weighted average shares outstanding
until the shares are committed for allocation to an employee s individual
account. The weighted number of common and common equivalent shares
outstanding for the period January 7, 1994 through June 30, 1994 and the
years ended June 30, 1995 and 1996 were 487,923, 480,886 and 512,318,
respectively.
Reclassifications - Certain items in the 1994 and 1995 financial
statements have been reclassified to conform with the 1996 presentation.
F-14
<PAGE>
2. REGULATORY COMPLIANCE
Under the Financial Institutions Reform, Recovery and Enforcement Act
of 1989 ( FIRREA ), the Office of Thrift Supervision ( OTS )
established capital regulations requiring savings associations to
maintain: (i) core capital equal to 3% of adjusted total assets, (ii)
tangible capital equal to 1.5% of adjusted total assets and (iii) risk
based capital equal to 8.0% of risk-weighted assets. Any savings
association that is not in compliance with the capital standards shall
have 60 days from the date the savings association falls out of
compliance to submit a capital plan acceptable to OTS demonstrating
that the savings association can meet applicable capital standards.
Any savings association that files and adheres to a capital plan that
is acceptable to OTS and receives approval of a capital exception or
exemption shall not be subject to sanctions or penalties for failure
to meet its statutory capital standards, provided that the association
complies with its plan. The Company's wholly owned subsidiary,
Sentinel Federal Savings and Loan Association of Kansas City was
operating under an OTS approved capital plan through May 31, 1994. As
a result of the completion of a stock conversion and capital infusion
during fiscal 1994, OTS terminated the capital plan requirement as of
June 1, 1994, however the Association continues to operate under a
supervisory agreement.
The Association meets all of the minimum capital requirements as of
June 30, 1996. The Association's capital amounts (in thousands) and
ratios as of June 30, 1996 are as follows:
Required Actual Excess
Amount Ratio Amount Ratio Amount Ratio
Tangible capital to
adjusted
total assets $2,161 1.5% $11,144 7.7% $8,983 6.2%
Core capital to
adjusted
total assets 4,323 3.0 11,144 7.7 6,821 4.7
Total capital to risk-
weighted assets 4,469 8.0 11,463 20.5 6,994 12.5
Reconciliation of stockholders equity of the Association under
generally accepted accounting principles to risk based regulatory
capital as of June 30, 1996 is as follows:
(in thousands)
Stockholders equity $11,168
Unallowed management recognition plan (27)
Unrealized loss on certain available for sale securities 3
-------
Tangible/core capital 11,144
General loan loss reserves 319
-------
Risk-based capital $11,463
=======
As a result of an OTS review of operations and financial condition, the
Board of Directors of the Association executed a supervisory agreement with
OTS dated December 20, 1989 restricting the Association, without prior
written consent of OTS, from entering into certain types of transactions
including, among others, the origination or refinancing of certain types of
consumer loans in excess of $25,000, commercial and mortgage loans in
excess of $500,000, and restricted the nature of
F-15
<PAGE>
investments in certain assets, the disposition of certain assets, the
borrowing of money other than from a Federal Home Loan Bank, increases in
certain liabilities and the involvement in leases and other contracts with
affiliated parties. Sanctions would be imposed if the Association is unable
to continue to comply with the provisions of the agreement as approved.
Such actions may involve the appointment of a conservator to manage and
direct the future operations of the Association. Exceptions to the above
restrictions have been allowed under prior written approval of OTS.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA )
required each federal banking agency to implement prompt corrective actions
for institutions that it regulates. In response to this requirement, OTS
adopted rules based upon FDICIA s five capital tiers. The rules provide
that a savings association is well capitalized if its total risk-based
capital ratio is 10% or greater, its Tier 1 risk-based capital ratio is 6%
or greater, its leverage is 5% or greater and the institution is not
subject to a capital directive. Under this regulation, the Association
would be deemed to be well capitalized as of June 30, 1996.
3. INVESTMENT SECURITIES
1995
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
U.S. Treasury
Notes
maturing
within
one year $ 499,029 $1,214 $497,815
U.S. Treasury
Notes
maturing
after
one year
through
two years 1,999,065 28,445 1,970,620
---------- ------ ----------
$2,498,094 $29,659 $2,468,435
========== ======= ==========
1996
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
U.S. Treasury
Notes
maturing
within
one year $1,999,63 $12,139 $1,987,500
========== ======= ==========
F-16
<PAGE>
4. MORTGAGE-RELATED SECURITIES
<TABLE>
<CAPTION>
1995
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Pass-through
certificates:
Federal
National
Mortgage
Association -
adjustable
rate $44,159,151 $204,395 $294,624 $44,068,922
Federal
Home
Loan
Mortgage
Corporation -
adjustable
rate 24,714,380 86,365 271,530 24,529,215
Small
Business
Adminis-
tration 67,162 1,563 65,599
----------- -------- -------- -----------
$68,940,693 $290,760 $567,717 $68,663,736
=========== ======== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
1996
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Pass-through
certificates:
Federal
National
Mortgage
Association -
adjustable
rate $32,837,920 $152,862 $304,540 $32,686,242
Federal
Home
Loan
Mortgage
Corporation-
adjustable
rate 18,628,503 43,608 236,971 18,435,140
Small
Business
Adminis-
tration 53,196 1,997 51,199
----------- -------- -------- -----------
$51,519,619 $196,470 $543,508 $51,172,581
----------- -------- -------- -----------
</TABLE>
Certain mortgage-related assets have been pledged as collateral for
deposits and advances from Federal Home Loan Bank (see Notes 10 and 12).
The adjustable rate securities have interest rate adjustment limitations
and are generally indexed to the 1-year U.S. Treasury rate or a cost of
funds index.
Market prices are determined from independent sources and reflect
estimated selling prices.
5. SECURITIES AVAILABLE FOR SALE
<TABLE>
<CAPTION>
1995
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S.
Government
agency
securities,
maturing on
October 1,
1996 $ 1,100,000 $ 17,186 $ 1,082,814
=========== ======== ===========
</TABLE>
F-17
<PAGE>
<TABLE>
<CAPTION>
1996
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S.
Government
agency
securities,
maturing on
October 1,
1996 $1,100,000 $ 6,875 $1,093,125
========== ======= ==========
</TABLE>
Market prices are determined from independent sources and reflect
estimated selling prices.
During fiscal 1995, the Association recorded a realized gain of
$53,509 on the sale of a security available for sale.
6. ASSETS HELD FOR SALE
<TABLE>
<CAPTION>
1996
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Loans $ 773,026 $ 773,026
========= =========
</TABLE>
<TABLE>
<CAPTION>
1996
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Loans $ 59,350 $ 59,350
Land and
building
(Note 3) 425,000 425,000
---------- ---------
$ 484,350 $ 484,350
========== =========
</TABLE>
Market prices are determined from independent sources and reflect
estimated selling prices.
A summary of gross realized gains (losses) on sales of assets held for
sale for the years ended June 30, 1994, 1995 and 1996 is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
Gross realized gains -
loans receivable $ 36,847 $30,281 $ 128,564
Gross realized losses -
loans receivable (1,753)
---------- --------- ----------
$ 35,094 $30,281 $ 128,564
========== ========= ==========
</TABLE>
F-18
<PAGE>
<TABLE>
<CAPTION>
7. LOANS RECEIVABLE
1995 1996
<S> <C> <C>
Real estate mortgage loans:
Residential - one to four
units $74,444,100 $74,768,598
Residential -
five or more units 2,736,506 2,650,631
Construction 1,234,970 1,627,450
Commercial properties 2,195,008 2,575,687
----------- -----------
80,610,584 81,622,366
Other installment
loans:
Property improvements,
automobile and other 909,547 2,088,581
Deposits 354,619 335,456
__________ __________
1,264,166 2,424,037
Less:
Undisbursed loan funds 452,511 942,970
Unearned loan fees 147,685 91,400
Allowance for loan losses 318,114 319,160
----------- -----------
$80,956,440 $82,692,873
=========== ===========
</TABLE>
There were no commercial loans purchased during the three years in the
period ended June 30, 1996. There were no commercial loans originated
during 1994. During 1995 and 1996, commercial loan originations aggregated
approximately $1,675,000 and $500,000, respectively.
As of June 30, 1995 and 1996, loans totaling approximately $14,000 and
$168,100, respectively, were on nonaccrual status. The balance of the
reserve for uncollectible interest on nonaccrual status loans was
approximately $300 and $6,300 as of June 30, 1995 and 1996, respectively.
As of June 30, 1994, 1995 and 1996, the Association was servicing loans for
others aggregating $12,877,460, $11,918,417 and $11,416,101, respectively.
Such loans are not included in the accompanying consolidated balance
sheets. Servicing loans for others generally consists of collecting
mortgage payments, maintaining escrow accounts, disbursing payments to
investors and foreclosure processing. Loan servicing income includes
servicing fees from investors and certain charges collected from borrowers,
such as late payment fees. The Association held borrowers escrow balances
of $324,829, $302,777 and $259,447 as of June 30, 1994, 1995 and 1996,
respectively, related to loans serviced for others.
F-19
<PAGE>
The Association originates and purchases both adjustable and fixed interest
rate loans. As of June 30, 1996, the composition of these loans was as
follows:
<TABLE>
<CAPTION>
Fixed Rate Adjustable Rate
Term to Term to Rate
Maturity Book Value Adjustment Book Value
<S> <C> <C> <C>
1 mo. - 1 yr. $548,425 1 mo. - 1 yr. $25,595,525
1 yr. - 3 yrs. 2,351,004 1 yr. - 3 yrs. 13,214,828
3 yrs. - 5 yrs. 1,116,017 3 yrs. - 5 yrs. 5,527,475
5 yrs. - 10 yrs. 6,084,527 5 yrs. - 7 yrs. 388,092
10 yrs. - 20 yrs.13,508,797
Over 20 years 14,768,743
----------- -----------
$38,377,513 $44,725,920
=========== ===========
</TABLE>
The adjustable rate loans have interest rate adjustment limitations and are
generally indexed to the national monthly median cost of funds to Savings
Association Insurance Fund (SAIF)-insured institutions or the weekly average
yield on United States Treasury securities adjusted to a constant maturity
of 1 year.
The Association is subject to numerous lending-related regulations. Under
FIRREA, the Association may not make real estate loans to one borrower in
excess of the greater of 15% of its unimpaired capital and surplus or
$500,000, whichever is greater. This limitation is further restricted by the
Association's supervisory agreement as described in Note 2. As of June 30,
1996, management of the Association believes it is in compliance with this
limitation.
Under FIRREA, a federally-chartered savings and loan association's aggregate
commercial real estate loans may not exceed 400% of its capital as
determined under the capital standard provisions of FIRREA. The Association
is federally-chartered and subject to this limitation. This limitation is
further restricted by the Association s supervisory believes it is in
compliance with this limitation.
A summary of the activity in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
Balance, beginning of year $277,712 $318,114 $318,114
Provision charged to expense 41,778
Recoveries (losses)
credited (charged) to the
allowance (1,376) 1,046
-------- -------- --------
Balance, end of year $318,114 $318,114 $319,160
======== ======== ========
</TABLE>
F-20
<PAGE>
Aggregate loans to officers, directors and employees are summarized as
follows:
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
Balance, beginning of year $ 590,866 $ 596,470 $ 733,370
New loans 317,100 279,131 8,000
Principal payments (311,496) (142,231) (37,940)
--------- --------- ----------
Balance, end of year $ 596,470 $ 733,370 $ 703,430
========= ========= ==========
</TABLE>
Management believes such loans were made under terms and conditions
substantially the same as loans made to parties not affiliated with the
Company.
The Company did not engage in any troubled debt restructuring during the
years ended June 30, 1994, 1995 and 1996.
8. PREMISES AND EQUIPMENT
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Land $429,525 $ 274,275
Building and improvements 1,057,971 48,265
Furniture and fixtures 221,310 223,389
Leasehold improvements 241,079 239,793
Computer equipment and software 227,698 238,916
-------- ----------
2,177,583 1,024,638
Less accumulated depreciation 1,387,342 (661,177)
-------- ----------
$790,241 $ 363,361
======== ==========
</TABLE>
During the year ended June 30, 1996, OTS approved the Company's application
to relocate the Company s North Kansas City office and merge the Company's
home office into its new location. As a result of OTS approval and the
pending sale of the Company's Kansas City office, management recorded a
$242,000 impairment loss, in accordance with SFAS No. 5, to reflect the
difference between the current market value of the Kansas City office and
its amortized cost. The adjusted basis of land and building has been
reclassified to assets held for sale.
9. REAL ESTATE OWNED
A summary of the activity in the allowance for losses on real estate owned
is as follows:
<TABLE>
<CAPTION>
1994
<S> <C>
Balance, beginning of year $119,433
Recovery of losses (42,677)
Losses charged against
the allowance (76,756)
--------
Balance, end of year $
========
</TABLE>
F-21
<PAGE>
10. DEPOSITS
<TABLE>
<CAPTION>
1995 1996
Amount % Amount %
<S> <C> <C> <C> <C>
Passbook and checking accounts:
Passbook 2.72% and 2.75% as of
June 30, 1995 and 1996 $ 10,394,792 8 8,817,061 7
NOW 2.50% and 2.52% as of
June 30, 1995 and 1996 3,236,496 3 2,984,822 3
Money market demand deposits
with an average rate of
4.95% and 4.59% as of June 30,
1995 and 1996, respectively 18,563,814 15 19,051,156 15
----------- --- ---------- ---
32,195,102 26 30,853,039 25
----------- --- ---------- ---
Certificate accounts:
3.00% to 4.00% 5,185,334 4 346,558
4.01 to 5.00 16,878,626 13 5,910,423 5
5.01 to 6.00 25,582,590 20 49,133,334 40
6.01 to 7.00 32,519,483 26 26,749,612 22
7.01 to 8.00 8,725,578 7 6,713,609 5
8.01 to 9.00 4,647,321 4 3,195,265 3
9.01 to 10.00 605,792 351,223
10.01 to 11.00 100,000
----------- --- ---------- ---
94,244,724 74 92,400,024 75
------------ --- ------------ ---
$126,439,826 100 $123,253,063 100
============ === ============ ===
</TABLE>
Weighted average interest rate
paid on deposits during the year 5.47% 5.96%
==== ====
As of June 30, 1995 and 1996, individual customer's deposits were
collateralized by mortgage-related securities with an amortized cost of
approximately $275,946 and $222,157 and a market value of approximately
$273,684 and $213,698, respectively.
Certificate accounts mature as follows:
Fiscal Year Amount
1997 $54,496,028
1998 20,218,920
1999 8,431,515
2000 4,015,947
2001 2,204,312
Thereafter 3,033,302
----------
$92,400,024
===========
F-22
<PAGE>
A summary of interest expense by deposit type is as follows:
1994 1995 1996
Passbook savings deposits $ 326,080 $ 296,669 $ 251,754
NOW accounts and money market
demand deposits 677,188 857,681 977,893
Certificate accounts 5,135,457 5,144,010 5,563,235
---------- ---------- ----------
$6,138,725 $6,298,360 $6,792,882
========== ========== ==========
11. INCOME TAXES
1994 1995 1996
Currently paid or payable $ 123,000 $ 243,448 ($311,663)
Deferred (78,000) 40,000 (3,506)
---------- ---------- ----------
$ 45,000 $ 283,448 ($315,169)
========== ========== ==========
Income tax expense (benefit) has been provided at effective rates of 10.8%,
32.0% and (51.0%) for the years ended June 30, 1994, 1995 and 1996,
respectively. The differences between such effective rates and the
statutory Federal income tax rate computed on income before income tax
expense and extraordinary items result from the following:
1994 1995 1996
Amount % Amount % Amount %
Federal income tax
expense computed at
statutory rate $141,962 34.0 $301,334 34.0 $208,478 34.0
Increases (decreases)
in taxes resulting
from:
Reversal of excess
tax accrual (601,245) (98.0)
Allowance for bad
debts (25,610) (6.1) (21,418) (2.4)
State income taxes
(net of federal
benefit) 21,597 5.2 40,788 4.6 27,938 4.6
Change in deferred
tax asset valuation
allowance (99,807) (23.9) (54,584) (6.2) (848)
Acquisition costs 53,720 9.1
Other 6,858 1.6 17,328 2.0 (3,212) (0.7)
------- ---- ------- ---- --------- ------
$45,000 10.8 $382,448 32.0 $(315,169) (51.0)
======= ==== ======== ==== ========= ======
During the year, the Company reversed previously established accruals
relating to a tax position taken in prior years. The Company s 1991 and
1992 tax returns were filed with appropriate disclosure of the use of the
positions taken. As of March 15, 1996, the three year statue of limitations
expired. As a result of the reversal of previously established tax
liabilities, the Company recorded an after tax benefit of $601,245. Income
taxes payable as of June 30, 1996, without consideration of the benefit
derived from the statute expiration, is $112,332.
F-23
<PAGE>
Deferred tax expense (benefit) results from temporary differences in the
recognition of revenue and expense for tax and financial statement
purposes. The sources of these differences and the tax effect of each were
as follows:
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
Accrued liabilities $(88,560) $ 44,600 $ 98,139
Unrealized loss on assets held
for sale (16,300) 16,300 3,506
Missouri intangible tax credit
carryforward 49,146 6,286
Valuation allowance (54,584) 848
Impairment loss on building (94,380)
Depreciation (2,899) (2,903)
Allowance for loan losses 30,820
Other (3,960) (12,563) (15,002)
-------- -------- --------
$(78,000) $ 40,000 $ (3,506)
======== ======== ========
</TABLE>
The components of deferred tax assets and liabilities as of June 30, 1995
and 1996 are as follows:
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $124,060 $124,060
Accrued liabilities 105,190 7,051
Deferred compensation 17,733 49,725
Missouri intangible tax credit
carryforward 17,556 11,270
Provision for loss on regulatory matter 12,120 12,120
Unrealized loss on securities available
for sale 7,753 4,247
Impairment loss on building 94,380
Other 604
-------- --------
284,412 303,457
Valuation allowance (12,118) (11,270)
-------- --------
Deferred tax asset 272,294 292,187
-------- --------
Deferred tax liabilities:
Federal Home Loan Bank stock dividends 157,870 157,870
Depreciation 30,431 33,334
Prepaid expenses 5,940 4,424
Other 1,053 23,065
-------- --------
Deferred tax liability 195,294 218,693
-------- --------
Deferred tax asset, net $ 77,000 $ 73,494
======== ========
</TABLE>
The State of Missouri and the Association reached a settlement agreement
during 1989 concerning the Association s claim for refund of intangible
taxes. The settlement agreement provided for the Association to recover its
initial claim of $523,500 through cash payments from a special fund or
credits against future state tax liabilities (without expiration).
F-24
<PAGE>
In 1994, 1995 and 1996, the Association received cash refunds of $84,180,
$40,662 and $5,300, respectively. Additionally, the Association applied
$15,627 and $32,600 of the remaining credits against current state income
tax liabilities in 1994 and 1995, respectively. As of June 30, 1996, there
were no remaining state tax credits to be received in cash or to offset
future state tax liabilities. As a result, in accordance with SFAS No. 109,
the Missouri intangible tax credit carryforward is considered a temporary
difference for which a 100% valuation allowance has been provided as of
June 30, 1996.
12. ADVANCES FROM FEDERAL HOME LOAN BANK
A summary of advances is as follows:
<TABLE>
<CAPTION>
June 30, 1995 June 30, 1996
Weighted Weighted
Fiscal Average Fiscal Average
Year Interest Year Interest
Maturity Amount Rate Maturity Amount Rate
<S> <C> <C> <C> <C> <C>
1996 $14,850,000 6.33% 1997 $2,500,000 6.52%
1997 2,500,000 6.52 1998 2,000,000 5.80
1998 2,000,000 5.80 2000 2,500,000 5.95
2000 2,500,000 5.95
----------- ---- ---------- ----
$21,850,000 6.26% $7,000,000 6.11%
=========== ==== ========== ====
</TABLE>
The advances are collateralized as of June 30, 1995 and 1996 by the pledge
of certain mortgage-related securities with an amortized cost of
approximately $32,009,840 and $22,668,209 and a market value of
approximately $31,720,215 and $22,123,956, respectively.
During 1994, the Association entered into a line-of-credit agreement with
the Federal Home Loan Bank wherein the Association can borrow up to
$7,000,000. As of June 30, 1995, included in advances was an outstanding
balance on the line of credit of $2,850,000. There was no outstanding
balance as of June 30, 1996. The interest rate related to the line-of-
credit reprices daily and had a weighted average rate of 5.56% and 5.98%
during the years ended June 30, 1995 and 1996. The line of credit agreement
expires January 25, 1997.
13. BENEFIT PLANS
Investment Plan Under Section 401(k) - The Association sponsors an
investment Plan under Section 401(k) of the Internal Revenue Code which is
available to eligible employees. Employees may contribute up to a specified
percentage of their annual salary and the Association will match the
employee contributions in an amount equal to 75% of the first 3% of annual
compensation contributed by the employees. The Association's contributions
under the Plan for the years ended June 30, 1994, 1995 and 1996 were
$19,343, $19,317 and $19,436, respectively.
Employee Stock Ownership Plan - The Company has an ESOP for the benefit of
Association employees who meet certain eligibility requirement which
include having completed 1,000 hours of service within a 12 month period
with the Company and having attained age 21. The ESOP Trust purchased
25,500 shares of common stock in the Company's initial public offering with
proceeds from a loan from the Company. The Association makes cash
contributions to the ESOP on a quarterly basis sufficient to enable the
ESOP to make the required loan payments to the Company.
F-25
<PAGE>
The note payable referred to above bears interest at prime rate adjustable
annually with interest payable annually and principal payable in equal
annual installments over seven years. The loan is secured by the shares of
the stock purchased.
As the debt is repaid, shares are released from collateral and allocated to
qualified employees based on the proportion of debt service paid in the
year. The Company accounts for its ESOP in accordance with AICPA Statement
of Position 93-6. Accordingly, the shares pledged as collateral are
reported as a reduction of stockholders' equity in the consolidated balance
sheet. As shares are released from collateral, the Company reports
compensation expense equal to the current market price of the shares, and
the shares become outstanding for earnings per share computations.
Dividends on allocated ESOP shares are recorded as a reduction of retained
earnings; dividends on unallocated ESOP shares are recorded as a reduction
of debt.
Compensation expense for the ESOP was $14,375, $34,511 and $42,185 for the
years ended June 30, 1994, 1995 and 1996, respectively.
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Shares released for allocation 1,913 3,643
Allocated shares 2,976 3,643
Unreleased shares 20,611 18,214
-------- --------
Total ESOP shares 25,500 25,500
======== ========
Fair value of unreleased shares $252,485 $368,843
======== ========
</TABLE>
Management Recognition Plan - The Association has adopted an MRP for
officers and directors to enable the Association to attract and retain
experienced and capable personnel in key positions of responsibility. A
total of 15,300 shares of restricted stock were allocated to the Plan on
January 7, 1994. As of June 30, 1995 and 1996, 14,025 and 14,620 shares,
respectively have been awarded and 1,275 and 680 shares, respectively
remain unallocated. The MRP shares purchased in the conversion are excluded
from stockholders equity until the shares vest to the participants. The
Association recognizes compensation expense in the amount of the fair
market value of the common stock, which was fixed at the grant date
(January 7, 1994), pro rata over the three years during which the shares
vest and records an addition to stockholders equity. Compensation expense
attributable to the MRP was $25,500 in 1994 and $51,000 in 1995 and 1996,
respectively. The shares are entitled to all voting and other stockholder
rights, except that the shares, while restricted, cannot be sold, pledged
or otherwise disposed of, and are required to be held in escrow.
If a holder of restricted stock under the MRP terminates employment for
reasons other than death, disability, retirement or change of control in
the Company, such employee forfeits all rights to any allocated shares
which are still restricted. If termination is caused by death, disability,
retirement or change in control of the Company, all allocated shares become
unrestricted.
Stock Option and Incentive Plan - In connection with the conversion, the
Company s Board of Directors adopted the 1993 Stock Option and Incentive
Plan (the Plan ). Pursuant to the Plan, stock options for 51,342 shares of
common stock have been reserved and may be granted to employees and
F-26
<PAGE>
nonemployee directors of the Company and its subsidiary. Options granted
under the Plan may be either incentive stock options as defined in the
Internal Revenue Code or options that do not so qualify. Options issued
under the Plan are exercisable for a ten year period (five years under
certain circumstances) and the exercise price may not be less than 100%
(110% under certain circumstances) of the market value of the shares at the
date of grant.
Information relative to the Plan is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
Shares under option at beginning
of period 38,453 38,453
Granted:
$10 per share exercise price 38,453
$13 per share exercise price 8,000
$14 per share exercise price 2,000
------ ------ ------
Shares under option at end of
period 38,453 38,453 48,453
====== ====== ======
Options exercisable at end of period 33,050 38,453 48,453
====== ====== ======
Options available for grant at end
of period 12,889 12,889 2,889
====== ====== ======
</TABLE>
14. COMMITMENTS AND CONTINGENT LIABILITIES
As of June 30, 1996, the Association had commitments to originate loans
approximating $1,183,900 of which approximately $521,950 were fixed-rate
(interest ranging from 7.50% to 8.50%) and $661,950 were floating rate
commitments. As of June 30, 1995, the Association had commitments to
originate loans approximating $1,674,865 of which approximately $924,800
were fixed-rate (interest ranging from 7.625% to 9.25%) and $750,082 were
floating rate commitments. These commitments are agreements to lend to a
customer as long as there is no violation of any condition established in
the contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Certain of the
commitments are expected to expire without being fully drawn upon; the
total commitments amount disclosed above does not necessarily represent
future cash requirements. The Association evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained
if considered necessary by the Association upon extension of credit is
based on management s credit evaluation of the counterparty.
During the year ended June 30, 1996, a former employee of the Company filed
a sexual harassment suit against the Company. The suit was settled
resulting in an expense of $145,000 to the Company.
15. INTEREST RATE SWAP AGREEMENTS
The Association was a party to two interest rate swap agreements which were
undertaken to manage the Association s exposure to interest rate risk with
respect to a group of short-term deposits.
F-27
<PAGE>
As of July 1, 1994, the Association had two interest rate swap agreements
outstanding with aggregate notional amounts of $5,000,000. The Association
was the fixed rate payor on both interest rate swap agreements. The
weighted average fixed rate payable was 6.74% and the weighted average
variable rate receivable was 3.125% as of June 30, 1993 on these interest
rate swap agreements. The swaps had a weighted average maturity of four
years and two months at inception and had a remaining weighted average
maturity of two years and seven months as of June 30, 1993.
During 1994, the Association terminated both of the swap agreements and
incurred related losses of $168,361. Such losses have been reflected as
interest expense in the consolidated statement of income during the year
ended June 30, 1994.
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
Estimated fair value amounts have been determined by the Company using
available market information and a selection from appropriate valuation
methodologies. However, considerable judgment is necessarily required to
interpret market data to develop the estimates of fair value. Accordingly,
the estimates presented are not necessarily indicative of the amount the
Company could realize in a current market exchange. The use of different
market assumptions and estimation methodologies may have a material effect
on the estimated fair value amounts.
The estimated fair value of the Company's financial instruments as of June
30, 1995 and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Assets:
Cash and cash
equivalents $ 3,748 $ 3,748 $ 2,619 $ 2,619
Investment securities 2,498 2,468 2,000 1,988
Capital stock of
Federal Home Loan
Bank 1,848 1,848 1,886 1,886
Securities available
for sale 1,083 1,083 1,093 1,093
Mortgage-related
securities 68,941 68,664 51,520 51,173
Assets held for sale 773 773 484 484
Loans receivable 80,956 84,034 82,693 83,852
Liabilities:
Deposits 126,440 127,145 123,253 126,467
Accrued and other
liabilities 905 905 666 666
Advances from Federal
Home Loan Bank 21,850 21,780 7,000 6,913
</TABLE>
F-28
<PAGE>
<TABLE>
<CAPTION>
June 30, 1995 June 30, 1996
Contract Estimated Contract Estimated
or Unrealized or Unrealized
Notional Gain Notional Gain
Amount (Loss) Amount (Loss)
<S> <C> <C> <C> <C>
Off-balance sheet
financial
instruments:
Commitments to
originate loans $1,675 $1,184
</TABLE>
The following methods and assumptions were used to estimate the fair value
of the financial instruments.
Cash and Cash Equivalents and Accrued and Other Liabilities - The carrying
amounts of these items are a reasonable estimate of their fair value.
Investment Securities, Mortgage-Related Securities and Assets Available for
Sale - Estimated fair values of investments, mortgage-related securities
and assets available for sale are based on quoted market prices where
available. If quoted market prices are not available, fair values are
estimated using quoted market prices for similar instruments.
Capital Stock of Federal Home Loan Bank - The carrying value of capital
stock of Federal Home Loan Bank approximates its fair value. Transactions
in capital stock of FHLB have historically been settled at par value.
Loans Receivable - Fair values are estimated for portfolios with similar
financial characteristics. Loans are segregated by type, such as single
family residential mortgage, multi-family residential mortgage,
nonresidential, commercial business and installment. Each loan category is
further segmented into fixed and variable interest rate categories. Future
cash flows of these loans are discounted using the current rates at which
similar loans would be made to borrowers with similar credit ratings and
for the same remaining maturities.
Deposits - The estimated fair value of demand deposits and savings accounts
is the amount payable on demand at the reporting date. The estimated fair
value of fixed-maturity certificates of deposit is estimated by discounting
the future cash flows using the rates currently offered for deposits of
similar remaining maturities.
Advances from Federal Home Loan Bank - The estimated fair value of advances
from Federal Home Loan Bank is determined by discounting the future cash
flows of existing advances using rates currently available on advances from
Federal Home Loan Bank having similar characteristics.
Commitments to Originate Loans - The estimated fair value of commitments to
originate fixed-rate loans is determined based on the fees currently
charged to enter into similar agreements and the difference between current
levels of interest rates and the committed rates. Based on that analysis,
the estimated fair value of such commitments is a reasonable estimate of
the loan commitments at par.
The fair value estimates presented herein are based on pertinent
information available to management as of June 30, 1996 and 1995. Although
management is not aware of any factors that would significantly affect the
estimated fair value amounts, such amounts have not been comprehensively
F-29
<PAGE>
revalued for purposes of these financial statements since that date.
Therefore, current estimates of fair value may differ significantly from
the amounts presented herein.
17. PARENT COMPANY FINANCIAL INFORMATION (Parent Company Only)
Sentinel Financial Corporation was organized in September 1994 and began
operations on January 7, 1995. The Company s balance sheets as of June 30,
1995 and 1996 and the related statements of income and cash flows for years
ended June 30, 1995 and 1996 are as follows:
<TABLE>
<CAPTION>
Condensed Balance Sheets
June 30, 1995 and 1996 1995 1996
<S> <C> <C>
Assets:
Cash $ 227,183 $ 326,000
Due from subsidiary 282,614 189,429
Investment in Sentinel Federal Savings and
Loan Association of Kansas City 10,192,590 11,169,434
----------- ----------
Total assets $10,702,387 $11,684,863
=========== ===========
Liability and stockholders' equity:
Liability - income taxes payable $ 1,221 $ 1,221
Stockholders equity:
Serial preferred stock, $.01 par value;
500,000 shares authorized, no shares
issued or outstanding
Common stock, $.01 par value; 2,000,000
shares authorized, 513,423 shares issued 5,134 5,134
Additional paid-in capital 4,602,678 4,627,459
Unearned compensation -
Employee Stock Ownership Plan (206,114) (163,929)
Retained earnings, substantially
restricted 6,299,468 7,214,978
----------- -----------
Total stockholders' equity 10,701,166 11,683,642
----------- -----------
Total liability and stockholders' equity $10,702,387 $11,684,863
=========== ===========
Condensed Statements of Income
For the Years Ended June 30, 1994,
1995 and 1996 1994 1995 1996
Interest income $ 8,717 $ 16,750 $ 16,940
General and administrative expenses (4,742) (20,149) (11,308)
----------- ----------- -----------
Income (loss) before equity in
undistributed earnings of Sentinel
Federal Savings and Loan Associa-
tion of Kansas City 3,975 (3,399) 5,632
Equity in undistributed earnings of
Sentinel Federal Savings and Loan
Association of Kansas City 559,560 633,226 922,708
----------- ----------- -----------
Net income $ 563,535 $ 629,827 $ 928,340
=========== =========== ===========
</TABLE>
F-30
<PAGE>
<TABLE>
<CAPTION>
Condensed Statements of Cash Flows
For the Years Ended June 30, 1994,
1995 and 1996
1994 1995 1996
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 563,535 $ 629,827 $ 928,340
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Equity in undistributed earnings
of Sentinel Federal Savings and
Loan Association of Kansas City (559,560) (633,226) (922,708)
Change in income taxes payable 2,000 (779)
--------- --------- ---------
Net cash provided by (used in)
operating activities 5,975 (4,178) 5,632
--------- --------- ---------
Cash flows from investing activities:
Purchase of Sentinel Federal
Savings and Loan Association of
Kansas City common stock (4,093,987)
Cash flows from financing activities:
Proceeds from sale of common stock 4,193,987
Reimbursement related to ESOP 14,375 34,511 42,185
Reimbursement related to Manage-
ment Recognition Plan 25,500 51,000 51,000
--------- --------- ---------
Net cash provided by financing
activities 4,233,862 85,511 93,185
--------- --------- ---------
Increase in cash and cash equivalents 145,850 81,333 98,817
Cash and cash equivalents, beginning
of year 145,850 227,183
--------- --------- ---------
Cash and cash equivalents, end of year $ 145,850 $ 227,183 $ 326,000
========= ========= =========
</TABLE>
These statements should be read in conjunction with the other notes related
to the consolidated financial statements.
18. PROPOSED FEDERAL LEGISLATION
Legislation proposing a comprehensive reform of the banking and thrift
industries is under consideration by the U.S. Congress. The proposed
legislation would (i) impose a one-time assessment on thrift deposits of
approximately 0.68% of qualifying deposits to recapitalize the SAIF, the
fund which insures thrift deposits; (ii) merge the Bank Insurance Fund
("BIF") and the SAIF on January 1, 1998 at which time banks and thrifts
would pay the same deposit insurance premiums; (iii) require federal
savings associations to convert to a national bank or a state-chartered
thrift by January 1, 1998; and (iv) abolish the OTS. While there can be no
assurance that this proposed legislation will be effected, a one-time
assessment could have an adverse impact on the Company s results of
operations. Based on the estimated assessment of 0.68% and an assessment
date of June 30, 1996, the assessment could result in expense to the
Company of approximately $838,000.
F-31
<PAGE>
19. ACQUISITION
On March 22, 1996, the Company entered into an Agreement and Plan of Merger
and Reorganization (the Agreement ) to merge with Roosevelt Financial
Group, Inc., the holding company of Roosevelt Bank ("Roosevelt"), a Federal
savings bank. The transaction would result in the merger of the Association
into Roosevelt Bank. Under the Agreement, the Association's shareholders
will receive 1.4231 shares of Roosevelt stock for each share of the
Company's common stock. The transaction is subject to Company shareholder
and regulatory approvals. The consolidated financial statements do not
reflect any purchase accounting adjustments that may result from the merger
transaction.
******
F-32
<PAGE>
APPENDIX I
------------------------
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
by and among
ROOSEVELT FINANCIAL GROUP, INC.,
ROOSEVELT BANK,
SENTINEL FINANCIAL CORPORATION
and
SENTINEL FEDERAL SAVINGS AND LOAN ASSOCIATION OF KANSAS CITY
------------------------
----------------
MARCH 22, 1996
----------------
<PAGE>
TABLE OF CONTENTS
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RECITALS ............................................................ 1
ARTICLE I. THE MERGER AND RELATED MATTERS.............................. 1
1.1 Merger; Resulting Institution.............................. 1
1.2 Effective Time of the Merger................................ 2
1.3 Company Merger.............................................. 2
1.4 Closing..................................................... 6
1.5 Reservation of Right to Revise Transaction.................. 6
ARTICLE II. REPRESENTATIONS, WARRANTIES AND COVENANTS OF
SENTINEL FINANCIAL AND SENTINEL FEDERAL..................... 6
2.1 Organization and Authority.................................. 6
2.2 Subsidiaries................................................ 7
2.3 Capitalization.............................................. 7
2.4 Authorization............................................... 8
2.5 Sentinel Financial Statements............................... 9
2.6 Sentinel Reports............................................ 9
2.7 Properties and Leases....................................... 9
2.8 Taxes....................................................... 10
2.9 Material Adverse Change..................................... 10
2.10 Commitments and Contracts................................... 11
2.11 Litigation and Other Proceedings............................ 12
2.12 Insurance................................................... 12
2.13 Compliance with Laws........................................ 12
2.14 Labor....................................................... 14
2.15 Material Interests of Certain Persons....................... 14
2.16 Allowance for Loan Losses; Nonperforming Assets............. 14
2.17 Employee Benefit Plans...................................... 15
2.18 Conduct to Date............................................. 17
2.19 Prospectus/Proxy Statement, etc............................. 17
2.20 Registration Obligations.................................... 18
2.21 Takeover Provisions Not Applicable.......................... 18
2.22 Regulatory, Tax and Accounting Matters...................... 18
2.23 Brokers and Finders......................................... 18
2.24 Community Reinvestment Act Compliance....................... 19
2.25 Fairness Opinion............................................ 19
ARTICLE III. REPRESENTATIONS, WARRANTIES AND COVENANTS OF
ROOSEVELT FINANCIAL AND ROOSEVELT BANK...................... 19
3.1 Organization and Authority.................................. 19
3.2 Capitalization of Roosevelt Financial....................... 19
3.3 Authorization............................................... 20
3.4 Roosevelt Financial Statements.............................. 21
3.5 Roosevelt Reports........................................... 21
3.6 Material Adverse Change..................................... 21
3.7 Litigation and Other Proceedings............................ 22
3.8 Compliance with Laws........................................ 22
3.9 Registration Statement, etc................................. 23
3.10 Brokers and Finders......................................... 24
3.11 Community Reinvestment Act Compliance....................... 24
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ARTICLE IV. CONDUCT OF BUSINESSES PRIOR TO THE EFFECTIVE TIME........... 24
4.1 Conduct of Businesses Prior to the Effective Time........... 24
4.2 Forbearances................................................ 24
ARTICLE V. ADDITIONAL AGREEMENTS....................................... 26
5.1 Access and Information...................................... 26
5.2 Registration Statement; Regulatory Matters.................. 27
5.3 Stockholder Approval........................................ 27
5.4 Current Information......................................... 28
5.5 Agreements of Affiliates.................................... 28
5.6 Expenses.................................................... 28
5.7 Miscellaneous Agreements and Consents....................... 28
5.8 Employee Agreements and Benefits............................ 29
5.9 Press Releases.............................................. 32
5.10 D&O Indemnification and Insurance........................... 32
5.11 Third Parties............................................... 32
5.12 Schedule 13D or 13G Filings................................. 32
5.13 Dissenting Shareholders' Appraisal Rights................... 33
5.14 Reservation of Shares....................................... 33
5.15 Nasdaq Listing.............................................. 33
5.16 Assistance with Third-Party Agreements...................... 33
5.17 Notices and Communications.................................. 33
5.18 Insurance Policies Assignment............................... 33
ARTICLE VI. CONDITIONS.................................................. 34
6.1 Conditions to Each Party's Obligation to Effect the Merger.. 34
6.2 Conditions to Obligations of Sentinel Financial and
Sentinel Federal to Effect the Merger....................... 35
6.3 Conditions to Obligations of Roosevelt Financial and
Roosevelt Bank to Effect the Merger......................... 36
ARTICLE VII. TERMINATION, AMENDMENT AND WAIVER........................... 37
7.1 Termination................................................. 37
7.2 Effect of Termination....................................... 37
7.3 Amendment................................................... 38
7.4 Severability................................................ 39
7.5 Waiver...................................................... 39
ARTICLE VIII. GENERAL PROVISIONS.......................................... 39
8.1 Non-Survival of Representations, Warranties and Agreements.. 39
8.2 Notices..................................................... 39
8.3 Miscellaneous............................................... 40
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Exhibit A - Form of Voting Agreement (intentionally omitted)
Exhibit B - Subsidiary Agreement and Plan of Merger (intentionally omitted)
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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
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THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (this "Agreement"),
dated March 22, 1996, is by and among ROOSEVELT FINANCIAL GROUP, INC., a
Delaware corporation ("Roosevelt Financial"), ROOSEVELT BANK, a federally
chartered savings bank and a wholly owned subsidiary of Roosevelt Financial
("Roosevelt Bank"), SENTINEL FINANCIAL CORPORATION, a Delaware corporation
("Sentinel Financial"), and SENTINEL FEDERAL SAVINGS AND LOAN ASSOCIATION OF
KANSAS CITY, a federally chartered savings association and a wholly owned
subsidiary of Sentinel Financial ("Sentinel Federal").
A. Roosevelt Financial, Roosevelt Bank, Sentinel Financial and Sentinel
Federal wish to provide for the terms and conditions of the following described
business combination in which Sentinel Financial will be merged with Roosevelt
Financial (the "Company Merger"), followed immediately by the merger of Sentinel
Federal with Roosevelt Bank (the "Bank Merger") pursuant to the Subsidiary
Agreement and Plan of Merger, attached hereto as Exhibit B (the "Subsidiary
Merger Agreement"). The surviving entity of the Bank Merger shall sometimes be
referred to herein as the "Surviving Bank." The Company Merger and the Bank
Merger are collectively referred to herein as the "Merger."
B. For federal income tax purposes, it is intended that the Company
Merger shall qualify as a reorganization within the meaning of Section
368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the "Code"), the
Bank Merger shall qualify as a reorganization within the meaning of Section
368(a)(1)(A) or (D) of the Code and this Agreement shall constitute a plan of
reorganization pursuant to Section 368 of the Code.
C. For accounting purposes, it is intended that the Merger shall be
accounted for as a pooling of interests.
D . The parties hereto desire to make certain representations, warranties,
covenants and agreements in connection with the Merger and also to prescribe
various conditions to the Merger.
E. Concurrently with the execution and delivery of this Agreement, and as
a condition and inducement to Roosevelt Financial's willingness to enter into
this Agreement, Roosevelt Financial and each of the directors of Sentinel
Financial have entered into voting agreements in the form attached hereto as
Exhibit A (the "Voting Agreements").
Accordingly, and in consideration of the representations, warranties,
covenants, agreements and conditions herein contained, the parties hereto agree
as follows:
ARTICLE I
THE MERGER AND RELATED MATTERS
1.1 Merger; Resulting Institution. Subject to the terms and conditions of
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this Agreement, and pursuant to the provisions of the Delaware General
Corporation Law (the "DGCL"), the Federal Deposit Insurance Act (the "FDIA"),
the Home Owners' Loan Act (the "HOLA") and the rules and regulations promulgated
under the HOLA (the "Thrift Regulations"), (a) at the Effective Time (as
hereinafter defined), Sentinel Financial shall be merged with and into Roosevelt
Financial pursuant to the
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terms and conditions set forth herein and (b) thereafter, at the Bank Merger
Effective Time (as hereinafter defined), Sentinel Federal shall be merged with
Roosevelt Bank pursuant to the terms and conditions set forth in the Subsidiary
Merger Agreement. Upon the consummation of the Company Merger, the separate
corporate existence of Sentinel Financial shall cease and Roosevelt Financial
shall continue as the surviving corporation. The name of Roosevelt Financial,
as the resulting institution of the Company Merger shall remain "Roosevelt
Financial Group, Inc." From and after the Effective Time, Roosevelt Financial,
as the surviving corporation of the Company Merger, shall possess all of the
properties and rights and be subject to all of the liabilities and obligations
of Roosevelt Financial and Sentinel Financial, all as more fully described in
the DGCL. The Bank Merger will be consummated pursuant to the terms and
conditions set forth in the Subsidiary Merger Agreement.
1.2 Effective Time of the Merger. As soon as practicable after each of
----------------------------
the conditions set forth in Article 6 hereof have been satisfied or waived, the
parties will file, or cause to be filed, with the Secretary of State of the
State of Delaware and the Office of Thrift Supervision (the "OTS") such
certificates of merger, articles of combination and other documents as they may
deem necessary or appropriate for the Company Merger and the Bank Merger, which
certificates of merger, articles of combination and other documents shall in
each case be in the form required by and executed in accordance with the
applicable provisions of the DGCL and the Thrift Regulations, respectively. The
Company Merger shall become effective at the time the certificate of merger for
such merger is filed with the Secretary of State of the State of Delaware (the
"Effective Time"), which, if practicable, shall be on the same day as the
Closing (as defined in Section 1.4 hereof) or at such other date and time as may
be agreed to by the parties and specified in the certificate of merger in
accordance with applicable law. The Bank Merger shall become effective at the
time the articles of combination for such merger are endorsed by the Secretary
of the OTS pursuant to the Thrift Regulations (the "Bank Merger Effective
Time"). The parties shall cause the Company Merger to become effective
immediately prior to the Bank Merger.
1.3 Company Merger.
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(a) Conversion of Sentinel Financial Common Stock. At the Effective
---------------------------------------------
Time:
(i) Each share of common stock of Sentinel Financial, $.01 par
value per share (the "Sentinel Financial Common Stock"), issued and
outstanding immediately prior thereto (except for Dissenting Shares,
if applicable, as defined in Section 1.3(c) hereof) shall, by virtue
of the Company Merger and without any action on the part of the holder
thereof, but subject to Section 1.3(e) hereof, be converted into the
right to receive from Roosevelt Financial 1.4231 shares (the "Exchange
Ratio") of common stock of Roosevelt Financial, par value $.01 per
share ("Roosevelt Financial Common Stock"). The foregoing sentence
notwithstanding:
(A) if the weighted average sale price of all Roosevelt
Financial Common Stock traded on the Nasdaq National Market during
the ten trading days ending on the date that is three trading days
prior to the Closing Date (the "Average Pre-Closing Trading
Price") is less than $15.83 per share (the "Minimum Average
Price"), the Exchange Ratio shall be equal to $22.525 divided by
the Average Pre-Closing Trading Price; and
(B) if the Average Pre-Closing Trading Price is greater
than $21.42 per share (the "Maximum Average Price"), the Exchange
Ratio shall be equal to $30.475 divided by the Average Pre-Closing
Trading Price.
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In the event, subsequent to the date of this Agreement but prior
to the Effective Time, of a reclassification, recapitalization, stock
dividend, stock split or reverse stock split with respect to the
outstanding shares of Roosevelt Financial Common Stock, a conversion of
the outstanding shares of Roosevelt Financial Common Stock into other
securities, or the establishment of a date during such period as the
record date for determining holders of Roosevelt Financial Common Stock
with respect to any of the foregoing, then the Exchange Ratio, the
Minimum Average Price and/or the Maximum Average Price, as appropriate,
shall be appropriately adjusted.
Notwithstanding any other provision of this Agreement, any shares
of Sentinel Financial Common Stock issued and outstanding immediately
prior to the Effective Time which are then owned beneficially or of
record by Roosevelt Financial, Roosevelt Bank, Sentinel Financial,
Sentinel Federal or by any direct or indirect Subsidiary (as
hereinafter defined) of any of them or held in the treasury of Sentinel
Financial (other than any shares of Sentinel Financial Common Stock
held (A) directly or indirectly in trust accounts, managed accounts and
the like, or otherwise held in a fiduciary capacity, that are
beneficially owned by third parties or (B) in respect of a debt
previously contracted) shall, by virtue of the Company Merger, be
canceled without payment of any consideration therefor and without any
conversion thereof.
(ii) Each share of Roosevelt Financial Common Stock issued and
outstanding or held in treasury immediately prior to the Effective
Time shall remain issued and outstanding or held in treasury and
continue to be an identical issued and outstanding or treasury share
of Roosevelt Financial Common Stock after the Effective Time.
(iii) The holders of certificates representing shares of Sentinel
Financial Common Stock shall cease to have any rights as stockholders
of Sentinel Financial, except such rights, if any, as they may have
pursuant to the DGCL. Except as provided above, until certificates
representing shares of Sentinel Financial Common Stock are surrendered
for exchange, each such certificate shall, after the Effective Time,
represent for all purposes only the right to receive the number of
whole shares of Roosevelt Financial Common Stock into which their
shares of Sentinel Financial Common Stock shall have been converted by
the Company Merger as provided above and the right to receive the cash
value of any fraction of a share of Roosevelt Financial Common Stock
as provided below (collectively, the "Merger Consideration").
(b) Reservation of Shares. Prior to the Effective Time, the Board of
---------------------
Directors of Roosevelt Financial shall reserve for issuance a sufficient
number of shares of Roosevelt Financial Common Stock for the purpose of
issuing its shares to Sentinel Financial's stockholders in accordance
herewith.
(c) Dissenting Shares. Any shares of Sentinel Financial Common
-----------------
Stock held by a holder who shall not have voted such shares in favor of the
Company Merger and who shall have complied with the applicable procedures
of Section 262 of the DGCL (if applicable) and becomes entitled to obtain
payment for the appraised value of such shares pursuant to Section 262 of
the DGCL (if applicable) shall be herein called "Dissenting Shares."
Notwithstanding any other provision of this Agreement, any Dissenting
Shares shall not, after the Effective Time, be entitled to vote for any
purpose or receive any dividends or other distributions and shall be
entitled only to such rights as are afforded in respect of Dissenting
Shares pursuant to the DGCL. All
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payments in respect of Dissenting Shares shall be from funds of Roosevelt
Financial and not from the acquired assets of Sentinel Financial.
(d) Exchange of Sentinel Financial Common Stock
-------------------------------------------
(i) As soon as reasonably practicable after the Effective Time,
but in no event later than ten days after the Effective Time, holders
of record of certificates formerly representing shares of Sentinel
Financial Common Stock (the "Certificates") shall be instructed to
tender such Certificates to an independent exchange agent to be
selected by Roosevelt Financial (the "Exchange Agent") pursuant to a
letter of transmittal that Roosevelt Financial shall deliver or cause
to be delivered to such holders. Such letter of transmittal shall
specify that risk of loss and title to Certificates shall pass only
upon acceptance of such Certificates by the Exchange Agent.
(ii) After the Effective Time, each holder of a Certificate that
surrenders such Certificate to the Exchange Agent will, upon
acceptance thereof by the Exchange Agent, be entitled to the Merger
Consideration payable in respect of the shares represented thereby.
(iii) The Exchange Agent shall accept Certificates upon compliance
with such reasonable terms and conditions as Roosevelt Financial or
the Exchange Agent may impose to effect an orderly exchange thereof in
accordance with customary exchange practices. Certificates shall be
appropriately endorsed or accompanied by such instruments of transfer
as Roosevelt Financial or the Exchange Agent may reasonably require.
(iv) Each outstanding Certificate, other than those representing
Dissenting Shares, shall, until duly surrendered to Roosevelt
Financial or the Exchange Agent, be deemed to evidence the right to
receive the Merger Consideration.
(v) After the Effective Time, holders of Certificates shall
cease to have rights with respect to the Sentinel Financial Common
Stock previously represented by such Certificates, and their sole
rights (other than the holders of Certificates representing Dissenting
Shares) shall be to exchange such Certificates for the Merger
Consideration. After the Effective Time, there shall be no further
transfer on the records of Sentinel Financial of Certificates, and if
such Certificates are presented to Sentinel Financial for transfer,
they shall be canceled against delivery of the Merger Consideration.
Roosevelt Financial shall not be obligated to deliver the Merger
Consideration to any holder of Sentinel Financial Common Stock until
such holder surrenders the Certificates as provided herein. No
dividends declared will be remitted to any person entitled to receive
Roosevelt Financial Common Stock under this Agreement until such
person surrenders the Certificate representing the right to receive
such Roosevelt Financial Common Stock, at which time such dividends
shall be remitted to such person, without interest and less any taxes
that may have been imposed thereon. Certificates surrendered for
exchange by any person constituting an "affiliate" of Sentinel
Financial for purposes of Rule 145 under the Securities Act of 1933
and the rules and regulations thereunder (the "Securities Act") shall
not be exchanged for certificates representing Roosevelt Financial
Common Stock until Roosevelt Financial has received a written
agreement from such person as specified in Section 5.5. Neither the
Exchange Agent nor any party to this Agreement nor any affiliate
thereof shall be liable to any holder of Sentinel Financial Common
Stock
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represented by any Certificate for any consideration paid to a public
official pursuant to applicable abandoned property, escheat or similar
laws. Roosevelt Financial and the Exchange Agent shall be entitled to
rely upon the stock transfer books of Sentinel Financial to establish
the identity of those persons entitled to receive consideration
specified in this Agreement, which books shall be conclusive with
respect thereto. In the event of a dispute with respect to ownership
of stock represented by any Certificate, Roosevelt Financial and the
Exchange Agent shall be entitled to deposit any consideration in
respect thereof in escrow with an independent third party and
thereafter be relieved with respect to any claims thereto.
(e) No Fractional Shares. Notwithstanding any other provision of this
--------------------
Agreement, neither certificates nor scrip for fractional shares of
Roosevelt Financial Common Stock shall be issued in the Company Merger.
Each holder who otherwise would have been entitled to a fraction of a share
of Roosevelt Financial 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
Roosevelt Share Price on the last business day preceding the Effective
Time. The "Roosevelt Share Price" shall mean the closing sale price of one
share of Roosevelt Financial Common Stock as reported on the Nasdaq
National Market. No such holder shall be entitled to dividends, voting
rights or any other rights in respect of any fractional shares interest.
(f) Stock Options. The Sentinel Financial Corporation 1994 Stock
-------------
Option Plan and all amendments thereto included in Schedule 2.3 (the
"Sentinel Financial Option Plan") and each option granted thereunder
outstanding on the date hereof (including options granted to the non-
employee directors of Sentinel Financial pursuant to any amendment of the
Sentinel Financial Option Plan), included in Schedule 2.3, and remaining
outstanding immediately prior to the Effective Time shall, at the Effective
Time, be assumed by Roosevelt Financial and each such option shall be
converted automatically into an option to purchase shares of Roosevelt
Financial Common Stock in an amount and at an exercise price determined as
provided below (and otherwise subject to the terms of the Sentinel
Financial Option Plan):
(i) The number of shares of Roosevelt Financial Common Stock to
be subject to the new option shall be equal to the product of the
number of shares of Sentinel Financial Common Stock subject to the
original option and the Exchange Ratio, provided that any fractional
shares of Roosevelt Financial Common Stock resulting from such
multiplication shall be rounded to the nearest share; and
(ii) The exercise price per share of Roosevelt Financial Common
Stock under the new option shall be equal to the exercise price per
share of Sentinel Financial Common Stock under the original option
divided by the Exchange Ratio, provided that such exercise price shall
be rounded to the nearest cent.
The adjustment provided herein with respect to any options which are
"incentive stock options" (as defined in Section 422 of the Code) shall be
and is intended to be effected in a manner which is consistent with Section
424(a) of the Code. The duration and other terms of the new option shall be
the same as the original option, except that all references to Sentinel
Financial shall be deemed to be references to Roosevelt Financial.
(g) Certificate of Incorporation and Bylaws of the Surviving
--------------------------------------------------------
Corporation. The Certificate of Incorporation and bylaws of Roosevelt
-----------
Financial, as in effect immediately prior to
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the Effective Time, shall be the Certificate of Incorporation and bylaws of
Roosevelt Financial, as the surviving corporation of the Company Merger,
until either is thereafter amended in accordance with applicable law.
(h) Directors and Officers of the Surviving Corporation. The
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directors and officers of Roosevelt Financial immediately prior to the
Effective Time shall be the directors and officers of Roosevelt Financial,
as the surviving corporation of the Company Merger, until their respective
successors shall be duly elected and qualified or otherwise duly selected.
1.4 Closing. Subject to the provisions of Article 6 hereof, the closing
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of the transactions contemplated by this Agreement (the "Closing") shall take
place as soon as practicable after satisfaction or waiver of all of the
conditions to Closing, and shall occur no later than 10:00 a.m. on the last
business day of the first calendar month following the satisfaction of all of
the conditions to Closing, at the executive offices of Roosevelt Financial or at
such other date, time and location as is mutually agreed to by Roosevelt
Financial and Sentinel Financial. The date on which the Closing actually occurs
is herein referred to as the "Closing Date".
1.5 Reservation of Right to Revise Transaction. Roosevelt Financial shall
------------------------------------------
have the unilateral right to change the method of effecting the Merger
(including without limitation the provisions of this Article I), to the extent
permitted by applicable law and to the extent it deems such change to be
desirable, provided, however, that no such change shall (a) alter or change the
amount or kind of the Merger Consideration or the treatment of stock options as
set forth in Section 1.3(f) and shares subject to forfeiture restrictions as set
forth in Section 5.8(b) hereof, (b) diminish the benefits to be received by the
directors, officers or employees of Sentinel Financial and Sentinel Federal as
set forth in this Agreement or in any other agreements between the parties made
in connection with this Agreement, (c) materially impede or delay the
consummation of the Company Merger or (d) adversely affect the tax treatment of
Sentinel Financial stockholders as a result of receiving the Merger
Consideration. Roosevelt may exercise this right of revision by giving written
notice thereof in the manner provided in Section 8.2 of this Agreement.
Roosevelt Financial may make, and Sentinel Financial's Board of Director's shall
approve and its duly authorized representative shall execute, such amendments as
are permitted by this Section 1.5.
ARTICLE II
REPRESENTATIONS, WARRANTIES AND COVENANTS
OF SENTINEL FINANCIAL AND SENTINEL FEDERAL
Sentinel Financial and Sentinel Federal represent and warrant to and
covenant with Roosevelt Financial and Roosevelt Bank as follows:
2.1 Organization and Authority. Sentinel Financial is a corporation duly
--------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware, is duly qualified to do business and is in good standing in all
jurisdictions where its ownership or leasing of property or the conduct of its
business requires it to be so qualified, except where the failure to be so
qualified would not have a material adverse effect on the financial condition,
assets, deposit liabilities, results of operations or business (collectively,
the "Condition") of Sentinel Financial and the Sentinel Financial Subsidiaries,
taken as a whole, and has the corporate power and authority to own its
properties and assets and to carry on its business as it is now being conducted.
The term "Subsidiary" when used with respect to any party means any entity
(including without limitation any corporation, partnership, joint venture or
other organization, whether incorporated or unincorporated) which is
consolidated with such party
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for financial reporting purposes. Sentinel Financial is registered as a savings
and loan holding company with the OTS under the HOLA. True and complete copies
of the Certificate of Incorporation and Bylaws of Sentinel Financial and of the
Charter and Bylaws of Sentinel Federal, each as in effect on the date of this
Agreement, are set forth in Schedule 2.1 hereto.
2.2 Subsidiaries. Set forth in Schedule 2.2 is a complete and correct
------------
list of all Subsidiaries of Sentinel Financial (each a "Sentinel Financial
Subsidiary" and collectively the "Sentinel Financial Subsidiaries"). Other than
the Sentinel Financial Subsidiaries, there are no entities in which Sentinel
Financial has a five percent or greater direct or indirect equity or ownership
interest. All outstanding Equity Securities (as defined in Section 2.3) of each
Sentinel Financial Subsidiary, except as set forth on Schedule 2.2, are owned
directly or indirectly by Sentinel Financial. Except as set forth on Schedule
2.2, all of the outstanding shares of capital stock of the Sentinel Financial
Subsidiaries are validly issued, fully paid and nonassessable and are owned
directly or indirectly by Sentinel Financial free and clear of any lien, claim,
charge, option, encumbrance, agreement, mortgage, pledge, security interest or
restriction (each a "Lien") with respect thereto. Each of the Sentinel
Financial Subsidiaries is a corporation, savings association, or other entity
duly incorporated or organized, validly existing, and in good standing under the
laws of its jurisdiction of incorporation or organization, and has the corporate
power and authority to own or lease its properties and assets and to carry on
its business as it is now being conducted. Each of the Sentinel Financial
Subsidiaries is duly qualified to do business in each jurisdiction where its
ownership or leasing of property or the conduct of its business requires it so
to be qualified, except where the failure to be so qualified, individually or in
the aggregate, would not have a material adverse effect on the Condition of
Sentinel Financial and the Sentinel Financial Subsidiaries, taken as a whole.
Except as set forth on Schedule 2.2 and except for shares of stock of the
Federal Home Loan Bank of Des Moines (the "FHL Bank"), Sentinel Financial does
not own beneficially, directly or indirectly, any shares of any class of Equity
Securities or similar interests of any corporation, bank, business trust,
association or similar organization. Sentinel Federal is a federally chartered
stock savings association. The deposits of Sentinel Federal are insured up to
applicable limits by the Savings Association Insurance Fund ("SAIF") of the
Federal Deposit Insurance Corporation (the "FDIC"). Sentinel Federal is a
member of the FHL Bank. Sentinel Federal is a "domestic building and loan
association" as defined in Section 7701(a)(19) of the Code. Except as set forth
on Schedule 2.2, neither Sentinel Financial nor any Sentinel Financial
Subsidiary holds any interest in a partnership or joint venture of any kind.
2.3 Capitalization. The authorized capital stock of Sentinel Financial
--------------
consists of (i) 2,000,000 shares of Sentinel Financial Common Stock, of which,
as of the date hereof, 513,423 shares are issued and outstanding (exclusive of
shares that are held in the treasury of Sentinel Financial and not subject to
conversion pursuant to Section 1.3(a)(i) hereof) and (ii) 500,000 shares of
preferred stock, $.01 par value per share, of which none are issued or
outstanding. As of the date hereof, Sentinel Financial had reserved 51,342
shares of Sentinel Financial Common Stock for issuance under the Sentinel
Financial Option Plan, pursuant to which options covering 48,453 shares of
Sentinel Financial Common Stock are outstanding as of the date hereof (including
6,000 options granted to non-employee directors of Sentinel Financial on October
18, 1995). Schedule 2.3 includes a copy of the Sentinel Financial Option Plan,
each form of agreement entered into by Sentinel Financial with respect thereto
and a list of the names of all optionees and the numbers of shares, exercise
prices and vesting and expiration dates of their respective options. Since June
30, 1995, no Equity Securities of Sentinel Financial have been issued, other
than shares of Sentinel Financial Common Stock which may have been issued
pursuant to the Sentinel Financial Option Plan. Except as set forth above,
there are no other Equity Securities of Sentinel Financial outstanding. "Equity
Securities" of an issuer means capital stock or other equity securities of such
issuer, options, warrants, scrip, rights to subscribe to, calls or commitments
of any character whatsoever relating to, or securities or rights convertible
into, shares of any capital stock or other equity securities of such issuer, or
contracts, commitments, understandings or arrangements by which such issuer is
or may become bound
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to issue additional shares of its capital stock or other equity securities of
such issuer, or options, warrants, scrip or rights to purchase, acquire,
subscribe to, calls on or commitments for any shares of its capital stock or
other equity securities. All of the issued and outstanding shares of Sentinel
Financial Common Stock are validly issued, fully paid, and nonassessable, and
have not been issued in violation of any preemptive right of any stockholder of
Sentinel Financial.
2.4 Authorization.
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(a) Sentinel Financial and Sentinel Federal have the corporate power
and authority to enter into this Agreement and, subject to the approval of
this Agreement by the stockholders of Sentinel Financial, to carry out
their obligations hereunder. The only stockholder vote required for
Sentinel Financial to approve this Agreement is the affirmative vote of the
holders of at least a majority of the outstanding shares of Sentinel
Financial Common Stock entitled to vote thereon. The execution, delivery
and performance of this Agreement by Sentinel Financial and Sentinel
Federal and the consummation by Sentinel Financial and Sentinel Federal of
the transactions contemplated hereby have been duly authorized by the
Boards of Directors of Sentinel Financial and Sentinel Federal. Subject to
the approval of Sentinel Financial's stockholders and subject to the
receipt of such approvals of Regulatory Authorities (as defined in Section
2.6) as may be required by statute or regulation, this Agreement is a valid
and binding obligation of Sentinel Financial and Sentinel Federal
enforceable against Sentinel Financial and Sentinel Federal in accordance
with its terms, subject as to enforcement to bankruptcy, insolvency and
other similar laws of general applicability affecting creditors' rights and
to general equity principles.
(b) Neither the execution, delivery or performance by Sentinel
Financial and Sentinel Federal of this Agreement, nor the consummation by
Sentinel Financial and Sentinel Federal of the transactions contemplated
hereby, nor compliance by Sentinel Financial and Sentinel Federal with any
of the provisions hereof, will (i) violate or conflict with any term,
condition or provision of its certificate of incorporation, charter or
bylaws, (ii) violate, conflict with, or result in a breach of any
provisions of, or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under, or result in the
termination of, or accelerate the performance required by, or result in a
right of termination or acceleration of, or result in the creation of any
Lien upon any of the properties or assets of Sentinel Financial or any
Sentinel Financial Subsidiary under any of the terms, conditions or
provisions of, any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument or obligation to which Sentinel
Financial or any Sentinel Financial Subsidiary is a party or by which it
may be bound, or to which Sentinel Financial or any Sentinel Financial
Subsidiary or any of their properties or assets may be subject, or (iii)
subject to compliance with the statutes and regulations referred to in
subsection (c) of this Section 2.4, to the best knowledge of Sentinel
Financial and of each Sentinel Financial Subsidiary (collectively, the
"Best Knowledge of Sentinel"), violate any judgment, ruling, order, writ,
injunction, decree, statute, rule or regulation applicable to Sentinel
Financial or any Sentinel Financial Subsidiary or any of their respective
material properties or assets.
(c) Other than in connection or in compliance with the provisions of
the DGCL, the Securities Act, the Securities Exchange Act of 1934 and the
rules and regulations thereunder (the "Exchange Act"), the securities or
blue sky laws of the various states or filings, consents, reviews,
authorizations, approvals or exemptions required under the Savings and Loan
Holding Company Act (the "Holding Company Act"), the FDIA, the HOLA, the
Thrift Regulations, the Bank Merger Act (the "BMA") and the Hart-Scott-
Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), no notice to,
filing with, exemption or review by, or authorization, consent or approval
of,
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any public body or authority is necessary on the part of Sentinel Financial
or Sentinel Federal for the consummation by them of the transactions
contemplated by this Agreement.
2.5 Sentinel Financial Statements. The consolidated balance sheets of
-----------------------------
Sentinel Financial and the Sentinel Financial Subsidiaries as of June 30, 1995
and 1994 and the related consolidated statements of income, cash flows and
changes in stockholders' equity for each of the three years in the three-year
period ended June 30, 1995, together with the notes thereto, audited by Deloitte
& Touche LLP and included in Sentinel Financial's annual report on Form 10-KSB
for the year ended June 30, 1995 as filed with the Securities and Exchange
Commission (the "SEC"), and the unaudited consolidated condensed balance sheets
of Sentinel Financial and the Sentinel Financial Subsidiaries as of September 30
and December 31, 1995, and the related unaudited consolidated condensed
statements of income and cash flows for the periods then ended, included in
Sentinel Financial's quarterly reports on Form 10-QSB for the periods then ended
(each, a "Sentinel Financial Form 10-QSB") as filed with the SEC (collectively,
the "Sentinel Financial Statements"), have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis ("GAAP")
(except for the omission of notes to unaudited statements and except for the
adoption of FASB 115 for the year ended June 30, 1994), present fairly the
consolidated financial position of Sentinel Financial and the Sentinel Financial
Subsidiaries at such dates, and the consolidated results of operations, cash
flows and changes in stockholders' equity of Sentinel Financial and the Sentinel
Financial Subsidiaries for the periods stated therein and are derived from the
books and records of Sentinel Financial and the Sentinel Financial Subsidiaries,
which are complete and accurate in all material respects and have been
maintained in accordance with good business practices. Neither Sentinel
Financial nor any of the Sentinel Financial Subsidiaries has any material
contingent liabilities that are not described in the financial statements
described above.
2.6 Sentinel Reports. Since June 30, 1995, each of Sentinel Financial and
----------------
the Sentinel Financial Subsidiaries has filed all material reports,
registrations and statements, together with any required material amendments
thereto, including, but not limited to, Forms 10-KSB (including Sentinel
Financial's Annual Report on Form 10-KSB for the fiscal year ended June 30,
1995), Forms 10-QSB, Forms 8-K and proxy statements, that it was required to
file with (i) the SEC, (ii) the OTS, (iii) the FHL Bank and the Federal Home
Loan Bank System, (iv) the FDIC and (v) any other federal, state, municipal,
local or foreign government, securities, banking, savings and loan, insurance
and other governmental or regulatory authority and the agencies and staffs
thereof (the entities in the foregoing clauses (i) through (v) being referred to
herein collectively as the "Regulatory Authorities" and individually as a
"Regulatory Authority"). All such reports and statements filed with any such
Regulatory Authority are collectively referred to herein as the "Sentinel
Reports." As of its respective date, each Sentinel Report complied in all
material respects with all of the rules and regulations promulgated by the
applicable Regulatory Authority and did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.
2.7 Properties and Leases. Except (i) as may be reflected in the Sentinel
---------------------
Financial Statements, (ii) any Lien for current taxes not yet delinquent and
(iii) with respect to assets classified as real estate owned, Sentinel Financial
and the Sentinel Financial Subsidiaries have good title free and clear of any
material Lien to all the real and personal property reflected in Sentinel
Financial's consolidated balance sheet as of December 31, 1995 included in the
most recent Sentinel Financial Form 10-QSB and, in each case, all real and
personal property acquired since such date, except such real and personal
property as has been disposed of in the ordinary course of business. All leases
material to Sentinel Financial or any Sentinel Financial Subsidiary, pursuant to
which Sentinel Financial or the Sentinel Financial Subsidiary is a lessee or
lessor of real or personal property, are valid and effective in accordance with
their respective terms, and there is not, under any of such leases, any material
existing default by
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Sentinel Financial or any Sentinel Financial Subsidiary or any event which, with
notice or lapse of time or both, would constitute a material default by Sentinel
Financial or any Sentinel Financial Subsidiary. Substantially all of Sentinel
Financial's and the Sentinel Financial Subsidiaries' buildings, structures and
equipment in regular use are in good and serviceable condition, normal wear and
tear excepted. To the Best Knowledge of Sentinel, none of the buildings,
structures and equipment of Sentinel Financial or any Sentinel Financial
Subsidiary violates or fails to comply in any material respect with any
applicable health, fire, environmental, safety, zoning or building laws or
ordinances or any restrictive covenant pertaining thereto.
2.8 Taxes. Except as set forth on Schedule 2.8, Sentinel Financial and
-----
each Sentinel Financial Subsidiary have timely filed or will timely (including
extensions) file all tax returns and reports required to be filed at or prior to
the Closing Date ("Sentinel Financial Returns"). Each of Sentinel Financial and
the Sentinel Financial Subsidiaries has paid, or set up adequate reserves on the
Sentinel Financial Statements for the payment of, all taxes required to be paid
in respect of the periods covered by such returns and reports. To the Best
Knowledge of Sentinel, neither Sentinel Financial nor any Sentinel Financial
Subsidiary will have any liability material to the Condition of Sentinel
Financial and the Sentinel Financial Subsidiaries, taken as a whole, for any
such taxes in excess of the amounts so paid or reserves so established and no
deficiencies for any tax, assessment or governmental charge have been proposed,
asserted or assessed (tentatively or definitely) against any of Sentinel
Financial or any Sentinel Financial Subsidiary which would not be covered by
existing reserves. Except as set forth on Schedule 2.8, neither Sentinel
Financial nor any Sentinel Financial Subsidiary is delinquent in the payment of
any tax, assessment or governmental charge, nor has it requested any extension
of time within which to file any tax returns in respect of any fiscal year which
have not since been filed and no requests for waivers of the time to assess any
tax are pending. No federal and state income tax returns of Sentinel Financial
and the Sentinel Financial Subsidiaries have been audited by the Internal
Revenue Service (the "IRS") or appropriate state tax authorities for the five
most recent full calendar years. There is no deficiency or refund litigation or
matter in controversy with respect to Sentinel Financial's Returns. Except as
set forth on Schedule 2.8, neither Sentinel Financial nor any Sentinel Financial
Subsidiary (i) has extended or waived any statute of limitations on the
assessment of any tax due; (ii) is a party to any agreement providing for the
allocation or sharing of taxes (other than the allocation of federal income
taxes as provided by regulation 1.1552-1(a)(1) under the Code); (iii) is
required to include in income any adjustment pursuant to Section 481(a) of the
Code, by reason of a voluntary change in accounting method (nor has the IRS has
proposed any such adjustment or change of accounting method) or (iv) has filed a
consent pursuant to Section 341(f) of the Code or agreed to have Section
341(f)(2) of the Code apply.
2.9 Material Adverse Change. Except as set forth on Schedule 2.9, since
-----------------------
June 30, 1995, there has been no material adverse change in the Condition of
Sentinel Financial and the Sentinel Financial Subsidiaries, taken as a whole;
provided however, that in determining whether a material adverse change has
occurred there shall be excluded any effect the cause of which is: (i) any
change in banking, tax and similar laws of general applicability or
interpretations thereof by courts or governmental authorities, (ii) any change
in GAAP or regulatory accounting requirements applicable to savings associations
or their holding companies generally, (iii) any changes in general economic
conditions affecting financial institutions generally, including, but not
limited to, changes in interest and deposit rates, (iv) a special assessment on
SAIF members or other action taken by the FDIC in connection with the funding of
the SAIF, or (v) any action or omission of Sentinel Financial or any Sentinel
Financial Subsidiary taken pursuant to the written request of Roosevelt
Financial.
10
<PAGE>
2.10 Commitments and Contracts.
-------------------------
(a) Except as set forth on Schedule 2.10 (and with a true and
correct copy of the document or other item in question attached to such
Schedule), neither Sentinel Financial nor any Sentinel Financial Subsidiary
is a party or subject to any of the following (whether written or oral,
express or implied):
(i) any agreement, arrangement or commitment (A) not made in the
ordinary course of business, (B) by virtue of which the consent or
approval of any third party (other than a Regulatory Authority) is
required for or in connection with the execution, delivery and
performance of this Agreement or the consummation of the Merger or (C)
pursuant to which Sentinel Financial or any of the Sentinel Financial
Subsidiaries is or may become obligated to invest in or contribute
capital to any Sentinel Financial Subsidiary or any other entity;
(ii) any agreement, indenture or other instrument not disclosed
in the Sentinel Financial Statements relating to the borrowing of
money by Sentinel Financial or any Sentinel Financial Subsidiary or
the guarantee by Sentinel Financial or any Sentinel Financial
Subsidiary of any such obligation (other than trade payables or
instruments related to transactions entered into in the ordinary
course of business by any Sentinel Financial Subsidiary, such as
deposits, Fed Funds borrowings, FHL Bank advances and repurchase
agreements);
(iii) any contract, agreement or understanding with any labor
union or collective bargaining organization;
(iv) any contract containing covenants which limit the ability of
Sentinel Financial or any Sentinel Financial Subsidiary to compete in
any line of business or with any person or containing any restriction
of the geographical area in which, or method by which, Sentinel
Financial or any Sentinel Financial Subsidiary may carry on its
business (other than as may be required by law or any applicable
Regulatory Authority);
(v) any off-balance sheet financial instruments, including without
limitation letters of credit, unfunded commitments (other than
unfunded commitments made in the ordinary course of business and
consistent with past practice) and derivative financial instruments;
(vi) any contract or agreement which is a "material contract"
within the meaning of Item 601(b)(10) of Regulation S-K promulgated by
the SEC that is not listed under Item 13 of Sentinel Financial's
Annual Report on Form 10-KSB for the year ended June 30, 1995; or
(vii) any contract or agreement (A) not terminable by Sentinel
Financial or any of its Subsidiaries on 30 or fewer days' notice or
(B) involving annual payments by or to them aggregating $25,000 or
more.
(b) Neither Sentinel Financial nor any Sentinel Financial Subsidiary
is in violation of its certificate of incorporation, charter or bylaws or
in default under any agreement, commitment, arrangement, lease, insurance
policy, or other instrument, and there has not occurred any event that,
with the lapse of time or giving of notice or both, would constitute such a
default, except in
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each case where such violation or default would not have a material adverse
effect on the Condition of Sentinel Financial and the Sentinel Financial
Subsidiaries, taken as a whole.
2.11 Litigation and Other Proceedings. Other than as set forth on Schedule
--------------------------------
2.11, there is no claim, action, suit, investigation or proceeding, pending or,
to the Best Knowledge of Sentinel, threatened against Sentinel Financial or any
Sentinel Financial Subsidiary, nor are they subject to any order, judgment or
decree, except for matters which do not involve a claim for damages for more
than $50,000 or for non-monetary relief, but not excepting any actions, suits or
proceedings which purport or seek to enjoin or restrain the transactions
contemplated by this Agreement. Without limiting the generality of the
foregoing, except as set forth on Schedule 2.11, there are no actions, suits, or
proceedings pending or, to the Best Knowledge of Sentinel, threatened against
Sentinel Financial or any Sentinel Financial Subsidiary or any of their
respective officers or directors by any stockholder of Sentinel Financial or any
Sentinel Financial Subsidiary (or by any former stockholder of Sentinel
Financial or any Sentinel Financial Subsidiary relating to or arising out of
such person's status as a stockholder or former stockholder) or involving claims
under the Securities Act, the Exchange Act, the Community Reinvestment Act of
1977 (the "CRA") or the fair lending laws.
2.12 Insurance. Each of Sentinel Financial and the Sentinel Financial
---------
Subsidiaries has taken or will timely take all requisite action (including
without limitation the making of claims and the giving of notices) pursuant to
its directors' and officers' liability insurance policy or policies in order to
preserve all rights thereunder with respect to all matters (other than matters
arising in connection with this Agreement and the transactions contemplated
hereby) occurring prior to the Effective Time that are known to Sentinel
Financial. Set forth on Schedule 2.12 is a list of all insurance policies
(excluding policies maintained on one- to four-family residential properties
acquired through foreclosure) maintained by or for the benefit of Sentinel
Financial or any of the Sentinel Financial Subsidiaries or their respective
directors, officers, employees or agents. Neither Sentinel Financial nor any
of the Sentinel Financial Subsidiaries has, during the past three years, had an
insurance policy canceled or been denied insurance coverage for which any of
such companies has applied.
2.13 Compliance with Laws.
--------------------
(a) Sentinel Financial and each of the Sentinel Financial
Subsidiaries have all material permits, licenses, authorizations, orders
and approvals of, and have made all material filings, applications and
registrations with, all Regulatory Authorities that are required in order
to permit them to own or lease their properties and assets and to carry on
their business as presently conducted, except where the failure to have all
such permits, licenses, authorizations, orders and approvals or to have
made all such filings would not have a material adverse effect on the
Condition of Sentinel Financial and the Sentinel Financial Subsidiaries,
taken as a whole; all such permits, licenses, authorizations, orders and
approvals are in full force and effect and, to the Best Knowledge of
Sentinel, no suspension or cancellation of any of them is threatened; and
all such filings, applications and registrations are current.
(b) (i) Each of Sentinel Financial and the Sentinel Financial
Subsidiaries has complied with all laws, regulations and orders (including
without limitation zoning ordinances, building codes, the Employee
Retirement Income Security Act of 1974 ("ERISA"), and securities, tax,
environmental, civil rights, and occupational health and safety laws and
regulations, and including without limitation, in the case of any Sentinel
Financial Subsidiary that is a savings bank or savings and loan
association, banking organization, banking corporation or trust company,
all statutes, rules, regulations and policy statements pertaining to the
conduct of a banking, deposit-taking, lending or related business, or to
the exercise of trust powers) and governing
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<PAGE>
instruments applicable to them and to the conduct of their business, except
such noncompliance as, individually and in the aggregate, would not have a
material adverse effect on the Condition of Sentinel Financial and the
Sentinel Financial Subsidiaries, taken as a whole, and (ii) neither
Sentinel Financial nor any Sentinel Financial Subsidiary is in default
under, and no event has occurred which, with the lapse of time or notice or
both, could result in a default under, the terms of any judgment, order,
writ, decree, permit, or license of any Regulatory Authority or court,
whether federal, state, municipal, or local and whether at law or in
equity, except such defaults as, individually and in the aggregate, would
not have a material adverse effect on the Condition of Sentinel Financial
and the Sentinel Financial Subsidiaries, taken as a whole. Except as set
forth in Schedule 2.13B, neither Sentinel Financial nor any Sentinel
Financial Subsidiary is subject to or reasonably likely to incur a
liability as a result of its past or present ownership, operation, or use
of any Property (as defined below) of Sentinel Financial or any Sentinel
Financial Subsidiary (whether directly or, to the Best Knowledge of
Sentinel, as a consequence of such Property being part of the investment
portfolio of Sentinel Financial or any Sentinel Financial Subsidiary) (A)
that is contaminated by or contains any hazardous waste, toxic substance,
or related materials, including without limitation asbestos, PCBs,
pesticides, herbicides, and any other substance or waste that is hazardous
to human health or the environment (collectively, a "Toxic Substance"), or
(B) on which any Toxic Substance has been stored, disposed of, placed, or
used in the construction thereof; and which, in any such case or in the
aggregate, reasonably could be expected to have a material adverse effect
on the Condition of Sentinel Financial and the Sentinel Financial
Subsidiaries, taken as a whole. "Property" of a person shall include all
property (real or personal) owned, leased or controlled by such person,
including without limitation property under foreclosure, property held by
such person or any Subsidiary of such person in its capacity as a trustee
and property in which any venture capital or similar unit of such person or
any Subsidiary of such person has an interest. No claim, action, suit, or
proceeding is pending against Sentinel Financial or any Sentinel Financial
Subsidiary relating to Property of Sentinel Financial or any Sentinel
Financial Subsidiary before any court or other Regulatory Authority or
arbitration tribunal relating to hazardous substances, pollution, or the
environment, and there is no outstanding judgment, order, writ, injunction,
decree, or award against or, to the Best Knowledge of Sentinel, materially
adversely affecting Sentinel Financial or any Sentinel Financial Subsidiary
with respect to the same. Except for statutory or regulatory restrictions
of general application, no Regulatory Authority has placed any restriction
on the business of Sentinel Financial or any Sentinel Financial Subsidiary
which reasonably could be expected to have a material adverse effect on the
Condition of Sentinel Financial and the Sentinel Financial Subsidiaries,
taken as a whole.
(c) Since June 30, 1995, except as set forth on Schedule 2.13C,
neither Sentinel Financial nor any Sentinel Financial Subsidiary has
received any notification or communication as to any matter which has not
been resolved from any Regulatory Authority (i) asserting that Sentinel
Financial or any Sentinel Financial Subsidiary is not in substantial
compliance with any of the statutes, regulations or ordinances that such
Regulatory Authority enforces, except with respect to matters which
reasonably could not be expected to have a material adverse effect on the
Condition of Sentinel Financial and the Sentinel Financial Subsidiaries,
taken as a whole, (ii) threatening to revoke any license, franchise, permit
or governmental authorization that is material to the Condition of Sentinel
Financial and the Sentinel Financial Subsidiaries, taken as a whole,
including without limitation Sentinel Federal's status as an insured
depositary institution under the FDIA, or (iii) requiring or threatening to
require Sentinel Financial or any of the Sentinel Financial Subsidiaries,
or indicating that Sentinel Financial or any of the Sentinel Financial
Subsidiaries may be required, to enter into a cease and desist order,
agreement or memorandum of understanding or any other agreement restricting
or limiting or purporting to direct, restrict or
13
<PAGE>
limit in any manner the operations of Sentinel Financial or any of the
Sentinel Financial Subsidiaries, including without limitation any
restriction on the payment of dividends. No such cease and desist order,
agreement or memorandum of understanding or other agreement is currently in
effect.
(d) Except as a result of the conversion of Sentinel Federal from
mutual to stock form or the acquisition of control of Sentinel Federal by
Sentinel Financial, neither Sentinel Financial nor any Sentinel Financial
Subsidiary is required by Section 32 of the FDIA to give prior notice to
any federal banking agency of the proposed addition of an individual to its
board of directors or the employment of an individual as a senior executive
officer.
2.14 Labor. No work stoppage involving Sentinel Financial or any Sentinel
-----
Financial Subsidiary is pending or, to the Best Knowledge of Sentinel,
threatened. Neither Sentinel Financial nor any Sentinel Financial Subsidiary is
involved in, or, to the Best Knowledge of Sentinel, threatened with or affected
by, any labor dispute, arbitration, lawsuit or administrative proceeding which
reasonably could be expected to have a material adverse effect on the Condition
of Sentinel Financial and the Sentinel Financial Subsidiaries, taken as a whole.
No employees of Sentinel Financial or any Sentinel Financial Subsidiary are
represented by any labor union or any collective bargaining organization.
2.15 Material Interests of Certain Persons.
-------------------------------------
(a) Except as set forth in Sentinel Financial's Proxy Statement for
its 1995 Annual Meeting of Stockholders, to the Best Knowledge of Sentinel,
no officer or director of Sentinel Financial or any Subsidiary of Sentinel
Financial, or any "associate" (as such term is defined in Rule 14a-1 under
the Exchange Act) of any such officer or director, has any material
interest in any material contract or property (real or personal, tangible
or intangible), used in or pertaining to the business of Sentinel Financial
or any Sentinel Financial Subsidiary, which in the case of Sentinel
Financial is required to be disclosed by Item 404 of Regulation S-K
promulgated by the SEC or in the case of any Sentinel Financial Subsidiary
would be required to be so disclosed if such Sentinel Financial Subsidiary
had a class of securities registered under Section 12 of the Exchange Act.
(b) Except as set forth in Sentinel Financial's Proxy Statement for
its 1995 Annual Meeting of Stockholders or on Schedule 2.15, there are no
loans in excess of $100,000 from Sentinel Financial or any Sentinel
Financial Subsidiary to any present officer, director, employee or any
associate or related interest of any such person which was or would be
required under any rule or regulation to be approved by or reported to
Sentinel Financial's or any Sentinel Financial Subsidiary's Board of
Directors ("Insider Loans"). All outstanding Insider Loans from Sentinel
Financial or any Sentinel Financial Subsidiary were approved by or reported
to the appropriate board of directors in accordance with applicable law and
regulations.
2.16 Allowance for Loan Losses; Nonperforming Assets.
-----------------------------------------------
(a) The allowances for loan losses contained in the Sentinel Financial
Statements were established in accordance with the past practices and
experiences of Sentinel Financial and the Sentinel Financial Subsidiaries,
and the allowance for loan losses shown on the consolidated condensed
balance sheet of Sentinel Financial and the Sentinel Financial Subsidiaries
contained in the most recent Sentinel Financial Form 10-QSB is, in the
opinion of management of Sentinel Financial, in compliance in all material
respects with the requirements GAAP and the rules, regulations and policies
of the OTS and is, in the opinion of management of Sentinel Financial,
14
<PAGE>
adequate to provide for possible losses on loans (including without
limitation accrued interest receivable) and credit commitments (including
without limitation stand-by letters of credit) outstanding as of the date
of such balance sheet.
(b) Except as set forth on Schedule 2.16B, the sum of the aggregate
amount of all Nonperforming Assets (as defined below) and all troubled debt
restructurings (as defined under GAAP) on the books of Sentinel Financial
and the Sentinel Financial Subsidiaries does not exceed $500,000 at the
date hereof. "Nonperforming Assets" shall mean (i) loans and leases
classified as nonperforming, (ii) assets classified as real estate owned
and other assets acquired through foreclosure, including in-substance
foreclosed real estate, and (iii) loans and leases that are on non-accrual
status, in each case under the definitions applied by the SEC, the OTS and
under GAAP, as appropriate.
2.17 Employee Benefit Plans.
----------------------
(a) Schedule 2.17A lists all pension, retirement, supplemental
retirement, stock option, restricted stock, stock purchase, stock
ownership, savings, stock appreciation right, profit sharing, employment,
deferred compensation, consulting, bonus, medical, disability, workers'
compensation, vacation, group insurance, severance and other material
employee benefit, incentive and welfare policies, contracts, plans and
arrangements, and all trust or loan agreements or arrangements related
thereto, maintained, sponsored or contributed to by Sentinel Financial or
any Sentinel Financial Subsidiary in respect of any of the present or
former directors, officers, or other employees of and/or consultants to
Sentinel Financial or any Sentinel Financial Subsidiary (collectively,
"Sentinel Financial Employee Plans"). The following documents with respect
to each Sentinel Financial Employee Plan are included in Schedule 2.17A:
(i) a true and complete copy of all written documents comprising such
Sentinel Financial Employee Plan (including amendments and individual
agreements relating thereto) or, if there is no such written document, an
accurate and complete description of the Sentinel Financial Employee Plan;
(ii) the most recent Form 5500 or Form 5500-C (including all schedules
thereto), if applicable; (iii) the most recent financial statements and
actuarial reports, if any; (iv) the summary plan description currently in
effect and all material modifications thereof, if any; and (v) the most
recent IRS determination letter, if any. Without limiting the generality of
the foregoing, Sentinel Financial has furnished Roosevelt Financial with
true and complete copies of each form of stock option grant or stock option
agreement that is outstanding under any stock option plan of Sentinel
Financial or any Sentinel Financial Subsidiary. Craig D. Laemmli has
heretofore acknowledged to and agreed with Roosevelt Financial, in
consideration of its execution of this Agreement that, provided the
employment agreement referred to in Section 5.8(a) has superseded the
Existing Employment Arrangements (as defined below), (i) for purposes of
any employment contract or similar agreement of Mr. Laemmli with Sentinel
Financial or any of its Subsidiaries (an "Existing Employment
Arrangement"), neither the Merger nor his employment by Roosevelt Bank
after the Effective Time pursuant to the employment agreement referred to
in Section 5.8(a) hereof will constitute either an involuntary termination
or a change in control and neither will otherwise trigger, accelerate or
increase the amount of any compensation, benefits or other consideration
under any Existing Employment Arrangement and (ii) as of the Effective Time
all such employment contracts or similar agreements shall terminate without
any payment or penalty obligation and be superseded and replaced in their
entirety by the employment agreement referred to in Section 5.8(a) hereof.
(b) All Sentinel Financial Employee Plans have been maintained and
operated materially in accordance with their terms and with the material
requirements of all applicable
15
<PAGE>
statutes, orders, rules and final regulations, including without limitation
ERISA and the Code. All contributions required to be made to Sentinel
Financial Employee Plans have been made.
(c) With respect to each of the Sentinel Financial Employee Plans
which is a pension plan (as defined in Section 3(2) of ERISA) (the "Pension
Plans"): (i) each Pension Plan which is intended to be "qualified" within
the meaning of Section 401(a) of the Code is so qualified and, to the
extent a determination letter has been received from the IRS with respect
to any such Pension Plan, such determination letter may still be relied
upon, and each related trust is exempt from taxation under Section 501(a)
of the Code; (ii) the present value of all benefits vested and all benefits
accrued under each Pension Plan which is subject to Title IV of ERISA,
valued using the assumptions in the most recent actuarial report, did not,
in each case, as of the last applicable annual valuation date (as indicated
on Schedule 2.17A), exceed the value of the assets of the Pension Plan
allocable to benefits on a plan termination basis; (iii) there has been no
"prohibited transaction," as such term is defined in Section 4975 of the
Code or Section 406 of ERISA, which could subject any Pension Plan or
associated trust, or, to the Best Knowledge of Sentinel, Sentinel Financial
or any Sentinel Financial Subsidiary, to any material tax or penalty; (iv)
no Pension Plan or any trust created thereunder has been terminated, nor
have there been any "reportable events" with respect to any Pension Plan,
as that term is defined in Section 4043 of ERISA since January 1, 1986; and
(v) no Pension Plan or any trust created thereunder has incurred any
"accumulated funding deficiency", as such term is defined in Section 302 of
ERISA (whether or not waived). No Pension Plan is a "multiemployer plan" as
that term is defined in Section 3(37) of ERISA. With respect to each
Pension Plan that is described in Section 4063(a) of ERISA (a "Multiple
Employer Pension Plan"): (i) neither Sentinel Financial nor any Sentinel
Financial Subsidiary would have any liability or obligation to post a bond
under Section 4063 of ERISA if Sentinel Financial and all Sentinel
Financial Subsidiaries were to withdraw from such Multiple Employer Pension
Plan; and (ii) neither Sentinel Financial nor any Sentinel Financial
Subsidiary would have any liability under Section 4064 of ERISA if such
Multiple Employer Pension Plan were to terminate.
(d) Neither Sentinel Financial nor any Sentinel Financial Subsidiary
has any liability for any post-retirement health, medical or similar
benefit of any kind whatsoever, except as required by statute or
regulation.
(e) Neither Sentinel Financial nor any Sentinel Financial Subsidiary
has any material liability under ERISA or the Code as a result of its being
a member of a group described in Sections 414(b), (c), (m) or (o) of the
Code.
(f) Neither Sentinel Financial nor any Sentinel Financial Subsidiary
has any material liability under the continuation of health care provisions
of the Consolidated Omnibus Budget Reconciliation Act of 1985 or any
comparable state law.
(g) Except as set forth on Schedule 2.17G, neither the execution nor
delivery of this Agreement, nor the consummation of any of the transactions
contemplated hereby, will (i) result in any material payment (including
without limitation severance, unemployment compensation or golden parachute
payment) becoming due to any director or employee of Sentinel Financial or
any Sentinel Financial Subsidiary from any of such entities, (ii)
materially increase any benefit otherwise payable under any of the Sentinel
Financial Employee Plans or (iii) result in the acceleration of the time of
payment of any such benefit. No holder of an option to acquire stock of
Sentinel Financial has or will have at any time through the Effective Time
the right to receive any cash or other payment (other than as contemplated
by Section 1.3(f) hereof) in exchange for
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or with respect to all or any portion of such option. Sentinel Financial
shall use its best efforts to ensure that no amounts paid or payable by
Sentinel Financial, Sentinel Financial Subsidiaries or Roosevelt Financial
to or with respect to any employee or former employee of Sentinel Financial
or any Sentinel Financial Subsidiary will fail to be deductible for federal
income tax purposes by reason of Section 280G of the Code or otherwise. No
such option has an associated "Additional Option Right" or other "re-load"
or "replacement option" feature.
2.18 Conduct to Date. From and after June 30, 1995 through the date of
---------------
this Agreement, except as set forth on Schedule 2.18 or in Sentinel Financial
Statements: (i) Sentinel Financial and the Sentinel Financial Subsidiaries have
conducted their respective businesses in the ordinary and usual course
consistent with past practices; (ii) neither Sentinel Financial nor any Sentinel
Financial Subsidiary has issued, sold, granted, conferred or awarded any of its
Equity Securities (except shares of Sentinel Financial Common Stock issued
pursuant to the exercise of options granted prior to the date hereof under the
Sentinel Financial Option Plan), or any corporate debt securities which would be
classified under GAAP as long-term debt on the balance sheets of Sentinel
Financial; (iii) Sentinel Financial has not effected any stock split or
adjusted, combined, reclassified or otherwise changed its capitalization; (iv)
Sentinel Financial has not declared, set aside or paid any dividend or other
distribution in respect of its capital stock, or purchased, redeemed, retired,
repurchased, or exchanged, or otherwise acquired or disposed of, directly or
indirectly, any of its Equity Securities, whether pursuant to the terms of such
Equity Securities or otherwise; (v) neither Sentinel Financial nor any Sentinel
Financial Subsidiary has incurred any material obligation or liability (absolute
or contingent), except normal trade or business obligations or liabilities
incurred in the ordinary course of business, or subjected to Lien any of its
assets or properties other than in the ordinary course of business, (vi) neither
Sentinel Financial nor any Sentinel Financial Subsidiary has discharged or
satisfied any material Lien or paid any material obligation or liability
(absolute or contingent), other than in the ordinary course of business; (vii)
neither Sentinel Financial nor any Sentinel Financial Subsidiary has sold,
assigned, transferred, leased, exchanged, or otherwise disposed of any of its
properties or assets other than for a fair consideration (in the reasonable
opinion of management) and in the ordinary course of business; (viii) except as
required by contract or law, neither Sentinel Financial nor any Sentinel
Financial Subsidiary has (A) increased the rate of compensation of, or paid any
bonus to, any of its directors, officers, or other employees, except merit or
promotion increases applicable to individual employees and annual increases
applicable to employees generally, all in accordance with past practice, or (B)
entered into any new, or amended or supplemented any existing, employment,
management, consulting, deferred compensation, severance, or other similar
contract, (C) entered into, terminated, or substantially modified any of the
Sentinel Financial Employee Plans or (D) agreed to do any of the foregoing; (ix)
neither Sentinel Financial nor any Sentinel Financial Subsidiary has suffered
any material damage, destruction, or loss, whether as the result of fire,
explosion, earthquake, accident, casualty, labor trouble, requisition, or taking
of property by any Regulatory Authority, flood, windstorm, embargo, riot, act of
God or war, or other casualty or event, and whether or not covered by insurance;
(x) other than in the ordinary course of business consistent with past practice,
neither Sentinel Financial nor any Sentinel Financial Subsidiary has canceled or
compromised any debt; (xi) other than in the ordinary course of business,
neither Sentinel Financial nor any Sentinel Financial Subsidiary has entered
into any material transaction, contract or commitment and (xii) neither Sentinel
Financial nor any Sentinel Financial Subsidiary has made or guaranteed any loan
to any of the Sentinel Financial Employee Plans.
2.19 Prospectus/Proxy Statement, etc. None of the information regarding
--------------------------------
Sentinel Financial or any Sentinel Financial Subsidiary supplied or to be
supplied in writing by Sentinel Financial for inclusion in (i) the registration
statement on Form S-4 to be filed with the SEC by Roosevelt Financial for the
purpose of registering the shares of Roosevelt Financial Common Stock to be
exchanged for shares of Sentinel Financial Common Stock pursuant to the
provisions of this Agreement (the "Registration Statement"), (ii) the
prospectus/proxy statement to be mailed to stockholders in accordance with
Section
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5.3 (the "Prospectus/Proxy Statement") or (iii) any other documents to be filed
with any Regulatory Authority in connection with the transactions contemplated
hereby will, at the respective times such documents are filed with any
Regulatory Authority and, in the case of the Registration Statement, when it
becomes effective and, with respect to the Prospectus/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 Prospectus/Proxy Statement or any amendment
thereof or supplement thereto, at the time of the meeting of Sentinel
Financial's stockholders referred to in Section 5.3, 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, if any, which
Sentinel Financial or any Sentinel Financial Subsidiary is responsible for
filing with any Regulatory Authority in connection with the Merger will comply
as to form in all material respects with the provisions of applicable law.
2.20 Registration Obligations. Except as set forth on Schedule 2.20,
------------------------
neither Sentinel Financial nor any Sentinel Financial Subsidiary is under any
obligation, contingent or otherwise, which will survive the Effective Time by
reason of any agreement to register any of its securities under the Securities
Act or other federal or state securities laws or regulations.
2.21 Takeover Provisions Not Applicable. The transactions contemplated by
----------------------------------
this Agreement and the Voting Agreements are exempt from Section 203 of the DGCL
or any other Delaware takeover law. The Board of Directors of Sentinel
Financial has determined pursuant to Section E of Article XIV of Sentinel
Financial's Certificate of Incorporation, and hereby represents to Roosevelt
Financial, that (i) neither Roosevelt Financial nor any of the Roosevelt
Financial Subsidiaries are 10% or more "beneficial owners" of Sentinel Financial
Common Stock for purposes of such Article by virtue of the Voting Agreements,
this Agreement or any of the transactions contemplated hereby or thereby; and
(ii) Sentinel Financial has taken all steps necessary so that (a) neither
Roosevelt Financial nor any of its Subsidiaries will be deemed a "Related
Person" under Article XV of Sentinel Financial's Certificate of Incorporation
and (b) any takeover or similar provisions in the charter documents or bylaws of
Sentinel Financial or Sentinel Federal, including without limitation any
provisions thereof restricting the ownership, acquisition or voting of
securities or imposing any "fair price" or supermajority director or stockholder
vote requirements, will not apply to the Voting Agreements, this Agreement or
any of the transactions contemplated hereby or thereby.
2.22 Regulatory, Tax and Accounting Matters. Sentinel Financial has not
--------------------------------------
taken or agreed to take any action, nor does it have knowledge of any fact or
circumstance, that would (i) materially impede or delay the consummation of the
transactions contemplated by this Agreement or the ability of the parties to
obtain any approval of any Regulatory Authority required for the transactions
contemplated by this Agreement or to perform their covenants and agreements
under this Agreement or (ii) prevent the Merger from qualifying as a pooling of
interests for accounting purposes, the Company Merger from qualifying as a
reorganization within the meaning of Section 368(a)(1)(A) of the Code or the
Bank Merger from qualifying as a reorganization within the meaning of Section
368(a)(1)(A) or (D) of the Code.
2.23 Brokers and Finders. Except as set forth in the agreement with
-------------------
Trident Financial Corporation ("Trident") dated March 1, 1996, which has not
been amended since such date, neither Sentinel Financial nor any Sentinel
Financial Subsidiary nor any of their respective officers, directors or
employees has employed any broker or finder or incurred any liability for any
financial advisory fees, brokerage fees, commissions or finder's fees, and no
other broker or finder has acted directly or indirectly for Sentinel Financial
or any Sentinel Financial Subsidiary, in connection with this Agreement or the
transactions contemplated hereby.
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2.24 Community Reinvestment Act Compliance. Except as set forth on
-------------------------------------
Schedule 2.24, Sentinel Federal is in material compliance with the applicable
provisions of the CRA and the regulations promulgated thereunder, and, as of the
date hereof, Sentinel Federal has a CRA rating of satisfactory or better from
the OTS. To the Best Knowledge of Sentinel, there is no fact or circumstance or
set of facts or circumstances which would cause Sentinel Financial or any
Sentinel Financial Subsidiary to fail to comply with such provisions or cause
the CRA rating of Sentinel Federal to fall below satisfactory.
2.25 Fairness Opinion. Sentinel Financial has received from Trident a
----------------
fairness opinion, dated as of the date of this Agreement, to the effect that the
consideration to be received by the holders of Sentinel Financial Common Stock
pursuant to this Agreement is fair to such holders from a financial point of
view.
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS
OF ROOSEVELT FINANCIAL AND ROOSEVELT BANK
Roosevelt Financial and Roosevelt Bank represent and warrant to and
covenant with Sentinel Financial and Sentinel Federal as follows:
3.1 Organization and Authority. Roosevelt Financial and each of its
--------------------------
Subsidiaries (each a "Roosevelt Financial Subsidiary" and collectively the
"Roosevelt Financial Subsidiaries") is a corporation, savings bank or other
entity duly organized, validly existing and in good standing under the laws of
its jurisdiction of organization, is duly qualified to do business and is in
good standing in all jurisdictions where its ownership or leasing of property or
the conduct of its business requires it to be so qualified, except where the
failure to be so qualified would not have a material adverse effect on the
Condition of Roosevelt Financial and the Roosevelt Financial Subsidiaries, taken
as a whole, and has the corporate power and authority to own its properties and
assets and to carry on its business as it is now being conducted. Roosevelt
Financial is registered as a savings and loan holding company with the OTS under
the HOLA. True and complete copies of the Certificate of Incorporation and
Bylaws of Roosevelt Financial and of the Charter and Bylaws of Roosevelt Bank,
each as in effect on the date of this Agreement, are set forth in Schedule 3.1.
3.2 Capitalization of Roosevelt Financial. The authorized capital stock
-------------------------------------
of Roosevelt Financial consists of (i) 90,000,000 shares of Roosevelt Financial
Common Stock, of which, as of December 31, 1995, 41,991,701 shares were issued
and outstanding and (ii) 3,000,000 shares of preferred stock, issuable in
series, of which 1,301,000 shares of 6 1/2% Non-Cumulative Convertible Preferred
Stock (the "Convertible Preferred") were issued or outstanding on such date, and
as of such date Roosevelt Financial had reserved 4,946,250 shares of Roosevelt
Financial Common Stock for issuance upon conversion of the Convertible
Preferred. As of the date hereof, Roosevelt Financial had reserved 4,650,000
shares of Roosevelt Financial Common Stock for issuance upon the exercise of
options ("Roosevelt Stock Options") under the Roosevelt Financial stock option
and incentive plans. Since December 31, 1994 through the date of this
Agreement, no other Equity Securities of Roosevelt Financial have been issued,
excluding any Roosevelt Stock Options and shares of Roosevelt Financial Common
Stock which may have been issued upon exercise of Roosevelt Stock Options or
conversion of the Convertible Preferred, any Restricted Stock and any shares of
Roosevelt Financial Common Stock issued in connection with the acquisition of
Kirksville Bancshares, Inc. Roosevelt Financial and its Subsidiaries
continually evaluate possible business combinations and may prior to the
Effective Time enter into one or more agreements providing for, and may
consummate, business combinations with other savings and loan holding companies
or other
19
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companies (or acquisitions of the assets thereof) for consideration that may
include Equity Securities. In addition, prior to the Effective Time, Roosevelt
Financial and its Subsidiaries may, depending on market conditions and other
factors, otherwise determine to issue equity, equity-linked or other securities
for financing purposes. Notwithstanding the foregoing, except as heretofore
disclosed to Sentinel Financial, Roosevelt Financial has not taken and will not
take any action and does not have knowledge of any fact or circumstance, that
would (i) materially impede or delay the consummation of the transactions
contemplated by this Agreement or the ability of Roosevelt Financial or Sentinel
Financial to obtain any approval of any Regulatory Authority required for the
transactions contemplated by this Agreement or to perform its covenants and
agreements under this Agreement, (ii) prevent the Merger from qualifying as a
pooling of interests for accounting purposes, the Company Merger from qualifying
as a reorganization within the meaning of Section 368(a)(1)(A) of the Code or
the Bank Merger from qualifying as a reorganization within the meaning of
Section 368(a)(1)(A) or (D) of the Code or (iii) make any of the representations
and warranties in Article III of this Agreement untrue or incorrect in any
material respect if made anew after engaging in such activity, entering into
such transaction, or taking such other act. Except as set forth above, there
are no other Equity Securities of Roosevelt Financial outstanding on the date
hereof. All of the issued and outstanding shares of Roosevelt Financial Common
Stock are validly issued, fully paid, and nonassessable, and have not been
issued in violation of any preemptive right of any stockholder of Roosevelt
Financial. At the Effective Time, the Roosevelt Financial Common Stock to be
issued in the Company Merger will be duly authorized, validly issued, fully paid
and non-assessable, and will not be issued in violation of any preemptive right
of any stockholder of Roosevelt Financial.
3.3 Authorization.
-------------
(a) Roosevelt Financial and Roosevelt Bank have the corporate power
and authority to enter into this Agreement and to carry out their
obligations hereunder. The execution, delivery and performance of this
Agreement by Roosevelt Financial and Roosevelt Bank and the consummation by
Roosevelt Financial and Roosevelt Bank of the transactions contemplated
hereby have been duly authorized by all requisite corporate action of
Roosevelt Financial and Roosevelt Bank. Subject to the receipt of such
approvals of the Regulatory Authorities as may be required by statute or
regulation, this Agreement is a valid and binding obligation of Roosevelt
Financial and Roosevelt Bank enforceable against Roosevelt Financial and
Roosevelt Bank in accordance with its terms, subject as to enforcement to
bankruptcy, insolvency and other similar laws of general applicability
affecting creditors' rights and to general equity principles.
(b) Neither the execution, delivery or performance by Roosevelt
Financial and Roosevelt Bank of this Agreement, nor the consummation by
Roosevelt Financial and Roosevelt Bank of the transactions contemplated
hereby, nor compliance by Roosevelt Financial and Roosevelt Bank with any
of the provisions hereof, will (i) violate or conflict with any term,
condition or provision of its certificate of incorporation, charter or
bylaws, (ii) violate, conflict with or result in a breach of any provisions
of, or constitute a default (or an event which, with notice or lapse of
time or both, would constitute a default) under, or result in the
termination of, or accelerate the performance required by, or result in a
right of termination or acceleration of, or result in the creation of any
Lien upon any of the material properties or assets of Roosevelt Financial
or any Roosevelt Financial Subsidiary under any of the terms, conditions or
provisions of, (x) its articles or certificate of incorporation, charter or
bylaws, or (y) any material note, bond, mortgage, indenture, deed of trust,
license, lease, agreement or other material instrument or obligation to
which Roosevelt Financial or any Roosevelt Financial Subsidiary is a party
or by which it may be bound, or to which Roosevelt Financial or any
Roosevelt Financial Subsidiary or any of their material property or assets
may be subject, or (ii) subject to compliance with the
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<PAGE>
statutes and regulations referred to in subsection (c) of this Section 3.3,
to the Best Knowledge of Roosevelt Financial and of each Roosevelt
Financial Subsidiary (collectively, the "Best Knowledge of Roosevelt"),
violate any judgment, ruling, order, writ, injunction, decree, statute,
rule or regulation applicable to Roosevelt Financial or any of the
Roosevelt Financial Subsidiaries or any of their respective material
properties or assets.
(c) Other than in connection with or in compliance with the
provisions of the DGCL, the Securities Act, the Exchange Act, the
securities or blue sky laws of the various states or filings, consents,
reviews, authorizations, approvals or exemptions required under the Holding
Company Act, the FDIA, the HOLA, the Thrift Regulations, the BMA and the
HSR Act, or any required approvals of any other Regulatory Authority, no
notice to, filing with, exemption or review by, or authorization, consent
or approval of, any public body or authority is necessary on the part of
Roosevelt Financial or Roosevelt Bank for the consummation by them of the
transactions contemplated by this Agreement.
3.4 Roosevelt Financial Statements. The consolidated balance sheets of
------------------------------
Roosevelt Financial and the Roosevelt Financial Subsidiaries as of December 31,
1994 and related consolidated statements of income, cash flows and changes in
stockholders' equity for each of the three years in the three-year period ended
December 31, 1994, together with the notes thereto, audited by KPMG Peat Marwick
LLP and included in Roosevelt Financial's annual report on Form 10-K for the
year ended December 31, 1994 as filed with the SEC, and the unaudited
consolidated condensed balance sheets of Roosevelt Financial and the Roosevelt
Financial Subsidiaries as of September 30, 1995, and the related unaudited
consolidated condensed statements of income and cash flows for the periods then
ended included in Roosevelt Financial's quarterly report on Form 10-Q for the
quarter ended September 30, 1995 as filed with the SEC (collectively, the
"Roosevelt Financial Statements"), have been prepared in accordance with GAAP
(except for the omission of notes to unaudited statements), present fairly the
consolidated financial position of Roosevelt Financial and the Roosevelt
Financial Subsidiaries at such dates, and the consolidated results of
operations, cash flows and changes in stockholders' equity of Roosevelt
Financial and the Roosevelt Financial Subsidiaries for the periods stated
therein and are derived from the books and records of Roosevelt Financial and
the Roosevelt Financial Subsidiaries, which are complete and accurate in all
material respects and have been maintained in accordance with good business
practices. Neither Roosevelt Financial nor any of the Roosevelt Financial
Subsidiaries has any material contingent liabilities that are not described in
the financial statements described above.
3.5 Roosevelt Reports. Since December 31, 1994, each of Roosevelt
-----------------
Financial and the Roosevelt Financial Subsidiaries has filed all material
reports, registrations and statements, together with any required material
amendments thereto, that it was required to file with any Regulatory Authority.
All such reports and statements filed with any such Regulatory Authority are
collectively referred to herein as the "Roosevelt Reports." As of its
respective date, each Roosevelt Report complied in all material respects with
all of the applicable rules and regulations promulgated by the applicable
Regulatory Authority and, in the case of Roosevelt Reports filed pursuant to the
Securities Act or the Exchange Act, did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.
3.6 Material Adverse Change. Except as set forth on Schedule 3.6, since
-----------------------
December 31, 1994, there has been no material adverse change in the Condition of
Roosevelt Financial and the Roosevelt Financial Subsidiaries, taken as a whole,
except as may have resulted or may result from changes to laws and regulations,
generally accepted accounting principles or regulatory accounting principles or
changes in economic conditions applicable to depositary institutions generally.
21
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3.7 Litigation and Other Proceedings. Except as to matters set forth in
--------------------------------
the Roosevelt Reports, there is no claim, action, suit, investigation or
proceeding, pending or, to the Best Knowledge of Roosevelt, threatened against
Roosevelt Financial or any Roosevelt Financial Subsidiary, nor are they subject
to any order, judgment or decree, except for matters which, in the aggregate,
will not have, or reasonably could not be expected to have, a material adverse
effect on the condition of Roosevelt Financial and the Roosevelt Financial
Subsidiaries, taken as whole, but not excepting any actions, suits or
proceedings which purport or seek to enjoin or restrain the transactions
contemplated by this Agreement. Without limiting the generality of the
foregoing, except as to matters set forth in the Roosevelt Reports, there are no
actions, suits, or proceedings pending or, to the Best Knowledge of Roosevelt
Financial, threatened against Roosevelt Financial or any Roosevelt Financial
Subsidiary or any of their respective officers or directors by any stockholder
of Roosevelt Financial or any Roosevelt Financial Subsidiary (or by any former
stockholder of Roosevelt Financial or any Roosevelt Financial Subsidiary
relating to or arising out of such person's status as a stockholder or former
stockholder) or involving claims under the Securities Act, the Exchange Act, the
CRA or the fair lending laws.
3.8 Compliance with Laws.
--------------------
(a) Roosevelt Financial and each of the Roosevelt Financial
Subsidiaries have all material permits, licenses, authorizations, orders
and approvals of, and have made all material filings, applications and
registrations with, all Regulatory Authorities that are required in order
to permit them to own or lease their properties and assets and to carry on
their business as presently conducted, except where the failure to have all
such permits, licenses, authorizations, orders and approvals or to have
made all such filings would not have a material adverse effect on the
Condition of Roosevelt Financial and the Roosevelt Financial Subsidiaries,
taken as a whole; all such permits, licenses, authorizations, orders and
approvals are in full force and effect and, to the Best Knowledge of
Roosevelt, no suspension or cancellation of any of them is threatened and
all such filings, applications and registrations are current.
(b) Each of Roosevelt Financial and the Roosevelt Financial
Subsidiaries has complied with all laws, regulations and orders (including
without limitation zoning ordinances, building codes, ERISA, and
securities, tax, environmental, civil rights, and occupational health and
safety laws and regulations, and including without limitation, in the case
of any Roosevelt Financial Subsidiary that is a savings bank, banking
organization, banking corporation or trust company, all statutes, rules,
regulations and policy statements pertaining to the conduct of a banking,
deposit-taking, lending or related business, or to the exercise of trust
powers) and governing instruments applicable to them and to the conduct of
their business, except as to matters set forth in the Roosevelt Reports or
where such failure to comply would not have a material adverse effect on
the Condition of Roosevelt Financial and the Roosevelt Financial
Subsidiaries, taken as a whole. Neither Roosevelt Financial nor any
Roosevelt Financial Subsidiary is in default under, and no event has
occurred which, with the lapse of time or notice or both, could result in a
default under, the terms of any judgment, order, writ, decree, permit, or
license of any Regulatory Authority or court, whether federal, state,
municipal, or local and whether at law or in equity, except such defaults
as, individually and in the aggregate, would not have a material adverse
effect on the Condition of Roosevelt Financial and the Roosevelt Financial
Subsidiaries, taken as a whole. Except as to matters set forth in the
Roosevelt Reports, neither Roosevelt Financial nor any Roosevelt Financial
Subsidiary is subject to or reasonably likely to incur a liability as a
result of its past or present ownership, operation, or use of any Property
of Roosevelt Financial or any Roosevelt Financial Subsidiary (whether
directly or, to the Best Knowledge of Roosevelt Financial, as a consequence
of such Property being part of the investment portfolio of Roosevelt
Financial or any Roosevelt Financial Subsidiary) (A) that is contaminated
by or contains
22
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any Toxic Substance, or (B) on which any Toxic Substance has been stored,
disposed of, placed, or used in the construction thereof; and which, in any
such case or in the aggregate, reasonably could be expected to have a
material adverse effect on the Condition of Roosevelt Financial and the
Roosevelt Financial Subsidiaries, taken as a whole. No claim, action, suit,
or proceeding is pending against Roosevelt Financial or any Roosevelt
Financial Subsidiary relating to Property of Roosevelt Financial or any
Roosevelt Financial Subsidiary before any court or other Regulatory
Authority or arbitration tribunal relating to hazardous substances,
pollution, or the environment, and there is no outstanding judgment, order,
writ, injunction, decree, or award against or materially adversely
affecting Roosevelt Financial or any Roosevelt Financial Subsidiary with
respect to the same. Except for statutory or regulatory restrictions of
general application, no Regulatory Authority has placed any restriction on
the business of Roosevelt Financial or any Roosevelt Financial Subsidiary
which reasonably could be expected to have a material adverse effect on the
Condition of Roosevelt Financial and the Roosevelt Financial Subsidiaries,
taken as a whole.
(c) Except as previously disclosed to Sentinel Financial, since
December 31, 1994, neither Roosevelt Financial nor any Roosevelt Financial
Subsidiary has received any notification or communication as to any matter
which has not been resolved from any Regulatory Authority (i) asserting
that Roosevelt Financial or any Roosevelt Financial Subsidiary is not in
substantial compliance with any of the statutes, regulations or ordinances
that such Regulatory Authority enforces, except with respect to matters
which reasonably could not be expected to have a material adverse effect on
the Condition of Roosevelt Financial and the Roosevelt Financial
Subsidiaries, taken as a whole, (ii) threatening to revoke any license,
franchise, permit or governmental authorization that is material to the
Condition of Roosevelt Financial and the Roosevelt Financial Subsidiaries,
taken as a whole, including without limitation Roosevelt Bank's status as
an insured depositary institution under the FDIA, or (iii) requiring or
threatening to require Roosevelt Financial or any of the Roosevelt
Financial Subsidiaries, or indicating that Roosevelt Financial or any of
the Roosevelt Financial Subsidiaries may be required, to enter into a cease
and desist order, agreement or memorandum of understanding or any other
agreement restricting or limiting or purporting to direct, restrict or
limit in any manner the operations of Roosevelt Financial or any of the
Roosevelt Financial Subsidiaries, including without limitation any
restriction on the payment of dividends. No such cease and desist order,
agreement or memorandum of understanding or other agreement is currently in
effect.
3.9 Registration Statement, etc. None of the information regarding
---------------------------
Roosevelt Financial or any of the Roosevelt Financial Subsidiaries supplied or
to be supplied by Roosevelt Financial for inclusion or included in (i) the
Registration Statement, (ii) the Prospectus/Proxy Statement or (iii) any other
documents to be filed with any Regulatory Authority in connection with the
transactions contemplated hereby will, at the respective times such documents
are filed with any Regulatory Authority and, in the case of the Registration
Statement, when it becomes effective and, with respect to the Prospectus/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 Prospectus/Proxy
Statement or any amendment thereof or supplement thereto, at the time of the
meeting of stockholders referred to in Section 5.3, 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 Roosevelt
Financial or any of the Roosevelt Financial Subsidiaries are responsible for
filing with any Regulatory Authority in connection with the Merger will comply
as to form in all material respects with the provisions of applicable law.
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3.10 Brokers and Finders. Neither Roosevelt Financial nor any of the
-------------------
Roosevelt Financial Subsidiaries nor any of their respective officers, directors
or employees 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 Roosevelt Financial or any
of the Roosevelt Financial Subsidiaries, in connection with this Agreement or
the transactions contemplated hereby.
3.11 Community Reinvestment Act Compliance. Roosevelt Bank is in material
-------------------------------------
compliance with the applicable provisions of the CRA and the regulations
promulgated thereunder, and Roosevelt Bank currently has a CRA rating of
satisfactory or better from the OTS. To the Best Knowledge of Roosevelt, there
is no fact or circumstance or set of facts or circumstances which would cause
Roosevelt Financial or any Roosevelt Financial Subsidiary to fail to comply with
such provisions or cause the CRA rating of Roosevelt Bank to fall below
satisfactory.
ARTICLE IV
CONDUCT OF BUSINESSES PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Businesses Prior to the Effective Time. During the period
-------------------------------------------------
from the date of this Agreement to the Effective Time, each of Roosevelt
Financial and Sentinel Financial shall, and shall cause each of their respective
Subsidiaries to, conduct its business only in the ordinary and usual course
consistent with past practices (including in the case of Roosevelt Financial and
its Subsidiaries the matters set forth in the fourth and fifth sentences of
Section 3.2 hereof) and shall, and shall cause each such Subsidiary to, use its
best efforts to maintain and preserve its business organization, employees and
advantageous business relationships and retain the services of its officers and
key employees.
4.2 Forbearances. Except as provided herein, during the period from the
------------
date of this Agreement to the Effective Time, Sentinel Financial shall not and
shall not permit any of the Sentinel Financial Subsidiaries to, without the
prior written consent of Roosevelt Financial:
(a) declare, set aside or pay any dividends or other distributions,
directly or indirectly, in respect of its capital stock (other than
ordinary, normal dividends from a wholly owned Subsidiary of Sentinel
Financial to Sentinel Financial or another wholly owned Subsidiary of
Sentinel Financial);
(b) enter into or amend any employment, severance or similar
agreement or arrangement with any director or officer or employee, or
materially modify any of the Sentinel Financial Employee Plans or security
acquisition loans relating thereto (or prepay in whole or in part any such
loans) or grant any salary or wage increase or materially increase any
employee benefit (including incentive or bonus payments), except (i) normal
individual bonuses and increases in compensation to employees, in each case
and in the aggregate consistent with past practice or to the extent
required by law or contract, (ii) as set forth in Section 5.8 of this
Agreement and (iii) such increases of which Sentinel Financial notifies
Roosevelt Financial in writing and which Roosevelt Financial does not
disapprove in writing within ten days of the receipt of such notice;
(c) except to the extent that the fulfillment of the fiduciary duties
of Sentinel Financial's directors requires such action, as so advised in
writing by Sentinel Financial's outside counsel, authorize, recommend,
propose or announce an intention to authorize, so recommend or
24
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propose, or enter into an agreement in principle with respect to, any
merger, consolidation or business combination (other than the Merger), any
acquisition of a material amount of assets or securities, any disposition
of a material amount of assets or securities or any release or
relinquishment of any material contract rights;
(d) except as may be required by law or regulation, propose or adopt
any amendments to its certificate of incorporation or other charter
document or bylaws;
(e) issue, sell, grant, confer or award any of its Equity Securities
(except shares of Sentinel Financial Common Stock issued pursuant to
options that were granted under the Sentinel Financial Option Plan and are
outstanding on the date of this Agreement) or effect any stock split or
adjust, combine, reclassify or otherwise change its capitalization as it
exists on the date of this Agreement;
(f) purchase, redeem, retire, repurchase, or exchange, or otherwise
acquire or dispose of, directly or indirectly, any of its Equity
Securities, whether pursuant to the terms of such Equity Securities or
otherwise;
(g) (i) without first consulting with Roosevelt Financial, enter into
or increase any loan or credit commitment (including stand-by letters of
credit) to, or invest or agree to invest in, any person or entity or modify
any of the material provisions or renew or otherwise extend the maturity
date of any existing loan or credit commitment (collectively, "Lend to") in
an amount in excess of $100,000, provided no such consultation shall be
required in respect of single-family residential loans or credits not
exceeding $350,000 that are made in compliance with Sentinel Federal's
lending policies as in effect on the date hereof; (ii) enter into, or
increase in an amount in excess of $350,000 any commercial or multi-family
real estate loan or credit commitment (including stand-by letters of
credit) to, or invest or agree to invest in, any commercial or multi-family
real estate project or entity, or Lend to any person other than in
accordance with lending policies as in effect on the date hereof, provided
that Sentinel Financial or any Sentinel Financial Subsidiary may make any
such loan in the event (A) Sentinel Financial or any Sentinel Financial
Subsidiary has delivered to Roosevelt Financial or its designated
representative a notice of its intention to make such loan and such
information as Roosevelt Financial or its designated representative may
reasonably require in respect thereof and (B) Roosevelt Financial or its
designated representative shall not have objected to such loan by giving
written or facsimile notice of such objection within two business days
following the delivery to Roosevelt Financial of the notice of intention
and information as aforesaid; (iii) Lend to any person or entity, any of
the loans or other extensions of credit to which or investments in which
are on a "watch list" or similar internal report of Sentinel Financial or
any Sentinel Financial Subsidiary (except those denoted "pass" or similar
notation thereon), in an amount in excess of $100,000; or (iv) enter into
any agreement or engage in any transaction which reasonably could be
construed as materially affecting the asset/liability management or
interest rate risk management position of Sentinel Financial or Sentinel
Federal (in this regard, Sentinel Financial shall promptly telecopy to
Roosevelt Financial copies of all Sentinel Financial or Sentinel Federal
loan and deposit pricing reports as well as summaries of any proposed asset
sales and secondary market transactions as soon as they are identified);
provided, however, that nothing in this paragraph shall prohibit Sentinel
Financial or any Sentinel Financial Subsidiary from honoring any
contractual obligation in existence on the date of this Agreement or, with
respect to loans described in clause (i) above, making such loans after
consulting with Roosevelt Financial in accordance with the provisions of
that clause.
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(h) directly or indirectly (including, without limitation, through its
officers, directors, employees or other representatives) (i) initiate,
solicit or encourage any discussions, inquiries or proposals with any third
party relating to the disposition of any significant portion of the
business or assets of Sentinel Financial or any Sentinel Financial
Subsidiary or the acquisition of 10% or more of any class of Equity
Securities of Sentinel Financial or any Sentinel Financial Subsidiary or
the merger of Sentinel Financial or any Sentinel Financial Subsidiary with
any person (other than Roosevelt Financial) or any similar transaction
(each such transaction being referred to in this Section 4.2(h) as an
"Acquisition Transaction") or (ii) except to the extent that the
fulfillment of the fiduciary duties of Sentinel Financial's directors
requires such action, as so advised in writing by Sentinel Financial's
outside counsel, directly or indirectly, (including through its officers,
directors, employees or other representatives), provide any such person
with information or assistance or negotiate with any such person with
respect to an Acquisition Transaction, and Sentinel Financial shall
immediately notify Roosevelt Financial orally and in reasonable detail of
all the relevant facts relating to all inquiries, indications of interest
and proposals which it may receive with respect to any Acquisition
Transaction and promptly confirm the same to Roosevelt Financial in
writing;
(i) take any action that would (A) materially impede or delay the
consummation of the transactions contemplated by this Agreement or the
ability of Roosevelt Financial or Sentinel Financial to obtain any approval
of any Regulatory Authority required for the transactions contemplated by
this Agreement or to perform its covenants and agreements under this
Agreement or (B) prevent the Merger from qualifying as a pooling of
interests for accounting purposes, the Company Merger from qualifying as a
reorganization within the meaning of Section 368(a)(1)(A) of the Code or
the Bank Merger from qualifying as a reorganization within the meaning of
Section 368(a)(1)(A) or (D) of the Code;
(j) other than in the ordinary course of business consistent with past
practice, incur any indebtedness for borrowed money, assume, guarantee,
endorse or otherwise as an accommodation become responsible or liable for
the obligations of any other individual, corporation or other entity; or
(k) agree in writing or otherwise to take any of the foregoing
actions or engage in any activity, enter into any transaction or take or
omit to take any other act which would make any of the representations and
warranties in Article II of this Agreement untrue or incorrect in any
material respect if made anew after engaging in such activity, entering
into such transaction, or taking or omitting such other act.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Access and Information. Roosevelt Financial and the Roosevelt
----------------------
Financial Subsidiaries, on the one hand, and Sentinel Financial and the Sentinel
Financial Subsidiaries, on the other hand, shall each afford to each other, and
to the other's accountants, counsel and other representatives, reasonable access
during the period prior to the Effective Time, to all their respective
properties, books, contracts, commitments and records and, during such period,
each shall furnish promptly to the other (i) a copy of each report, schedule and
other document filed or received by it during such period pursuant to the
requirements of federal and state securities laws and (ii) all other information
concerning its business,
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properties and personnel as such other party may reasonably request. Except as
may be required by law, each party hereto shall, and shall cause its advisors
and representatives to, (A) hold confidential all information obtained in
connection with any transaction contemplated hereby with respect to the other
party which is not otherwise public knowledge, (B) return all documents
(including copies thereof) obtained hereunder from the other party to such other
party and (C) use its best efforts to cause all information obtained pursuant to
this Agreement or in connection with the negotiation of this Agreement to be
treated as confidential and not use, or knowingly permit others to use, any such
information unless such information becomes generally available to the public.
5.2 Registration Statement; Regulatory Matters.
------------------------------------------
(a) Roosevelt Financial, in cooperation with Sentinel Financial,
shall prepare and, subject to the review and consent of Sentinel Financial
with respect to matters relating to Sentinel Financial (which consent shall
not be unreasonably withheld), file with the SEC as soon as reasonably
practicable, but in no event later than 90 days from the date of this
Agreement, the Registration Statement (or the equivalent in the form of
preliminary proxy material), with respect to the shares of Roosevelt
Financial Common Stock to be issued in the Merger. Roosevelt Financial
shall use its best efforts to cause the Registration Statement to become
effective. Roosevelt Financial shall also take any reasonable action
required to be taken under any applicable state blue sky or securities laws
in connection with the issuance of such shares, and Sentinel Financial and
the Sentinel Financial Subsidiaries shall furnish Roosevelt Financial all
information concerning Sentinel Financial and the Sentinel Financial
Subsidiaries and the stockholders thereof as Roosevelt Financial may
reasonably request in connection with any such action. Sentinel Financial
authorizes Roosevelt Financial to utilize in the Registration Statement the
information concerning Sentinel Financial and the Sentinel Financial
Subsidiaries provided to Roosevelt Financial for inclusion in the
Prospectus/Proxy Statement. Roosevelt Financial shall advise Sentinel
Financial promptly when the Registration Statement has become effective and
of any supplements or amendments thereto, and shall furnish Sentinel
Financial with copies of all such documents.
(b) Sentinel Financial and Roosevelt Financial shall cooperate and
use their respective best efforts to promptly prepare all documentation, to
effect all filings and to obtain all permits, consents, approvals and
authorizations of all third parties and Regulatory Authorities necessary to
consummate the transactions contemplated by this Agreement and, as and if
directed by Roosevelt Financial, to consummate such other mergers,
consolidations or asset transfers or other transactions by and among the
Roosevelt Financial Subsidiaries and the Sentinel Financial Subsidiaries
concurrently with or following the Effective Time, provided that such
actions do not materially impede or delay the consummation of the
transactions contemplated by this Agreement.
5.3 Stockholder Approval. Sentinel Financial shall call a meeting of its
--------------------
stockholders to be held as soon as practicable on a mutually agreeable date for
the purpose of voting upon the Merger. In connection with such meeting,
Roosevelt Financial and Sentinel Financial shall cooperate in the preparation of
the Prospectus/Proxy Statement and, with the approval of each of Roosevelt
Financial and Sentinel Financial, which approvals will not be unreasonably
withheld, the Prospectus/Proxy Statement shall be mailed to the stockholders of
Sentinel Financial. The Board of Directors of Sentinel Financial shall submit
for approval of Sentinel Financial's stockholders the matters to be voted upon
at such meeting. The Board of Directors of Sentinel Financial hereby does and
(except to the extent that the fulfillment of the fiduciary duties of Sentinel
Financial's directors so requires, as so advised in writing by Sentinel
Financial's outside counsel) will (i) recommend this Agreement and the
transactions contemplated hereby to the stockholders of Sentinel Financial and
(ii) use its best efforts to obtain any
27
<PAGE>
vote of Sentinel Financial's stockholders necessary for the approval and
adoption of this Agreement and the Merger.
5.4 Current Information. During the period from the date of this
-------------------
Agreement to the Effective Time, each party shall promptly furnish the other
with copies of all monthly and other interim financial statements as the same
become available and shall cause one or more of its designated representatives
to confer on a regular and frequent basis with representatives of the other
party. Each party shall promptly notify the other party of any material change
in its business or operations, of any fact, omission or condition which makes
untrue or misleading or shows to have been untrue or misleading the information
supplied by it for inclusion in the Registration Statement or the
Prospectus/Proxy Statement, and of any governmental complaints, investigations
or hearings (or communications indicating that the same may be contemplated), or
the institution or the threat of material litigation involving such party, and
shall keep the other party fully informed of such events.
5.5 Agreements of Affiliates. As soon as practicable after the date of
------------------------
this Agreement, Sentinel Financial shall deliver to Roosevelt Financial a
letter, reviewed by its counsel, identifying all persons whom Sentinel Financial
believes to be "affiliates" of Sentinel Financial for purposes of Rule 145 under
the Securities Act or for purposes of qualifying for pooling of interests
accounting treatment for the Merger. Sentinel Financial shall use its best
efforts to cause each person who is so identified as an "affiliate" to deliver
to Roosevelt Financial, as soon as practicable thereafter, a written agreement,
in form and substance reasonably satisfactory to Roosevelt Financial, providing
that from the date of such agreement each such person will agree not to sell,
pledge, transfer or otherwise dispose of any shares of stock of Sentinel
Financial held by such person or any shares of Roosevelt Financial Common Stock
to be received by such person in the Merger (i) during the period commencing 30
days prior to the Merger and ending at the time of publication of financial
results covering at least 30 days of combined operations after the Merger and
(ii) at any time, except in compliance with the applicable provisions of the
Securities Act and other applicable laws and regulations. Prior to the Effective
Time, Sentinel Financial shall amend and supplement such letter and use its best
efforts to cause each additional person who is identified as an "affiliate" to
execute a written agreement as set forth in this Section 5.5.
5.6 Expenses. Each party hereto shall bear its own expenses incident to
--------
preparing, entering into and carrying out this Agreement and to consummating the
Merger, provided, however, that Roosevelt Financial shall pay all printing and
mailing expenses and filing fees associated with the Registration Statement and
the Prospectus/Proxy Statement and all filings with Regulatory Authorities for
approval of this Agreement.
5.7 Miscellaneous Agreements and Consents. Subject to the terms and
-------------------------------------
conditions herein provided, and except to the extent required for the
fulfillment of the fiduciary duties of Sentinel Financial's directors as so
advised in writing by Sentinel Financial's outside counsel, each of the parties
hereto agrees to use its respective best efforts to take, or cause to be taken,
all actions, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement as expeditiously as possible,
including without limitation using its respective best efforts to lift or
rescind any injunction or restraining order adversely affecting the ability of
the parties to consummate the transactions contemplated hereby. Subject to the
terms and conditions of this Agreement, each party shall, and shall cause each
of its respective Subsidiaries to, use its best efforts to obtain consents of
all third parties and Regulatory Authorities necessary or, in the reasonable
opinion of Roosevelt Financial, desirable for the consummation of the
transactions contemplated by this Agreement.
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5.8 Employee Agreements and Benefits.
--------------------------------
(a) Following the Effective Time, Roosevelt Financial or Roosevelt
Bank shall honor in accordance with its terms the employment agreement to
be entered into between Roosevelt Bank and Craig D. Laemmli in the form set
forth in Schedule 5.8, which agreement shall be executed at the Closing. As
of the Effective Time, all employment contracts or similar agreements
theretofore existing between Sentinel Financial or any of its Subsidiaries
and Craig D. Laemmli shall terminate without any payment or penalty
obligation and be superseded and replaced in its entirety by the employment
agreement referred to in the immediately preceding sentence of this Section
5.8(a). In the event that the substantive terms of the employment agreement
between Craig D. Laemmli and Roosevelt Bank in the form set forth in
Schedule 5.8 are modified in any manner that would materially diminish the
anticipated benefits of such employment agreement to Mr. Laemmli, he and
Roosevelt Bank shall be under no obligation to execute said agreement and
Roosevelt Financial and Roosevelt Bank agree that, at and following the
Effective Time, Craig D. Laemmli's existing employment agreement dated
January 7, 1994 shall remain in effect. Roosevelt Financial and Roosevelt
Bank further agree that, notwithstanding any other provision herein, in the
event Mr. Laemmli's existing employment agreement remains in effect
pursuant to the preceding sentence, the Company Merger shall constitute a
change in control within the meaning of Section 5(a) of said agreement.
Roosevelt Financial and Roosevelt Bank agree, and Mr. Laemmli has
heretofore acknowledged and agreed with Roosevelt Financial and Roosevelt
Bank, that upon the Company Merger, in the event that Mr. Laemmli's
existing employment agreement remains in effect pursuant to the second
preceding sentence, Mr. Laemmli shall be entitled to receive in full
satisfaction of the obligations of Roosevelt Financial, Roosevelt Bank,
Sentinel Financial and Sentinel Federal under such existing employment
agreement, in cash, 299 percent of Mr. Laemmli's "base amount" of
compensation, as defined in Section 280G(b)(3) of the Code; provided,
however, that Mr. Laemmli has heretofore acknowledged and agreed that in no
event shall Roosevelt Financial or Roosevelt Bank be obligated to make any
payment or provide any benefits under his existing employment agreement or
otherwise that would be nondeductible by Roosevelt Financial or Roosevelt
Bank for federal tax purposes pursuant to Section 280G of the Code. Neither
Sentinel Financial nor Sentinel Federal shall make, and neither Roosevelt
Financial nor Roosevelt Federal shall be in any manner obligated to make,
any payment whatsoever to any other Sentinel Financial or Sentinel Federal
director or employee under any circumstance in which such payment is not or
will not be deductible under Section 162(m) or Section 280G of the Code.
For at least one year after the Effective Time, and for so long thereafter
as the participating directors and Roosevelt Bank deem the relationship to
be mutually beneficial and subject to compliance with the Thrift
Regulations, the directors of Sentinel Financial who wish to do so may
serve as regional Advisory Directors of Roosevelt Bank with a retainer fee
for each such Advisory Director of $500 per month.
(b) Except to the extent provided in Sections 1.3(f) and 5.8(d)
hereof: (i) the provisions of each plan, program or arrangement providing
for the issuance or grant of any interest in respect of the capital stock
of Sentinel Financial or any Sentinel Financial Subsidiary shall be
terminated as of the Effective Time and (ii) Sentinel Financial shall
ensure that following the Effective Time no participant in any Sentinel
Financial Employee Plan shall have any right thereunder to acquire any
securities of Sentinel Financial, any Sentinel Financial Subsidiary,
Roosevelt Financial, any Roosevelt Financial Subsidiary, or any successor
in interest to any of such entities.
Shares of Sentinel Financial Common Stock issued pursuant to the
Sentinel Federal Savings and Loan Association of Kansas City Management
Recognition and Development
29
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Plan and Trust Agreement for Officers and Key Employees and the Sentinel
Federal Savings and Loan Association of Kansas City Management Recognition
and Development Plan and Trust Agreement for Outside Directors (together,
the "MRP Plans") that are subject to forfeiture restrictions shall no
longer be subject to such restrictions upon the Effective Time and the
certificates for Roosevelt Financial Common Stock issued in the exchange
shall not contain any legend relating to the MRP Plans.
(c) Roosevelt Bank anticipates retaining the employees of Sentinel
Federal as employees of Roosevelt Bank after the Effective Time, subject to
the needs of Roosevelt Bank and the qualifications of such employees. Those
employees (other than Craig D. Laemmli) who are not retained for at least
six months after the Effective Time will be offered a severance arrangement
of (i) four weeks' pay plus (ii) an additional week's pay for each year of
service to Sentinel Financial or any Sentinel Financial Subsidiary (and
shall be entitled to receive in cash the value of their unused accrued
vacation leave to the extent it has been expensed and accrued in the
regular course of business for financial reporting purposes during the
periods it was earned). Employees of Sentinel Financial or any Sentinel
Financial Subsidiary who continue in employment with Roosevelt Financial or
any Roosevelt Financial Subsidiary following the Effective Time shall be
credited for prior years of service with Sentinel Financial or any Sentinel
Financial Subsidiary for purposes of eligibility and vesting (but not for
the accrual of benefits) under Roosevelt Financial and Roosevelt Financial
Subsidiary benefit plans and policies (including, without limitation,
vacation and sick leave policies), there shall be no exclusion from medical
coverage as the result of pre-existing conditions that were covered under
the medical plan of Sentinel Financial or the applicable Sentinel Financial
Subsidiary, and such employees shall be entitled to participate on an
equitable basis in the same benefit plans and policies as are generally
available to Roosevelt Financial and Roosevelt Bank employees of similar
rank and status not later than January 1, 1998.
In the event that the combined benefits allocable under the Sentinel
Qualified Plans (as hereinafter defined) and any qualified retirement plans
of Roosevelt Financial or the Roosevelt Financial Subsidiaries, as
applicable (the "Roosevelt Qualified Plans"), by virtue of the allocation
under Section 5.8(d)(ii) hereof or otherwise, exceed the applicable
limitations of Section 415 of the Code, any required reductions in
allocations necessary to meet such limitations will be made first to the
benefits allocable under the Roosevelt Qualified Plans.
(d) Prior to the Effective Time, and except to the extent necessary to
effectuate the intent of subparagraphs (i) and (ii) below, Sentinel
Financial shall make no amendments to the Sentinel Federal Employee Stock
Ownership Plan (the "Sentinel Federal ESOP") or any other tax-qualified
retirement plan maintained by Sentinel Financial or any of its Subsidiaries
(together with the Sentinel Federal ESOP, the "Sentinel Qualified Plans")
without the prior written approval of Roosevelt Financial and shall make no
additional contributions to the Sentinel Federal ESOP except for
contributions that are (x) made on or before the earlier of June 30, 1996
or the Effective Time, at levels and with a frequency that is not in excess
of prior practice, and (y) applied to the repayment of ESOP indebtedness
("Debt"); provided, however, that the Sentinel Federal ESOP may be amended
--------- --------
to provide for full vesting of participant accounts at the Effective Time.
(i) As soon as practicable after the Effective Time (but not
prior to the publication of financial results covering at least 30
days of combined operations after the Merger) and without adversely
affecting the qualified status of the Sentinel Federal ESOP, the
trustees of the Sentinel Federal ESOP shall convert to cash a portion
of the
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Roosevelt Financial Common Stock received by the Sentinel Federal ESOP
in the Company Merger with respect to unallocated Sentinel Financial
Common Stock in order to repay the entire outstanding balance of the
Sentinel Federal ESOP loan.
(ii) As soon as practicable after the retirement of the Sentinel
Federal ESOP loan as provided in subparagraph (i) above (but not later
than 120 days after the publication of financial results covering at
least 30 days of combined operations after the Merger) and without
adversely affecting the qualified status of the Sentinel Federal ESOP,
the trustees of the Sentinel Federal ESOP shall allocate the remaining
Roosevelt Financial Common Stock received by the Sentinel Federal ESOP
in the Company Merger with respect to unallocated shares of Sentinel
Financial Common Stock to the accounts of all participants in the
Sentinel Federal ESOP (whether or not such participants are then
actively employed) and beneficiaries in proportion to the account
balances of such participants and beneficiaries as they existed as of
the Effective Time (and, if required, to the accounts of former
participants or their beneficiaries) as investment earnings of the
Sentinel Federal ESOP (except to the extent that any such allocations
would be subject to the limitations of Section 415 of the Code for
such year). Sentinel Financial, at its expense, may make an
Application for Determination to the appropriate District Office of
the Internal Revenue Service for a determination letter or ruling,
relating to whether unallocated employer securities (or proceeds)
remaining after full payment of the Sentinel Federal ESOP loan can be
allocated as ESOP earnings to participants or former participants of
the Sentinel Federal ESOP as of the Effective Time without any amount
thereof being subject to limitation on allocation under Section 415 of
the Code. In the event that a favorable determination or ruling is
received by Sentinel Financial on or prior to 90 days following the
Effective Time relating to the matters set forth in the preceding
sentence, then the Sentinel Federal ESOP shall make allocation of
unallocated employer securities in a manner consistent with the
favorable determination letter or ruling. If a favorable determination
letter or ruling is not received within the time period specified in
the preceding sentence, then in that event, after full payment of the
Sentinel Federal ESOP loan, unallocated employer securities shall be
allocated as of the Effective Time subject to the limitation on
allocation under Section 415 of the Code. No allocation of employer
securities (or proceeds) shall be made under the Sentinel Federal ESOP
relating to periods after the Effective Time and no employer
contribution shall be made to the Sentinel Federal ESOP relating to
periods after the Effective Time.
(iii) As of the Effective Time, the administrative and other
authority previously exercised with respect to the Sentinel Federal
ESOP by the Board of Directors of Sentinel Financial shall be
exercised solely by a Committee appointed and selected by the Board of
Directors of Sentinel Financial and in place under the terms of the
Sentinel Federal ESOP ("Committee"), which authority shall include the
authority to appoint and remove trustees of the Sentinel Federal ESOP.
(iv) Subject to Roosevelt Financial waiting 120 days after the
publication of financial results covering at least 30 days of combined
operations after the Merger with respect to the Sentinel Federal ESOP
only to permit allocations to be made pursuant to subparagraph (ii),
Roosevelt Financial may terminate the Sentinel Qualified Plans,
continue the Sentinel Qualified Plans, or merge the Sentinel Qualified
Plans with other tax-qualified retirement plans maintained by
Roosevelt Financial or its Subsidiaries, all in its sole discretion,
but in a manner consistent with the requirements of ERISA and the
applicable provisions of the Code. The vested
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<PAGE>
accrued benefits of participants in the Sentinel Qualified Plans shall
not be reduced by virtue of any such termination, continuation or
merger of the Sentinel Qualified Plans. Any such termination or merger
may be effective as of the Effective Time.
(v) Neither Roosevelt Financial nor any of its Subsidiaries
shall have any obligation to make any contributions to the Sentinel
Qualified Plans.
5.9 Press Releases. The initial press release announcing this Agreement
--------------
shall be as previously agreed upon by Roosevelt Financial and Sentinel
Financial. Except as deemed by Sentinel Financial, after consultation with its
outside counsel, to be necessary to comply with applicable law, Sentinel
Financial and its Subsidiaries shall not issue any press releases or written
statements for general public circulation relating to this Agreement or any of
the transactions contemplated hereby without the prior consent of Roosevelt
Financial, which consent shall not be unreasonably withheld.
5.10 D&O Indemnification and Insurance. Roosevelt Financial (and any
---------------------------------
successor) shall indemnify, defend and hold harmless the present and former
directors, officers and employees of Sentinel Financial and the Sentinel
Financial Subsidiaries against all liabilities, claims, losses, damages or
judgments, or amounts paid in settlement with the approval of Roosevelt
Financial (which approval shall not be unreasonably withheld) of any claim,
action, or suit, arising out of actions or omissions occurring at or prior to
the Effective Time (including, without limitation, the transactions contemplated
by this Agreement) regardless of whether such matter is asserted or claimed
prior to, at or after the Effective Time, to the fullest extent such persons are
indemnified under the DGCL and Sentinel Financial's Certificate of Incorporation
and Bylaws as in effect on the date hereof, including provisions relating to the
advancement of expenses incurred in the defense of any litigation. Roosevelt
Financial shall use its reasonable best efforts to cause the persons serving as
officers and directors of Sentinel Federal immediately prior to the Effective
Time to be covered for a period of three years from the Effective Time by single
(one-time) premium tail coverage under the directors' and officers' liability
insurance policy maintained by Sentinel Federal (provided that Roosevelt
Financial may substitute therefor policies of at least the same coverage and
amounts containing terms and conditions which are not materially less
advantageous than such policy) with respect to acts or omissions occurring prior
to the Effective Time which were committed by such officers and directors in
their capacity as such; provided, however, that in no event shall Roosevelt
Financial be required to expend in the aggregate more than 150% of the annual
amount currently expended by Sentinel Federal (the "Insurance Amount") to
maintain or procure insurance coverage pursuant hereto and further provided that
if Roosevelt Financial is unable to maintain or obtain the insurance called for
by this Section 5.10, Roosevelt Financial shall use its reasonable best efforts
to obtain as much comparable insurance as is available for the Insurance Amount.
5.11 Third Parties. Sentinel Financial and each Sentinel Financial
-------------
Subsidiary, as applicable, shall immediately terminate all negotiations or
discussions concerning any Acquisition Transaction with parties other than
Roosevelt Financial and enforce the terms of all confidentiality agreements with
such other parties; provided, however, that nothing in this Section 5.11 is
intended to preclude, after such termination, the ability of Sentinel Financial
and the Sentinel Financial Subsidiaries to engage in the actions set forth in
Section 4.2(h)(ii), but only under the circumstances and to the extent permitted
thereby.
5.12 Schedule 13D or 13G Filings. Sentinel Financial shall immediately
---------------------------
advise Roosevelt Financial of the receipt (and, to the Best Knowledge of
Sentinel, the filing) after the date hereof of all Schedules 13D or 13G (and all
Schedule 13D or 13G amendments) under the Exchange Act with respect to Sentinel
Financial Common Stock, and shall provide Roosevelt Financial with a copy of
each such Schedule 13D or 13G or Schedule 13D or 13G amendment promptly after
receipt thereof.
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5.13 Dissenting Shareholders' Appraisal Rights. Roosevelt Financial and
-----------------------------------------
Sentinel Financial, as applicable, will comply with all applicable notification
and other provisions of regulations or statutes relating to Dissenting Shares.
5.14 Reservation of Shares. Roosevelt Financial shall take all corporate
---------------------
action necessary to reserve for issuance a sufficient number of shares of
Roosevelt Financial Common Stock for delivery upon exercise of Sentinel
Financial stock options assumed by it in accordance with Section 1.3(f) hereof.
As soon as practicable after the Effective Time, Roosevelt Financial shall file
an appropriate registration statement with respect to the shares of Roosevelt
Financial Common Stock subject to such options and shall use its best efforts to
maintain the effectiveness of such registration statement or registration
statements (and maintain the current status of the prospectus or prospectuses
contained therein) for so long as such options remain outstanding.
5.15 Nasdaq Listing. Roosevelt Financial shall use all reasonable efforts
--------------
to cause the securities to be issued in the Merger, and to be reserved for
issuance upon exercise of Sentinel Financial stock options, to be approved for
listing on the Nasdaq Stock Market (or such other national securities exchange
or stock market on which such securities shall then be traded), subject to
official notice of issuance, prior to or as of the Closing.
5.16 Assistance with Third-Party Agreements. Sentinel Financial and
---------------------------------------
Sentinel Federal shall cooperate with, and use all reasonable efforts to assist,
Roosevelt Financial and Roosevelt Bank in (i) gaining access to all of Sentinel
Financial's and Sentinel Federal's third-party vendors, and the landlords of all
of Sentinel Financial's and Sentinel Federal's leased properties, promptly after
the date of this Agreement, and (b) obtaining the cooperation of such third-
parties in a smooth transition in accordance with Roosevelt Financial's and
Roosevelt Federal's timetable at or after the Effective Time. Sentinel
Financial and Sentinel Federal shall also, at Roosevelt Financial's or Roosevelt
Bank's request, give notice of termination of third-party contracts to be
effective at or after the Effective Time, and take such additional action as may
be necessary or reasonably appropriate to ensure that such contracts are
terminated at the date requested.
5.17 Notices and Communications. Sentinel Financial and Sentinel Federal
--------------------------
shall, if requested to do so by Roosevelt Financial or Roosevelt Bank following
receipt of all approvals of governmental authorities to the transactions
contemplated by this Agreement, but prior to the expiration of any statutory
waiting periods, cooperate with Roosevelt Financial and Roosevelt Bank by
sending necessary or appropriate customer notifications and communications to
advise such customers of the impending transaction and of Roosevelt Financial's
and Roosevelt Bank's plans for following the Effective Time.
5.18 Insurance Policies Assignment. Sentinel Financial and Sentinel
-----------------------------
Federal agree to make commercially reasonable efforts to obtain consent to
assignment of any insurance policies of Sentinel Financial or Sentinel Federal
if requested to do so by Roosevelt Financial or Roosevelt Bank. Sentinel
Financial and Sentinel Federal shall also inform Roosevelt Financial and
Roosevelt Bank no later than the Effective Time of any material unfiled
insurance claims of which they have knowledge and for which they believe
coverage exists.
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ARTICLE VI
CONDITIONS
6.1 Conditions to Each Party's Obligation to Effect the Merger. The
----------------------------------------------------------
respective obligations of each party to effect the Merger shall be subject to
the fulfillment or waiver at or prior to the Effective Time of the following
conditions:
(a) This Agreement and the Merger shall have received the requisite
approval of the stockholders of Sentinel Financial at the meeting of
stockholders called pursuant to Section 5.3 of this Agreement;
(b) All requisite approvals of this Agreement and the transactions
contemplated hereby shall have been received from the OTS and all other
Regulatory Authorities, if any, having approval authority with respect to
the Merger, without the imposition of any condition which differs from
conditions customarily imposed by such Regulatory Authorities in orders
approving acquisitions of the type contemplated hereby and compliance with
which would materially diminish the reasonably anticipated benefits of the
Merger to Roosevelt Financial or Roosevelt Bank, and all applicable waiting
periods shall have expired.
(c) The Registration Statement shall have been declared effective and
shall not be subject to a stop order or any threatened stop order.
(d) Neither Roosevelt Financial, Roosevelt Bank, Sentinel Financial
nor Sentinel Federal 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.
(e) A tax opinion addressed to both Roosevelt Financial and Sentinel
Financial by counsel or independent certified accountants mutually
acceptable to Roosevelt Financial and Sentinel Financial shall have been
obtained with respect to the Merger, based on customary reliance and
subject to customary qualifications, to the effect that for federal income
tax purposes:
(i) The Company Merger and the Bank Merger will each qualify as a
"reorganization" under Section 368(a) of the Code.
(ii) No gain or loss will be recognized by Roosevelt Financial,
Roosevelt Bank, Sentinel Financial or Sentinel Federal by reason of
the Company Merger or the Bank Merger.
(iii) No gain or loss will be recognized by any Sentinel Financial
shareholder (except in connection with the receipt of cash in lieu of
a fractional share of Roosevelt Financial Common Stock) upon the
exchange of Sentinel Financial Common Stock solely for Roosevelt
Financial Common Stock in the Merger .
(iv) The basis of the Roosevelt Financial Common Stock received
by a Sentinel Financial shareholder who exchanges Sentinel Financial
Common Stock for Roosevelt Financial Common Stock will be the same as
the basis of the Sentinel Financial Common Stock surrendered in
exchange therefor (subject to any adjustments required as
34
<PAGE>
the result of receipt of cash in lieu of a fractional share of
Roosevelt Financial Common Stock).
(v) The holding period of the Roosevelt Financial Common Stock
received by a Sentinel Financial shareholder receiving Roosevelt
Financial Common Stock will include the period during which the
Sentinel Financial Common Stock surrendered in exchange therefore was
held (provided that such Common Stock of such Sentinel Financial
shareholder was held as a capital asset at the Effective Time).
(vi) Cash received by a Sentinel Financial shareholder in lieu
of a fractional share interest of Roosevelt Financial Common Stock
will be treated as having been received as a distribution in full
payment in exchange for the fractional share interest of Roosevelt
Financial Common Stock which he would otherwise be entitled to receive
and will qualify as capital gain or loss (assuming the Sentinel
Financial stock was a capital asset in his hands at the Effective
Time).
(f) Listing of Shares. The securities to be issued in the Merger shall
-----------------
be approved for listing as contemplated by Section 5.15 hereof, subject to
official notice of issuance.
6.2 Conditions to Obligations of Sentinel Financial and Sentinel
------------------------------------------------------------
Federal to Effect the Merger. The obligations of Sentinel Financial and Sentinel
- ----------------------------
Federal to effect the Merger shall be subject to the fulfillment or waiver at or
prior to the Effective Time of the following additional conditions:
(a) Representations and Warranties. The representations and
------------------------------
warranties of Roosevelt Financial and Roosevelt Bank set forth in
Article III of 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 on and as of the Effective Time except
(i) to the extent such representations and warranties are by their
express provisions made as of a specified date, (ii) for the effect of
transactions contemplated by this Agreement and (iii) where the
failure to be true and correct would not have a material adverse
effect on the Condition of Roosevelt Financial and its Subsidiaries
taken as a whole) and Sentinel Financial and Sentinel Federal shall
have received a certificate of the president and chief executive
officer of Roosevelt Financial and Roosevelt Bank to that effect.
(b) Performance of Obligations. Roosevelt Financial and
--------------------------
Roosevelt Bank shall have performed in all material respects all
obligations required to be performed by them under this Agreement
prior to the Effective Time, and Sentinel Financial and Sentinel
Federal shall have received a certificate of the president and chief
executive officer of Roosevelt Financial and Roosevelt Bank to that
effect.
(c) Opinion of Counsel. Sentinel Financial and Sentinel
------------------
Federal shall have received an opinion from Silver, Freedman & Taff,
L.L.P., counsel to Roosevelt Financial and Roosevelt Bank, dated the
Closing Date, in form and substance substantially as heretofore
provided to Sentinel Financial and Sentinel Federal.
(d) Delivery of Merger Consideration. Roosevelt Financial shall
--------------------------------
have provided to the Exchange Agent (i) certificates representing at
least the aggregate number of shares of Roosevelt Financial Common
Stock to be issued to the shareholders of Sentinel Financial pursuant
to the provisions of Section 1.3(a) hereof and (ii) sufficient cash to
pay to Sentinel Financial shareholders their fractional share interest
as provided in Section 1.3(e) hereof.
35
<PAGE>
6.3 Conditions to Obligations of Roosevelt Financial and Roosevelt Bank
-------------------------------------------------------------------
to Effect the Merger. The obligations of Roosevelt Financial and Roosevelt
- ---------------------
Bank to effect the Merger shall be subject to the fulfillment or waiver at or
prior to the Effective Time of the following additional conditions:
(a) Representations and Warranties. The representations and
------------------------------
warranties of Sentinel Financial and Sentinel Federal set forth in Article
II of this Agreement shall be true and correct as of the date of this
Agreement and as of the Effective Time (as though made on and as of the
Effective Time except (i) to the extent such representations and warranties
are by their express provisions made as of a specific date, (ii) for the
effect of transactions contemplated by this Agreement and (iii) where the
failure to be true and correct would not have a material adverse effect on
the Condition of Sentinel Financial and its Subsidiaries taken as a whole)
and Roosevelt Financial and Roosevelt Bank shall have received a
certificate of the president and chief executive officer of Sentinel
Financial and Sentinel Federal to that effect.
(b) Performance of Obligations. Sentinel Financial and Sentinel
--------------------------
Federal shall have performed in all material respects all obligations
required to be performed by them under this Agreement prior to the
Effective Time, and Roosevelt Financial and Roosevelt Bank shall have
received a certificate of the president and chief executive officer of
Sentinel Financial and Sentinel Federal to that effect.
(c) Opinion of Counsel. Roosevelt Financial and Roosevelt Bank shall
------------------
have received an opinion from Breyer & Aguggia, special counsel to Sentinel
Financial and Sentinel Federal, dated the Closing Date, in form and
substance substantially as heretofore provided to Roosevelt Financial and
Roosevelt Bank.
(d) Voting Agreements. Simultaneous with the execution and delivery
-----------------
of this Agreement (and in the case of any person who becomes a director of
Sentinel Financial after the execution and delivery of this Agreement,
promptly upon becoming such a director), each of the directors of Sentinel
Financial shall have executed and delivered to Roosevelt Financial a Voting
Agreement in the form attached hereto as Exhibit A.
(e) Third Party Consents. All consents or approvals of all persons
--------------------
(other than Regulatory Authorities) required for or in connection with the
execution, delivery and performance of this Agreement or the consummation
of the Merger shall have been obtained and shall be in full force and
effect, except only such consents and approvals the failure to obtain which
would not, individually and in the aggregate, have a material adverse
effect on the Condition of Roosevelt Financial as the surviving
corporation.
(f) Pooling of Interests. Roosevelt Financial shall have received from
--------------------
KPMG Peat Marwick LLP a letter, in the form then customarily issued by such
accountants in transactions of this type, to the effect that the Merger
will qualify for pooling of interests accounting treatment.
(g) Agreements of Affiliates. Roosevelt Financial shall have received
------------------------
the written affiliates' agreements described in Section 5.5 hereof.
(h) Supervisory Agreement The Supervisory Agreement, dated December
---------------------
20, 1989, between Sentinel Federal and the OTS shall have been terminated
prior to the Effective Time.
36
<PAGE>
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. This Agreement may be terminated at any time prior
-----------
to the Effective Time, whether before or after any requisite stockholder
approval:
(a) by mutual consent of the Board of Directors of Roosevelt
Financial and the Board of Directors of Sentinel Financial;
(b) by the Board of Directors of Roosevelt Financial or the Board of
Directors of Sentinel Financial at any time after January 31, 1997 if the
Company Merger shall not theretofore have been consummated (provided that
the terminating party is not then in material breach of any representation,
warranty, covenant or other agreement contained herein);
(c) by the Board of Directors of Roosevelt Financial or the Board of
Directors of Sentinel Financial if (i) any Regulatory Authority denies
approval of the Merger, or (ii) the stockholders of Sentinel Financial do
not approve this Agreement and the Merger at the meeting referred to in
Section 5.3 (provided that the terminating party is not then in material
breach of any representation, warranty, covenant or other agreement
contained herein);
(d) by the Board of Directors of Roosevelt Financial in the event of a
material breach by Sentinel Financial or Sentinel Federal of any
representation, warranty, covenant or other agreement contained in this
Agreement, which breach is not cured within 30 days after written notice
thereof to Sentinel Financial by Roosevelt Financial;
(e) by the Board of Directors of Sentinel Financial in the event of a
material breach by Roosevelt Financial or Roosevelt Bank of any
representation, warranty, covenant or other agreement contained in this
Agreement, which breach is not cured within 30 days after written notice
thereof is given to Roosevelt Financial by Sentinel Financial.
(f) by the Board of Directors of Sentinel Financial if in the exercise
of good faith judgment as to fiduciary duties to stockholders imposed by
law, as advised in writing by special counsel, the Board of Directors of
Sentinel Financial determines that such termination is required by the
occurrence of any of the events set forth in subparagraphs (i), (ii) or
(iii) of Section 7.2(a), provided that Sentinel Financial's ability to
terminate this Agreement pursuant to this paragraph is conditioned upon the
prior payment by Sentinel Financial of the Third-Party Fee (as defined in
Section 7.2(a).
7.2 Effect of Termination. In the event of termination of this Agreement
---------------------
as provided in Section 7.1 hereof, this Agreement shall forthwith become void
and there shall be no liability under this Agreement on the part of Roosevelt
Financial or Sentinel Financial or their respective officers or directors except
as set forth in the second sentence of Section 5.1, in Section 5.6, in the last
sentence of Section 8.1 or in this Section 7.2.
(a) Third-Party Fee In recognition of the expenses of, and other
---------------
opportunities forgone by, Roosevelt Financial in connection with this
Agreement and the Merger, the parties agree that Sentinel Financial shall
pay to Roosevelt Financial a fee of $680,000 in cash (the
37
<PAGE>
"Third-Party Fee") on demand if, within 18 months after the date hereof,
the Merger has not been completed and there occurs any of the events set
forth in subparagraphs (i), (ii) or (iii) below.
(i) Any person other than Roosevelt Financial or an affiliate of
Roosevelt Financial acquires beneficial ownership of 25% or more of
the then-outstanding Sentinel Financial Common Stock;
(ii) Sentinel Financial or any of its affiliates, without having
received Roosevelt Financial'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 Roosevelt Financial or any of its Subsidiaries, or Sentinel
Financial's Board of Directors recommends that the shareholders of
Sentinel Financial approve or accept any Acquisition Transaction with
any person other than Roosevelt Financial or any of its Subsidiaries.
For purposes of this Section, "Acquisition Transaction" shall mean (i)
a merger or consolidation, or any similar transaction, involving
Sentinel Financial or Sentinel Federal, (ii) a purchase, lease or
other acquisition of all or substantially all of the assets of
Sentinel Financial or Sentinel Federal, or (iii) a purchase or other
acquisition (including by way of merger, consolidation, share exchange
or otherwise) of securities representing 10% or more of the voting
power of Sentinel Financial or Sentinel Federal; provided, that the
term "Acquisition Transaction" does not include any internal merger or
consolidation involving only Sentinel Financial and/or its
Subsidiaries; or
(iii) A bona fide proposal is made by a third party to Sentinel
Financial or any of its Subsidiaries or shareholders to engage in an
Acquisition Transaction and after such proposal is made any of the
following events occurs: Sentinel Financial willfully breaches this
Agreement and such breach entitles Roosevelt Financial to terminate
this Agreement; the holders of Sentinel Financial Common Stock do not
approve this Agreement at the meeting referred to in Section 5.3; such
meeting is not held or is canceled prior to termination of this
Agreement for reasons other than the fault of Roosevelt Financial; or
Sentinel Financial's Board of Directors withdraws or modifies in a
manner adverse to Roosevelt Financial the recommendation of Sentinel
Financial's Board of Directors with respect to this Agreement.
Notwithstanding the foregoing, Sentinel Financial shall not be
obligated to pay to Roosevelt Financial the Third-Party Fee if, prior to
the occurrence any of the events set forth in subparagraphs (i), (ii) or
(iii) above, Sentinel Financial validly terminates this Agreement pursuant
to Sections 7.1(a), (c)(i) or (e).
7.3 Amendment. This Agreement and the Schedules hereto may be
---------
amended by the parties hereto, by action taken by or on behalf of their
respective Boards of Directors, at any time before or after approval of this
Agreement by the stockholders of Sentinel Financial; provided, however, that
after any such approval by the stockholders of Sentinel Financial no such
modification shall (i) alter or change the amount or kind of consideration to be
received by holders of Sentinel Financial Common Stock as provided in this
Agreement or (ii) adversely affect the tax treatment to Sentinel Financial
stockholders of the stock portion of the Merger Consideration. This Agreement
may not be amended except by an instrument in writing signed on behalf of each
of Roosevelt Financial and Sentinel Financial.
38
<PAGE>
7.4 Severability. Any term, provision, covenant or restriction contained
------------
in this Agreement held by a court or a Regulatory Authority of competent
jurisdiction to be invalid, void or unenforceable, shall be ineffective to the
extent of such invalidity, voidness or unenforceability, but neither the
remaining terms, provisions, covenants or restrictions contained in this
Agreement nor the validity or enforceability thereof in any other jurisdictions
shall be affected or impaired thereby. Any term, provision, covenant or
restriction contained in this Agreement that is so found to be so broad as to be
unenforceable shall be interpreted to be as broad as is enforceable.
7.5 Waiver. Any term, condition or provision of this Agreement may be
------
waived in writing at any time by the Board of Directors of the party which is,
or whose stockholders are, entitled to the benefits thereof.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Non-Survival of Representations, Warranties and Agreements. No
----------------------------------------------------------
investigation by the parties hereto made heretofore or hereafter shall affect
the representations and warranties of the parties which are contained herein and
each such representation and warranty shall survive such investigation. Except
as set forth below in this Section 8.1, all representations, warranties and
agreements in this Agreement of the parties or in any instrument delivered by a
party pursuant to or in connection with this Agreement shall not survive at the
Effective Time or the termination of this Agreement in accordance with its
terms. In the event of consummation of the Merger, the agreements contained in
or referred to in Sections 5.2, 5.8 and 5.10 shall survive the Effective Time.
In the event of termination of this Agreement in accordance with its terms, the
agreements contained in or referred to in the second sentence of Section 5.1,
in Sections 5.6 and 7.2 and in the last sentence of this Section 8.1 shall
survive such termination. Nothing herein shall relieve a breaching party from
liability to a non-breaching party in the event of a proper termination of this
Agreement pursuant to Section 7.1(d) or Section 7.1(e).
8.2 Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed to be duly received (i) on the date given if
delivered personally or (ii) upon confirmation of receipt if by facsimile
transmission or (iii) on the date received if mailed by registered or certified
mail (return receipt requested), in each case to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(i) if to Roosevelt Financial or Roosevelt Bank, or both:
Roosevelt Financial Group, Inc.
900 Roosevelt Parkway
Chesterfield, Missouri 63017
Attention: Stanley J. Bradshaw
President and Chief
Executive Officer
Telecopy: (314) 532-6292
39
<PAGE>
Copies to:
Gary W. Douglass
Executive Vice President and
Chief Financial Officer
Roosevelt Financial Group, Inc.
900 Roosevelt Parkway
Chesterfield, Missouri 63017
Telecopy: (314) 532-6641
and
Silver, Freedman & Taff, L.L.P.
1100 New York Avenue, N.W.
Washington, D.C. 20005
Attention: Christopher R. Kelly, P.C.
Telecopy: (202) 682-0354
(ii) if to Sentinel Financial or Sentinel Federal, or both:
Sentinel Financial, Inc.
1001 Walnut Street
Kansas City, Missouri 64106
Attention: Craig D. Laemmli
President and Chief
Executive Officer
Telecopy: (816) 472-0045
Copy to:
Breyer & Aguggia
Suite 470 East
1300 I Street, N.W.
Washington, D.C. 20005
Attention: John F. Breyer, Jr., Esq.
Telecopy: (202) 737-7979
8.3 Miscellaneous. This Agreement (including the Schedules referred to
-------------
herein) (i) constitutes the entire agreement and supersedes all other prior
agreements and understandings, both written and oral, among the parties, or any
of them, with respect to the subject matter hereof, including any
confidentiality agreement between the parties hereto, (ii) except as expressly
provided herein, is not intended to confer upon any person not a party hereto
any rights or remedies hereunder, (iii) shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors and assigns
and (iv) shall be governed in all respects by the laws of the State of Delaware,
except as otherwise specifically provided herein or required by federal law or
regulation. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. This Agreement may be executed in
counterparts which together shall constitute a single agreement.
40
<PAGE>
Roosevelt Financial, Roosevelt Bank, Sentinel Financial and Sentinel
Federal have caused this Agreement to be duly executed by their authorized
representatives on the date first above written.
SENTINEL FINANCIAL CORPORATION ROOSEVELT FINANCIAL GROUP, INC.
By: /s/ Craig D. Laemmli By: /s/ Stanley J. Bradshaw
----------------------- ------------------------
Name: Craig D. Laemmli Name: Stanley J. Bradshaw
Title: President and Chief Title: President and Chief
Executive Officer Executive Officer
Attested by: /s/ John C. Spencer Attested by: /s/ Gary W. Douglass
----------------------- ------------------------
Name: John C. Spencer Name: Gary W. Douglass
Title: Executive Vice President, Title: Executive Vice President and
Controller and Secretary Chief Financial Officer
SENTINEL FEDERAL SAVINGS AND LOAN ROOSEVELT BANK
ASSOCIATION OF KANSAS CITY
By: /s/ Craig D. Laemmli By: /s/ Stanley J. Bradshaw
----------------------- ------------------------
Name: Craig D. Laemmli Name: Stanley J. Bradshaw
Title: President and Chief Title: President and Chief
Executive Officer Executive Officer
Attested by: /s/ John C. Spencer Attested by: /s/ Gary W. Douglass
----------------------- ------------------------
Name: John C. Spencer Name: Gary W. Douglass
Title: Executive Vice President, Title: Executive Vice President and
Controller and Secretary Chief Financial Officer
41
<PAGE>
APPENDIX II
[LETTERHEAD OF TRIDENT FINANCIAL CORPORATION]
Form of Opinion
[Date]
Board of Directors
Sentinel Financial Corporation
1001 Walnut Street
Kansas City, MO 64106
Gentlemen:
You have requested our opinion as to the fairness, from a financial point
of view, to the holders of shares of common stock (the "Sentinel Common Stock")
of Sentinel Financial Corporation ("Sentinel") of the consideration to be
received by such stockholders in the Merger (the "Merger") of Sentinel with
Roosevelt Financial Group, Inc. ("Roosevelt"), pursuant to the Agreement and
Plan of Merger and Reorganization dated March 22, 1996 (the "Agreement").
As more specifically set forth in the Agreement, and subject to a number of
conditions and procedures described in the Agreement, in the Merger each of the
issued and outstanding shares of Sentinel Common Stock shall be converted into
1.4231 shares (the "Exchange Ratio") of Roosevelt Common Stock. All unexercised
options for the right to purchase shares of Sentinel Common Stock shall be
exchanged for Roosevelt options using the Exchange Ratio applicable to the
holders of Sentinel Common Stock.
Trident Financial Corporation ("Trident") is a financial consulting and
investment banking firm experienced in the valuation of business enterprises
with considerable experience in the valuation of thrift institutions. Since
1975, Trident has valued hundreds of thrift institutions in connection with
mutual-to-stock conversions, mergers and acquisitions, as well as other
transactions. Trident is not affiliated with Sentinel or Roosevelt.
In connection with rendering our opinion, we have reviewed and analyzed,
among other things, the following: (i) the Proxy Statement/Prospectus (ii) the
Agreement; (iii) certain publicly available information concerning Sentinel,
including the audited financial statements of Sentinel for each of the years in
the three year period ended June 30, 1995 and unaudited financial statements for
each of the six month periods ended March 31, 1995 and 1996; (iv) certain
publicly available information concerning Roosevelt, including the audited
financial statements of Roosevelt for each of the years in the three year period
ended December 31, 1995 and unaudited financial statements for each of the three
month periods ended March 31, 1995 and 1996; (v) certain other internal
information, primarily financial in nature, concerning the business and
operations of Sentinel and Roosevelt furnished to us by Sentinel and Roosevelt
for purposes of our analysis; (vi) information with respect to the trading
market for Sentinel Common Stock; (vii) information with respect to the trading
market for Roosevelt Common
<PAGE>
Board of Directors
[Date]
Page 2
Stock; (viii) certain publicly available information with respect to other
companies that we believe to be comparable to Sentinel and Roosevelt and the
trading markets for such other companies' securities; and (ix) certain publicly
available information concerning the nature and terms of other transactions that
we believe relevant to our inquiry. We have also met with certain officers and
employees of Sentinel and Roosevelt to discuss the foregoing as well as other
matters we believe relevant to our inquiry.
In our review and analysis and in arriving at our opinion, we have assumed
and relied upon the accuracy and completeness of all of the financial and other
information provided to us or publicly available. We have not attempted
independently to verify any such information. We have not conducted a physical
inspection of the properties or facilities of Sentinel or Roosevelt, nor have we
made or obtained any independent evaluations or appraisals of any of such
properties or facilities. We did not specifically evaluate Sentinel's or
Roosevelt's loan portfolio or the adequacy of Sentinel's or Roosevelt's reserves
for possible loan losses.
In conducting our analysis and arriving at our opinion as expressed herein,
we have considered such financial and other factors as we have deemed
appropriate under the circumstances including, among others, the following: (i)
the historical and current financial condition and results of operations of
Sentinel and Roosevelt, including interest income, interest expense, net
interest income, net interest margin, interest sensitivity, non-interest
expenses, earnings, dividends, book value, return on assets, return on equity,
capitalization, the amount and type of non-performing assets and the reserve for
loan losses; (ii) the business prospects of Sentinel and Roosevelt; (iii) the
economies in Sentinel's and Roosevelt's market areas; (iv) the historical and
current market for Sentinel Common Stock and Roosevelt Common Stock and for the
equity securities of certain other companies that we believe to be comparable to
Sentinel and Roosevelt; and (v) the nature and terms of certain other
acquisition transactions that we believe to be relevant. We have also taken
into account our assessment of general economic, market, financial and
regulatory conditions and trends, as well as our knowledge of the thrift
industry, our experience in connection with similar transactions, and our
knowledge of securities valuation generally. Our opinion necessarily is based
upon conditions as they exist and can be evaluated on the date hereof. Our
opinion is, in any event, limited to the fairness, from a financial point of
view, of the consideration to be received by the holders of Sentinel Common
Stock in the Merger and does not address Sentinel's underlying business decision
to effect the Merger.
Based upon and subject to the foregoing, we are of the opinion that the
consideration to be received by the holders of Sentinel Common Stock in the
Merger is fair, as of the date hereof, from a financial point of view, to such
holders.
This opinion is being delivered to the Board of Directors of Sentinel and
is not to be reproduced, disseminated or delivered to any third party without
the express written consent of Trident Financial Corporation, except as required
by law; provided, however, that we hereby consent to the inclusion of this
opinion as Appendix II to the Proxy Statement/Prospectus of Roosevelt and
Sentinel, dated October __, 1996.
Very truly yours,
TRIDENT FINANCIAL CORPORATION
<PAGE>
APPENDIX III
DELAWARE GENERAL CORPORATION LAW
SECTION 262
APPRAISAL RIGHTS.--(a) Any stockholder of a corporation of this State who
holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to Section 228 of this title shall be entitled to an appraisal by the
Court of Chancery of the fair value of his shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Sections 251, 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the holders of the surviving corporation as
provided in subsections (f) or (g) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
Sections 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting
from such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock or depository
receipts at the effective date of the merger or consolidation will be
either listed on a national securities exchange or designated as a
national market system security on an interdealer quotation system by
the National Association of Securities Dealers, Inc. or held of record
by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts
and cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under Section 253 of this title is
not owned by the parent corporation immediately prior to the merger,
appraisal rights shall be available for the shares of the subsidiary
Delaware corporation.
<PAGE>
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation as of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to Section
228 or 253 of this title, the surviving or resulting corporation, either
before the effective date of the merger or consolidation or within 10 days
thereafter, shall notify each of the stockholders entitled to appraisal
rights of the effective date of the merger or consolidation and that
appraisal rights are available for any or all of the shares of the
constituent corporation, and shall include in such notice a copy of this
section. The notice shall be sent by certified or registered mail, return
receipt requested, addressed to the stockholder at his address as it
appears on the records of the corporation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of the
notice, demand in writing from the surviving or resulting corporation the
appraisal of his shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered
II-2
<PAGE>
or certified mail to the surviving or resulting corporation and to the
stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The
forms of the notices by mail and by publication shall be approved by the Court,
and the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair
rate of interest, the Court may consider all relevant factors, including the
rate of interest which the surviving or resulting corporation would have had to
pay to borrow money during the pendency of the proceeding. Upon application by
the surviving or resulting corporation or by any stockholder entitled to
participate in the appraisal proceeding, the Court may, in its discretion,
permit discovery or other pretrial proceedings and may proceed to trial upon the
appraisal prior to the final determination of the stockholder entitled to an
appraisal. Any stockholder whose name appears on the list filed by the
surviving or resulting corporation pursuant to subsection (f) of this section
and who has submitted his certificates of stock to the Register in Chancery, if
such is required, may participate fully in all proceedings until it is finally
determined that he is not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
III-3
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 20. Indemnification of Directors and Officers
Section 145 of the General Corporation Law of Delaware empowers Roosevelt
to indemnify, subject to the standards therein prescribed, any person in
connection with any action, suit or proceeding brought or threatened by reason
of the fact that such person is or was a director, officer, employee or agent of
Roosevelt or is or was serving as such with respect to another corporation or
other entity at the request of Roosevelt. Section Ten of Roosevelt's
Certificate of Incorporation provides that each person who was or is made a
party to (or is threatened to be made a party to) or is otherwise involved in
any action, suit or proceeding by reason of the fact that such person is or was
a director, officer, employee or agent of Roosevelt or acting at the request of
Roosevelt as a director, officer, employee or agent of another corporation or
other entity shall be indemnified and held harmless by Roosevelt to the fullest
extent authorized by the General Corporation Law of Delaware against all
expenses, liability and loss (including without limitation attorney's fees,
judgments, fines and amounts paid in settlement) reasonably incurred by such
person in connection therewith. The rights conferred by Section Ten are
contractual rights and include the right to be paid by Roosevelt the expenses
incurred in defending such action, suit or proceeding in advance of the final
disposition thereof.
Section Eleven of Roosevelt's Certificate of Incorporation provides that
Roosevelt's directors will not be personally liable to Roosevelt or its
stockholders for monetary damages resulting from breaches of their fiduciary
duty as directors except (i) for any breach of the duty of loyalty to Roosevelt
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the General Corporation Law of Delaware (which makes directors
liable for unlawful dividends or unlawful stock repurchases or redemptions) or
(iv) for transactions from which directors derive improper personal benefit.
Roosevelt maintains directors and officers liability insurance.
II-1
<PAGE>
Item 21. Exhibits and Financial Statement Schedules
The following Exhibits are filed as part of this Registration Statement.
<TABLE>
<CAPTION>
<S> <C>
2.1 Agreement and Plan of Merger and Reorganization, dated as of
March 22, 1996 (included as Appendix I to the Proxy
Statement/Prospectus)
4.1 Certificate of Incorporation (incorporated by reference to
Exhibit 4.1 to Roosevelt's Registration Statement No. 33-79308)
4.2 Bylaws of Roosevelt Financial Group, Inc. (incorporated by reference
to Exhibit 3.2 to Roosevelt's Registration Statement No. 33-20337)
4.3 Specimen common stock certificate (incorporated by reference to
Exhibit 4 to Roosevelt's Registration Statement No. 33-20337)
4.4 Certificate of Designation of 6 1/2% Non-Cumulative Convertible
Preferred Stock, Series A (incorporated by reference to Exhibit 4.3
to Roosevelt's Registration Statement No. 33-76738)
4.5 Specimen stock certificate of 6 1/2% Non-Cumulative Convertible
Preferred Stock, Series A (incorporated by reference to Exhibit 4.4
to Roosevelt's Registration Statement No. 33-76738)
4.6 Indenture, dated as of April 15, 1988, with respect to Roosevelt's
10 1/8% Mortgage-Backed Bonds, due April 15, 2018*
4.7 Indenture, dated as of July 30, 1992, with respect to Roosevelt's
9 1/2% Subordinated Notes, due August 1, 2002 (incorporated by
reference to Exhibit 4.1 to Roosevelt's Registration Statement
No. 33-49108)
4.8 Certificate of Designation of 6 1/2% Non-Cumulative Convertible
Preferred Stock, Series F (incorporated by reference to Exhibit 4.15
to Roosevelt's Registration Statement No. 33-79308)
4.9 Specimen stock certificate of 6 1/2% Non-Cumulative Convertible
Preferred Stock, Series F (incorporated by reference to Exhibit 4.16
to Roosevelt's Registration Statement No. 33-79308)
5 Opinion of Silver, Freedman & Taff, L.L.P. as to legality of the
securities being registered**
8 Opinion of Silver, Freedmont Taff, L.L.P. as to certain tax matters
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Deloitte & Touche LLP
23.3 Consent of Silver, Freedman & Taff, L.L.P. (included in Exhibit 5)**
23.4 Consent of Trident Financial Corporation
23.5 Consent of Silver, Freedmont & Taff, L.L.P. (with respect to
Exhibit 8)
24 Power of Attorney (contained on signature page)
99 Form of proxy card of Sentinel Financial Corporation**
</TABLE>
- ---------------------------
* Registrant hereby agrees to furnish a copy of the instrument to the SEC upon
request.
** Previously Filed.
II-2
<PAGE>
Item 22. Undertakings
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
Roosevelt's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) The undersigned registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
(d) Roosevelt undertakes that every prospectus (i) that is filed pursuant to
paragraph (c) immediately preceding, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities and at that
time shall be deemed to be the initial bona fide offering thereof.
(e) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
Roosevelt pursuant to the foregoing provisions, or otherwise, Roosevelt has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
II-3
<PAGE>
against such liabilities (other than the payment by Roosevelt of expenses
incurred or paid by a director, officer or controlling person of Roosevelt in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, Roosevelt will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(f) The undersigned registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in the
Registration Statement when it became effective.
(g) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Chesterfield, State of
Missouri, on October 3, 1996.
ROOSEVELT FINANCIAL GROUP, INC.
By: /s/Stanley J. Bradshaw
---------------------------------
Stanley J. Bradshaw
President, Chief Executive Officer
and Director
(Duly Authorized Representative)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
We, the undersigned directors and officers of the Registrant, hereby
severally constitute and appoint Stanley J. Bradshaw and Gary W. Douglass, and
either of them, our true and lawful attorneys and agents, to do any and all
things in our names in the capacities indicated below which said Stanley J.
Bradshaw and/or Gary W. Douglass may deem necessary or advisable to enable the
Registrant to comply with the Securities Act of 1933, as amended, and any rules,
regulations and requirements of the Securities and Exchange Commission, in
connection with the registration statement on Form S-4 relating to the offering
of the registrant's common stock, including specifically, but not limited to,
power and authority to sign for us in our names in the capacities indicated
below this registration statement and any and all amendments (including post-
effective amendments) thereto; and, we hereby approve, ratify and confirm all
that said Stanley J. Bradshaw and/or Gary W. Douglass shall do or cause to be
done by virtue thereof.
<TABLE>
<S> <C>
By: /s/Stanley J. Bradshaw By: /s/Gary W. Douglass
--------------------------------- ---------------------------------
Stanley J. Bradshaw Gary W. Douglass
President, Chief Executive Executive Vice President and
Officer and Director Chief Financial Officer
(Principal Executive Officer) (Principal Financial and
Accounting Officer)
Date: October 3, 1996 Date: October 3, 1996
--------------------------------- ---------------------------------
By: /s/Douglas T. Breeden By: /s/Richard E. Beumer
---------------------------------- ---------------------------------
Douglas T. Breeden Richard E. Beumer
Chairman of the Board Director
Date: October 3, 1996 Date: October 3, 1996
--------------------------------- --------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
By: /s/Anat Bird By: /s/Robert M. Clayton II
---------------------------------- --------------------------------
Anat Bird Robert M. Clayton II
Senior Executive Vice President, Director
Chief Operating Officer and
Director
Date: October 3, 1996 Date: October 3, 1996
--------------------------------- --------------------------------
By: /s/Bradbury Dyer III By: /s/Patricia M. Gammon
---------------------------------- --------------------------------
Bradbury Dyer III Patricia M. Gammon
Director Director
Date: October 3, 1996 Date: October 3, 1996
--------------------------------- --------------------------------
By: /s/Hiram S. Liggett, Jr. By: /s/Clarence M. Turley, Jr.
---------------------------------- --------------------------------
Hiram S. Liggett, Jr. Clarence M. Turley, Jr.
Director Director
Date: October 3, 1996 Date: October 3, 1996
--------------------------------- --------------------------------
By: /s/Alvin D. Vitt
----------------------------------
Alvin D. Vitt
Director
Date: October 3, 1996
---------------------------------
</TABLE>
<PAGE>
EXHIBIT INDEX
-------------
The following Exhibits are filed in connection with the Registration Statement
of Roosevelt Financial Group, Inc. on Form S-4, pursuant to the requirements of
Item 601 of Regulation S-K:
<TABLE>
<CAPTION>
Exhibit No. Exhibit
- ----------- -------
<S> <C>
2.1 Agreement and Plan of Merger and Reorganization, dated as
of March 22, 1996 (included as Appendix I to the Proxy
Statement/Prospectus)
4.1 Certificate of Incorporation (incorporated by reference
to Exhibit 4.1 to Roosevelt's Registration Statement
No. 33-79308)
4.2 Bylaws of Roosevelt Financial Group, Inc. (incorporated
by reference to Exhibit 3.2 to Roosevelt's
Registration Statement No. 33-20337)
4.3 Specimen common stock certificate (incorporated by
reference to Exhibit 4 to Roosevelt's
Registration Statement No. 33-20337)
4.4 Certificate of Designation of 6 1/2% Non-Cumulative
Convertible Preferred Stock, Series A (incorporated by
reference to Exhibit 4.3 to Roosevelt's Registration
Statement No. 33-76738)
4.5 Specimen stock certificate of 6 1/2% Non-Cumulative
Convertible Preferred Stock, Series A (incorporated by
reference to Exhibit 4.4 to Roosevelt's Registration
Statement No. 33-76738)
4.6 Indenture, dated as of April 15, 1988, with respect to
Roosevelt's 10 1/8% Mortgage-Backed Bonds, due
April 15, 2018*
4.7 Indenture, dated as of July 30, 1992, with respect to
Roosevelt's 9 1/2% Subordinated Notes, due
August 1, 2002 (incorporated by reference to Exhibit 4.1
to Roosevelt's Registration Statement No. 33-49108)
4.8 Certificate of Designation of 6 1/2% Non-Cumulative
Convertible Preferred Stock, Series F (incorporated by
reference to Exhibit 4.15 to Roosevelt's Registration
Statement No. 33-79308)
4.9 Specimen stock certificate of 6 1/2% Non-Cumulative
Convertible Preferred Stock, Series F (incorporated by
reference to Exhibit 4.16 to Roosevelt's Registration
Statement No. 33-79308)
5 Opinion of Silver, Freedman & Taff, L.L.P. as to legality
of the securities being registered**
8 Opinion of silver, Freedman & Taff, L.L.P. as to certain tax
matters
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Deloitte & Touche LLP
23.3 Consent of Silver, Freedman & Taff, L.L.P. (included in
Exhibit 5)**
23.4 Consent of Trident Financial Corporation
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Exhibit
- ----------- -------
<S> <C>
23.5 Consent of Silver, Freedman & Taff, L.L.P. (with respect to
Exhibit 8)
24 Power of Attorney (contained on signature page)
99 Form of proxy card of Sentinel Financial Corporation**
</TABLE>
- ------------------------
* Registrant hereby agrees to furnish a copy of the instrument to the SEC
upon request.
** Previously filed.
n/a Not applicable.
<PAGE>
EXHIBIT 8
[LETTERHEAD OF SILVER, FREEDMAN & TALL, L.L.P.]
Exhibit 8
August 13, 1996
Board of Directors
Roosevelt Financial Group, Inc.
900 Roosevelt Parkway
Chesterfield, Missouri 63017
Re: Federal Income Tax Consequences Arising From The company
Merger And The Bank Merger Contemplated By That Certain
Agreement And Plan Of Merger And Reorganization By And
Between Roosevelt Financial, Roosevelt Bank, Sentinel
Financial and Sentinel Federal Dated March 22, 1996
("Agreement")
Gentlemen:
In accordance with your request and to facilitate the filing and
processing of the holding company application with the OTS and the Registration
Statement with the SEC relating to the transactions contemplated by the
Agreement, set forth hereinbelow is the opinion of this firm relating to certain
federal income tax consequences of the Company Merger pursuant to which Sentinel
Financial will be merged into Roosevelt Financial and of the Bank Merger
pursuant to which Sentinel Federal will be merged into Roosevelt Bank.
Capitalized terms used herein which are not expressly defined
herein shall have the meaning ascribed to them in the Agreement.
<PAGE>
Board of Directors
Roosevelt Financial, Inc.
August 13, 1996
Page 2
The following assumptions have been made in connection with our opinions
hereinbelow:
1. The Merger will be implemented strictly in accordance with the
terms of the Agreement, provided the form of Subsidiary Agreement and Plan of
Merger attached as Exhibit B to the Agreement will be changed to provide for the
merger of Sentinel Federal with and into Roosevelt Bank.
2. All conditions precedent contained in the Agreement shall be
performed or waived prior to completion of the Merger.
3. The representations of the parties to be made in their respective
tax representation letters to counsel as of the Effective Time or Bank Merger
Effective Time, whichever is applicable, in the form of Exhibits A and B hereto,
shall be true and correct.
4. All of the shareholders of Sentinel Financial are U.S. residents.
OPINION
-------
Based solely on our review of the Agreement and the assumptions set
forth hereinabove and our analysis and examination of federal income tax laws,
rulings, regulations and judicial precedents as of the date hereof, we render
the following opinion.
(1) The Company Merger will constitute a reorganization with the meaning
of Section 368(a)(1)(A) of the Code. Neither Sentinel Financial nor Roosevelt
Financial will recognize any gain or loss as a result of the transaction.
Sentinel Financial and Roosevelt Financial will each be a party to the
reorganization. (Section 368(b) of the Code.)
(2) The Bank Merger will constitute a reorganization with the meaning of
Section 368(a) of the Code. Neither Roosevelt Bank nor Sentinel Federal will
recognize any gain or loss as a result of the transaction. Roosevelt Bank and
Sentinel Federal will each be a party to the reorganization. (Section 368(b) of
the Code.)
(3) The basis of the assets received by Roosevelt Financial from Sentinel
Financial will be the same as the adjusted basis of those assets in the hands of
Sentinel Financial. The basis of the assets received by Roosevelt Bank from
Sentinel Federal will be the same as the adjusted basis of those assets in the
hands of Sentinel Federal. (Section 362(b) of the Code.)
<PAGE>
Board of Directors
Roosevelt Financial, Inc.
August 13, 1996
Page 3
(4) The holding period of the assets of Sentinel Financial acquired by
Roosevelt Financial in the Company Merger will include the period during which
those assets were held by Sentinel Financial immediately prior to the Company
Merger. The holding period of the assets of Sentinel Federal acquired by
Roosevelt Bank in the Bank Merger will include the period during which those
assets were held by Sentinel Federal immediately prior to the Bank Merger.
(Section 1223(2) of the Code.)
(5) Pursuant to the provisions of Section 381(c)(4) of the Code and
Treasury Regulations Section 1.381(c)(4)-1(a)(i), Roosevelt Bank will succeed to
and take into account, immediately after the Bank Merger, those accounts of
Sentinel Federal which represent bad debt reserves of which Sentinel Federal has
taken a bad debt deduction for taxable years ending on or before the date of
transfer. The bad debt reserves of Sentinel Federal will not be required to be
restored to the gross income of either Sentinel Federal or Roosevelt Bank as a
consequence of the Bank Merger, and such bad debt reserves will have the same
character in the hands of Roosevelt Bank as they would have had in the hands of
Sentinel Federal if no transfer had occurred. No opinion is expressed as to
whether the bad debt reserves will be required to be restored to the gross
income of either Sentinel Federal or Roosevelt Bank for the taxable year of
transfer if either party fails to meet the requirements of Section 593(a)(2) of
the Code during such taxable year.
(6) Pursuant to Section 381(a) of the Code but subject to the conditions
and limitations set forth in Sections 381(b) and (c) of the Code, Roosevelt
Bank will succeed to and take into account the items of Sentinel Federal
described in Section 381(c) of the code. As provided by Section 381(c)(2) of
the Code, and the regulations thereunder, Roosevelt Bank will succeed to and
take into account the earnings and profits of Sentinel Federal as of the date of
the Bank Merger. In a like manner, Roosevelt Financial will succeed to and take
into account the items of Sentinel Financial as described in Section 381(c) of
the Code including the earnings and profits of Sentinel Financial as of the date
of the Company Merger.
(7) No gain or loss will be recognized by any Sentinel Financial
shareholder (except in connection with the receipt of cash in lieu of a
fractional share of Roosevelt Financial Common Stock) upon the exchange of
Sentinel Financial Common Stock solely for Roosevelt Financial Common Stock in
the Company Merger.
(8) The basis of the Roosevelt Financial Common Stock received by a
Sentinel Financial shareholder who exchanges Sentinel Financial Common Stock for
Roosevelt Financial Common Stock will be the same as the basis of the Sentinel
Financial Common Stock surrendered in exchange therefor (subject to any
adjustments required as the result of receipt of cash in lieu of a fractional
share of Roosevelt Financial Common Stock).
<PAGE>
Board of Directors
Roosevelt Financial, Inc.
August 13, 1996
Page 4
(9) The holding period of the Roosevelt Financial Common Stock received
by a Sentinel Financial shareholder will include the period during which the
Sentinel Financial Common Stock surrendered in exchange therefor was held
(provided that such Common Stock of such Sentinel Financial shareholder was held
as a capital asset at the Effective Time.)
(10) Cash received by a Sentinel Financial shareholder in lieu of a
fractional share interest of Roosevelt Financial Common Stock will be treated as
having been received as a distribution in full payment in exchange for the
fractional share interest of Roosevelt Financial Common Stock which he would
otherwise be entitled to receive and will qualify as capital gain or loss
(assuming the Sentinel Financial stock was a capital asset in his hands at the
Effective Time).
(11) A Sentinel Financial shareholder who receives only cash as a result
of the exercise of appraisal rights will realize gain or loss for federal income
tax purposes (determined separately as to each block of Sentinel Financial
Common Stock exchanged) in an amount equal to the difference between (x) the
amount of cash received by such stockholder, and (y) such shareholder's tax
basis for the shares of Sentinel Financial Common Stock surrendered in exchange
therefor, provided that the cash payment does not have the effect of the
distribution of a dividend. Any such gain or loss will be recognized for federal
income tax purposes and will be treated as capital gain or loss. However, if the
cash payment does have the effect of the distribuiton of a dividend, the amount
of taxable income recognized generally will equal the amount of cash received;
such income generally will be taxable as a dividend; and no loss (or other
recovery of such shareholder's tax basis for the shares of Sentinel Financial
Common Stock surrendered in the exchange) generally will be recognized by such
shareholder. The determination of whether a cash payment has the effect of the
distribution of a dividend will be made pursuant to the provisions and
limitations of Section 302 of the Code, taking into account the constructive
stock ownership rules of Section 318 of the Code.
No opinion is expressed as to the tax treatment of the transactions
under the provisions of any of the other sections of the Code and regulations
thereunder which may also be applicable thereto, or to the tax treatment of any
conditions existing at the time of, or effects resulting from, the transactions
which are not specifically covered by the opinions set forth above. However, the
financial accounting treatment of the transactions as a pooling of interests or
a purchase will not affect the tax consequences described above.
Very truly yours,
SILVER, FREEDMAN & TAFF, L.L.P.
/s/Barry P. Taff, P.C.
<PAGE>
EXHIBIT 23.1
Independent Auditors' Consent
-----------------------------
The Board of Directors
Roosevelt Financial Group, Inc.:
We consent to incorporation by reference in the registration statement
(No. 333-4499) on Form S-4 of Roosevelt Financial Group, Inc. ("Roosevelt") of
our report dated January 16, 1996, relating to the consolidated balance sheets
of Roosevelt Financial Group, Inc. and subsidiaries as of December 31, 1995 and
1994, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1995, which report appears in the December 31, 1995 Annual Report
on Form 10-K of Roosevelt and to the reference to our firm under the heading
"Experts" in the Proxy Statement/Prospectus.
Our report refers to a change during 1993 in the method of accounting for
certain investments in debt securities. Additionally, our report states that
the supplemental fair value balance sheets of Roosevelt have been prepared by
management to present relevant financial information that is not provided by the
historical cost balance sheets and is not intended to be a presentation in
conformity with gererally accepted accounting principles. The supplemental fair
value balance sheets do not purport to present the net realizable, liquidation,
or market value of Roosevelt as a whole. Furthermore, amounts ultimately
realized by Roosevelt from the disposal of assets may vary significantly from
the fair values presented.
/s/ KPMG Peat Marwick LLP
St. Louis, Missouri
October 2, 1996
<PAGE>
EXHIBIT 23.2
[LETTERHEAD OF DELOITTE & TOUCHE LLP APPEARS HERE]
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Roosevelt Financial
Group, Inc. on Form S-4 of our report dated August 15, 1996 (which expresses an
unqualified opinion and includes explanatory paragraphs referring to the
operation of Sentinel Federal Savings and Loan Association of Kansas City under
a supervisory agreement with the Office of Thrift Supervision and changes in
method of accounting for certain investments in debt and equity securities
during the year ended June 30, 1995 and income taxes during the year ended June
30, 1994 and to the Company entering into an Agreement and Plan of Merger and
Reorganization with another institution), appearing in the Proxy
Statement/Prospectus, which is a part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such Proxy
Statement/Prospectus.
/s/ Deloitte & Touche LLP
Kansas City, Missouri
October 2, 1996
<PAGE>
EXHIBIT 23.4
[LETTERHEAD OF TRIDENT FINANCIAL CORPORATION]
October 2, 1996
We hereby consent to the use of our name and to the description of our
opinion letter, to be signed and dated the date of the Proxy
Statement/Prospectus referred to below, under the caption "The Merger--Opinion
of Financial Advisor" in, and to the inclusion of such opinion letter as
Appendix II to, the Proxy Statement/Prospectus of Roosevelt Financial Group,
Inc. and Sentinel Financial Corporation, which Proxy Statement/Prospectus is
part of this Registration Statement on Form S-4 of Roosevelt Financial Group,
Inc. By giving such consent we do not thereby admit that we are experts with
respect to any part of such Registration Statement within the meaning of the
term "expert" as used in, or that we come within the category of persons whose
consent is required under, the Securities Act of 1933, as amended, or the rules
and regulations of the Securities and Exchange Commission promulgated
thereunder.
TRIDENT FINANCIAL CORPORATION
By /s/ Michael A. Murphy
--------------------------
Michael A. Murphy
Managing Director
<PAGE>
EXHIBIT 23.5
[LETTERHEAD OF SILVER, FREEDMAN & TAFF, L.L.P.]
October 2, 1996
Board of Directors
Roosevelt Financial Group, Inc.
900 Roosevelt Parkway
Chesterfield, Missouri 63017
Gentlemen:
We hereby consent to the filing as Exhibit 8 to this Registration Statement
on Form S-4 of our opinion as to certain federal income tax consequences of the
Merger (as such term is defined in the Proxy Statement/Prospectus, which is a
part of this Registration Statement), and to the inclusion of the statement in
the Proxy Statement/Prospectus under the caption "The Merger--Certain Federal
Income Tax Consequences of the Merger" that the discussion therein constitutes
the opinion of Silver, Freedman & Taff, L.L.P. as to the material federal income
tax consequences of the Merger. In giving such consents, we do not thereby
admit that we are within the category of persons whose consent is required under
Section 7 of the Securities Act of 1933, as amended.
Very truly yours,
/s/ Silver, Freedman & Taff, L.L.P.
Silver, Freedman & Taff, L.L.P.
